ABCAM PLC Preliminary Results 2018 (2810A)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Abcam Plc	LSE:ABC	London	Ordinary Share	GB00B6774699	ORD 0.2P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	1,226.00	1,240.00	1,246.00				0.00	01:00:00

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

Abcam (LSE:ABC)
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RNS Number : 2810A

ABCAM PLC

10 September 2018

The following amendments have been made to the 'Preliminary Results 2018' announcement released on 10 September 2018 at 7am BST under RNS No 1986A.

The 2017/18 reported revenues numbers for Japan, Rest of Asia Pacific and Custom Products & Licensing (CP&L) revenue, included in the table entitled 'Revenue', have been corrected following a formatting error.

10 September 2018

ABCAM PLC

Double-digit increase in revenue and earnings enables

continued investment to sustain long-term growth

Cambridge, UK: Abcam (AIM: ABC, "Abcam" or "The Group"), a global leader in the supply of life science research tools, today announces its preliminary results for the year ended 30 June 2018.

FINANCIAL SUMMARY

 
                                         Reported                     Adjusted(2) 
---------------------------  =================================  ======================== 
                             2017/18  2016/17           CER(1)  2017/18  2016/17 
                                GBPm     GBPm  Growth   growth     GBPm     GBPm  Growth 
===========================  =======  =======  ======  =======  =======  =======  ====== 
Revenue                        233.2    217.1    7.4%    10.7%    233.2    217.1    7.4% 
Gross profit margin, %         69.9%    70.1%                     69.9%    70.1% 
EBITDA(2)                       81.7     70.5   15.9%              88.3     73.3   20.5% 
Profit Before Tax (PBT)         69.1     51.9   33.1%              81.6     64.6   26.3% 
Diluted earnings per share 
 (EPS) (pence)                 30.2p    20.7p   45.9%             32.4p    25.5p   27.1% 
Annual dividend per share 
 (pence)                      12.00p   10.18p   17.9%            12.00p   10.18p   17.9% 
---------------------------  -------  -------  ------  -------  -------  -------  ------

FINANCIAL HIGHLIGHTS

-- Total revenue increased by 7.4% on a reported basis and 10.7% on a constant exchange rate (CER) basis(1)

- Catalogue revenue grew 7.1% on a reported basis to GBP216.8m (2016/17: GBP202.4m) and 10.2% CER

- Custom Product and Licensing (CP&L) revenue grew 11.6% on a reported basis to GBP16.4m (2016/17: GBP14.7m) and 17.6% CER

-- EBITDA margin was 35.0% (2016/17: 32.5%) whilst Adjusted EBITDA margin(2) increased to 37.9% (2016/17: 33.8%), primarily due to the rolling-off of hedging contracts in the prior year

   --      Reported PBT grew 33.1% to GBP69.1m and adjusted PBT grew 26.3% to GBP81.6m 
   --      Reported diluted EPS grew 45.9% to 30.2p and adjusted diluted EPS grew 27.1% to 32.4p

-- Strong cash generation continued, with net cash inflow from operating activities of GBP63.3m (2017/18: GBP66.4m)

-- Proposed final dividend of 8.58p (2016/17: 7.36p), taking the proposed total annual dividend to 12.00 pence per share, an increase of 17.9%

OPERATIONAL AND STRATEGIC HIGHLIGHTS

-- Strong commercial and strategic execution in the year, with all strategic key performance targets achieved:

- Recombinant antibody revenue growth of +22.3% CER (target 20-25%)

- Immunoassay product revenue growth of +25.4% CER (target 20-25%)

- 12-month rolling transactional Net Promotor Score (tNPS) up 2 percentage points to 64% (target 55-65%)

-- Continued to drive quality standards through knockout validation, recombinant antibodies, and other quality initiatives, with a further 400+ products knockout validated in the year

-- Acquired the exclusive rights from Roche for a portfolio of Spring Bioscience products for research use only (RUO) applications

-- Further increased our addressable market in CP&L (Abcam Inside), with 28 new framework agreements signed with pharmaceutical and diagnostic partners

-- Continued to expand our FirePlex(R) platform, with the addition of over 150 new validated antibody pairs

SUMMARY OUTLOOK AND GUIDANCE

   --    Long-term market outlook remains positive; good momentum across the business

-- Expect total constant currency revenue growth for 2018/19 of 11%; ambition to maintain revenue growth at low double-digit rates over the medium-term

-- Anticipate 2018/19 adjusted EBITDA(2) margin of 36% as a result of increased investment in strategic initiatives

Commenting on the performance, Alan Hirzel, Abcam's Chief Executive Officer, said:

"It has been a good year for Abcam, delivering double-digit revenue growth on a constant currency basis and meeting all of our strategic targets. Our customer focused strategy is delivering results, whilst our strong cash generation and balance sheet strength underpin the continued investments we are making into our teams, systems and facilities to sustain our double-digit growth rates and help life scientists around the world to discover more, faster."

--------------S --------------

For further information please contact:

 
Abcam                                                         + 44 (0) 1223 696 000 
Alan Hirzel, Chief Executive Officer 
 Gavin Wood, Chief Financial Officer 
 James Staveley, Vice President, Investor Relations 
J.P. Morgan Cazenove - Nominated Advisor & Corporate Broker   + 44 (0) 20 7742 4000 
James Mitford / Jonty Edwards 
FTI Consulting                                                + 44 (0) 20 3727 1000 
Ben Atwell / Brett Pollard / Natalie Garland-Collins

1. Constant currency results (CER) are calculated by applying prior period's actual exchange rates to this period's results.

