TIDMMDW
RNS Number : 5486W
Mediwatch PLC
01 February 2012
Mediwatch Plc
Final Results for year ended 31 October 2011
Increased profits and cash flow during delayed economic recovery
Mediwatch Plc (AIM: MDW, 'Mediwatch' or 'the Company' or 'the Group'), the innovative urological diagnostic company, announces its final results for the year ending 31 October 2011.
Financial highlights
- Sales revenues at GBP10.6m (2010: GBP10.5m)
- Increased EBITDA for the year of GBP713,000 (2010: GBP583,000)
- Increased profit before taxation for the year of GBP322,000 (2010: GBP233,000)
- Increased cash flow from operations of GBP835,000 (2010: GBP581,000)
- R&D capitalised expenditure steady at GBP770,000 (2010; 742,000)
Operational highlights
- Profits and cash flows have increased due to the re-organisation that commenced in Q1 2011, including the outsourcing of major parts of manufacturing. The re-organisation has enabled Mediwatch to continue to invest in new markets, products and services.
- PSAwatch is at early stage of commercialisation with clinical trials in France to gain reimbursement approval, direct marketing starting in Germany, Hong Kong, Mexico and China, growing sales in the UK private sector and the potential for further co-operation and trials with two international pharmaceutical companies.
- Significant sales growth (75%) in developing markets (Far East and Russia), providing an excellent platform for further growth, balancing the detrimental effects of the Arab Spring.
- Enrolment in the US Federal Government GSA contract allowing sales into Federal Government hospitals including the Veterans Administration network and various private buying groups.
- Mobilewatch is making great strides and has increased its turnover three fold in the last 3 months.
- Continued strengthening of the product range and partnership with EBNeuro S.p.A. for the exclusive distribution of its gastro and neuro-physiology products in the UK.
- New $2,000,000 banking facility with Fifth Third Bank to support growth in the key US market.
- Strengthened management team with new operational management in the UK and the USA.
Omer Karim, Mediwatch Chairman said:
"In spite of Mediwatch's major markets in Europe and the USA suffering from economic turbulence, I am pleased to report that Mediwatch has maintained its turnover and materially increased profits and cash flows from operations during the year. The improved profitability is a result of the cost reduction programme that occurred during the year to re-align operations, including the outsourcing of major elements of our manufacturing and the reduction of fixed overheads,
Looking forward, we will continue to focus on internal efficiencies and the tight management of our cost base. During 2012 we anticipate the conclusion of a number of important research and development projects that will strengthen and update our existing product lines in urodynamics and ultrasound while reducing unit costs.
We anticipate that the improved product lines, together with the on-going growth of PSAwatch, will deliver improved performance for 2012 and beyond."
Enquiries:
Mediwatch PLC
Philip Stimpson, Chief
Executive +44 (0)1788 547 888
Fairfax I.S. PLC
Ewan Leggat / Laura Littley +44 (0)20 7598 5368
Chairman's Statement
Overview
Mediwatch maintained its revenue and improved profitability despite turbulence in core markets. The economic turbulence caused by the 2008 credit crunch, the Euro zone sovereign debt problems and the continued uncertainty surrounding the implementation of the Obama Healthcare Reforms delayed capital goods purchasing decisions in the healthcare sector. The actions we took during the year anticipated these problems. We reduced our fixed overhead base and outsourced significant parts of our manufacturing process to better align costs with demand, while continuing to invest in new markets, products and services.
As a result, total revenues were maintained in 2011, with strong growth in the developing markets in the Far East offsetting slower demand in the USA, Europe and the Middle East. Profitability and cash flow increased significantly as the benefits of re-structuring the business came through.
A number of research projects are anticipated to conclude in 2012. These key urodynamic and ultrasound projects will provide users with simpler, more intuitive interfaces while reducing the cost of manufacture.
PSAwatch continues to make inroads in important markets. In France, PSAwatch is being trialled in six hospitals to achieve its reimbursement code which we expect to be awarded in Q2 2012. In the UK, the Graham Fulford Charitable Trust (GFCT) is making the change from laboratory based PSA testing to using PSAwatch.
Mobilewatch continues to grow in the US where we now have six states where we provide this service. This trend will continue through 2012 with the inclusion of other tests for other disease areas.
Financial
Sales revenue was slightly ahead of the previous year at GBP10.6m (2010: GBP10.5m).
Profitability improved significantly during 2011 due to the reduction in fixed overheads in 2011. The business, however, continued to invest in new markets, products and services (details below) in order to provide the platform for future growth.
Due to the significant investment in development of our product range in prior years, the Group has accumulated UK tax losses amounting to GBP3,724,000.
At 31 October 2011, the Group had total borrowings (net of cash balances) of GBP627,000 (2010: GBP592,000).
