19 Mar 2013 07:00
19 March, 2013
Bioquell PLC
2012 preliminary results
Bioquell PLC ("Bioquell") (LSE symbol: BQE) - provider of specialist bio-contamination control technologies to the international Healthcare, Life Sciences & Defence markets; and specialist testing services in the UK via its TRaC division, today announces its preliminary results for the year ended 31 December, 2012.
Highlights
§ Group orders: £44.6 million (2011: £44.5 million)
o Group orders ex defence activities: £43.8 million (2011: £38.2 million), up 14%
§ Group revenues: £41.0 million (2011: £41.3 million)
o Group revenues ex defence activities: £40.0 million (2011 : £37.0 million), up 8%
§ TRaC orders £17.6 million (2011: £14.9 million), up 18%; TRaC revenues £15.1 million (2011: £13.6 million), up 11%
§ Profit before tax of £4.0 million (2011: £5.0 million), reflecting business model change
§ Earnings per share up 3% to 9.6 pence (2011: 9.3 pence)
§ Net cash generated from operating activities £6.0 million (2011: £6.4 million)
§ Net cash of £1.9 million (2011: £4.0 million); net assets £30.7 million (2011: 27.6 million)
§ Proposed dividend increased by 8% to 3.06 pence per share (2011: 2.83p)
§ Bio-decon division continues to enjoy high export revenues (2012: 80% of divisional revenues)
§ Broad range of products launched during the year: ICE-pod, QUBE, IG-1, biological & chemical indicators
§ Strong demand for the ICE-pod which is used in hospitals to provide a standalone room which can also be 'bioquelled'
§ TRaC had an excellent year - and is well placed for further growth
Commenting on the preliminary results, Nigel Keen, Chairman of Bioquell PLC said:
"2012 was a challenging year for our Bio-decon division as we made major changes to our business model. These changes are now for the most part complete. We have launched a number of new products which benefit from captive consumable and other recurring revenues, and which are designed to increase significantly the quality of the Group's earnings as well as being margin enhancing."
"In 2013 the Bio-decon division is expected to increase its revenues generated from the Healthcare sector - in large part as a result of strong demand for the ICE-pod. We are in the process of reconfiguring the Bio-decon division to enable us to satisfy demand for the ICE-pod."
"TRaC is well positioned for further growth and has started the year well."
For further information:
Bioquell PLC: 01264 835 900
Nigel Keen, Chairman
Nick Adams, Group Chief Executive
Mark Bodeker, Chief Operating Officer and Finance Director
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Notes to editors:
§ Bioquell is a UK-headquartered, international technology company with two divisions:
o Bio-decon (www.bioquell.com) which sells specialist bio-contamination control products and services into the Healthcare, Life Sciences and Defence sectors, with most of its revenues generated from overseas customers; and
o TRaC (www.tracglobal.com) which provides specialist Testing, Regulatory and Compliance services - including EMC, environmental and safety testing - principally to UK corporates.
§ Bioquell's bio-contamination control technology is principally based around hydrogen peroxide vapour ("HPV") - which is highly efficacious at eradicating micro-organisms such as bacteria and viruses at room temperature - and is subsequently broken down using specialist catalysts to water vapour and oxygen (hence an extremely 'green' technology) at the end of the bio-decontamination process.
§ For the last two years Bioquell has invested substantial sums in developing a new product range which has been designed to increase the proportion of recurring revenues from its HPV technology - and hence increase its quality of earnings; this range of new products was launched in the second half of 2012.
§ Bioquell's bio-contamination control technology:
o is used by bio-pharmaceutical, biotechnology and research institutions to provide sterile equipment and/or sterile working environments;
o is used to eradicate "superbugs" from hospitals; independent scientific research has demonstrated that 'bioquelling' hospital equipment and facilities reduces significantly the rates of hospital acquired infection;
o is used to provide single rooms to hospitals (via the ICE-pod) which currently only have open, multi-bed "Nightingale" ward structures
o has been incorporated in a wound-care product - BioxyQuell - which has received regulatory approval for use on chronic wounds in the European Union; and
§ Bioquell currently has overseas operations in the USA, France, Ireland, Singapore, China and Brazil.
TRaC sells its specialist services to the product development departments of a broad range of companies, principally based in the UK, with a particular focus on organisations operating in the aerospace and military sectors.
Chairman's statement
The headline figures for the year - orders of £44.6 million (2011: £44.5 million), revenues of £41.0 million (2011: £41.3 million) and after-tax profit of £4.0 million (2011: £3.9 million) were held back by the headwind we encountered in our defence business where, as previously announced, defence sales were £3.3 million less than in the previous year and defence orders were £5.5 million less than in 2011. Group orders excluding defence activities were £43.8 million (2011: £38.2 million), up 15%. Similarly, Group revenues excluding defence activities were £40.0 million (2011: £37.0 million), up 8%. TRaC performed well during the year and the significant changes we have made to the Bio-contamination control (Bio-decon) division's business model are expected to have a significant effect on future results.
Service-related activities continue to be important to the Group, with service revenues totalling £25.2 million (2011: £24.4 million), representing 61% (2011: 59%) of consolidated revenues. Our export revenues are also significant representing 55% (2011: 57%) of Group revenues.
In 2012 the Bio-decon division recorded orders of £27.0 million (2011: £29.6 million). (Orders excluding defence activities were £26.2 million (2011: £23.3 million).) Bio-decon revenues were £25.9 million (2011: £27.7 million) - which represented 63% of the Group's revenues (2011: 67%). (Bio-decon revenues excluding defence activities were £24.9 million (2011: £23.4 million).)
Service-related revenues within the Bio-decon division were 39% (2011: 39%) and export-related revenues were 80% (2011: 77%) of the division's annual revenues. Customers in the Life Sciences sector represented 84% (2011: 74%) of the Bio-decon division's revenues. Currently the Life Sciences sector remains by far the largest contributor to the division's revenues, although we expect this to reduce over time as our Healthcare business grows.
Defence orders were £0.8 million (2011: £6.3 million). Defence revenues were also substantially lower than the previous year at £1.0 million (2011: £4.3 million), reflecting the delivery schedules on our defence order book.
TRaC had a good year with orders up 18% to £17.6 million (2011: £14.9 million) and revenues up 11% to £15.1 million (2011: £13.6 million).
The Bio-decon division's profitability was held back by lower levels of defence revenues and relatively subdued Life Sciences-related equipment sales into certain territories. In contrast TRaC's profitability continued to improve. Group profit before tax was £4.0 million (2011: £5.0 million).
Group earnings per share were up 3% at 9.6 pence (2011: 9.3 pence), reflecting a lower tax charge relating to our substantial expenditure on product development in the year of £3.8 million (2011: £ 2.0 million), representing 9% of Group and 15% of Bio-decon revenues, respectively.
