When the opening comment in the highlights statement of a set of interim results contains the phrase “very satisfactory performance in difficult market conditions with results in line with first half market expectations”, you know the numbers will not be cheering. That was the case with Microgen whose H1 results (to June 30) showed declines virtually across the board.
It is not quite as bad as it seems. At the end of last year the company had signaled that H1 revenue would be down on a year on year basis as a result of its move to increase the proportion of software revenue and reduce its dependency on consultancy (see Microgen: still growing cash and building its process platform). However, while consultancy was down, so were product sales as the banking sector in particular deferred decision making.
Overall revenue slipped from £19m to £17m. Operating profit was down marginally from £4.5m to £4.4m, while net profit was essentially flat at £3.39m. It is still generating cash albeit less than this time last year as would be expected - £2.9m cash generated from operations (vs £4.4 in year ago period). Revenue from the mature (low growth but high margin) Financial Systems division slipped from £8.3m to £8m, but the operating margin increased from 46% to 50% so it can continue to support the Aptitude business, which is Microgen’s route forward. Ongoing support is needed as revenue from the Aptitude Solutions division dropped from £10.8m to £9m, although the operating margin rose slightly from 19% to 19.5%.
Microgen may be on preferred supplier lists but it is taking time to convert status into sales given the economic situation and its reliance on the financial services sector, so it is not surprising that management sounded a cautious note for 2012 i.e. “expectations for 2012 are dependent upon a number of sales opportunities closing in the second half of the year”. Microgen can push for sales but there is an element of having to wait out the current conditions, or use its resources to expand is capabilities via back office processing acquisitions.