2. These preliminary results include discussion of alternative performance measures which are defined in further detail in note 9. These measures include adjusted financial measures, which are explained in note 1(c) and reconciled to the most directly comparable measure prepared in accordance with IFRS in note 3 to the financial information. Further detail on the Group's financial performance is set out in the financial information and notes thereto.

This announcement, including any information included or incorporated by reference in this announcement, may contain forward-looking statements (including words such as 'believe', 'expect', 'estimate', 'intend', 'anticipate' and words of similar meaning) which are based upon current expectations and assumptions regarding anticipated developments and other factors affecting Abcam. All statements other than statements of historical facts may be forward-looking statements and should not be treated as guarantees of future performance. These forward-looking statements involve risks and uncertainties, many of which are beyond the control of Abcam, and there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements speak only as at the date of this announcement and accordingly undue reliance should not be placed on such statements. Abcam does not assume any obligation to, and does not intend to, revise or update these forward-looking statements, except as required pursuant to applicable law.

About Abcam plc

As an innovator of reagents and tools, Abcam's purpose is to serve life scientists globally to achieve their mission, faster. Providing the research and clinical communities with tools and scientific support, the Group offers highly validated biological binders and assays to address important targets in critical biological pathways.

A pioneer in data sharing and ecommerce in the life sciences, Abcam's ambition is to be the most influential company in life sciences by helping advance global understanding of biology and causes of disease, which, in turn, will drive new treatments and improved health. Two-thirds of the world's 750,000 life science researchers use Abcam's antibodies and affinity binders, reagents, biomarkers and assays and the Group's products are mentioned in over 20,000 of the 56,000 peer-reviewed papers published each year in the life sciences.

By actively listening to and collaborating with researchers, the Group continuously advances its portfolio to address their needs. A transparent programme of customer reviews and datasheets, combined with an industry-leading validation initiative, gives researchers increased confidence in their results.

Abcam's eleven locations are located in the world's leading life science research hubs, enabling local services and multi-language support. Founded in 1998 and headquartered in Cambridge, UK, the Group sells to more than 100 countries. Abcam was admitted to AIM in 2005 (AIM: ABC).

To discover more, please visit www.abcam.com and www.abcamplc.com

Chief Executive Officer's Review

Sustaining long-term profitable growth

Abcam started 20 years ago with one big idea: to provide research scientists faster access to antibodies that work. Our company was a pioneer applying e-commerce tools to the life sciences. That disruptive innovation made it possible to offer an extensive antibody range, validation data, and rapid customer service to researchers worldwide. The financial success of the company and support of our shareholders since then has enabled us to increase investment in long-term profitable growth.

Performance in 2018

In business terms, 2017/18 was a good year. Abcam again grew profitably. Revenue increased by 7.4% on a reported basis and by 10.7% on a constant currency basis, driven by recombinant antibodies (CER revenue +22.3%), immunoassays (CER revenue +25.4%) and China (CER revenue +26.0%), whilst our Custom Product & Licencing business also returned to growth. At the same time, adjusted Profit Before Tax (PBT) grew over 26%, to GBP81.6m, with reported PBT of GBP69.1m (2016/17: GBP51.9m). The business continues to be strongly cash generative, and we are putting that cash to work in both capital projects, to ensure the future scalability of our business, as well as investing further in the continued development of our products and services.

Doing more for customers, faster

When I joined Abcam in 2013, I was inspired to accomplish two things: ensure Abcam is guided by the needs of our customers and build a business that will deliver long-term sustainable growth while influencing and accelerating life science discovery worldwide. In that first year, we started a transformation in leadership, scope of business, organisation, operations and purpose that, over time, would help to achieve those dual aims.

Five years later, we have made tremendous progress thanks to the loyalty of our customers and the hard work of our global team. We have roughly doubled the scale of Abcam since 2013 in terms of our revenue, profits and impact on science.

Today, Abcam is a global leader in providing antibodies to academic researchers, and research and development teams worldwide. Our customers have provided us with greater clarity about our role: we serve them to help them achieve their missions, faster than they might otherwise. Like a Sherpa for a mountaineer, we dedicate ourselves to the success of scientists, helping them select the right tools and navigate the best path in their ascent to the highest levels of discovery.

Innovating beyond our antibody heritage

Over the years we have learned a lot about what our customers want. In response, we have focused on innovating and expanding our product range, extending our customer influence beyond our original research antibody heritage. A relentless focus on our customers' needs has led us to acquire and integrate five companies and build new technology applications of our own, such as the use of rabbit monoclonal hybridomas, phage display, next generation sequencing and CRISPR-Cas9 technologies to enhance and accelerate antibody selection and validation. This focus on customer led innovation continues. We are well on our way to creating a portfolio of complementary antibody pairs that enable novel, high-throughput screening techniques using our FirePlex(R) particles. Because of these developments, we have an enviable and expanding portfolio of distinctive and proprietary life science innovation capabilities.

