18 Mar 2014 07:00
18 March, 2014
Bioquell PLC announces its 2013 preliminary results
Highlights
§ Group revenues up by 9% to £44.6 million (2012: £41.0 million) - Bio division up 8% to £27.8 million & TRaC up 11% to £16.8 million
§ Pre-tax profits including reconfiguration costs of £0.9 million were £3.1 million (2012: £4.0 million). Adjusting for reconfiguration costs, pre-tax profits were £4.0 million (2012: £4.0 million)
§ Basic earnings per share of 7.3p (2012: 9.6p)
§ Proposed dividend per share of 3.3p (2012: 3.06p), an increase of 8%
§ Net cash at the year end was £2.0 million (2012: £1.9 million)
§ New products in the Bio division generating encouraging activity levels: QUBE orders already from USA, India, Brazil, Japan as well as Europe - and increasing international interest in ICE-pod
§ Expanding opportunities in the Life Sciences and Healthcare sectors due to increased regulatory oversight and extreme antibiotic resistance
§ Our focus on consumables is beginning to result in increased levels of higher margin recurring revenues
§ TRaC is well positioned for further growth in the UK and overseas
Nigel Keen, Chairman of Bioquell PLC, said:
"Our Bio division is seeking to exploit a number of strong drivers for profitable growth in 2014. These include the increasingly robust stance adopted by the regulators in the Life Sciences sector, the clear and increasing problems associated with antibiotic resistance in the Healthcare sector as well as an improved business model which should generate a greater proportion of recurring revenues from sales of high margin consumables and rental products. However, in this division the year has started somewhat more slowly than we had expected but enquiries for our new products, especially from overseas markets, are encouraging."
"TRaC has good momentum, excellent facilities, exposure to an international client base and an expanding range of high value services, many of which can be delivered without the need for substantial investment in additional capital equipment."
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Nigel Keen: Chairman of Bioquell PLC
Nick Adams: Group Chief Executive
Michael Roller: Group Finance Director
CHAIRMAN'S STATEMENT
Financial performance in 2013
Consolidated revenues increased by 9% to £44.6 million (2012: £41.0 million), split £27.8 million in Bio (2012: £25.9 million) and £16.8 million in TRaC (2012: £15.1 million). The Group's service revenues totalled £26.9 million, representing 60% of total revenues (2012: 61%). Exports amounted to £24.5 million representing 59% of total revenues (2012: 55%).
Gross margin was down at 46% (2012: 48%) and operating expenses totalled £17.7 million (2012: £15.4 million), although these included £0.9 million of non-recurring reconfiguration costs which adversely affected gross margin and overheads.
Pre-tax profits including the reconfiguration costs were £3.1 million (2012: £4.0 million). Pretax profits adjusting for the £0.9 million of reconfiguration costs were £4.0 million (2012: £4.0 million). Basic earnings per share were 7.3p (2012: 9.6p).
The Group continues to invest in the development of technology principally for use in the Life Sciences and Healthcare sectors, with capitalised development costs in the year of £2.1 million (2012: £3.0 million).
The Group continues to have a strong balance sheet. Net cash at the year end was £2.0 million (2012: £ 1.9 million). Shareholders' funds were £33.3 million (2012: £30.7 million.)
The Board is recommending the payment of a dividend of 3.30 pence (2012: 3.06 pence) per share on 2 July, 2014 to shareholders on the register on 6 June 2014, representing an increase of 8% over 2012.
Activities
2013 was a tough year for our Bio division as we made a number of changes in the delivery of our products and services, including a reconfiguration of the business and head-count reduction. This is reflected in the Bio division's segmental operating profit of £1.9 million (2012: £2.6 million) after adjusting for the £0.9 million of reconfiguration costs. We are currently making further changes to our sales and marketing teams around the world aimed at driving additional revenues from the Life Sciences and Healthcare sectors.
Life Sciences
Currently the Life Sciences sector generates the largest proportion of revenues within the Bio division amounting to £22.7 million (2012: £21.7 million) out of the Bio division's revenues of £27.9 million in 2013. Within this sector we are continuing to see increasing demand for aseptic (free of microbial contamination) equipment and facilities, which is a key application for our hydrogen peroxide vapour technology. Demand is driven by a number of factors including an increasing proportion of biologically sensitive pharmaceutical products which are susceptible to microbial contamination, and a more assertive stance by the regulators.
Healthcare
We are seeing a number of changes in our healthcare business which had revenues in 2013 of £3.5 million (2012: £3.1 million) - largely relating to the growing acceptance by hospitals that antibiotic resistance is not a notional or academic problem. In the UK, although the British public is now somewhat inured to "superbug" reports and although there have been genuine reductions in MRSA and C.difficile rates in many NHS hospitals, we are seeing an increasing number of hospitals around the world facing major issues with highly resistant (especially carbapenem-resistant Enterobacteriaceae) or untreatable bacterial infections particularly in intensive care units ("ICUs"). Hospitals do not advertise the severity of their antibiotic-resistant problems but such severe antibiotic resistant problems are very real and are getting worse.
