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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Immunodiagnostic Systems Holdings Plc | LSE:IDH | London | Ordinary Share | GB00B01YZ052 | ORD 2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 378.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMIDH
RNS Number : 9174R
Immunodiagnostic Systems Hldgs PLC
20 June 2018
20 June 2018
Immunodiagnostic Systems Holdings PLC
Final Results for year ended 31 March 2018
Financial Highlights 2018
Hot Features
Premium
% Change
GBPm 2018 2017 % Change LFL*
------------------------------------------ ----- ----- -------- --------
Group Revenue 37.9 40.0 -5% -8%
------------------------------------------ ----- ----- -------- --------
Automated Business Revenue 22.9 21.4 7% 4%
------------------------------------------ ----- ----- -------- --------
25-OH Vitamin D 6.3 6.8 -7% -8%
------------------------------------------ ----- ----- -------- --------
Other Speciality - IDS 13.6 12.5 9% 5%
------------------------------------------ ----- ----- -------- --------
Other Speciality - Partners 1.0 0.8 29% 24%
------------------------------------------ ----- ----- -------- --------
Instrument Sales and Service 2.0 1.3 46% 43%
------------------------------------------ ----- ----- -------- --------
Manual Business Revenue 12.4 12.8 -3% -6%
------------------------------------------ ----- ----- -------- --------
Licensing and Technology Business Revenue 2.7 5.9 -54% -55%
------------------------------------------ ----- ----- -------- --------
Royalty Income 0.2 2.8 -94% -94%
------------------------------------------ ----- ----- -------- --------
Technology Income 2.5 3.1 -19% -22%
------------------------------------------ ----- ----- -------- --------
Adjusted** EBITDA 6.0 7.7 -22% -28%
------------------------------------------ ----- ----- -------- --------
Profit from Operations 0.9 1.7 -43%
------------------------------------------ ----- ----- -------- --------
Adjusted Earnings per Share 5.7p 14.8p -61%
------------------------------------------ ----- ----- -------- --------
Free Cash (Outflow)/Inflow*** (1.4) 4.8 -128%
------------------------------------------ ----- ----- -------- --------
Closing Cash and Cash Equivalents 28.5 31.5 -10%
------------------------------------------ ----- ----- -------- --------
The table above presents a number of alternative performance measures which the Directors believe more accurately reflect the underlying performance of the business.
* Like for like 'LFL' numbers have been restated to remove the impact of foreign exchange movements in the year by restating the FY2017 performance using the exchange rates during FY2018.
** Before exceptional costs of GBP0.5m (2017: GBP1.4m) - see reconciliation in section 2 of Financial Review.
*** Net cash flow from operating activities of GBP2.5m (2017: GBP8.4m) less net capital expenditure of GBP3.9m (2017: GBP3.6m).
Operational summary
-- Jaap Stuut was appointed as Group CEO effective from 1 November 2017, and the Executive Management Team was re-organised to allow Jaap to focus on sales and marketing activities.
-- Three new CE marked automated assays were launched, including the first assay in our Biochemistry panel. This brings our total CE marked panel to 22 assays. No new assays were launched in the US or China.
-- Gross placements or sales of analysers through our direct sales organisation declined to 34 (2017: 40). Net instrument placements were nine (2017: 16) bringing the total installed analyser base in direct sales territories to 325 (2017: 316).
-- Annual sales of analysers to distributors in the year increased to 36 (2017: 12).
-- Closure of the Paris and Milan sales and administration offices and consolidation of the related activities into our local factories has been completed.
-- Partnership agreement signed with Technogenetics SRL to allow IDS global sales rights to their automated autoimmune and infectious disease assay range.
-- New programme of IDS values and leadership principles launched in February 2018 to evolve Group culture, employee engagement and quality of execution.
-- Decline in our Licensing and Technology Business in the year has been driven by the loss of royalty income related to our 25-OH Vitamin D technology as a result of a major customer developing their own in-house technology. Revenue from this customer fell by GBP2.6m to GBP0.2m in FY2018.
Jaap Stuut, CEO of IDS, commented:
"Group revenues declined 5% year on year, though they showed a decline of 8% on a like for like basis. This decline was mainly driven by the expected reduction in antibody royalty income. Our core laboratory business, comprising our automated and manual business units, generated consistent revenues with the prior year on a like for like basis.
I believe we have made good progress in both the restructuring of the commercial operations of the Group, as well as adding new assay fields during the year, and whilst there is more work to be done, I look forward to returning the Group to modest revenue growth in the next financial year."
Annual report
The annual report will be sent to shareholders shortly and will also be available at the registered office of Immunodiagnostic Systems Holdings PLC at: 10 Didcot Way, Boldon Business Park, Boldon, Tyne and Wear NE35 9PD. It will be made available on the Company's website at: www.idsplc.com.
Notes:
Immunodiagnostic Systems Holdings plc ("IDS", "the Group" or "the Company"), is a specialist in-vitro diagnostic solution provider to the clinical laboratory market and producer of manual and automated diagnostic testing kits and instruments for the clinical and research markets.
For further information:
Immunodiagnostic Systems Holdings PLC Tel : +44 (0)191 519
0660
Jaap Stuut, CEO
Paul Martin, Finance Director
Peel Hunt LLP (Nominated Adviser and Broker) Tel : +44 (0)20 7418
8900
James Steel /Oliver Jackson
Chairman's Statement
1. Introduction
For IDS, FY2018 was another year of 'treading water' because Group revenue dropped by 8% on a LFL basis. This was mainly driven by the loss of a large royalty income-generating customer in our Licensing and Technology business unit.
Revenues in our Laboratory business, which comprises the automated and manual business units, were flat on a LFL basis.
Our share price reflected this disappointing outcome: it dropped by 20%, from GBP2.77 at 31 March 2017 to GBP2.21 at 31 March 2018.
Below the surface of the business, we continued to work on numerous aspects to improve performance:
a) We re-defined a number of internal processes, primarily in the areas of R&D, regulatory approval, operations and talent recruitment. We also increased process discipline throughout the organisation by becoming less tolerant to deviations.
b) We sharpened our sales approach by crystallising our specific unique selling points which should induce potential customers to add an IDS instrument into their lab organisation.
c) Most importantly, we focused attention on the HR side of the business, in particular on values and leadership principles.
In the last year the Board has concluded that there was a disconnect between what was decided at the Board level and what happened at the ground level.
As a result, we defined, in conjunction with a team representing all levels of employee at IDS, a set of uniform values for all our employees. In addition, leadership principles for staff with key management responsibilities were created and communicated.
We have chosen Talent and People Management as the key topic for this year's Annual Report and positioned it at the start of this year's document to reflect the increased significance we place on it. Our HR Director, Nicola Trewin, has done an outstanding job at getting these projects underway.
2. Board composition
2.1 Executive team
Effective from 31 October 2017 Regis Duval, Chief Executive Officer, stepped down from his role as a Director of the Group for personal reasons to spend more time with his family in Luxembourg.
The role of Chief Executive Officer was taken over by Jaap Stuut, who has been with the Group since 2013. Previously Jaap was responsible for the global marketing and corporate development of the Group, as well as having the direct sales responsibility for the US and Brazil. I have been travelling and working with Jaap in connection with field visits spread over several years and continents. As a result, I perceive him as a person with a deep understanding of the sales and marketing side of the business, who has a high commitment to deliver results. He gives attention to detail, but can also see the big picture and will make decisions where required. He is also a 'people person' who has been instrumental in changing the Group's focus to the talent and people management side. It is this combination which gives us confidence we will return to growth.
In connection with this change, we re-arranged the responsibilities within the Executive Management Team to enable Jaap to fully focus on sales and marketing. As a result, the responsibility for operations was delegated to Paul Martin, our Group Finance Director. Thus, Jaap has been able to spend at least 50% of his time on sales and marketing activities, including significant amounts of customer contact. Paul is emerging from his first encounters with the reality of operations, with tangible improvements in a short time - it looks like we did the right thing here.
