microgen plc Audited Preliminary Results for the year ended 31 December 2015 To be read in conjunction with the audited preliminary results announcement released on 3 March 2016 1
Group Overview Across its two operating businesses Microgen develops, implements and supports business-critical software Aptitude Technology Platform and Specialised Financial Applications Trust & Fund Administration, Payments and Application Management 2
Preliminary Results 2015 Revenue growth of 7% to 32.0m (2014: 29.8m). Group adjusted operating profit increased to 7.6m (2014: 7.4m) Adjusted earnings per share increased by 28% to 9.2 pence (2014: 7.2 pence). Basic earnings per share increased to 6.0 pence (2014: 5.5 pence) Proposed final dividend of 2.8 pence per share (2014: 2.2 pence) representing a full year dividend of 4.2 pence (2014: 3.3 pence), an increase of 27% Strong balance sheet with cash of 18.6m (2014: 40.9m) and net funds of 5.4m (2014: 24.6m) following corporate cash outflows of 25.3m in 2015 (including returns to shareholders of 22.4m and net acquisition consideration of 2.9m) Good progress on strategic plans for each business 3
Preliminary Results 2015 Aptitude Software revenue increased by 9% to 16.7m (2014: 15.4m) Financial Systems revenue increased by 6% to 15.2m (2014: 14.4m) 35 30 Revenue ( million) 25 20 15 10 5 0 FY 2013 FY 2014 FY 2015 Aptitude Software Financial Systems 4
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Products The Aptitude technology platform is an enterprise level Application Platform to deliver business-critical solutions, typically where customers require very rapid processing and calculation of very high volume complex, business event-driven transactions A number of specialised finance applications have been developed with, and utilising the capabilities of, the Aptitude technology platform as follows: Aptitude Accounting Hub Includes a powerful multi-currency accounting engine to generate multi- GAAP accounting, a data standardisation layer to integrate granular transactional data and a rich accounting sub-ledger to support drill down from the general ledger to journal lines and underlying transactions Aptitude Revenue Recognition Engine Enables large enterprises, particularly telecommunication companies, to move to detailed contract-level accounting with an integration platform and finance engine for applying both current and new revenue recognition accounting policy calculations to billing data through the lifecycle of contract obligations, modifications, options and fair value true-up Aptitude Allocation Engine Provides graphical interfaces to set-up and easily apply rules to allocate costs / revenues and perform calculations very quickly across mass data. Users can easily link rules and calculations to transaction-level data and model what-if scenarios with full audit and drill down 6
Case Studies US telecommunications company / Aptitude Revenue Recognition Engine Enables 60 million subscriber operator to achieve compliance with complex new revenue recognition accounting requirements while providing integrated revenue management platform for complete control over accounting rules, revenue sub-ledger and support for new business models and products Swiss-headquartered reinsurance group / Aptitude Allocation Engine Project to transform finance architecture with the Aptitude Allocation Engine to produce central policy valuations & projections, and the Aptitude Accounting Hub to produce associated multi-gaap financial accounting in much shorter time frames than their current architecture/technology Leading European banking group / Aptitude Accounting Hub Secured project against SAP and Oracle to establish a multi-currency sub-ledger in new central data warehouse for 10 million customers. Aptitude Accounting Hub processes business events across all products and business lines to support financial control, multi-gaap / currency accounting, risk and strategic analytics UK transport group / Aptitude Technology Platform Unified and streamlined all track billing business processes to manage national track access pricing & billing taking data flows from daily operator train movements. Aptitude platform recognised for speed of project delivery and processing performance, while enabling business user control 7
Geographical Presence NORTH AMERICA UNITED KINGDOM MAINLAND EUROPE REST OF THE WORLD Customers within financial services & telecommunications Customers include financial services & other commercial organisations Customers within financial services including a strong presence in Nordic territories. Products used within financial services. Increasing activity in Asia. BOSTON LONDON WROCLAW Business Development Professional Services Business Development Product Strategy Professional Services Product and Application Development Professional Services 8
2015 Summary Successful execution of strategy with the largest ever number of new contracts signed in the year Revenue increased by 9% to 16.7m (2014: 15.4m). Operating profit increased by 38% to 1.7m (2014: 1.2m) On-going recurring revenue base at 31 December 2015 increased by 20% to 9.0m since 31 December 2014 ( 7.5m) Eight software contracts signed in 2015 with new and existing customers. Contracts with clients in both North America and Europe across the key markets of financial services and telecommunications Further major new North American telco contracted in February 2016 for Aptitude Revenue Recognition Engine 9