The Group continues to have a strong balance sheet with net cash at the year end of £1.9 million (2011: £4.0 million) and net assets of £30.7 million (2011: £27.6 million).
Over the last few years we have set out to change the way we deliver our technology to our customers. Our business had become too dependent on capital expenditure-related hydrogen peroxide vapour (HPV) bio-decontamination equipment orders, with no other associated recurring revenues. In addition, our Defence business is 'lumpy' leading to the profitability of the Group often being disproportionately affected by the results from our Defence activities. To counteract this in the Bio-decon division we aim to increase significantly the proportion of recurring or usage-based revenues. Following the investments we have made over the previous three years, in 2012 we launched a number of products and services which have been designed to increase the Bio-decon division's proportion of recurring revenues, including:
§ launch of the ICE-pod which is a standalone room product for hospitals provided on a rental basis;
§ launch of the highly innovative QUBE (incorporating captive peroxide consumables);
§ launch of the IG-1 HPV equipment (incorporating captive consumables);
§ expansion of our range of hydrogen peroxide consumable cartridges; and
§ launch of range of biological and chemical indicators (consumables, for use with our HPV equipment).
These products were launched at the end of 2012 and orders and revenues are beginning to increase. Demand for the ICE-pod has been particularly strong. We are in the process of re-configuring our business, which is likely to require some additional investment, to enable us to satisfy increasing UK and overseas demand. We anticipate that the ICE-pod will act as a conduit for our other HPV-related products and services.
The effect on Group revenue from these new products is not expected to be significant until the second half of the year.
The Board believes that the market for Bioquell's products and services in the Healthcare sector should be substantially larger than the revenues that can be derived from the Life Sciences sector. We also know that Healthcare providers, particularly in the emerging markets, are experiencing significant challenges from the increasing antibiotic resistance of Gram-negative bacteria. The combination of our HPV technology and our new ICE-pod systems (which allow the creation of individual vapour-tight standalone rooms within existing open plan hospital wards) provides hospitals with an attractive range of solutions to help them combat the increasing and very real problems associated with drug-resistant bacteria.
We expect that the recent and well publicised difficulties associated with the provision of biologically-contaminated intravenous drugs in the USA, which has so far resulted in 722 cases and 50 deaths, will emphasise the need for our new QUBE product which provides a low cost stand-alone work-station for use in pharmacies and was designed specifically for the preparation of intravenous and other medicines.
The TRaC division provides highly specialist testing, regulatory and compliance services to a broad range of UK-based clients. The majority of TRaC's revenues are generated from services which help clients satisfy regulatory requirements. We are also focussing TRaC's growth on markets & sectors where there are likely to be ongoing and increasingly onerous regulations.
Although TRaC's clients largely comprise UK companies, many of the larger customers - such as those in aerospace - end up exporting their products and as a result TRaC's business benefits from large export markets.
TRaC continues to invest in specialist test equipment in order to improve the service offering it provides to its clients and to differentiate itself from its competitors. Having invested substantially in its facilities over recent years TRaC is generating increasing amounts of cash from its activities. TRaC is also using the knowledge of its highly expert engineers to provide consultancy services to its clients, via its Early Stage Qualification (ESQ) business.
TRaC believes that there continue to be exciting opportunities for further growth in the United Kingdom. For example, there should be opportunities to expand and sell its services into the medical devices sector.
Your Board is recommending the payment of a final dividend of [3.06] pence per share (2011: 2.83 pence), representing an increase of [8%]. The final dividend will be payable on 1 July, 2013 to shareholders on the register on 7 June, 2013. Bioquell PLC currently does not pay interim dividends and it is the Board's current intention only to propose the payment of a final dividend each year.
I would like to take this opportunity to thank all the Group's talented employees for their hard work during the year.
Prospects and outlook
2012 was a challenging year for our Bio-decon division as we made major changes to our business model. These changes are now for the most part complete. We have launched a number of new products which benefit from captive consumable and other recurring revenues, and which are designed to increase significantly the quality of the Group's earnings as well as being margin enhancing in the future.
In 2013 the Bio-decon division is expected to increase substantially its revenues generated from the Healthcare sector - in large part as a result of strong demand for the ICE-pod which is requiring us to invest in and reconfigure parts of our business to enable us to satisfy demand.
TRaC is well positioned for further growth and has started the year well.
The Group has a strong balance sheet and has the financial resources available to support high levels of organic growth, including for the ICE-pod which is a rental product.
Nigel Keen
Chairman
Bioquell PLC
19 March, 2013
business REVIEW
There are two divisions within the Bioquell Group: Bio-contamination control (Bio-decon) - with revenues of some £25.9 million (2011: £ 27.7 million); and TRaC: Testing, Regulatory and Compliance - with revenues of some £ 15.1 million (2011: £ 13.6 million).
BIO-DECON DIVISION
The Bio-decon division provides proprietary technology-based solutions to its customers:
1) in the Life Sciences sector, to help them develop, produce and deliver efficiently (including satisfying relevant regulatory requirements) and safely pharmaceutical products which could be affected by microbiological contamination; and
2) in the Healthcare sector, to help them protect their patients from Hospital Acquired Infection (HAI) by eradicating the pathogens responsible for HAI - with a particular focus on the extensively antibiotic resistant Gram-negative bacteria - and by providing them with our ICE-pod solution to improve standard infection control measures.
In parallel with these two primary objectives, the Bio-decon division is also working to ensure that it grows the proportion of recurring or usage-based revenues generated from its products and services.
The hospital and compounding pharmacy market is also of significant strategic interest to the Bio-decon division as these customers effectively straddle the interface between the Life Sciences and Healthcare sectors. We are also starting to provide novel wound-care therapy via our BioxyQuell technology.
Life Sciences The Bio-decon division sells Bioquell hydrogen peroxide vapour (HPV) bio-decontamination equipment and services to a broad range of customers in the Life Sciences sector, including organisations involved with pure research, drug trials, quality assurance and large scale production (including generics and contract manufacturing).
Bioquell's Life Sciences business is currently substantially the largest contributor of revenues and profits to the Bio-decon division, representing in 2012 some 84% of the division's revenues (2011: 74%).
The Life Sciences market is large, diverse and international - and generally benefits from high levels of investment. It is also subject to extensive and onerous regulatory requirements. For example the US regulator, the Food & Drug Administration, inspects drug manufacturing facilities throughout the world. Drug manufacturers need to comply with US or EU regulatory requirements to be allowed to sell their drugs into these markets. Accordingly there is substantial and increasing focus by pharmaceutical companies on ensuring that their facilities - whether pure research, drug evaluation or production - comply with the relevant international regulatory requirements.