2.2 Non-executives
There were no changes to the Board at the Non-executive level during the year. However, as previously announced, Roland Sackers and Till Campe have stated that they will step down from the Board on 30 June 2018. On behalf of the Board, I would like to thank Roland and Till for their contributions to IDS. As a result of Roland's departure, Peter Williamson will take over the Chair of the Audit Committee. Peter has previously served as Audit Committee Chairman for a number of PE backed businesses.
3. KPIs in the automated IVD business
Our core business of automated IVD is rather straightforward and requires concentration on a few KPIs. I would like to discuss these below.
3.1 New assay launches
During FY2018 we managed to release three assays with a CE mark. This outcome fell short of our target of four assays as communicated in our half year report. The main reason is that due to regulatory and other requirements we had to re-work several of the existing assays utilising our R&D capacity which would have otherwise focused on new product development.
We were not able to obtain approval by the FDA and Chinese FDA for any additional assays in FY2018.
3.2 Instrument placements and sales
3.2.1 Direct sales territories
Our revenue model in the automated IVD business is based on an installed base with each installed device generating recurring revenues. In order to reach critical mass in the automated IVD business we need to increase the number of installations.
Compared to FY2017, performance slipped. The main causes were:
a) In Europe we had HR issues in our salesforce. Jaap decided to make changes to the team, and by mid-FY2019 over 50% of the European team will be new hires when compared to the start of FY2018.
b) At the beginning of FY2018 the sales opportunity pipeline was nearly empty. The sales reps had delivered the number of visits requested of them - but there was no systematic process of lead qualification and opportunity definition. We have invested in significant training to give more emphasis to these key aspects of the sales process. By now we have built up a pipeline of opportunities with which we now aim to generate placements in FY2019.
c) In addition, we had product registration delays: in the US we have not been able to clear a single new assay through the FDA due to weaknesses in the regulatory and R&D process. Again, we have reviewed this process, identified the causes for the poor outcome and re-defined the process. We are confident that for new projects our chances of getting clearance are much higher - but we will only see the results from FY2020 onwards.
In writing this review it feels like 'this year's excuse' and I cannot deny that to some extent it clearly is. What I hope to get across is that by now we appear to have reached 'the bottom of the barrel' in identifying processes and resources which were not performing. We have made some very significant changes to the Group over the last three years.
We maintain our ambition that in the medium term the organisation must reach a target of 100 gross new placements per year in our direct territories in order to generate satisfactory growth.
3.2.2 Instrument sales via our distributor organisation
In FY2018 we strengthened the organisational unit dealing with placing our instruments with distributors in countries where we do not have a direct sales organisation. We now have a person running this with an entrepreneurial mindset and many years of experience in IDS.
This is an opportunity we have clearly neglected in the past: the IDS instrument is positioned at the low end of the automation price range, and countries outside of the EU and US tend to have a more fragmented laboratory structure, with many smaller laboratories having a need for an entry-level instrument to facilitate automation.
As a first result of this new focus we sold 36 analysers to our distributors, up from 12 in 2017. I am hopeful that there is more to come in the year ahead.
4. Corporate development
4.1 Acquisitions
In last year's Chairman's Statement I noted that in order to reach the critical size required in the automated IVD business, we would target to undertake a number of acquisitions. Our acquisition selection criteria are organisations with:
a) High quality proprietary antibodies/assays;
b) A strong franchise in an indication area - e.g. significant market position and key opinion leaders network; and
c) A strong management team.
The idea is that we can generate synergies by jointly automating part of the targets manual assay menu and use their route-to-market to enter the new areas swiftly.
In FY2018, as in FY2017, we had discussions with several companies in the manual immunoassay business. We did not close a deal, though a number of discussions are ongoing. We are continuing the process of systematic, proactive identification and initiating contact with suitable target companies.
4.2 Partnerships
In addition to acquisitions, IDS pursue an approach to agree partnership deals with companies that have a strong manual assay portfolio whereby these partners undertake the automation of their assays for our systems. The commercialisation of these automated assays can be structured via co-marketing deals, pure licensing deals or any other variant.
At the beginning of FY2018 we had four such partnerships, with two of these being recent agreements concluded in FY2017. One of these has been discontinued, as the mutual expectations did not materialise. The second new partnership is up and running. We shipped a significant number of analysers to this partner during the last quarter of our financial year, and thus expect them to commercially launch assays imminently. This is slightly later than our original launch expectations of Q4 FY2018.
In terms of the two other long-standing partnerships, we have concluded commercialisation deals with these partners who had already performed the automation work:
a) In January 2018 we signed a deal with Technogenetics SRL ('TGS'), giving IDS the right to sell TGS's range of 51 automated assay kits under the IDS brand on a global basis. The assays are from the testing indication areas of infectious and autoimmune diseases.
b) In April 2018 we signed a deal with Omega Diagnostics PLC ('Omega'), giving IDS the right to sell their range of 51 automated assays in the area of allergy testing.
Thus IDS now has a total portfolio of 124 assays, across several indication areas:
Assays
available
with CE
Indication area Source Mark
------------------------- ------ ----------
Speciality endocrinology Own 22
------------------------- ------ ----------
Infectious disease TGS 23
------------------------- ------ ----------
Autoimmune TGS 28
------------------------- ------ ----------
Allergy Omega 51
------------------------- ------ ----------
Total portfolio 124 124
------------------------- ------ ----------
This makes us an attractive partner for automation in a much larger target group of laboratories. The number of assays defines the breadth of our offering, what we still have to build up is the required depth in the new indication areas, in particular application know-how, a network of key opinion leaders and medical service.
Without this depth, laboratories will be unlikely to place our instruments as such competence is a key requirement in the decision-making of laboratories when choosing an instrument supplier. Conversely, if we manage to build up this required depth we should see an increase in the number of new instruments placed.
5. Talent and people management
While I have traditionally made comments in this area, my colleague Nicola has outlined our activities in the new Talent and People Management Report in the Annual Report and Accounts, and I have little to add.
6. Dividend and share buybacks
In June 2017, we announced the intention to buy back up to 500,000 Ordinary shares, which will be held in treasury. By 31 March 2018 we had only succeeded in buying 53,781 shares, due to both the general lack of trading in the shares and the regulations governing the number of shares we can buy back vis a vis total trading volumes.
Our stated dividend policy is to pay out 25-30% of adjusted basic EPS as dividends. Adjusted basic EPS in FY2018 was 5.7p (FY2017: 14.8p). Thus the Board proposes a dividend of 1.7p (2017: 4.0p) - implying a pay-out ratio of 30% (2017: 27%).
At the AGM we will propose to give the Board authority to renew the authorisation to buy back up to 1,500,000 shares of the Company, i.e. c.5.1% of the share capital.
7. Employees
I would like to thank all of our staff for their effort and commitment in the last year. We will continue to need you and your commitment to make IDS a company which will be a stronger and a more successful Company going forward. Unfortunately, FY2018 was yet another transition year. I hope that from now on you will get the satisfaction of seeing IDS grow again, which is proof that customers honour your efforts and engagement.
8. Outlook
FY2018 was another year of transition: while revenues and earnings declined we improved on most KPIs and thus laid the foundations for a return to growth. During FY2019 I expect a continued improvement in most KPIs and as a result a return to growth on a LFL basis - with no qualifications.
I remain confident that IDS has a good future: the automated part of the IDS business is a razor/razorblade-type business with recurring revenues at a very predictable rate. These have always been businesses with potential for outstanding profitability and returns to shareholders and the results achieved by our competitors confirm this.
By the end of H1 FY2019 we will have a menu of 124 assays available for sale with a CE mark. That should significantly enlarge the number of potential customers for whom we can be an attractive partner. We still have to work to increase our menu in the US and China to enable us to grow our business in these regions.
With the emphasis now given to employee engagement and leadership culture this offering should definitely translate into better sales results.
Dr Burkhard Wittek
Chairman
CEO's Report
Overview
During FY2018, total Group revenues declined by 8% on a LFL basis, mainly due to lower revenues in our License and Technology business.
