18 Mar 2015 07:00
18 March, 2015
Bioquell PLC announces its 2014 preliminary results
Bioquell PLC (LSE symbol: BQE), the provider of specialist microbiological control technologies to the international Healthcare, Life Science and Defence markets today announces its 2014 preliminary results.
Highlights
§ Group revenues increased by 2% to £45.3 million (2013: £44.6 million) - TRaC up 7% to £18.0 million; Bio division down 2% to £27.3 million (up 1% in constant currency)
§ Pre-tax profits before previously announced non-cash exceptional costs were £2.5 million (2013: £3.1 million).
§ Exceptional items comprise a pre-tax £3.9 million non-cash impairment charge relating to capitalised product development and patent costs
§ Pre-tax loss (including non-cash exceptional costs) of £1.4 million (2013: profit of £3.1 million)
§ Basic pre-exceptional earnings per share of 4.9p (2013: 7.3p)
§ Proposed dividend per share of 3.3p (2013: 3.3p)
§ Net cash at the year end was £1.1 million (2013: £2.0 million)
§ Strong revenue growth in Healthcare and Defence markets was offset by a decline in Life Sciences revenues in the Bio division
§ Proposed disposal of TRaC for £44.5 million in cash was announced on 12 March, 2015; the majority of the net cash proceeds will be returned to shareholders in due course
Nigel Keen, Chairman of Bioquell PLC, said:
"Whilst 2014 was a challenging year for our Bio division, we have made a number of important changes that put us in a strong position to deliver growth in 2015. We have improved our product portfolio, reduced our cost base, strengthened our management teams and refocused our sales & marketing activities."
"The proposed sale of TRaC will unlock substantial value for shareholders and enable us to focus on building our core Bio business."
"The fundamental drivers underlying our Bio business are strong and we are looking forward to delivering significant value from this business to shareholders in 2015."
Enquiries: 01264 835 900
Nigel Keen: Chairman
Nick Adams: Group Chief Executive
Michael Roller: Group Finance Director
CHAIRMAN'S STATEMENT
Future of the Group post the sale of TRaC
Last week, on 12 March, we announced the proposed disposal of our subsidiary TRaC Global Limited ("TRaC") for £44.5 million in cash. The transaction is expected to complete at the end of April 2015 and is expected to give rise to an exceptional profit before expenses of approximately £35.4 million. The Board expects that the majority of the net cash proceeds arising from the disposal will be returned to shareholders in due course.
The timing of the disposal reflects, among other things: (i) a desire by the Board to address Bioquell's weak share price which did not reflect the underlying value of our two core businesses; (ii) recent strong interest from trade and financial buyers in TRaC; and (iii) improving prospects for our Bio division - and our belief that it represents an attractive standalone business with interesting prospects.
The Bio division comprises a business with revenues in 2014 of £27.3 million and EBITDA of £3.9 million (2013: £4.1 million), selling biological contamination control services and equipment into the international Life Sciences, Healthcare and Defence markets. (EBITDA means pre-exceptional earnings before interest, tax, depreciation and amortisation.)
The year saw significant changes being made to the business, including targeted cost reductions and the completion of a substantial new product development programme. These changes coupled with improving market conditions in its core sectors mean that the Bio division is now well placed to deliver growth through the sale of an innovative and modern range of products and services.
In some respects the division's business model is becoming increasingly similar to TRaC: with service businesses - required by customers who need to meet onerous, international regulations - which require specialist equipment and highly trained technicians.
By necessity, this document refers to the historic financial performance of both the TRaC and Bio division; however, we are, of course, now totally focussed on driving forwards the strategy and financial results for the Bio division or 'pure Bioquell'.
Financial performance in 2014
Consolidated revenues increased by 2% to £45.3 million (2013: £44.6 million). TRaC revenues increased by 7% to £18.0 million (2013: £16.8 million) and Bio declined by 2% to £27.3 million (2013: £27.9 million), held back largely by operational difficulties in our US and Asian operations. In constant currency, Group revenues increased 3%, TRaC increased 7% and Bio increased 1%. (Constant currency revenue is calculated by retranslating current period revenues at the average exchange rate ruling in the comparative period.)
The Group's service revenues totalled £29.3 million (2013: £26.9 million), representing 65% of total Group revenues (2013: 60%). Overseas sales amounted to £23.3 million representing 51% of total revenues (2013: 55%).
Within our Bio division, 2014 revenues were split 54% (2013: 56%) equipment sales, 41% (2013: 39%) services and 5% (2013: 5%) consumables. We are actively seeking to drive up the proportion of our service revenues. Overseas sales in the Bio division were 79% (2013: 81%).
Gross margin for the Group declined 1% to 45% (2013: 46%) and pre-exceptional operating expenses totalled £17.6 million (2013: £17.7 million).
As announced in the Group's pre-close statement on 15 January, 2015, the Board has reviewed the Group's portfolio of capitalised product development and patent costs and has decided that an aggregate non-cash impairment charge of £3.9 million should be made. This is presented as an exceptional item in the information below.
Pre-tax profits (before exceptional items) were £2.5 million (2013: £3.1 million). The pre-tax loss including exceptional items was £(1.4) million (2013: profit £3.1 million). Basic earnings per share pre-exceptional items were 4.9p (2012: 7.3p).
In cash terms, expenditure on research & development declined in the year by 37% to £1.9 million (2013: £3.0 million). Capital expenditure on tangible fixed assets declined by 39% to £2.4 million (2013: £3.9 million).
The Group continues to have a strong balance sheet. Net cash at the year end was £1.1 million (2013: £ 2.0 million) and has subsequently increased to £3.4 million at the end of February 2015. Shareholders' funds were £31.1 million (2013: £33.3 million.)
The Board is recommending the payment of a dividend of 3.3 pence (2013: 3.3 pence) per share on 2 July, 2015 to shareholders on the register on 5 June 2015. Following the proposed disposal of TRaC the Board intends to rebase its dividend payout. Accordingly next year the Board will consider, among other things, an appropriate dividend cover and associated payout for the refocused Group.
Activities
2014 was a year of mixed fortunes. Our TRaC division performed strongly and finished the year with good momentum. In contrast, our Bio division encountered significant headwinds in its Life Sciences business activities - particularly in Asia and the USA - and a number of significant management changes were made during the year to address certain operational issues.
