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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 : 6773C
Immunodiagnostic Systems Hldgs PLC
19 June 2019
19 June 2019
Immunodiagnostic Systems Holdings PLC
Final Results for year ended 31 March 2019
highlights 2019
Hot Features
Premium
% Change
GBPm 2019 2018 % Change LFL*
---------------------------------- ---- ----- -------- --------
Group Revenue 38.5 37.9 1% 1%
---------------------------------- ---- ----- -------- --------
Automated Business Revenue 22.6 22.9 -1% -1%
---------------------------------- ---- ----- -------- --------
25-OH Vitamin D 5.5 6.3 -12% -13%
---------------------------------- ---- ----- -------- --------
Other Speciality - IDS 13.7 13.6 1% 1%
---------------------------------- ---- ----- -------- --------
Other Speciality - Partners 1.3 1.0 32% 31%
---------------------------------- ---- ----- -------- --------
Instrument Sales and Service 2.0 2.0 3% 2%
---------------------------------- ---- ----- -------- --------
Manual Business Revenues 12.3 12.4 0% -1%
---------------------------------- ---- ----- -------- --------
Technology Business Revenue 3.6 2.7 31% 32%
---------------------------------- ---- ----- -------- --------
Royalty Income 0.0 0.2 -80% -80%
---------------------------------- ---- ----- -------- --------
Technology Income 3.5 2.5 39% 40%
---------------------------------- ---- ----- -------- --------
Adjusted** EBITDA 4.8 6.0 -20% -20%
---------------------------------- ---- ----- -------- --------
Profit from Operations 0.4 0.9 -55%
---------------------------------- ---- ----- -------- --------
Earnings per Share 2.7p 4.2p -36%
---------------------------------- ---- ----- -------- --------
Free Cash flow to Equity*** 1.2 (1.4) 184%
---------------------------------- ---- ----- -------- --------
Closing Cash and Cash Equivalents 27.7 28.5 -3%
---------------------------------- ---- ----- -------- --------
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 adjusted to remove the impact of foreign exchange movements in the year by restating the FY2018 performance using the exchange rates during FY2019.
** Before exceptional income of GBP0.1m (2018: cost of GBP0.5m) - see reconciliation in Financial and Operations Review.
*** See reconciliation in Financial and Operations Review.
Operational summary
-- Our target of returning the Group to LFL revenue growth for the first time since FY2014 was met. Group revenue increased by 1% to GBP38.5m on a LFL basis.
-- We also reached our goal of adding at least 120 instruments. Total gross instrument additions reached 127 (2018: 103).
- Placements in our direct markets were 37 (2018: 34). Returns were higher than we would have liked at 24 (2018: 25), these were concentrated in our US region. As a result, net placements in our direct markets increased slightly to 13 (2018: 9).
- Instrument sales to distributors were 47 (2018: 36). - Instrument sales to OEM customers were 43 (2018: 33).
-- Rebuilding of our European sales team was completed during the year and this team achieved strong results during Q4.
-- Margins have been adversely impacted by the change in sales mix whereby greater levels of sales in lower-margin distribution territories reduced the Group's average gross margin.
-- We were unable to release any new in-house developed assays during the year. IDS now offer a portfolio of 135 IDS branded assays with a CE mark, 22 of which are in-house developments. In the US the number of assays offered remains unchanged at 10.
-- One new OEM partnership was signed during the year, and good progress was made in commercialising our existing partnerships.
Jaap Stuut, CEO of IDS, commented:
"We met our target of returning the Group to revenue growth, with revenues increasing 1%. Additionally, we placed or sold 127 instruments, compared to 103 in the prior year. Our gross margin declined year on year due to a sales mix swing towards lower margin distribution territories. We built good momentum towards the end of the financial year, and our objective will be to carry this forward into the next".
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 Tel : +44 (0)191 519 0660 PLC Jaap Stuut, CEO Paul Martin, Finance Director Peel Hunt LLP (Nominated Adviser Tel : +44 (0)20 7418 8900 and Broker) James Steel, Oliver Jackson
Chairman's Statement
1. Introduction
For IDS, FY2019 was a year of stabilisation as Group revenue saw growth of 1% on a like-for-like ('LFL') basis. Thus, the Group met its stated target of returning a like-for-like revenue growth for the first time since FY2014.
Our share price, however, did not reflect this outcome; it dropped by 21%, from GBP2.21 at 31 March 2018 to GBP1.75 at 31 March 2019.
Below the surface of our business, we continued to work on areas of numerous aspects to improve performance, mainly in the areas of HR/Corporate Culture. The trigger for this prioritisation was a review by the Board on the following:
a) The main topic was an intensified effort to effectively change our culture: The Executive Management Team spent significant time and resources to get commitment from all of our managers to accept personal responsibility and accountability. Whilst this may sound obvious, we had learned over the last few years that Board decisions did not get executed because the managers below Board level did not see an obligation to deliver; these decisions were seen as suggestions, but not as 'must reach' goals.
b) Secondly, we worked on strengthening the talent pool in our Company. During the financial year we were able to make several new hires which definitely raised the average ability of our team. At the same time we continued to train our staff in different groups, tendering to their specific training requirements. The key focus was developing our leaders through extensive practical workshops, providing tailored coaching programmes, whilst identifying our key talent gaps. Conversely, we lost some senior staff who did not see a role in a company moving from a largely scientific to a more business-minded culture.
c) The third effort worth mentioning in this summary of the year is a continued effort by the Executive Management Team to establish efficient processes in all areas of our activities. They continue to come across processes which are either not set up with a strong business sense or there is a lack of compliance in following them. This lack of efficient processes is a major factor explaining the gap in profitability we have versus our peers. The way to close the gap will be process by process - and we will do it.
Jaap will give you more background on these three top priorities in his CEO's Report.
Thus FY2019 was yet another year in which we worked on establishing solid foundations for the business. The conclusion one has to draw from this observation is that our efforts in the past five years were focused too much on firefighting and quick fixes. My colleagues have taken a more balanced view and argue that it takes several iterations until one gets to the root causes of problems. In any case, I can assure you that the Board is now discussing at a level of operational detail and a wealth of data and facts which will assure a better transmission from the boardroom to execution/delivery and finally the financial numbers achieved.
2. Board composition
2.1 Executive team
There are no changes in our Executive Team: Jaap continues to fill his Chief Executive Officer shoes well and he has delivered on his key promise to turn the shrinking business into slight growth. Thus few words are needed and the number is the final outcome of hard work on many fronts.
Jaap could not have achieved this goal without the support of Paul Martin, our Group Finance Director. Paul has spent a significant amount of his time taking on operations responsibilities, and in hindsight the decision for Paul to head Operations was correct - it has allowed Jaap to spend more than 50% of his time in the field.
2.2 Non-executives
As I announced in last year's Chairman's Statement, Roland Sackers and Till Campe stepped down from the Board on 30 June 2018. I would like to thank Roland and Till for their contributions to IDS. As a result of Roland's departure, Peter Williamson has taken over as Chair of the Audit Committee, a role he has held for a number of PE backed businesses. As noted earlier, I believe the new streamlined Board has worked efficiently and believe the composition is more suitable for a company of IDS's size and position.
3. Key Performance Indicators ('KPIs') in the automated In-Vitro Diagnostics ('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 FY2019, disappointingly we were not able to release any new endocrinology assays due to the development process taking longer than anticipated. The assays which were targeted for release in the second half of the year are now expected to be released in FY2020. The main reason is that due to regulatory and other requirements we had to re-work several of the existing assays utilising our Research & Development capacity which would have otherwise focused on new product development.
At the end of FY2019 the Company offers 135 IDS branded assays with a CE mark, 22 of which are in-house developments. In the US, the number of assays offered remains unchanged at ten. We expect the next launches of FDA-approved assays during FY2020.
