The degree of separation between Microgen’s two business divisions is becoming more marked as its BPM line moves ahead in terms of the contribution it makes to the business, while the legacy financial services division remains static in terms of revenue and saw a 1% operating margin drop.
Half-year results to 30 June 2011 show revenue up 18% to £19m and adjusted operating profit up 20% to £4.6m (22% and £4.5m on a statutory basis), driven by the BPM Aptitude division. This side of the business now represents 57% of group revenue and contributes £10.8m, a 38% increase on the year ago figure.
Intriguingly, one of the reasons for the Aptitude improvement was “higher than anticipated levels of overtime on a number of its client projects”. Microgen does not say which area these projects were in (Microgen Aptitude is delivered largely into the investment banking/insurance and digital media sectors), but if it is the banking sector it could indicate rising activity. The comment does suggest that it is bundling implementation services into its sales.
The company also moved into a new sub sector with Aptitude - retail banking. This required more than a shift in sales and marketing effort as product developments were needed to improve the transaction processing performance to enable it to handle the high transaction volumes typical of retail banking operations. Yet operating profit for the division was up an impressive 103% albeit it on low actual figures – the operating profit for H1 being £2m - and the operating margin moved up from 12.9% to 19%.
While the Aptitude business is growing well the same cannot be said for the financial systems division, which provides back office processing software for wealth management, banking, asset management and energy. Revenue was flat at £8.3m, although as it declined 3% in FY10 compared to the previous year, that is not too bad a result. Cracks maybe appearing though because operating margins slipped 1% to 47%. Margins are important in this business division that Microgen described as resilient during the period, and where much of the revenue is recurring and derived from annual licenses.
Microgen looks like it is planning a portfolio review within the financial systems division as it “continues to review the viability of a number of its smaller product offerings” and may use its growing cash pile for acquisitions to strengthen this division. It is still building its cash reserves and added £4.4m during the half year, taking the total to £26.9m. The company is good at cash generation (see Microgen – you can’t argue with cash) and cash enables flexibility. We look forward to hearing about the plans for this division.