I am pleased to say that annual revenues in our core laboratory business (comprising our automated and manual business units) were constant on a LFL basis. Thus, while the manual business has continued to decline, for the first time in years, this decline has been offset by the growth in the automated business.
As I set out in the half year update, upon taking over the CEO role, I was determined to ensure I could move the Group onto a path for growth. My route towards this goal focuses on improving the performance of the sales and marketing teams. In addition to this, I will concentrate on improving our rate of innovation, both from internal activities and deals with partners.
To enable me to focus on these topics, the Board reviewed responsibilities within management of the Group. As a result during the second half of the year, Paul Martin, our Group Finance Director, took on additional responsibility for the Group's operational activities. Also the Group's customer service teams now report into Nicola Trewin, in addition to her continuing role as HR Director.
1. Automated IVD
1.1 Business segment results
2017 LFL
2018 LFL 2017 Change change
GBP000 GBP000 GBP000 % %
---------------- ------- ------- ------- ------ -------
25-OH Vitamin
D 6,322 6,897 6,773 -7% -8%
Speciality
Endocrinology 13,578 12,962 12,470 9% 5%
Autoimmune
and Infectious
Disease 1,012 813 787 29% 24%
Instrument
Sales and
Service 1,964 1,370 1,343 46% 43%
---------------- ------- ------- ------- ------ -------
Total 22,876 22,042 21,373 7% 4%
---------------- ------- ------- ------- ------ -------
In FY2018, automated business revenue has exhibited a year-on-year increase of 4% LFL. It now accounts for 60% (FY2017: 53%) of Group revenues.
Within this segment, 25-OH Vitamin D sales have declined by 8% on a LFL basis. This decline continues to be attributed to laboratories transferring this assay to high throughput workhorse analysers, along with substantially lower prescription volumes in the US. Nevertheless, the rate of decline has slowed compared to the 17% LFL drop seen in the previous year. We will aim to further stabilise this business by upselling additional assays onto analysers primarily used for vitamin D testing, to increase the likelihood that laboratories retain these machines at the end of their contracts.
Speciality endocrinology sales have grown by 5% on a LFL basis. This was disappointing, as we had hoped to achieve growth rates similar to the 14% LFL growth seen in the prior year. There were a number of reasons for the lower growth, which I will address later in this report.
Autoimmune and Infectious Disease sales have grown 24% on a LFL basis. We have employed specialists in the autoimmune field to increase knowledge and support our sales team in direct and distributor countries.
Instrument sales have increased by 43% on a LFL basis, mainly due to higher sales of instruments within our distribution territories, as well as a general drive to ensure new customers sign up to a service contract for each machine placed, as is standard industry practise.
1.2. Key success factors
1.2.1 Increased endocrinology reagent portfolio
The endocrinology assay menu of IDS remains sub-critical in size. Critical mass to have an attractive business case for laboratories requires a menu of around 30 automated endocrinology assays. Thus the rate of new assay introductions is one of the primary KPIs to monitor in this business. A summary of the IDS assay portfolio, and the number of assays launched each year is shown below:
Assays Assays
end of end of
Regulatory approval FY2018 FY2017
--------------------------- ------- -------
Assays with the CE mark 22 19
Assays with FDA approval 10 10
Assays with CFDA approval* 4 4
--------------------------- ------- -------
* Regulatory approval has been obtained in China and the US.
During the year we launched a total of three new assays with a CE mark. Two of these assays, Free Testosterone and SHBG are within our fertility panel, bringing the number of assays in this panel to four. The third assay launched was ACE, a clinical chemistry assay which complements our hypertension panel.
Unfortunately, for the second year running, we were unable to obtain FDA clearance for any of our endocrinology assays. As a consequence we have made adjustments to our capabilities, both internally and externally.
Additionally, we reviewed our R&D processes to ensure that the supporting data required for FDA approval is captured on a contemporaneous basis as we move through each gate in the development process. Success in obtaining FDA approval and thus increasing our assay portfolio is critical to increase our value proposition in the US and return IDS to growth in this important region.
1.2.2 - Additional assay fields
Historically IDS has targeted our internal development efforts on assays within the endocrinology market. However to enhance the attractiveness of the IDS automated product offering, it was clear that we should expand our offering into other indication and complementary areas.
We are very pleased to have completed two key strategic partnerships agreements which have enabled us to reach an increased reagent portfolio:
1) Autoimmune and Infectious Disease: In January 2018 we reached an agreement with Technogenetics SRL whereby IDS has the global rights to distribute their range of 51 Autoimmune and Infectious Disease products under the IDS brand. We had previously sold these products under a third party brand in a limited number of European countries; however, the wider scope of the new agreement significantly increases the potential to grow this revenue stream. We expect the entire product range to be available for sale in European countries under the IDS brand by the end of 2018.
2) Allergy: Subsequent to year end, we reached agreement with Omega Diagnostics to become the global exclusive distributor for their range of 51 automated allergy assays. These will be sold under the IDS Allersys brand. This is a more 'medium-term' opportunity as Omega need to build out their assay range and develop allergy mixes before we have a panel which can compete in this field, which is dominated by a small number of key players.
The combination of specialised endocrinology, autoimmune and allergy assays, available on one full random access instrument, will be very attractive to certain laboratories and will significantly enhance our ability to place new analysers and upsell assays onto existing analysers.
Obtaining FDA approval for these additional assays will open up a significant new market and give IDS a compelling value proposition in the US market. Thus we aim to start the FDA approval process for at least the autoimmune assays during FY2019.
1.2.3 Instrument placements
Direct instruments are those sold or placed with IDS customers in the US, Europe and Brazil where the Group is present with its direct sales organisation. Placement performance in the year is set out below:
2018 2017
----------------------------- ---- ----
Direct - Gross Placements 34 40
Direct - Gross Returns (25) (24)
Direct - Net Placements 9 16
----------------------------- ---- ----
Distributor Sales 36 12
----------------------------- ---- ----
Total Gross Placements/Sales 70 52
----------------------------- ---- ----
The number of machines installed is a critical KPI, as each machine will generate future recurring assay revenue. The total number of machines placed/sold in our direct sales territories plus distributors increased to 70, versus 52 in the prior year.
The number of gross placements in direct markets reduced to 34 from 40 in the prior year. We believe this was due to the lack of continuity arising from changes to the sales team around the Group. However, we expect to stabilise the sales team during the first half of FY2019.
Encouragingly the decline in placements in our direct markets was offset by a much improved performance in our distribution territories where we sold 36 machines, versus 12 in the prior year. As we noted in last year's report, we have dedicated more resources to this revenue channel, and are starting to see the first benefits of this and we expect to continue to increase our focus on this area in FY2019.
The average number of assays being run on an iSYS has continued to increase - moving from 4.3 to 4.7 over the year. This reflects the efforts made by the sales team to upsell additional assays into our existing installed base thereby both increasing our return from each analyser and increasing the probability of the laboratory retaining the analyser at the end of the contract.
Average revenue per direct instrument ('ARPI') was GBP53,000 (2017: GBP57,000) per annum, calculated on a rolling 12-month basis. The decrease in ARPI was mainly due to the loss of a few high volume vitamin D placements, offset by increased revenue from assay upsells.
1.2.4 Sales team
We have made significant changes in the sales team and sales process, to evolve and improve the sales team during the year - striving to reach our goal of establishing an engaged, transparent and highly professional sales function which is suitable for IDS business.
Additionally, as we stated in last year's report, we have increased the resources directed to managing our automated distribution business. We have established the standard processes for managing a distributor base with the key aspects being co-travelling with the sales reps of our distributors, centralised training for the employees of the distributors and country-specific marketing material.
2. Manual IVD
2.1. Business segment results
2017 LFL
2018 LFL 2017 Change change
GBP000 GBP000 GBP000 % %
----------------- ------- ------- ------- ------ -------
25-OH Vitamin
D 1,450 2,131 2,063 -30% -32%
Other Speciality
- IDS 4,845 5,553 5,432 -11% -13%
Other Speciality
- purchased 1,851 1,950 1,935 -4% -5%
Diametra 4,215 3,523 3,351 26% 20%
----------------- ------- ------- ------- ------ -------
Total 12,361 13,157 12,781 -3% -6%
----------------- ------- ------- ------- ------ -------
In FY2018, manual assay sales exhibited a year-on-year fall of 6% LFL. They represent 33% (FY2017: 32%) of Group revenues.