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. The KPIs used for this goal, related to our direct sales territories, are shown in the following tables:
2015 2016 2017 2018 2019
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------- ------- ------- ------- -------
Gross instrument
placements 54 31 40 34 37
Instrument returns (40) (43) (24) (25) (24)
-------------------------- ------- ------- ------- ------- -------
Net instrument placements 14 (12) 16 9 13
-------------------------- ------- ------- ------- ------- -------
Compared to FY2018, performance improved slightly. The improvement was mainly driven by our European business. Conversely, the US is suffering from a lack of assay menu which we need to attract new users.
3.2.2 Instrument sales via our distributor organisation
In the last Annual Report I told you that we assigned the responsibility for this business area to a manager who has been with us for many years. We have increased the size of this team to lower the administrative burden on this individual. Freeing him from these tasks has given him the chance to show his entrepreneurial talent. In FY2019 he and his team sold 47 analysers to our distributors, up from 36 in FY2018. I am hopeful that there is more to come in the year ahead.
3.2.3 Total instrument placements/sales
In total we placed or sold 127 iSYS instruments in FY2019 (including those through our OEM business), up from 103 in FY2018. These are gross placements/sales, which have to be netted off against returns which I outlined in 3.2.1.
3.2.4 Financial performance
Revenue of GBP22.6m (2018: GBP22.9m) translated into EBITDA (pre-exceptional earnings before interest, tax, depreciation and amortisation) of GBP1.9m (2018: GBP3.1m) representing an EBITDA margin of approximately 8% (2018: 14%).
4. Technology business unit
In our Technology business unit we place instruments to other IVD companies who have chosen to source their instrument from us, but will combine it with content (i.e. assays) they have developed themselves. These instruments will carry the label of the OEM partner.
In FY2019 we shipped a total of 43 (2018: 33) instruments to our OEM partners.
Revenue improved to GBP3.6m (2018: GBP2.7m) on the back of more deliveries of instruments and ancillaries to our largest OEM partner. EBITDA in the business unit improved to GBP0.1m (2018: GBPnil).
5. Manual business unit
During the year our recently formed Manual business unit succeeded in their goal of stabilising the business, on a LFL basis, revenue declined by 1%. This is encouraging as the poor performance of this business unit, which has declined on average 15% over the previous five years, has significantly dragged down the results of the Group as a whole.
Revenue of GBP12.3m (2018: GBP12.4m) translated into EBITDA of GBP2.8m (2018: GBP2.9m) representing an EBITDA margin of 22% (2018: 23%).
6. Corporate development
6.1 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;
c) An experienced management team; and
d) A price which will allow for an attractive return on the capital employed.
In FY2019, as in FY2018, we had discussions with several companies in the manual immunoassay business. We did not close a deal, however a number of discussions are ongoing.
6.2 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. The revenue from these deals is recognised within our OEM business unit, unless we have secured distribution rights for resulting assays with the partners, in which case the revenue is recognised in our automated business unit.
At the start of the year we had two such partnerships and added one further towards the end of FY2019.
Combining our own assays with those automated by our partners IDS now has a total portfolio of 135 assays across several indication areas:
Assays available
Indication area with CE mark
------------------------- ----------------
Speciality endocrinology 22
------------------------- ----------------
Infectious disease 23
------------------------- ----------------
Autoimmune 29
------------------------- ----------------
Allergy 60
------------------------- ----------------
Total portfolio 134
------------------------- ----------------
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, but what we still have to build upon 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.
7. Talent and people management
While I have traditionally made comments in this area, my colleague Nicola Mitton outlines our activities in the Talent and People Management Report of the Annual Report and Accounts 2019.
8. Dividend and share buybacks
On 30 August 2018, IDS announced that following unsolicited shareholder interest in expanding the existing share buyback programme, the IDS Board instructed Peel Hunt LLP to acquire up to a further 1,000,000 Ordinary Shares of 2p each which amounts to 3.4% of the 29.4 million Ordinary Shares in issue.
By 31 March 2019 we had proceeded and bought back 666,078 shares (2018: 53,781 shares), which are currently held in treasury. The purpose of the programme is to reduce the capital of the Company and to meet future obligations under the IDS Co-Investment Share Option Plan.
Our stated dividend policy is to pay out 25-30% of adjusted basic EPS as dividends. Adjusted basic EPS in FY2019 was 2.4p (2018: 5.7p). Thus, the Board proposes a dividend of 0.7p (2018: 1.7p) - implying a pay-out ratio of 29% (2018: 30%).
9. 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 competitor going forward. In FY2019 you showed that being led by an Executive team which sets clear goals, supports you in reaching them and treats you with respect can change a negative momentum for many years to positive. I hope you have the same feeling of pride when looking back to the last 12 months.
10. Outlook
FY2019 was the first year after many in which we returned to slight growth. We also improved several KPIs which suggest positive momentum (e.g. placements) which will become fully effective next financial year. Furthermore, beyond all the numbers, we worked on 'fixing the engine' - improving the transmission mechanism to make Board decisions happen.
I have said numerous times that I felt we had fixed so much that there could not be much left. Each year has made me admit that there is so much more to do, and there is still a long road to reach best practice.
What has not changed, though, is that 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 outstanding profitability and returns to shareholders and the results achieved by our competitors confirm this.
Dr Burkhard Wittek
Chairman
CEO's Report
Overview
During FY2019, total Group revenues increased by 1% on aLFL basis, mainly due to higher revenues in our Technology business unit. Overall, we achieved revenue growth thanks to a very strong Q4, where I was pleased to see that everyone in the IDS team put in significant effort to ensure we met our objective of returning to LFL growth. Overall, we shipped a total of 127 (2018: 103) analysers to customers - an increase of 23% year-on-year, and in excess of our target of 120. I would like to thank all staff at IDS for their efforts and going the extra mile in achieving this.
Encouragingly we stabilised our Manual business after many years of significant decline by focusing on our current distribution network and signing new distribution partnerships. We also achieved a strong growth within our Technology business. Disappointingly, our Automated business declined slightly due to growth in most regions being offset by a shortfall in the US.
We made no changes to our Executive Management Team in the year but made changes via key managerial hires with the goal of improving the breadth of talent with a focus on our customer-facing teams. Furthermore, a strong focus on IDS culture and values was a core theme for the year.
Our strong performance at the end of the financial year was encouraging. My main challenge looking forward is to maintain this momentum into FY2020 to ensure we accelerate our rate of revenue growth. We will intensify our efforts in generating new business and reducing our costs. Furthermore, during FY2020 we also need to be more successful within our internal research and development function and make sure we release at least two new assays and obtain regulatory approval for a further two assays in the US. Changes made to our research and development processes and regulatory approval process have created the prerequisites to achieve this.
1. Automated business unit
1.1 Business segment revenue
2018 LFL
2019 LFL 2018 change Change
GBP000 GBP000 GBP000 % %
---------------------- ------- ------- -------- ------- --------
25-OH Vitamin D 5,537 6,637 6,322 -13% -12%
Speciality - IDS 13,737 13,541 13,578 1% 1%
Speciality - Partners 1,332 1,019 1,012 31% 32%
Instrument Sales
and Service 2,029 1,995 1,964 2% 3%
---------------------- ------- ------- -------- ------- --------
Total 22,635 22,892 22,876 -1% -1%
---------------------- ------- ------- -------- ------- --------
In FY2019, automated business revenues declined by 1% LFL. This business unit now accounts for 59% (FY2018: 60%) of Group revenues.
The LFL decline in 25-OH Vitamin D sales weighed heavily on this business and unfortunately more than offset the growth we saw
in all other areas of the business unit. This decline was mainly driven in the US, where we experienced almost two thirds of our total returned instruments. The decline continues to be attributed to laboratories transferring this assay to high throughput workhorse analysers and our strategy to mitigate will be twofold. Firstly, by increasing the effectiveness of our US sales team and secondly by continuing to focus on upselling further assays on Vitamin D centric machines to increase the stickiness of these machines in a laboratory.
