7 Mar 2017 07:00
Bioquell PLC - 2016 Preliminary Results
Bioquell PLC (LSE symbol:BQE), the provider of specialist bio-decontamination systems and services to the international Life Sciences and Healthcare markets, today announces its preliminary results for the year ending 31st December 2016.
Financial highlights
• Core bio-decontamination business revenues up 7.7% to £25.2 million (2015: £23.4 million), flat at constant currency rates
• Overall revenues including the defence business were broadly flat at £26.5 million (2015: £26.9 million), down 7.8% at constant currency rates
• Gross Profit Margins improved to 48% from 42% in 2015
• Pre-exceptional EBITDA* increased 21% to £4.1 million (2015: £3.4 million)
• Pre-exceptional Profit before tax was up 78% to £1.6 million (2015: £0.9 million)
• Exceptional charges totalling £1.5 million; £0.8 million relating to board restructuring and £0.7m of non-cash impairment of intangible assets (2015: £0.2m, relating to management reorganisation)
• Profit before tax fell to £0.1 million (2015: £0.6 million)
• Adjusted Earnings per share** up 195% to 5.6p (2015: 1.9p)
• Earnings per share 1.3p (2015:1.5p)
• Net cash was £8.8 million (2015: £47.6 million); £40.8 million returned to shareholders via tender offer in June 2016.
* earnings before interest, tax, depreciation, amortisation and exceptional items.
** based on pre-exceptional earnings after tax
Key developments
• New executive team installed in August 2016 comprising Ian Johnson as Executive Chairman and Jay LeCoque as Commercial Director
• Strategic review completed. Decision taken to continue to build a world class bio-decontamination business and focus on further improving its financial performance
• Business restructuring mid-way through second half contributed to improvements in financial performance by year end. The full impact should be felt in the year ending 31 December 2017.
• The Group now consists of two divisions: Bioquell Bio-Decontamination products and services and MDH Defence providing CBRN products to major defence contractors.
• New bio-decontamination product introductions generating revenue in the fourth quarter.
• A number of sales and marketing initiatives in place to drive sales growth in 2017
Ian Johnson, Executive Chairman of Bioquell PLC, said:
"I am pleased to report substantial improvements in the financial performance of the Group for 2016. Following the conclusion of the strategic review in late August 2016 we made changes to the board and restructured the Company, placing greater emphasis on building a world class bio-decontamination business. The reported improvements are in part the result of these changes, but predominantly the result of a number of other factors including lower manufacturing costs, targeted cost reduction programmes and the effect of the Brexit vote on Sterling, which given our high level of export business enhanced gross margin."
"Management continue to focus on generating top line growth from the international Life Sciences market and on improving financial performance through further efficiency initiatives and generating additional recurring revenues from the Services business."
Chairman's Statement
INTRODUCTION
The Group achieved total revenues of £26.5 million and continues to generate the majority of its revenues from its core Bio-Decontamination business. A relatively small and historically unpredictable amount is derived from the Defence sector.
For the 12 months ended 31 December 2016, the split of revenues between these businesses was:
§ Bio-Decontamination: £25.2 million (2015: £23.4 million) - a 7.7% increase year on year and accounting for 95% of Group revenues; and
§ Defence: £1.3 million (2015: £3.5 million) - a decline of 63% and accounting for 5% of Group revenues.
The Group's strategy is focussed on increasing revenues generated from customers in the bio-decontamination business and we would anticipate that, over the medium term, defence revenues will decline as a proportion of total revenues.
FINANCIAL RESULTS
| 2016 £m |
| 2015 £m |
| Growth % |
| Constant currency growth % |
Bio-decontamination | 25.2 |
| 23.4 |
| +8% |
| +0% |
Defence | 1.3 |
| 3.5 |
| -63% |
| -63% |
TOTAL | 26.5 |
| 26.9 |
| -1% |
| -8% |
Bio-Decontamination Service-related revenues, including consumables, increased 9.7% to £14.7 million (2015: £13.4 million), representing some 58% of bio-decontamination revenues (2015: 57%).