In the past year, there have been several notable examples of Abcam products influencing life sciences and patient outcomes including:

-- the use of our ArV7 antibody (Ab198394) for the early diagnosis of metastatic prostate cancer;

-- the use of FirePlex(R) micro-RNA multiplex analysis to enhance identification of signals related to the rapid onset of cardiac arrest (S. Das research at Harvard Medical School, Boston);

-- the development of novel RabMAb(R) recombinant antibodies to support research into the reduction of chemotherapy-related side-effects (F. Shao research at the National Institute of Biological Sciences, Beijing)

As noteworthy as these examples are, it is the recognition of the contributions to the work of the thousands of scientists we serve around the world every day that remain the foundation of our business. This includes:

   --    over 20% of global publications using antibodies cited Abcam in 2017;

-- #1 cited company for over 30% of protein targets studied in research in 2017, up from 22% in 2013;

   --    customer awards via CiteAb recognising our work in China and Cancer research; and 
   --    customer satisfaction (measured by tNPS) of 64%, up 2 percentage points on 2017

My belief is commercial success follows from appropriate focus on our customers and team. Our performance this year has been encouraging and in line with our ambitious targets, with growth once again well above the underlying market growth rate.

Striving to continuously improve

As we examine our customers and markets, we remain confident that we still have many opportunities and ideas to create future sources of growth and value for all our stakeholders. Ideas are wonderful and easy to generate at Abcam. Implementing them well is tougher and comes with the typical challenges of change. Whilst we are moving quickly to grow and improve our business, we do not always get everything right.

As good as our customer relationships and net promoter scores are, there are still too many occasions when we fall short of their high expectations. One frustrating example is that customers must sometimes wait too long for a product. We have built a new supply chain team, but it is fair to say that we are still not achieving the customer performance levels we aspire to in supply chain and manufacturing. We will be investing more in talent and automation to improve in these areas.

Upgrading our systems in order to efficiently and effectively scale our business is critical for our continued growth. We set out to improve effectiveness and efficiency in four major business areas with Oracle Cloud ERP: customer contact, human resources, finance, and supply chain. To date, we have successfully completed what we wanted to achieve in human resources and customer contact. As we have learned more about the system and its maturity, we have decided to phase the remainder of the programme to reduce the risk to our business and customers. As a consequence, the programme will take longer and cost more than we predicted when we defined our requirements in 2015. We have established a new approach for more frequent and lower risk deployment and in this coming year we will focus on implementing the finance modules. Once completed, we will have substantially concluded three of the four major objectives of the programme.

I know that if we are not breaking things and occasionally falling short of our goals, we are not being bold enough. We must keep pushing and investing to build this company to have a greater role for customers in the markets we serve, and that work will continue for many years to come.

Investing in our future

We remain committed to our goal of building a company that will endure and play a growing role in the advances in science and medicine. Some of this investment is in the basic building blocks that should be in place to enable high growth, such as:

-- strengthening our global team's skills and incentives - including broader equity participation;

   --      automating our production and distribution processes; 
   --      enhancing our IT capabilities; and

-- improving and consolidating our facilities including a move into our new headquarters in Cambridge, UK.

Other investments, more closely linked to innovative development concepts for our future, include:

   --      further enhancing product validation;

-- developing new, high-value products using existing and emerging technologies such as gene editing;

   --      strengthening our market leadership in China; 
   --      expanding our single and multiplex immunoassay portfolio; 
   --      extending and improving the application of machine learning across our business; and 
   --      introducing more personalised and dynamic content to our e-commerce.

As we continue to invest in our long-term success, we expect to sustain top line growth ahead of market growth. My commitment is to ensure our team is rigorously prioritising the areas that offer the greatest return to all our stakeholders.

Our strategic priorities

In 2017/18 we refined our five multi-year strategic priorities to reflect the ongoing development of our markets and our business. They are:

   --      Sustain antibody and digital marketing leadership 
   --      Expand in related growth markets 
   --      Invest in operating capabilities to double our 2016 scale by 2023 
   --      Sustain attractive economics 
   --      Supplement organic growth through acquisitions and partnerships

We have made further progress in each of these areas in the last year and, as we do so, we are identifying more growth opportunities. You can read more about our achievements against these priorities in the Strategic Priorities section.

Our performance against our strategic key performance indicators (KPIs), as listed below, reflects achievement within the range of our full year targets:

 
 Strategic KPIs                          2017/18 target   Actual 
--------------------------------------  ---------------  ------- 
 Recombinant antibody product revenue 
  growth(1)                                  20-25%       22.3% 
--------------------------------------  ---------------  ------- 
 Immunoassay revenue growth(1)               20-25%       25.4% 
--------------------------------------  ---------------  ------- 
 Customer engagement: transactional 
  NPS                                        55-65%        64% 
--------------------------------------  ---------------  ------- 
 
   1          Constant exchange rate

Looking forward

There is good momentum across the business and we believe the Group is in a strong position for a successful future. The organic and inorganic investments we have made and will continue to make are enabling Abcam to sustain its growth and achieve the stretching targets we have set for ourselves. I am confident that these investments will generate long-term value for our shareholders whilst helping us serve life scientists around the world to achieve their missions faster.