Key achievements
During 2011 the management team has focused on maintaining revenues while reducing fixed costs and continuing to invest in new products, services and markets.
Key achievements during the year included:
- Profits and cash flows have increased due to the re-organisation that commenced in Q1 2011, including the outsourcing of major parts of manufacturing. The re-organisation has enabled Mediwatch to continue to invest in new markets, products and services.
- PSAwatch is at the early stage of commercialisation with clinical trials in France to gain reimbursement approval, direct marketing starting in Germany, Hong Kong, Mexico and China, growing sales in the UK private sector and the potential for further co-operation and trials with two international pharmaceutical companies.
- Significant growth (75%) in developing markets in the Far East and Russia, providing an excellent platform for further growth in these rapidly growing markets.
- Enrolment in the US Federal Government GSA contract allowing sales into Federal Government hospitals including the Veterans Administration network and the conclusion of contracts with various private buying groups and distributors in the US market.
- Strengthened management team with new operational management in the UK and the USA.
- Continued to strengthen the product range by partnering EB Neuro S.p.A. for the exclusive distribution of their gastro and neuro-physiology product in the UK.
Our Mobilewatch service enables us to service medical practitioners who may lack the volume of cases or the recurring patient business necessary to justify the capital equipment outlay. Using the Mobilewatch service means that they can provide diagnostic tests without the need to purchase equipment. The service, launched in 2010, successfully completed its trial phase including the provision of "cloud" based file sharing to enable quick and secure information sharing with reimbursement agencies and other clinicians for second opinions etc. The Mobilewatch service has now been launched into six new territories in the USA and we anticipate good growth from this service in 2012.
During 2011 Mediwatch USA Inc. has been awarded a multi-year Federal Supply Schedule Contract by the US Government's General Services Administration (GSA). The GSA Federal Supply Schedule Contract will provide Mediwatch USA Inc. the opportunity to tender for contracts with the US Government to provide equipment, supplies and services. The Federal annual requirement for pelvic floor products and services is estimated to be approximately $34 million. In addition to the GSA contract, Mediwatch USA Inc. has successfully negotiated contracts with several private sector purchasing organisations (GPOs), greatly extending the marketing reach of Mediwatch USA Inc.
PSAwatch is now well poised to successfully penetrate its key markets in Europe and the Middle East and we anticipate the publication of the results of several clinical trials in the forthcoming year.
In December 2011 we were formally notified that Mediwatch UK Ltd had won the major portion of the NHS Supplies contract to supply urodynamic consumables to the NHS in England and Northern Ireland. We will update shareholders during the year as the full impact of this contract unrolls.
Board Changes
Dr Marcus Harrison joined the Board in August 2011 as Chief Scientific Officer. Dr Harrison will focus on the further development of PSAwatch, other markers using the Bioscan platform and markers complementary to our existing sales channels.
Christian Rollins resigned as Finance Director in August 2011 to take up a senior position outside the medical device industry. The Board would like to thank Mr. Rollins for his dedicated leadership of the finance team and the US operations and wish him success in his future career. Mr. Croskery has stepped into the Finance Director role and of course the Board will continue to look to broaden the skills and experience available to the Board.
Personnel
As a result of restructuring the business, personnel numbers have reduced during 2011 as manufacturing was mainly outsourced.
I would like to take this opportunity to thank all employees for their dedication, commitment and hard work in what has been a very challenging but successful year.
Outlook
The healthcare market, in particular the public sector, has been affected by the economic events of recent years. To build a secure base for future growth Mediwatch has reduced fixed overheads but continued to invest in markets, products and services in order to provide the group with the platform to capitalise on growth as markets recover.
Specific areas for growth are:
- The research projects coming to fruition in 2012 will further strengthen the competiveness of the urodynamic and ultrasound product ranges while reducing unit costs.
- Investment is being made to grow the Latin American, Chinese and Far East markets generally, to capitalise on the modernisation of these markets' healthcare systems and their growing wealth.
- PSAwatch revenues are anticipated to continue to grow in the key markets of France, the UK and the Middle East.
- Continued growth of Mobilewatch in the USA, as the programme expands into new territories.
- The partnership with EBNeuro S.p.A. for the distribution of gastro and neuro physiology products in the UK market.
- Since the end of the financial year, we have received confirmation of the inclusion of Mediwatch products in the NHS Supply Chain contract for the provision of urodynamic consumables to the UK market.
In conclusion, the Board is confident that Mediwatch has positioned itself well to continue to grow in 2012 and beyond.