In addition it is now clear that bacterial biofilms exist in the environment as well as in chronic wounds. Scientists and clinicians are becoming more sensitised to the problems that these bacterial biofilms can cause. A biofilm is a group of micro-organisms (such as bacteria) in which cells stick to each other on a surface. The complex biofilm structure makes the bacteria more difficult to combat with standard disinfectants or antibiotics.
We have an expanding and unique range of products to offer hospitals facing problems associated with antibiotic resistance.
Defence
Notwithstanding a general backdrop of declining defence budgets, our defence business continues to grow with revenues of £1.7 million (2012: £1.0 million), particularly with customers from the emerging markets.
TRaC
TRaC has a significant position in the UK testing and regulatory compliance market and performed strongly in 2013 with segmental operating profit of £3.4 million (2012: £3.0 million). We are continuing to extend the range of TRaC's services, particularly into consultancy activities. We have ambitious plans to extend these consultancy activities in the USA and China where demand exists for such services.
Board changes
After some 14 years with the Group, as previously reported, Mark Bodeker leaves us today as Chief Operating Officer and Group Finance Director. During this period revenues have more than tripled from £14.6 million in 2000 to £44.6 million in 2013. We thank him for his contribution over these many years and wish him well with his future career.
We are delighted that Michael Roller will formally be taking over as Group Finance Director. Michael has held senior roles at a number of listed companies and we look forward to working with him.
Employees
On behalf of the Board, I would like to thank all the employees within the Group for their hard work and commitment during 2013.
Outlook
Our Bio division is seeking to exploit a number of strong drivers for profitable growth in 2014. These include the increasingly robust stance adopted by the regulators in the Life Sciences sector, the clear and increasing problems associated with antibiotic resistance in the Healthcare sector as well as an improved business model which should generate a greater proportion of recurring revenues from sales of high margin consumables and rental products. However, in this division the year has started somewhat more slowly than we had expected but enquiries for our new products, especially from overseas markets, are encouraging.
We start the year with a robust defence order book for delivery this year, and we are expecting further defence-related orders during the year which should result in higher defence revenues in the second half.
TRaC has good momentum, excellent facilities, exposure to an international client base and an expanding range of high value services, many of which can be delivered without the need for substantial investment in additional capital equipment.
Nigel Keen
Chairman
Bioquell PLC
18 March, 2014
Notes for editors
§ Bioquell is a UK-headquartered, international technology company with two divisions:
o Bio (www.bioquell.com) 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; and
o TRaC (www.tracglobal.com) 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.
§ 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 three 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 rate of hospital acquired infection;
o is used to provide single rooms to hospitals (via its ICE-pod rental service) 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 and China.
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, defence and telecoms sectors. TRaC also has a small team of technical experts located in China.
STRATEGIC REPORT
The Group comprises two divisions:
§ Bio: applied bio-chemistry & engineering focussed on biological contamination control and the eradication of micro-organisms with a business model comprising equipment sales & rental, consumable sales and the provision of services; and
§ TRaC: applied physics & engineering focussed on testing, regulatory and compliance with a business model comprising the provision of services.
Given the complexity of the businesses, particularly the Bio division, and the changes occurring therein, currently the Board monitors progress on its strategy by reference to two key performance indicators: revenues and pre-tax profit.
Information on the financial performance of the Group is included in the Chairman's statement.
BIO DIVISION
Key strategic drivers
Micro-organisms - bacteria, viruses and fungi - are ubiquitous and can cause significant problems in a range of sectors around the world. In its Bio division, Bioquell's strategy is to generate revenues from the provision of novel, cost-effective technology-based solutions for contamination control and micro-organism eradication in the Life Sciences, Healthcare and Defence sectors. Initially our product offerings for Life Sciences and Healthcare were based around hydrogen peroxide vapour ("HPV") - but we have now expanded our technology and product range in these sectors beyond HPV alone.
Evolving microbiology: antibiotic resistance and the role of biofilms
Antibiotic resistance is a growing problem. The focus of clinicians' concern has been on the increasing antibiotic resistance of organisms such as MRSA or C.difficile. Although these organisms 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 patients infected with these pathogens. However, recently highly resistant and increasingly 'untreatable' Gram-negative organisms such as Klebsiella pneumoniae - part of the carbapenem resistant Enterobacteriacea ("CRE") family, Pseudomonas aeruginosa and Acinetobacter baumannii have been creating major clinical issues for hospitals, and particularly intensive care units, around the world.
There is increasing evidence that bacteria will readily form a biofilm structure both in the environment as well as in wounds. A biofilm is a group of micro-organisms (such as bacteria) in which cells stick to each other on a surface. There is also scientific evidence that bacteria which have adopted a biofilm structure can be up to 1,000 times more resistant to antibiotics and/or disinfectants than the same bacteria in the single-cell planktonic form. Further, biofilms have been shown to contribute strongly to wounds not healing, which then become chronic wounds. Bioquell is increasingly targeting its HPV and BioxyQuell ("BxQ") peroxy chemistry technology towards biofilms.
