TIDMIDH
RNS Number : 6577I
Immunodiagnostic Systems Hldgs PLC
21 June 2017
21 June 2017
Immunodiagnostic Systems Holdings PLC
Final Results for year ended 31 March 2017
Financial Highlights 2017
% Change
GBPm 2017 2016 % Change LFL*
---------------------------------- ----- ------ -------- --------
Group Revenue 40.0 38.3 4% -8%
---------------------------------- ----- ------ -------- --------
Automated Business Revenue 21.4 18.3 17% 3%
---------------------------------- ----- ------ -------- --------
25-OH Vitamin D 6.8 7.2 -6% -17%
---------------------------------- ----- ------ -------- --------
Other Speciality Revenue 13.3 10.1 32% 16%
---------------------------------- ----- ------ -------- --------
Instrument Sales and Service 1.3 1.0 37% 30%
---------------------------------- ----- ------ -------- --------
Manual Business Revenues 12.8 12.7 1% -11%
---------------------------------- ----- ------ -------- --------
Licensing & Technology Business
Revenue 5.9 7.3 -20% -30%
---------------------------------- ----- ------ -------- --------
Royalty Income 2.8 5.1 -46% -53%
---------------------------------- ----- ------ -------- --------
Technology Income 3.1 2.2 41% 23%
---------------------------------- ----- ------ -------- --------
Adjusted** EBITDA 7.7 7.4 4% -15%
---------------------------------- ----- ------ -------- --------
Profit / (Loss) from Operations 1.7 (36.8)
---------------------------------- ----- ------ -------- --------
Adjusted Earnings per Share 14.8p 4.7p 215%
---------------------------------- ----- ------ -------- --------
Free Cashflow*** 4.8 3.4 43%
---------------------------------- ----- ------ -------- --------
Closing Cash and Cash Equivalents 31.5 26.6 19%
---------------------------------- ----- ------ -------- --------
Capital Expenditure (1.5) (1.8) 18%
---------------------------------- ----- ------ -------- --------
Number of Employees (FTE) 275 315 -13%
---------------------------------- ----- ------ -------- --------
Dividend (pence per share) 4.0 1.2 233%
---------------------------------- ----- ------ -------- --------
The table above presents a number of alternative performance
measures which the Directors believe more accurately reflect the
underlying performance of the business.
* Like for like 'LFL' numbers have been restated to remove the
impact of foreign exchange movements in the year by restating the
FY2017 performance using the exchange rates during FY2016.
** Before exceptional costs of GBP1.4m (2016: GBP37.3m) - see
reconciliation in section 2 of the Financial Review.
*** Net cash flow from operating activities of GBP8.4m (2016:
GBP8.2m) less net cash used by investing activities of GBP3.6m
(2016: GBP4.8m).
Operational summary
-- Regis Duval joined as Group CEO in March 2017.
-- Four new CE marked CLIA automated assays were launched,
including the first assays in our fledgling fertility panel. This
brings our total CE marked panel to 19 assays.
-- We increased our CLIA assay panel in the US by one because
one of the new CE marked assays was exempt from FDA approval,
bringing the total panel to ten assays.
-- Gross placements or sales of iSYS instruments through our
direct sales organisation improved to 40 (2016: 31). At the same
time we reduced the number of instrument returns to 24 (2016: 43).
Thus net instrument placements were 16 (2016: 12 net returns)
bringing the total installed iSYS base in direct sales territories
to 316 (2016: 300).
-- Sales of iSYS instruments to partners and distributors in the
year increased to 54 (2016: 35).
-- The consolidation of automated assay production into our
Liège facility has been completed and has generated operational
efficiencies as a result of a simplified manufacturing
footprint.
-- Significant cost reduction projects have been undertaken,
including a reorganisation of our operations in the UK and France,
saving over GBP3m in the year. Restructuring costs in the year were
approximately GBP1.6m.
Regis Duval, CEO of IDS commented:
"Group revenues increased 4% year on year, though like for like,
they showed a decline of 8%. A strong performance in our speciality
automated business helped offset the expected declines in 25-OH
Vitamin D and royalty income. We will continue restructuring our
business footprint during FY2018, and will invest further in our
sales and assay development teams.
We have made good progress in stabilising the financial
performance of the Group, and believe we are well positioned to
return to growth in the medium term. During the next financial year
we will be exposed to both declining 25-OH Vitamin D business and
antibody royalty income, which will make exceeding the 2017
comparative revenue numbers challenging."
This announcement includes inside information.
For further information:
Immunodiagnostic Systems Holdings PLC Tel: +44 (0) 191 519 0660
Regis Duval, Chief Executive Officer
Paul Martin, Group Finance Director
Peel Hunt LLP Tel: +44 (0) 207 418 8900
James Steel
Oliver Jackson
About Immunodiagnostic System Holdings PLC
A specialist in endocrinology testing, IDS is an in-vitro
diagnostic solution provider to the clinical laboratory market. IDS
develops, manufactures and markets innovative immunoassays and
automated immunoanalyser technologies to provide improved
diagnostic outcomes for patients. IDS's immunoassay portfolio is a
combination of an endocrinology speciality testing menu and assay
panels in complimentary fields.
IDS was founded in 1977 and trades on the Alternative Investment
Market (AIM; trading symbol IDH) of the London Stock Exchange. It
is a global company headquartered in the UK with around 275
employees worldwide. IDS's products are developed and manufactured
at its facilities in Europe.
IDS serves its customers through regional offices in Europe,
U.S.A and Brazil and works with a network of distributors to serve
customers throughout the rest of the world.
Chairman's Statement
1. Introduction
For IDS, FY2017 was a year of stabilisation: in the course of
the year we were able to stabilise several key aspects of the
business, which had been in strong decline for several years. We
were able to return our automated business to growth by
accelerating the growth of our speciality automated products, while
reducing the rate of revenue decline of our manual business. It is
pleasing to see that reflected in the numbers:
a) Reported revenues increased by 4% to GBP40.0m. On a
like-for-like basis the revenue decline was 8%. Revenue, excluding
antibody royalty income, declined by 5% in the first half of FY2017
compared to the same period in the prior year. However the same
revenue metric grew by 3% in the second half of FY2017 versus the
same period in the prior year.
b) Adjusted EBITDA increased to GBP7.7m from GBP7.4m, meaning
adjusted EBITDA margin declined slightly from 19.6% in FY2016 to
19.3% in FY2017. Excluding royalty income, EBITDA margin increased
from 7.2% to 13.3%.
Additionally, we were able to show progress on our key processes
and KPIs which I will discuss later.
Finally this is the first year since 2014 that I can report a
rising share price: it increased by 23%, from GBP2.25 on 31 March
2016 to GBP2.77 at 31 March 2017.
2. Board composition
During FY2017 the Board continued to work on the required steps
to revitalise the business. I find the discussions refreshing, they
reflect a diversity of functional perspectives and approaches to
Company management. The Executive members have done an outstanding
job in bringing transparency to the Board room, not shying away
from presenting weaknesses and bad news. This culture helps us to
objectively define the best solutions.
Our CEO Patricio Lacalle left IDS after two years for personal
reasons effective 31 March 2017. He was instrumental in achieving
the above-mentioned stabilisation of the business by tackling the
many aspects of the business which were not in good shape when he
joined. The Board would like to thank him for his outstanding
achievement and wish him all the best for his future.
On 1 March 2017 Regis Duval joined IDS, and became CEO effective
from 1 April 2017. He joins with significant experience in the IVD
industry. I would expect him to put the emphasis of his first year
into achieving a continued improvement in our sales processes. His
second area of focus will be strengthening the internal culture we
have at IDS. He will give you his first impressions in his
Operational Review.
There were no changes to the Board at the Non-executive
level.
3. Key Performance Indicators ('KPIs') in the automated IVD
business
Understanding our core business of automated IVD requires
concentration on a few KPIs.