Financial Performance Software revenue increased to 9.0m (2014: 8.8m). Full benefit of recent contracts to be received in future periods Services revenue grown by 17% to 7.7m (2014: 6.6m) 18 16 14 12 Revenue ( million) 10 8 6 4 2 0 FY 2013 FY 2014 FY 2015 Recurring revenue Initial licence fees Service revenue 10
Outlook & Strategy Contractual successes in 2015 provide the Aptitude business with good visibility for the current year. Large contract already signed in 2016 Strategy to accelerate the growth of the business by focussing and leveraging the existing expertise in high volume transaction sectors by providing Aptitude-based finance engines and specialist applications to quickly meet new accounting standards, regulations or business models poorly served by ERP systems Revenue Time Aptitude Applications (Software Revenue) Services Revenue Aptitude Platform (Software Revenue) 11
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Overview Successful execution of strategy with three roll-up acquisitions now completed in the Trust & Fund Administration market. 43% of revenue generated from Trust & Fund Administration sector in 2015 increasing to 47% in the second half reflecting the benefit of acquisitions 9% of revenue from stable and profitable payments software business. Enables over 700 organisations to make automated payments in the UK using BACS payments services over the internet 48% of revenue from Application Management business with approx. 30 key clients. With a closed client base benefitting from mature solutions it is expected that revenues will continue to reduce in line with recent trends Trust & Fund Administration Payments Application Management 13
Trust & Fund Administration ( T&FA ) The Financial Systems business is building a strong presence in the T&FA sector with in excess of 150 clients in over 25 jurisdictions The Microgen 5Series product addresses the core operational requirements of organisations in the T&FA market. Software is principally used by Trust Administrators, Fiduciary Companies and Corporate Services Providers either independent organisations or divisions of larger financial services organisations. Software is also used by Fund Administrators, Family Offices and Law Firms. Microgen 5Series modules include: Entity Management, Accounting, Investments, Time & Expenses, Billing, Transfer Agency, Net Asset Value and Client Web Portal Nine new customer wins for Microgen 5Series in 2015. In addition, a number of the clients gained with the recent acquisitions have either committed to convert to Microgen 5Series or are in discussions to do so 14
T&FA Geographical Presence Over 150 T&FA clients in over 25 territories AMERICAS EUROPEAN AFRICA ASIA New clients for 2015 include largest Latin American banking group s Caribbean trust services operations New clients for 2015 include fiduciary services group headquartered in Channel Islands with worldwide offices New clients for 2015 include large trust services provider headquartered in Mauritius with worldwide offices New clients for 2015 include Asian focused banking group for its trust services operations in Singapore and Channel Islands Offices within the United Kingdom and the Channel Islands, a key market for T&FA 15
T&FA Acquisitions Three T&FA acquisitions completed since December 2014 all direct competitors of Microgen 5Series. Jobstream Group Limited Completed in July 2015 for net cash consideration of 2.8m. Major client committed to upgrade to Microgen 5Series following the year end. Unity Software Limited Completed in December 2014 for net cash consideration of 1.3m. In addition to recurring revenue base, provided Microgen a Jersey support office to strengthen further our offering in the Jersey market. Finalysys Limited Completed in June 2015 for total net cash consideration of 0.2m. Major client committed to upgrade to Microgen 5Series in 2015. A number of acquisitions continue to be assessed and can be broadly categorised as follows: Microgen 5Series competitors A number of smaller competitors continue to be monitored in a number of different geographies. Synergies immediately realisable and will further strengthen market position; and Companies focussed on adjacent sectors Entities with software products addressing an adjacent sector to T&FA with the potential to leverage Microgen 5Series within the acquired base. Broadens addressable market for Microgen 5Series. 16
Financial Performance Revenue increased by 6% to 15.2m (2014: 14.4m). Adjusted operating profit 7.2m (2014: 7.5m) reflecting the phasing of the acquisition integration T&FA revenues increased by 38% to 6.5m (2014: 4.7m) benefiting from acquisitions and the continued success of the Microgen 5Series product 16 Revenue ( million) 12 8 4 0 FY 2013 FY 2014 FY 2015 Application Management Payments Trust & Fund Administration 17