Speciality - IDS sales have grown by 1% on a LFL basis after a weak first half where we saw a decline of 2%. Performance in the second half of the year was more encouraging, and we expect to see a stronger performance going forward in this revenue stream as a result of the large number of analysers we successfully placed during Q4.
Speciality - Partner assays sales mainly comprise sales of our autoimmune panel of assays and have grown 31% on a LFL basis. The combination of the IDS autoimmune portfolio along with the IDS endocrinology products on one analyser is a compelling value proposition to many laboratories. During the year we also secured regulatory approval for our autoimmune product range in our key distribution territories. However, as this happened towards the end of the year, due to our 9-12 months sales cycle there were not significant assays sales, though distributors ordered a number of analysers in anticipation of the roll out of this panel into their markets. Our autoimmune Clinical Application Specialists ('CAS') will increase knowledge and support and enhance sales uptake in direct and distributor countries.
Income from Instrument sales and Service has grown 3% year-on-year. The growth in sales of instruments within our distribution territories was offset by lower instrument sales in direct territories, where the majority of machines were placed in the year rather than sold.
1.2. Key success factors
1.2.1 Increased endocrinology reagent portfolio
The endocrinology assay menu of IDS remains specialised but lacks some critical assays to offer a complete testing suite for certain indication areas. Thus, we are focused on the completion of our hypertension and fertility/steroids panels.
Disappointingly during the year, we were not successful in launching any new endocrinology assays. This was not due to the failure of any ongoing development projects. Rather it was due to these taking longer than anticipated as we make sure that our development process produces appropriate speciality assay performance and generates a complete set of data to enable any new assays to obtain FDA approval and launch in the US.
Continued focus on process outcomes and project management by our research and development teams will be intensified.
As a result, the number of automated endocrinology assays produced in house remained unchanged year on year, and is summarised below:
Assays Assays
end of end of
Regulatory approval FY2019 FY2018
-------------------------- ------- -------
Assays with CE mark 22 22
Assays with FDA approval 10 10
Assays with NMPA approval 4 4
-------------------------- ------- -------
In the US our endocrinology menu is clearly sub-critical in size: a lab will only consider going through the effort of placing an additional analyser like ours if it can run at least 20-25 assays. At present we only have a panel of ten assays. As a result, the majority of the instrument returns in the year have been in the US. In the mid-term we believe we can return the US business to growth as we launch new assays in the territory. However, in the short term we will focus our efforts on promoting our Manual assays to offset some of the shortfall in the Automated business.
In China we have four assays registered, however, in the year our Vitamin D assay completed evaluation and is now in the submission process with the Chinese regulators ('NMPA').
1.2.2 - Additional assay fields
As I set out in last year's Annual Report and explained in the Our Business section, a cornerstone of our revenue growth strategy centres around working with partners to commercialise assays they have developed in fields which are adjacent to endocrinology. A summary of our progress in each of these fields is set out below:
Autoimmune and infectious disease: During the year we successfully achieved CE marking for the 53 assays which are manufactured in Italy by our partner Technogenetics. As a result, all of these assays are now available in the IDS brand. Furthermore, we have also successfully registered the autoimmune products in our key distribution territories. The sales team in Europe has been strengthened by the recruitment of specialists in these fields, and consequently we saw year-on-year revenue growth of over 30%.
Allergy: The IDS range of Allergy products, which now totals 60 tests, is developed by our partner Omega Diagnostics in Scotland. These products have now all been CE-marked under the IDS brand, and we performed their market launch in March 2019. We expect to see the first sales during FY2020 and will focus on working with our partner to develop the required range of screening tests which are crucial to obtaining more significant short-term commercial traction.
Monitoring of biotherapy treatments: In March 2019 we signed a collaboration agreement with Theradiag in France under which they will seek to automate their range of Biotherapy monitoring ELISA assays on the IDS instrument. IDS have also secured the distribution rights to the newly developed automated assays, as well as Theradiag's existing range of ELISA assays in a selected number of territories including Germany, the Nordics and Latin America. I look forward to working with Theradiag on this exciting opportunity moving forwards.
1.2.3 Instrument placements
The number of machines installed is a critical KPI, as each machine will generate future recurring assay revenue. The total number of machines placed or sold was 84 (2018: 70), an increase of 20%. This performance is summarised in the table below:
2019 2018
-------------------------- ---- ----
Direct - Gross Placements 37 34
Direct - Gross Returns (24) (25)
Direct - Net Placements 13 9
-------------------------- ---- ----
Distributor Sales 47 36
-------------------------- ---- ----
Total Gross Placements
/ Sales 84 70
-------------------------- ---- ----
Encouragingly we saw a much-improved performance in our distribution territories where we sold 47 machines, versus 36 in the prior year. As we noted in last year's Annual Report and Accounts 2018, we have dedicated more resources to this revenue channel, and are starting to see the first benefits of this. We expect to continue increasing our focus in this area in FY2020. I would like to thank the team for their focus and dedication in achieving set goals.
The average number of assays running on the analysers has continued to increase - moving from 4.7 to 5.1 over the year. This reflects the efforts made by the sales team to upsell additional assays, particularly the new autoimmunity assays which complement our existing endocrinology assays, onto our existing installed base. This increases our return from each analyser and raises the probability of the laboratory retaining the analyser at the end of the contract.
Average revenue per direct instrument ('ARPI') was GBP52,000 (2018: GBP53,000) per annum, calculated on a rolling 12-month basis. The decrease in ARPI was mainly due to the loss of a few high-volume single assay systems in the Americas, offset by increased revenue from assay upsells.
1.2.4 Sales team
As I noted in our half-year report, we focused our attention on enhancing our European sales organisation. During the year we recruited two new managers, with significant IVD experience, to lead our sales teams in France and Germany.
Additionally, we recognised that as IDS have historically been an endocrinology focused organisation, we needed to enhance our technical and commercial skills in the new assay fields which we are entering. As a result, during the year we built a new team of clinical application specialists who have specialist experience in these new fields. They visit customers and work jointly with our sales representatives to address the specific technical, clinical and workflow topics to design a tailored answer which meets our customer`s needs. As a result, we managed to place a significant number of machines which will run both endocrinology and autoimmunity assays during Q4.
In the US, we continue to struggle to improve automated sales performance, mainly due to the lack of assays in our portfolio. This makes it difficult to recruit and retain a dedicated IVD sales force with experience in the speciality field we are operating. Sales effectiveness will be a key cornerstone for FY2020 for our US sales team. However, we are confident the changes made in our regulatory approval processes will bear fruit in the medium-term and lead to an increase in the assay menu available in the US. The US remains a critical region for IDS's Automated business unit, however there are no short-term fixes to allow us to turnaround the performance of this part of the business.
2. Manual business unit
2.1. Business segment revenue
2018 LFL
2019 LFL 2018 change Change
GBP000 GBP000 GBP000 % %
----------------- ------- ------- -------- ------- --------
25-OH Vitamin D 1,061 1,462 1,450 -27% -27%
Other Speciality
- IDS 5,179 4,848 4,845 7% 7%
Other Speciality
- Purchased 2,058 1,861 1,851 11% 11%
Diametra 4,024 4,230 4,215 -5% -5%
----------------- ------- ------- -------- ------- --------
Total 12,322 12,401 12,361 -1% 0%
----------------- ------- ------- -------- ------- --------
In FY2019, we successfully met our goal of stabilising the Manual business unit. Sales exhibited a year-on-year fall of 1% LFL, a significant improvement on the historical trend which has seen these revenues decline by an average of 15% per year over the last five years. Manual business unit revenues represent 32% (2018: 33%) of Group revenues. Increased focus on 'getting things done' coupled with improved support to our distributors by enhancing their product knowledge and portfolio management has shown improved results.
During the year we successfully reinvigorated and expanded our distribution base and were successful in winning in our direct markets - particularly the US. The underlying business is well placed to return to a moderate level of LFL growth in the future, however, it will be impacted adversely by the loss of distribution rights related to certain third-party products in the short-term. The future of this business unit is a lot brighter now than when I took over the CEO role and I would like to thank the Manual business team for their dedication in strengthening this business unit.