3.1 New assay launches
During FY2017 we managed to release a record number of four
assays with a CE mark. This compares to an average of less than two
per annum in the last five years. However, it fell short of our
target of six assays per annum. During the year we strengthened the
R&D team by adding senior scientists with project management
skills, concentrated development functions for automated assays in
Liège and continued to optimise our processes.
We will continue to focus on ensuring this team has the correct
resources to continue to improve its processes during FY2018 - with
the goal of striving towards meeting our target of releasing at
least six new assays per annum with a CE mark, while at the same
time generating the documentation required for FDA clearance as
well.
3.2 New placements
Our revenue model in the automated IVD business is based on an
installed base, with each installed instrument generating recurring
revenues. In order to reach critical mass in the automated IVD
business we need to increase the number of installed
instruments.
Compared to FY2016, we have seen a significant improvement in
performance in both the gross number of new instruments placed, and
the number of instruments returned. Yet we are still working far
below the historical levels achieved by the organisation.
In the medium term the organisation must now focus on the target
of 100 gross new placements through our direct sales organisations.
We need this goal for various reasons:
a) With average revenues per instrument ('ARPI') for new
instruments of GBP40,000 per annum, this will generate gross new
revenues of GBP4.0m per year, equating to 10% of our existing
revenue base. We will continue to see revenue erosion - due to
customer losses, price erosion, loss of our antibody royalty income
and continuing migration of large-volume assays to the workhorses.
Therefore we need to generate this level of placements in order to
generate total revenue growth in the low-mid single digits.
b) With an investment in the sales team during FY2018, we plan
to grow to 20 direct sales reps. Thus this goal represents average
annual placements of five new instruments per sales rep, which is
in line with the industry standard. In the medium term we plan to
increase our direct sales organisation further, with only circa 7%
of the total staff (20/275) engaged in direct sales we are far
below comparables of our peers.
c) Five gross new placements are equivalent to annual
incremental sales of circa GBP200,000. Given the fully-loaded costs
per sales rep this level is economically required to make our
direct sales organisation economical.
4. Cost effectiveness - benchmarking
The IVD business is exposed to pricing pressure: annual price
erosion in most assays is in the range of 1-3% per annum. In our
main product, 25-OH Vitamin D, erosion is even higher. In order to
cope with this pressure any market participant has to increase the
cost effectiveness of his organisation.
Revenue per employee FY2017 FY2016
- peer comparison GBP000 GBP000
--------------------- ------- -------
IDS 137 117
DiaSorin 254 219
Qiagen 214 184
--------------------- ------- -------
The KPI most commonly used - and in fact most relevant - is
revenue per employee. The table above shows the evolution of
revenues per employee at IDS and two peers in the IVD diagnostics
segment (DiaSorin and Qiagen).
During the year, and for the first time since FY2013, this
metric has improved. As well as the increase in revenue, this
improvement has been driven by a focus on efficiency. On a like for
like basis we have reduced our operating cost base by over GBP3m,
and reduced the FTE headcount from 315 people to 275.
IDS Revenue per
employee - Trend GBP000
------------------ ------
2013 162
2014 159
2015 135
2016 117
------------------ ------
2017 137
------------------ ------
These savings have been achieved by reviewing and simplifying
our organisation structure and improving processes in all areas of
the business, to ensure they are as efficient as possible.
Therefore, I believe we have managed to achieve these cost
reductions without impacting the core competencies in our business
- being our ability to provide a quality product and excellent
service to our customers and our ability to develop the assay
portfolio.
5. Corporate development
In last year's Chairman's Statement I noted that in order to
reach the critical size required in the automated IVD business, we
would like to undertake acquisitions. Our acquisition selection
criteria are companies with:
a) high quality proprietary antibodies/assays;
b) a strong franchise in an indication area - e.g. significant
market position and a KOL network; and
c) an experienced management team.
The idea is that we can generate synergies by jointly automating
part of their manual assay menu and use their route-to-market to
enter a new indication area swiftly. Without such synergies it is
nearly impossible to get the required financial returns on today's
transaction multiples.
In FY2017 we had discussions with several companies in the
manual immunoassay business which more or less met these
acquisition criteria and went through the Due Diligence phase with
one candidate. In the end we did not close a deal: either the fit
was not there or the asking price would not generate the required
return on the level of invested capital. We are continuing the
process of systematic, proactive identification and contacting of
suitable target companies.
In addition, we pursue an approach to close partnership deals
with companies that have a strong manual assay portfolio whereby
these partners undertake the automation of their assays for our
systems. The commercialisation of these automated assays can be
structured via co-marketing deals, pure licensing deals or any
other variant. In FY2017 we signed two such partnerships, and
product automation is underway with the first launches expected
towards the end of FY2018. These new automated assays will come on
top of our own development efforts.
6. Corporate culture
In last year's Chairman's statement I stated that we would have
to evolve the culture of IDS to meet the challenges of the
competitive market we are operating in. Specifically I mentioned
that we needed to strengthen:
a) Business sense and entrepreneurship;
b) Getting things done in defined timelines - with no excuses
for delays; and
c) Ambition - striving to be the best in the sector -
benchmarked against industry leaders.
In FY2017 we learned that we have to look even more
fundamentally at our employee engagement, which is the basis for
establishing a strong corporate culture. The current level of
employee engagement is not satisfactory, indicating deficiencies in
the leadership and communication process.
I hope that Regis and his team will be able to make a measurable
impact on both employee engagement as the foundation of a strong
culture, and the establishing of an energising corporate
culture.
7. Dividend and share buybacks
In the last Annual Report we stated that our dividend policy
will be to pay out 25-30% of adjusted basic EPS as dividends. In
addition, the Board will also consider buying back shares whenever
we feel that the market price is below the intrinsic value of the
Company.
Adjusted basic EPS in FY2017 was 14.8p (FY2016: 4.7p). The Board
proposes a dividend of 4.0p (2016: 1.2p) - implying a payout ratio
of 27% (2016: 26%).
At the AGM we will propose to renew the authority given to the
Board to buy back up to 2,250,000 shares of the Company, i.e.
c.7.6% of the share capital. At the year end share price of c.277p
this would imply an amount of GBP6.2m, or 20% of our net cash
position.
8. Employees
We continue to have many employees who are willing to get out of
the habit of doing things the way they have been done in the past
and to face the challenges of becoming a leaner, yet more proactive
company in the market.
I would like to thank all of our staff for their effort and
commitment in the last year. We will continue to need you and your
commitment to make IDS a company which will be a stronger and more
successful competitor going forward. I hope that from now on you
will get the satisfaction of seeing IDS win against its competitors
- which is proof that customers honour your efforts and
engagement.
9. Outlook
FY2017 was the year of stabilisation: we largely stopped the
decline in financial numbers in the course of the year, improved on
many KPIs, and thus laid the foundations for a return to growth in
the medium term.
During FY2018 I expect a continued improvement in most KPIs and
as a result also some improvement in the financials. Unfortunately
we are not only exposed to the loss of 25-OH Vitamin D business,
but also the royalty income as a result of the loss of our largest
licensing-out partner for antibodies. This will make comparable
2017 revenue numbers difficult to exceed.
I remain confident that IDS has a good future: the automated
part of the IDS business is a razor/razorblade-type business with
recurring revenues at a very predictable rate. In nearly 40 years
of business life I have come across several of these businesses -
and they have always been businesses with outstanding profitability
and returns to shareholders.
At IDS this core business model strength has been superseded by
operational problems. FY2017 has shown that the Executive Team in
collaboration with an engaged Board can fix these problems. Thus I
am looking forward to more positive developments in the next few
years.
Dr Burkhard Wittek
Non-executive Chairman
Operational Review
Overview
Fundamentally the key trends impacting the IDS business have not
changed compared to those that were described in the previous
Annual Report. We continue to face strong headwinds as a result of
our declining 25-OH Vitamin D revenues, in both the manual and
automated businesses. Additionally, as previously reported, we have
seen a significant decline in our royalty income. However,
encouragingly our speciality business has performed strongly,
showing annual growth of 16% like for like ('LFL'). In addition, we
have also been successful in signing additional technology partners
for the iSYS, as well as growing revenue to our existing partners.