Bio-Decontamination System (equipment) revenues increased by 5.0% to £10.5 million (2015: £10.0 million) representing 42% of bio-decontamination revenues.
The level of recurring revenues within the services business was 57% in 2016 (2015: 56%) and was 33% (2015: 32%) in the total bio-decontamination business.
Revenues from total non-UK sales in the period amounted to £20.0 million (2015: £21.4 million), amounting to 76% (2015: 80%) of total revenues. The equivalent data for the bio-decontamination business shows that non-UK revenues were £18.7 million (2015: £18.0 million), representing approximately 74% of this business' revenues. Virtually all defence revenues are non-UK based.
Sterling has weakened significantly against the US dollar since the Brexit vote. Approximately 46% of bio-decontamination revenues were denominated in US dollars in the year, with a further 28% denominated in Euros. At constant currency rates, revenue in the bio-decontamination business was flat year-on-year.
Gross margin in the year was up 6% to 48% (2015: 42%). This meaningful increase in gross margin reflects a number of additional factors besides exchange rates including: (i) the results of targeted cost-reduction programmes associated with our products; (ii) price increases for certain products; and (iii) a reallocation of certain costs from cost of sales to overheads.
Research & development costs
As is set out in the table below, the accounting charge for Research & Development ("R&D") costs in the period increased by 21% to £1.8 million (2015: £1.5 million). Cash R&D costs were £1.3 million in the year (2015: £1.4 million), representing a 7% decrease.
R&D costs (£000) |
| 2016 | 2015 |
Amount of R&D expensed in period |
| 0.9 | 0.7 |
Amortisation of previously capitalised development costs |
| 0.9 | 0.8 |
Total R&D charge under IFRS |
| 1.8 | 1.5 |
|
|
|
|
Total R&D cash expenditure |
| 1.3 | 1.4 |
Amount of development costs capitalised |
| 0.4 | 0.7 |
In the short to medium term we anticipate that R&D costs will continue at the lower level of cash spend reflecting the completion of the current Bioquell product range; however, we are working on appropriate product line extensions to complement the existing product portfolio.
Overheads
Overheads increased by 5% to £11.2 million (2015: £10.6 million). However, these overhead costs include the net cost of foreign exchange movements which, largely due to the significant decline in the value of Sterling post the Brexit vote, resulted in a charge in the period of £276,000 (2015: profit of £34,000).
The underlying cash-based overhead costs - adjusted to reflect the cash cost of R&D as well as removing the net FX cost - were £10.4 million in the year (2015: £10.5 million), flat as reported and a reduction of 6.4% in constant currency terms.
Pre exceptional EBITDA (earnings before interest, tax, depreciation, amortisation and exceptional items) increased by 21% in the year to £4.1 million (2015: £3.4 million).
Profit before tax and exceptional items was £1.6 million (2015: £0.9 million). Profit before tax was £0.1 million (2015: £0.6 million).
Exceptional costs were recognised in respect of board restructuring (£0.8 million) and also in respect of the impairment of certain intangible assets. £0.5 million of the book value of the Group's patents was impaired following the outcome of a review of the group's patents to establish which of its patents should continue to be maintained and in which jurisdictions. £0.2 million of intangible assets relating to two products in the defence sector were impaired following a decision not to continue to offer these products for sale. In 2015 there was an exceptional item of £0.2 million relating to a business reorganisation.
Basic earnings per share were 1.3 pence (2015: 1.5 pence excluding the profit on disposal of TRaC).
Capital expenditure continues to run significantly below the depreciation charge, reflecting the Board's belief that the substantial investments needed to support the growth of the business in the short to medium term have been made over recent years.
In the year, purchases of tangible fixed assets totalled £0.7million (2015: £1.0 million). Depreciation in the period was £1.6 million (2015: £1.6 million).