2.2. Manual business unit commercial team
FY2019 was the first period in which we have been able to see the full year impact of our recently constituted Manual business commercial team. This team has focused successfully on ensuring the market recognises that IDS is "back in business" as a supplier of high-quality endocrinology ELISA and RIA assay test kits.
During the year, the team focused on several areas to improve the commercial performance of the business:
-- Reactivating dormant customer accounts;
-- Providing better support to our existing distributors to help them successfully sell and market our product range;
-- Signing up new distributors in geographical locations where we previously were not represented;
-- Negotiating OEM deals, where we provide antibodies or kits to third parties in a "white label" format; and
-- Increasing our focus on winning business with research organisations ("RUO").
Moving into FY2020 a key focus for the team will be to leverage the new distribution agreements that were negotiated during FY2019 to generate revenue momentum going forward. They will also attempt to gain traction with the ELISA biotherapy monitoring products from Theradiag for which we obtained distribution rights towards the end of FY2019.
3. Technology business unit
3.1. Business segment revenue
2018 LFL
2019 LFL 2018 change Change
GBP000 GBP000 GBP000 % %
------------------ ------- ------- -------- ------- --------
Royalty income 35 174 176 -80% -80%
Technology income 3,521 2,513 2,534 40% 39%
Total 3,556 2,687 2,710 32% 31%
------------------ ------- ------- -------- ------- --------
In FY2019 Technology business unit sales exhibited a LFL year-on-year increase of 32%, and account for 9% (2018: 7%) of Group sales.
This growth continues to be driven by large volume orders for analysers by one OEM partner, as they prepare for the commercial launch of their automated solution which is based on a white-label i10 instrument. During FY2019, 43 instruments were delivered to OEM partners, versus 33 in the prior year.
Moving into FY2020 we expect revenues in this business unit to remain relatively stable, though they are highly dependent on the successful product launch by one of our OEM partners. In addition, we target the signature of at least one more major OEM deal during FY2020 which would impact revenues in the medium term.
4. Culture and values
During the year IDS has progressed in its journey from a scientifically focused organisation to a commercial, customer focused organisation which produces top quality IVD product underpinned by excellent science and services. The best evidence of this was in the strong last quarter, where all employees came together to ensure the Group was able to meet our commercial goal of delivering financial year results which returned us to growth, as well as enabling us to post a 23% increase in the number of analysers placed year-on-year.
I have been heavily involved in all the leadership and values workshops held during the year and have been encouraged by the level of engagement and enthusiasm the staff have shown to fix IDS. We will intensify our efforts by embedding our organisation values and goals at all levels of the organisation. I am now continually seeing examples of this, by giving out awards to those who effectively change our culture in turning their day-to-day activities to business results.
During FY2020 we will increase our focus on ensuring that all team members have specific objectives which are all aligned to the Group goals of improving revenue, analyser placements and profit. We will support and dedicate our team to hit these objectives in the agreed timeframes - as it is only through this results-orientated approach we will achieve significant success.
I would like to thank every employee whose efforts enabled the Group to return to growth. I believe we have good momentum moving into FY2020, where we will target an acceleration in our revenue growth. With close collaboration between sites, functions and individual team members, as well as driving to hit both our organisational and individual team member goals, I believe we will be successful in this aim.
Jaap Stuut
Chief Executive
Financial and Operations Review
1. Profit and loss account overview
During the year, the Group improved revenue by 1% on a LFL basis to GBP38.5m, mainly as the result of a strong performance in our Technology business. The revenue performances of the Automated and Manual business units were broadly consistent year-on-year.
Pre-exceptional earnings before interest, tax, depreciation and amortisation ('EBITDA') decreased to GBP4.8m (2018: GBP6.0m). This was mainly due to a reduction in gross margin to 43% (2018: 47%). The margin drop was mainly due to declines in sales volumes in the high margin direct business in the US being offset by sales in lower margin distribution territories. This was partially offset by the lower operating costs of the Group.
Cash and cash equivalents decreased by GBP0.8m to GBP27.7m (2018: GBP28.5m), largely as a result of the share buy-back activity in the year which absorbed GBP1.4m. Free cash flow to equity, being cashflow before returns to shareholders increased to GBP1.2m (2018: outflow of GBP1.4m).
2. Revenue analysis
Group revenue of GBP38.5m (2018: GBP37.9m) increased by GBP0.6m, or 1% on both a reported and LFL basis.
2.1 Revenue by geography
2019 2018 LFL
GBP000 GBP000 change Change
-------------- ------- ------- ------- ------
Direct sales
- US 7,215 7,858 -8% -8%
Direct sales
- Europe 22,416 21,998 2% 2%
Rest of world 8,882 8,091 11% 10%
-------------- ------- ------- ------- ------
Group revenue 38,513 37,947 1% 1%
-------------- ------- ------- ------- ------
Our US business suffered a revenue decline of 8% on a LFL basis. This was mainly due to the sub-scale automated assay menu making it difficult to win new business, coupled with the loss of a number of machines dedicated to running only one test. The poor performance in the Automated business unit in the US was offset by growth in the Manual business unit.
The European business showed sales growth of 2%. During H1 performance was not as expected due to the Group still being in the process of building our sales and clinical application specialist team in the region. However, H2 performance, once this team was substantially in place, was more satisfactory and we need to maintain this momentum into FY2020.
Last but not least, our best regional performance was in Rest of World. This is business which is mainly transacted through our distribution network. The growth was driven by the increased focus on both our Automated and Manual businesses in our distribution territories.
3. Costs: overall cost structure/top-down perspective
3.1 Summary income statement
% of revenue
--------------
2018
Year ended 31 2019 restated
March GBP000 GBP000 2019 2018
------------------------- -------- --------- ------ ------
Revenue 38,513 37,947 100% 100%
Cost of goods
sold (21,817) (19,934) 57% 53%
Gross profit 16,696 18,013 43% 47%
Sales & marketing (9,075) (9,371) -24% -25%
Research & development (2,444) (1,677) -6% -4%
General & administrative
expenses (4,837) (5,503) -13% -15%
Total operating
costs pre-exceptional (16,356) (16,551) -42% -44%
Exceptional items 89 (515) 0% -1%
Profit from operations 429 947 1% 2%
------------------------- -------- --------- ------ ------
Add Back :
Depreciation
& amortisation 4,457 4,561 12% 12%
Exceptional items (89) 515 1% 1%
------------------------- -------- --------- ------ ------
Adjusted EBITDA 4,797 6,023 12% 16%
------------------------- -------- --------- ------ ------
As seen in the table above, we lost four percentage points of gross margin year-on-year. The main drivers were mix-related: highly profitable direct sales US business was replaced by lower-margin distributor business.
On the operating costs front, we achieved a slight improvement in our cost ratios in sales and marketing as well as general and administrative costs. But as research & development costs increased (post-capitalisation) the net improvement in our operating costs as a percentage of sales was only one percentage point.
Combining these two factors, our adjusted EBITDA dropped from 16% of revenue to 12% year on year.
3.2 Comparison to peers
I would like to draw your attention to the comparison of our cost structure with those of our direct competitors and comparable peers. For this comparison exercise we have selected:
a) Diasorin - because they are our most direct competitor; and
b) Qiagen is another world-class company in diagnostics, in this case molecular diagnostics.
The following table shows the cost structures as a percentage of revenues of these peer companies compared to IDS:
Cost Research General
of goods Sales and development and
Costs as % of revenue sold & marketing (gross) administrative
---------------------- --------- ------------ ---------------- ---------------
IDS 57% 24% 13% 13%
Qiagen 33% 26% 11% 9%
Diasorin 32% 20% 9% 10%
---------------------- --------- ------------ ---------------- ---------------
While we have succeeded in halting the decline in revenue, our EBITDA lags well behind that of our larger, best in class peers.