Alan Hirzel

Chief Executive Officer

Strategic Priorities

Our strategy is designed to generate profitable growth and improve our long-term financial performance. Key developments in the year and our priorities for the next 12 months are set out in the table below:

 
                                         Progress in 2017/18                     Priorities for 2018/19 
 1.                                       Delivered primary antibody revenue      Continue to develop new products 
 Sustain antibody and digital             growth ahead of the global market       focused on high value areas, based 
 marketing leadership                     growth rate                             on customers' research 
                                          Further enhanced our target             needs 
                                          selection process to increase the       Further enhance our product 
                                          success of new products                 validation and continue to raise 
                                          Implemented process improvements to     product quality standards across 
                                          shorten lead times, improving the       the catalogue 
                                          success rates of product                Implement the next phase of our 
                                          launches                                growth strategy for China 
                                          Continued to work with suppliers to 
                                          add validation data as well as 
                                          delivering improvements 
                                          in our own range through enhanced 
                                          antibody validation and production 
                                          techniques 
                                          Continued to grow and enhance our 
                                          digital footprint, driving better 
                                          engagement and conversion 
                                        --------------------------------------  -------------------------------------- 
 2.                                       Published over 200 new SimpleStep       Continue to grow our immunoassay 
  Expand in related growth markets        ELISA(R) immunoassays products on       business in line with multi-year 
                                          the catalogue                           aspiration 
                                          Further developed FirePlex(R)           Continue to expand the number of 
                                          multiplex platform, validating over     Abcam Inside projects and framework 
                                          150 pairs of antibodies                 agreements 
                                          and launching a high throughput         Launch teams to develop 1-2 new 
                                          product (Fireplex(R)-HT) to simplify    strategic initiatives 
                                          and speed up workflows 
                                          Further expanded electronic 
                                          catalogue connections to 
                                          large-volume customers 
                                          Continued to expand addressable 
                                          market in Custom Products and 
                                          Licensing, with 28 new framework 
                                          agreements signed and over 150 
                                          projects initiated for 
                                          pharmaceutical and diagnostic 
                                          development 
                                          partners 
                                        --------------------------------------  -------------------------------------- 
 3.                                       Continued to progress development of    Successfully deploy next phases of 
 Invest in operating capabilities for     our new enterprise resource planning    Oracle Cloud ERP 
 2x 2016 scale by 2023                    (ERP) system, although                  Roll-out equity participation scheme 
                                          at a slower pace than planned           to global employees 
                                          Delivered distribution improvement      Successfully move UK team to the new 
                                          projects in the UK, US and China        headquarters on the Cambridge 
                                          Continued construction of our new UK    Biomedical Campus 
                                          headquarters on the Cambridge           Continue to fill or enhance our 
                                          Biomedical Campus - on                  capabilities across supply chain and 
                                          track to move in during 2018/19         manufacturing, IT and 
                                          Continued investment to support         new growth projects 
                                          employee engagement and development 
                                          across our global organisation 
                                        --------------------------------------  -------------------------------------- 
 4.                                       Identified and delivered operating      Continue to realise productivity 
  Sustain attractive economics            efficiencies and productivity gains,    gains 
                                          including the successful                Move to direct distribution in more 
                                          closure and outsourcing of our          markets 
                                          Bristol, UK manufacturing operations 
                                          Delivered further procurement 
                                          efficiency benefits through the 
                                          creation of our global procurement 
                                          function 
                                          Made preparations to move to direct 
                                          distribution in more markets 
                                        --------------------------------------  -------------------------------------- 
 5.                                       Signed exclusive licence agreement      Continue to strengthen relationships 
 Supplement organic growth -              with Roche covering a portfolio of      for future deals 
 partnerships and acquisition             approximately 760 products, 
                                          including 243 RabMAbs(R) 
                                          Entered into a number of 
                                          collaborations with industry 
                                          partners 
                                        --------------------------------------  --------------------------------------

Financial Review

This financial review includes discussion of alternative performance measures which are defined further in the Notes to the Preliminary Financial Information. These measures include alternative performance measures, which are explained in note 9 and reconciled to the most directly comparable measure prepared in accordance with IFRS in note 3. Further detail on the Group's financial performance is set out in the Preliminary Financial Information and notes thereto.

Constant exchange rates ("CER") growth is calculated by applying the applicable prior period average exchange rate to the Group's actual performance in the respective period.

Overview of 2018 Financial Performance

 
                                    Reported Results         Adjusted Results 
-------------------------------  =======================  ======================= 
                                   Year ended 30 June       Year ended 30 June 
-------------------------------  =======================  ======================= 
                                   2018    2017   Growth    2018    2017   Growth 
                                   GBPm    GBPm             GBPm    GBPm 
===============================  ======  ======  =======  ======  ======  ======= 
Revenue                           233.2   217.1     7.4%   233.2   217.1     7.4% 
 
Gross profit                      163.0   152.1     7.2%   163.0   152.1     7.2% 
Gross profit margin (%)           69.9%   70.1%            69.9%   70.1% 
 
EBITDA                             81.7    70.5    15.9%    88.3    73.3    20.5% 
EBITDA margin (%)                 35.0%   32.5%            37.9%   33.8% 
Depreciation and Amortisation    (12.9)  (15.4)  (16.2%)   (7.0)   (8.9)  (21.3%) 
-------------------------------  ------  ------  -------  ------  ------  ------- 
Operating profit                   68.8    55.1    24.9%    81.3    64.4    26.2% 
Operating profit margin 
 (%)                              29.5%   25.4%            34.9%   29.7% 
 