Balance sheet
The Group has a strong balance sheet. £40.8 million of cash generated from the sale of the TRaC business in 2015 was returned to shareholders by way of a tender offer in June 2016. The Group spent a further £1.3 million on share buybacks in December 2016.
There was a net cash inflow before share buybacks in the second half of the year of £2.5 million.
Net cash at 31 December 2016 was £8.8 million (2015: £47.6 million)
The Group expects to return further cash to shareholders by way of share buybacks during the course of 2017 in lieu of paying a dividend. Further details of these buybacks will be announced in due course.
BUSINESS ACTIVITIES
Bio-Decontamination
The bio-decontamination business has introduced a number of new products in the past three years, notably including the Pod, a method of producing a single occupancy semi-permanent room in a hospital ward in a rapid and cost-effective manner, and the Qube, a modular aseptic workstation incorporating Hydrogen Peroxide Vapour bio-decontamination technology.
Over recent years a number of customers have requested fixed decontamination systems, with increasing demand for such systems linked, in part, to evolving regulatory requirements. Given that space is typically at a premium in our customers' premises, a fixed system, occupying a minimal footprint and fast to install and validate will have distinct advantages over conventional portable systems. In the second half of 2016 we launched a new fixed, wall-mounted decontamination system incorporating the use of Bioquell's proprietary hydrogen peroxide captive consumable cartridges. Sales of this unique product have been encouraging with a significant number installed at a major French life sciences company.
Looking forward to 2017, the main challenge for the Group is to drive revenue growth from this new suite of products, as well as driving additional growth from the sale of related services and consumables.
Defence
Historically defence revenues have been extremely difficult to forecast, however, there continues to be demand for Bioquell's expertise in specialist Chemical, Biological, Radiological and Nuclear ("CBRN") filtration equipment from a number of major overseas defence contractors. In recent years defence revenues had been managed within the overall Bioquell business. Consequently, this business had lost its former identity as 'MDH Defence' with a 50 year legacy of serving the defence sector. In December 2016, MDH Defence was re-launched as a division of the Group with additional sales resource to provide better visibility and to increase our defence-related order book. We do not expect any short term growth from this initiative however longer term we hope to realise a firmer and larger order book.
EMPLOYEES
On behalf of the Board I would like to thank all employees within the Group for their hard work and commitment during 2016.
BOARD CHANGES
As noted at the time of the interim results, the executive management of the Group was restructured in August. I became Executive Chairman and Jay LeCoque was appointed Commercial Director. Both Jay and I have spent our careers in the Life Science sector and have previously worked together at Celsis plc.
Michael Roller, the Group's Finance Director, has agreed with the Board that he will reduce his time commitment to Bioquell to three days per week with effect from 1 April 2017. Michael is supported by Georgina Pope, Company Secretary and also the Finance Director of Bioquell's UK operations.
On behalf of all Bioquell shareholders I would like to thank Nigel Keen for his seven years as Chairman.
I would also like to thank Nick Adams for his substantial contribution as Chief Executive. Under his leadership Bioquell has changed beyond all recognition from a low technology manufacturer of safety cabinets to a leader in specialist bio-decontamination.
OUTLOOK AND PROSPECTS
As we stated at the half year the Board believes that Bioquell shareholders' interests would best be served by continuing to build a world class bio-decontamination business and focussing on further improving its financial performance.
As we exited 2016 the financial performance of our core bio-decontamination business was beginning to improve as can be seen in the financial information set out above. There are a number of different drivers of growth which are positively affecting our business, including the need for customers to achieve regulatory compliance, the increasing threat posed by antibiotic resistance and continuing growth in research and small scale production associated with cell-based healthcare products.
We remain focussed on improving the financial performance of the Company through further efficiency measures and generating top line growth.
The business has had a good start to the year and the board remains confident in delivering further growth in revenue and profits.
Prior to publication, the information contained within this announcement was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2104 ("MAR").