If we examine the reasons for this, we see that, as set out in the graphs above, IDS has broadly comparable sales and marketing, R&D and general and administrative costs as a percentage of revenue to the likes of Diasorin and Qiagen.
However, our gross margin is significantly lower. For example, Diasorin generates gross margin of 68%, and Qiagen 65%, versus IDS's 43%, hence we lose up to 25% points of margin at the gross profit level. As a result, I will focus my analysis of costs below on costs of goods sold ('COGS'), as this is the area we most need to improve.
4. Gross profit and gross margin
4.1 Comparing FY2019 with FY2018 financials
Gross profit in the year was GBP16.7m (2018: GBP18.0m), a decrease of GBP1.3m, from the prior year. Gross margin reduced to 43.4% (2018: 47.5%). As noted earlier, the margin drop was mainly due to declines in sales volumes in the high margin direct business in the US being offset by sales in lower margin distribution territories.
4.2 Short-term actions: operating performance
As well as being responsible for finance, this was my first full year in charge of the IDS Operations team, which comprises our production, logistics and quality functions.
During the year, we focused on several projects, all aimed at our goal of improving our service levels or COGS directly. Experience shows that better service tends to come from better processes and process discipline and this in turn also contributes to lower COGS. Below, find a summary of the projects we ran in the area of COGS and the results of these.
4.2.1 Product availability
A major project in the year was improving delivery times and fill rates of orders. Our main action was improving the production planning process for both instrument and assays. We introduced a backlog KPI (orders received but which we could not ship due to stock non-availability) and this metric was improved during the year such that the backlog was close to nil at year end.
4.2.2 Product quality
At the start of the year it became clear to me that IDS was experiencing a number of easily avoidable customer complaints which could be reduced through targeted investment in our production equipment. Here we are talking about basic things like badly printed bar codes and leaking vials due to vial caps not being applied correctly. Some targeted investment in new manufacturing equipment solved these issues rapidly, and the level of complaints has reduced by 48%.
4.2.3 Scrap rates
In FY2019 we have commenced a number of initiatives to track and reduce the scrap-related material costs in our sites. We succeeded in reducing this significantly in the current year, and in particular production-related scrap reduced by 27%.
4.3 Medium-term actions: two major projects
In addition to these short-term actions we have started two projects which will show a contribution in the medium term - beginning in FY2020:
a) We started a pricing analysis, comparing our price level with the competition and taking into account differences in product quality. We hope to identify some sources for price increases from this exercise; and
b) We initiated an external review of our Liège and Pouilly plants to identify areas of improvement.
I will report back on the outcomes of these projects in the next Annual Report.
5. Operating costs
Once all the recognition criteria of IAS38 Intangible Assets related to the capitalisation of product development project costs are met, the relevant costs encompassing instrument and new assay developments are capitalised and amortised over a 10-year period. The total amount of costs capitalised decreased from GBP2.6m in 2018 to GBP2.4m in 2019. We review these projects on a periodic basis throughout the financial year and the costs are impaired if a project no longer meets the required criteria.
As can be seen in the table in section 3.1, operating costs before exceptional items were GBP16.4m (2018: GBP16.6m), a decrease of 1% on a LFL basis.
6. Foreign exchange
In contrast to recent years, movements in foreign exchange rates have not materially impacted the Group results year-on-year, because as shown in the table below the Pound Sterling has been largely constant against the Euro and US Dollar.
Strengthening
against
Average exchange Sterling
rates 2019 2018 %
----------------- ---- ---- -------------
Pound Sterling:
US Dollar 1.32 1.33 -1%
Pound Sterling:
Euro 1.13 1.14 0%
----------------- ---- ---- -------------
In the year 67% (2018: 67%) of the Group's revenues were billed in Euros and 20% (2018: 22%) were billed in US Dollars.
7. Segmental reporting
Automated Manual Technology Total
2019 2019 2019 2019
GBP000 GBP000 GBP000 GBP000
------------- --------- ------- ------------ -------
Revenue 22,635 12,322 3,556 38,513
Gross profit 10,054 5,584 1,058 16,696
EBITDA 1,898 2,755 144 4,797
EBITDA % 8.4% 22.4% 4.0% 12.5%
------------- --------- ------- ------------ -------
Automated Manual Technology Total
2018 2018 2018 2018
GBP000 GBP000 GBP000 GBP000
------------- --------- ------- ------------ -------
Revenue 22,876 12,361 2,710 37,947
Gross profit 11,394 5,690 929 18,013
EBITDA 3,147 2,870 6 6,023
EBITDA % 13.8% 23.2% 0.0% 15.9%
------------- --------- ------- ------------ -------
EBITDA margin in our Automated business reduced to 8.4% from 13.8% in the prior year. This was due to the aforementioned change in the sales mix. In our Manual business the EBITDA margin of 22.4% (2018: 23.2%) was similar to the prior year, while in our Technology business it grew to 4% (2018: 0%) due to the leverage effect higher revenues.
8. Headcount and productivity
8.1 Headcount
An analysis of the Group's headcount, on a FTE basis, is set
out below:
31 March 31 March
2019 2018
--------------------------- -------- --------
Operations 127 127
--------------------------- -------- --------
Sales and Marketing 78 78
--------------------------- -------- --------
thereof field sales
force 24 23
--------------------------- -------- --------
Research and Development 43 40
--------------------------- -------- --------
General and Administrative 35 36
--------------------------- -------- --------
Total 283 281
--------------------------- -------- --------
8 .2 Labour productivity
The most appropriate way to measure the overall productivity of IDS is revenue per employee.
As can be seen in the chart below, revenue per employee in FY2019 was broadly consistent with FY2018. It lags well below best in class as shown by the corresponding metric for Qiagen and Diasorin.
2015 2016 2017 2018 2019
Revenue per employee GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ------- ------- ------- ------- -------
IDS 135 117 137 134 137
Qiagen 202 184 214 235 227
Diasorin 202 219 254 295 300
--------------------- ------- ------- ------- ------- -------
NB: Diasorin and Qiagen results are for year ended 31 December 2018. IDS results are for year ended 31 March 2019.
9. Finance expense
Net finance income was GBP0.4m (2018: GBPnil). Included within net finance income is a foreign exchange gain
of GBP0.3m (2018: loss of GBP0.1m), which arises from the translation of non-Pound Sterling denominated intercompany balances.
10. Exceptional items
The Group incurred some exceptional items during the current and previous financial year:
2019 2018
Year ended 31 March GBP000 GBP000
----------------------------- ------- -------
Restructuring credit/(costs) 89 (515)
----------------------------- ------- -------
Total exceptional
credit/(costs) 89 (515)
----------------------------- ------- -------
In FY2019, there was an exceptional credit of GBP0.1m due to the reversal of restructuring provisions related to our France and Italy operations which were not utilised.
In the prior year, the restructuring costs related to the closure of our Milan and Paris offices plus severance costs for the outgoing CEO, offset by a reversal in an onerous lease provision of GBP0.2m which was booked to exceptional items in previous years.
11. Profit from operations
Profit from operations ('EBIT') was GBP0.4m (2018: GBP0.9m), the decline being mainly due to the loss of gross margin as a result of the revenue mix changes explained earlier.
12. Taxation
The tax charge of GBP0.05m (2018: credit of GBP0.3m) gives a full-year effective rate of 5.5% (2018: -31.2%). It comprises a current tax credit of GBP0.2m and a deferred tax charge of GBP0.2m. The current tax credit arises mainly due to Research & Development tax claims in the UK and France but is partially offset by profits chargeable in overseas territories taxable at a higher rate than UK corporation tax.
Total gross tax losses carried forward amount to GBP20.3m (2018: GBP20.3m) of which GBP3.2m (2018: GBP4.4m) has been recognised as an asset in the balance sheet.
13. 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 2.4p (2018: 5.7p). Basic earnings per share are 2.7p (2018: 4.2p).
