20 Mar 2012 07:00
20 March, 2012
Bioquell PLC
2011 preliminary results
Bioquell PLC (LSE: BQE) - provider of patented, low temperature, environmentally-friendly bio-decontamination technologies to the Life Sciences, Healthcare and Defence sectors; and specialist testing and compliance services in the UK via its TRaC division - announces its preliminary results for the year ended 31 December, 2011.
HIGHLIGHTS
Financial
§ Group revenues up 5% to £41.3 million (2010: £39.4m)
§ Pre-tax profit up 52% to £5.0 million (2010: £3.3m)
§ Earnings per share up 60% to 9.3 pence (2010: 5.8p)
§ Exports as a proportion of Group revenues: 57% (2010: 57%);exports as a proportion of Bio-decontamination division revenues: 78% (2010 : 77%)
§ Net cash £4.0 million (2010: £4.8m)
§ Proposed dividend increased by 8% to 2.83 pence per share (2010: 2.62p)
Operational
§ Continued increase in export sales in the Life Sciences division with strong growth from Asia - particularly China - and Latin America
§ Increase in healthcare revenues, particularly in the second half
§ Encouraging increase in defence order book
§ Good progress on new product development with a number of product launches due in 2012
§ European regulatory approval for BioxyQuell - the Group's wound-care system
§ Robust performance from TRaC - with investment in new facilities in the North West and South of England now completed
Commenting on the preliminary results, Nigel Keen, Chairman of Bioquell PLC said:
"We ended the year strongly - with particularly good performance from our Asian operations."
"We made good progress in the year with our new product development initiatives - with a number of new products to be launched later this year. These new products have been designed to generate greater recurring revenues from service, rental and consumable revenues."
"TRaC turned in an impressive performance in 2011 despite the distraction of relocating and refurbishing two new facilities. TRaC is also well positioned for further growth."
For further information:
Bioquell PLC - 01264 835 900
Nigel Keen, Chairman
Nick Adams, Group Chief Executive
Mark Bodeker, Chief Operating Officer and Finance Director
**********************************
Notes to editors:
§ Bioquell is a UK-headquartered, international technology company with two divisions:
o Bio-decontamination which sells specialist bio-decontamination products and services into the Life Sciences, Healthcare and Defence sectors, with approximately three-quarters of its revenues generated from overseas customers; and
o TRaC which provides specialist Testing, Regulatory and Compliance services principally to UK corporates involved in new product development.
§ Bioquell's bio-decontamination technology is based around hydrogen and oxygen peroxide. For example, hydrogen peroxide vapour is highly efficacious at eradicating micro-organisms such as bacteria, viruses and fungi at room temperature - and is subsequently broken down using specialist catalysts to water vapour and oxygen at the end of the bio-decontamination process.
§ Bioquell's bio-decontamination technology:
o is used by bio-pharmaceutical, biotechnology and research institutions to provide sterile equipment and/or sterile working environments;
o provides bio-security to research and manufacturing facilities;
o is used to eradicate "superbugs" from hospitals. Independent published scientific research has demonstrated that 'bioquelling' hospital equipment and facilities reduces significantly the rates of hospital acquired infection;
o has been incorporated in a wound-care product - BioxyQuell - which has received European regulatory approval;
o was selected by the United States Department of Defense for the JSSED programme to decontaminate sensitive equipment against biological and chemical warfare agents; and
o is also used in other sectors where bioburden can create significant problems including, for example, the food industry.
§ Bioquell currently has overseas operations in the USA, France, Ireland, Singapore, China and Brazil.
§ TRaC sells its specialist services to the research and product development departments of a broad range of companies, principally based in the UK, with a particular focus on aerospace, military and telecoms clients.
§ A copy of the Annual Report and Accounts will be made available to shareholders on 12 April 2012 either by post or on-line at www.bioquellplc.com and will be available to the general public on-line or on written request to the Company's registered office at 52 Royce Close, West Portway, Andover, Hampshire, SP10 2TS.
§ This announcement contains certain forward-looking statements which have been made by the Directors in good faith using information available to them up to the date at which they approved the announcement. Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future. Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.
Chairman's statement
Overall the Group performed well during the year, despite some challenging market conditions in certain territories. Pre-tax profits were up 52% to £5.0 million (2010: £3.3 million) on flat orders of £44.5 million (2010: £44.8 million) and revenues up 5% to £41.3 million (2010: £39.4 million). Basic earnings per share increased by 60% to 9.3 pence (2010: 5.8 pence).
Revenues in the Bio-decontamination ("Bio") division were up slightly to £27.7 million (2010: £ 27.0 million). TRaC - the Group's specialist testing, regulatory and compliance division - saw its revenues increase by 10% to £13.6 million (2010: £12.4 million).
Good progress was made in the year executing our strategic plans with significant investment in new product development for the Bio division totalling some £2.0 million (2010: £1.4 million) and capital investment totalling £4.0 million (2010: £2.7 million), principally for two new facilities, for the TRaC division. We ended the year with a strong balance sheet comprising net cash of £4.0 million (2010: £ 4.8 million) and net assets of £ 27.6 million (2010: £24.6 million).
During 2011 both of the Group's principal divisions - Bio and TRaC - successfully developed their businesses - with a particular emphasis on improving their business models and quality of earnings. For example, the Bio division is planning a number of new product launches in 2012; and the TRaC division now enjoys a network of six well-invested and high quality facilities across the UK which positions the division for further growth.