We have developed and are extending our product offering in the healthcare sector to help hospitals cope with the eradication of pathogens in the environment using HPV. We also provide single rooms designed to reinforce standard infection control measures, improve patient flows and facilitate the 'bioquelling' of bed spaces using our ICE-pod system. Our BxQ (aqueous oxygen peroxide) technology is designed to disrupt biofilms in chronic wounds (which may themselves become infected with antibiotic resistant organisms).
Significant role of the regulators
Our 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.
In the Life Sciences sector the US Food & Drug Administration ("FDA") is becoming increasingly demanding around the world, for example recently banning a large Indian pharmaceutical company from exporting pharmaceutical products into the United States due to repeated regulatory violations. Further changes to the Food, Drug and Cosmetic Act in the USA are forcing changes in the way that compounding pharmacies prepare sterile drugs. Given the increasing number of biologically active or sensitive drugs on the market, regulatory oversight is only likely to become more onerous in the future.
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, together with the concomitant costs, associated with HAI. These regulators are able to impose economic sanctions on hospitals with inadequate measures for the prevention of HAI.
Evolving business model
Until recently Bioquell's business model, particularly in the Life Sciences sector, was largely predicated on equipment sales with few associated consumable revenues. However, we have been working since 2010 to reduce the proportion of our equipment-related revenues and to increase the proportion of recurring revenues in our business. These recurring revenues are associated with our ICE-pod rental business, higher margin consumables (comprising hydrogen peroxide consumables as well as biological & chemical indicators) and the expansion of our specialist Room Bio-Decontamination Service (RBDS). All new HPV-related products have been engineered to incorporate the use of a captive hydrogen peroxide consumable. We have also made good progress in securing the necessary regulatory approvals for the sale of our hydrogen peroxide consumables in a number of territories around the world and we have also put in place the supply chain to manage the delivery of these consumables to our international customer base.
Historically our strategy and growth was developed around the use of HPV to eradicate micro-organisms. However, over the last two years in addition to introducing new products with captive consumables, we have reduced our reliance on HPV by developing products such as the QUBE and the ICE-pod. These products incorporate novel manufacturing techniques developed at our facilities in Andover.
Market dynamics
Our strategy is to promote the use of Bioquell's technology to solve a broad range of micro-organism related problems for customers in the Life Sciences and Healthcare sectors. The markets are large, international and growing. Microbial-related problems are becoming more challenging, largely due to increasing antibiotic resistance and a better understanding of the role of biofilms. Many new, on-patent (and hence high margin) drugs are susceptible to bioburden contamination which can create patient safety and regulatory compliance problems. Moreover, the international regulators are becoming more robust in enforcing the relevant regulations.
In implementing this strategy we encounter a number of challenges, including that:
· many of our customers are highly conservative, adopt new technologies slowly and are generally resistant to change;
· particularly in large organisations, many customers find it easier and, in many cases, lower risk to 'do nothing';
· in the Life Sciences sector, the research market is becoming more fragmented as 'big-pharma' does less research itself and it can be harder to access the smaller research organisations; and
· in the Healthcare sector, many customers are extremely reluctant to discuss the scale of their antibiotic resistant problems due to the potentially substantial adverse effect on their businesses. 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 marketing and selling challenges for us.
Life Sciences sector
Demand for pharmaceutical products continues to grow, driven by an aging population and the increasing wealth of countries in the emerging markets. This growth is being seen in research & development, clinical trials and production in the Life Sciences sector.
Aseptic manufacture of bio-pharmaceutical products
In the last century pharmaceutical products typically comprised small molecules which did not need to be prepared under sterile (otherwise known as 'aseptic') conditions. Subsequently as more complex pharmaceutical products were launched onto the market, demand evolved for terminal sterilisation, in which the product was sterilised at the end of the manufacturing process using steam sterilisation or other techniques including gamma irradiation and ethylene oxide. Today many of the high margin on-patent bio-pharmaceutical drugs require aseptic production which essentially means that all aspects of the drug manufacturing process have to be carried out under sterile conditions. This has been an important and increasing driver of demand for Bioquell's HPV technology in the Life Sciences sector over the last decade.
The need for aseptic manufacture of bio-pharmaceutical products has also resulted in heightened, international regulatory oversight. For example, the regulators require manufacturers to introduce sterility test procedures which are used to help demonstrate the sterile manufacture of each product batch. Bioquell's recently launched QUBE aseptic work station is able to incorporate market-leading sterility test equipment. The requirement for sterility testing has already been shown to be an important driver of growth for QUBE sales.
Many new personalised medicine products which incorporate stem cell, gene or cell culture therapies require aseptic research and manufacturing equipment. These new therapies are beginning to drive demand for Bioquell's novel bio-decontamination products.