14. Balance sheet and cashflow
14.1 Equity
The Group's shareholders' funds at 31 March 2019 were GBP55.2m (2018: GBP56.9m).
14.2 Working capital
The Group net working capital was GBP12.6m at 31 March 2019 (GBP12.9m at 31 March 2018).
The reason behind the decrease in the working capital requirement is largely due to a reduction in the net corporation tax debtor of GBP0.7m due to large cash receipts relating to Research and Development relief, partially offset by an increase in trade receivables due to strong revenue in the final month of FY2019.
An analysis of the key elements of working capital is shown below:
31 March 31 March
2019 2018
------------------- -------- --------
Trade receivable
days 53 55
Inventory days 167 217
Trade payable days (32) (37)
------------------- -------- --------
14.3 Cash flow summary
A summary of the Group's cash flow statement for the year is shown below:
2019 2018
GBP000 GBP000
--------------------------- ------- -------
Profit before tax 842 935
Depreciation and
amortisation 4,457 4,561
Income taxes received
/(paid) 838 (140)
Other adjusting
items (589) (476)
Movements in working
capital 232 (2,364)
--------------------------- ------- -------
Cash generated from
operating activities 5,780 2,516
Cash used in investing
activities (4,426) (3,870)
Cash used in financing
activities (2,019) (1,406)
--------------------------- ------- -------
Net decrease in
cash and cash equivalents (665) (2,760)
--------------------------- ------- -------
Add back
Share buy back 1,358 147
Dividends 500 1,177
--------------------------- ------- -------
Free cash flow to
equity 1,193 (1,436)
--------------------------- ------- -------
Cash generated from operating activities improved to GBP5.8m, versus GBP2.5m in the previous year, driven by significantly lower working capital outflows. As a result, free cash flow to equity improved to GBP1.2m, from an outflow of GBP1.4m in the prior year.
15. Dividend and share buy back
During the year, after a request from a major shareholder to help in disposing of a block of shares, the Group extended its share buyback programme via a book build process announced on 30 August 2018. As a result, the Group purchased 612,297 shares at an average cost of GBP2.20p per share (plus commission of GBP10,000), thus total consideration of GBP1.4m. This brings the total number of shares held in treasury to 666,078, around 2% of the share capital.
The Group has a policy to pay out between 25% to 30% of its adjusted earnings per share as a dividend. In FY2019 adjusted earnings per share was 2.4p (2018: 5.7p) thus the Board is proposing a dividend for the year of 0.7p (2018: 1.7p) subject to the approval of shareholders at the Annual General Meeting on 25 July 2019. If approved, the dividend will be paid on 16 August 2019 to shareholders on the register at the close of business on 19 July 2019.
16. Brexit risk
In common with most UK businesses, we put significant effort into preparing for a no-deal Brexit on 29 March 2019. Our focus has been on ensuring we could continue to trade effectively over any 'hard Brexit' date.
Our preparations included:
-- Ensuring we had sufficient stocks of raw materials to ensure continuity of manufacture;
-- Transferring finished goods to the appropriate intermediary inventory hub location to mitigate any delays at the
UK/EU border;
-- Assessment of the change in VAT treatment of goods sold from the UK to EU customers and raw materials purchased for use in production at the UK site; and
-- Preparing all the paperwork to register any products with a CE mark registered in the UK to an appropriate EU based regulatory agency.
We do not believe any devaluation in Pounds Sterling will pose a material risk to the business, as this tends to improve the reported profitability of the Group.
While the deadline for Brexit has been delayed, we are ready to re-enact our hard Brexit implementation plan if required.
17. Change of auditors
As a result of a competitive tendering process led by the IDS Audit Committee, we changed our auditors from Ernst & Young LLP to PricewaterhouseCoopers LLP. On behalf of the IDS finance teams I would like to thank Ernst & Young LLP for their assistance and high levels of service, and to PricewaterhouseCoopers LLP for a smooth transition to a new audit team.
Paul Martin
Group Finance Director
18 June 2019
Consolidated Income Statement for the year ended 31 March 2019
2019 2018
Notes GBP000 GBP000
------------------------------------------- ----- -------- --------
Revenue 1 38,513 37,947
Cost of sales (21,817) (19,934)
------------------------------------------- ----- -------- --------
Gross profit 16,696 18,013
Sales and marketing costs (9,075) (9,371)
Research and development costs (2,444) (1,677)
General and administrative expenses (4,837) (5,503)
------------------------------------------- ----- -------- --------
Operating costs pre-exceptional items (16,356) (16,551)
------------------------------------------- ----- -------- --------
Exceptional items
Restructuring credit/(costs) 89 (515)
------------------------------------------- ----- -------- --------
Total exceptional items 89 (515)
------------------------------------------- ----- -------- --------
Operating costs (16,267) (17,066)
------------------------------------------- ----- -------- --------
Profit from operations 2 429 947
------------------------------------------- ----- -------- --------
Finance income 495 128
Finance costs (82) (140)
------------------------------------------- ----- -------- --------
Profit before tax 842 935
Income tax (charge)/income 3 (46) 292
------------------------------------------- ----- -------- --------
Profit for the year attributable to owners
of the parent 796 1,227
------------------------------------------- ----- -------- --------
Earnings per share
Adjusted basic 4 2.4p 5.7p
Adjusted diluted 4 2.4p 5.7p
Basic 4 2.7p 4.2p
Diluted 4 2.7p 4.2p
------------------------------------------- ----- -------- --------
Consolidated Statement of Comprehensive Income for the year ended 31 March 2019
2019 2018
GBP000 GBP000
-------------------------------------------------------------- ------- -------
Profit for the year 796 1,227
-------------------------------------------------------------- ------- -------
Other comprehensive (expense)/income to be reclassified
to profit or loss in subsequent periods
Currency translation differences (505) 147
-------------------------------------------------------------- ------- -------
Other comprehensive (expense)/ income to be reclassified
to profit or loss in subsequent periods,
before tax (505) 147
Tax relating to other comprehensive income to be reclassified
to profit or loss in subsequent periods - -
-------------------------------------------------------------- ------- -------
Other comprehensive expense not to be reclassified to
profit or loss in subsequent periods
Remeasurement of defined benefit plan (40) (3)
-------------------------------------------------------------- ------- -------
Other comprehensive expense not to be reclassified to
profit or loss in subsequent periods, before tax (40) (3)
Tax relating to other comprehensive expense not to be
reclassified to profit or loss in subsequent periods 14 -
-------------------------------------------------------------- ------- -------
Other comprehensive (expense)/income net of tax (531) 144
-------------------------------------------------------------- ------- -------
Total comprehensive income for the year attributable to
owners of the parent 265 1,371
-------------------------------------------------------------- ------- -------
Consolidated balance sheet at 31 March 2019
2018
2019 Restated
GBP000 GBP000
-------------------------------------------- ------- ---------
Assets
Non-current assets
Property, plant and equipment 6,852 7,467
Other intangible assets 11,177 10,993
Deferred tax assets 70 377
Other non-current assets 283 351
--------------------------------------------- ------- ---------
18,382 19,188
-------------------------------------------- ------- ---------
Current assets
Inventories 7,819 8,378
Contract assets 380 371
Trade and other receivables 8,958 7,998
Income tax receivable 2,667 3,073
Cash and cash equivalents 27,713 28,533
--------------------------------------------- ------- ---------
47,537 48,353
-------------------------------------------- ------- ---------
Total assets 65,919 67,541
--------------------------------------------- ------- ---------
Liabilities
Current liabilities
Short-term portion of long-term borrowings 82 80
Trade and other payables 6,511 6,670
Contract liabilities 278 116
Income tax payable 369 58
Provisions 46 243
Government grants 33 97
--------------------------------------------- ------- ---------
7,319 7,264
-------------------------------------------- ------- ---------
Net current assets 40,218 41,089
--------------------------------------------- ------- ---------
Non-current liabilities
Long-term portion of long-term borrowings 1,092 1,201
Employee benefit obligations 363 358
Provisions 846 750
Deferred tax liabilities 996 1,096
--------------------------------------------- ------- ---------
3,297 3,405
-------------------------------------------- ------- ---------
Total liabilities 10,616 10,669