Omer. M. A. Karim MS FRCS FRCSUrol
Chief Executive's Review
Operating Business Review
Overview
In the light of the uncertainty in key markets of the USA and Europe, caused by economic turbulence, the business in 2011 has focused on maintaining revenues and market share, cutting fixed costs and maintaining its investment in developing new markets, product and services. As a result, the group returned an increased profit before tax in 2011 of GBP322,000 (2010: GBP233,000).
Key developments during 2011 include:
The programme to out-source manufacturing both in the US and the UK continued throughout 2011, and is expected to conclude during early 2012. The programme has successfully reduced fixed costs for Mediwatch while increasing production capacity, thus allowing us to better match changes in demand with flexible capacity and targeted costs.
As part of the process for improving efficiency within the Mediwatch Group, we have hired a new General Manager of Operations, Peter Griffiths, who has had 20 years' experience in manufacturing control and compliance. His presence has already seen efficiencies within the group which will continue. In the US we have hired Brian Hersh as VP of Operations. Brian comes with a wealth of experience in finance and marketing and he has also made great strides in improving efficiencies and marketing techniques for the US operation.
The PSAwatch test strip has successfully transferred to its new manufacturing site, with the test strip optimised for large volume production. The product has been launched commercially into key markets (France, UK private sector, certain Middle East markets) and we anticipate the results of several clinical trials to be published in 2012. With strip production stabilised, the company is now focused on increasing revenues in markets where PSAwatch already has registration.
Mediwatch has begun direct marketing of PSAwatch into Europe, Middle East, Asia Pacific and Latin America. A large clinical trial is scheduled to begin at the Royal Hospital in Melbourne in Australia in 2012. In addition, Mediwatch is looking into increasing the utility of the reader into other applications. These are very positive developments for the product line which management expects will see increasing revenues and exposure.
The award of the General Service Agreement (GSA) contract allowing the sale of Mediwatch products into US Federal government establishments, together with the award of distribution contracts to two US distributors and the signing of agreements with several buying groups (GPOs) greatly increases the marketing reach of Mediwatch in the key US market.
Canada: we are now in the process of training four independent representative groups to increase our presence in this important market place.
The establishment of business in the rapidly growing Far East markets including China is an important platform for future growth.
Latin America: our new Marketing Manager for Latin America has now gained six new distributors through various countries which he is supporting with clinical and technical training, key opinion leader visits etc. We are working on a large potential contract in Brazil which we should see the benefits of during 2012.
Due to a change in policy at GE Healthcare, GE has re-established a direct sales team for their ultrasound range selling into the urology marketplace. As a result, Mediwatch USA has ended its agreement with GE Healthcare.
Mobilewatch: the recruitment of a new Marketing Manager has seen our sales grow threefold in the last three months and we are now represented in six states and have an aggressive marketing plan in place to extend this further. In time this will be a substantial part of our income which we intend to export to other parts of the world as a business plan.
Banking facilities: In December 2011, Mediwatch USA, Inc established a new banking facility with Fifth Third Bank for $2m, significantly increasing potential funds available to Mediwatch USA, Inc to support US growth. Mediwatch UK Ltd continues to be supported by Santander Corporate Banking through the provision of a GBP250,000 term loan and by way of an invoice finance facility which is due for review in November 2012.
Moving forward the Group plans to continue to enhance its product offering via additional joint R&D and OEM programmes with various worldwide companies.
Sales and Marketing
Achievements during the year include:
- Sales increased in the Far East market to GBP1,037,000 (2010: GBP591,000), growth of 75%.
- The group is approximately half way through the long SFDA registration process for the Chinese market. In anticipation of this registration Mediwatch has appointed Newwaytec Inc. to represent our products in this exciting market. Local training has already occurred and we are continuing to support Newwaytec in developing the market.
- In Hong Kong we have now agreed terms with S & V Samford who will be representing our whole range including PSAwatch. Albeit this is a small market it can still deliver good revenues in the future.
- In addition to securing the Federal Supply Schedule Contract with the US Government's General Services Administration (GSA), several other buying groups (GPOs) have contracted with Mediwatch for the supply of the full Mediwatch range.
- Mediwatch USA Inc. has contracted with two large distribution companies for the supply of our products within USA, significantly expanding our reach in the large US market.
- Since the end of the financial year, we have received confirmation of the inclusion of Mediwatch products in the NHS Supply Chain contract for the provision of urology consumables.
- In the US market, we are in the process of adding another territory manager and increasing the number of independent representatives via large well known representative groups to extend our range of products and services in the US. In addition we are developing an aggressive programme of internet marketing in the US and the rest of the world.
- Continued strengthening of the product range with the partnership with EB Neuro S.p.A. for the exclusive distribution of its gastro and neuro-physiology products in the UK.