When taken together, this has led to reported revenue of GBP40.0m,
a 4% increase on the prior year, though this equates to an 8%
decline LFL.
I have been impressed by the progress the business has made in
the last 12 months to stabilise its financial performance, through
a combination of increased sales focus, simplification of our
manufacturing footprint and a number of cost reduction initiatives.
I believe the Group now has a solid foundation upon which we can
build. I will focus on continuing to accelerate the growth in our
automated speciality business by adding additional assays and
targeting new geographical locations through channel partners,
while also investing more resources into our manual business to
re-invigorate its sales performance.
Our business continues to operate in three business segments,
and I will review the performance of each below:
1. Automated IVD
1.1 Business segment results
2017 LFL
2017 LFL 2016 Change Change
GBP000 GBP000 GBP000 % %
----------------- ------- ------- ------- ------ -------
25-OH Vitamin
D 6,773 5,974 7,232 -6% -17%
Other speciality
- IDS 13,257 11,661 10,076 32% 16%
Instrument
Sales and
Service 1,343 1,273 983 37% 30%
----------------- ------- ------- ------- ------ -------
Total 21,373 18,908 18,291 17% 3%
----------------- ------- ------- ------- ------ -------
In FY2017, automated business revenue has exhibited a year on
year increase of 17%, or 3% LFL. It now accounts for 53% of Group
revenues.
Within this segment, 25-OH Vitamin D sales have declined by 6%
(or 17% LFL). The reasons for this decline is due to our larger
laboratory customers continuing to transfer this assay to high
throughput workhorse analysers. Although interestingly to note the
global market leader in CLIA vitamin D testing is not one of the 4
workhorse suppliers. This company defends its position in vitamin D
by offering a leading bundle of speciality assays which help to
"anchor" its instrument and assays. It would be prudent for IDS to
take the same approach - adding assays and, at least as important,
placing them on our analysers. With a current average of only four
different assays running on each iSYS analyser, there is a long way
to go.
Speciality sales have grown by 32% (or 16% growth LFL), which
reflects an encouraging acceleration compared to the 3% growth seen
in the previous year. This growth has largely been driven by
increased upsell of additional assays onto our existing installed
base. The installed base of our analysers only increased by around
5%. The growth is driven across all of our assay panels, and thus
our revenue stream is becoming increasingly diversified across our
assay portfolio. We will strive to continue this trend, as it
anchors our instrument more firmly at customers and makes the
return on our instrument placements more attractive.
Included within speciality revenue is GBP787k of income related
to assays developed by one of our partners for the iSYS instrument,
which are sold by IDS. This revenue stream has grown by 48%
LFL.
Revenues from instrument sales have increased by 37% (or 30%
LFL), mainly due to higher sales of instruments within our direct
territories and to distributors. The increased revenue mainly arose
as a result of an initiative to sell refurbished iSYS instruments
to direct and distribution customers, e.g. to emerging countries.
This has resulted in a significant reduction of the number of iSYS
instruments in inventory.
1.2. Key success factors
1.2.1 Increased reagent portfolio
The assay menu of IDS remains sub-critical in size. It is hard
to convince an efficiently run laboratory to install an additional
analyser in order to run such a small number of assays. Critical
mass to have an attractive business case for laboratories requires
a menu of 25 to 30 automated assays. Thus the rate of new assay
introductions is one of the primary KPIs to monitor in this
business. A summary of the IDS assay portfolio, and the number of
assays launched each year is shown below:
Assays Assays
end end
Regulatory approval of FY2017 of FY2016
-------------------- ---------- ----------
Assays with the
CE mark 19 15
Assays with FDA
approval 10 9
Assays with CFDA
approval 4 4
-------------------- ---------- ----------
New
assay
Year launches
----- ---------
2011 2
2012 2
2013 2
2014 0
----- ---------
2015 2
----- ---------
2016 1
----- ---------
2017 4
----- ---------
During the year we launched a total of four new assays with a CE
mark. Two of these assays are the keystone assays in our new
fertility panel. Additionally, we launched one additional assay in
our Chronic Kidney Disease panel, and one within our Hypertension
panel. This brings our total CE marked assay panel to 19 assays
(2016: 15).
One of our new fertility assays (17-OH Progesterone) is also
available for sale in the US as it did not require FDA approval,
bringing our US panel to 10 assays (2016: 9).
We continue to have four CFDA approved assays available for sale
in China. This is a sub-critical level of assays, and we are
working on a path to get up to a minimum panel of 10 assays by the
end of FY2019.
The launch of four assays in Europe represents a significant
improvement in our internal R&D performance, however we have
fallen short of our ambitious goal of launching six CE marked
assays in the year.
During the year we divided responsibility for our production and
research and development teams, through the creation of a new
Operations Director role. This has allowed our Technical Director,
who previously also had responsibility for production, to focus on
assay development. We also strengthened the R&D team in Liège
by recruiting a second assay R&D manager.
Finally, we have entered into a number of partnership
arrangements with third parties to develop specific niche assays
for the iSYS. We intend to invest further in these partnerships
during 2018 and believe they, coupled with our improved internal
R&D capabilities, will enable us to achieve rapid growth in our
automated reagent portfolio.
1.2.2 Instrument placements
Direct instruments are those sold or placed with IDS customers
in the US, Europe and Brazil where the Group is present with its
direct sales organisation. Placement performance in the year is set
out below:
2017 2016
------------------------ ---- ----
Direct - Gross
Placements 40 31
------------------------ ---- ----
Direct - Gross
Returns (24) (43)
------------------------ ---- ----
Direct - Net Placements
/ (Returns) 16 (12)
------------------------ ---- ----
Distributor Sales 12 8
------------------------ ---- ----
The number of instruments installed is a critical KPI, as each
instrument will generate future recurring assay revenue. The
increase in the installed base during 2017 reflects the improved
sales processes which have been implemented, along with the
increased focus among the sales team on hunting for new accounts,
rather than farming existing business.
The average number of assays being run on an iSYS has also
increased from 3.9 to 4.3 over the year - reflecting the first
results of a systematic attempt to upsell, improving the
"stickiness" of the iSYS instrument within the laboratory and
enhancing the return from our placement investment.
Instruments sold to distributors increased to 12 (2016: 8). This
reflects the additional resources dedicated to managing our
distribution channels, and is an area where we are planning to more
systematically identify and convert opportunities during FY2018.
This will include both a review of the distribution network we have
as well as a more systematic training of our partners.
As a result of a review of the sales organisation I have
undertaken since I joined, I have identified a number of areas
where we have insufficient direct sales coverage - both in terms of
geographical coverage and application knowledge. Therefore, during
2018 we plan to increase the resources within the sales
organisation to fill these identified gaps and further enhance our
ability to improve the performance of the automated business.
Average revenue per direct instrument ('ARPI') was GBP57,000
(2016: GBP48,000) per annum, calculated on a rolling 12-month
basis. The increase in ARPI was driven by our ability to upsell
assays onto existing iSYS placements, as well as the foreign
exchange impact on revenue caused by the weakening of the GBP.
1.2.3 Sales process
During the year, we have made good progress in transforming the
sales function from one which had become conditioned to farming
25-OH Vitamin D revenues, to an organisation which has become more
comfortable in pursuing new customer opportunities and upselling
our speciality assays.
We have improved our key sales processes to support the sales
team - the new CRM system is now fully embedded in all our major
sales regions. It has allowed the regional sales teams to implement
a structured exercise to qualify prospective targets and define the
sales opportunities where we have the highest probability of
beating the competition. It has facilitated more efficient visit
planning, reducing the time spent by sales people travelling and
increasing the time they spend selling! The results of these
efforts are demonstrated through the improved sales performance of
the automated business during the year.