In the Bio division, our Healthcare revenues increased by 26% to £4.3 million (2013: £3.4 million), assisted by our new single patient room Pod product as well as increased interest in our hydrogen peroxide vapour ("HPV") technology as a result, in part, of our decontamination service activities during the global Ebola outbreak. Our Defence revenues more than doubled to £4.1 million (2013: £1.7 million). However, our Life Sciences revenues, particularly from equipment sales, reduced by approximately 17% to £18.9 million (2013: £22.7 million).
In TRaC, revenues were strong across substantially all of our services - with particularly good results from our environmental and EMC (electromagnetic compatibility) services helped by high levels of aerospace activity.
Employees
On behalf of the Board, I would like to thank all the employees within the Group for their hard work and commitment during 2014.
Outlook
In the future the Group will comprise a focused biological contamination control business selling into the international Life Sciences, Healthcare and Defence markets.
In the Life Sciences sector growth is expected due to increased sales of, and investment in, biologics and biosimilars, which require the use of aseptic principles during research as well as the manufacturing process.
The imposition of more demanding regulations and compliance requirements in the Life Sciences and Healthcare sectors is also expected to increase demand for products and services such as ours.
Within the Healthcare sector hospitals face increasing difficulties treating patients who contract bacterial infections which no longer respond to antibiotics. (The first O'Neill report, published in December 2014, estimated that by 2050 more people will die as a result of antimicrobial resistance than cancer - and the loss in world GDP would be some US$100 trillion.) Bioquell's technology has been shown in published scientific studies to reduce hospital acquired infection rates. The imminent launch into the healthcare sector of the BQ-50 - a new, small, fully automated product to rapidly eradicate pathogens from surfaces in hospitals - should also help drive revenues in this sector.
Tensions in Eastern Europe and the Middle East are creating opportunity for our Defence business.
During the past year we reduced the cost base in our Bio division substantially, particularly in relation to our engineering resources, and also made significant changes to the management of our American and Asian subsidiaries. The results of these changes will be seen in the financial performance of the Bio division in 2015.
The year has started well for both our Bio and TRaC divisions. We are looking forward, post the disposal of TRaC, to our business becoming a focussed biological contamination control group serving clients in three large, international sectors with demanding regulatory requirements. Given the changes we have made to the Bio division during last year and the attractive valuation we were able to secure for TRaC, we believe that we are well positioned to deliver further significant value to shareholders in 2015.
Nigel Keen
Chairman
Bioquell PLC
18 March, 2015
Notes to Editors
§ Bioquell is a UK-headquartered, international technology company which sells specialist biological contamination control products and services into the Healthcare, Life Sciences and Defence sectors, with most of its revenues generated from overseas customers
§ 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 at the end of the bio-decontamination process.
§ Over recent years Bioquell has invested substantial sums in developing new products - comprising rental, service and consumables - which have been designed to increase the proportion of the Group's recurring revenues (cf. capital equipment sales).
§ Bioquell's bio-contamination control technology:
o is used by bio-pharmaceutical, biotechnology and research institutions to provide sterile equipment and/or sterile facilities;
o is used to eradicate "superbugs" from hospitals including Clostridium difficile and carbapenemase producing Enterobacteriaceae (CPE) - sometimes referred to as carbapenem-resistant Enterobacteriaceae (CRE). Independent scientific research from a team at Johns Hopkins, one of America's top hospitals, has demonstrated that 'bioquelling' hospital equipment and facilities resulted in a 64% reduction in the risk of patients contracting hospital acquired infection; and
o is used to provide single patient rooms via its Pod product on open-plan, multi-bed units.
§ Bioquell currently has overseas operations in the USA, France, Ireland, Singapore and China.
TRaC (www.tracglobal.com) is a subsidiary of Bioquell which provides specialist Testing, Regulatory and Compliance services - including EMC (electromagnetic compatibility), environmental, safety, ATEX (explosive atmospheres) radio and telecoms testing - principally to UK corporates. (The proposed disposal of TRaC is expected to complete at the end of April 2015.)
STRATEGIC REPORT
This report should be read in conjunction with the Chairman's statement which provides information on the proposed disposal of TRaC Global Limited as well as the financial performance of the Group in 2014.
Following the disposal of TRaC, the Group will comprise a biological contamination control business with a business model which benefits from stringent regulatory standards and which incorporates the sale & rental of equipment, consumable sales and the provision of a range of speciality services to the international Life Sciences, Healthcare & Defence markets.
The Board believes that the Group has developed a unique and world class range of technologies for the markets it serves. The primary strategic objective for the business is now to increase its revenues via improved and more effective selling of its market-leading range of products & services which meet the bio-decontamination needs of its Life Sciences and Healthcare customers.
Given the complexity of the Bio division - and the significant changes that we have made to the business over the last year - the Board monitors progress on its strategy by reference to only two key performance indicators at the current time: revenues and pre-tax profit.
KEY STRATEGIC DRIVERS
Microorganisms - bacteria, viruses and fungi - are ubiquitous and cause significant problems across a number of sectors around the world. Bioquell's strategy is to generate revenues from the provision of novel, cost-effective technology-based solutions, which are supported by increasingly onerous regulations, for contamination control and microorganism eradication in the Life Sciences, Healthcare and Defence sectors. Historically our product offerings for Life Sciences and Healthcare were based solely around hydrogen peroxide vapour ("HPV") - but over recent years we have added a number of complementary products and services which enable us to offer a more holistic or application-based solution to our customers.
Increasing antibiotic resistance - and problems for hospitals worldwide
Antibiotic resistance is a growing problem. The issue of antibiotic resistance was highlighted during 2014 by a number of high profile individuals or organisations including: the World Health Organisation, the US President and the UK Prime Minister who subsequently commissioned Jim O'Neill to chair a review on the antimicrobial resistance (the first O'Neill report was published in December 2014: amr-review.org ). This report estimated that antimicrobial resistant infections will result in an additional 9.3 million deaths per year by 2050 with a loss in world GDP of US$ 100 trillion. Although relatively well known pathogens such as MRSA and C.difficile are still responsible for a significant proportion of Hospital Acquired Infection ("HAI"), there are a number of classes of antibiotics which can be used to treat them. However, over recent years highly antibiotic resistant - and increasingly 'untreatable' (i.e. resistant to all antibiotics) - Gram-negative organisms such as Klebsiella pneumoniae, Pseudomonas aeruginosa and Acinetobacter baumannii have been creating major clinical issues for hospitals, particularly intensive care units ("ICUs"), around the world. In short, the 'superbug' problem is getting worse as the antibiotics are ceasing to work for certain bacteria, principally the Gram-negatives - and there is no obvious, feasible solution. For example, earlier this year, 11 patients were reported to have died in a German hospital from an antibiotic resistant bacteria and two US hospitals on the West coast have admitted to patient deaths from the highly resistant CRE strain of Gram-negative bacteria.