We expect significant organic, international growth from the Bio division, which principally uses peroxy chemistry to eradicate germs:
§ the Life Sciences sector continues to expand globally - particularly in the emerging economies - with continuing investment by the large, multi-national pharmaceutical groups in the higher margin, patent-protected biologically derived drugs;
§ there are interesting opportunities for Bioquell in the hospital pharmacy sector in part linked to the increasing usage of intravenous drugs;
§ in the Healthcare sector there are substantial opportunities relating to the use of Bioquell's technology to combat the spread of multi-drug resistant (and in some cases untreatable) bacteria which create major clinical issues for hospitals around the world. However, there is a tendency for slow adoption of new technology by the medical profession which is further complicated by the general reluctance of hospitals to discuss the sensitive, and sometimes complex, issue of 'Hospital Acquired Infection';
§ we are encouraged by the prospects for BioxyQuell, our wound-care system, particularly now that it has received regulatory approval by the European regulators; and
§ we see interesting international opportunities for our defence business as our Chemical, Biological, Radiological and Nuclear filtration and Environmental Control Systems business is performing strongly. This has offset the current reduction in investment by the United States' Department of Defense relating to the use of our hydrogen peroxide vapour technology to eradicate chemical and biological warfare agents following US Government budget cuts.
TRaC continues to perform well, has world class facilities and is growing consistently reflecting the strength of the product development programmes being undertaken by UK-based technology companies, particularly in the aerospace, military and telecoms sectors.
The Group has a number of substantial international commercial opportunities which we expect to develop further. At the same time we are continuing to migrate the Group's business model from one which is dependent on capital equipment sales to one which has a high degree of recurring revenues, generated predominantly from rental, service and consumable cartridge sales. We are expecting to make further good progress on this change in business model during 2012.
Your Board is recommending the payment of a final dividend of 2.83 pence per share (2010: 2.62 pence), representing an increase of 8%. The final dividend will be payable on 2 July, 2012 to shareholders on the register on 8 June, 2012. Bioquell PLC currently does not pay interim dividends and it is the Board's current intention only to propose the payment of a final dividend each year.
I would like to take this opportunity to thank all the Group's talented employees for their hard work during the year.
Prospects and outlook
The Group is well positioned for continued organic growth in 2012.
In the Bio division we have been investing substantial resources in developing new products with captive secondary revenues, rental products, new services and new consumables - many of which will be launched in 2012 into large, international markets.
At the same time TRaC now comprises six fully-invested sites across the UK and is making good progress on expanding the services it offers to engineering and technology companies, principally in the UK.
We have a strong balance sheet and substantial financial resources to enable us to execute on our ambitious growth plans.
Nigel Keen
Chairman
Bioquell PLC
20 March, 2012
Business REVIEW
The Bioquell Group comprises two divisions:
§ the Bio-decontamination ("Bio") division; and
§ TRaC: the Testing, Regulatory and Compliance division.
BIO DIVISION
The Bio division has developed sophisticated bio-decontamination technology, protected by a number of granted or pending international patents, which exploits the biocidal powers of hydrogen peroxide vapour ("HPV") and aqueous oxygen peroxide ("AOP"). These peroxides swiftly inactivate micro-organisms - bacteria, viruses and fungi - and the peroxides are then rapidly converted to water and/or oxygen using specialist catalytic filters.
Micro-organisms are ubiquitous and their presence can create major problems for companies or organisations in a number of sectors around the world. At its simplest, Bioquell's Bio division strategy is to help companies and organisations eradicate germs at ambient temperature and pressure, using highly effective bio-decontamination technology which leaves no residues and does not harm sensitive electronic equipment. Currently the Bio division focuses on three key sectors: (i) Life Sciences; (ii) Healthcare; and (iii) Defence.
Historically the Group has generated a substantial proportion of its revenues from capital equipment sales without any associated secondary revenues from consumables or other recurring receipts. This has been unhelpful in terms of the Group's ability to predict the demand for its products accurately and this has been detrimental to the quality of the Group's earnings. To overcome this challenge, over the last three years the Bio division has been working hard to develop its product range to reduce the proportion of revenue from capital equipment sales and increase the proportion from:
§ captive consumable cartridges used with equipment designed and manufactured by the Bio division. In a number of cases RFID electronic labels are used to ensure that counterfeit 'non-Bioquell' consumables are not used with Bioquell proprietary products;
§ rental income associated with equipment (which helps facilitate the use of Bioquell's technology, including captive consumable cartridges); and
§ specialist service revenues from a range of sources including: (i) RBDS (the Group's room bio-decontamination service business); (ii) validation (used by clients to generate microbial inactivation data to satisfy various regulatory requirements); and (iii) after-sales service and support revenues.
It will take time to build up the proportion of these recurring revenues; however, a number of product launches are expected in 2012 - including products (especially new consumables) developed for the hospital pharmacy, healthcare and life sciences sectors - which will help support this strategy of expanding the proportion of secondary revenues.
The majority of the Bio division's revenues are derived from overseas sales. Given the specialist nature of the Bio division's equipment and services, the Group has typically found greater and more rapid penetration in overseas markets by establishing wholly-owned subsidiaries - as opposed to relying solely on overseas distributors. This approach gives the Group greater control but investment is required whilst the Group is expanding its international foot-print.
Life Sciences
Currently the Life Sciences ("LS") sector is responsible for a substantial proportion of the Bio division's revenues and we see increasing opportunities to sell Bioquell's equipment and services into this market.
The LS sector is large, multi-disciplinary as well as international and the number of biologically-derived drugs at advanced stages of clinical trials or already launched on the pharmaceutical market continues to increase. There are applications for Bioquell's technology at the research level - in pharmaceutical and biotech groups, and in universities - as well as at the clinical trials stage and in production facilities.