- Progress continues to be made in integrating Venus and Acon into the portfolio of products sold to urologists in the USA. The inclusion of these products enhances the competitiveness of the current products while providing a low cost "pull through" sales opportunity.
Health and Safety
The Group operates formal assessment and reporting systems in respect of its health, safety and environmental performance.
The Board receives regular health and safety reports and the effectiveness of the systems and procedures are reviewed regularly.
The Group continues to strive to improve its health and safety processes and is pleased to report that there were no notifiable health and safety or environmental impacts or events at any of the Group's operations during the year.
Development Review
Research and Development
The Group has maintained its focus on improving its existing product and software portfolio as well as developing new products. R&D expenditure decreased by 3% to GBP813,000 in the year ended October 2011 (2010: GBP838,000) as we prioritised expenditure on a smaller number of key projects.
Mediwatch Biomedical
The key activities of Mediwatch Biomedical during 2011 was the transfer to production and optimisation of the PSAwatch test strip, including field work in the UK and France and the transfer to the new production facility. In addition, the development team has carried out initial technical appraisals on new clinical markers that build on the knowledge and skills gained with PSAwatch.
Dr Philip G. Stimpson Duniv
Chief Executive Officer
Finance Director's Report
Financial Review
Continuing operations
Sales revenue showed a small increase over the previous year at GBP10.6m (2010: GBP10.5m).
Gross margins were 37% (2010: 40%), down from the previous year. Margins eroded due to the increase in costs from some suppliers which we were not able to pass on to customers and the increased competition in particular in the urodynamic capital and consumable markets.
As a result of the business review conducted in late 2010, other administrative expenses fell in 2011 to GBP3,716,000 (2010: GBP4,107,000), a fall of 10%. The fall in this category of costs continued to accelerate in the second half of the year as the restructuring took effect - H1 2011 GBP1,933,000, H2 2011 GBP1,783,000.
Other operating income of GBP155,000 (2010: GBP146,000) was related to the research & development tax credit to which the Group was entitled to for the year. Finance costs increased to GBP47,000 (2010:GBP36,000).
The Group had EBITDA of GBP713,000 (2010: GBP583,000), reported pre-tax profits of GBP322,000 (2010: GBP233,000) and has accumulated UK tax losses available for offset against future profits amounting to GBP3,724,000.
Basic and diluted earnings per share was 0.22p (2010: 0.16p),
Dividends
The directors are not recommending a final dividend.
Assets, liabilities, capital and reserves
Non-current intangible assets increased to GBP4.7m (2010: GBP4.1m) as a result of the capitalisation of development costs of GBP770,000. Current assets of GBP3.8m (2010: GBP3.7m) remained relatively consistent year on year.
Current liabilities of GBP3.0m (2010: GBP2.7m) includes an increase in trade creditors and short term borrowings.
Capital and reserves were unchanged except for the profits arising from continuing operations and the share placing in April 2011.
Cash flows
Cash flow from operations contributed GBP835,000 (2010: GBP581,000). The increase for the current year is mainly attributable to the higher profits and a net decrease in working capital.
Investing activities required GBP857,000 (2010: GBP1,151,000). This decrease was due to a decrease in the purchase of tangible fixed assets. The investment in capitalised development projects during the year was broadly the same as the previous year.
Financing activities contributed GBP208,000 (2010: GBP303,000) from the Santander term loan which was drawn down in November 2010.
Banking
In December 2011, Mediwatch USA Inc established a new banking facility for $2,000,000 with the Fifth Third Bank, Florida, USA, as a replacement to the previous banking facility with First Bank of Palm Beach which was in place as at the 31 October 2011 year end. The new facility substantially increases the potential funds available to Mediwatch USA Inc and will therefore better support the growth of business in the key US market.
In January 2012, the covenant for Net Tangible Assets in the Santander plc facility was reset to GBP750,000, based on Mediwatch plc assets. This remedied the covenant breach as at 31 October 2011 and the group is compliant with this covenant.
Key performance indicators
Key performance indicator Target 2011 2010
Annualised sales growth (1) 6% 1% 1%
Profit from continuing operations
(2) 600 317 219
Source data is taken from the audited financial statements.
Notes to KPI's
(1) Annualised sales growth = the increase in revenue as a percentage of revenue from the prior year.
The Group endeavours to increase shareholder value through growth in revenue, linked to profitability (see Operating Profit below).
The planned sales growth for the year ended 31 October 2011 was targeted as some 6% of the previous financial years' sales of some GBP10.5m. The Group achieved a small increase in sales revenue over the previous year at GBP10.6m. Economic conditions in the market together with delays in commercialising PSAwatch hampered the Groups ability to further increase turnover based on the previous year.