Bioquell's products and technologies for the Life Sciences sector
Bioquell's HPV technology is able to eradicate micro-organisms in rooms or on equipment without leaving any chemical residues at the end of the process and at ambient pressure and temperature. At the end of the cycle the peroxide is broken down to water vapour and oxygen using specialist catalytic filters, or is exhausted to atmosphere. The process has been shown to be compatible with electronic equipment. The level of micro-organism reduction is significant: Bioquell's HPV bio-decontamination process is tested using the same micro-organism challenge used to validate steam sterilisers.
Over recent years it has become clear that having novel and highly efficacious 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 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") which have been developed to optimise the HPV process, including their use with 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 selling equipment and to increase the proportion of recurring revenues, both by the sale of services and consumables. 2013 was the first year of sales of BIs and CIs and we saw strong growth in this new high margin product line with a number of customers purchasing batches for evaluation and testing. We expect further strong growth in the sale of these consumables in 2014.
2013 was the first year of sales for the QUBE, a novel aseptic work-station which incorporates Bioquell's HPV technology. The QUBE exploits composite materials and novel manufacturing processes as well as incorporating a modular design, enabling the customers to configure the QUBE to match their process requirements. The design philosophy behind the QUBE is to enable customers to benefit from a flexible but simple-to-use work-station which can be rapidly validated for regulatory purposes by embedding significant complexity into each standard QUBE module. Orders for the QUBE have been encouraging with demand from around the world, including India, Brazil, USA and Japan as well as Europe.
Healthcare
Bioquell's healthcare strategy is to provide technology-based solutions which help hospitals reduce their HAI rates and combat the significant issues associated with antibiotics becoming less effective due to bacterial resistance.
Background
Up until about a decade ago most scientists and members of the medical profession believed that:
i. the bacteria responsible for HAI died rapidly when removed from a source of nutrients; and
ii. the biologically-contaminated hospital environment did not contribute to the spread of HAI (in part due to the belief that most bacteria did not survive for long in an environment devoid of nutrients).
Bioquell has invested significant time and research resources working with a number of leading international hospitals and associated Key Opinion Leaders to demonstrate that both of the above, inter-connected points are unfounded. For example, there is now clear evidence that bacteria responsible for HAI can survive in the inanimate hospital environment for many months. Equally, eradicating such bacteria from the hospital environment can result in a reduction in the HAI rate. A recent research paper1 (1 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 of becoming infected with a multi-drug resistant organism.
ICE-pod: Infection Control Enclosure
Notwithstanding the numerous academic publications supporting the use of Bioquell's HPV technology to reduce HAI rates, it became clear that a significant number of our potential customers would encounter practical difficulties using our HPV technology due to the widespread use of multi-bed units (commonly known in the UK as 'Nightingale wards'). Multi-bed units are common in the UK and also in the emerging markets, particularly within ICUs where they have also been associated with high HAI rates.
Bioquell's HPV technology needs to be deployed in an enclosed space. Therefore in order to facilitate more widespread 'bioquelling' of bed-spaces, at the beginning of 2013 we launched the Infection Control Enclosure pod ("ICE-pod") as a rental-based service product, focussing initially on the UK (NHS) market. The ICE-pod system comprises an individually tailored enclosure which can be easily installed around a bed space. We have worked closely and collaboratively with early adopters in the NHS to understand better how the ICE-pod can be used optimally within UK hospitals. Following this feedback we have refined the way we promote and sell the ICE-pod to hospitals as well as implementing additional key design features.
Whilst it is difficult to predict accurately adoption rates of new technology in the NHS, based on an ongoing dialogue with a range of NHS hospitals and a number of new ICE-pod orders from existing ICE-pod customers, we view the outlook for this product positively. We are also beginning to see demand for the ICE-pod from overseas hospitals.
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 (sometimes known as CPEs).
In most countries in the emerging markets there have been many years of poor stewardship (and hence misuse) of antibiotics resulting in the emergence of widespread antibiotic resistance from bacteria. Particularly dangerous is the growing pan-resistance of some Gram-negative organisms such as Klebsiella pneumoniae. In addition, due to the prevalence of intercontinental air travel there have been numerous cases of patients from emerging market being admitted to North American and European hospitals with the associated introduction of highly resistant strains of bacteria. Air travel brings with it the risk that these highly resistant (and in some cases untreatable) strains of bacteria will spread rapidly around the world.
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 theoretical threat. Today we are seeing patients with these problems being admitted to acute care hospitals in a number of large US and European cities. In parallel there is increasing recognition of the threat by governments around the world. The British government's Chief Medical Officer, Dame Sally Davies, has recently written a book entitled: "The drugs don't work - a global threat" in order to try and highlight the scale and severity of the threat posed by the loss of viable antibiotic therapies.
The economics of antibiotic resistance
Although some of the latest, on-patent antibiotics can be expensive, the principal cost associated with HAI is the extended length of stay associated with 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 equivalent patients who do not contract a HAI.