Net finance income / (expense)      0.3   (3.2)      n/a     0.3     0.2    50.0% 
-------------------------------  ------  ------  -------  ------  ------  ------- 
Profit before Tax                  69.1    51.9    33.1%    81.6    64.6    26.3% 
Taxation                          (6.9)   (9.5)           (14.9)  (12.6) 
-------------------------------  ------  ------  -------  ------  ------  ------- 
Profit after Tax                   62.2    42.4    46.7%    66.7    52.0    28.3% 
-------------------------------  ------  ------  -------  ------  ------  ------- 
 
Earnings per share 
Basic earnings per share          30.5p   20.9p    45.9%   32.7p   25.7p    27.2% 
Diluted earnings per share        30.2p   20.7p    45.9%   32.4p   25.5p    27.1% 
 
Annual Dividend per share        12.00p  10.18p    17.9%  12.00p  10.18p    17.9% 
-------------------------------  ------  ------  -------  ------  ------  -------

Net cash at end of period          90.2    84.8     6.4%    90.2    84.8     6.4% 
-------------------------------  ------  ------  -------  ------  ------  ------- 
Return on Capital Employed        18.8%   16.7%            22.2%   19.6% 
-------------------------------  ------  ------  -------  ------  ------  -------

Abcam has delivered another year of solid financial performance and this is reflected in the growth in adjusted earnings per share (adjusted EPS) of over 27%. On a reported basis EPS grew over 45%. Total CER revenue growth was up 10.7% and, as expected, our Custom Products & Licensing (CP&L) revenues returned to growth, rising 17.6% (CER). We believe we have once again delivered growth above underlying market rates in every region and whilst Japan experienced a more challenging market backdrop in the second half, China has continued to deliver at the high end of our expectations. We have maintained gross margin and we have continued to invest in the future of our business.

We are investing to ensure that we have the people, infrastructure, processes and IT systems to establish the platform that will allow the Group to grow to twice its 2016 scale by 2023. This year we have invested significantly in our Oracle Cloud ERP system making steady progress in the design, build, test and change management associated with the project. We have decided to adopt a phased approach to the implementation of the remaining modules to reduce the risk to our business and customers. During calendar 2019 we expect the most significant roll out will be the implementation of Oracle Fusion Finance modules in the majority of our global locations. The construction and preparations for our new headquarters in Cambridge, UK are progressing well, and we are looking forward to moving in early calendar 2019.

We continue to invest in our people, not only by ensuring we have the right teams, skills and capabilities globally, but also in their development, training and remuneration. In this regard, we are delighted to be launching a new global share scheme, available to all of our employees in the coming year. Looking forward, we are confident that our strong financial position and cash generation provide the resources to invest in our long-term strategy to build the infrastructure required for a much larger company, sustain our growth and serve the needs of our customers.

Revenue

 
                                                Reported revenue 
----------------------------------------------  --------------------  ---------------------  ------- 
 
                                                  2017/18    2016/17 
---------------------------------------------- 
                                                GBP'm      GBP'm      Increase / (Decrease) 
                                                                       in reported           CER 
                                                                       revenue                growth 
----------------------------------------------  ---------  ---------  ---------------------  ------- 
Catalogue regional split: 
The Americas                                     88.5      86.5       2.3%                   8.0% 
EMEA                                             62.6      57.1       9.6%                   7.7% 
China                                            33.0      26.4       25.0%                  26.0% 
Japan                                            16.2      17.3       (6.4%)                 1.1% 
Rest of Asia Pacific                             16.5      15.1       9.3%                   14.3% 
----------------------------------------------  ---------  ---------  ---------------------  ------- 
Catalogue revenue                                216.8     202.4      7.1%                   10.2% 
Custom Products & Licensing (CP&L) revenue(1)    16.4      14.7       11.6%                  17.6% 
----------------------------------------------  ---------  ---------  ---------------------  ------- 
Total reported revenue                           233.2     217.1      7.4%                   10.7% 
----------------------------------------------  ---------  ---------  ---------------------  ------- 
 
Catalogue product split: 
Primary and secondary antibodies                174.5      165.5      5.4%                   8.4% 
of which Recombinant antibodies                 48.0       40.4       18.8%                  22.3% 
Other products(2)                               42.3       36.9       14.6%                  18.2% 
of which Immunoassay products                   15.0       12.4       21.0%                  25.4% 
----------------------------------------------  ---------  ---------  ---------------------  ------- 
Catalogue revenue sub-total                     216.8      202.4      7.1%                   10.2% 
----------------------------------------------  ---------  ---------  ---------------------  -------

1 Includes royalty income, custom services, IHC/IVD and licensing revenue

2 Includes kits, assays, proteins, peptides, lysates and biochemical (AAAI) products

Total reported revenues for the year increased by 7.4% to GBP233.2m. Sterling was stronger against the basket of foreign currencies in which the Group trades which adversely impacted our reported revenues. Adjusting for this strengthening in Sterling, CER revenue growth was 10.7% (2016/17: 9.9%).

Catalogue revenue grew by GBP14.4m or 7.1% on a reported basis and 10.2% on a constant currency (CER) basis. Within this, the key product growth drivers were recombinant antibodies, with sales up by GBP7.6m or 18.8% to GBP48.0m (22.3% at CER), and immunoassay sales, which grew by GBP2.6m or 21.0% (25.4% at CER) to GBP15.0m. By region, China continues to be our fastest growing major market, up 25.0% (26.0% CER) and contributing 15.2% of Catalogue revenue, whilst Japan fell by 6.4% on a reported basis (up 1.1% CER), reflecting the more challenging market conditions.