A substantial proportion of new high-margin on-patent bio-pharmaceutical drugs are susceptible to biological contamination - and it is these new and important drugs which provide increasing opportunity to Bioquell. Historically non-biological drugs could be sterilised at the end of the production process. However, in the case of biologically-derived drugs, terminal sterilisation would damage the therapeutic benefit of the drugs; accordingly such drugs need to be manufactured under aseptic conditions throughout each stage of the production process. Further, drug manufacturers usually need to take proactive measures - such as carrying out sterility tests - to demonstrate that their bio-pharmaceutical drugs have been produced under sterile conditions.
In the future as new gene or stem-cell therapy drugs start to enter the market then we expect there to be an expanding market for Bioquell's unique and focussed bio-decontamination solutions.
Last year we saw 7% growth in the Group's Life Science revenues. In the future we believe that the increasing proportion of biologically sensitive drugs on the market and more onerous regulatory scrutiny will help drive up Bioquell's revenues in this sector.
In order to increase the quality and assurance of the bio-decontamination process as well as to increase the Group's recurring revenues, Bioquell has expanded the range of hydrogen peroxide consumable cartridges it sells to its Life Sciences customers for use with both Bioquell's new products and the older products which are in use at customers' facilities. Many of these peroxide consumables incorporate a RFID label which helps the customer with traceability (which is often a regulatory requirement) and, in the case of more recent products, these RFID labels also help Bioquell protect its consumable revenue streams as the new equipment will only function if it recognises an approved Bioquell consumable cartridge.
In 2012 Bioquell launched a number of new products into the Life Sciences market:
§ the integrated generator (IG-1) was designed to enable original equipment manufacturers (OEMs) to incorporate Bioquell's HPV bio-decontamination equipment into their products in order to carry out residue-free, low temperature surface sterilisation. The IG-1 incorporates a RFID-protected captive consumable. We expect the number of IG-1s sold to OEMs to increase significantly over the next few years;
§ the QUBEprovides our Life Sciences customers with an aseptic work-station which can be used for sterility test work, small scale production runs or more general bio-pharmaceutical research. The QUBE incorporates a number of Bioquell's consumables. The QUBE comprises highly complex, innovative equipment which has required, among other things, the development of new manufacturing techniques and which has been designed to exploit novel technology to make aseptic manipulation and processing easier and less expensive for our customers;
§ biological indicators (BIs) which typically contain one million non-pathogenic bacterial spores in a vapour-permeable pouch are used to determine whether a bio-decontamination process has been successful. Regulatory bodies require the use of BIs to validate the efficacy of bio-decontamination processes. Recently the market has encountered significant challenges with unreliable BIs, giving inconsistent process cycle results. BIs are key to successful validation and hence are critical to the success of Bioquell's HPV bio-decontamination technology. We are seeing strong interest from the market in Bioquell's new range of BIs both for use in conjunction with our own equipment and for other applications; and
§ chemical indicators (CIs) allow our customers to get an indication of the efficacy of a bio-decontamination process without having to wait for BIs to be incubated, which takes a minimum of 24 hours. Properly engineered CIs can give a real-time indication, based upon colour-change chemistry, of the performance characteristics of a bio-decontamination process. The use of CIs should reduce the time taken for validation - which will save customers money and bring research and production facilities on-line more rapidly. The use of CIs should also enable customers to gain comfort that the HPV process is working as expected.
We believe that these new products are highly complementary to each other and help provide unique, and hence differentiated, solutions for our Life Science customers - which in turn we anticipate will help drive up our Life Science revenues across the range of products we supply.
Healthcare Notwithstanding extensive investment in research with leading international hospitals, to date Bioquell's healthcare business has been substantially smaller than its Life Sciences business. The major issues that hospitals, particularly in the emerging markets, are beginning to see with highly antibiotic resistant strains of bacteria will, we anticipate, drive strong future growth in our healthcare business. This will be supported by our improved and expanded product offering for hospitals.
Bioquell's healthcare business currently comprises three key products:
§ HPV bio-decontamination technology - which is used to eradicate pathogens, including multidrug-resistant organisms, responsible for HAI from the hospital environment. Bioquell generates service, equipment and consumable-related revenues from its HPV bio-decontamination activities in the healthcare sector;
§ Infection Control Enclosure pod (ICE-pod) - which enables hospitals to convert open, multi-bed units (sometimes known as Nightingale wards) into standalone rooms in order to reinforce standard infection control measures as well as to facilitate the rapid 'bioquelling' of the bed-space. The ICE-pods are usually only available to hospitals on a service/rental basis; and
§ the QUBE - which is used in hospital or compounding pharmacies to facilitate the rapid and safe preparation of biologically sensitive, toxic and/or intravenous drugs for patients.
In addition the Group's BioxyQuell technology is starting to be used to treat patients with chronic wounds such as venous leg ulcers via its Salve Programme which it has established in conjunction with a local primary care provider.
The Group continues to believe that there are interesting opportunities for the treatment of chronic wounds with its BioxyQuell technology. Chronic wounds are becoming more frequent due to an aging population and increasing obesity rates. Work is ongoing in the UK to establish an optimised commercial model for BioxyQuell and the Salve Programme. Work is also ongoing with the relevant US regulators to establish the optimal regulatory pathway for BioxyQuell in the USA.
The emerging threat from highly antibiotic resistant bacteria
"MRSA" and "superbugs" are now well known terms in the United Kingdom. However, the general public is typically unaware that there are now a number of highly antibiotic-resistant pathogenic bacteria thought to have evolved over recent years, in large part due to the misuse of antibiotics in a number of countries, particularly in the emerging markets. For example, extensively resistant Gram-negative bacteria - such as Acinetobacter baumannii, Pseudomonas aeruginosa and Klebsiella pneumoniae - are causing major issues in Intensive Care Units (and other high risk units such as oncology and transplants).
The World Economic Forum (WEF), a highly respected Swiss Foundation, has included the emergence of multidrug-resistant bacteria as being one of three risk cases in its Global Risks 2013 report1 entitled 'The Dangers of Hubris on Human Health'. The WEF comments:
"Until now, leaders have been able to turn a blind eye to this problem, as new antibiotics have always emerged to replace older, increasingly ineffective ones. This is changing; since 1987, we have fallen into a discovery void of any new antibiotics. Although several new drugs for fighting bacteria are in development, experts caution that we are decades behind in comparison with the historical rate at which we have discovered and developed new antibiotics. More worryingly, none of the drugs in the pipeline would be effective against certain killer bacteria."
"Antibiotic resistance already kills around 100,000 Americans, 80,000 Chinese and 25,000 Europeans a year, according to figures from the past four years, which are likely to be an underestimate. In the 10-year time period covered by the Global Risks report, it is far from unrealistic to project a significant spread of antibiotic-resistant bacteria with high mortality rates."