Significant role of the regulators
Bioquell's Life Science and Healthcare customers operate in highly regulated markets. In many areas the regulators are becoming more concerned about the adverse consequences of microbial contamination and the regulations are becoming more onerous.
Biologics and biosimilars
Biological products are generally derived from a living organism. They can come from many sources, including humans, animals, microorganisms or yeast.
Biological products include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues and recombinant therapeutic proteins. Biologics are isolated from a variety of natural sources - human, animal, or microorganism - and may be produced by biotechnology methods and other cutting-edge technologies. For example, gene-based and cellular biologics are often at the forefront of biomedical research, and may be used to treat a variety of medical conditions for which no other treatments are currently available.
In contrast to most conventional drugs that are chemically synthesized and their structure known, most biologics are complex mixtures that are not easily identified or characterised. Biological products, including those manufactured by biotechnology, tend to be heat sensitive and susceptible to microbial contamination. As a result it is necessary to use aseptic principles during research and throughout the manufacturing process (in contrast to most conventional drugs which are often terminally sterilised). This requirement for aseptic processing is a powerful driver of demand for Bioquell's products and services.
A biosimilar product is a biological product that is approved based on showing that it is highly similar to an already-approved biological product, known as a reference product. The biosimilar must also show it has no clinically meaningful differences in terms of safety and effectiveness from the reference product. Only minor differences in clinically inactive components are allowable in biosimilar products.
The Biologics Price Competition and Innovation Act of 2009 (BPCI Act) was passed as part of the Affordable Care Act (often referred to as 'Obamacare') that President Obama signed into law in March 2010. The BPCI Act created a shortened and less stringent regulatory approval pathway for biological products shown to be "biosimilar" to or "interchangeable" with an FDA-licensed biological product (i.e. the "reference product"). This shortform regulatory pathway enables a biosimilar product to be licensed based on less onerous preclinical and clinical data although the facilities where biosimilars are manufactured must also meet the FDA's standards for biologics production. This shortform approach was designed to encourage investment in biosimilars by bio-pharmaceutical companies to reduce the cost of these treatments.
In the Life Sciences sector the US Food & Drug Administration ("FDA") continues to influence heavily biologics and biosimilar drug research, production and sales around the world. For example, on 6 March 2015, the FDA approved the launch of the first biosimilar onto the US market. (There are already a number of biosimilars approved for the European market.) We anticipate that regulatory oversight in these areas is likely to increase, in part due to the greater number of biologics and biosimilar drugs coming onto the market. The increased numbers of biologics and biosimilars on the markets should drive demand for Bioquell's products and services.
In the Healthcare sector the relevant regulators, such as the Joint Commission in the USA and the CQC in the UK, are becoming increasingly sensitised to the threat to patient safety from, as well as the concomitant costs of, HAI. These regulators are able to impose economic sanctions on hospitals which have inadequate measures for the prevention of HAI. For example, the US Affordable Care Act imposes financial penalties starting in 2017 on hospitals with poor HAI performance.
Evolving business model
Until recently Bioquell's business model, particularly in the Life Sciences sector, was largely predicated on equipment sales - with limited associated consumable or service revenues. However, since 2010 we have been developing products and services for this sector which generate, directly or indirectly, a higher proportion of recurring revenues.
All our new HPV-related products have been engineered to incorporate the use of captive hydrogen peroxide consumable cartridges. We made good progress during the year in increasing the number of regulatory approvals for our hydrogen peroxide consumables around the world. Moreover, we extended our supply chain to enable us to supply consumables cost effectively to a greater proportion of international customers.
We have also taken a number of steps to repackage certain of our technologies to enable us to migrate from an equipment-based offering to increase, directly or indirectly, the provision of specialist decontamination services. This should help improve our quality of earnings and increase the proportion of recurring revenues.
Historically our strategy and growth was developed around the use of HPV to eradicate microorganisms. However, over the last three years we have reduced our dependency on HPV by developing complementary products such as the QUBE (for Life Sciences) and the Pod (for Healthcare). These products incorporate novel manufacturing techniques developed at our facilities in Andover.
We are in the process of launching a new HPV product: the BQ-50. This product is designed both for use in hospitals and for the provision of decontamination services by our network of international distributors. This novel product draws heavily on certain of the technologies and components which we developed for a US military development programme a few years ago, including fast cycles, smaller size, reduced weight and sophisticated automated cycle calculations. We anticipate that this product will help us increase our equipment and service revenues in the Healthcare sector in 2015.
Defence sector
We produce specialist chemical, biological, radiological and nuclear ("CBRN") filtration systems and environmental control equipment for military vehicles and fixed systems. We have taken a number of steps to try and reduce the 'lumpiness' of our defence orders, in large part by extending the range of applications for our products.
Interest in our CBRN products has been helped over the last year by increased sectarian conflicts in the Middle East as well as instability in Eastern Europe close to the Russian border. In addition, the use of chemical weapons by the Assad regime was a stark reminder that chemical warfare agents still exist; and are used.
Principal challenges
Our strategy is to promote the use of Bioquell's technology to solve a broad range of microorganism-related problems for customers in the Life Sciences and Healthcare sectors. The strategy for our defence business is to increase the number of customers selecting our CBRN systems. Our prospective markets are large, international and growing. Microorganism-related problems are becoming more challenging, largely due to increasing antimicrobial resistance and a better appreciation of the role of biofilms. Many new, on-patent biologics drugs are susceptible to bioburden contamination which can create patient safety and regulatory compliance problems. Moreover, the international regulators are becoming more demanding in terms of enforcing the relevant regulations.