International regulators continue to show significant focus on the risks associated with biological contamination - both in products and to patients. This regulatory scrutiny generally promotes demand for the Bio division's product range.
We are seeing strong growth in Asia and Latin America in the LS sector. Part of this growth is from our existing European and North American customers who request that we support their facilities located in emerging economies by providing Bioquell products and services in these regions.
We are increasingly active in the hospital pharmacy market - which represents for us the interface between our Life Sciences and Healthcare businesses. In particular, there is increasing pressure from the regulators for all intravenous drugs to be prepared in aseptic and micro-biologically-safe environments. Some eight years ago in partnership with a "blue-chip" US multi-national customer we developed the Clarus PORT, our high end chamber used in a hospital pharmacy (or clean room) to facilitate rapidly a safe and sterile environment in which sensitive and/or intravenous drugs can be prepared. Later this year we plan to launch a product to update the PORT. This updated product also has broader applications in the sterility test and biological LS research market.
Healthcare
Although our Healthcare sector business is currently small, we believe that ultimately the size of this business should eclipse our LS business.
Hospital acquired infection
The Group has spent more than ten years carrying out research with scientists and doctors throughout the world which shows in essence that:
§ the pathogens - bacteria, viruses and fungi - which are responsible for hospital acquired infection ("HAI") can survive for long periods, sometimes many months, on equipment and other surfaces in hospitals;
§ the near-patient environment can become heavily contaminated with such HAI-pathogens; and
§ the use of Bioquell's HPV technology eradicates these HAI-pathogens and reduces HAI rates.
Although a large body of published scientific evidence supports the use of Bioquell's HPV technology to reduce HAI rates, to date we have encountered a number of challenges in achieving wide-spread international adoption of the Group's HPV technology in the healthcare setting, including:
§ HAI is an extremely sensitive issue for hospitals all around the world. Given the potential financial, PR and sometimes political issues associated with HAI, many hospitals are extremely reluctant to discuss the scale of their HAI problems with external organisations;
§ the medical profession is notoriously conservative and sceptical. Adoption rates of new technologies, particularly in the NHS, can be quite slow;
§ hospitals are typically large, complex and multi-disciplinary institutions. In many cases a significant number of parties or departments need to agree to the adoption of a new technology; and
§ many countries have open multi-bed 'Nightingale' wards. All patients have to be relocated from such units during 'bioquelling' and this is often disruptive and can be expensive.
The issues and challenges represented by HAI continue to evolve. For example, more than ten years ago MRSA was a major cause of concern in the UK. Some seven years ago Clostridium difficile started to become a significant clinical problem for UK hospitals. More recently, drug-resistant Gram-negative bacteria - such as Acinetobacter baumannii, Pseudomonas aeruginosa and Klebsiella pneumoniae - have started to cause substantial clinical issues, particularly in intensive care or other high risk units. These pathogens are beginning to cause real concern in Asia and Latin America as there is evidence that they are becoming increasingly resistant to all antibiotics. No new antibiotics effective against Gram-negative bacteria are known to be at advanced stages of clinical trials. Accordingly there is a substantial public health concern that untreatable strains of Gram-negative bacteria could spread rapidly throughout the world.
Taking into account the size of the market, as measured by the number of hospitals, and the clinical issues associated with drug-resistant bacteria, we believe that the HAI problem continues to represent a substantial opportunity for Bioquell. We are addressing the adoption-related challenges which are summarised above and which have to date limited wide-spread and/or rapid take-up of our technology, in part by continuing to remain heavily involved in conducting research with key opinion leaders around the world. In addition we intend to launch new technology later this year which should make it easier to use Bioquell's technology in large multi-bed hospital wards.
Currently we sell the Bioquell Q-10 into the healthcare sector. The Q-10 is a small system for use in hospital wards and rooms. We also provide four different bio-decontamination services: (i) emergency; (ii) scheduled; (iii) CTS (where Bioquell's owned service equipment is left at the client's site); and (iv) proactive (where a team from Bioquell plus specialist service equipment focuses on driving down the HAI rates at the customer's hospital).
Wound-care
Bioquell has developed the BioxyQuell wound-care system which uses AOP to kill microbiological organisms and aid the decontamination of chronic wounds. Chronic wounds are generally defined as being wounds which have remained unhealed for more than eight weeks. The BioxyQuell system irrigates the wound and its use has been the subject of a pilot trial as well as a randomised controlled trial in the UK focussing on venous leg ulcers. We believe that there are other clinical applications for our BioxyQuell system including diabetic wounds and decubitus ulcers (bed sores).
During 2011 we were granted regulatory approval to promote and sell the BioxyQuell system in Europe. Work is ongoing to obtain the regulatory approval needed to market this technology in the United States.
Mindful of the typically slow adoption rates with new technology in the healthcare sector, we are investing in determining how best - and with whom - to commercialise the technology. We are in discussions with various institutions in relation to a number of different business models to ensure that we develop a robust and attractive commercial model for our BioxyQuell technology (and we will not start to promote the technology on an ad hoc basis).
Defence
CBRN and environmental control systems
Bioquell has been involved in the design and manufacture of Chemical, Biological, Radiological and Nuclear ("CBRN") filtration equipment for some fifty years. Our specialist HEPA and activated-carbon based filtration technology is cost effective and highly efficacious. During the year we launched new pre-filtration equipment for military vehicles which removes dust particles and fine sand (which is often a major problem in the Middle East) and which complements our CBRN filtration range.