The "killer bacteria" referred to above include Gram-negative bacteria which in large parts of the world are either untreatable by all antibiotics currently on the market or are only susceptible, at the moment, to one antibiotic.
For more than a decade Bioquell has spearheaded research internationally which has shown that the hospital environment can readily become contaminated with pathogenic bacteria and that such microbiological contamination is involved in the transmission of infection. Published research papers also show that Bioquell's HPV technology eradicates successfully pathogens from the hospital environment and such eradication has been shown to reduce HAI rates. In January 2013 a scientific paper2 from a research group at Johns Hopkins Hospital (Baltimore, MD), one of America's top hospitals, showed that patients admitted to rooms bio-decontaminated using Bioquell's HPV technology were 64% less likely to acquire HAI.
To date Bioquell has not made a meaningful return on its significant investment in research work in the healthcare sector and the associated technology developed to eradicate pathogens responsible for HAI. However, we believe that the nature and extent of this antibiotic-resistance problem is changing rapidly - and there will be increasing demand for Bioquell's technologies - particularly in the emerging markets.
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ICE-pod: Infection Control Enclosure
Bioquell's ICE-pod enables hospitals to convert rapidly open multi-bed wards into standalone rooms. There is strong evidence that single rooms help reduce HAI. There is also evidence that the use of HPV reduces HAI rates. Further, patients usually prefer single rooms for reasons of privacy and dignity. Bioquell's bespoke ICE-pod rental package provides hospitals with a convenient solution to address these HAI-related issues.
Use of Bioquell's QUBE in the hospital and compounding pharmacy sector
We continue to see increasing interest for our recently launched and innovative QUBE product which allows users to manipulate products, components and reagents under sterile conditions. This unique product incorporates novel manufacturing techniques developed by Bioquell. We are seeing interest for the QUBE in the Healthcare sector from hospital and compounding pharmacies. We are also seeing demand for the QUBE from the Life Sciences sector for sterility test and general bio-pharmaceutical research activities. We believe that there should be particular opportunities for the QUBE in the USA which has recently experienced a major problem associated with microbiologically-contaminated intravenous drugs prepared by a compounding pharmacy based in Massachusetts which has resulted in 722 cases of Fungal Meningitis and 50 deaths. This incident is likely to change the way in which hospital and compounding pharmacies are managed and regulated in the future in the USA.
Defence
Bioquell has been involved in the design and manufacture of Chemical, Biological, Radiological and Nuclear ("CBRN") filtration equipment for some fifty years. Our specialist filtration technology is cost effective and has a long and high quality track record.
During 2012 our defence engineers worked on CBRN filtration systems for a number of vehicle programmes including for the UK's Ministry of Defence Scout SV programme and a new vehicle for the Malaysian Government.
Our defence business by its nature is relatively "lumpy" - which tends to result in large year-on-year swings in revenues and profits. We are pursuing a number of initiatives to try and reduce the volatility of our defence revenues.
TRaC DIVISION
TRaC - the Group's Testing, Regulatory and Compliance division - performed well in 2012 and is working on a number of interesting opportunities which are expected to result in further growth in 2013.
TRaC is a National Certification Body and many of its employees are highly expert in their field. TRaC continues to invest in its employees, recognising that they fulfil a key role in this knowledge-based service-business.
TRaC has grown substantially since it was created in 2005 and its business model and service offerings have evolved significantly. TRaC originated from the amalgamation of two specialist test businesses with different UK-leading expertise: one was expert in electromagnetic compatibility (EMC) testing and the second was expert in environmental testing, which principally comprises physical vibration and shock testing. From these two core testing disciplines, TRaC has developed over recent years a broad portfolio of testing services including telecoms, safety, radio and explosive atmospheres.
Substantially all of the testing services which TRaC now carries out are mandated, directly or indirectly, by regulatory bodies. TRaC's strategy is to continue to expand its business into areas or sectors which are supported by high, and likely to increase, regulatory oversight. This should result in increased demand and higher revenues for testing, regulatory and compliance services.
TRaC is able to provide regulator-mandated testing and compliance services for products sold in the United Kingdom - and by extension throughout the EU. In addition, many of TRaC's clients need regulatory approval to enable them to sell their products in other countries. Accordingly, wherever possible TRaC seeks to provide services for its clients' products covering multiple international jurisdictions, often by working in collaboration with in-country test and compliance organisations.
Most of TRaC's clients are companies or organisations based in the United Kingdom which are involved in the development of products or new technologies. Although this UK-centric client base could suggest that TRaC's activities are closely correlated with the health of the UK economy, in practice many of TRaC's clients are substantial multi-national corporations with high levels of export sales; hence TRaC has exposure to interesting and attractive export markets.
Many UK companies involved in the aerospace industry currently have large order books and are enjoying robust trading conditions, largely fuelled by strong exports. Equally, products which are incorporated into, or are used indirectly by, aircraft are subject to, among other things, onerous EMC and environmental regulations. Some of these regulations are mandated by the relevant regulators whilst other test regimes are mandated by large prime contractors such as Boeing or Airbus. Many of the test regimes required in the aerospace sector are highly complex requiring modern, sophisticated equipment as well as highly skilled technicians or engineers. TRaC has a strategy of proactively investing in such specialist test equipment in order to help differentiate its service offering from the smaller, more traditional 'test houses' which find it increasingly hard to satisfy the exacting demands of the aerospace sector. Moreover, TRaC finds that by investing in such test equipment it is often able to secure all of a particular client's test work. One example of a specialist aerospace testing requirement is HIRF (High Intensity Radiated Fields). Over the last two years TRaC has invested to be able to provide HIRF testing from its Three-Legged Cross facility in Dorset. TRaC's experience is that its aerospace clients are prepared to pay a premium for such highly specialist testing.
TRaC has six well-invested facilities located throughout the UK. The broad geographical distribution of its locations gives TRaC a competitive advantage as most clients prefer to keep their engineers and products-for-test close to their own facilities for reasons of convenience and efficiency.
For approximately two years TRaC has been proactively developing consultancy services which draw upon the substantial experience of its own highly skilled technicians and engineers. For example its Early Stage Qualification (ESQ) business has been developed to assist clients at the design stage of a new product development programme to help optimise the chances of the product passing the relevant EMC and environmental testing requirements.
TRaC developed its ESQ business from its existing Finite Element Analysis (FEA) consultancy business which uses sophisticated software to model the vibration characteristics of a client's product. Appropriate use of FEA at an early stage of product development can help products pass environmental tests.