In implementing this strategy we encounter a number of challenges, including:
· our markets are international - with the UK representing a relatively small proportion of global spend. Accordingly, we are required to establish, expand and manage an extensive network of sales distributors around the world which is expensive and requires significant resources. Further, different selling partners are usually needed for our two different target sectors (Life Sciences & Healthcare) in each territory;
· many of our customers are highly conservative, adopt new technologies slowly, can be difficult to engage with at a senior level and are generally resistant to change. Accordingly it can take some time and substantial sales and marketing investment to see increased revenues linked to the launch of a new product or service;
· some customers, particularly in large organisations, find it easier, and at times lower risk, to 'do nothing';
· in order to supply the breadth of products as well as the short response times for our services, we require a large facility in the UK which has high fixed costs and associated operational gearing. This facility currently has significant under-utilised capacity which could be used to generate high margin incremental revenues;
· in the Life Sciences sector, the research market is becoming more fragmented as 'big-pharma' does less research itself and it can be harder, or require different sales & marketing strategies, to access the smaller research organisations, "spin-offs" and "start-ups" now becoming more prevalent in this sector; and
· in the Healthcare sector, many customers are extremely reluctant to discuss the scale of their antibiotic resistance problems due to the potentially substantial adverse effect such disclosure could have on their hospitals (i.e. a reduction in revenues from lower patient numbers). In addition, some customers have, to date, been reluctant to acknowledge the severity of the antibiotic resistance challenge and have adopted a 'good enough' or 'do nothing' approach. This can create significant marketing and selling challenges for us.
ACTIVITIES BY SECTOR
Life Sciences sector
Demand for pharmaceutical products continues to grow, driven by an aging population and the increasing wealth of the middle classes in the emerging markets. This underlying growth in demand is being seen in research & development, clinical trials and production in the Life Sciences sector.
Aseptic manufacture of biologics and biosimilar products
The need for aseptic manufacture of biologics has resulted in heightened, international regulatory oversight. For example, the regulators require manufacturers to introduce sterility test procedures which are used to help demonstrate that a given product batch has been manufactured under sterile conditions. Bioquell's innovative QUBE aseptic work station is able to incorporate market-leading sterility test equipment. The requirement for sterility testing was an important driver of the growth we saw for QUBE sales in 2014.
Bioquell's products and technologies for the Life Sciences sector
Over recent years it has become clear that having novel and highly efficacious HPV-based bio-decontamination technology represents only part of the solution needed by our Life Science customers. Increasingly our customers' requirements are focussed around satisfying the relevant regulators that they have put in place appropriately validated and documented contamination control processes. In order to help our customers achieve rapid regulatory approval, we have developed HPV-optimised biological indicators ("BIs") and chemical indicators ("CIs"). We have also developed hydrogen peroxide consumable cartridges ("HP consumables") to optimise our HPV decontamination process, including the use of our BIs and CIs.
The development of BIs, CIs, HP consumables and associated validation documentation has also been aligned with our strategic decision to reduce our reliance on capital equipment sales and to increase, wherever possible, the proportion of recurring revenues, by the sale of services or consumables. We saw strong growth in our consumable revenues in the Life Sciences sector in 2014.
Healthcare sector
Bioquell's healthcare strategy is to provide technology-based solutions which help hospitals reduce their HAI rates and combat the significant issues associated with antibiotic resistance.
Background
Bioquell has invested substantial time and resources working with a number of leading international hospitals and associated Key Opinion Leaders ("KOLs") to demonstrate that the bacteria responsible for HAI can survive in the inanimate hospital environment for many months. Equally, we have worked collaboratively with a number of hospitals to show that the eradication of bacteria from the hospital environment can result in a reduction in the HAI rate. A research paper (Passaretti C.L. et al., Clinical Infectious Diseases 2013;56(1):27-35) from a group at Johns Hopkins Hospital in Baltimore, one of America's top hospitals, showed that patients who were admitted into rooms that had been 'bioquelled' were 64% less likely to become infected with a multi-drug resistant organism.
Pod: single patient rooms
Notwithstanding the numerous academic publications supporting the use of Bioquell's HPV technology to reduce HAI rates, it has become clear that a significant number of hospitals outside the United States encounter practical difficulties using our HPV technology (or indeed any form of automated room disinfection technology) due to the widespread use of open-plan, multi-bed units. Multi-bed units are common in the UK and also in the emerging markets, particularly within ICUs. In the United States and France substantially all hospital beds, particularly in high acuity units such as ICUs, are located in single patient rooms. Open plan multi-bed units are a problem for managing HAI as they have been shown to have higher HAI rates than equivalent units with single patient rooms.
In order to facilitate the 'bioquelling' of bed-spaces, at the beginning of 2013 we launched the Bioquell Pod, initially as a rental-only product, focussed on the UK (NHS) market. The Pod system comprises a bespoke single patient room which can be easily and quickly installed around a pre-determined bed space in an open plan unit. We have worked closely and collaboratively with early adopters in the NHS to understand better how the Pod can be used optimally within UK hospitals. We have also invested in hardware and software to help the rapid design, production and deployment of Pods.
Following feedback from prospective customers - particularly from overseas - we now offer the Pod as a product which can be purchased or rented. For example in 2014 we sold 20 Pods into an ICU in Saudi Arabia. We believe that customers in the emerging markets will be keener to purchase the Pod whilst hospitals in the UK are typically keener to rent the Pod. We are now focussing on maximising the number of Pod units deployed around the world irrespective of payment method.
Increasing antibiotic resistance - and the specific threat from CRE
Emerging markets in Asia, Latin America and the Middle East are facing substantial clinical challenges associated with antibiotic resistant bacteria, particularly in ICUs and principally from highly resistant Gram-negative bacteria, especially the CREs (known as CPEs in the UK) - or carbapenem-resistant Enterobacteriaceae. The Director of the US Centers for Disease Prevention and Control (CDC), Dr Tom Frieden, has described CRE as being "nightmare bacteria".
In most countries in the emerging markets there has been poor stewardship (and hence misuse) of antibiotics for many years which has resulted in the emergence of widespread antibiotic resistance. Particularly dangerous is the growing pan-resistance of some Gram-negative organisms such as Klebsiella pneumoniae or Acinetobacter baumannii. In addition, air travel has resulted in patients, originating in the emerging markets, being admitted to North American or European hospitals - and consequently introducing highly resistant strains of bacteria to these hospitals.
The clinical consequences of such problems are becoming far more severe. In the past, pan-drug resistance was perceived to be an academic and somewhat notional threat. Today we are seeing patients being admitted to acute care hospitals in a number of US and European cities contracting, or bringing with them, strains of highly drug resistant bacteria with high associated mortality rates and costs.