In addition, fully functioning and effective ICUs remain key to the revenues of most large, acute care hospitals. Complex surgery and advanced cancer treatments 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 Gram-negative bacteria can severely and adversely affect patient care which may also 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. So an extended length of stay for a patient who contracts HAI in an ICU setting can readily cost the healthcare system tens of thousands of US dollars. A debate is beginning to occur 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.
In addition, in some countries the regulators are imposing significant fines relating to HAI.
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 now has regulatory approval in the EU allowing us to work 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 becoming 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, leading to their becoming chronic wounds.
We believe there are substantial opportunities for our BxQ technology as it appears to be efficacious against biofilms and assists in the treatment of chronic wounds. Such wounds can themselves be infected with antibiotic resistant Gram-negative bacteria. We have generated encouraging efficacy data relating to BxQ from a pilot trial and a Randomised Controlled Trial, the data from which has been accepted in principle for publication in a scientific journal.
During 2013 we examined commercialising the BxQ system in the field of venous leg ulcers ("VLUs") in the UK. The successful treatment of VLUs is a significant problem for the NHS and Local Authorities across the UK, however we have established that at the current time the reimbursement regime and tariffs associated with treating VLUs within the NHS do not facilitate the adoption of a novel treatment technology such as that provided by our BxQ system.
Based on discussions with clinicians it is clear that there are a number of chronic wounds which are adversely affected by biofilms and where the current treatment options are costly and unsatisfactory. Accordingly we are currently working on commercialising BxQ around other chronic wounds. In particular there are serious wounds developed by a substantial number of diabetics which are difficult to treat and which lead to further unpleasant clinical consequences for the patient. Early investigations lead us to believe that treatment of these patients provides an opportunity for BxQ to be validated on a profitable basis to provide a solution for a significant unmet clinical need. Moreover, there is significantly greater funding available in the NHS for the treatment of diabetic patients as compared to patients with VLUs.
Defence
Our defence business uses specialist filtration systems and other engineering solutions to provide Chemical, Biological, Radiological and Nuclear ("CBRN") filtration systems as well as environmental control systems, which together are referred to as collective protection ("COLPRO").
In 2011 we were awarded a development contract for the COLPRO system for the new British Army armoured personnel carrier for which General Dynamics, a large US defence group, is the prime contractor. We now expect this development contract to be completed during 2014. Assuming that vehicle trials by the Army are successful then we would anticipate manufacturing contracts for COLPRO systems to follow approximately 18 months thereafter.
We have a number of other defence contracts which are expected to be manufactured and invoiced during 2014.
TRaC DIVISION
TRaC is the Group's Testing, Regulatory and Compliance division, comprising six well-equipped facilities across the UK as well as a small number of technical experts located in China.
TRaC is also one of only three National Certification Bodies in the UK and also has its own "TRaC" mark.
The core part of TRaC's business comprises environmental (principally vibration and shock), electromagnetic (usually referred to as EMC), safety, explosive atmospheres, radio and telecoms testing.
Most of TRaC's largest clients are currently in the military and/or aerospace sector, as these clients need to comply with specific and often onerous test regimes. The majority of TRaC's clients are UK-based, however many of our large aerospace clients have substantial export revenues which allows TRaC significant indirect exposure to export markets.
In many markets there is a trend for the regulators to make the regulations more demanding. For example in 2014 the new European EMC directive will come into effect which is likely to help generate incremental revenues for TRaC. Against this backdrop of more onerous test requirements, over recent years TRaC has invested strategically in purchasing new specialist test equipment in order to be able to provide its large blue-chip, multi-national clients high quality test data rapidly. This selective investment has helped TRaC secure other related test work from such clients. We have also established dedicated test cells in our facilities around the UK for certain large blue-chip clients with substantial volumes of complex test work.
Since TRaC was formed in 2005 we have invested significant sums in our UK testing facilities which now comprise impressive centres of excellence with highly trained experts, modern (and in some cases unique) test equipment, including a number of dedicated, highly specialist client test cells. These TRaC facilities also represent a significant barrier to entry as the costs of replicating TRaC's facilities would be very substantial and essentially uneconomic for a new entrant to the market.
The well distributed geographic location of TRaC's facilities throughout the UK (the North West, North East, Midlands and the South of England) has helped us secure new clients who tend to want to minimise the travel time and related costs for their engineers.
Complementary non-testing consulting activities
In addition to our traditional testing business, we are beginning to expand our services into other complementary service offerings, including:
· early stage qualification (ESQ) - where we assist clients at an early stage in their product development in order to help them maximise their chances of passing specific test requirements;
· regulatory compliance - where we help clients navigate specific regulatory challenges which they are likely to encounter with new product development; and
· approvals and certification - where we help clients obtain the necessary compliance certificates for new products which enable them to start selling in markets around the world.