As TRaC becomes larger - and by many measures it is already the largest specialist test organisation of its type in the UK - it is able to offer more substantial and all-encompassing 'turn-key' testing service-solutions to the large multi-national corporations operating in the United Kingdom. Although these multi-nationals are sensitive to price, they tend to be equally focussed on ensuring that their test and regulatory compliance partner is able to provide them with a high quality, well invested, professional and responsive service. TRaC has already established client-dedicated test facilities at certain of its facilities - which allow large clients with complex testing requirements to manage better their test programmes, including the use of ESQ-based pre-compliance testing. Due to the significant investment in equipment, facilities and people that TRaC has made over the last eight years, TRaC's service offering is becoming increasingly attractive for UK-located companies developing new products and services.
TRaC also believes that in line with its strategy of focussing on sectors where there are strong regulatory imperatives and/or onerous regulatory regimes to support client demand, there are good growth opportunities for its consultancy and testing businesses in the medical device sector. The medical device sector tends to be international and medical device products are typically subject to demanding regulatory approvals. As a result companies developing products in this sector usually have substantial budgets already ear-marked for regulatory compliance. TRaC has started to collaborate with a number of organisations involved in the medical device sector and believes that it can become an important source of revenues for TRaC in the future.
Currently TRaC has one regulatory support coordinator located in China. TRaC does not anticipate investing in physical test facilities in China - but it does believe that there should be opportunities for collaboration with equivalent test organisations in China.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group faces a broad number of risks and uncertainties associated with its activities. It has put in place formal risk-review structures and mechanisms to help assess and monitor such risks and uncertainties; and, as appropriate, has taken steps to mitigate the identified risks and/or uncertainties to the extent practicable. However, it is not possible to identify or anticipate all known, or unknown, risks and uncertainties; nor is it possible to mitigate all such identified risks and uncertainties.
Set out below is a summary of the principal risks and uncertainties which your Board believes the Group faces, over and above those which are inherent with carrying out commercial activities. The description of these principal risks and uncertainties should be read in conjunction with, and considered taking into account of, the description of the activities of the Group set out elsewhere in this document and on the Group's websites.
A summary of how the Group seeks to mitigate some or all of these principal risks and uncertainties is also set out in the table below. Given the nature of these risks and uncertainties - as well as the general nature of risk implicit in any commercial activities - investors should be aware that there can be no assurances that the mitigation of such risks summarised below will be effective, in whole or in part.
Risk and/or uncertainty | Mitigation |
Regulatory. The Group operates in a number of countries and sectors which are highly regulated. There is a risk that the relevant regulations, or their interpretation, could be changed and such changes could significantly adversely affect the Group's business in that country or sector. Further, given the specialist nature of its activities there is a risk of jurisdictional dispute by the different regulators in a territory, as it may not always be clear which regulator has, or should have, locus over the Group's activities. | The Group endeavours to work closely and establish a dialogue, either directly or through its third party distribution partners and/or clients, with the relevant regulators in the territories in which it operates. In addition the Group may, from time to time, engage consultants or legal advisers to help with its discussions with, or strategic approach to, the regulators. |
Political. The regulatory risks and uncertainties summarised above can be closely linked to prevailing policies or strategies being pursued by politicians or civil servants. These policies or strategies can be affected by effective lobbying, including the lobbying by the Group's competitors or customers, which could adversely affect the Group. | Generally the Group adopts a cautious, low-profile and conservative approach with its activities, particularly with those where there may be a political dimension. In some territories the Group is starting to develop relationships, either directly or indirectly, with politicians and civil servants to assist with its dialogue with governments. |
Rapid, international growth. The Group is experiencing rapid growth in a number of the overseas markets in which it sells products or services. There are a number of particular risks and management challenges associated with such rapid growth in overseas territories, including the preservation of high levels of customer service and support, and cash collection and repatriation.
| In many overseas territories the Group uses third party distributors to sell and support its products which helps reduce its direct exposure to the territory - and hence helps reduce risk. The financial standing and credit limits of these distributors are, to the extent practicable, closely monitored. In overseas territories where the Group has a wholly owned subsidiary and/or employees, the Group uses a standardised approach to establish and monitor the trading activities, cash balances and delegated management authorities of these overseas subsidiaries. |
Competition. Some of the Group's competitors are substantially larger than the Group and have, among other things, greater financial, selling and political-lobbying resources. Accordingly there is a risk that the Group's business could be adversely affected by actions undertaken by these large competitors. Further, although Bioquell has a number of granted or pending patents internationally, which should help to protect the key components of its intellectual property from copying, there is a risk that competitors operating from territories with poorly enforced, or enforceable, patent law/patent protection could copy, in part or in whole, Bioquell's products or services. In addition, in certain markets in which the Group operates there is always a risk that 'doing nothing' is the preferred course of action taken by prospective customers - and apathy or continuing with the status quo represents a form of competitive risk for some of the Group's products or services.
| The Group monitors the activities of existing, new and potential competitors closely and is constantly reviewing and, as appropriate, refining its strategies, business models, execution plans and new product development depending on, among other things, competitor activities. The Group also has a significant portfolio of pending and granted patents and other intellectual property which is available to it to invoke, as appropriate. The Group has also developed specialist manufacturing skills which should help protect its market share and prospects. The Group has detailed marketing plans which are designed to, among other things, increase awareness of the Group's products and services - and make it harder for prospective clients to opt to do nothing. |
Technological. The Group is dependent on its technology - and products and services - continuing to be efficacious, cost effective and attractive to the marketplace. There is the risk that new technologies, products or services are developed by competitors which perform better, are easier to use or are more cost effective than those of the Group. Further, there is a risk that it takes longer, or costs more money, than anticipated to complete the development of new technologies and/or new products. | The Group provides focussed products and services within its markets and accordingly is able to monitor relevant technological developments carefully - whether by competitors or third party research organisations, including universities. The Group takes into account such technological developments when reviewing and adjusting its strategy. It also uses a structured approach to new technology and new product development which helps the Group manage the associated risks and monitor progress.
|
Uncertain adoption rates of new products. The Group is developing a number of new products and at the same time changing its business model from one which is significantly reliant on capital expenditure (by customers) to one which generates a significant proportion of its revenues from secondary revenues, including consumable cartridges, rental and service. Such product development and business model migration is expensive, requires resources and contains inherent uncertainty and risk. For example, there is inherent uncertainty as to how quickly new products will be adopted by the market - and hence concomitant uncertainty with revenue, profit and cash generation. Note that this uncertainty and risk relates to both slow and rapid adoption rates. Accordingly the Group needs to balance carefully the amount it invests in new product development whilst ensuring it retains appropriate profitability and cash balances (or access to other sources of finance). Moreover, it can take time to increase or decrease new product development expenditure and associated resources.