The Group plans to maintain moderate sales growth within its current product range whilst focusing on establishing partnerships to bring greater value to its customers. This increased product offering will generate new revenue streams leveraging the existing overhead to increase the retained profits. In addition to new products, the Group plans to increase the services business, in particular in the US market. These new products and services are expected to increase the Group's offerings and further develop the "one-stop-solution" it offers to its customers.
(2) Profit from continuing operations = profit after interest, taxes, depreciation, amortisation and exceptional items.
The Group continually seeks to maximise profitability with its design and manufacturing expertise and rigorous management of administration costs.
The underlying trading profit for the year ended 31 October 2011 was GBP317,000 (2010: GBP219,000) which was below prior estimates. This was due to the delay in commercialising PSAwatch, increased competition in the urodynamic market and delays in cost cutting research and development projects.
Principal risks and uncertainties facing the Company.
The currently uncertain global economic climate could have an effect on future capital orders and the ability for private customers to obtain adequate financing. However our industry is largely sheltered from large scale increases and decreases in demand. We are turning our attention to the service industry where these effects will have an even lesser impact.
The Group's exposure to the current economic and political uncertainty is mitigated by the following factors:
- Worldwide geographic spread of customers.
- Spread of business between public and private end users.
- Spread of business between capital and consumable products i.e. discretionary and non-discretionary expenditure.
Financial instruments
The Group's operations expose it to a variety of financial risks. These risks are actively managed through a mixture of credit insurance, natural hedging, fixing interest rates and other procedures. Other financial risks include the effects of changes in interest rates on debt, foreign currency exchange rates, credit risk and liquidity risk. The Group's policy is to invoice in pounds sterling by preference outside the US, with a minority invoiced in euros and in dollars within the US and certain international markets. The Group has a natural hedge through purchasing in euro, US dollars and sterling, thus mitigating its exposure to foreign exchange risk.
The Group's principal financial instruments comprise pounds sterling, euro and dollar cash and bank deposits, bank borrowings, other loans and obligations together with trade debtors and trade creditors that arise directly from its operations.
The main risks arising from the Group's financial instruments can be analysed as follows:
Price risk
The Company has no significant exposure to securities price risk, as it holds no listed equity investments.
Foreign currency risk
The Group is exposed in its trading operations to the risk of changes in foreign currency exchange rates, principally US dollars, pounds sterling and euros. The group has a natural hedge in its normal business that generally matches receipts and payments in each currency. Unused surpluses are transferred into pounds sterling. The group further manages its foreign exchange exposure by matching US dollar assets against US dollar borrowings in Mediwatch USA Inc.
Credit risk
The Group's principal financial assets are bank balances, cash and trade receivables, which represent the Company's maximum exposure to credit risk in relation to financial assets.
The Group's credit risk is primarily attributable to its trade receivables. Credit risk is managed by performing credit check procedures on new and existing customers, the use of trade receivable insurance both in the US and the UK, the use of letters of credit and pro-forma invoicing and by monitoring the aggregate amount and duration of exposure to any one customer depending upon their credit rating. The amounts presented in the balance sheet are net of allowances for doubtful debts, estimated by the Group's management based on prior experience and their assessment of the current economic environment.
The credit risk on liquid funds is limited as the third parties involved are banks with high credit ratings assigned by international credit rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a significant number of third parties and customers.
Liquidity risk
The Company's policy has been to ensure continuity of funding through acquiring an element of the Group's fixed assets under finance leases, arranging funding for operations via medium-term loans and additional revolving credit and sales finance facilities to aid short-term flexibility.
Cash flow interest rate risk
Interest bearing assets comprise cash and bank deposits. During the year, the group fixed the interest rate on the UK term loan mitigating the interest rate risk on this facility. The Group's policy is to maintain other borrowings at commercial rates to reflect the nature of the borrowing. The directors monitor the overall level of borrowings and interest costs to limit any adverse effects on financial performance of the Group.