The legacy IDS business continued to decline at similar rates to the previous year, however, our Diametra business had a successful year, growing revenue 20% LFL. This was mainly as a result of a number of OEM antibody sales transacted during the year.
2.2. Manual business unit commercial team
During the second half of the year we finished building the commercial team that will drive our manual business moving forward. The team, which consists of both new hires and existing IDS colleagues, will work closely with our distribution base and manufacturing facilities in the UK and Italy to return this business to growth after many years of decline.
Most importantly we believe the market is beginning to appreciate that IDS is 'open for business' again in the field of ELISA and RIA manual assay products.
3. Licensing and Technology
3.1. Business segment results
2017 LFL
2018 LFL 2017 Change change
GBP000 GBP000 GBP000 % %
--------------- ------- ------- ------- ------ -------
Royalty Income 176 2,791 2,767 -94% -94%
Technology
Income 2,534 3,255 3,114 -19% -22%
--------------- ------- ------- ------- ------ -------
Total 2,710 6,046 5,881 -54% -55%
--------------- ------- ------- ------- ------ -------
In FY2018 Licensing and Technology sales exhibited a LFL year-on-year decline of 55%.
This was mainly due to the loss of the antibody royalty income explained earlier. This revenue is now at negligible levels, thus any further declines will have an immaterial impact on the Group's growth rate moving forward.
Technology income relates to sales of our IDS analysers and related consumables to partners, who are developing and commercialising assays for use on these systems. Technology sales fell by 22% on a LFL basis. During FY2018, 33 instruments were delivered to OEM partners versus 43 in the prior year. The higher sales in FY2017 were driven by initial orders of machines by our OEM partners for development purposes. We anticipate that one of our partners will commence commercial operations during FY2019, however, at this time the volume of product they will order from IDS is not clear.
4. Culture and values
It is almost inevitable in an organisation that has been through such a large and prolonged period of transition as IDS has, that staff morale and engagement has been impacted. I recognise that the success of IDS is dependent on each and every one of our employees.
Therefore during the year, as set out in the Talent and People Management section of the Annual Report, we have started activities to focus on ensuring our team is actively engaged and motivated to work at IDS. We want everyone in the organisation to have the skills, support and tools to enable them to succeed - both on an individual basis and as part of 'Team IDS'.
While clear progress has been made and initial workshops were held in this area, I realise we have much still to do. Our challenge in FY2019 is to ensure that the work done this year is not a one-off 'soundbite'. We need to live our values, starting with myself and working downwards, and ensure we support all of our team to ensure we achieve our individual and corporate goals. We have a great journey ahead of us and should develop ourselves daily, in order to achieve these goals.
Furthermore, I am proud the Board entrusted me with the task or returning IDS to growth. I will take the actions I deem appropriate to implement this turnaround.
I would like to thank the staff who have supported me in my initial months in the role. I welcome the many hours of open and honest communication with the IDS team and the joint decisions we have taken and implemented. In FY2018 we were still going backwards. I look forward to working with the team to achieve our ambition of returning to revenue growth.
Jaap Stuut
Chief Executive
Financial Review
1. Profit and loss overview
During the year, as expected, the Group lost substantially all remaining revenue from an antibody customer in the License and Technology business unit. This adversely impacted operating profit by GBP2.6m. However, the full-year impact of restructuring efforts implemented part way through FY2017, along with the continuation of these efforts into FY2018, meant the Group remained profitable. Profit from operations ('EBIT') declined by GBP0.7m to GBP0.9m.
Pre-exceptional earnings before interest, tax, depreciation and amortisation ('EBITDA') decreased to GBP6.0m (2017: GBP7.7m). This was driven by a decrease in Group revenue to GBP37.9m (2017: GBP40.0m), as well as a drop-in gross margin to 47.5% (2017: 49.8%), offset by a reduction of GBP0.3m in operating costs.
Cash and cash equivalents decreased by GBP3.0m to GBP28.5m (2017: GBP31.5m). Net cash inflow from operating activities of GBP2.5m was offset by capital expenditure of GBP3.9m, returns to shareholders of GBP1.4m and adverse FX movements of GBP0.2m.
2. Summary income statement
% of revenue
--------------
2017
Year ended 31 2018 restated
March GBP000 GBP000 2018 2017
--------------------------- -------- --------- ------ ------
Revenue 37,947 40,035 100% 100%
Gross profit 18,013 19,927 47% 50%
Sales and marketing (9,371) (9,488) -25% -24%
Research and
development (1,677) (2,230) -4% -6%
General and administrative
expenses (5,503) (5,154) -15% -13%
Total operating
costs pre-exceptional (16,551) (16,872) -44% -42%
Exceptional items (515) (1,404) -1% -4%
Profit from operations 947 1,651 2% 4%
--------------------------- -------- --------- ------ ------
Add back:
Depreciation
and amortisation 4,561 4,658 12% 12%
Exceptional items 515 1,404 1% 4%
--------------------------- -------- --------- ------ ------
Adjusted EBITDA 6,023 7,713 16% 19%
--------------------------- -------- --------- ------ ------
3. Cost reclassification - operational overheads, premises costs and depreciation
A number of reclassifications have been carried out in FY2018, to reallocate certain costs to the Income Statement line which better reflects the nature of the cost and ensures that the Group's financial performance can be more easily benchmarked with its peer group. Throughout the Annual Report the costs in FY2017 have been adjusted to reflect these changes, thus the two years are comparable. These adjustments do not impact the net assets or profit from operations of the Group for any of the periods reported. A table detailing the impact of this reclassification is set out in the Basis of Preparation note.
4. Foreign exchange
During the year IDS revenues have benefitted by around GBP1.2m (or 3%) as a result of the weaker Pound Sterling versus the Euro. In the year 67% (2017: 58%) of the Group's revenues were in Euros, and these revenues are now worth more when converted into Pounds Sterling as a result of the weaker Pound Sterling.
US Dollar revenues were 22% (2017: 31%) of the Group's revenues. The Dollar to Pound Sterling exchange rate was broadly constant compared to the previous year, thus there is not a material foreign exchange impact arising from US Dollar denominated revenues.
IDS has a significant cost base denominated in Euros. These costs have increased by GBP0.8m compared to the prior year when converted back into Pound Sterling. Thus the approximate net improvement in the 2018 adjusted EBITDA as a result of movements in exchange rates is GBP0.5m.
The average exchange rates used to translate Euros and US Dollars to Pounds Sterling are as follows:
Strengthening
against
Pound
Sterling
Average exchange rates 2018 2017 %
----------------------- ---- ---- -------------
Pound Sterling: US
Dollar 1.33 1.32 -1%
Pound Sterling: Euro 1.14 1.20 5%
----------------------- ---- ---- -------------
5. Revenue
Group revenue of GBP37.9m (2017: GBP40.0m) decreased by GBP2.1m, or 5%. On a LFL basis, the decline amounted to GBP3.3m, or 8%. The majority of this decline can be attributed to the loss of royalty income, which declined by GBP2.6m. LFL revenue in our core laboratory business was constant year-on-year.
5.1 Revenue by geography
2018 2017
GBP000 GBP000 Change LFL change
-------------- ------- ------- ------ ----------
Direct Sales
- US 7,858 11,654 -33% -33%
Direct Sales
- Europe 21,998 21,692 1% -3%
Rest of world 8,091 6,689 21% 17%
-------------- ------- ------- ------ ----------
Group revenue 37,947 40,035 -5% -8%
-------------- ------- ------- ------ ----------
On a LFL basis, the decline in US revenue is mainly driven by the lower antibody-related royalty income. Additionally, the US region also experienced revenue declines in the automated and manual businesses. European revenues declined slightly, with a reduction in manual business offsetting an increase in automated income. Rest of the world revenue increased, mainly on the back of the aforementioned increased focus on driving sales through our distribution network.