| The Group undertakes extensive 'Voice of the Customer' market research and seeks to develop new products (and services) closely with existing or potential customers. The close involvement of customers helps increase the Group's confidence that such new products will be well received by the market and also provides a good basis for forecast adoption rates (and revenues). However, in reality actual adoption rates can only ever be established after a product launch. The Group helps mitigate, in part, the financial uncertainty with new product launches by ensuring that it retains large cash balances and access to debt finance so that it is able to mitigate the effect of unexpected high or low adoption rates. |
Business model. The Group is taking active steps to reduce its reliance on equipment sales and to build its revenues from consumables, rental and other usage-based revenues. Some of these business models assume a high retention rate and/or high follow-on revenues; and some require significant investment of cash upfront. There is a risk that the Group's assumptions about customer retention are incorrect which could result in adverse movements in profit and cash. | The Group has clear policies and carefully designed systems for monitoring usage rates and customer satisfaction metrics, particularly for new customers in order to mitigate the risk of customer churn / low retention rates. The Group also monitors its cash balances and sources of debt finance carefully. Together these systems have been designed to help mitigate these risks. |
Financial. The Group has a number of international subsidiaries and trades with companies located throughout the world. The international nature of many of its business activities result in elevated financial risk, including, but not limited to: foreign exchange exposure, credit risk and cash collection/retention/management (together "Key Financial Risks").
| The Group has standardised, detailed monthly management reporting packs which all of its subsidiaries are required to complete. These submissions are reviewed centrally and the key points discussed at regular subsidiary or divisional management meetings. As appropriate, foreign exchange hedging is undertaken centrally. In addition, there are detailed delegated management authority levels which cover, among other things, Key Financial Risks.
|
Legal liabilities. Given its international activities, the Group could be subject to litigation in a number of different jurisdictions. By its very nature, such litigation could be related to a broad number of issues, including alleged patent infringement, problems relating to the Group's technology or contravention of anti-bribery legislation.
| Generally the Group adopts a cautious, low-profile and conservative approach with its activities. It has put in place a number of policies which employees are required to follow in order to reduce to the extent practicable these risks. Further the Group actively seeks to build a close relationship with its customers in order to resolve, as appropriate, any issues without the need for litigation |
Reliance on suppliers. Due to the complexity of many of its manufactured products, the Group is dependent on a number of key suppliers. These suppliers could supply components late, supply poor quality components, refuse to supply or cease trading. Such disruptions to the Group's supply chain could cause major issues to the trading activities of the Group.
| The Group seeks to work closely and in partnership with its key suppliers. It also has a key supplier review / audit programme which helps the Group make strategic decisions about working more closely with a given supplier or, if appropriate, taking the decision to identify an alternative supplier. |
Reliance on customers within a given sector. Although the Group is not significantly dependent upon one single customer, changes within a sector or sub-sector could adversely affect the trading performance of the Group. For example, the pharmaceutical industry is currently facing significant challenges as a number of drugs lose patent protection or from the trend towards the marketing of disposable, single-use drug delivery systems, and accordingly there is a risk that such changes could affect the revenues that the Group generates from companies within this sector.
| The Group monitors carefully the revenue it generates from any single customer (or customer group) and if appropriate takes proactive steps to reduce the proportion of such revenues within the subsidiary or division - or seeks to sell other product lines to such customers in order to diversify this risk.
|
Retention of key employees. The Group has a number of key employees working for it. The loss of certain of these employees could be problematic for the Group.
| The Group has in place a number of measures which are designed to optimise key employee retention including, but not limited to: ensuring that their work is stimulating, interesting and 'empowered'; the remuneration is competitive; the work place environment and culture is attractive; the opportunity, as appropriate, to participate in equity upside from employee share option schemes; and annual appraisals.
|
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business and the risks and uncertainties which affect the business are summarised above. The Group has sufficient financial resources to cover budgeted future cash-flows, together with contracts with its customers and suppliers across different geographic areas and industries. The Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
In accordance with the Corporate Governance requirements the Directors confirm that they have a reasonable expectation that the Group has adequate finance resources to continue to trade for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements.
Responsibility statement
This responsibility statement has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 December 2012, certain parts thereof are not included within this Preliminary Announcement.
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of Directors on 19 March 2013 and is signed on its behalf by:
Nick Adams Mark BodekerGroup Chief Executive Group Finance Director
Consolidated income statement
For the year ended 31 December 2012
Notes | 2012 £'000 | 2011 £'000 | |
Revenue | 2 | 40,995 | 41,256 |
Cost of sales | (21,360) | (22,388) | |
Gross profit | 19,635 | 18,868 | |
Gross profit margin | 48% | 46% | |
Operating expenses: | |||
Sales & marketing costs | (7,505) | (6,603) | |
Administration costs | (5,337) | (5,023) | |
R&D and engineering costs | (2,595) | (2,220) | |
Profit from operations | 4 | 4,198 | 5,022 |
Investment revenues | 2 | 55 | |
Finance costs | (247) | (76) | |
Profit before tax | 3,953 | 5,001 | |
Tax | 5 | 41 | (1,136) |
Profit for the year | 10 | 3,994 | 3,865 |
Earnings per share - basic | 6 | 9.6p | 9.3p |
- diluted | 9.5p | 9.2p |
Movements in reserves are set out in note 10
All amounts are derived from continuing operations.