Colm Croskery B.Comm FCA MBA
Group Finance Director
30 January 2012
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2011
2011 2010
GBP'000 GBP'000
Continuing operations
Revenue 10,587 10,484
Cost of sales (6,657) (6,254)
Gross profit 3,930 4,230
Other administrative expenses (3,716) (4,107)
Other operating income 155 146
Profit from operating activities 369 269
Net finance expense (47) (36)
Profit before taxation 322 233
Tax (5) (14)
Profit from continuing operations 317 219
Basic and diluted profit per ordinary
share 0.22p 0.16p
EBITDA 713 583
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2011 2010
GBP'000 GBP'000
Profit from continuing operations 317 219
Exchange differences on translating
foreign operations (13) (21)
Total comprehensive income for the
year 304 198
CONSOLIDATED BALANCE SHEET AT 31 OCTOBER 2011
2011 2010
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 505 647
Goodwill 2,256 2,256
Intangible assets 2,455 1,835
Total non-current assets 5,216 4,738
Current assets
Inventories 1,407 1,735
Trade and other receivables 2,255 1,896
Cash and cash equivalents 170 91
Total current assets 3,832 3,722
Total assets 9,048 8,460
Current liabilities
Trade and other payables (2,186) (2,045)
Bank borrowings (589) (683)
Bank Loan (208) -
Total current liabilities (2,983) (2,728)
Total non-current liabilities - -
Total liabilities (2,983) (2,728)
Net assets 6,065 5,732
Capital and reserves
Called up share capital 3,842 3,830
Share premium account 6,095 6,077
Other reserves 7,000 7,000
Share based payment reserve 1 2
Profit and loss account (10,873) (11,177)
Equity attributable to equity holders
of the parent 6,065 5,732
The financial statements were approved by the Board and authorised for issue on 30 January 2012. They were signed on its behalf by:
P G Stimpson
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2011
Called Share Other Retained Total
up premium reserves earnings equity
share account and share
capital based payment
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance 1 November 2009 3,770 5,813 7,006 (11,375) 5,214
Issue of shares (net of issue
costs) 60 264 - - 324
Total comprehensive income
for the year - - - 198 198
Share based payments; services
provided - - (4) - (4)
60 264 (4) 198 518
-------- -------- -------------- --------- -------
Balance 31 October 2010 3,830 6,077 7,002 (11,177) 5,732
Issue of shares (net of issue
costs) 12 18 - - 30
Total comprehensive income
for the year - - - 304 304
Share based payments; services
provided - - (1) - (1)
12 18 - 304 333
-------- -------- -------------- --------- -------
Balance 31 October 2011 3,842 6,095 7,001 (10,873) 6,065
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2011
2011 2010
GBP'000 GBP'000
Cashflow from operating activities 882 617
Interest paid (47) (36)
Net cash from operating activities 835 581
Cashflow from investing activities
Purchases of property, plant and
equipment (87) (409)
Purchase of intangible fixed assets (770) (742)
Net cash outflow from investing
activities (857) (1,151)
Financing
Proceeds from issue of shares - 347
Costs of share issue - (23)
Repayment of bank loans (42) (21)
Proceeds from borrowings 250 -
Net cash from financing activities 208 303
Net increase/(decrease) in cash
and cash equivalents 186 (267)
Cash and cash equivalents at 1 November (592) (304)
Effects of foreign exchange rate
changes (13) (21)
---------- ----------
Cash and cash equivalents at 31
October (419) (592)
========== ==========
Comprising of:
Cash and cash equivalents per the
balance sheet 170 91
Less:
Bank borrowings (589) (683)
---------- ----------
Cash and cash equivalents for cash
flow statement purposes (419) (592)
========== ==========
As described in the accounting policies, bank overdrafts repayable on demand fluctuate from being positive to overdrawn and are considered an integral part of the Group's cash management for cash flow statement purposes.
There is no material difference between the fair value and the book value of cash and equivalents.
NOTES TO THE FINANCIAL STATEMENTS
1. General Information
Mediwatch plc is a company incorporated in the United Kingdom under the Companies Act, (Company number 03971079). The address of the registered office is Lumonics House, Valley Drive, Swift Valley, Rugby, Warwickshire, CV21 1TQ. The nature of the Group's operations and its principal activities during the period were the development and marketing of medical devices used in the diagnosis of urological disorders and early prostate cancer detection. These Financial Statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Group operates.
2. Adoption of new and revised International Financial Reporting Standards ("IFRS")
(a) New and amended standards adopted by the group
In the current year, the Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 November 2010. The adoption of the following IFRSs has not impacted the audited financial statements:
IFRS 2 - Share-based payments (amendment)
The amendments provide a clear basis to determine the classification of share-based payment awards in consolidated and separate financial statements. The amendment incorporates IFRIC 8, 'Scope of IFRS 2', and IFRIC 11, 'IFRS 2 - Group and treasury share transactions', into the standard; expands on the guidance given in IFRIC 11 to address plans that were not considered in the interpretation; and clarifies the definitions section of IFRS 2. The amended definitions remove inconsistencies between Appendix A, defined terms and the main body of the standard. The original wording was inconsistent regarding the treatment of equity instruments of other entities in the group.
IFRS 8 - Operating segments (amendment)
IFRS 8, 'Segment reporting', allows operating segments as defined in IFRS 8 to be aggregated into a higher level reportable operating segment if certain criteria are met. However, as defined in IAS 36, 'Impairment of assets', each cash generating unit or group of units to which goodwill is allocated should not be larger than an operating segment before aggregation. Operating segments previously grouped together for the purpose of testing goodwill carrying values must now be tested separately for impairment. This is an amendment to IAS 36 and is effective for periods beginning on or after 1 January 2010; as it is effective prospectively any resulting impairment is recognised in the income statement, however there has been no such impact to the group during the year.