Over recent years we have also expanded our expertise in telecoms, radio and wireless technologies. For example, we are a world-leader in Zigbee testing and approvals. As a result we are seeing demand for our expertise internationally, including in China.
In the future we are planning to generate an increasing proportion of TRaC's revenues from non-testing activities which do not require investment in additional expensive test equipment.
Sector focus - and sector-related opportunities
TRaC is already strong in the aerospace and defence sectors. However, there are a number of sectors in the UK and overseas where we are seeing specific growth opportunities such as the energy sector and in healthcare.
Mobile health - sometimes referred to as m-Health or e-Health - represents a significant opportunity for TRaC. In order to mitigate the costs for healthcare systems of admitting patients to hospital, there are a number of technology companies developing devices which monitor patients' health and/or specific conditions remotely. Such systems have to comply with a number of different international regulatory regimes including for example, the regulations governing medical devices as well as those governing wireless communications.
Challenges
TRaC has shown good growth in recent years and is now widely recognised to have developed a leading position in the UK market. In order to continue to grow we are looking to expand our consulting revenues in the UK and internationally, particularly based around advisory services before formal testing commences.
We are seeing demand for certification and approvals services from Chinese clients who wish to sell products into markets such as in the USA and Europe. We are also seeing demand from clients in the developed markets for certification and approval services wishing to sell products into China. As a result of this demand we are expanding our team of experts in China. We also believe that there will be demand for many of these certification and approval services in the USA. Accordingly we are starting to expand our non-test activities into these two large markets.
Although the expansion of TRaC's activities away from its conventional business of UK-based testing using specialist equipment testing towards more consultancy-type international activities is not without risk, it does have the potential to increase substantially the size of TRaC's potential markets in business streams which are complementary to TRaC's core specialist testing business.
Conclusion
The Group has robust strategies in place to generate attractive organic growth. Life Sciences remains key to the profitability of the Bio division; however, the increasing problems that hospitals are facing with antibiotic resistance represent a substantial opportunity for our Healthcare business. TRaC is taking the key steps necessary to extend its activities beyond its original UK specialist testing business to secure additional profitable growth.
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. | |
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. | |
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'. | |
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. | |
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. 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 and counter the risk posed by competitor lobbying . | |
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. | |
BioxyQuell. The Bio division has spent approximately £2 million developing novel peroxy-chemistry based wound care technology which has interesting applications for chronic wounds which comprise a large market. This technology is complementary to Bioquell's hydrogen peroxide vapour technology as chronic wounds can be infected by highly antibiotic resistant pathogens. However, the commercialisation of, and adoption rates for, new healthcare technologies can be slow - particularly when sold into the NHS. | The Group is working carefully to identify not only potential clinical applications for this technology but also understand better the underlying reimbursement and/or tariffs associated with the treatment of different chronic wounds. The Group is spending more time on analysing the differing economics and payments associated with chronic wounds and is adjusting its commercialisation strategy for BxQ accordingly. | |
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.
|
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 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 Group's full Annual Report and Accounts for the year ended 31 December 2013, 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 2014 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 2013
Notes | 2013 £'000 | 2012 £'000 | |
Revenue | 2 | 44,637 | 40,995 |
Cost of sales | (24,034) | (21,360) | |
Gross profit | 20,603 | 19,635 | |
Gross profit margin | 46% | 48% | |
Operating expenses: | |||
Sales & marketing costs | (8,329) | (7,505) | |
Administration costs | (6,344) | (5,337) | |
R&D and engineering costs | (3,027) | (2,595) | |
Profit from operations | 4 | 2,903 | 4,198 |
Investment revenues | 302 | 2 | |
Finance costs | (124) | (247) | |
Profit before tax | 3,081 | 3,953 | |
Tax | 5 | (30) | 41 |
Profit for the year | 9 | 3,051 | 3,994 |
Earnings per share - basic | 6 | 7.3p | 9.6p |
- diluted | 7.2p | 9.5p |
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 2013
2013 £'000 | 2012 £'000 | |
Net profit for the year | 3,051 | 3,994 |
Exchange differences on translation of foreign operations* | (37) | 32 |
Total recognised income | 3,014 | 4,026 |
* May be reclassified subsequently to profit or loss in accordance with IFRS.