2. Manual IVD
2.1. Business segment results
2017 LFL
2017 LFL 2016 Change change
GBP000 GBP000 GBP000 % %
----------------- -------- ------- -------- ------- -------
25-OH Vitamin
D 2,063 1,824 2,867 -28% -36%
----------------- -------- ------- -------- ------- -------
Other Speciality
- IDS 5,432 4,884 5,481 -1% -11%
----------------- -------- ------- -------- ------- -------
Other Speciality
- purchased 1,935 1,685 1,452 33% 16%
----------------- -------- ------- -------- ------- -------
Diametra 3,351 2,869 2,876 17% 0%
----------------- -------- ------- -------- ------- -------
Total 12,781 11,262 12,676 1% -11%
----------------- -------- ------- -------- ------- -------
In FY2017, manual assay sales exhibited a year-on-year increase
of 1%, or a decline of 11% LFL. They represent 32% of Group
revenues.
The 25-OH Vitamin D business declined 36% LFL, and IDS's own
speciality products declined 11% LFL. These declines were more
pronounced in our direct sales territories.
Sales of products distributed by IDS on both an OEM and resale
basis increased by 16% LFL. This demonstrates the importance of
having a "one stop" offering of manual products. Increasing the
number of partners we co-operate with on a distribution or OEM
basis will be critical to the future success of the manual
business.
Diametra revenue during the year remained flat compared to the
previous year on a LFL basis.
2.2. Sales process as a key success factor
Manual IVD assays are sold to both routine and research
laboratories. In both cases the volumes are relatively small
compared to automated assays. In markets without the infrastructure
needed for automated solutions and low labour cost, manual IVD
often is the method of choice. In these countries, IDS mostly
operates with distribution partners.
During the year we recruited an International Distribution
Manager, who was set the goal of revitalising relationships with
our distribution partners, and increasing their focus on IDS
products. We are confident that we will be able to improve the
performance of our manual business by professionalising the way we
manage our distribution partners.
2.3 Future of Manual business
Despite the lack of recent focus on our manual business, we now
see this as a business which can become part of the future growth
story of IDS. We believe we can grow this business through a
combination of increased distribution channel presence,
co-operation with third party partners to widen our product
offering, and limited internal development of new products.
As in any business unit the key to future success resides in
having the right business unit manager. We established this
position and filled it with an internal manager effective 1 January
2017.
The Head of Manual Business will take an entrepreneurial
attitude, deploying all means required to make this type of
business successful, e.g. a broad product base to facilitate a
one-stop offering, a systematic sales process with a focus on
tele-sales, a transactional website for efficient re-ordering and
strong clinical support for all questions arising from the clinical
application of these assays. This requires that he prioritises his
time with our current and prospective customers to get IDS back
onto their radars as a supplier of choice for manual assays.
3. Licensing & Technology
3.1. Business segment results
2017 LFL
2017 LFL 2016 Change change
GBP000 GBP000 GBP000 % %
----------- -------- ------- -------- ------- -------
Royalty
Income 2,767 2,432 5,122 -46% -53%
----------- -------- ------- -------- ------- -------
Technology
Income 3,114 2,728 2,216 41% 23%
----------- -------- ------- -------- ------- -------
Total 5,881 5,160 7,338 -20% -30%
----------- -------- ------- -------- ------- -------
In FY2017, Licensing & Technology sales exhibited a year on
year decline of 20%, or 30% LFL. They account for 15% of revenues.
As the gross margin in this business unit is significantly above
average due to the high proportion of royalty income, the
contribution to profit is higher.
The decline in this part of the business has been driven by the
loss of royalty income related to our 25-OH Vitamin D technology,
as a result of our major customer developing their own in-house
technology. We expect this revenue stream from this customer to
continue to decline during 2018 to a low level.
Technology income relates to sales of our IDS-iSYS instrument
and related consumables to technology partners, who are developing
and commercialising assays for use on the iSYS. The 23% LFL growth
in this revenue stream comes as a result of two new partnership
deals signed in the year, as well as increased sales to existing
partners. As some of our new partners have not yet developed their
full assay menus we expect this business line to generate further
growth in the next few years.
3.2 Key Success Factors
The key to success in this business unit is continued progress
by our R&D teams in developing new assay and instrument
technology, which can then be monetised by our commercial team. IDS
is the only company in the market offering random access system
solutions with the experience of an IVD company, which gives us a
technology proposition which is interesting to multiple potential
partners. Our second value proposition is that we offer this
instrument "off the shelf", eliminating many years of development
time and milestone payments. We think these value propositions are
interesting to smaller and mid-sized IVD companies who have not yet
defined an automated solution for their manual businesses.
Agreeing commercial terms with partners is key to the success in
this business. While we do not see a commercial conflict in
offering IDS technology (both assay and instrument) to our
partners, we need to ensure we restrict the fields in which this
technology can be used, so as not to create competition between our
partners and our own automated business unit.
4. iSYS 2
Development on the iSYS 2 is complete, and operationally we are
now in a position to move forward with a commercial launch during
FY2018.
The iSYS 2 has the advantages that compared to an iSYS it is
smaller and cheaper to manufacture, capable of being connected to a
laboratory tracking system, and has a slightly higher
throughput.
5. Business simplification and cost review
During the year we have successfully completed two major
projects to simplify the structure of the business. In addition, we
undertook multiple smaller projects aimed at making the business as
lean as possible from a cost perspective, while not diluting the
capabilities required to return the business to growth. The first
major project, which was commenced in the previous year, involved
the consolidation of substantially all manufacturing related to our
automated assays into our Liège facility. This has led to
simplified reporting lines, and has enabled us to commence moving
our operations in Boldon into one building.
The second major project related to a restructuring of our
operations in France. This involved the consolidation of instrument
R&D functions into our Pouilly facility and the centralisation
of customer services functions for continental Europe into our
Frankfurt office.
During the year on a LFL basis, these projects have resulted in
financial cost savings of over GBP3m versus 2016, as well as
significant intangible efficiency savings as a result of the
simplification of the business. Total restructuring costs amounted
to GBP1.6m.
6. Culture and values
During my first weeks as CEO, I have visited all our key
locations, and was pleasantly surprised by the commitment of the
team, particularly after a year of significant change which
involved a number of redundancies throughout the Group.
During the next year we will complete the transition of our
organisation structure and reporting lines away from a geographical
model to a functional model. This will improve the information flow
to the key decision makers in the organisation, I believe this will
help break through geographical and cultural barriers and move us
towards truly functioning as "One IDS".
From the Executive Management Team down, we will continue to
challenge the business to be more commercially focused,
entrepreneurial and results driven. We will strive to embed
business sense into all levels of the organisation.
Although I joined toward the end of the year, I can see how the
difficult decisions we had to take during the year impacted our
team. However, I believe these decisions were necessary to
stabilise the organisation and set it up for a return to profitable
growth. Therefore I would like to sincerely thank all members of
the IDS organisation for their efforts during the year. I look
forward to leading them into the next year. With the team and
strategy we have in place, I am optimistic it will be a successful
one.
Regis Duval
Chief Executive
Financial Review
1. Overview
FY2017 was a year of stabilisation: we succeeded in bringing the
declines from previous years to a halt, thus establishing a base
from which we can resume growth. Underpinning this overall result
of stabilisation, there were still significant movements in both
directions: growth was achieved in our automated business and in
technology income to OEM partners. There were still declines in the
manual business (on a LFL basis) as well as the royalty income from
the biologicals part of our technology business.
Pre-exceptional earnings before interest, tax, depreciation and
amortisation increased slightly to GBP7.7m (2016: GBP7.4m). This
was driven by an increase in Group revenue to GBP40.0m (2016:
GBP38.3m), and a reduction in operating costs to GBP19.9m (2016:
GBP22.0m) offset by a drop in gross margin to 57.4% (2016:
58.6%).
Cash and cash equivalents increased to GBP31.5m (2016:
GBP26.6m), leaving IDS with significant resources which can be
invested to accelerate the growth of the business in the
future.