6. Gross profit and gross margin
Gross profit in the year was GBP18.0m (2017: GBP19.9m restated), a decrease of GBP1.9m, from the prior year.
Gross margin reduced to 47.5% (2017: 49.8% restated). The decline in gross margin is due to the erosion of antibody royalty income, on which the Group recorded a 100% gross margin. Stripping out royalty income, gross margins improved by around 1.5%, mainly as a result of cost reductions in the fixed cost base and the impact of a one-off cost accrual in FY2017 related to a patent dispute which was subsequently settled at GBP0.3m less than the amount accrued.
Benchmarking this metric suggests that our gross margin is below that our competitors achieve. We see the following levers for improving gross margin:
a) More discipline in pricing decisions with more formal approval requirements for discounts.
b) Realising a few investments in automation in our Liège plant, with a very high payback.
c) Increasing shelf-life of our assays, which allows us to reduce the number of batches we manufacture (thus reducing operational effort) as well as reducing the need to scrap inventory in products with a short shelf-life.
d) Realising operational gearing effects by delivering our anticipated increase in revenue levels with the existing operational headcount and fixed cost base.
Thus in FY2020, we will target a gross margin (on the restated basis) of over 50%. As I am now also in charge of operations as well as finance, I will focus on ensuring that we meet this goal.
7. Operating costs
7.1 Basis of preparation
In accordance with the appropriate accounting standards, the Group capitalised its product development projects during the year, encompassing instrument and new assay developments. In previous years we have also capitalised costs for implementing an ERP system, however, only negligible costs were incurred on the implementation this year.
Costs are capitalised once all the recognition criteria of IAS 38 Intangible Assets are met. The total amount of costs capitalised decreased from GBP3.0m in 2017 to GBP2.6m in 2018. Such costs are generally amortised over a seven year period. We review these projects on a periodic basis throughout the financial year and the capitalised costs are impaired if a project no longer meets the required criteria.
7.2 Operating cost review
The Group's total operating costs (before exceptional items) comprise:
As % of revenues
------------------
Restated LFL
2018 2017 change
GBP000 GBP000 % 2018 2017
------------------------- ------- -------- ------- -------- --------
Sales and
marketing 9,371 9,488 -4% 25% 24%
Research
and development 1,677 2,230 -28% 4% 6%
General and
administrative 5,503 5,154 6% 15% 13%
------------------------- ------- -------- ------- -------- --------
Operating
costs (pre-exceptional) 16,551 16,872 -4% 44% 42%
Operating
costs capitalised 2,605 2,977 -14% 7% 7%
Depreciation
and amortisation (1,130) (1,647) -33% -3% -4%
------------------------- ------- -------- ------- -------- --------
Underlying
operating
costs 18,026 18,202 -3% 48% 45%
------------------------- ------- -------- ------- -------- --------
Operating costs before exceptional items were GBP16.6m (FY2017: GBP16.9m), a decrease of 4% on a LFL basis.
Underlying operating costs, adjusted to include costs capitalised, less depreciation and amortisation, reflect the 'cash cost' to the business and is our core KPI-related to operating costs. These totalled GBP18.0m (FY2017: GBP18.2m), a decrease of 3% on a LFL basis.
Pre-exceptional operating costs amounted to 44% of revenue. This is above the rate of some of our peers. For example DiaSorin, our key competitor, has operating costs amounting to 36% of revenue. Therefore, we will strive to improve the metric, with the ultimate goal of reducing these costs to below 40% of revenue in the mid-term through tight control of these costs as we increase our Group revenues.
7.3 Cost management
As noted in our half-year report, we planned to close our sales and administrative offices in Paris and Milan and consolidate the tasks performed in these locations into our manufacturing sites in Pouilly and Spello respectively. This consolidation took place during December with minimal interruption to our day-to-day business operations.
From an investment point of view, we have strengthened our commercial team, appointing additional staff to focus on developing our manual business, as well as our automated distribution channel. However, these investments have been more than offset by cost savings generated in other areas.
During FY2019 we will continue to focus on driving efficiency gains in all areas of the business and to ensure we maximise the amount of resources we focus on activities which will lead to sales generation. This may lead to a reduction of resources in other areas.
We are implementing a more rigorous system of KPI target setting and measurement in all areas of the business. The goal will be to ensure all local cost centre managers become accountable for generating continued improvements in their business areas, which contrasts the recent approach to cost management which was 'top down' in nature.
8. Headcount
An analysis of the Group's headcount, on a FTE basis, is set out below:
31 March 31 March
2018 2017
--------------------------- -------- --------
Operations 127 127
Sales and marketing 78 80
thereof field sales
force 23 20
Research and development 40 41
General and administrative 36 36
--------------------------- -------- --------
Total 281 284
--------------------------- -------- --------
9. Overall productivity
The most appropriate way to measure the overall productivity of IDS is the revenue per employee.
As can be seen in the charts below, revenue per employee in FY2018 was broadly consistent with FY2017, despite the loss of antibody royalty income. However, it still lags well below best in class as shown by the corresponding metric for DiaSorin and Qiagen.
IDS revenue per employee - trend GBP000 ------------------------- ------ 2018 134 2017 137 2016 117 2015 135 ------------------------- ------ 2014 159 ------------------------- ------ 2013 162 ------------------------- ------ Revenue per employee FY2018 FY2017 - peer comparison GBP000 GBP000 --------------------- ------- ------- IDS 134 137 DiaSorin 295 254 Qiagen 235 214 --------------------- ------- ------- 10. Finance expense
Net finance expense was negligible at GBP0.01m (2017: expense of GBP0.5m). Included within net finance expense is a foreign exchange loss of GBP0.1m (2017: loss of GBP0.5m), which arises from the translation of non Pound Sterling denominated intercompany balances.
11. Exceptional items
The Group incurred a number of exceptional items during the current and previous financial year:
2018 2017
Year ended 31 March GBP000 GBP000
-------------------------- ------- -------
Restructuring costs (515) (1,631)
Reversal of impairment
of tangible fixed assets - 227
-------------------------- ------- -------
Total exceptional costs (515) (1,404)
-------------------------- ------- -------
Restructuring costs: In the previous year the restructuring costs relate mainly to redundancy costs of GBP1.2m and onerous lease costs of GBP0.4m related to various cost-efficiency projects. In the current year, the restructuring costs relate to the closure of our Milan and Paris offices of GBP0.6m plus severance costs for the CEO of GBP0.1m, offset by a reversal in an onerous lease provision of GBP0.2m which was booked to exceptional items in previous years.
Impairment: In FY2017 a reversal of a prior year impairment charge relating to various tangible fixed assets of GBP0.2m was recognised.
12. Profit from operations
Profit from operations ('EBIT') was GBP0.9m (2017: profit of GBP1.7m), the decline being mainly due to the loss of royalty revenue in the license and technology business, offset by operational cost savings.
13. Taxation
The tax credit of GBP0.3m (2017: credit of GBP1.8m) gives a full-year effective rate of -31.2% (2017: -152.7%). It comprises a current tax credit of GBP0.6m and a deferred tax charge of GBP0.3m. The current tax credit arises mainly due to R&D tax claims in the UK and France.
Total gross tax losses carried forward amount to GBP20.3m (2017: GBP20.5m) of which GBP4.4m (2017: GBP4.9m) has been recognised as an asset in the balance sheet.
During the period, tax reforms were enacted in to law in four of our key trading jurisdictions: US, France, Belgium and the UK. The impact of the reforms has been assessed, with the key impact being the reduction in tax rates reducing the tax charge in the US, increasing the tax charge in Belgium, with nil impact in France and the UK. The net impact of these reforms is to adversely affect the Group tax credit by GBP87,000 in the year ending 31 March 2018.
14. Earnings per share
Adjusted earnings per share is calculated using profit after tax adjusted to exclude the after tax effect of exceptional items. Adjusted basic earnings per share are 5.7p (2017: 14.8p). Basic earnings per share are 4.2p (2017: 10.2p).