consolidated bALANCE SHEET
as at 31 December 2013
Notes | 2013 £'000 | 2012 £'000 | |
Non‑current assets: | |||
Goodwill | 691 | 691 | |
Other intangible assets | 13,318 | 11,906 | |
Property, plant & equipment | 14,788 | 13,817 | |
Deferred tax assets | 175 | 175 | |
28,972 | 26,589 | ||
Current assets: | |||
Inventories | 2,512 | 2,752 | |
Trade and other receivables | 9,832 | 10,057 | |
Derivative financial instruments | 293 | - | |
Current tax asset | - | 235 | |
Cash and cash equivalents | 7 | 3,550 | 3,010 |
16,187 | 16,054 | ||
Total assets | 45,159 | 42,643 | |
Current liabilities: | |||
Trade and other payables | (7,370) | (7,780) | |
Derivative financial instruments | - | (9) | |
Current tax liabilities | (75) | - | |
Borrowings | (224) | (105) | |
Provisions | (77) | (76) | |
Net current assets | 8,441 | 8,084 | |
Non‑current liabilities: | |||
Deferred tax liabilities | (2,845) | (2,975) | |
Other non‑current liabilities | (1,309) | (968) | |
Total liabilities | (11,900) | (11,913) | |
Net assets | 33,259 | 30,730 | |
Equity: | |||
Share capital | 8 | 4,243 | 4,179 |
Share premium account | 712 | 210 | |
Equity reserve | 1,892 | 1,736 | |
Capital reserve | 255 | 255 | |
Translation reserve | (113) | (76) | |
Retained earnings | 9 | 26,270 | 24,426 |
Equity attributable to equity holders of the Company | 33,259 | 30,730 |
Consolidated statement of changes in equity
for the year ended 31 December 2013
2013 £'000 | 2012 £'000 | |
Profit for the year | 3,051 | 3,994 |
Exchange differences | (37) | 32 |
Total comprehensive income in the year | 3,014 | 4,026 |
Other movements in the year: | ||
Issued share capital | 64 | 4 |
Issued share premium | 502 | 42 |
Credit to equity reserve for share‑based payments | 231 | 235 |
Movement in deferred tax charged to equity | - | 6 |
Final dividend for year ended 31 December 2012/2011 | (1,282) | (1,182) |
Net increase in equity shareholders' funds | 2,529 | 3,131 |
Equity shareholders' funds at beginning of year | 30,730 | 27,599 |
Equity shareholders' funds at end of year | 33,259 | 30,730 |
Consolidated cash flow statement
for the year ended 31 December 2013
Note | 2013 £'000 | 2012 £'000 | |
Net cash from operating activities | 10 | 7,506 | 6,015 |
Investing activities | |||
Proceeds on disposal of property, plant and equipment | 24 | 57 | |
Purchases of property, plant and equipment | (3,940) | (3,109) | |
Expenditure on product development | (2,270) | (3,086) | |
Purchase of intangible asset | (494) | (792) | |
Net cash used in investing activities | (6,680) | (6,930) | |
Financing activities | |||
Proceeds on issue of ordinary shares | 566 | 46 | |
Dividends paid on ordinary shares | (1,282) | (1,182) | |
Repayment of borrowings | (135) | (104) | |
New bank loans raised | 595 | - | |
Net cash used in financing activities | (256) | (1,240) | |
Net increase/(decrease) in cash and cash equivalents | 570 | (2,155) | |
Bank cash at beginning of year | 3,010 | 5,179 | |
Effect of foreign exchange rate changes | (30) | (14) | |
Bank cash at end of year | 3,550 | 3,010 |
notes to the RESULTS
for the year ended 31 December 2013
1. Basis of preparation
The financial information in this announcement has been extracted from the financialstatements for the year ended 31 December 2013 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and International Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
During the year, the Group has applied IFRS 13 'Fair value measurement', IFRS7 (amended) 'Disclosures - Offsetting Financial Assets and Financial Liabilities', IAS 1 (amended) 'Presentation of Items of Other Comprehensive' and IAS 12 (amended) 'Deferred Tax: Recovery of Underlying Assets'. The Group has also early adopted IAS 36 (amended) 'Recoverable Amount Disclosures for Non-Financial Assets'. 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 2012 and have been applied consistently throughout the years ended 31 December 2012 and 2013.
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 2013 or 2012 for the purpose of section 435 of Companies Act 2006, but it is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting on 19 May 2014. The auditors' report on both the 2012 and 2013 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:
2013 £'000 | 2012 £'000 | |
Sales of goods | 17,704 | 15,828 |
Revenue from the rendering of services | 26,933 | 25,167 |
44,637 | 40,955 | |
Interest | - | 2 |
44,637 | 40,957 |
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 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 |
3. Business and geographical segments CONTINUED
Assets and liabilities are allocated to reportable segments.
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 |
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 2012 | Bio £'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 |
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.
3. bUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
Balance sheet as at 31 December 2012 | Bio £'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 |
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 2013 £'000 | Year ended 31 December 2012 £'000 |
UK | 20,165 | 18,543 |
Rest of Europe | 8,816 | 8,584 |
Rest of World | 15,656 | 13,868 |
44,637 | 40,995 |
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 equipmentand intangible assets | ||||
Year ended 31 December 2013 £'000 | Year ended 31 December 2012* £'000 | Year ended 31 December 2013 £'000 | Year ended 31 December 2012 £'000 | ||
UK | 26,259 | 24,039 | 6,313 | 6,734 | |
Rest of Europe | 2,249 | 2,248 | 65 | 103 | |
Rest of World | 464 | 302 | 331 | 153 | |
28,972 | 26,589 | 6,709 | 6,990 | ||
*2012 assets restated to show non-current assets only
4. Profit from operations
Profit from operations has been arrived at after charging/(crediting):
2013 £'000 | 2012 £'000 | |
Research & development costs | 1,613 | 1,297 |
Depreciation of property, plant and equipment | 2,906 | 2,664 |
Amortisation of development costs | 1,127 | 947 |
Amortisation of trademarks, patents and licence fees | 223 | 178 |
Cost of inventories recognised as an expense | 6,933 | 7,154 |
Staff costs | 19,988 | 19,265 |
Loss on disposal of property, plant and equipment | 55 | 2 |
Net foreign exchange costs/(gains) | 107 | (190) |
4. Profit from operations CONTINUED
A more detailed analysis of auditors' remuneration is provided below:
2013 £'000 | 2012 £'000 | |
Fees payable to the Company's auditors for the audit of the Company's annual accounts | 30 | 29 |
Fees payable to the Company's auditors for the audit of the subsidiaries pursuant to legislation | 104 | 96 |
Total audit fees | 134 | 125 |
Audit related assurance services | 6 | 4 |
Taxation compliance services | 17 | 19 |
Total non‑audit fees | 23 | 23 |
5. Tax
2013 £'000 | 2012 £'000 | |
UK corporation tax current year | (184) | (19) |
UK corporation tax prior year | 24 | 176 |
Deferred tax charge current year | 227 | (235) |
Deferred tax adjustment prior year | (97) | 119 |
(30) | 41 |
Corporation tax is calculated at 23.5% (2012: 24.5%) 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:
2013 £'000 | 2012 £'000 | |
Profit before tax | 3,081 | 3,953 |
Tax at the UK corporation rate of 23.5% (2012: 24.5%) | (724) | (968) |
Adjusted for: | ||
Tax effect of expenses not deductible in determining taxable profit | (108) | (107) |
Effect on deferred tax asset of movement in share price | (39) | 40 |
Effect of research and development relief | 671 | 420 |
Tax effect of different tax rate of subsidiaries operating in other jurisdictions | 10 | 74 |
Deferred tax not recognised on other timing differences | (159) | (92) |
Prior year adjustment | (73) | 295 |
Recognition of tax losses | - | (7) |
Effective change in tax rate | 392 | 386 |
(30) | 41 |
Nothing was charged directly to equity (2012: credit to equity of £6,000). The prior year credit related to the estimated excess tax deductions related to share‑based payments.
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 2013 £'000 | Year ended 31 December 2012 £'000 |
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 3,051 | 3,994 |
Number of shares | Year ended 31 December 2013 £'000 | Year ended 31 December 2012 £'000 |
Weighted average number of ordinary shares for the purposes of basic earnings per share | 41,920,410 | 41,762,635 |
Effect of dilutive potential ordinary shares: | ||
- share options | 576,681 | 428,345 |
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 42,497,091 | 42,190,980 |
7. ANALYSIS OF NET CASH
2013 £'000 | 2012 £'000 | |
Cash and cash equivalents | 3,550 | 3,010 |
Bank loan - due within one year | (224) | (105) |
- Due after one year | (1,309) | (968) |
2,017 | 1,937 |
The fair value of the financial liabilities is approximately equal to book value due to the short maturity of the liabilities or because they bear interest at rates similar to the market rate.
8. Share capital
2013 | 2012 | |||||
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 | 42,432,427 | 4,243 | 41,793,949 | 4,179 | ||
4,243 | 4,179 | |||||
During the year the Company issued a total of 638,478 ordinary shares of 10p each for £566,000 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 2012 | 21,593 |
Net profit for the year | 3,994 |
Payment of dividend | (1,182) |
Exercised share options | 21 |
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 31 December 2013 | 26,270 |
10. Notes to the cash flow statement
2013 £'000 | 2012 £'000 | |
Profit from operations | 2,903 | 4,198 |
Adjustments for: | ||
Depreciation of property, plant and equipment | 2,888 | 2,664 |
Amortisation and impairment losses of intangible assets | 1,351 | 1,125 |
Share‑based payments | 231 | 235 |
Loss on disposal of property, plant and equipment | 55 | 1 |
Increase/(decrease) in provisions | 1 | (17) |
Operating cash flows before movements in working capital | 7,429 | 8,206 |
Decrease/(increase) in inventories | 240 | (1,482) |
Decrease/(increase) in receivables | 99 | (658) |
(Decrease)/increase in payables | (288) | 540 |
Cash generated by operations | 7,480 | 6,606 |
Investment revenues | - | 2 |
Interest paid | (124) | (58) |
Income taxes received/(paid) | 150 | (535) |
Net cash from operating activities | 7,506 | 6,015 |
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. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidationand 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.
2013 £'000 | 2012 £'000 | |
Short‑term employee benefits | 816 | 766 |
Post‑employment benefits | 81 | 79 |
Share‑based payments | 79 | 79 |
976 | 924 |
12. 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 7 April 2014 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.