Outlook & Strategy New business success for Microgen 5Series in 2015 and at the start of 2016 provides the business with excellent visibility for the current year Strategy of the business is to increase the proportion of revenue derived from T&FA and adjacent sectors through both organic growth and add-on acquisitions, while maximising value from the business s other revenue streams Revenue Time T&FA Existing Products T&FA Acquisitions Payments Applications Management 18
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Group Outlook and Strategy Each of the two businesses are successfully executing upon their clearly defined strategies With a return to growth, good forward visibility, strong operating margins, a well-covered dividend yield and a robust balance sheet, Microgen is well positioned as the Group enters 2016 Aptitude Software Services Revenue Software Revenue Financial Systems Payments & App Mgmt Revenue T&FA Acquisitions T&FA Existing Products Time 20
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Chairman and Executive Directors Ivan Martin, Non-Executive Chairman (effective from 4 March 2016) Mr Martin is currently Non-Executive Chairman of FDM Group (Holdings) plc. Mr Martin was a member of Misys plc s board heading their banking division until 2005. In addition, Mr Martin has previously held the roles of Executive Chairman of Sesame Bankhall Group, Chairman of Red Commerce & Non-Executive Director of Avelo. Simon Baines, Managing Director of Financial Systems Mr Baines was appointed to the Board on 1 January 2016 having joined Microgen in 2010 as Managing Director of the Financial Systems business. Prior to joining Microgen Mr Baines worked in private equity covering financial services technology companies. Tom Crawford, Managing Director of Aptitude Software Mr Crawford was appointed to the Board on 1 January 2016 having joined the Group in 2003. Mr Crawford was appointed Head of Aptitude Software USA operations in 2010 before being promoted to Managing Director Aptitude Software in 2013, a role that divides his time between Boston and London. Philip Wood, Group Finance Director Mr Wood was appointed Group Finance Director on 2 January 2007. A Chartered Account, Mr Wood spent seven years with AttentiV Systems Group plc and its group companies during which time he, as Group Finance Director, oversaw the group s flotation in 2004 and subsequent acquisition in 2005 by Tieto Corporation. 22
Group Income Statement FY 2015 FY 2014 000 000 Revenue Aptitude Software 16,730 15,395 Financial Systems 15,228 14,419 Total revenue 31,958 29,814 Operating costs (excl. Group overheads) (23,047) (21,162) Adjusted operating profit before Group overheads 8,911 8,652 Adjusted operating profit before Group overheads (by operating business) Aptitude Software 1,664 1,202 Financial Systems 7,247 7,450 8,911 8,652 Group overheads (1,322) (1,273) Adjusted operating profit 7,589 7,379 Net finance cost (388) (395) Profit before tax & non-underlying operating costs 7,201 6,984 Net non-underlying operating costs (2,316) (1,218) Taxation (1,151) (1,653) Net profit for the period 3,734 4,113 23
2015 Non-Underlying Items Impairment of freehold property and associated costs of property disposal 000 1,585 Acquisition and associated restructuring costs 439 Amortisation of intangibles 429 Share based payments on share options issued in 2013 97 Customer settlement (234) Total 2,316 24
Group Balance Sheet As at 31 Dec 2015 000 As at 31 Dec 2014 000 ASSETS Non-current assets Goodwill 41,774 41,774 Intangible assets 5,934 1,290 Property, plant and equipment 928 4,863 Deferred income tax asset 561 771 49,197 48,698 Current assets Trade and other receivables 4,653 3,155 Financial assets derivative financial instruments 11 - Cash and cash equivalents 18,600 40,896 23,264 44,051 Assets classified as held for sale 2,350-25,614 44,051 LIABILITIES Current liabilities Financial liabilities borrowings (3,000) (3,000) Financial liabilities - derivative financial instruments (208) (427) Trade and other payables (20,977) (18,812) Current income tax liabilities (448) (499) Provisions for other liabilities and charges (35) (15) (24,668) (22,753) Net current assets 946 21,298 Non-current liabilities Financial liabilities borrowings (10,250) (13,250) Provisions for other liabilities and charges (240) (261) Deferred income tax liabilities (1,082) - (11,572) (13,511) NET ASSETS 38,571 56,485 25
Group Cash Flow Statement Year ended 31 Dec 2015 000 Year ended 31 Dec 2014 000 Cash flows from operating activities Cash generated from operations 7,495 9,960 Interest paid (492) (591) Tax paid (1,189) (1,454) 5,814 7,915 Cash flows from investing activities Sale of property, plant and equipment 13 - Purchase of property, plant and equipment (524) (612) Acquisition of subsidiary, net of cash (2,863) (1,230) Interest received 108 169 (3,266) (1,673) Cash flows from financing activities Proceeds from bank loan - Net proceeds from issue of ordinary share capital 536 18 Dividends paid (2,089) (2,459) Repayment of loan (3,000) (3,000) Return of value to shareholders (20,145) - Sale of fractional shares 1 - Expenses relating to return of value (175) - (24,872) (5,441) Net (decrease) / increase in cash and cash equivalents (22,324) 801 Opening cash and cash equivalents 40,896 40,200 Effects of exchange rate changes 28 (105) Closing cash and cash equivalents 18,600 40,896 26