CP&L revenue, comprising custom services, in vitro-diagnostic (IVD)/immunohistochemistry (IHC) and royalties and licence income, continues to remain an area of increased focus and investment for the Group. In line with our expectations, this area returned to growth in the year, rising by GBP1.7m or 11.6% (17.6% CER) to GBP16.4m (2016/17: GBP14.7m)

Gross margin

Reported gross margin was down very slightly to 69.9% (2016/17: 70.1%), with modest positive impacts from exchange rate movements and catalogue product mix offset by catalogue regional mix and the increase in CP&L revenue. We continue to anticipate gradual improvements to gross margin over time, driven by continued product mix and productivity improvements to our manufacturing sites as we introduce more automation.

Operating costs and expenses

 
                                           Reported               Adjusted(1) 
                                    =======================  ===================== 
                                      2018    2017        %   2018   2017        % 
                                      GBPm    GBPm   Change   GBPm   GBPm   Change 
==================================  ======  ======  =======  =====  =====  ======= 
Selling, general & administrative 
 expenses                             78.2    78.4   (0.3%)   69.8   73.5   (5.0%) 
Research and development 
 expenses                             16.0    18.6  (14.0%)   11.9   14.2  (16.2%) 
----------------------------------  ------  ------  -------  -----  -----  ------- 
Total operating costs and 
 expenses                             94.2    97.0   (2.9%)   81.7   87.7   (6.8%) 
Depreciation and Amortisation       (12.9)  (15.4)  (16.2%)  (7.0)  (8.9)  (21.3%) 
----------------------------------  ------  ------  -------  -----  -----  ------- 
Total operating costs and 
 expenses excluding Depreciation 
 and Amortisation                     81.3    81.6   (0.4%)   74.7   78.8   (5.2%) 
----------------------------------  ------  ------  -------  -----  -----  ------- 
 
Share-based compensation               3.4     3.9  (12.8%)    3.4    3.9  (12.8%) 
----------------------------------  ------  ------  -------  -----  -----  -------

1 Details of items excluded from reported costs and expenses are provided in Adjusting Items below and in note 3 of the financial information

Selling, general & administrative expenses

We have continued to invest in Abcam's capabilities, people, processes and IT systems to support and drive our medium and long-term growth aspirations. Excluding foreign exchange related impacts, selling, general and administrative expenses rose by 14.1% on an adjusted basis. On a reported basis, after the impact of the year-on-year movement in exchange rates, expenses decreased by GBP0.2m or 0.3%.

Included in the year-on-year movement in reported expenses are the following key items:

- GBP3.8m increase in spend relating to the further strengthening of our commercial, marketing and support teams, with key people being recruited into our Portfolio and Business Development team, an area of strategic importance for the business;

- GBP2.1m cost increase in global operations and logistics, related to the increase in revenue volumes and organisational redesign, including further roles to build in-house expertise in global operational processes and increased premises space to accommodate expansion of operations;

- GBP2.3m increase in operational costs associated with the work performed on the Oracle Cloud ERP project, to GBP6.1m (2016/17: GBP3.8m); and

- GBP12.8m year-on-year foreign exchange related reduction owing to the relative strength of Sterling. This comprises GBP1.6m of costs denominated in the currency of the Group's overseas entities (which, when translated into stronger Sterling results in lower charges to expenses), GBP10.6m of year-on-year net currency benefit from forward selling currency contracts and GBP0.6m of translational currency impacts.

The charge for share-based payments fell GBP0.5m in the year, to GBP3.4m (2016/17: GBP3.9m). This figure is expected to increase in 2019 following the implementation of a new global all employee share scheme.

Within reported expenses, depreciation and amortisation expenses decreased by GBP2.0m in the year to GBP6.3m, including GBP1.8m related to the amortisation of acquisition intangibles (2016/17: GBP1.5m). The Group's amortisation and depreciation expense is expected to increase in 2018/19 and step up again in 2019/20 as charges associated with the implementation of the next phase of ERP modules and the completion of the new Group headquarters come into effect. The depreciation charge will also be impacted in 2019/20 by the introduction of the new accounting standard on leases.

Research & development expenditure (R&D)

R&D expenditure relates to the development of new products, as well as costs incurred in identifying and implementing production process improvements. We continue to focus on developing new products as well as improving the quality of our existing catalogue. These costs do not meet the requirements to be capitalised as an intangible asset and are therefore expensed through the income statement.

Reported R&D expenses decreased by GBP2.6m or 14.0%, to GBP16.0m (2017: GBP18.6m). Whilst total reported R&D expenditure decreased, this included an increase of GBP2.4m for UK R&D tax credits, to GBP3.1m (2016/17: GBP0.7m), a year-on-year benefit relating to the change in amortisation period relating to capitalised product development, amounting to GBP0.7m, as well as the effect of exchange rate movements that contributed GBP0.7m of the decrease. Following these adjustments, the increase in R&D costs was GBP1.2m or 6.5%, to GBP19.8m.

R&D-related depreciation and amortisation charges were GBP0.5m lower in the year, at GBP6.6m, including GBP4.1m related to the amortisation of acquisition intangibles (2017: GBP4.4m) which are excluded from adjusted costs.