Consolidated statement of comprehensive income
For the year ended 31 December 2012
2012 £'000 | 2011 £'000 | |
Net profit for the year | 3,994 | 3,865 |
Exchange differences on translation of foreign operations | 32 | 1 |
Total recognised income | 4,026 | 3,866 |
Consolidated balance sheet
As at 31 December 2012
Notes | 2012 £'000 | 2011 £'000 | |
Non-current assets: | |||
Goodwill | 691 | 691 | |
Other intangible assets | 11,906 | 9,148 | |
Property, plant & equipment | 13,817 | 13,440 | |
Deferred tax assets | 175 | 175 | |
26,589 | 23,454 | ||
Current assets: | |||
Inventories | 2,752 | 1,283 | |
Trade and other receivables | 10,057 | 9,449 | |
Derivative financial instruments | - | 180 | |
Current tax asset | 235 | - | |
Cash and cash equivalents | 8 | 3,010 | 5,179 |
16,054 | 16,091 | ||
Total assets | 42,643 | 39,545 | |
Current liabilities: | |||
Trade and other payables | (7,780) | (7,354) | |
Derivative financial instruments | (9) | - | |
Current tax liabilities | - | (457) | |
Borrowings | (105) | (105) | |
Provisions | 7 | (76) | (93) |
Net current assets | 8,084 | 8,082 | |
Non-current liabilities: | |||
Deferred tax liabilities | (2,975) | (2,865) | |
Other non-current liabilities | (968) | (1,072) | |
Total liabilities | (11,913) | (11,946) | |
Net assets | 30,730 | 27,599 | |
Equity: | |||
Share capital | 9 | 4,179 | 4,175 |
Share premium account | 210 | 168 | |
Equity reserve | 1,736 | 1,516 | |
Capital reserve | 255 | 255 | |
Translation reserve | (76) | (108) | |
Retained earnings | 10 | 24,426 | 21,593 |
Equity attributable to equity holders of the Company | 30,730 | 27,599 |
Consolidated statement of changes in equity
For the year ended 31 December 2012
2012 £'000 | 2011 £'000 | |
Profit for the year | 3,994 | 3,865 |
Exchange differences | 32 | 1 |
Total comprehensive income in the year | 4,026 | 3,866 |
Other movements in the year: | ||
Issued share capital | 4 | - |
Issued share premium | 42 | 3 |
Credit to equity reserve for share-based payments | 235 | 227 |
Movement in deferred tax charged to equity | 6 | (16) |
Final dividend for year ended 31 December 2011/2010 | (1,182) | (1,094) |
Net increase in equity shareholders' funds | 3,131 | 2,986 |
Equity shareholders' funds at beginning of year | 27,599 | 24,613 |
Equity shareholders' funds at end of year | 30,730 | 27,599 |
Consolidated cash flow statement
for the year ended 31 December 2012
Note | 2012 £'000 | 2011 £'000 | |
Net cash from operating activities | 11 | 6,015 | 6,409 |
Investing activities | |||
Proceeds on disposal of property, plant and equipment | 57 | 22 | |
Purchases of property, plant and equipment | (3,109) | (3,959) | |
Expenditure on product development | (3,753) | (2,046) | |
Purchase of intangible asset | (125) | - | |
Net cash used in investing activities | (6,930) | (5,983) | |
Financing activities | |||
Proceeds on issue of ordinary shares | 46 | 3 | |
Dividends paid on ordinary shares | (1,182) | (1,094) | |
Movement in borrowings | (104) | (255) | |
Repayment of obligations under finance leases | - | (28) | |
Net cash used in financing activities | (1,240) | (1,374) | |
Net decrease in cash and cash equivalents | (2,155) | (948) | |
Bank cash at beginning of year | 5,179 | 6,130 | |
Effect of foreign exchange rate changes | (14) | (3) | |
Bank cash at end of year | 3,010 | 5,179 |
Notes to the consolidated financial statements
for the year ended 31 December 2012
1. Basis of preparation
This announcement is based on the financial statements which have been prepared in accordance with the IFRS adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation and with those part of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and International Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
The principal Group accounting policies have been applied consistently throughout the years ended 31 December 2011 and 2012.
The financial information set out in the full year results announcement does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting on 13 May 2013. The auditors' report on both the 2011 and 2012 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.
2. Revenue
An analysis of the Group's revenue is as follows:
2012 £'000 | 2011 £'000 | |
Sales of goods | 15,828 | 16,894 |
Revenue from the rendering of services | 25,167 | 24,362 |
40,955 | 41,256 | |
Interest | 2 | 5 |
40,957 | 41,261 |
3. Business and geographical segments
For management purposes, the Group is currently organised into two divisions - Bio-decontamination ("Bio-Decon") and TRaC ("Testing, Regulatory and Compliance"). These divisions are consistent with the internal reporting as reviewed by the Chief Executive. Segment information about these businesses is presented below:
Year ended 31 December 2012 | Bio-Decon £'000 | TRaC £'000 | Consolidated £'000 |
Revenue | |||
Total revenue | 25,927 | 15,068 | 40,995 |
Result | |||
Segment result | 2,619 | 3,031 | 5,650 |
Unallocated head office costs | (1,452) | ||
Profit from operations | 4,198 | ||
Finance costs and investment revenue | (245) | ||
Profit before tax | 3,953 | ||
Tax | 41 | ||
Profit for the year | 3,994 | ||
Other information | |||
Capital additions | 5,690 | 1,300 | 6,990 |
Unallocated corporate additions | - | ||
Total capital additions | 6,990 | ||
Depreciation and amortisation | 2,600 | 1,145 | 3,745 |
Unallocated corporate depreciation | 44 | ||
Total depreciation and amortisation | 3,789 |
Notes to the consolidated financial statements
for the year ended 31 December 2012
Assets and liabilities are allocated to reportable segments.
Balance sheet as at 31 December 2012 | Bio-Decon £'000 | TRaC £'000 | Consolidated £'000 |
Assets | |||
Segment assets | 26,580 | 11,333 | 37,913 |
Unallocated corporate assets | 4,730 | ||
Consolidated total assets | 42,643 | ||
Liabilities | |||
Segment liabilities | 8,211 | 3,010 | 11,221 |
Unallocated corporate liabilities | 692 | ||
Consolidated total liabilities | 11,913 |
Year ended 31 December 2011 | Bio-Decon £'000 | TRaC £'000 | Consolidated £'000 |
Revenue | |||
Total revenue | 27,657 | 13,599 | 41,256 |
Result | |||
Segment result | 3,799 | 2,433 | 6,232 |
Unallocated head office costs | (1,210) | ||
Profit from operations | 5,022 | ||
Finance costs and investment revenue | (21) | ||
Profit before tax | 5,001 | ||
Tax | (1,136) | ||
Profit for the year | 3,865 | ||
Other information | |||
Capital additions | 3,215 | 2,786 | 6,001 |
Unallocated corporate additions | 4 | ||
Total capital additions | 6,005 | ||
Depreciation and amortisation | 2,269 | 1,141 | 3,410 |
Unallocated corporate depreciation | 44 | ||
Total depreciation and amortisation | 3,454 |
Notes to the consolidated financial statements
for the year ended 31 December 2012
3. Business and geographical segments continued
Segment profit represents the profit earned by each segment without allocation of central administration costs including Directors' salaries, investment revenue and finance costs and income tax expense. This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.
Balance sheet as at 31 December 2011 | Bio-Decon £'000 | TRaC £'000 | Consolidated £'000 |
Assets | |||
Segment assets | 23,544 | 10,099 | 33,643 |
Unallocated corporate assets | 5,902 | ||
Consolidated total assets | 39,545 | ||
Liabilities | |||
Segment liabilities | (8,131) | (3,157) | (11,288) |
Unallocated corporate liabilities | (658) | ||
Consolidated total liabilities | (11,946) |
Geographical segments
The Group's bio-decontamination equipment is manufactured within the UK and sold into the UK, Europe and Rest of World markets. The TRaC segment offers services from bases within the UK and the majority of its revenue is generated within the UK.