2. Summary Profit & Loss
Year ended 2017 2016 Variance Variance
31 March GBP000 GBP000 GBP000 %
------------------ -------- -------- -------- --------
Revenue 40,035 38,305 1,730 4%
Gross profit 22,979 22,465 514 2%
Gross margin 57.4% 58.6% -1% -2%
Sales & marketing (8,824) (9,233) 409 -4%
Research &
development (2,313) (3,354) 1,041 -31%
General &
administrative
expenses (8,787) (9,412) 625 -7%
Total operating
costs pre
exceptional (19,924) (21,999) 2,075 -9%
Exceptional
items (1,404) (37,266) 35,862 -96%
Profit or
Loss from
Operations 1,651 (36,800) 38,451 -104%
------------------ -------- -------- -------- --------
Add Back:
Depreciation
& Amortisation 4,658 6,983 (2,325) -33%
Exceptional
Items 1,404 37,266 (35,862) -96%
Adjusted EBITDA 7,713 7,449 264 4%
------------------ -------- -------- -------- --------
3. Foreign exchange
During the year IDS revenues have benefitted by around GBP4.7m
(or 13%) as a result of the weaker Pound Sterling. In the period
31% (2016: 42%) of the Group's revenues were denominated in US
Dollars and 58% (2016: 50%) were in Euros. These revenues are now
worth more when converted into Pounds Sterling as a result of the
weaker Pound.
Conversely IDS also has a significant cost base denominated in
Euros and US Dollars, thus these costs have increased compared to
the prior year when converted back into Pounds Sterling. The
approximate net improvement in the 2017 adjusted EBITDA as a result
of movements in exchange rates is GBP1.4m.
The average exchange rates used to translate Euros and US
Dollars to Pounds Sterling are as follows:
Strengthening
against
Sterling
Average exchange rates 2017 2016 %
----------------------- ---- ---- -------------
Sterling: US Dollar 1.32 1.51 13%
Sterling: Euro 1.20 1.37 12%
----------------------- ---- ---- -------------
4. Revenue
Group revenue of GBP40.0m (2016: GBP38.3m) increased by GBP1.7m,
or 4%.
On a like-for-like ('LFL') basis, the decline amounted to
GBP3.0m, or 8%. The majority of this decline can be attributed to
the previously announced loss of royalty income, which declined by
GBP2.4m.
4.1 Revenue by Geography
2017 2016 Change
GBP000 GBP000 Change at LFL
-------------- ------- ------- ------ -------
US 11,654 13,852 (16%) (26%)
Europe 21,692 18,326 18% 4%
Rest of
World 6,689 6,127 9% (2%)
Group revenue 40,035 38,305 4% (8%)
-------------- ------- ------- ------ -------
On a LFL basis, the decline in US revenue is mainly driven by
the lower antibody related royalty income. Additionally the US
region also experienced revenue declines in the automated and
manual businesses - albeit at a slower rate than in previous years.
The growth in the European business was generated mainly within our
automated business, with the manual business remaining flat on a
LFL basis. We saw strong growth in automated revenue within the
rest of the world, mainly due to a significant increase in
Brazilian sales. Unfortunately this was offset by a decline in our
manual business performance.
5. Gross profit and gross margin
Gross profit in the year was GBP23.0m (2016: GBP22.5m), an
increase of GBP0.5m.
Gross margin reduced to 57.4% (2016: 58.6%). The reduction in
gross margin is mainly due to the impact of sales mix whereby the
lower levels of royalty income adversely impact the gross margin.
This is offset by lower levels of amortisation as a result of the
impairment booked in the prior year.
In the medium term we continue to target a gross margin of
around 60%, which we believe can be achieved as a result of
improvements in the utilisation of our fixed production cost base
as revenues increase. However, in the short term we expect gross
margin to decline as a result of the continued loss of royalty
income into FY2018.
6. Operating costs
6.1 Basis of preparation
The Group capitalised a number of product development projects
during the year, encompassing instrument and new assay
developments. The costs capitalised within other administrative
expenses relate to the implementation of a new ERP system for the
Group, which was rolled out to our major assay production sites
during the year.
Costs are capitalised once all the recognition criteria of IAS
38 Intangible Assets are met. The total amount of costs capitalised
decreased from GBP3.3m in 2016 to GBP3.0m in 2017. We review these
projects on a periodic basis throughout the financial year and the
costs are impaired if a project no longer meets the required
criteria.
To ensure that the Group's financial performance can be more
easily benchmarked with its peer group, the depreciation and
amortisation ('D&A') costs previously shown on the face of the
income statement have been included within operating costs. This
does not impact profit or net assets of the Group for either year.
A table detailing the impact of this reclassification for both 2016
and 2017 is set out in note 1 to the accounts.
6.2 Operating cost review
Underlying Depreciation Gross
2017 GBP000 cost & Amortisation costs Capitalised Reported
---------------------------------- ---------- --------------- -------- ----------- --------
Sales & marketing (8,671) (153) (8,824) - (8,824)
Research & development (4,442) (528) (4,970) 2,657 (2,313)
General & administrative expenses (8,056) (1,051) (9,107) 320 (8,787)
Operating costs (pre-exceptional) (21,169) (1,732) (22,901) 2,977 (19,924)
---------------------------------- ---------- --------------- -------- ----------- --------
Underlying Depreciation Gross
2016 GBP000 cost & Amortisation costs Capitalised Reported
---------------------------------- ---------- --------------- -------- ----------- --------
Sales & marketing (9,106) (127) (9,233) - (9,233)
Research & development (3,998) (2,322) (6,320) 2,966 (3,354)
General & administrative expenses (8,767) (950) (9,717) 305 (9,412)
Operating costs (pre-exceptional) (21,871) (3,399) (25,270) 3,271 (21,999)
---------------------------------- ---------- --------------- -------- ----------- --------
Underlying operating costs, before the capitalisation of
internal development costs and depreciation and amortisation
decreased by GBP0.7m, or 3%, to GBP21.2m. On a LFL basis these
costs reduced by 11%.
Reported costs decreased by GBP2.1m, or 9%, to GBP19.9m. LFL
these costs reduced by 18%.
6.3 Cost management initiatives
During the year the Group pursued two Group-wide projects to
align the cost base of the organisation to our lower revenues, as
highlighted in the operational review.
The guiding principle was to simplify and consolidate our
organisation in terms of both operational footprint and management
structure, as well as adjusting our operational capacity to meet
market demand. We reviewed all areas of the business and took
action as necessary. However, recognising that our sales and assay
R&D functions will be the foundations of IDS future success, we
did not make significant changes to our resources in these areas.
We did however streamline the management roles within the sales
organisation by removing or reassigning the employees who performed
general manager roles within our sale regions.
These initiatives led to a significant reduction in Group
headcount, with FTE's dropping from 315 at 31 March 2016 to 275 at
31 March 2017. Total cost savings of over GBP3m (on a LFL basis)
were achieved in the year versus FY2016, with one-off costs of
GBP1.6m being incurred, mainly relating to redundancy costs.
During 2018 we expect to see further cost savings due to the
full-year cost effect of the initiatives taken during 2017, plus a
number of additional projects we are undertaking in the first half
of FY2018 to further simplify our organisation. However, these
savings will be partially offset by planned investments in the
sales team and assay R&D function.
7. Asset impairment
In accordance with IAS 36, we annually review the goodwill and
indefinite-lived intangible assets for impairment. Additionally,
impairment reviews may occur if there are any triggering events or
changes in circumstances which may indicate that the carrying
amount of goodwill is not recoverable. For the purposes of this
goodwill impairment review, the Board considers it currently has
one single cash-generating unit ('CGU'), being the entirety of the
IDS business. The Group performed an impairment review at 31 March
2017, and no indication of impairment was noted.
However, when the Group performed the impairment review in the
prior year, the recoverable value of the IDS CGU was below the
carrying value of the Group's assets. This resulted in an
impairment charge of GBP38.2m being recognised in the 2016
accounts, along with the reversal of a deferred tax liability on
the assets impaired of GBP4.1m, leading to a reduction in net
assets of GBP34.1m. In accordance with IAS 36, this impairment was
allocated firstly against goodwill and then the remainder was
allocated to the other assets in the Group on a pro-rata basis,
unless it was clear an individual asset was not impaired.