Investment in systems, processes and infrastructure

We continue to invest to maintain our double-digit growth trajectory and provide the operating capabilities required to scale the business. This was underpinned by investment in our people, IT systems, infrastructure, capabilities and business processes during the year to provide us with operational scalability.

Enterprise Resource Planning (ERP) programme

We had targeted a full implementation of the ERP system in 2017/18. We are now planning a phased approach to the remaining modules, which are expected to be implemented over the medium-term as part of a broader investment in our IT infrastructure.

We incurred capital expenditure of GBP17.5m (2016/17: GBP10.6m) and operating costs of GBP6.1m during the year (2016/17: GBP4.4m), as well as depreciation of GBP0.8m on the modules already deployed. Total capitalised expenditure relating to the Oracle Cloud ERP programme to date amounts to GBP33.6m.

In 2018/19 we plan to implement the finance and certain other modules at an estimated cost of approximately GBP16m (including capital expenditure of approximately GBP12m). Beyond 2018/19 we anticipate that we will continue to invest in our IT systems and broader business processes through implementing further new Oracle modules as well as investing further in those we have already implemented.

New global headquarters, Cambridge, UK

We will relocate from our three existing sites in Cambridge to a single, purpose-built headquarters on the Cambridge Biomedical Campus in early 2019. We anticipate Abcam's total expenditure on the building to be approximately GBP16m. In addition, we expect to spend approximately GBP9m on laboratory and office design and office fit-out costs. In 2017/18 we incurred capitalised costs of GBP13.5m in respect of this project, bringing the total cost to date to GBP15.2m.

Earnings and tax

The increase in gross profit delivered in the year, together with a net reduction in operating costs, due primarily to foreign exchange related impacts discussed previously, resulted in an GBP11.2m increase in reported earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) to GBP81.7m (2016/17: GBP70.5m), an increase of 15.9%. Adjusted EBITDA rose 20.5% to GBP88.3m (2016/17: GBP73.3m), giving an adjusted EBITDA margin of 37.9% (2016/17: 33.8%).

After depreciation and amortisation charges of GBP12.9m (2016/17: GBP15.4m), reported operating profit rose 24.9% to GBP68.8m. Adjusted operating profit rose 26.2% to GBP81.3m, representing an adjusted operating margin of 34.9% (2016/17: 29.7%).

Profit Before Tax (PBT) on a reported basis was GBP69.1m (2016/17: GBP51.9m). This was after net finance income of GBP0.3m (2016/17: net finance expense of GBP3.2m). Adjusted PBT rose 26.3% to GBP81.6m (2016/17: GBP64.6m).

Due to the impacts relating to the introduction of the US Tax Cuts and Jobs Act, the Group's reported effective tax rate was 10.0% (2016/17: 18.3%). The effective rate on adjusted profits was 18.3% and excludes the impact of the above (2016/17: 19.5%). Further details are provided in note 3 to the financial information. Notwithstanding further tax changes in the jurisdictions in which we operate, the effective rate is expected to be broadly maintained at around 19% to 20% in the medium-term.

Basic earnings per share (EPS) was 30.5p (2016/17: 20.9p), with adjusted basic EPS of 32.7p (2016/17: 25.7p). Diluted Earnings Per Share (EPS) was 30.2p (2016/17: 20.7p). Adjusted diluted EPS increased by 27.1% to 32.4p (2016/17: 25.5p).

Adjusting Items

 
                                                              2018    2017 
                                                              GBPm    GBPm 
==========================================================  ======  ====== 
System and process improvement costs                         (6.1)   (3.8) 
----------------------------------------------------------  ------  ------ 
Costs associated with the new Group headquarters             (0.3)       - 
----------------------------------------------------------  ------  ------ 
Acquisition-related costs                                    (0.2)       - 
----------------------------------------------------------  ------  ------ 
Amortisation of acquisition-related intangible assets        (5.9)   (5.9) 
----------------------------------------------------------  ------  ------ 
Contingent consideration fair value adjustment                   -     1.0 
----------------------------------------------------------  ------  ------ 
Impairment related to system and process improvements            -   (0.6) 
----------------------------------------------------------  ------  ------ 
Total adjusting items affecting operating profit            (12.5)   (9.3) 
----------------------------------------------------------  ------  ------ 
Finance costs: Unwinding of discount factor on contingent 
 consideration and fees                                          -   (3.4) 
----------------------------------------------------------  ------  ------ 
Total adjusting items affecting profit before tax           (12.5)  (12.7) 
----------------------------------------------------------  ------  ------

System and process improvement costs related to our Oracle Cloud ERP project increased by GBP1.7m in the year to GBP6.1m. The Group also incurred GBP0.3m in costs relating to the move to the new headquarters in Cambridge, UK and acquisition-related costs of GBP0.2m relating to the exclusive license agreement with Roche relating to the Spring portfolio.

Foreign exchange

The results of the Group are impacted by movements in foreign exchange rates, particularly movements in Sterling against the US Dollar, Euro and Chinese Renminbi. In 2018, the impact of foreign exchange movements in the year was GBP7.1m unfavourable in revenue and GBP1.1m in adjusted EBITDA, after the impact of hedging.