The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods or services:
Sales revenue by geographical market | Year ended 31 December 2012 £'000 | Year ended 31 December 2011 £'000 |
UK | 18,543 | 17,686 |
Rest of Europe | 8,584 | 8,211 |
Rest of World | 13,868 | 15,359 |
40,995 | 41,256 |
The following is an analysis of the carrying amount of segments assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located:
Carrying amount of segment assets | Additions to property, plant and equipment and intangible assets | |||||
Year ended 31 December 2012 £'000 | Year ended 31 December 2011 £'000 | Year ended 31 December 2012 £'000 | Year ended 31 December 2011 £'000 | |||
UK | 35,018 | 32,538 | 6,734 | 5,812 | ||
Rest of Europe | 3,816 | 3,579 | 103 | 79 | ||
Rest of World | 3,809 | 3,428 | 153 | 114 | ||
42,643 | 39,545 | 6,990 | 6,005 | |||
Notes to the consolidated financial statements
for the year ended 31 December 2012
4. Profit from operations
Profit from operations has been arrived at after charging/(crediting):
2012 £'000 | 2011 £'000 | |
Research & development costs | 1,297 | 1,197 |
Depreciation of property, plant and equipment | 2,664 | 2,542 |
Amortisation of development costs and patents | 1,112 | 906 |
Amortisation of trademarks | 13 | 6 |
Cost of inventories recognised as an expense | 7,154 | 8,806 |
Staff costs | 19,265 | 17,048 |
Loss on disposal of property, plant and equipment | 2 | 1 |
Net foreign exchange gains | (190) | (291) |
5. Tax
2012 £'000 | 2011 £'000 | |
UK corporation tax current year | (19) | (811) |
UK corporation tax prior year | 176 | (75) |
Deferred tax charge current year | (235) | (307) |
Deferred tax adjustment prior year | 119 | 57 |
41 | (1,136) |
Corporation tax is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The charge for the year can be reconciled to the profit per the income statement as follows:
2012 £'000 | 2011 £'000 | |
Profit before tax | 3,953 | 5,001 |
Tax at the UK corporation rate of 24.5% (2011: 26.5%) | (968) | (1,325) |
Adjusted for: | ||
Tax effect of expenses not deductible in determining taxable profit | (107) | (84) |
Effect on deferred tax asset of movement in share price | 40 | (108) |
Effect of research and development relief | 420 | 361 |
Tax due in other jurisdictions | - | (3) |
Tax effect of different tax rate of subsidiaries operating in other jurisdictions | 74 | 22 |
Deferred tax not recognised on other timing differences | (92) | (99) |
Prior year adjustment | 295 | (18) |
(Recognition)/utilisation of tax losses | (7) | 13 |
Effective change in tax rate | 386 | 105 |
41 | (1,136) |
In addition to the amount charged to the income statement an amount of £6,000 was credited directly to equity (2011: charge to equity of £16,000). This related to the estimated excess tax deductions related to share-based payments.
Notes to the consolidated financial statements
for the year ended 31 December 2012
6. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings | Year ended 31 December 2012 £'000 | Year ended 31 December 2011 £'000 |
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 3,994 | 3,865 |
Number of shares | Year ended 31 December 2012 | Year ended 31 December 2011 |
Weighted average number of ordinary shares for the purposes of basic earnings per share | 41,762,635 | 41,753,449 |
Effect of dilutive potential ordinary shares: | ||
- share options | 428,345 | 77,492 |
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 42,190,980 | 41,830,941 |
7. Provisions
Warranty provision £'000 | |
At 1 January 2012 | 93 |
Additional provision in the year | 60 |
Utilisation of provision | (77) |
At 31 December 2012 | 76 |
Included in current liabilities | 76 |
Included in non-current liabilities | - |
76 |
The warranty provision represents management's best estimate of the Group's liability under twelve month warranties granted on products and services, based on past experience.
8. Analysis of net cash
| 2012 £'000 | 2011 £'000 |
Cash and cash equivalents | 3,010 | 5,179 |
Bank loan - due within one year | (105) | (105) |
- due after one year | (968) | (1,072) |
1,937 | 4,002 |
Notes to the consolidated financial statements
for the year ended 31 December 2012
9. Share capital
2012 |
| 2011 | ||||
Number | £'000 | Number | £'000 | |||
Authorised | ||||||
Ordinary shares of 10p each | 55,947,780 | 5,595 | 55,947,780 | 5,595 | ||
Redeemable deferred ordinary shares of £1 each | 255,222 | 255 | 255,222 | 255 | ||
5,850 | 5,850 | |||||
Called up, allotted and fully paid | ||||||
Ordinary shares of 10p each | 41,793,949 | 4,179 | 41,753,449 | 4,175 | ||
4,179 | 4,175 | |||||
During the year the Company issued a total of 40,500 ordinary shares of 10p each for £46,000 on the conversion of options under the executive share option schemes.
10. Retained earnings
£'000 | |
Balance at 1 January 2011 | 7,889 |
Net profit for the year | 3,865 |
Transfer from Special Reserve | 10,933 |
Payment of dividend | (1,094) |
Exercised share options | - |
Balance at 1 January 2012 | 21,593 |
Net profit for the year | 3,994 |
Payment of dividend | (1,182) |
Exercised share options | 21 |
Balance at 31 December 2012 | 24,426 |
Notes to the consolidated financial statements
for the year ended 31 December 2012
11. Notes to the cash flow statement
2012 £'000 | 2011 £'000 | |
Profit from operations | 4,198 | 5,022 |
Adjustments for: | ||
Depreciation of property, plant and equipment | 2,664 | 2,544 |
Amortisation and impairment losses of intangible assets | 1,125 | 912 |
Share-based payments | 235 | 227 |
Loss on disposal of property, plant and equipment | 1 | 1 |
(Decrease)/increase in provisions | (17) | 22 |
Operating cash flows before movements in working capital | 8,206 | 8,728 |
(Increase)/decrease in inventories | (1,482) | 21 |
Increase in receivables | (658) | (1,380) |
Increase/(decrease) in payables | 540 | (251) |
Cash generated by operations | 6,606 | 7,118 |
Non-equity preference share dividends paid | - | (33) |
Investment revenues | 2 | 5 |
Interest paid | (58) | (43) |
Income taxes paid | (535) | (638) |
Net cash from operating activities | 6,015 | 6,409 |
Of the new additions to fixtures and equipment during the year assets to the value of £nil (2011: £nil) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
12. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are therefore not disclosed.
Remuneration of key management personnel
The total remuneration for all of the Directors of Bioquell PLC, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2012 £'000 | 2011 £'000 | |
Short-term employee benefits | 766 | 911 |
Post-employment benefits | 79 | 73 |
Share-based payments | 79 | 102 |
924 | 1,086 |