The impairment charge booked in the prior year was reviewed at
31 March 2017 to assess if the impairment should be reversed, and
as a result an impairment charge of GBP0.2m related to various
fixed assets was reversed.
All impairment charges and reversals have been booked in
exceptional items. The impairment charges and reversals do not
impact the Group's cash flow or cash and cash equivalents.
8. Exceptional items
The Group incurred a number of exceptional items during the
current and previous financial year:
Year ended 31
March 2017 GBP000 2016 GBP000
---------------------- ----------- -----------
Restructuring
costs (1,631) (362)
---------------------- ----------- -----------
Repayable grant
release - 1,323
---------------------- ----------- -----------
Impairment of
goodwill, intangible
assets and tangible
fixed assets 227 (38,227)
---------------------- ----------- -----------
Total exceptional
costs (1,404) (37,266)
---------------------- ----------- -----------
Restructuring costs: In the previous year, the Group
consolidated automated product development and production into our
Liège site. The resulting restructuring costs, comprising
redundancy costs and an onerous lease provision in our Boldon
location, amounted to GBP0.4m. In the current year the
restructuring costs relate mainly to redundancy costs of GBP1.2m
and onerous lease costs of GBP0.4m related to the cost-efficiency
projects outlined earlier.
Repayable grant release: In the previous year we released a
historical provision amounting to GBP1.3m related to a research
grant, upon obtaining written confirmation from the grantor that no
further amounts would be repayable.
Impairment: In the previous year the Group booked an asset
impairment charge of GBP38.2m as a result of the annual impairment
review exercise. As a result of the current year impairment review,
GBP0.2m of the impairment charge booked in the prior year was
reversed.
9. Profit from operations
Profit from operations was GBP1.7m (2016: loss of GBP36.8m). The
significant loss in 2016 was driven by the exceptional impairment
charge in the year.
10. Finance expense
Net finance expense was GBP0.5m (2016: expense of GBP0.2m).
Included within net finance expense is a foreign exchange loss of
GBP0.5m (2016: loss of GBP0.3m), which arises from the translation
of non-GBP-denominated intercompany balances.
11. Taxation
The tax credit of GBP1.8m (2016: credit of GBP4.9m) gives a
full-year effective rate of -152.7% (2016: 13.1%). It comprises a
current tax credit of GBP0.6m and a deferred tax credit of GBP1.2m.
The current tax credit was impacted by the release of a judgemental
provision against an overseas tax rebate of GBP0.9m following an
audit in the current financial year. The deferred tax credit has
arisen mainly due to the recognition of losses previously not
recognised as deferred tax assets.
12. Earnings per share
Adjusted earnings per share is calculated using profit after tax
adjusted to exclude the after tax effect of exceptional items.
Adjusted basic earnings per share is 14.8p (2016: 4.7p).
Basic earnings per share is 10.2p, (2016: loss per share of
109.7p), the abnormal result in prior year mainly due to the
significant non-cash impacting asset impairment charge explained
earlier.
13. Balance sheet
The Group's shareholders' funds at 31 March 2017 were GBP56.7m
(2016: GBP51.6m).
The Group working capital requirements remained broadly
consistent with the prior year. Total working capital days were 209
days (2016: 212 days). Trade debtor days increased to 51 days from
47 days, inventory days decreased to 189 days from 197 days, and
creditor days decreased to 31 days from 32 days.
Capital expenditure on property plant and equipment during the
year was GBP1.5m (2016: GBP1.8m), of which GBP0.9m (2016: GBP0.6m)
related to the cost of iSYS analysers placed with customers during
the year.
14. Cash flow
IDS generated net cash flows from operations of GBP8.4m (2016:
GBP8.2m). Net cash used in investing activities was GBP3.6m (2016:
GBP4.8m), which resulted in free cash flow of GBP4.8m (2016:
GBP3.4m).
Net cash used in financing activities was GBP0.5m (2016:
GBP1.0m), the decrease being mainly due to the lower dividend
paid.
At the year end, the Group had increased cash and cash
equivalents to GBP31.5m (2016: GBP26.6m). Thus, despite the
headwinds caused by the decline in 25-OH Vitamin D revenue and
royalty income, our cash balance has continued to grow throughout
the year, which allows IDS flexibility to pursue potential options
within the corporate development/partnership pillar of our
strategy.
15. Dividend
The Board is proposing a dividend for the year of 4.0p (2016:
1.2p) subject to the approval of shareholders at the Annual General
Meeting on 27 July 2017. If approved, the dividend will be paid on
18 August 2017 to shareholders on the Register of Members at the
close of business on 21 July 2017.
Paul Martin
Group Finance Director
Consolidated income statement for the year ended 31 March
2017
Restated Restated
2016 2016
2017 2017
Notes GBP000 GBP000 GBP000 GBP000
---------------------------------------- ----- ------- -------- -------- ---------
Revenue 1 40,035 38,305
Cost of sales (17,056) (15,840)
---------------------------------------- ----- ------- -------- -------- ---------
Gross profit 22,979 22,465
Sales and marketing (8,824) (9,233)
Research and development (2,313) (3,354)
General and administrative expenses (8,787) (9,412)
---------------------------------------- ----- ------- -------- -------- ---------
Operating costs pre-exceptional
items (19,924) (21,999)
---------------------------------------- ----- ------- -------- -------- ---------
Exceptional items
Restructuring costs (1,631) (362)
Repayable grant release - 1,323
Reversal/(impairment) of goodwill
and other intangibles 227 (38,227)
---------------------------------------- ----- ------- -------- -------- ---------
Total exceptional items (1,404) (37,266)
---------------------------------------- ----- ------- -------- -------- ---------
Operating Costs (21,328) (59,265)
---------------------------------------- ----- ------- -------- -------- ---------
Profit/(loss) from operations 2 1,651 (36,800)
---------------------------------------- ----- ------- -------- -------- ---------
Finance income 169 169
Finance costs (629) (392)
---------------------------------------- ----- ------- -------- -------- ---------
Profit/(loss) before tax 1,191 (37,023)
Income tax income 3 1,818 4,853
---------------------------------------- ----- ------- -------- -------- ---------
Profit/(loss) for the year attributable
to owners of the parent 3,009 (32,170)
---------------------------------------- ----- ------- -------- -------- ---------
Earnings/(loss) per share
Adjusted basic 4 14.8p 4.7p
Adjusted diluted 4 14.8p 4.7p
Basic 4 10.2p (109.7p)
Diluted 4 10.2p (109.7p)
---------------------------------------- ----- ------- -------- -------- ---------
Consolidated statement of comprehensive income for the year
ended 31 March 2017
2017 2016
GBP000 GBP000
-------------------------------------------------- ------- --------
Profit/(loss) for the year 3,009 (32,170)
-------------------------------------------------- ------- --------
Other comprehensive income to be reclassified
to profit or loss in subsequent periods
Currency translation differences 2,558 3,741
-------------------------------------------------- ------- --------
Other comprehensive income to be reclassified
to profit or loss in subsequent periods,
before tax 2,558 3,741
Tax relating to other comprehensive income
to be reclassified to profit or loss in
subsequent periods - -
-------------------------------------------------- ------- --------
Other comprehensive income not to be reclassified
to profit or loss in subsequent periods
Remeasurement of defined benefit plan (82) 102
-------------------------------------------------- ------- --------
Other comprehensive income not to be reclassified
to profit or loss in subsequent periods,
before tax - 102
Tax relating to other comprehensive income
not to be reclassified to profit or loss
in subsequent periods - (34)
-------------------------------------------------- ------- --------
Other comprehensive income net of tax 2,476 3,809
-------------------------------------------------- ------- --------
Total comprehensive income/(loss) for the
year attributable to owners of the parent 5,485 (28,361)
-------------------------------------------------- ------- --------
Consolidated balance sheet 31 March 2017
2017 2016
GBP000 GBP000
------------------------------------------- ------- -------
Assets
Non-current assets
Property, plant and equipment 8,505 9,629
Goodwill - -
Other intangible assets 10,450 9,211
Investments - -
Deferred tax assets 503 26
Other non-current assets 333 294
-------------------------------------------- ------- -------
19,791 19,160
------------------------------------------- ------- -------
Current assets
Inventories 7,572 7,509
Trade and other receivables 7,648 6,956