15. Balance sheet and cash flow
15.1 Equity
The Group's shareholders' funds at 31 March 2018 were GBP56.9m (2017: GBP56.7m).
15.2 Working capital
The Group working capital requirements was GBP13.1m at 31 March 2018 (GBP9.7m at 31 March 2017).
An analysis of the key elements of working capital is shown below:
31 March 31 March
2018 2017
---------------------- -------- --------
Trade receivable days 56 51
Inventory days 217 189
Trade payable days (37) (31)
---------------------- -------- --------
The reason behind the increase in the working capital requirement was twofold. Firstly trade receivables increased by GBP0.7m, mainly due to a large level of invoicing during the final month of the financial year. Inventory increased by GBP0.8m, largely due to the increased stock holding to support the new IDS-i10 analyser, and increased inventories of antibodies and components for automated kits.
15.3 Cash flow summary
A summary of the Group's cash flow statement for the year is shown below:
2018 2017
GBP000 GBP000
------------------------------ ------- -------
Profit before tax 935 1,191
Depreciation and amortisation 4,561 4,658
Income taxes (paid)/received (140) 796
Other adjusting items (476) 748
Movements in working
capital (2,364) 1,043
------------------------------ ------- -------
Cash generated from
operating activities 2,516 8,436
Cash used in investing
activities (3,870) (3,629)
Cash used in financing
activities (1,406) (537)
------------------------------ ------- -------
Net (decrease)/increase
in cash and cash equivalents (2,760) 4,270
------------------------------ ------- -------
Cash generated from operating activities, before movements in working capital, reduced to GBP2.5m, mainly due to the reduction in cash income from our antibody royalty customer, which declined by GBP2.6m year-on-year.
There was an adverse movement of GBP2.4m in working capital, the main reasons of which were outlined above.
Cash used in investing activities was broadly consistent year-on-year, however the cash used in financing activities increased by GBP0.9m. This was due to a GBP0.8m increase in dividend payable year-on-year, and the GBP0.1m cost of share buy backs in the year.
16. Dividend
The Board is proposing a dividend for the year of 1.7p (2017: 4.0p) subject to the approval of shareholders at the Annual General Meeting on 26 July 2018. If approved, the dividend will be paid on 17 August 2018 to shareholders on the register at the close of business on 20 July 2018.
17. Brexit risk
In common with most UK-based companies with a significant trade with the rest of the EU, there is a risk that the final 'Brexit agreement' negotiated between the UK and the EU could adversely impact IDS's business. We do not currently believe that Brexit will have a major impact on IDS, however, we have noted below three of the key areas where we may be impacted:
Foreign exchange: IDS generates more income in Euros than it incurs costs in Euros. Thus a further weakening of the Pound Sterling against the Euro would favourably impact IDS's reported EBITDA.
Trade tariffs: IDS currently routes a large volume of intercompany shipments through our hub in UK. Thus if trade tariffs were implemented, IDS would need to consider revising our internal processes for shipping goods between Group companies. However, in terms of end-to-end trade, the amount of products produced by IDS in the UK and sold to the EU, and vice versa, is not a significant portion of our business. Thus we should be able to manage the imposition of any trade tariffs without a major financial impact on the business.
Regulatory approval: The current CE marking regime for IVD devices is based upon a European Regulation which has been implemented in the UK. How this regulation will evolve and what the impact will be on IDS and the UK IVD industry generally is not clear at this time.
We will continue to monitor the situation as Brexit discussions develop, and will take action as necessary.
Paul Martin
Group Finance Director
Consolidated Income Statement for the year ended 31 March 2018
Restated Restated
2018 2018 2017 2017
Notes GBP000 GBP000 GBP000 GBP000
--------------------------------------------- ----- ------- -------- -------- --------
Revenue 1 37,947 40,035
Cost of sales (19,934) (20,108)
--------------------------------------------- ----- ------- -------- -------- --------
Gross profit 18,013 19,927
Sales and marketing (9,371) (9,488)
Research and development (1,677) (2,230)
General and administrative expenses (5,503) (5,154)
--------------------------------------------- ----- ------- -------- -------- --------
Operating costs pre-exceptional items (16,551) (16,872)
--------------------------------------------- ----- ------- -------- -------- --------
Exceptional items
Restructuring costs (515) (1,631)
Reversal of impairment of tangible fixed
assets - 227
--------------------------------------------- ----- ------- -------- -------- --------
Total exceptional items (515) (1,404)
--------------------------------------------- ----- ------- -------- -------- --------
Operating costs (17,066) (18,276)
--------------------------------------------- ----- ------- -------- -------- --------
Profit from operations 2 947 1,651
--------------------------------------------- ----- ------- -------- -------- --------
Finance income 128 169
Finance costs (140) (629)
--------------------------------------------- ----- ------- -------- -------- --------
Profit before tax 935 1,191
Income tax income 3 292 1,818
--------------------------------------------- ----- ------- -------- -------- --------
Profit for the year attributable to owners
of the parent 1,227 3,009
--------------------------------------------- ----- ------- -------- -------- --------
Earnings per share
Adjusted basic 4 5.7p 14.8p
Adjusted diluted 4 5.7p 14.8p Basic 4 4.2p 10.2p Diluted 4 4.2p 10.2p --------------------------------------------- ----- ------- -------- -------- --------
All results shown relate to continuing operations.
Consolidated Statement of Comprehensive Income for the year ended 31 March 2018
2018 2017
GBP000 GBP000
------------------------------------------------------------------ ------- -------
Profit for the year 1,227 3,009
------------------------------------------------------------------ ------- -------
Other comprehensive income to be reclassified to profit
or loss in subsequent periods
Currency translation differences 147 2,558
------------------------------------------------------------------ ------- -------
Other comprehensive income to be reclassified to profit
or loss in subsequent periods, before tax 147 2,558
Tax relating to other comprehensive income to be reclassified
to profit or loss in subsequent periods - -
------------------------------------------------------------------ ------- -------
Other comprehensive income not to be reclassified to profit
or loss in subsequent periods
Remeasurement of defined benefit plan (3) (82)
------------------------------------------------------------------ ------- -------
Other comprehensive income not to be reclassified to profit
or loss in subsequent periods, before tax (3) (82)
Tax relating to other comprehensive income not to be reclassified
to profit or loss in subsequent periods - -
------------------------------------------------------------------ ------- -------
Other comprehensive income net of tax 144 2,476
------------------------------------------------------------------ ------- -------
Total comprehensive income for the year attributable to
owners of the parent 1,371 5,485
------------------------------------------------------------------ ------- -------
Consolidated Balance Sheet at 31 March 2018
2018 2017
GBP000 GBP000
-------------------------------------------- ------- -------
Assets
Non-current assets
Property, plant and equipment 7,467 8,505
Other intangible assets 10,993 10,450
Deferred tax assets 377 503
Other non-current assets 351 333
--------------------------------------------- ------- -------
19,188 19,791
-------------------------------------------- ------- -------
Current assets
Inventories 8,378 7,572
Trade and other receivables 8,369 7,648
Income tax receivable 3,073 2,229
Cash and cash equivalents 28,533 31,495
--------------------------------------------- ------- -------
48,353 48,944
-------------------------------------------- ------- -------
Total assets 67,541 68,735
--------------------------------------------- ------- -------
Liabilities
Current liabilities
Short-term portion of long-term borrowings 80 77
Trade and other payables 6,693 7,484
Income tax payable 58 53
Provisions 243 424
Deferred income 190 181
--------------------------------------------- ------- -------
7,264 8,219
-------------------------------------------- ------- -------
Net current assets 41,089 40,725
--------------------------------------------- ------- -------
Non-current liabilities
Long-term portion of long-term borrowings 1,201 1,252
Provisions 1,108 1,611
Deferred tax liabilities 1,096 921
--------------------------------------------- ------- -------
3,405 3,784