--------------------------------------------- ------- ---------
Net assets 55,303 56,872
--------------------------------------------- ------- ---------
Called up share capital 589 589
Share premium account 32,345 32,345
Other reserves 4,660 5,165
Retained earnings 17,709 18,773
--------------------------------------------- ------- ---------
Equity attributable to owners of the parent 55,303 56,872
--------------------------------------------- ------- ---------
Consolidated statement of cash flows for the year ended 31 March 2019
2019 2018
GBP000 GBP000
--------------------------------------------------- ------- -------
Operating activities
Cash generated from operations 5,089 3,713
Cash outflow related to exceptional costs (147) (1,057)
Income taxes received/(paid) 838 (140)
---------------------------------------------------- ------- -------
Net cash from operating activities 5,780 2,516
---------------------------------------------------- ------- -------
Investing activities
Purchases of other intangible assets (2,492) (2,639)
Purchases of property, plant and equipment (2,122) (1,734)
Net proceeds from disposals of property, plant and
equipment 26 375
Interest received 162 128
---------------------------------------------------- ------- -------
Net cash used by investing activities (4,426) (3,870)
---------------------------------------------------- ------- -------
Financing activities
Proceeds from issue of shares for cash - 83
Repayments of borrowings (79) (86)
Interest paid (82) (79) Dividends paid (500) (1,177) Purchase of own shares (1,358) (147) ---------------------------------------------------- ------- ------- Net cash used by financing activities (2,019) (1,406) ---------------------------------------------------- ------- ------- Net increase in cash and cash equivalents (665) (2,760) Effect of exchange rate differences (155) (202) Cash and cash equivalents at beginning of year 28,533 31,495 ---------------------------------------------------- ------- ------- Cash and cash equivalents at end of year 27,713 28,533 ---------------------------------------------------- ------- -------
Consolidated statement of changes in equity for the year ended 31 March 2019
Share
Share premium Other Retained
capital account reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------- -------- -------- --------- --------- -------
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)
----------------------------------------- -------- -------- --------- --------- -------
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
----------------------------------------- -------- -------- --------- --------- -------
At 1 April 2018 589 32,345 5,165 18,773 56,872
Profit for the year - - - 796 796
Other comprehensive (expense)/income
Foreign exchange translation differences
on foreign currency net investment in
subsidiaries - - (505) - (505)
Remeasurement of defined benefit plan - - - (40) (40)
Tax effect on remeasurement of defined
benefit plan - - - 14 14
----------------------------------------- -------- -------- --------- --------- -------
Total comprehensive (expense)/income - - (505) 770 265
Transactions with owners
Share-based payments - - - 24 24
Dividends paid - - - (500) (500)
Purchase of own shares - - - (1,358) (1,358)
----------------------------------------- -------- -------- --------- --------- -------
At 31 March 2019 589 32,345 4,660 17,709 55,303
----------------------------------------- -------- -------- --------- --------- -------
Notes to the consolidated financial statements for the year ended 31 March 2019
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.
2019 2018
GBP000 GBP000
--------------------------------- ------- -------
UK (country of domicile) 2,082 1,989
US 7,204 7,861
Germany 8,937 8,474
France 4,421 4,045
Other - distribution territories 15,869 15,578
--------------------------------- ------- -------
Total revenues 38,513 37,947
--------------------------------- ------- -------
In prior years, the Group has reported only one segment, being the whole business. Analysis of revenue has always been reported and monitored on the basis of the three segments noted below, however, due to the structure of the business and the financial systems in place, operating profit could not be determined for these segments. As a result of a simplification of the Group and an improvement in systems, IDS is now able to report to profit from operations level for the three segments shown below. This is monitored by the chief operating decision-maker quarterly. Comparatives for FY2018 have been derived on a consistent basis with the results for FY2019.
All balance sheet and cash flow information received and reviewed by the Board of Directors is prepared at a Group level.
Automated Manual Technology Total
2019 2019 2019 2019
GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ------- ---------- --------
Revenue 22,635 12,322 3,556 38,513
Cost of Sales (12,581) (6,738) (2,498) (21,817)
-------------------------------------- --------- ------- ---------- --------
Gross profit 10,054 5,584 1,058 16,696
Sales and marketing (6,920) (1,761) (394) (9,075)
Research and development (2,333) - (111) (2,444)
General and administrative expenses (2,947) (1,456) (434) (4,837)
-------------------------------------- --------- ------- ---------- --------
Operating costs pre-exceptional items (12,200) (3,217) (939) (16,356)
-------------------------------------- --------- ------- ---------- --------
Adjusted EBIT (2,146) 2,367 119 340
-------------------------------------- --------- ------- ---------- --------
Exceptional items
Restructuring credit 89
-------------------------------------- --------- ------- ---------- --------
Total exceptional items 89
-------------------------------------- --------- ------- ---------- --------
EBIT 429
-------------------------------------- --------- ------- ---------- --------
Finance income 495
Finance costs (82)
-------------------------------------- --------- ------- ---------- --------
Profit before tax 842
-------------------------------------- --------- ------- ---------- --------
Automated Manual Technology Total
2018 2018 2018 2018
GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ------- ---------- --------
Revenue 22,876 12,361 2,710 37,947
Cost of Sales (11,482) (6,671) (1,781) (19,934)
-------------------------------------- --------- ------- ---------- --------
Gross profit 11,394 5,690 929 18,013
Sales and marketing (7,397) (1,590) (384) (9,371)
Research and development (1,553) - (124) (1,677)
General and administrative expenses (3,439) (1,625) (439) (5,503)
-------------------------------------- --------- ------- ---------- --------
Operating costs pre-exceptional items (12,389) (3,215) (947) (16,551)
-------------------------------------- --------- ------- ---------- --------
Adjusted EBIT (995) 2,475 (18) 1,462
-------------------------------------- --------- ------- ---------- --------
Exceptional items
Restructuring costs (515)
-------------------------------------- --------- ------- ---------- --------
Total exceptional items (515)
-------------------------------------- --------- ------- ---------- --------
EBIT 947 Finance income 128 Finance costs (140) -------------------------------------- --------- ------- ---------- -------- Profit before tax 935 -------------------------------------- --------- ------- ---------- --------
2. Profit from operations
Profit from operations is stated after charging/(crediting):
2019 2018
GBP000 GBP000
-------------------------------------------------------- ------- -------
Restructuring (credit)/costs (89) 515
-------------------------------------------------------- ------- -------
Total exceptional items (89) 515
-------------------------------------------------------- ------- -------
Amortisation of other intangible assets 2,270 2,145
Loss on disposal of owned plant, property and equipment 36 44
Depreciation of owned plant, property and equipment 2,053 2,272
Depreciation of assets held under finance leases 134 144
Operating lease costs 746 790
Share-based payments 24 10
Other staff costs 15,606 16,046
Cost of inventories recognised as an expense 7,637 6,220
Write downs of inventories recognised as an expense 799 1,289
Reversal of write down of inventories - (227)
Net (gain)/loss on foreign currency translation (333) 61
Auditor's remuneration (see below) 178 177
-------------------------------------------------------- ------- -------
Amounts payable to PricewaterhouseCoopers LLP (2018: Ernst & Young LLP) and their associates in respect of both audit and non-audit services:
2019 2018
GBP000 GBP000
----------------------------------------------------------- ------- -------
Audit services PricewaterhouseCoopers LLP
* statutory audit of parent and consolidated accounts 143 -
Audit services Ernst & Young LLP
* statutory audit of parent and consolidated accounts - 175
* statutory audit of subsidiary accounts 35 -
Actuarial services Ernst & Young LLP - 2
----------------------------------------------------------- ------- -------
178 177
----------------------------------------------------------- ------- -------
In FY2019, the exceptional credit was due to a GBP0.1m reversal of restructuring provisions relating to our French and Italian operations which were no longer required.