Income tax receivable 2,229 2,161
Cash and cash equivalents 31,495 26,554
-------------------------------------------- ------- -------
48,944 43,180
------------------------------------------- ------- -------
Total assets 68,735 62,340
-------------------------------------------- ------- -------
Liabilities
Current liabilities
Short-term portion of long-term borrowings 77 89
Trade and other payables 7,484 6,287
Income tax payable 53 3
Provisions 424 54
Deferred income 181 119
-------------------------------------------- ------- -------
8,219 6,552
------------------------------------------- ------- -------
Net current assets 40,725 36,628
-------------------------------------------- ------- -------
Non-current liabilities
Long-term portion of long-term borrowings 1,252 1,220
Provisions 1,611 1,419
Deferred tax liabilities 921 1,551
-------------------------------------------- ------- -------
3,784 4,190
------------------------------------------- ------- -------
Total liabilities 12,003 10,742
-------------------------------------------- ------- -------
Net assets 56,732 51,598
-------------------------------------------- ------- -------
Called up share capital 588 588
Share premium account 32,263 32,263
Other reserves 5,018 2,460
Retained earnings 18,863 16,287
-------------------------------------------- ------- -------
Equity attributable to owners of the
parent 56,732 51,598
-------------------------------------------- ------- -------
Consolidated statement of cash flows for the year ended 31 March
2017
2017 2016
GBP000 GBP000
------------------------------------------- ------- -------
Operating activities
Cash generated from operations 8,848 8,101
Cash outflow related to exceptional
costs (1,208) (8)
Income taxes received 796 95
-------------------------------------------- ------- -------
Net cash from operating activities 8,436 8,188
-------------------------------------------- ------- -------
Investing activities
Purchases of other intangible assets (3,039) (3,388)
Purchases of property, plant and equipment (1,471) (1,795)
Disposals of property, plant and equipment 712 188
Interest received 169 169
-------------------------------------------- ------- -------
Net cash used by investing activities (3,629) (4,826)
-------------------------------------------- ------- -------
Financing activities
Proceeds from issue of shares for cash - 410
Repayments of borrowings (96) (410)
Interest paid (88) (109)
Dividends paid (353) (876)
-------------------------------------------- ------- -------
Net cash used by financing activities (537) (985)
-------------------------------------------- ------- -------
Net increase in cash and cash equivalents 4,270 2,377
Effect of exchange rate differences 671 447
Cash and cash equivalents at beginning
of year 26,554 23,730
-------------------------------------------- ------- -------
Cash and cash equivalents at end of
year 31,495 26,554
-------------------------------------------- ------- -------
Consolidated statement of changes in equity for the year ended
31 March 2017
Share
Share premium Other Retained
capital account reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- --------- ---------- --------- --------
At 1 April 2015 584 31,857 (1,281) 49,248 80,408
Loss for the year - - - (32,170) (32,170)
Other comprehensive income
Foreign exchange translation
differences on foreign currency
net investment in subsidiaries - - 3,741 - 3,741
Remeasurement of defined benefit
plan - - - 102 102
Tax effect on remeasurement
of defined benefit plan - - - (34) (34)
---------------------------------- --------- --------- ---------- --------- --------
Total comprehensive income/(loss) - - 3,741 (32,102) (28,361)
Transactions with owners
Share-based payments - - - 21 21
Tax recognised on share-based
payments - - - (4) (4)
Dividends paid - - - (876) (876)
Shares issued in the year 4 406 - - 410
---------------------------------- --------- --------- ---------- --------- --------
At 31 March 2016 588 32,263 2,460 16,287 51,598
---------------------------------- --------- --------- ---------- --------- --------
At 1 April 2016 588 32,263 2,460 16,287 51,598
Profit for the year - - - 3,009 3,009
Other comprehensive income
Foreign exchange translation
differences on foreign currency
net investment in subsidiaries - - 2,558 - 2,558
Remeasurement of defined benefit
plan - - - (82) (82)
Total comprehensive income - - 2,558 2,927 5,485
Transactions with owners
Share-based payments - - - 2 2
Dividends paid - - - (353) (353)
At 31 March 2017 588 32,263 5,018 18,863 56,732
---------------------------------- --------- --------- ---------- --------- --------
Notes to the consolidated financial statements for the year
ended 31 March 2017
Note 1. Segmental information
The Group applies IFRS 8 Operating Segments. IFRS 8 provides
segmental information for the Group on the basis of information
reported internally to the chief operating decision-maker for
decision-making purposes. The Group considers that the role of
chief operating decision-maker is performed by the Board of
Directors.
Following a significant restructuring of the Group that began in
2013/14 the business was directed and monitored on a functional
basis.
Analysis of revenue is prepared and monitored on a geographical
basis due to the organisation of the sales teams as well as by
product type. However, earnings on a geographical basis are not
considered the most appropriate measure of performance given the
differing nature of operations across the different
territories.
No further detailed segmental information is provided in this
note, as there is only one operating segment. While the key
decision makers review revenue based on the segments shown in the
Operational Review, as a result of the structure of the business
and the financial systems in place, operating profit cannot be
determined for these revenue segments. Therefore the key decision
makers only review the operating profit performance of the business
as a whole.
All earnings, balance sheet and cash flow information received
and reviewed by the Board of Directors is prepared at a Group
level. The Group determined that it had one operating segment as
defined under IFRS 8, being the whole of the Group.
Revenues from customers located in individual countries are as
follows:
2017 2016
GBP000 GBP000
------------------------- ------- -------
UK (country of domicile) 1,571 1,443
US 11,676 13,917
Germany 7,433 5,809
France 4,835 3,743
Other 14,520 13,393
------------------------- ------- -------
Total revenues 40,035 38,305
------------------------- ------- -------
Non-current assets, excluding deferred tax and goodwill located
in individual countries is as follows:
2017 2016
GBP000 GBP000
------------------------- ------- -------
UK (country of domicile) 10,139 9,417
France 3,308 3,046
Belgium 2,060 2,341
US 1,455 2,054
Germany 2,058 2,106
Other 268 170
------------------------- ------- -------
Total 19,288 19,134
------------------------- ------- -------
Revenue from one significant OEM customer amounted to
GBP2,767,000 (2016: GBP4,676,000), arising from royalties
payable.
Note 2. Profit/(loss) from operations
Profit/(loss) from operations is stated after
charging/(crediting):
2017 2016
GBP000 GBP000
--------------------------------------------- ------- --------
Restructuring costs 1,631 362
Impairment of goodwill - 16,496
Impairment of other intangible assets - 21,504
Impairment of owned plant, property and
equipment (227) 227
Release of repayable grant - (1,323)
Total exceptional items 1,404 (37,266)
Amortisation of other intangible assets 1,935 4,565
Loss on disposal of owned plant, property
and equipment 89 157
Depreciation of owned plant, property and
equipment 2,597 2,307
Depreciation of assets held under finance
leases 126 111
Operating lease costs 938 920
Share-based payments 2 21
Other staff costs 16,769 16,072
Cost of inventories recognised as an expense 5,955 4,916
Write downs of inventories recognised as
an expense 1,033 1,033
Net loss on foreign currency translation 397 283
Auditor's remuneration (see below) 197 189
--------------------------------------------- ------- --------
Amounts payable to Ernst & Young LLP and their associates in
respect of both audit and non-audit services:
2017 2016
GBP000 GBP000
--------------------------------------------- ------- -------
Audit services
- statutory audit of parent and consolidated
accounts 197 187
Other services relating to taxation
- compliance services - 2
--------------------------------------------- ------- -------
197 189
--------------------------------------------- ------- -------
In 2016/17 the Group undertook a significant restructure in
France. This led to an exceptional restructuring charge of GBP1.4m
being incurred in 2017 relating to redundancy costs (GBP1.2m) and
onerous lease costs (GBP0.2m). Also in 2016/17, the Group took the
decision to vacate surplus premises following the transfer of
automated activities to Liège. This resulted in an exceptional
onerous lease charge of GBP0.2m.
