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RNS

Final Results

Released 07:00 21-Jun-2017

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

£m

2017

2016

% Change

% 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 £1.4m (2016: £37.3m) - see reconciliation in section 2 of the Financial Review.

*** Net cash flow from operating activities of £8.4m (2016: £8.2m) less net cash used by investing activities of £3.6m (2016: £4.8m).

 

·     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 £3m in the year. Restructuring costs in the year were approximately £1.6m.

 

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 £40.0m. 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 £7.7m from £7.4m, 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 £2.25 on 31 March 2016 to £2.77 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 £40,000 per annum, this will generate gross new revenues of £4.0m 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 £200,000. 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 - peer comparison

FY2017

£000

FY2016

£000

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 £3m, and reduced the FTE headcount from 315 people to 275.

 

IDS Revenue per employee - Trend

£000

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 £6.2m, 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 £40.0m, 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

 £000

2017 LFL £000

2016

 £000

Change %

LFL

 Change

%

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 £787k 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:

 

Regulatory approval

Assays end of FY2017

Assays end of FY2016

Assays with the CE mark

19

15

Assays with FDA approval

10

9

Assays with CFDA approval

4

4

 

Year

New assay 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 £57,000 (2016: £48,000) 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

£000

2017 LFL

£000

 2016

£000

 Change %

LFL change %

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

£000

2017 LFL

£000

 2016

£000

 Change %

LFL change %

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 £3m versus 2016, as well as significant intangible efficiency savings as a result of the simplification of the business. Total restructuring costs amounted to £1.6m.

 

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 £7.7m (2016: £7.4m). This was driven by an increase in Group revenue to £40.0m (2016: £38.3m), and a reduction in operating costs to £19.9m (2016: £22.0m) offset by a drop in gross margin to 57.4% (2016: 58.6%).

 

Cash and cash equivalents increased to £31.5m (2016: £26.6m), 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 31 March

2017 £000

2016 £000

Variance

£000

Variance

%

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 £4.7m (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 £1.4m.

 

The average exchange rates used to translate Euros and US Dollars to Pounds Sterling are as follows:

 

Average exchange rates

2017

2016

Strengthening

against Sterling %

Sterling: US Dollar

1.32

1.51

13%

Sterling: Euro

1.20

1.37

12%

 

 

4.  Revenue

Group revenue of £40.0m (2016: £38.3m) increased by £1.7m, or 4%.

 

On a like-for-like ('LFL') basis, the decline amounted to £3.0m, or 8%. The majority of this decline can be attributed to the previously announced loss of royalty income, which declined by £2.4m.

 

4.1 Revenue by Geography

 


2017 £000

2016 £000

Change

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 £23.0m (2016: £22.5m), an increase of £0.5m.

 

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 £3.3m in 2016 to £3.0m 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

2017 £000

Underlying cost

Depreciation & Amortisation

Gross 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)

 

 

2016 £000

Underlying cost

Depreciation & Amortisation

Gross 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 £0.7m, or 3%, to £21.2m. On a LFL basis these costs reduced by 11%.

 

Reported costs decreased by £2.1m, or 9%, to £19.9m. 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 £3m (on a LFL basis) were achieved in the year versus FY2016, with one-off costs of £1.6m 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 £38.2m being recognised in the 2016 accounts, along with the reversal of a deferred tax liability on the assets impaired of £4.1m, leading to a reduction in net assets of £34.1m. 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 £0.2m 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 £000

2016 £000

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 £0.4m. In the current year the restructuring costs relate mainly to redundancy costs of £1.2m and onerous lease costs of £0.4m related to the cost-efficiency projects outlined earlier.

 

Repayable grant release: In the previous year we released a historical provision amounting to £1.3m 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 £38.2m as a result of the annual impairment review exercise. As a result of the current year impairment review, £0.2m of the impairment charge booked in the prior year was reversed.

 

9.     Profit from operations              

Profit from operations was £1.7m (2016: loss of £36.8m). The significant loss in 2016 was driven by the exceptional impairment charge in the year.

 

10.   Finance expense

Net finance expense was £0.5m (2016: expense of £0.2m). Included within net finance expense is a foreign exchange loss of £0.5m (2016: loss of £0.3m), which arises from the translation of non-GBP-denominated intercompany balances.

 

11.   Taxation

The tax credit of £1.8m (2016: credit of £4.9m) gives a full-year effective rate of -152.7% (2016: 13.1%). It comprises a current tax credit of £0.6m and a deferred tax credit of £1.2m. The current tax credit was impacted by the release of a judgemental provision against an overseas tax rebate of £0.9m 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 £56.7m (2016: £51.6m).

 

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 £1.5m (2016: £1.8m), of which £0.9m (2016: £0.6m) related to the cost of iSYS analysers placed with customers during the year.

 

14.   Cash flow

IDS generated net cash flows from operations of £8.4m (2016: £8.2m). Net cash used in investing activities was £3.6m (2016: £4.8m), which resulted in free cash flow of £4.8m (2016: £3.4m).

 

Net cash used in financing activities was £0.5m (2016: £1.0m), the decrease being mainly due to the lower dividend paid.

 

At the year end, the Group had increased cash and cash equivalents to £31.5m (2016: £26.6m). 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

 


Notes

2017

£000

2017

£000

Restated

2016

 

£000

Restated

2016

 

£000

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

£000

2016

£000

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

£000

2016

£000

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

£000

2016

£000

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

capital

£000

 

Share

premium

account

£000

 

Other

reserves

£000

Retained

earnings

£000

Total

£000

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

£000

2016

£000

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

£000

2016

£000

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 £2,767,000 (2016: £4,676,000), arising from royalties payable.



 

Note 2.    Profit/(loss) from operations

Profit/(loss) from operations is stated after charging/(crediting):

 


2017

£000

2016

£000

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

£000

2016

£000

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 £1.4m being incurred in 2017 relating to redundancy costs (£1.2m) and onerous lease costs (£0.2m). 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 £0.2m.

 

In 2016/17, the Group considered the impairment charge from 2015/16 and reversed the impairment for unplaced iSYS instruments (£0.2m). 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 £1.3m 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 (£16.5m), intangible assets relating to iSYS instrument development and intellectual property rights (£21.5m) and currently unplaced iSYS instruments (£0.2m).

 

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 £0.4m 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

£000

2016

£000

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 £nil has been charged to equity in respect of items credited/charged directly to equity (2016: £38,000 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

£000

2016

£000

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

£000

2016

£000

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

£000

2016

£000

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

£000

    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
 
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Final Results - RNS