In FY2018, exceptional costs related 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.
3. Taxation on ordinary activities
a) Analysis of charge/(credit) in the year
2019 2018
GBP000 GBP000
--------------------------------------------------------- ------- -------
Current tax:
UK corporation tax (480) (512)
Adjustment in respect of prior periods (96) (480)
Foreign tax charge on income 413 360
--------------------------------------------------------- ------- -------
Total current tax credit (163) (632)
--------------------------------------------------------- ------- -------
Deferred tax:
Excess of taxation allowances over depreciation on fixed
assets (58) (198)
Other 1 132
Tax losses (utilised)/carried forward (76) 99
Adjustment in respect of prior periods 342 307
--------------------------------------------------------- ------- -------
Total deferred tax charge 209 340
--------------------------------------------------------- ------- -------
Tax charge/(credit) on profit on ordinary activities 46 (292)
--------------------------------------------------------- ------- -------
'Other' in the current and prior year relates to the reversal of short-term timing differences.
b) Factors affecting tax charge
The tax assessed for the period is lower (2018: lower) than the standard rate of corporation tax in the UK, 19% (2018: 19%). 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 this and prior year balance sheet dates.
There were no significant tax reforms impacting the Group in the current year.
In the prior period the following significant tax reforms occurred:
-- 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 the year ending 31 March 2019 (due to full year impact). Deferred tax liabilities are recognised at 21% at this and prior year balance sheet dates;
-- 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, leading to a reduced rate in the year (due to full year impact), with a further reduction to 25% from 1 January 2020. Deferred tax assets and liabilities are recognised at 25% at this and prior year balance sheet dates;
-- 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. This lead to a reduced Corporation tax rate in the year ending 31 March 2019 due to the full year impact of this rate change. Deferred tax assets and liabilities are recognised at 25% at this and prior year balance sheet dates.
The charge/(credit) for the year can be reconciled to the profit per the income statement as follows:
2019 2018
GBP000 GBP000
----------------------------------------------------------- ------- -------
Profit on ordinary activities before taxation 842 935
----------------------------------------------------------- ------- -------
Profit on ordinary activities by rate of tax in the UK
of 19% (2018: 19%) 160 178
Expenses not deductible for tax purposes 44 97
Income not taxable (39) (45)
Additional relief for Research and Development expenditure (774) (631)
Foreign profits taxable at different rates 113 110
Losses carried forward 485 213
Losses brought forward utilised (176) (128)
Effect of change in tax rate on deferred tax balances (13) 39
Other temporary differences not recognised - 48
Adjustment in respect of prior periods 246 (173)
----------------------------------------------------------- ------- -------
Total tax charge/(credit) at an effective rate of 5.5%
(2018: -31.2%) 46 (292)
----------------------------------------------------------- ------- -------
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 2019, 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.
2019 2018
GBP000 GBP000
---------------------------------------- ------- -------
Profit on ordinary activities after tax 796 1,227
---------------------------------------- ------- -------
Weighted average number of shares: No. No.
---------------------------------------------- ---------- ----------
For basic earnings per share 29,034,539 29,411,555
Effect of dilutive potential Ordinary shares:
* share options 16,806 26,224
---------------------------------------------- ---------- ----------
For diluted earnings per share 29,051,345 29,437,779
---------------------------------------------- ---------- ----------
Basic earnings per share 2.7p 4.2p
Diluted earnings per share 2.7p 4.2p
---------------------------------------------- ---------- ----------
2019 2018
GBP000 GBP000
---------------------------------------------------- ------- -------
Profit on ordinary activities after tax as reported 796 1,227
---------------------------------------------------- ------- -------
Exceptional items after tax (89) 447
---------------------------------------------------- ------- -------
Profit on ordinary activities after tax as adjusted 707 1,674
---------------------------------------------------- ------- -------
Adjusted basic earnings per share 2.4p 5.7p
Adjusted diluted earnings per share 2.4p 5.7p
---------------------------------------------------- ------- -------
Extract from Annual Report and Financial Statements
The financial information set out above does not constitute the Group's statutory financial statements for the years ended 31 March 2019 or 2018 but is derived from those financial statements. Statutory financial statements for FY2018 have been delivered to the registrar of companies, and those for FY2019 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 2019 will be posted to shareholders on 26 June 2019. This final results announcement and results for the year ended 31 March 2019 were approved by the Board of Directors on 18 June 2019 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 2018, with the exception of the accounting policies adopted in the audited financial statements of the Group for the year ended 31 March 2019.
Reclassification on adoption of new standard: IFRS 15 Revenue is effective for periods beginning after 1 January 2018. This has led to the reclassification of certain balances at 1 April 2018 in relation to contract assets and liabilities with customers. The adoption of this standard has no effect on opening shareholder funds.
Before IFRS 15 After
reclassification reclassification reclassification
31 March 2018 GBP000 GBP000 GBP000
-------------------------------------------- ----------------- ----------------- -----------------
Assets
Non-current assets
Property, plant and equipment 7,467 - 7,467
Other intangible assets 10,993 - 10,993
Deferred tax assets 377 - 377
Other non-current assets 351 - 351
--------------------------------------------- ----------------- ----------------- -----------------
19,188 - 19,188
-------------------------------------------- ----------------- ----------------- -----------------
Current assets
Inventories 8,378 - 8,378
Contract assets - 371 371
Trade and other receivables 8,369 (371) 7,998
Income tax receivable 3,073 - 3,073
Cash and cash equivalents 28,533 - 28,533
--------------------------------------------- ----------------- ----------------- -----------------
48,353 - 48,353
-------------------------------------------- ----------------- ----------------- -----------------
Total assets 67,541 - 67,541
--------------------------------------------- ----------------- ----------------- -----------------
Liabilities
Current liabilities
Short-term portion of long-term borrowings 80 - 80
Trade and other payables 6,693 (23) 6,670
Contract liabilities - 116 116
Income tax payable 58 - 58
Provisions 243 - 243
Government grants 190 (93) 97
--------------------------------------------- ----------------- ----------------- -----------------
7,264 - 7,264
-------------------------------------------- ----------------- ----------------- -----------------
Net current assets 41,089 - 41,089
--------------------------------------------- ----------------- ----------------- -----------------
Non-current liabilities
Long-term portion of long-term borrowings 1,201 - 1,201
Employee benefit obligations 358 - 358
Provisions 750 - 750
Deferred tax liabilities 1,096 - 1,096
--------------------------------------------- ----------------- ----------------- -----------------
3,405 - 3,405
-------------------------------------------- ----------------- ----------------- -----------------
Total liabilities 10,669 - 10,669
--------------------------------------------- ----------------- ----------------- -----------------
Net assets 56,872 - 56,872
--------------------------------------------- ----------------- ----------------- -----------------
Called up share capital 589 - 589
Share premium account 32,345 - 32,345
Other reserves 5,165 - 5,165
Retained earnings 18,773 - 18,773
--------------------------------------------- ----------------- ----------------- -----------------
Equity attributable to owners of the parent 56,872 - 56,872
--------------------------------------------- ----------------- ----------------- -----------------
There is a further restatement of the balance sheet as at 1 April 2018 due to the reassessment during the financial year of pension scheme characteristics. Management have concluded that certain characteristics relating to a French collective agreement for leavers and a Belgian Defined Contribution scheme mean that they meet the definition of Defined Benefit schemes under IAS 19. Therefore, GBP358,000 has been reclassified at 31 March 2018 from Provisions to Employee benefit obligations, with no impact on opening shareholder funds.
Finally, a reclassification due to a reassessment of calculations under IFRIC 4 has been made, to reduce the imputed operating lease income in year ending 31 March 2018 by GBP1,756,000. This has no impact on reported profit or loss or total revenue.
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.
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 SFUFMAFUSELM
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