-------------------------------------------- ------- -------
Total liabilities 10,669 12,003
--------------------------------------------- ------- -------
Net assets 56,872 56,732
--------------------------------------------- ------- -------
Called up share capital 589 588
Share premium account 32,345 32,263
Other reserves 5,165 5,018
Retained earnings 18,773 18,863
--------------------------------------------- ------- -------
Equity attributable to owners of the parent 56,872 56,732
--------------------------------------------- ------- -------
Consolidated Statement of Cash Flows for the year ended 31 March 2018
2018 2017
GBP000 GBP000
--------------------------------------------------- ------- -------
Operating activities
Cash generated from operations 3,713 8,848
Cash outflow related to exceptional costs (1,057) (1,208)
Income taxes (paid)/received (140) 796
---------------------------------------------------- ------- -------
Net cash from operating activities 2,516 8,436
---------------------------------------------------- ------- -------
Investing activities
Purchases of other intangible assets (2,639) (3,039)
Purchases of property, plant and equipment (1,734) (1,471)
Net proceeds from disposals of property, plant and
equipment 375 712
Interest received 128 169
---------------------------------------------------- ------- -------
Net cash used by investing activities (3,870) (3,629)
---------------------------------------------------- ------- -------
Financing activities
Proceeds from issue of shares for cash 83 -
Repayments of borrowings (86) (96)
Interest paid (79) (88)
Dividends paid (1,177) (353)
Purchase of own shares (147) -
---------------------------------------------------- ------- -------
Net cash used by financing activities (1,406) (537)
---------------------------------------------------- ------- -------
Net increase in cash and cash equivalents (2,760) 4,270
Effect of exchange rate differences (202) 671
Cash and cash equivalents at beginning of year 31,495 26,554
---------------------------------------------------- ------- -------
Cash and cash equivalents at end of year 28,533 31,495
---------------------------------------------------- ------- -------
Consolidated Statement of Changes in Equity for the year ended 31 March 2018
Share Share Other
capital premium reserves Retained
account earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- -------- -------- --------- --------- -------
At 1 April 2016 588 32,263 2,460 16,287 51,598
Profit for the year - - - 3,009 3,009
Other comprehensive income
Foreign exchange translation differences
on foreign currency net investment in
subsidiaries - - 2,558 - 2,558
Remeasurement of defined benefit plan - - - (82) (82)
----------------------------------------- -------- -------- --------- --------- -------
Total comprehensive income - - 2,558 2,927 5,485
Transactions with owners
Share-based payments - - - 2 2
Dividends paid - - - (353) (353)
----------------------------------------- -------- -------- --------- --------- -------
At 31 March 2017 588 32,263 5,018 18,863 56,732
----------------------------------------- -------- -------- --------- --------- -------
At 1 April 2017 588 32,263 5,018 18,863 56,732
Profit for the year - - - 1,227 1,227
Other comprehensive income
Foreign exchange translation differences
on foreign currency net investment in
subsidiaries - - 147 - 147 Remeasurement of defined benefit plan - - - (3) (3) Tax effect on remeasurement of defined benefit plan - - - - - ----------------------------------------- -------- -------- --------- --------- ------- Total comprehensive income - - 147 1,224 1,371 Transactions with owners Share-based payments - - - 10 10 Dividends paid - - - (1,177) (1,177) Shares issued in the year 1 82 - - 83 Purchase of own shares - - - (147) (147) ----------------------------------------- -------- -------- --------- --------- ------- At 31 March 2018 589 32,345 5,165 18,773 56,872 ----------------------------------------- -------- -------- --------- --------- -------
Notes to the consolidated financial statements for the year ended 31 March 2018
1. Segmental information
The Group applies IFRS 8 Operating Segments. IFRS 8 provides segmental information for the Group on the basis of information reported internally to the chief operating decision-maker for decision-making purposes. The Group considers that the role of chief operating decision-maker is performed by the Board of Directors.
Analysis of revenue is prepared and monitored on a geographical basis due to the organisation of the sales teams, as well as by product type. However, earnings on a geographical basis are not considered the most appropriate measure of performance given the differing nature of operations across the different territories.
No further detailed segmental information is provided in this note, as there is only one operating segment. While the key decision-makers review revenue based on the segments shown in the CEO Report, as a result of the structure of the business and the financial systems in place, operating profit cannot be determined for these revenue segments. Therefore, the key decision-makers only review the operating profit performance of the business as a whole.
All earnings, balance sheet and cash flow information received and reviewed by the Board of Directors is prepared at a Group level. The Group determined that it had one operating segment as defined under IFRS 8, being the whole of the Group.
Revenues from customers located in individual countries are as follows:
2018 2017
GBP000 GBP000
------------------------- ------- -------
UK (country of domicile) 1,989 1,571
US 7,861 11,676
Germany 8,474 7,433
France 4,045 4,835
Other 15,578 14,520
------------------------- ------- -------
Total revenues 37,947 40,035
------------------------- ------- -------
Non-current assets, excluding deferred tax, financial instruments and goodwill located in individual countries is as follows:
2018 2017
GBP000 GBP000
------------------------- ------- -------
UK (country of domicile) 10,831 10,139
France 3,152 3,308
Belgium 1,595 2,060
US 815 1,455
Germany 1,603 2,058
Other 464 268
------------------------- ------- -------
Total 18,460 19,288
------------------------- ------- -------
2. Profit from operations
Profit from operations is stated after charging/(crediting):
2018 2017
GBP000 GBP000
-------------------------------------------------------------- ------- -------
Restructuring costs 515 1,631
Reversal of impairment of owned plant, property and equipment - (227)
-------------------------------------------------------------- ------- -------
Total exceptional items 515 1,404
-------------------------------------------------------------- ------- -------
Amortisation of other intangible assets 2,145 1,935
Loss on disposal of owned plant, property and equipment 44 89
Depreciation of owned plant, property and equipment 2,272 2,597
Depreciation of assets held under finance leases 144 126
Operating lease costs 790 938
Share-based payments 10 2
Other staff costs 16,046 16,769
Cost of inventories recognised as an expense 6,220 5,955
Write downs of inventories recognised as an expense 1,289 1,033
Reversal of write down of inventories (227) -
Net loss on foreign currency translation 61 397
Auditor's remuneration (see below) 177 197
-------------------------------------------------------------- ------- -------
Amounts payable to Ernst & Young LLP and their associates in respect of audit. There were no non-audit services in FY2017:
2018 2017
GBP000 GBP000
----------------------------------------------------------- ------- -------
Audit services
* statutory audit of parent and consolidated accounts 175 197
Actuarial services 2 -
----------------------------------------------------------- ------- -------
177 197
----------------------------------------------------------- ------- -------
In FY2018, exceptional costs relate to the closure of our Milan and Paris offices (GBP0.6m) and senior management severance (GBP0.1m) which were partially offset by a reversal in an onerous lease provision which was booked to exceptional in previous years. The reversal was necessary due to the renegotiation with the landlord to exit the lease on one of the two leased buildings in Boldon, UK.
In FY2017 the Group undertook a significant restructure in France. This led to an exceptional restructuring charge of GBP1.4m being incurred in 2017 relating to redundancy costs (GBP1.2m) and onerous lease costs (GBP0.2m). Also in FY2017, the Group took the decision to vacate surplus premises following the transfer of automated activities to Liège. This resulted in an exceptional onerous lease charge of GBP0.2m.
In FY2017, the Group considered the impairment charge from FY2016 and reversed the impairment for unplaced iSYS machines (GBP0.2m). This reversal was required as the machines are either in the process of being refurbished or have been refurbished and sold or placed with customers during this financial year, therefore it was appropriate to reverse this impairment charge as they are now expected to generate revenue.