The economics and financial consequences of antibiotic resistance
Although some of the latest antibiotics can be expensive, the principal cost associated with HAI is the extended length of stay in hospital for patients who contract such an infection. Numerous academic studies have shown that patients who contract a HAI tend to stay in hospital significantly longer than those who do not - particularly in the case of ICU patients.
ICUs are both expensive and critical for the revenues of most large, acute care hospitals. Complex surgery and advanced cancer treatments typically require access to ICU facilities. Moreover, such complex surgery is often high profile and generates significant fee income for surgeons (and associated attending physicians) as well as substantial revenues for the hospital. Accordingly, an ICU which is contaminated with highly resistant bacteria can severely and adversely affect patient care, which in turn can result in reduced revenues for the hospital and its medical professionals. There is also the associated risk of substantial reputational damage with concomitant loss of revenues if the hospital becomes linked publicly to high HAI rates.
Even in the emerging markets where labour costs are still relatively low, a single bed-day in an ICU in a private hospital can cost, on a fully loaded basis, several thousand US dollars. Hence an extended length of stay for a patient who contracts a HAI in an ICU setting can readily cost the healthcare system tens of thousands of US dollars. The debate is ongoing as to who should pay for these substantial costs. Typically the hospitals try to pass the costs onto the patients or their insurers. However, the insurers are becoming more sensitised to this issue and are increasingly reluctant to pay for the additional costs associated with HAI.
The 2014 Ebola outbreak and use of Bioquell's technology
Bioquell's HPV technology was used by a significant number of hospitals in the United States and Europe during the 2014 Ebola outbreak. In short, when hospitals wanted to be absolutely sure that there were no viable Ebola viral particles left in the hospital then they turned to Bioquell's technology and services. We were pleased that many years of careful research enabled us to demonstrate the efficacy of our decontamination technology against the Ebola virus. The Ebola outbreak in West Africa is not yet over. In March 2015 we are still seeing healthcare workers with Ebola being repatriated to Europe or the US - and we are currently 'bioquelling' hospitals where suspected Ebola patients have been admitted.
We believe that the widespread adoption of Bioquell's technology by hospitals in the USA and Europe during the Ebola crisis will make it easier for us to sell services to hospitals encountering other severe bacterial or viral problems in the future.
BioxyQuell - novel, topical treatment of wounds
Bioquell has been developing BioxyQuell ("BxQ"), Bioquell's novel peroxy-chemistry based wound treatment technology for a number of years. The technology has regulatory approval in the EU and we have been working on the commercialisation of BxQ in the UK.
Over recent years the bio-chemistry of wound healing has become better understood. In particular, it is increasingly clear that biofilms can significantly hinder wound healing or cause major clinical issues in certain procedures. Moreover, biofilms have been shown to stop wounds healing, giving rise to chronic wounds.
Given the increasing issues with antimicrobial resistance, we believe that there are substantial opportunities for our BxQ technology - as it appears to be efficacious against biofilms and assists in the treatment of chronic wounds. However, unfortunately we have found it difficult to commercialise this technology in the current hospital funding environment and we have decided to 'mothball' the technology as we believe we have better commercial opportunities within our portfolio of products and services. Accordingly the Board has decided to impair the value of the capitalised development costs of this technology (which was announced at the beginning of 2015). Notwithstanding this (non-cash) impairment, we continue to believe that as antimicrobial resistance becomes more problematic our BxQ technology may have an important role to play.
Defence
Our defence business uses specialist filtration systems and other engineering solutions to provide customers with CBRN filtration systems as well as environmental control systems. Together these are referred to as collective protection ("COLPRO").
As we announced in our interim results, during the year we ceased working on a contract to develop COLPRO solutions for a new vehicle for the British Army. Subsequent to the cessation of this contract we essentially halved the size of our engineering team. This was a difficult decision and we estimate that the contract cessation alone cost us some £0.3 million. Due to the self-evident risks associated with such programmes, we have taken the decision not to carry out large defence-related development contracts in the future.
We did manage to secure other COLPRO contracts relating to our standard CBRN equipment from customers in the Middle East and Eastern Europe. A proportion of these contracts was delivered in 2014 and, based on the orders already on our order book, they will continue to generate revenues into 2015.
Conclusion: the Group
The Group has robust strategies in place to generate attractive organic growth - which has been demonstrated in recent years by its TRaC division. Moreover, the substantial and 'extraordinary' phase of significant capital investment in new products and services in the Bio division (e.g. QUBE, Pod, BQ-50, consumables) is essentially over. Going forwards we would expect to see product line extensions and technology updates but a markedly lower requirement for capital expenditure. Accordingly we would expect the Bio division to start to generate cash.
Sales into the Life Sciences sector currently remain key to the profitability of the Bio division - and we have taken clear and robust steps to address the specific issues we encountered in 2014, particularly in the US and Asian Life Science markets. At the same time the increasing problems that hospitals are facing with hospital acquired infection and antibiotic resistance - as well as the lack of single patient rooms in many critical care units in hospitals around the world - represent a substantial and immediate opportunity for our new Healthcare sales teams to focus on. Our Defence business is well positioned with a significant order book already covering most of our planned 2015 defence-related shipments.
Risks and uncertainties
The Group faces a 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 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 the 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 the risks summarised below will be effective, in whole or in part.