Ian Johnson
Chairman
Bioquell PLC
7th March, 2017
Strategic report
This report should be read in conjunction with the Chairman's statement which provides information on the financial performance of the Group in 2016.
The Group will henceforward have two operating segments for accounting purposes. The principal segment is the bio-decontamination business, . The business model of this segment incorporates the sale of equipment and consumables and the provision of speciality services to the international Life Sciences & Healthcare sectors. The second segment is the defence business recently rebranded as MDH Defence which sells CBRN filtration equipment to a number of major overseas defence contractors.
The Group has developed a world-class range of technologies for the markets it serves. The primary strategic objective for the business is to increase its revenues and profits via improved and more effective selling of its market-leading range of products & services.
The Board currently considers it appropriate to monitor progress on its strategy by reference to three key performance indicators ("KPIs"): revenues, earnings before interest, tax, depreciation and amortisation ("EBITDA") and pre-tax profit. These are adjusted for exceptional costs where such costs are identified. As the business develops the Board will consider adding, as appropriate, further KPIs to monitor progress against a broader range of objectives. KPIs are monitored monthly and reviewed on a year to date and trailing twelve months basis.
Key strategic drivers
Microorganisms - bacteria, viruses and fungi - are ubiquitous and can be the cause of significant problems for individuals, companies and organisations around the world. Bioquell's strategy is to generate revenues from the provision of cost-effective technology-based solutions for microbiological contamination control and eradication.
Historically our product offerings for Life Sciences and Healthcare were based solely around the Group's specialist hydrogen peroxide vapour decontamination technology; however, over recent years we have added a number of complementary products and services which enable us to offer a broader range of solutions to our customers, most of whom operate in highly and increasingly regulated environments.
Life Sciences sector
The principal drivers of growth for Bioquell's bio-decontamination business include:
§ an increasingly complex, onerous and rapidly expanding international regulatory environment relating to the safe production of biologically-sensitive therapeutic products;
§ demand for cost effective, fast-to-deploy aseptic environments;
§ improved methods and technology for the swift and aseptic transfer of heat-sensitive materials into clean-rooms;
§ interest by customers in the use of technology to achieve cost reductions;
§ growth in research activities and small-scale production associated with cell-based healthcare products; and
§ demand for the mitigation of risks and liabilities associated with complex, and often biologically-sensitive, therapies historically prepared in hospital pharmacies.
Bioquell is proactively positioning itself to take advantage of the opportunities arising as a result of the drivers noted above and intends to grow revenues from this market by expanding its global life science sales and marketing team with particular focus in the USA.
Bioquell is also able to deliver technologies other than Hydrogen Peroxide Vapour decontamination systems and services. For example, the Bioquell QUBE comprises a novel, modular aseptic work-station incorporating Hydrogen Peroxide Vapour technology. The QUBE is used to provide an aseptic environment for a range of applications including: sterility testing; the production of toxic, intravenous oncology drugs; and the production of small-scale cell-based healthcare products. Over time we expect the range of specialist applications for the QUBE to increase.
We are also proactively working to maximise the level of recurring revenues generated from service activities including consumable sales.
Changes to regulations
There are an increasing number of regulations affecting the markets into which we sell. Such regulations can cover both decontamination equipment and/or the associated consumables. Typically we find more onerous regulation tends to help increase demand for Bioquell's high quality decontamination technology as our clients remain focussed on attaining - and retaining - regulatory compliance.
Healthcare sector
Bioquell's healthcare strategy is to provide technology-based solutions which help hospitals reduce their hospital acquired infection ("HAI") rates and combat the significant issues associated with antibiotic resistance. For example, the Bioquell POD enables hospitals to convert multi-bed, open-plan units at high risk of the spread of HAIs into single-occupancy rooms. PODs can be decontaminated using Bioquell's Hydrogen Peroxide Vapour technology.