3. Taxation on ordinary activities
a) Analysis of credit in the year
2018 2017
GBP000 GBP000
--------------------------------------------------------- ------- -------
Current tax:
UK corporation tax (512) 62
Adjustment in respect of prior periods (480) 4
Foreign tax charge/(credit) on income 360 (708)
--------------------------------------------------------- ------- -------
Total current tax credit (632) (642)
--------------------------------------------------------- ------- -------
Deferred tax:
Excess of taxation allowances over depreciation on fixed
assets (198) 54
Other 132 30
Tax losses carried forward 99 (1,081)
Adjustment in respect of prior periods 307 (179)
--------------------------------------------------------- ------- -------
Total deferred tax charge/(credit) 340 (1,176)
--------------------------------------------------------- ------- -------
Tax credit on profit on ordinary activities (292) (1,818)
--------------------------------------------------------- ------- -------
'Other' in the current year relates to the reversal of short-term timing differences.
b) Factors affecting tax charge
The tax assessed for the period is lower (2017: lower) than the standard rate of corporation tax in the UK, 19% (2017: 20%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The standard rate of UK corporation tax will reduce to 17% from 1 April 2020. These proposed changes were substantively enacted when the Finance Bill 2016 received Royal Assent on 15 September 2016, therefore UK deferred tax liabilities have been recognised at 17% at this and prior year balance sheet dates.
In addition, during the period:
-- the Tax Cuts and Jobs Act was enacted into US Law. This reduced the Federal Corporation tax rate from 35% to 21% from 1 January 2018, leading to a reduced rate in year ending 31 March 2018, and the recognition of deferred tax liabilities at 21% at the balance sheet date;
-- the Corporate Income Tax Reform Act was enacted into Belgian Law. This reduced the Corporation tax rate from 33% to 29% from 1 January 2018, with a further reduction to 25% from 1 January 2020. Deferred tax assets and liabilities are recognised at 25% at the balance sheet date; and
-- the Finance Bill 2018 was enacted into French Law. This progressively reduces the Corporation tax rate from 33.33% to 25% in 2022, beginning 1 January 2018 with a reduction to 28%, 26.5% from 1 January 2021, finally reducing to 25% from 1 January 2022. Deferred tax assets and liabilities are recognised at 25% at the balance sheet date.
The impact of these substantial tax reforms has impacted the Group tax credit adversely in the year ending 31 March 2018 by approximately GBP87,000.
The credit for the year can be reconciled to the profit per the income statement as follows:
2018 2017
GBP000 GBP000
------------------------------------------------------- ------- -------
Profit on ordinary activities before taxation 935 1,191
------------------------------------------------------- ------- -------
Profit on ordinary activities by rate of tax in the UK
of 19% (2017: 20%) 178 238
Expenses not deductible for tax purposes 97 94
Income not taxable (45) (31)
Additional relief for R&D expenditure (631) (1,603)
Foreign profits taxable at different rates 110 (142)
UK Patent Box relief - (201)
Losses carried forward 213 607
Losses brought forward utilised (128) (623)
Effect of change in tax rate on deferred tax balances 39 (18)
Other temporary differences not recognised 48 36
Adjustment in respect of prior periods (173) (175)
------------------------------------------------------- ------- -------
Total tax credit at an effective rate of -31.2% (2017:
-152.7%) (292) (1,818)
------------------------------------------------------- ------- -------
4. Earnings per Ordinary share
Basic earnings per share is calculated by dividing the earnings attributable to holders of Ordinary shares by the weighted average number of Ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all dilutive potential Ordinary shares. The Group has dilutive potential Ordinary shares relating to contingently issuable shares under the Group's share option scheme. At 31 March 2018, the performance criteria for the vesting of certain awards under the option scheme had been met and consequently the shares in question are included in the diluted EPS calculation.
The calculations of earnings per share are based on the following profits and numbers of shares.
2018 2017
GBP000 GBP000
---------------------------------------- ------- -------
Profit on ordinary activities after tax 1,227 3,009
---------------------------------------- ------- -------
Weighted average number of shares: No. No.
---------------------------------------------- ---------- ----------
For basic earnings per share 29,411,555 29,415,175
Effect of dilutive potential Ordinary shares:
* Share options 26,224 247
---------------------------------------------- ---------- ----------
For diluted earnings per share 29,437,779 29,415,422
---------------------------------------------- ---------- ----------
Basic earnings per share 4.2p 10.2p
Diluted earnings per share 4.2p 10.2p
---------------------------------------------- ---------- ----------
2018 2017
GBP000 GBP000
---------------------------------------------------- ------- -------
Profit on ordinary activities after tax as reported 1,227 3,009
---------------------------------------------------- ------- -------
Exceptional items after tax 447 1,353
---------------------------------------------------- ------- -------
Profit on ordinary activities after tax as adjusted 1,674 4,362
---------------------------------------------------- ------- -------
Adjusted basic earnings per share 5.7p 14.8p
Adjusted diluted earnings per share 5.7p 14.8p
---------------------------------------------------- ------- -------
Extract from Annual Report and Financial Statements
The financial information set out above does not constitute the Group's statutory financial statements for the years ended 31 March 2018 or 2017 but is derived from those financial statements. Statutory financial statements for FY2017 have been delivered to the registrar of companies, and those for FY2018 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The annual report and financial statements for the year ended 31 March 2018 will be posted to shareholders on 27 June 2018. This final results announcement and results for the year ended 31 March 2018 were approved by the Board of Directors on 19 June 2018 and are audited.
Basis of preparation
The final results announcement has been prepared under historical cost convention on a going concern basis and in accordance with the recognition and measurement principles of International Reporting Standards and IFRIC interpretations as adopted by the EU ("IFRS").
The final results announcement has been prepared on the basis of the same accounting policies as published in the audited financial statements of the Group for the year ended 31 March 2017, with the exception of the presentation item detailed in the following paragraph, and the accounting policies adopted in the audited financial statements of the Group for the year ended 31 March 2018.
Change in accounting policy relating to presentation only: Operational overheads such as indirect salaries and consumables relating to production, premises costs and land and buildings depreciation previously shown below the gross profit line within operating costs have now been allocated to cost of sales or other operating cost categories better reflecting the nature of those costs. The allocation of each has been considered based on the function at each IDS site. For example, a manufacturing site's premises costs and depreciation charges will be included within cost of sales, whereas the corresponding costs for a sales location would instead be included in the sales and marketing category below. This reallocation also brings the Group's results in line with its peers. This change does not impact the Group profit. The changes made are highlighted in the table below:
Operational
Before reclassification overheads Premises After
reclassification reclassification reclassification
FY2018 GBP000 GBP000 GBP000 GBP000
------------------------- ------------------------- ----------------- ------------------------- ------------------
Revenue 37,947 - - 37,947
Cost of Sales (16,971) (2,323) (640) (19,934)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Gross Profit 20,976 (2,323) (640) 18,013
Sales and marketing (8,826) - (545) (9,371)
Research and development (1,740) - 63 (1,677)
General and
administrative
expenses (8,948) 2,323 1,122 (5,503)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Operating costs
pre-exceptional
items (19,514) 2,323 640 (16,551)
Exceptional items (515) - - (515)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Operating costs (20,029) 2,323 640 (17,066)
Profit from operations 947 - - 947
------------------------- ------------------------- ----------------- ------------------------- ------------------
Operational
Before reclassification overheads Premises After
reclassification reclassification reclassification
FY2017 GBP000 GBP000 GBP000 GBP000
------------------------- ------------------------- ----------------- ------------------------- ------------------
Revenue 40,035 - - 40,035
Cost of Sales (17,056) (2,225) (827) (20,108)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Gross Profit 22,979 (2,225) (827) 19,927
Sales and marketing (8,824) - (664) (9,488)
Research and development (2,313) - 83 (2,230)
General and
administrative
expenses (8,787) 2,225 1,408 (5,154)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Operating costs
pre-exceptional
items (19,924) 2,225 827 (16,872)
Exceptional items (1,404) - - (1,404)
------------------------- ------------------------- ----------------- ------------------------- ------------------
Operating costs (21,328) 2,225 827 (18,276)
Profit from operations 1,651 - - 1,651
------------------------- ------------------------- ----------------- ------------------------- ------------------
Annual report
The annual report will be sent to shareholders shortly and will also be available at the registered office of Immunodiagnostic Systems Holdings PLC at: 10 Didcot Way, Boldon Business Park, Boldon, Tyne & Wear NE35 9PD. It will be made available on the Company's website at: www.idsplc.com.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SFIFMUFASEDM
(END) Dow Jones Newswires
June 20, 2018 02:00 ET (06:00 GMT)
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