Risk and/or uncertainty | Mitigation |
Commercial. Ultimately in order to prosper the Group needs to sell its products and services to sufficient customers at an appropriate margin. This requires good marketing and effective selling of attractive products & services into large and increasingly international markets. Some of these markets are at different stages of maturity - or have different requirements due to, among other things, different levels of wealth or funding available to the market participants or differing regulatory requirements. In addition, some of the market requirements can change rapidly. Taken together it is non-trivial - and can be expensive - to have attractive products & services designed at the right price point for the different markets into which the Group sells. | The Group is spending more time talking with actual and prospective customers to try and anticipate market trends - and is working with customers to develop new products and services attractive to such customers. It is also constantly looking at ways in which it can exploit new lower cost digital marketing techniques to access new customers in a cost effective manner. Further, it is also examining ways to reduce the prime costs of its equipment and services to increase margins and benefit from inherent price elasticity in the market. Where possible the Group is seeking to simplify its operations and product offerings. |
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 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 the risk that 'doing nothing' or finding something 'good enough' is the preferred course of action taken by prospective customers for a number of reasons including apathy, management challenges, budget allocations, or a disinclination to acknowledge the severity of specific issues. Accordingly 'doing nothing' or 'doing a little' 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, sales and marketing activities, execution plans and new product development depending on, among other things, competitor activities. The Group seeks to educate the relevant regulatory bodies or other governmental organisations responsible for the drafting or enforcement of regulations. The Group 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 developed specialist manufacturing skills which should help protect its market share and prospects. The Group has detailed sales and marketing initiatives which are designed to, among other things, increase awareness of the Group's products and services - and make it harder for prospective clients to decide to 'do nothing'; or opt for 'good enough' or 'do a little'. |
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, jurisdiction 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 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. When considered necessary, the Group may seek to to develop relationships, either directly or indirectly, with politicians and civil servants to assist with its dialogue with governments and counter the risk posed by competitor lobbying.
|
Growth from international operations. The Group is experiencing significant growth in a number of the overseas territories in which it sells its products and services. There are a number of specific risks and management challenges associated with growth in overseas territories, including the preservation of high levels of customer service and support, margins 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 certain risks. 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.
|
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, 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, different but complementary technologies to de-risk the Group's exposure to specific technologies.
|
Uncertain adoption rates of new products or services. The Group is constantly developing new products and services around which there is inherent risk. Moreover, in both its principal divisions (Bio & TRaC) it is changing elements of its business model - and there is uncertainty as to how successful these new business models will be. Further, the associated product development and business model migration is expensive, requires resources and contains inherent uncertainty. For example, there is uncertainty as to how quickly new products or services 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 and its manufacturing capabilities whilst ensuring it retains appropriate profitability and cash balances (or access to other sources of finance) in order to fund high levels of growth.
| The Group undertakes '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 associated 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.
|
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 results 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, contravention of anti-bribery legislation or alleged incorrect completion of documentation associated with its service activities.
| 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 that may arise 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, take 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 and interesting; their remuneration is competitive; and the work place environment and culture is attractive. Additionally, employees have the opportunity, as appropriate, to participate in equity upside from employee share option schemes.
|
Dependence on key employees. As with any Group of its size, the Group is dependent on certain key employees. Their sudden or unexpected departure from the Group can have a disruptive effect upon the Group's activities | The Group actively seeks to highlight key employees and to consider ways in which the Group can reduce its dependence upon them by developing other employees' skills or, where necessary, hiring in supplementary employees with the necessary skill sets. Additionally, the Group's remuneration structure is designed so as to foster employee loyalty. |
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 Strategic Report 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, having taken due account of the proposed disposal of the TRaC business referred to in note 11 to the accounts, believe that the Group is well placed to manage its business 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 financial 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 Group's full Annual Report and Accounts for the year ended 31 December 2014, 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;
· the strategic 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 Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and
· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 18 March 2015 and is signed on its behalf by:
Nick Adams Michael RollerGroup Chief Executive Group Finance Director
Consolidated income statement
for the year ended 31 December 2014
Notes | 2014 £'000 | 2013 £'000 | |
Revenue | 2 | 45,268 | 44,637 |
Cost of sales | (25,005) | (24,034) | |
Gross profit | 20,263 | 20,603 | |
Gross profit margin | 45% | 46% | |
Operating expenses: | |||
Sales & marketing costs | (8,483) | (8,329) | |
Administration costs | (5,306) | (6,344) | |
R&D and engineering costs | (7,702) | (3,027) | |
Profit from operations before exceptional Items | 2,638 | 2,903 | |
Impairment of intangible assets | (3,866) | - | |
Operating (loss)/profit | 4 | (1,228) | 2,903 |
Investment revenues | - | 302 | |
Finance costs | (131) | (124) | |
(Loss)/profit before tax | (1,359) | 3,081 | |
Tax | 5 | 342 | (30) |
(Loss)/profit for the year | 9 | (1,017) | 3,051 |
Earnings per share - basic | 6 | (2.4)p | 7.3p |
- diluted | (2.4)p | 7.2p | |
Pre-exceptional earnings per share | 4.9p | - |
Movements in reserves are set out in note 9.
All amounts are derived from continuing operations.
Consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 £'000 | 2013 £'000 | |
Net (loss)/profit for the year | (1,017) | 3,051 |
Exchange differences on translation of foreign operations* | (4) | (37) |
Total recognised (loss)/income | (1,021) | 3,014 |
*May be reclassified subsequently to profit and loss in accordance with IFRS.
Consolidated balance sheet
as at 31 December 2014
Notes | 2014 £'000 | 2013 £'000 | |
Non-current assets: | |||
Goodwill | 691 | 691 | |
Other intangible assets | 9,023 | 13,318 | |
Property, plant & equipment | 14,257 | 14,788 | |
Deferred tax assets | 175 | 175 | |
24,146 | 28,972 | ||
Current assets: | |||
Inventories | 3,358 | 2,512 | |
Trade and other receivables | 11,790 | 9,832 | |
Derivative financial instruments | - | 293 | |
Cash and cash equivalents | 7 | 2,840 | 3,550 |
17,988 | 16,187 | ||
Total assets | 42,134 | 45,159 | |
Current liabilities: | |||
Trade and other payables | (6,648) | (7,370) | |
Derivative financial instruments | (2) | - | |
Current tax liabilities | (581) | (75) | |
Obligations under finance leases | (104) | - | |
Borrowings | (224) | (224) | |
Provisions | (88) | (77) | |
Net current assets | 10,341 | 8,441 | |
Non-current liabilities: | |||
Deferred tax liabilities | (1,997) | (2,845) | |
Other non-current liabilities | (1,433) | (1,309) | |
Total liabilities | (11,077) | (11,900) | |
Net assets | 31,057 | 33,259 | |
Equity: | |||
Share capital | 8 | 4,254 | 4,243 |
Share premium account | 801 | 712 | |
Equity reserve | 1,995 | 1,892 | |
Capital reserve | 255 | 255 | |
Translation reserve | (117) | (113) | |
Retained earnings | 9 | 23,869 | 26,270 |
Equity attributable to equity holders of the Company | 31,057 | 33,259 |
The financial statements of Bioquell PLC, registered number 00206372, were approved by the Board of Directors and authorised for issue on 18 March 2015.