Defence sector
We manufacture specialist chemical, biological, radiological and nuclear ("CBRN") filtration systems and environmental control equipment for military vehicles and fixed facilities. Interest in our CBRN products has been helped over the last few years by increased levels of conflict in the Middle East as well as instability in Eastern Europe.
Principal challenges
We are seeking to grow the Group's revenues by promoting the use of Bioquell's technology to solve microorganism-related problems for highly regulated customers in the Life Sciences and Healthcare sectors. Microorganism-related problems are becoming more challenging, largely due to increasing drug resistance. Many new, on-patent biotech drugs are highly susceptible to bioburden contamination and are governed by increasingly complex regulations.
In implementing our strategy we encounter a number of challenges, including the international nature of our markets, highly conservative customers (who may be reluctant to adopt new technology), large competitors (with better established sales footprints and customer relationships), an increasingly fragmented and heterogeneous Life Sciences sector as well as hospitals which are often reluctant to discuss - and therefore act on - the costs and clinical impact of HAIs.
Conclusion: the Bioquell Group
The Group has a robust strategy in place to generate high margin revenues from customers in two large, growing and highly regulated sectors: Life Sciences & Healthcare.
Sales into the Life Sciences sector currently remain key to the profitability of the Group - and we have taken clear and robust steps to re-focus the sales and marketing efforts of the Group onto what is by far the Group's single largest market.
Ian Johnson
Executive Chairman
7 March 2017
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.
The Board has undertaken a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity.
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.
Risk and/or uncertainty | Mitigation |
Commercial. 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 the Group's markets. | 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. |
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. | 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.
|
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. | 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. |
Political. The regulatory risks and uncertainties summarised above can be closely linked to prevailing policies or strategies being pursued by politicians or civil servants. These policies or strategies can be affected by effective lobbying, including lobbying by the Group's competitors or customers, which could adversely affect the Group. | Generally the Group adopts a cautious, low profile and conservative approach with its activities, particularly with those where there may be a political dimension. When considered necessary, the Group may seek to 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. | The Group provides focussed products and services withinits 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. |
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. |
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. High risk items are where possible developed for internal manufacture, therefore reducing the risk of excessive reliance on suppliers. |
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 | 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. |
Dependence on key employees. As with any group of its size, the Group is dependent on certain key employees. Their sudden or unexpected departure from the Group can have a disruptive effect upon the Group's activities. | The Group actively seeks ways in which the Group can reduce its dependence upon key employees by developing other employees' skills or, where necessary, hiring in supplementary employees with the necessary skill sets. Additionally, the Group's remuneration structure is designed so as to foster employee loyalty. |
Cybersecurity. Cybersecurity threats come from a wide variety of sources and may target a wide range of different systems for diverse purposes. This makes such risks notably difficult to mitigate. Besides business disruption risk, there is also a threat to the Group's own and third party sensitive data which may, in the ordinary course of business, be held on the Group's systems. | The Group has had a third party carry out an assessment of the Group's principal systems and their vulnerability to attack; key findings of this review have been actioned and this review will be performed at regular intervals on an ongoing basis. The Group actively considers the IT security connotations associated with any new systems developments and/or business operations. |
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.
In accordance with the Corporate Governance requirements the Directors confirm that they have a reasonable expectation that the Group has adequate financial resources to continue to trade for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements.
Responsibility statement
This responsibility statement has been prepared in connection with the Group's full Annual Report and Accounts for the year ended 31 December 2016, certain parts therefore are not included within this Preliminary Announcement.