Cash flow and net cash

 
                                                   2018    2017 
                                                   GBPm    GBPm 
===============================================  ======  ====== 
Operating cash flows before working capital        81.0    71.7 
Change in working capital                         (8.1)     4.8 
-----------------------------------------------  ------  ------ 
Cash generated from operations                     72.9    76.5 
Income taxes paid                                 (9.6)  (10.1) 
-----------------------------------------------  ------  ------ 
Net cash inflow from operating activities          63.3    66.4 
Cash outflow of investing activities             (37.7)  (32.9) 
Cash outflow from financing activities           (20.6)  (17.8) 
-----------------------------------------------  ------  ------ 
Increase in cash and cash equivalents               5.0    15.7 
-----------------------------------------------  ------  ------ 
Cash and cash equivalents at beginning of year     84.8    68.9 
Effect of foreign exchange rates                    0.4     0.2 
-----------------------------------------------  ------  ------ 
Cash and cash equivalents at end of the year       90.2    84.8 
-----------------------------------------------  ------  ------ 
 
Free Cash Flow(1)                                  26.8    41.3 
-----------------------------------------------  ------  ------

(1) Free Cash Flow comprises net cash generated from operating activities less net capital expenditure and cash flows relating to committed capital expenditure

The Group continues to be strongly cash generative, with cash inflow from operations of GBP63.3m (2016/17: GBP66.4m) and free cash flow of GBP26.8m (2016/17: GBP41.3m), after a year-on-year increase in working capital of GBP12.9m. The change in working capital is explained by an increase in stock of top-selling products to improve availability, amounting to approximately GBP5m, as well as certain other one-off working capital inflows in the prior year.

Cash outflow on investing activities of GBP37.7m (2017: GBP32.9m) includes GBP1.5m in relation to the acquisition of the exclusive license agreement from Roche (with a further commitment of GBP11.8m payable in 2018/19) and capital expenditure of GBP36.5m. Major capital expenditure items included GBP18.3m and GBP11.6m on the Oracle Cloud ERP and new Group headquarters, respectively, as well as GBP4.3m on Internally developed technology.

After net cash outflows from financing activities of GBP20.6m, predominantly relating to dividend payments, together with a small foreign exchange impact, the Group ended the year with closing cash of GBP90.2m (2016/17: GBP84.8m), a net increase of GBP5.4m.

Balance sheet

Goodwill and Intangibles

Goodwill was GBP114.2m (2017: GBP115.5m) with the decrease relating mainly to exchange rate movements.

Intangible assets were GBP106.3m (2017: GBP73.6m). The increase primarily reflects additions arising from the Spring licence acquisition from Roche (GBP10.9m) together with GBP17.5m in respect of investments made in our new ERP system and GBP10.8m relating to the reclassification of 'Internally developed technology' from property, plant and equipment to intangible assets.

Property, plant and equipment

Property, plant and equipment additions of GBP18.3m (2016/17: GBP10.2m) have been made in the year, comprising GBP13.5m (2016/17: GBP1.1m) associated with the construction of our new Group headquarters and GBP4.8m of other investments (2016/17: GBP9.1m). These other investments include GBP2.4m spent on laboratory equipment across our sites in the UK, the US and China, as well as GBP2.0m on continued development of the Group's product range.

Trade and other payables

Trade and other payables were GBP45.8m (2017: GBP29.3m) with the increase being mainly due to GBP11.8m of outstanding consideration in respect of the Spring acquisition and increased capital accruals in respect of the new global headquarters.

Dividends

The Board declared an interim dividend of 3.42 pence per share which was paid to shareholders on 12 April 2018. The Board has proposed a final dividend of 8.58 pence per share, taking the total dividend for the year to 12.00 pence per share, a 17.9% increase on the previous year and equating to approximately GBP24.6m. The final dividend is subject to shareholder approval at the forthcoming AGM.

The ability of the Group to make dividend payments is determined by the availability of distributable retained earnings and liquid cash resources as well as the need for both of these to be held at the Company level. At 30 June 2018, the Company held retained earnings of GBP250.5m, the majority of which is distributable. The Group has cash resources of GBP90.2m at 30 June 2018, of which GBP67.2m was held by the Company.

Outlook and guidance

The fundamentals of our business remain strong. The revenue growth this year and in previous years remains a measure of the continued success of our strategy and provides a solid foundation from which to invest in the business.

Overall, the outlook for our markets remains positive and we expect our total constant currency revenue growth for 2018/19 to be approximately 11%. Beyond this, we anticipate that the investments we are making, together with our financial strength, will lay the foundation for growth in 2019/20 and beyond, supporting our ambition to maintain revenue growth at low double-digit rates over the medium-term.

In the coming year, alongside our ongoing investment in our capital projects and scalability, we plan to increase investment in a number of strategically important areas including R&D, China, Abcam Inside and data analytics. We are also launching a new share ownership scheme open to all employees globally, to recognise their invaluable contribution and to help maintain our entrepreneurial spirit as we continue to expand. We will look to partly fund these investments through the continued realisation of efficiencies and savings in our core business and currently anticipate adjusted EBITDA margin in 2018/19 will be approximately 36%.

Over time, these investments will increase our capabilities, add new products and services for our customers and improve our operational efficiencies, helping us to achieve our ambition to double our 2016 scale by 2023 and fulfil our mission to help life science researchers discover more, faster.

Gavin Wood

Chief Financial Officer

Consolidated income statement