They were signed on its behalf by:
Nicholas Adams Michael Roller
Director Director18 March 2015 18 March 2015
Consolidated statement of changes in equity
for the year ended 31 December 2014
2014 £'000 | 2013 £'000 | |
(Loss)/profit for the year | (1,017) | 3,051 |
Exchange differences | (4) | (37) |
Total comprehensive (loss)/income in the year | (1,021) | 3,014 |
Other movements in the year: | ||
Issued share capital | 11 | 64 |
Issued share premium | 89 | 502 |
Credit to equity reserve for share-based payments | 123 | 231 |
Movement in deferred tax charged to equity | - | - |
Final dividend for year ended 31 December 2013/2012 | (1,404) | (1,282) |
Net (decrease)/increase in equity shareholders' funds | (2,202) | 2,529 |
Equity shareholders' funds at beginning of year | 33,259 | 30,730 |
Equity shareholders' funds at end of year | 31,057 | 33,259 |
Consolidated cash flow statement
for the year ended 31 December 2014
Note | 2014 £'000 | 2013 £'000 | |
Net cash from operating activities | 10 | 3,750 | 7,506 |
Investing activities | |||
Proceeds on disposal of property, plant and equipment | 53 | 24 | |
Purchases of property, plant and equipment | (2,418) | (3,940) | |
Expenditure on product development | (1,009) | (2,270) | |
Purchase of intangible asset | (6) | (494) | |
Net cash used in investing activities | (3,380) | (6,680) | |
Financing activities | |||
Proceeds on issue of ordinary shares | 100 | 566 | |
Dividends paid on ordinary shares | (1,404) | (1,282) | |
Repayment of borrowings | (328) | (135) | |
New finance lease obligations | 556 | - | |
New bank loans raised | - | 595 | |
Net cash used in financing activities | (1,076) | (256) | |
Net (decrease)/increase in cash and cash equivalents | (706) | 570 | |
Cash & cash equivalents at beginning of year | 3,550 | 3,010 | |
Effect of foreign exchange rate changes | (4) | (30) | |
Cash & cash equivalents at end of year | 2,840 | 3,550 |
Notes to the results
for the year ended 31 December 2014
1. Basis of preparation
The financial information in this announcement has been extracted from the financialstatements for the year ended 31 December 2014 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
During the year, the Group has applied IFRS10 'Consolidated financial statements', IFRS12 'Disclosure of interest in other entities', IFRS 11 'Joint arrangements', IAS 27 (revised) 'Separate financial statements', IAS 28 (revised) 'Investments in associates and joint ventures', IFRS 7 (amended) 'Financial instruments: disclosures', IAS 32 (amended) 'Financial instruments: presentation' and IAS 39 'Financial instruments: recognition and measurement'. Their adoption has not had a material impact on the disclosures and amounts reported. Otherwise the principal Group accounting policies are the same as set out in detail in the Annual Report and Accounts 2013 and have been applied consistently throughout the years ended 31 December 2013 and 2014.
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 2014 or 2013 for the purpose of section 435 of Companies Act 2006, but it is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting on 18 May 2015. The auditors' reports on both the 2013 and 2014 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report 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:
2014 £'000 | 2013 £'000 | |
Sales of goods | 16,004 | 17,704 |
Revenue from the rendering of services | 29,264 | 26,933 |
45,268 | 44,637 |
3. Business and geographical segments
For management purposes, the Group is currently organised into two divisions - Bio-decontamination ("BIO") and Testing, Regulatory and Compliance ("TRaC"). 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 2014 | BIO £'000 | TRaC £'000 | Consolidated £'000 |
Revenue | |||
Total revenue | 27,266 | 18,002 | 45,268 |
Result | |||
Segment result before exceptional | 949 | 3,450 | 4,399 |
Impairment of intangibles | (3,866) | - | (3,866) |
Segment result | (2,917) | 3,450 | 533 |
Unallocated head office costs | (1,761) | ||
Profit from operations | (1,228) | ||
Finance costs and investment revenue | (131) | ||
Profit before tax | (1,359) | ||
Tax | 342 | ||
Profit for the year | (1,017) | ||
Other information | |||
Capital additions | 2,031 | 1,379 | 3,410 |
Unallocated corporate additions | - | ||
Total capital additions | 3,410 | ||
Depreciation and amortisation | 2,960 | 1,218 | 4,178 |
Unallocated corporate depreciation | 44 | ||
Total depreciation and amortisation | 4,222 |
Assets and liabilities are allocated to reportable segments.
Balance sheet as at 31 December 2014 | BIO £'000 | TRaC £'000 | Consolidated £'000 |
Assets | |||
Segment assets | 24,353 | 15,372 | 39,725 |
Unallocated corporate assets | 2,409 | ||
Consolidated total assets | 42,134 | ||
Liabilities | |||
Segment liabilities | 6,787 | 3,071 | 9,858 |
Unallocated corporate liabilities | 1,219 | ||
Consolidated total liabilities | 11,077 |
Unallocated corporate assets include cash held by the parent company, derivative valuations and fixed assets, unallocated corporate liabilities include a loan held by the parent company.