In addition to CBRN filtration we provide environmental control systems ("ECS") principally for military vehicles and fixed systems. These essentially comprise robust and militarised crew cooling and heating solutions.
In 2011 we were awarded a number of development contracts for our CBRN and ECS equipment - including in relation to the UK's Ministry of Defence Scout SV programme and a new vehicle for the Malaysian Government. We are in the process of responding to a number of other CBRN and ECS requests for proposals - and current activity levels in this market are high.
Decontamination of biological and chemical warfare agents
Last year the US Department of Defense ("DoD") announced that due to Government-imposed budget reductions they were cutting the funding to various Joint programmes (JMDS; JSSED; JPID) which Bioquell was or had been working on and which incorporated the use of our HPV technology to eradicate biological and chemical warfare agents.
Bioquell continues to be involved in preliminary testing of the JSSED prototypes which it developed for the DoD at the end of 2010.
TRaC DIVISION
TRaC provides specialist testing and related services to clients at six high quality and well-invested facilities located throughout the UK. The principal specialist testing services which TRaC provides comprise:
§ EMC - Electromagnetic Compatibility
§ environmental - with a particular expertise in vibration testing
§ telecoms - including wireless testing
§ radio - including ZigBee and Bluetooth
§ safety - including CE mark certification
§ ESQ - early stage qualification
Over the last seven years the Group has invested approximately £11 million in the six facilities (and associated specialist testing equipment) which now make up the TRaC division. In this period five of the six sites have been relocated to ensure that, among other things, the facilities are high quality, appropriately geographically located and reinforce TRaC's product offering of premium professional services. In addition they have been designed to provide an appropriate environment for TRaC's clients, many of which are large multi-national aerospace or defence groups. These well-invested TRaC facilities also help to ensure that we can recruit and retain the highly experienced engineers and scientists needed to provide TRaC's specialist testing services.
TRaC provides its services principally to companies or organisations involved in new product development. It does not provide a significant amount of testing services directly linked to manufacturing. For reasons of cost, convenience and efficiency clients usually prefer to send their engineers to locations close to their own research & development centres. As a result TRaC has been careful to locate its facilities close to key industry clusters in the UK. TRaC believes that this broad geographical spread complements its broad technological expertise, and gives it a powerful competitive advantage.
Generally, given the complexity of the services it is providing, TRaC does not work to a simple price list. TRaC's pricing policy depends on a number of factors including the complexity of the testing services it is being asked to provide, the capital value associated with the test equipment, the skill levels and experience needed to design and carry out the testing as well as the rarity value of the test facilities.
TRaC has been proactively developing its Early Stage Qualification ("ESQ") business for three reasons: (i) the capital expenditure needed to support the ESQ revenues is relatively low - and generally much lower than the cost of buying new test equipment; (ii) the ESQ revenues tend to be associated with added-value services which help demonstrate to clients the significant expertise and experience which TRaC can bring to bear on their product development - and help differentiate TRaC from more commoditised testing laboratory suppliers; and (iii) the costs to clients of their products failing at the testing stage can be substantial - particularly if such failure puts back the product launch or in-service date (in other words the opportunity cost to the client of a failure of a new product at the testing stage can be substantial).
TRaC has recently opened a satellite office in China as we believe that there is demand from Chinese manufacturers to obtain the necessary regulatory approvals needed to sell products into the European Union. TRaC believes that there are opportunities to work with Chinese Product Testing laboratories to provide in-country certification which would help Chinese manufacturers get products to market in the EU sooner.
Principal risks and uncertainties
The Group faces a broad number of risks and uncertainties associated with its activities. It has put in place formal risk-review structures and mechanisms to help assess and monitor such risks and uncertainties; and, as appropriate, has taken steps to mitigate the identified risks and/or uncertainties to the extent practicable. However, it is not possible to identify or anticipate all known, or unknown, risks and uncertainties; nor is it possible to mitigate all such identified risks and uncertainties.
Set out below is a summary of the principal risks and uncertainties, over and above those which are inherent with carrying out commercial activities, which your Board believes the Group faces. The description of these principal risks and uncertainties should be read in conjunction with, and considered taking into account of, the description of the activities of the Group set out elsewhere in this document and on the Group's websites.
A summary of how the Group seeks to mitigate some or all of these principal risks and uncertainties is also set out in the table below. Given the nature of these risks and uncertainties - as well as the general nature of risk implicit in any commercial activities - investors should be aware that there can be no assurances that the mitigation of such risks summarised below will be effective, in whole or in part.