IAS 1 - Presentation of financial statements (amendment)
The main change resulting from the amendments is a requirement for entities to group items presented in other comprehensive income ('OCI') on the basis of whether they are potentially recycled to profit or loss (reclassification adjustments). The amendments do not address which items are presented in OCI. This will not impact the group.
(b) Standards, amendments and interpretations effective in 2010/11 but not relevant
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
IFRS 5 - Non current assets held for sale and discontinued operations
IFRIC 9 - Reassessment of embedded derivatives
IFRIC 16 - Hedges of a net investment in foreign operation
IFRIC 15 - Agreements for construction of real estate
IFRIC 18 - Transfer of assets from customers
IFRIC 19 - Extinguishing financial liabilities with equity investments
These standards and interpretations are not expected to have any significant impact on the Group's Financial Statements, in their periods of initial application.
(c) Standards, amendments to and interpretations of existing standards that are not yet effective and have not been early adopted by the group
The following standards and amendments to existing standards have been published and are mandatory for the group's accounting periods beginning on or after 1 January 2011 or later periods, but the group has not early adopted them:
IAS 24 (Revised) - Related party disclosures (effective 1 January 2011)
This amendment removes the requirement for government- related entities to disclose details of all transactions with the government and other government-related entities. It clarifies and simplifies the definition of a related party. This will not impact the group.
IFRS 7 - Financial instruments: Disclosures (amendment)
These amendments arise from the IASB's review of off- balance-sheet activities. The amendments will promote transparency in the reporting of transfer transactions and improve users' understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity's financial position, particularly those involving securitisation of financial assets.
IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
This will not impact the group.
IFRS 9 - Financial instruments: classification and measurement (amendment)
This is the first part of a new standard on classification and measurement of financial assets and financial liabilities that will replace IAS 39, 'Financial instruments: Recognition and measurement'. IFRS 9 has 2 measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortised-cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. This change will mainly affect financial institutions.
IFRS 11 - Joint arrangements (amendment)
This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. There are 2 types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. This will not impact the group.
IFRS 13 - Fair value measurement
This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP.
IFRS 10 - Consolidated financial statements (amendment)
This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries.
IAS 28 - Associates and joint ventures (revised 2011)
This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. This will not impact the group.
3. Significant Accounting Policies
Basis of Accounting
The Financial Statements, upon which this financial information is based, have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS).
The financial information has been prepared on a going concern basis in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") at 31 October 2011 as well as all interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") at 31 October 2011. The Group has not availed itself of early adoption options in such standards and interpretations.
The financial statements have been prepared on a going basis which assumes that the company will continue in existence for the foreseeable future. The directors are satisfied that the company is adequately funded for its investment and cash flow needs for at least the next year. After making enquiries the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Accordingly we continue to adopt the going concern basis in preparing the Annual Report and Accounts.
The Financial Statements have been prepared under the historical cost basis and, where appropriate, fair values. The principal accounting policies adopted are set out below:
Basis of consolidation
The consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 October each year. Control is achieved where the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations
The purchase method of accounting is used for all acquired businesses as defined by IFRS 3 - Business Combinations (revised).
As a result of the application of the purchase method of accounting, goodwill is initially recognised as an asset being the excess at the date of acquisition of the fair value of the purchase consideration plus directly attributable costs of acquisition over the net fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiaries acquired.
Where fair values are estimated on a provisional basis they are finalised within 12 months of acquisition with consequent changes to the amount of goodwill.
Intangible assets acquired as part of a business combination
Identifiable intangible assets acquired as part of a business combination are initially recognised separately from goodwill if the asset's fair value can be measured reliably, irrespective of whether the asset had been recognised by the acquiree before the business combination. An intangible asset is considered identifiable only if it is separable or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
For intangible assets with finite useful lives, amortisation is calculated so as to write off the cost of an asset less its estimated residual value over its useful economic life as follows:
Development costs - straight line over 2 - 8 years.
Intangible assets relating to developmental expenditure are reviewed regularly by management for the project's technical and commercial feasibility in accordance with IAS38.
Goodwill
Goodwill arising on consolidation represents the excess cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units are defined as the operating subsidiaries of the group. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication of impairment. The amount of the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is provided evenly on the cost of property, plant and equipment to write them down to their estimated residual values over their expected useful lives. The principal annual rates used for assets are:
Short leasehold property Over the period of the
lease
Plant, fixtures and motor vehicles 2 - 8 years straight
line
Where there is evidence of impairment, fixed assets are written down to recoverable amount.