Year ended 31 December 2013 | BIO £'000 | TRaC £'000 | Consolidated £'000 |
Revenue | |||
Total revenue | 27,866 | 16,771 | 44,637 |
Result | |||
Segment result | 1,045 | 3,363 | 4,408 |
Unallocated head office costs | (1,505) | ||
Profit from operations | 2,903 | ||
Finance costs and investment revenue | 178 | ||
Profit before tax | 3,081 | ||
Tax | (30) | ||
Profit for the year | 3,051 | ||
Other information | |||
Capital additions | 3,815 | 2,894 | 6,709 |
Unallocated corporate additions | - | ||
Total capital additions | 6,709 | ||
Depreciation and amortisation | 3,009 | 1,204 | 4,213 |
Unallocated corporate depreciation | 43 | ||
Total depreciation and amortisation | 4,256 |
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 2013 | BIO £'000 | TRaC £'000 | Consolidated £'000 |
Assets | |||
Segment assets | 27,792 | 12,887 | 40,679 |
Unallocated corporate assets | 4,480 | ||
Consolidated total assets | 45,159 | ||
Liabilities | |||
Segment liabilities | 7,309 | 3,244 | 10,553 |
Unallocated corporate liabilities | 1,347 | ||
Consolidated total liabilities | 11,900 |
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 2014 £'000 | Year ended 31 December 2013 £'000 |
UK | 21,995 | 20,165 |
Rest of Europe | 8,593 | 8,816 |
Rest of World | 14,680 | 15,656 |
45,268 | 44,637 |
The following is an analysis of the carrying amount of segment 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 2014 £'000 | Year ended 31 December 2013 £'000 | Year ended 31 December 2014 £'000 | Year ended 31 December 2013 £'000 | ||
UK | 21,601 | 26,259 | 3,183 | 6,313 | |
Rest of Europe | 2,100 | 2,249 | 81 | 65 | |
Rest of World | 445 | 464 | 146 | 331 | |
24,146 | 28,972 | 3,410 | 6,709 | ||
4. Profit from operations
(Loss)/profit from operations has been arrived at after charging/(crediting):
2014 £'000 | 2013 £'000 | |
Research & development costs | 2,340 | 1,613 |
Impairment of intangible assets | 3,866 | - |
Depreciation of property, plant and equipment | 2,757 | 2,906 |
Amortisation of development costs | 1,238 | 1,127 |
Amortisation of trademarks, patents and licence fees | 251 | 223 |
Cost of inventories recognised as an expense | 8,749 | 6,933 |
Cost of inventory written off in the year | 50 | - |
Staff costs | 19,577 | 19,988 |
Loss on disposal of property, plant and equipment | 129 | 55 |
Net foreign exchange (gain)/loss | (98) | 107 |
A more detailed analysis of auditors' remuneration is provided below:
2014 £'000 | 2013 £'000 | |
Fees payable to the Company's auditors for the audit of the Company's annual accounts | 30 | 30 |
Fees payable to the Company's auditors for the audit of the subsidiaries pursuant to legislation | 105 | 104 |
Total audit fees | 135 | 134 |
Audit related assurance services | 5 | 6 |
Taxation compliance services | - | 17 |
Total non-audit fees | 5 | 23 |
5. Tax
2014 £'000 | 2013 £'000 | |
UK corporation tax current year | (500) | (184) |
UK corporation tax prior year | (6) | 24 |
Deferred tax credit current year | 844 | 227 |
Deferred tax adjustment prior year | 4 | (97) |
342 | (30) |
Corporation tax is calculated at 21.5% (2013: 23.5%) 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:
2014 £'000 | 2013 £'000 | |
(Loss)/profit before tax | (1,359) | 3,081 |
Tax at the UK corporation rate of 21.5% (2013: 23.5%) | 292 | (724) |
Adjusted for: | ||
Tax effect of expenses not deductible in determining taxable profit | (93) | (108) |
Effect on deferred tax asset of movement in share price | (121) | (39) |
Effect of research and development relief | 338 | 671 |
Tax effect of different tax rate of subsidiaries operating in other jurisdictions | 35 | 10 |
Deferred tax not recognised on other timing differences | - | (159) |
Prior year adjustment | (2) | (73) |
Utilisation of tax losses not recognised | (42) | - |
Effective change in tax rate | (65) | 392 |
342 | (30) |
Nothing was charged directly to equity (2013: charge to equity of £nil).
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 2014 £'000 | Year ended 31 December 2013 £'000 |
(Loss)/earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | (1,017) | 3,051 |
Number of shares | Year ended 31 December 2014 | Year ended 31 December 2013 |
Weighted average number of ordinary shares for the purposes of basic earnings per share | 42,512,990 | 41,920,410 |
Effect of dilutive potential ordinary shares: | ||
- share options | - | 576,681 |
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 42,512,990 | 42,497,091 |
7. Analysis of net cash
2014 £'000 |
2013 £'000 | |
Cash and cash equivalents | 2,840 | 3,550 |
Bank loan - due within one year | (224) | (224) |
- due after one year | (1,085) | (1,309) |
Finance leases - due within one year | (104) | - |
- due after one year | (348) | - |
1,079 | 2,017 |
8. Share capital
| 2014 |
| 2013 | ||
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 | 42,535,363 | 4,254 | 42,432,427 | 4,243 | |
4,254 | 4,243 | ||||
During the year the Company issued a total of 102,936 ordinary shares of 10p each for £99,000 on the conversion of options under the executive share option schemes and the Save-as-you-earn scheme.
9. Retained earnings
£'000 | |
Balance at 1 January 2013 | 24,426 |
Net profit for the year | 3,051 |
Payment of dividend | (1,282) |
Exercised share options | 75 |
Balance at 1 January 2014 | 26,270 |
Net loss for the year | (1,017) |
Payment of dividend | (1,404) |
Exercised share options | 20 |
Balance at 31 December 2014 | 23,869 |
10. Notes to the cash flow statement
2014 £'000 | 2013 £'000 | |
(Loss)profit from operations | (1,228) | 2,903 |
Adjustments for: | ||
Depreciation of property, plant and equipment | 2,776 | 2,888 |
Amortisation and impairment losses of intangible assets | 1,486 | 1,351 |
Impairment of intangible assets | 3,824 | - |
Share-based payments | 123 | 231 |
Loss on disposal of property, plant and equipment | 129 | 55 |
Increase in provisions | 11 | 1 |
Operating cash flows before movements in working capital | 7,121 | 7,429 |
(Increase)/decrease in inventories | (828) | 240 |
(Increase)/decrease in receivables | (1,628) | 99 |
Decrease in payables | (784) | (288) |
Cash generated by operations | 3,881 | 7,480 |
Interest paid | (131) | (124) |
Income taxes received | - | 150 |
Net cash from operating activities | 3,750 | 7,506 |
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.
11. Post balance sheet event
On 12 March 2015, the Group announced the proposed disposal, subject to shareholder approval, of the TRaC division for a cash consideration of £44.5million.
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. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report in the Annual Report and Accounts.
2014 £'000 | 2013 £'000 | |
Short-term employee benefits | 719 | 816 |
Post-employment benefits | 75 | 81 |
Share-based payments | 17 | 79 |
811 | 976 |
This announcement has been posted on the Company's website at www.bioquellplc.com. It is expected that the annual report and accounts will be posted to shareholders on 15 April 2015 and a copy will be posted on the Company's website at that time. Further copies can be obtained after that date from the Company Secretary, Bioquell plc, 52 Royce Close, West Portway, Andover, SP10 3TS.