Risk and/or uncertainty | Mitigation | |
Regulatory. The Group operates in a number of countries and sectors which are highly regulated. There is a risk that the relevant regulations could be changed and such changes could significantly adversely affect the Group’s business in that country or sector. Further, given the specialist nature of its activities there is a risk of jurisdictional dispute by the different regulators in a territory, as it may not always be clear which regulator has, or should have, locus over the Group’s activities. | The Group endeavours to work closely and establish a dialogue, either directly or through its third party distribution partners and/or clients, with the relevant regulators in the territories in which it operates. In addition the Group may, from time to time, engage consultants or legal advisers to help with its 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 susceptible by lobbying activities, including lobbying by the Group’s competitors to 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 governmental bodies. | |
Rapid, international growth. The Group is experiencing rapid growth in a number of the overseas markets in which it sells products or services. There are a number of risks and management challenges associated with such rapid growth in overseas territories, including the preservation of high levels of customer service and support. | In many overseas territories the Group uses third party distributors to sell and support its products which helps reduce its direct exposure to the territory – and hence helps reduce risk. The financial standing and credit limits of these distributors are, to the extent practicable, closely monitored. In overseas territories where the Group has a wholly owned subsidiary and/or employees, the Group uses a standardised approach to establish and monitor the trading activities, cash balances and delegated management authorities of these overseas subsidiaries. | |
Competition. Some of the Group’s competitors are substantially larger than the Group and have, among other things, greater financial, selling and political-lobbying resources. Accordingly there is a risk that the Group’s business could be adversely affected by actions undertaken by these large competitors. Further, although Bioquell has a number of granted or pending patents internationally, which should help to protect the key components of its intellectual property from copying, there is a risk that competitors operating from territories with poorly enforced, or enforceable, patent law/patent protection could copy, in part or in whole, Bioquell’s products or services. In addition, in certain markets in which the Group operates there is always a risk that ‘doing nothing’ is the preferred course of action taken by prospective customers – and apathy or continuing with the status quo represents a form of competitive risk for some of the Group’s new 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, execution plans and new product development depending on, among other things, competitor activities. The Group also has a significant portfolio of pending and granted patents and other intellectual property which is available to it to invoke, as appropriate. The Group has detailed marketing plans which are designed to, among other things, increase awareness of the Group’s products and services – and make it harder for prospective clients to opt to do nothing. | |
Technological. The Group is dependent on its technology – and products and services - continuing to be efficacious, cost effective and attractive to the marketplace. There is the risk that new technologies, products or services are developed by competitors which perform better or more cost effectively than those of the Group. | 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. | |
Uncertain adoption rates of new products. The Group is developing a number of new products and at the same time changing its business model from one which is significantly reliant on capital expenditure (by customers) to one which generates a significant proportion of its revenues from secondary revenues, including consumable cartridges, rental and service. Such product development and business model migration is expensive, requires resources and contains inherent uncertainty and risk. For example, there is often uncertainty as to how quickly such new products will be adopted by the market – and hence concomitant uncertainty with revenue, profit and cash generation. Accordingly the Group needs to balance carefully the amount it invests in new product development whilst ensuring it retains appropriate profitability. Moreover, it can take time to increase or decrease new product development expenditure and associated resources. | Increasingly the Group undertakes extensive ‘Voice of the Customer’ market research and seeks to develop new products (and services) closely with existing or potential customers. The close involvement of customers helps increase the Group’s confidence that such new products will be well received by the market and also provides a good basis for forecast adoption rates (and revenues). However, in reality actual adoption rates can only ever be established after a product launch. The Group helps mitigate, in part, the financial uncertainty with new product launches by ensuring that it retains large cash balances 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 result in elevated financial risk, including, but not limited to: foreign exchange exposure, credit risk and cash retention/management (together “Key Financial Risks”). | The Group has standardised, detailed monthly management reporting packs which all of its subsidiaries are required to complete. These submissions are reviewed centrally and the key points discussed at regular subsidiary or divisional management meetings. As appropriate, foreign exchange hedging is undertaken centrally. In addition, there are detailed delegated management authority levels which cover, among other things, Key Financial Risks. | |
Legal liabilities. Given its international activities, the Group could be subject to litigation in a number of different jurisdictions. By its very nature, such litigation could be related to a broad number of issues, including alleged patent infringement, problems relating to the Group’s technology or contravention of anti-bribery legislation. | Generally the Group adopts a cautious, low-profile and conservative approach with its activities. It has put in place a number of policies which employees are required to follow in order to reduce to the extent practicable these risks. | |
Reliance on suppliers. Due to the complexity of many of its manufactured products, the Group is dependent on a number of key suppliers. These suppliers could supply components late, supply poor quality components, refuse to supply or cease trading. Such disruptions to the Group’s supply chain could cause major issues to the trading activities of the Group. | The Group seeks to work closely and in partnership with its key suppliers. It also has a key supplier review / audit programme which helps the Group make strategic decisions about working more closely with a given supplier or, if appropriate, taking the decision to identify an alternative supplier. | |
Reliance on customers within a given sector. Although the Group is not significantly dependent upon one single customer, changes within a sector or sub-sector could adversely affect the trading performance of the Group. For example, the pharmaceutical industry is currently facing significant challenges as a number of drugs lose patent protection or from the trend towards the marketing of disposable, single-use drug delivery systems, and accordingly there is a risk that such changes could affect the revenues that the Group generates from companies within this sector. | The Group monitors carefully the revenue it generates from any single customer (or customer group) and if appropriate takes proactive steps to reduce the proportion of such revenues within the subsidiary or division. | |
Retention of key employees. The Group has a number of key employees working for it. The loss of certain of these employees could be problematic for the Group. | The Group has in place a number of measures which are designed to optimise key employee retention including, but not limited to: ensuring that their work is stimulating, interesting and ‘empowered’; the remuneration is competitive; the work place environment and culture is attractive; the opportunity, as appropriate, to participate in equity upside from employee share option schemes; and annual appraisals. |
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business and the risks and uncertainties which affect the business are summarised above. The Group has sufficient financial resources to cover budgeted future cash-flows, together with contracts with its customers and suppliers across different geographic areas and industries. The Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
In accordance with the Corporate Governance requirements the Directors confirm that they have a reasonable expectation that the Group has adequate finance resources to continue to trade for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements.
Responsibility statement
The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 December 2011, certain parts thereof are not included within this Preliminary Announcement.