Warranties
Provision is made for the estimated liability on all products still under warranty, including claims already received. The provision is based on past experience of claims arising in the warranty periods.
Inventories
Inventories are valued at the lower of cost and estimated net realisable value. Cost is determined on a first-in first-out basis. The cost of work in progress and finished goods comprises materials, direct labour and attributable production overheads. Net realisable value is based on the estimated sales price after allowing for all further costs of completion and disposal.
Leased assets
Leases are classified as finance leases if substantially all the risks and rewards of ownership are transferred to the lessee. All other leases are classified as operating leases.
Assets and liabilities deriving from finance lease contracts are initially recognised in the balance sheet at the lower of their fair value and the present value of the minimum future lease rentals.
After initial recognition the depreciation policy applied is consistent with that for depreciable assets that are owned. As a result the depreciation recognised is calculated in accordance the useful life stated for property, plant and equipment (the company does not hold leased intangible assets). In cases where there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.
The interest element of rental obligations is charged to the income statement over the period of the lease at a constant rate on the balance of finance lease obligations outstanding.
Rentals payable under non-onerous operating leases are expensed in the income statement on a straight-line basis over the lease term.
Incentives to take out operating leases are credited to the income statement on a straight-line basis over the lease term.
Foreign currencies
Transactions in foreign currencies are recorded at the exchange rate ruling at the date that the transaction occurred. Monetary and non-monetary assets and liabilities denominated in foreign currency are translated into sterling at the rates of exchange ruling at the balance sheet date. Exchange differences are taken into the income statement.
The results of overseas operations are translated at the average rate of exchange during the period and their balance sheets at the rates of exchange ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations and on foreign currency borrowings, to the extent that they hedge the Group's investment in such operations, are reported in the Statement of Comprehensive Income. All other exchange differences are included in the income statement.
Current and deferred taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profits for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that sufficient taxable profits will be available to allow all, or part, of the asset to be recovered.
Deferred tax is calculated at the tax rates currently enacted. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Pensions
The Company operates a defined contribution pension scheme for senior management. The assets of the scheme are invested and managed independently of the finances of the Company. The pension cost charge represents contributions payable in the period.
Share based payments
Other than for business combinations, the only share based payments of the group are equity settled share options. The Black-Scholes Option Model is used to estimate the fair value of each option at grant date. That fair value is charged on a straight line basis as an expense in the income statement over the period that the employee becomes unconditionally entitled to the options (vesting period), with a corresponding increase in equity.
The number of such options is increased annually to reflect best estimates of those expecting to vest (ignoring purely market based conditions) with consequent changes to the expense. Equity is also increased by the proceeds receivable as and when employees choose to exercise their options.
If the group modifies the terms and conditions on which the equity instruments were granted, as a minimum, the services received measured at the grant date fair value of the equity instruments granted (unless those equity instruments do not vest because of a failure to satisfy a vesting condition other than a market condition) are charged to the income statement.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual agreements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recognised at the amount of proceeds received net of costs directly attributable to the transaction. To the extent that those proceeds exceed the par value of the shares issued they are credited to a share premium account.
Trade payables
Trade payables are not interest-bearing and are stated at their nominal value.
4. Critical accounting judgements and key sources of estimation uncertainty
In application of the Group's accounting policies above, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities. These estimates and assumptions are based on historical experience and other factors considered relevant. Actual results may differ from estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revision affects only that period or in the period of the revision and future payments if the revision affects both current and future periods.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. There was no impairment of goodwill during the year.
Valuation of intangibles
Intangibles are initially valued at their cost and then evaluated periodically for impairment. For purposes of valuation an intangible asset is considered impaired if its carrying value is less than the expected net cash flow from the asset
Valuation of Inventory
Inventories are valued and the lower of cost and net realisable value. Judgements are made regarding the estimation of net realisable value and regarding future demand.
Share-based payments
Share options are valued by management utilising the Black Scholes Option Model method of valuation.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
2011 2010
GBP'000 GBP'000
Earnings for the purposes of basic earnings
per share being net profit attributable to equity
holders of the parent 317 219
Effect of dilutive potential ordinary shares - -
Earnings for the purposes of diluted earnings
per share 317 219
Number of shares
2011 2010
No.'000 No.'000
Weighted average number of ordinary shares for
the purposes of basic earnings per share 140,871 139,713
Effect of dilutive potential ordinary shares:
Share options 2,277 2,378
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 143,148 142,091
6. Dividend
The directors do not recommend the payment of a dividend (2010: GBPnil).
This information is provided by RNS
The company news service from the London Stock Exchange
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FR BCGDBGBXBGDB