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, 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 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 that 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 Company's performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 7 March 2017 and is signed on its behalf by:
Ian Johnson Michael Roller
Executive Chairman Group Finance Director
Consolidated income statement
for the year ended 31 December 2016
Continuing operations | Notes | 2016 £'000 | 2015 £'000 |
Revenue | 2 | 26,485 | 26,877 |
Cost of sales |
| (13,740) | (15,466) |
Gross profit |
| 12,745 | 11,411 |
Gross profit margin |
| 48% | 42% |
Operating expenses: |
|
|
|
Sales & marketing costs |
| (5,154) | (5,485) |
Administration costs |
| (4,191) | (3,648) |
R&D and engineering costs |
| (1,826) | (1,507) |
Profit from operations before exceptional Items |
| 1,574 | 771 |
Impairment of intangible assets |
| (662) | - |
Costs associated with reorganisation |
| - | (220) |
Costs associated with Board restructuring |
| (858) | - |
Operating profit | 5 | 54 | 551 |
Investment revenues |
| 132 | 150 |
Finance costs |
| (110) | (69) |
Profit before tax |
| 76 | 632 |
Tax | 6 | 321 | 5 |
Profit for the year | 11 | 397 | 637 |
Discontinued operations Profit for the period from discontinued operations and disposal | 4 & 7 | - |
34,501 |
Profit for the period Profit for the period attributable to equity holders of the parent | 11 | 397 | 35,138 |
Earnings per share from continued operations excluding profit on disposal - basic | 8 | 1.3p | 1.5p |
- diluted |
| 1.2p | 1.5p |
Earnings per share attributable to the owners of the parent - basic |
| 1.3p | 82.5p |
- diluted |
| 1.2p | 81.8p |
Consolidated statement of comprehensive income
for the year ended 31 December 2016
| 2016 £'000 | 2015 £'000 |
Net profit for the year | 397 | 35,138 |
Exchange differences on translation of foreign operations* | 510 | (120) |
Total recognised income | 907 | 35,018 |
* May be reclassified subsequently to profit and loss in accordance with IFRS.
Consolidated balance sheet
as at 31 December 2016
| Notes | 2016 £'000 | 2015 £'000 |
Non-current assets: |
|
|
|
Other intangible assets |
| 7,568 | 8,785 |
Property, plant & equipment |
| 4,572 | 5,349 |
Deferred tax assets |
| 90 | 175 |
|
| 12,230 | 14,309 |
Current assets: |
|
|
|
Inventories |
| 2,773 | 3,547 |
Trade and other receivables |
| 6,847 | 5,429 |
Derivative financial instruments |
| 44 | - |
Cash and cash equivalents | 9 | 8,756 | 47,573 |
|
| 18,420 | 56,549 |
Total assets |
| 30,650 | 70,858 |
Current liabilities: |
|
|
|
Trade and other payables |
| (5,404) | (4,282) |
Derivative financial instruments |
| (72) | (68) |
Current tax liabilities |
| (210) | (152) |
Provisions |
| (240) | (84) |
Net current assets |
| 12,494 | 51,963 |
Non-current liabilities: |
|
|
|
Deferred tax liabilities |
| (890) | (1,354) |
Total liabilities |
| (6,816) | (5,940) |
Net assets |
| 23,834 | 64,918 |
Equity: |
|
|
|
Share capital | 10 | 2,294 | 4,266 |
Share premium account |
| 1,496 | 919 |
Equity reserve |
| 1,780 | 2,079 |
Capital reserve |
| 255 | 255 |
Translation reserve |
| 273 | (237) |
Retained earnings | 11 | 17,736 | 57,636 |
Equity attributable to equity holders of the Company |
| 23,834 | 64,918 |
The financial statements of Bioquell PLC, registered number 00206372, were approved by the Board of Directors and authorised for issue on 7 March 2017.