We confirm that to the best of our knowledge:
·; the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
·; the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of Directors on 20 March 2012 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 2011
| |||||
| 2011 | 2010 | |||
Notes | £'000 | £'000 | |||
Revenue |
| 2 | 41,256 | 39,403 | |
Cost of sales |
|
| (22,388) | (21,813) | |
Gross profit |
|
| 18,868 | 17,590 | |
Gross profit margin |
|
| 46% | 45% | |
Operating expenses: |
|
|
|
| |
Sales & marketing costs |
|
| (6,603) | (6,449) | |
Administration costs |
|
| (5,023) | (5,386) | |
R&D and engineering costs |
|
| (2,220) | (2,518) | |
Profit from operations |
| 4 | 5,022 | 3,237 | |
Investment revenues | 55 | 163 | |||
Finance costs |
|
| (76) | (139) | |
Profit before tax |
|
| 5,001 | 3,261 | |
Tax |
| 5 | (1,136) | (854) | |
Profit for the year |
|
| 3,865 | 2,407 | |
Earnings per share | - basic | 6 | 9.3p | 5.8p | |
| - diluted |
| 9.2p | 5.1p | |
Movements in reserves are set out in notes 10.
All amounts are derived from continuing operations.
Consolidated statement of comprehensive income for the year ended 31 December 2011
| ||
2011 | 2010 | |
£'000 | £'000 | |
Net profit for the year | 3,865 | 2,407 |
Exchange differences on translation of foreign operations | 1 | (58) |
Total recognised income | 3,866 | 2,349 |
Consolidated balance sheet as at 31 December 2011
| |||
2011 | 2010 *restated | ||
Notes | £'000 | £'000 | |
Non-current assets: |
|
|
|
Goodwill |
| 691 | 691 |
Other intangible assets |
| 9,148 | 8,014 |
Property, plant & equipment |
| 13,440 | 12,053 |
Deferred tax assets |
| 175 | 228 |
|
| 23,454 | 20,986 |
Current assets: |
|
|
|
Inventories |
| 1,283 | 1,309 |
Trade and other receivables |
| 9,449 | 8,014 |
Derivative financial instruments |
| 180 | 130 |
Cash and cash equivalents |
| 5,179 | 6,130 |
|
| 16,091 | 15,583 |
Total assets |
| 39,545 | 36,569 |
Current liabilities: |
|
|
|
Trade and other payables |
| (7,354) | (7,272) |
Current tax liabilities |
| (457) | (501) |
Obligations under finance leases |
| - | (28) |
Borrowings | 8 | (105) | (105) |
Provisions | 7 | (93) | (71) |
Net current assets |
| 8,082 | 7,606 |
Non-current liabilities: |
|
|
|
Deferred tax liabilities |
| (2,865) | (2,652) |
Other non-current liabilities |
| (1,072) | (1,327) |
Total liabilities |
| (11,946) | (11,956) |
Net assets |
| 27,599 | 24,613 |
Equity: |
|
|
|
Share capital | 9 | 4,175 | 4,175 |
Share premium account | 168 | 165 | |
Special reserve |
| - | 10,933 |
Equity reserve |
| 1,516 | 1,305 |
Capital reserve |
| 255 | 255 |
Translation reserve |
| (108) | (109) |
Retained earnings | 10 | 21,593 | 7,889 |
Equity attributable to equity holders of the Company |
| 27,599 | 24,613 |
*restated to reclassify deferred tax as non-current in accordance with IAS1
Consolidated statement of changes in equity for the year ended 31 December 2011
| ||
2011 | 2010 | |
£'000 | £'000 | |
Profit for the year | 3,865 | 2,407 |
Exchange differences | 1 | (58) |
Total comprehensive income in the year | 3,866 | 2,349 |
Other movements in the year: |
|
|
Issued share capital | - | 13 |
Issued share premium | 3 | 51 |
Credit to equity reserve for share-based payments | 227 | 343 |
Charge to equity for exercise of share options under the SARS scheme | - | (6) |
Movement in deferred tax charged to equity | (16) | (90) |
Final dividend for year ended 31 December 2010/2009 | (1,094) | (1,010) |
Net increase in equity shareholders' funds | 2,986 | 1,650 |
Equity shareholders' funds at beginning of year | 24,613 | 22,963 |
Equity shareholders' funds at end of year | 27,599 | 24,613 |
Consolidated cash flow statement for the year ended 31 December 2011
| |||
2011 | 2010 | ||
Note | £'000 | £'000 | |
Net cash from operating activities | 11 | 6,409 | 5,467 |
Investing activities |
|
|
|
Proceeds on disposal of property, plant and equipment |
| 22 | 36 |
Purchases of property, plant and equipment |
| (3,959) | (2,710) |
Expenditure on product development |
| (2,046) | (1,424) |
Net cash used in investing activities |
| (5,983) | (4,098) |
Financing activities |
|
|
|
Proceeds on issue of ordinary shares |
| 3 | 64 |
Dividends paid on ordinary shares |
| (1,094) | (1,010) |
Movement in borrowings |
| (255) | (104) |
Repayment of obligations under finance leases |
| (28) | (145) |
Net cash used in financing activities |
| (1,374) | (1,195) |
Net (decrease)/increase in cash and cash equivalents |
| (948) | 174 |
Bank cash at beginning of year |
| 6,130 | 5,941 |
Effect of foreign exchange rate changes |
| (3) | 15 |
Bank cash at end of year |
| 5,179 | 6,130 |
Notes to the consolidated financial statements
for the year ended 31 December 2011
1. Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
The principal Group accounting policies and have been applied consistently throughout the years ended 31 December 2010 and 2011.
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 2011 or 2010. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's Annual General Meeting on 14 May 2012. The auditors' reports on both the 2010 and 2011 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006.