In 2016/17, the Group considered the impairment charge from
2015/16 and reversed the impairment for unplaced iSYS instruments
(GBP0.2m). This reversal was required as the instruments are either
in the process of being refurbished or have been refurbished and
sold or placed with customers during this financial year, therefore
it is appropriate to reverse this impairment charge as they are now
expected to generate revenue.
In 2015/16 the Group were notified that repayable grant monies
received in relation to the development of certain automated
immunoassays, were no longer repayable. This resulted in the
release of a GBP1.3m repayable grants balance.
In 2015/16 the goodwill impairment exercise indicated that the
carrying value of the one Group CGU was in excess of the
recoverable amount, requiring an impairment to the carrying value
of goodwill (GBP16.5m), intangible assets relating to iSYS
instrument development and intellectual property rights (GBP21.5m)
and currently unplaced iSYS instruments (GBP0.2m).
In 2015/16 the Group announced its intention to transfer the
activities related to automated assay production from the Boldon,
UK site to Liège, Belgium. This resulted in a GBP0.4m charge
relating to staff redundancy and for the onerous portion of future
lease payments.
Note 3. Taxation on ordinary activities
a) Analysis of credit in the year
2017 2016
GBP000 GBP000
------------------------------------------------ ------- -------
Current tax:
UK Corporation tax 62 (171)
Under/(over) provision in prior year 4 (654)
Foreign tax (credit)/charge on income (708) 427
------------------------------------------------ ------- -------
Total current tax credit (642) (398)
------------------------------------------------ ------- -------
Deferred tax:
Excess of taxation allowances over depreciation
on fixed assets 54 (5,203)
Other 30 960
Tax losses carried forward (1,081) (171)
Deferred tax on share-based payments charge - 9
Over provision in prior year (179) (50)
------------------------------------------------ ------- -------
Total deferred tax credit (1,176) (4,455)
------------------------------------------------ ------- -------
Tax credit on profit/(loss) on ordinary
activities (1,818) (4,853)
------------------------------------------------ ------- -------
"Other" in the prior year related to short-term timing
differences primarily on the impairment of intangible assets and
release of the repayable grant.
In addition, total current and deferred tax of GBPnil has been
charged to equity in respect of items credited/charged directly to
equity (2016: GBP38,000 charged to equity).
b) Factors affecting tax charge
The tax assessed for the period is lower (2016: lower) than the
standard rate of corporation tax in the UK, 20% (2016: 20%). The
differences are explained below.
2017 2016
GBP000 GBP000
------------------------------------------- ------- --------
Profit/(loss) on ordinary activities
before taxation 1,191 (37,023)
------------------------------------------- ------- --------
Profit/(loss) on ordinary activities
by rate of tax in the UK of 20% (2016:
20%) 238 (7,405)
Expenses not deductible for tax purposes 94 106
Income not taxable (31) (294)
Additional relief for R&D expenditure (1,603) (399)
Foreign profits taxable at different
rates (142) (2,344)
Goodwill and intangibles written off - 5,404
UK Patent Box relief (201) (328)
Losses carried forward 607 1,368
Losses brought forward utilised (623) (380)
Employee share award - 9
Effect of change in tax rate on deferred
tax balances (18) (140)
Other temporary differences not recognised 36 254
Tax in respect of prior periods (175) (704)
------------------------------------------- ------- --------
Total tax credit at an effective rate
of -152.7% (2016: 13.1%) (1,818) (4,853)
------------------------------------------- ------- --------
Note 4. Earnings per Ordinary share
Basic earnings per share is calculated by dividing the earnings
attributable to holders of Ordinary shares by the weighted average
number of Ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of
Ordinary shares in issue is adjusted to assume conversion of all
dilutive potential Ordinary shares. The Group has dilutive
potential Ordinary shares relating to contingently issuable shares
under the Group's share option scheme. At 31 March 2017, the
performance criteria for the vesting of certain awards under the
option scheme are expected to be met and consequently the shares in
question are included in the diluted EPS calculation.
The calculations of earnings per share are based on the
following profits and numbers of shares.
2017 2016
GBP000 GBP000
------------------------------------- ------- --------
Profit/(loss) on ordinary activities
after tax 3,009 (32,170)
------------------------------------- ------- --------
Weighted average number of shares: No. No.
-------------------------------------- ---------- ----------
For basic earnings per share 29,415,175 29,331,842
Effect of dilutive potential Ordinary
shares:
- share options 247 5,334
-------------------------------------- ---------- ----------
For diluted earnings per share 29,415,422 29,337,176
-------------------------------------- ---------- ----------
Basic earnings per share 10.2p (109.7)p
Diluted earnings per share 10.2p (109.7)p
-------------------------------------- ---------- ----------
2017 2016
GBP000 GBP000
------------------------------------------- ------- --------
Profit/(loss) on ordinary activities after
tax as reported 3,009 (32,170)
------------------------------------------- ------- --------
Exceptional items after tax 1,353 33,555
------------------------------------------- ------- --------
Profit on ordinary activities after tax
as adjusted 4,362 1,385
------------------------------------------- ------- --------
Adjusted basic earnings per share 14.8p 4.7p
Adjusted diluted earnings per share 14.8p 4.7p
------------------------------------------- ------- --------
Extract from Annual Report and Financial Statements
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31 March
2017 or 2016 but is derived from those financial statements.
Statutory financial statements for 2016 have been delivered to the
registrar of companies, and those for 2017 will be delivered in due
course. The auditors have reported on those financial statements;
their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The annual report and financial statements for the year
ended 31 March 2017 will be posted to shareholders on 28 June 2017.
This final results announcement and results for the year ended 31
March 2017 were approved by the Board of Directors on 20 June 2017
and are audited.
Basis of preparation
The final results announcement has been prepared under
historical cost convention on a going concern basis and in
accordance with the recognition and measurement principles of
International Reporting Standards and IFRIC interpretations as
adopted by the EU ("IFRS").
The final results announcement has been prepared on the basis of
the same accounting policies as published in the audited financial
statements of the Group for the year ended 31 March 2016, with the
exception of the presentation item detailed in the following
paragraph, and the accounting policies adopted in the audited
financial statements of the Group for the year ended 31 March
2017.
Change in accounting policy relating to presentation only: to
ensure that the Group's financial performance can be more easily
benchmarked with its peer group, the depreciation costs previously
shown on the face of the income statement have been included within
operating costs. This change does not impact the Group profit or
net assets. The changes made are highlighted in the table
below:
Before Reclassification Reclassifications After Reclassification
------------------------- ------------------- ------------------------
GBP000 2017 2016 2017 2016 2017 2016
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Revenue 40,035 38,305 40,035 38,305
Cost of Sales (17,056) (15,840) (17,056) (15,840)
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Gross Profit 22,979 22,465 22,979 22,465
Sales and marketing (8,671) (9,106) (153) (127) (8,824) (9,233)
Research and development (1,785) (1,032) (528) (2,322) (2,313) (3,354)
General and administrative
expenses (7,736) (8,462) (1,051) (950) (8,787) (9,412)
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Operating costs pre-exceptional
items (18,192) (18,600) (1,732) (3,399) (19,924) (21,999)
Exceptional items (1,404) (37,266) (1,404) (37,266)
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Operating costs (19,596) (55,866) (1,732) (3,399) (21,328) (59,265)
Depreciation and amortisation (1,732) (3,399) 1,732 3,399 - -
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Profit/(loss) from operations 1,651 (36,800) - - 1,651 (36,800)
-------------------------------- -------------- --------- --------- -------- ----------- -----------
Annual report
The annual report will be sent to shareholders shortly and will
also be available at the registered office of Immunodiagnostic
Systems Holdings PLC at: 10 Didcot Way, Boldon Business Park,
Boldon, Tyne & Wear NE35 9PD. It will be made available on the
Company's website at: www.idsplc.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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