2. Revenue
An analysis of the Group's revenue is as follows:
2011 | 2010 | |
£'000 | £'000 | |
Sales of goods | 16,894 | 14,180 |
Revenue from the rendering of services | 24,362 | 25,223 |
| 41,256 | 39,403 |
Interest | 5 | 33 |
| 41,261 | 39,436 |
3. Business and geographical segments
For management purposes, the Group is currently organised into two divisions - Bio-decontamination ("BIO") and TRaC (Testing, Regulatory and Compliance). These divisions are consistent with the internal reporting as reviewed by the Chief Executive. Segment information about these businesses is presented below:
BIO | TRaC | Consolidated | |
Year ended 31 December 2011 | £'000 | £'000 | £'000 |
Revenue |
|
|
|
Total revenue | 27,657 | 13,599 | 41,256 |
Result |
|
|
|
Segment result | 3,799 | 2,433 | 6,232 |
Unallocated head office costs |
|
| (1,210) |
Profit from operations |
|
| 5,022 |
Finance costs and investment revenue |
|
| (21) |
Profit before tax |
|
| 5,001 |
Tax |
|
| (1,136) |
Profit for the year |
|
| 3,865 |
Other information |
|
|
|
Capital additions | 3,215 | 2,786 | 6,001 |
Unallocated corporate additions |
|
| 4 |
Total capital additions |
|
| 6,005 |
Depreciation and amortisation | 2,269 | 1,141 | 3,410 |
Unallocated corporate depreciation |
|
| 44 |
Total depreciation and amortisation |
|
| 3,454 |
All assets and liabilities are allocated to reportable segments with the exception of investments in associated companies.
Notes to the consolidated financial statements
for the year ended 31 December 2011
3. Business and geographical segments continued
| BIO | TRaC | Consolidated | ||
Balance sheet as at 31 December 2011 | £'000 | £'000 | £'000 | ||
Assets |
|
|
| ||
Segment assets | 23,544 | 10,099 | 33,643 | ||
Unallocated corporate assets | 5,902 | ||||
Consolidated total assets | 39,545 | ||||
Liabilities |
|
|
| ||
Segment liabilities | (8,131) | (3,157) | (11,288) | ||
Unallocated corporate liabilities | (658) | ||||
|
| ||||
Consolidated total liabilities | (11,946) | ||||
| BIO | TRaC | Consolidated | ||
Year ended 31 December 2010 | £'000 | £'000 | £'000 | ||
Revenue |
|
|
| ||
Total revenue | 27,031 | 12,372 | 39,403 | ||
Result |
|
|
| ||
Segment result | 2,525 | 2,209 | 4,734 | ||
Unallocated head office costs |
|
| (1,497) | ||
Profit from operations |
|
| 3,237 | ||
Finance costs and investment revenue |
|
| 24 | ||
Profit before tax |
|
| 3,261 | ||
Tax |
|
| (854) | ||
Profit for the year |
|
| 2,407 | ||
Other information |
|
|
| ||
Capital additions | 2,705 | 1,420 | 4,125 | ||
Unallocated corporate additions |
|
| - | ||
Total capital additions |
|
| 4,125 | ||
Depreciation and amortisation | 2,216 | 988 | 3,204 | ||
Unallocated corporate depreciation |
|
| 43 | ||
Total depreciation and amortisation |
|
| 3,247 | ||
The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment without allocation of the share of profits of associates, 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.
BIO | TRaC | Consolidated | |
Balance sheet as at 31 December 2010 | £'000 | £'000 | £'000 |
Assets |
|
|
|
Segment assets | 21,562 | 8,067 | 29,629 |
Unallocated corporate assets | 6,940 | ||
Consolidated total assets | 36,569 | ||
Liabilities |
|
|
|
Segment liabilities | (8,407) | (2,467) | (10,874) |
Unallocated corporate liabilities | (1,082) | ||
Consolidated total liabilities | (11,956) |
Notes to the consolidated financial statements
for the year ended 31 December 2011
3. Business and geographical segments continued
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.
The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods or services:
Year ended | Year ended | |
31 December | 31 December | |
2011 | 2010 | |
Sales revenue by geographical market | £'000 | £'000 |
UK | 17,686 | 17,035 |
Rest of Europe | 8,211 | 7,434 |
Rest of World | 15,359 | 14,934 |
| 41,256 | 39,403 |
The following is an analysis of the carrying amount of segments assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located:
Carrying amount of segment assets | Additions to property, plant and equipment and intangible assets | ||||
Year ended | Year ended | Year ended | Year ended | ||
31 December | 31 December | 31 December | 31 December | ||
2011 | 2010 | 2011 | 2010 | ||
£'000 | £'000 | £'000 | £'000 | ||
UK | 32,538 | 31,320 | 5,812 | 3,831 | |
Rest of Europe | 3,579 | 2,326 | 79 | 129 | |
Rest of World | 3,428 | 2,923 | 114 | 165 | |
| 39,545 | 36,569 | 6,005 | 4,125 | |
4. Profit from operations
Profit from operations has been arrived at after charging/(crediting):
2011 | 2010 | |
£'000 | £'000 | |
Research & development costs | 1,197 | 607 |
Government grants towards development of TRaC North site | - | (28) |
Depreciation of property, plant and equipment | 2,542 | 2,380 |
Amortisation of development costs and patents | 906 | 862 |
Amortisation of trademarks | 6 | 2 |
Amortisation of customer relationships | - | 3 |
Cost of inventories recognised as an expense | 8,806 | 7,961 |
Staff costs (see note 7) | 17,048 | 16,776 |
Loss on disposal of property, plant and equipment | 1 | 6 |
Net foreign exchange gains | (291) | (19) |
Notes to the consolidated financial statements
for the year ended 31 December 2011
5. Tax
2011 | 2010 | |
£'000 | £'000 | |
UK corporation tax current year | (811) | (539) |
UK corporation tax prior year | (75) | 219 |
Deferred tax charge current year | (307) | (242) |
Deferred tax adjustment prior year | 57 | (292) |
| (1,136) | (854) |
Corporation tax is calculated at 26.5% (2010: 28%) 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:
2011 | 2010 | |
£'000 | £'000 | |
Profit before tax | 5,001 | 3,261 |
Tax at the UK corporation rate of 26.5% (2010: 28%) | (1,325) | (913) |
Adjusted for: |
|
|
Tax effect of expenses not deductible in determining taxable profit | (84) | (83) |
Effect on deferred tax asset of movement in share price | (108) | (178) |
Effect of research and development relief | 361 | 383 |
Tax due in other jurisdictions | (3) | - |
Tax effect of different tax rate of subsidiaries operating in other jurisdictions | 22 | - |
Deferred tax not recognised on other timing differences | (99) | 115 |
Prior year adjustment | (18) | (73) |
Utilisation of tax losses | 13 | (17) |
Effective change in tax rate | 105 | (88) |
| (1,136) | (854) |
In addition to the amount charged to the income statement an amount of £16,000 was charged directly to equity (2010: charge to equity of £90,000). This 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:
Year ended | Year ended | |
31 December | 31 December | |
2011 | 2010 | |
Earnings | £'000 | £'000 |
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 3,865 | 2,407 |
Year ended | Year ended | |
31 December | 31 December | |
Number of shares | 2011 | 2010 |
Weighted average number of ordinary shares for the purposes of basic earnings per share | 41,753,449 | 41,728,958 |
Effect of dilutive potential ordinary shares: |
|
|
- share options | 77,492 | 5,367,737 |
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 41,830,941 | 47,096,695 |
Notes to the consolidated financial statements
for the year ended 31 December 2011
7. Provisions
Warranty provision | ||
£'000 | ||
At 1 January 2011 | 71 | |
Additional provision in the year |
| 85 |
Release of provision not required |
| - |
Utilisation of provision |
| (63) |
At 31 December 2011 |
| 93 |
Included in current liabilities |
| 93 |
Included in non-current liabilities |
| - |
|
| 93 |
The warranty provision represents management's best estimate of the Group's liability under twelve month warranties granted on products and services, based on past experience.
8. Analysis of net cash
2011 | 2010 | |
£'000 | £'000 | |
Cash and cash equivalents | 5,179 | 6,130 |
Finance leases - due within one year | - | (28) |
Bank loan - due within one year | (105) | (105) |
- due after one year | (1,072) | (1,177) |
| 4,002 | 4,820 |
9. Share capital
2011 | 2010 | ||||
Number | £'000 | Number | £'000 | ||
Authorised |
|
|
|
|
|
Ordinary shares of 10p each | 55,947,780 | 5,595 |
| 55,947,780 | 5,595 |
Redeemable deferred ordinary shares of £1 each | 255,222 | 255 |
| 255,222 | 255 |
|
| 5,850 |
|
| 5,850 |
Called up, allotted and fully paid |
|
|
|
|
|
Ordinary shares of 10p each | 41,753,449 | 4,175 |
| 41,749,449 | 4,175 |
|
| 4,175 |
|
| 4,175 |
During the year the Company issued a total of 4,000 ordinary shares of 10p each for £3,000 on the conversion of options under the executive share option schemes.
Notes to the consolidated financial statements
for the year ended 31 December 2011
10. Retained earnings
| £'000 |
Balance at 1 January 2010 | 6,449 |
Net profit for the year | 2,407 |
Payment of dividend | (1,010) |
Exercised share options | 43 |
Balance at 1 January 2011 | 7,889 |
Net profit for the year | 3,865 |
Transfer from Special Reserve | 10,933 |
Payment of dividend | (1,094) |
Exercised share options | - |
Balance at 31 December 2011 | 21,593 |
11. Notes to the cash flow statement
2011 | 2010 | |
£'000 | £'000 | |
Profit from operations | 5,022 | 3,237 |
Adjustments for: |
|
|
Depreciation of property, plant and equipment | 2,544 | 2,384 |
Amortisation and impairment losses of intangible assets | 912 | 867 |
Share-based payments | 227 | 204 |
Loss on disposal of property, plant and equipment | 1 | 6 |
Increase/(decrease) in provisions | 22 | (913) |
Operating cashflows before movements in working capital | 8,728 | 5,785 |
Decrease/(increase) in inventories | 21 | (151) |
Increase in receivables | (1,380) | (762) |
(Decrease)/Increase in payables | (251) | 1,019 |
Cash generated by operations | 7,118 | 5,891 |
Non-equity preference share dividends paid | (33) | (11) |
Investment revenues | 5 | 33 |
Interest paid | (43) | (128) |
Income taxes paid | (638) | (318) |
Net cash from operating activities | 6,409 | 5,467 |
Of the new additions to fixtures and equipment during the year assets to the value of £nil (2010: £nil) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
Notes to the consolidated financial statements
for the year ended 31 December 2011
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.
| 2011 | 2010 |
| £'000 | £'000 |
Short-term employee benefits | 911 | 777 |
Post-employment benefits | 73 | 59 |
Share-based payments | 102 | 100 |
| 1,086 | 936 |