They were signed on its behalf by:
Ian Johnson Michael Roller
Director Director
7 March 2017 7 March 2017
Consolidated statement of changes in equity
for the year ended 31 December 2016
| 2016 £'000 | 2015 £'000 |
Profit for the year | 397 | 35,138 |
Exchange differences on translation of foreign operations | 510 | (120) |
Total comprehensive income in the year | 907 | 35,018 |
Other movements in the year: |
|
|
Issued share capital | 68 | 12 |
Issued share premium | 577 | 118 |
Acquisition of own shares for cancellation | (41,396) | - |
Acquisition of own shares to be held in Treasury | (1,269) |
|
Credit to equity reserve for share-based payments | 35 | 119 |
Charge to equity on exercise of share options under the SARS scheme | (6) | - |
Final dividend | - | (1,406) |
Net (decrease)/increase in equity shareholders' funds | (41,084) | 33,861 |
Equity shareholders' funds at beginning of year | 64,918 | 31,057 |
Equity shareholders' funds at end of year | 23,834 | 64,918 |
Consolidated cash flow statement
for the year ended 31 December 2016
| Note | 2016 £'000 | 2015 £'000 |
Net cash from operating activities | 12 | 4,133 | 5,326 |
Investing activities |
|
|
|
Proceeds on disposal of TRaC Global Ltd net of cash transferred & cash costs of disposal |
| - | 43,423 |
Purchases of property, plant and equipment |
| (723) | (1,030) |
Expenditure on capitalised product development |
| (409) | (733) |
Purchase of intangible asset |
| (58) | (125) |
Net cash generated (used in)/from investing activities |
| (1,190) | 41,535 |
Financing activities |
|
|
|
Proceeds on issue of ordinary shares |
| 645 | 130 |
Dividends paid on ordinary shares |
| - | (1,406) |
Repayment of borrowings |
| - | (863) |
Acquisition of own shares for cancellation |
| (41,396) | - |
Acquisition of own shares to be held in Treasury |
| (1,269) | - |
Net cash used in financing activities |
| (42,020) | (2,139) |
Net (decrease)/increase in cash and cash equivalents |
| (39,077) | 44,722 |
Cash and cash equivalents at beginning of year |
| 47,573 | 2,840 |
Effect of foreign exchange rate changes |
| 260 | 11 |
Cash and cash equivalents at end of year |
| 8,756 | 47,573 |
Notes to the consolidated financial statements
for the year ended 31 December 2016
1. Basis of preparation
The financial information for the year ended 31 December 2016 contained in this New Release was approved by the Board on 7 March 2017. This announcement does not constitute statutory financial statements of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed and adopted for use by the European Union.
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements:
IFRS10, IFRS 12 and IAS 28 (amendments) | Investment Entities: Applying the Consolidation Exemption |
IFRS 11 (amendments) | Accounting for Acquisitions of Interests in Joint Operations |
IAS 1 (amendments) | Disclosure Initiative |
IAS 16 and IAS 38 (amendments) | Clarification of Acceptable Methods of Depreciation and Amortisation |
IAS 27 (amendments) | Equity Method in Separate Financial Statements |
Annual Improvements to IFRSs: 2012-2014 Cycle | Amendments to: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting |
Otherwise the principal Group accounting policies are the same as set out in detail in the Annual Report and Accounts 2015 and have been applied consistently throughout the years ended 31 December 2015 and 2016.
Statutory accounts for 2015 have been delivered to the Registrar of companies and those for 2016 will be delivered following the Company's Annual General Meeting on 26 April 2017. The auditors have reported on those financial statements. Their reports were not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
2. Revenue
An analysis of the Group's revenue follows. Revenue from continuing operations is generated from two segments, beingBio-decontamination (sale of goods and services) and Defence (sale of goods).
| 2016 £'000 | 2015 £'000 |
Sales of goods | 15,806 | 16,012 |
Revenue from the rendering of services | 10,679 | 10,865 |
| 26,485 | 26,877 |
Geographical analysis
The Group's bio-decontamination equipment is manufactured within the UK and sold into the UK, Europe and Rest of World markets. 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 2016 £'000 | Year ended 31 December 2015 £'000 |
UK | 6,454 | 5,501 |
Rest of Europe | 7,676 | 7,375 |
Rest of World | 12,355 | 14,001 |
| 26,485 | 26,877 |
3. Business and geographical segments
For management purposes, the Group is currently organised into two divisions - Bio-decontamination ("BIO") and Defence. These divisions are consistent with the internal reporting as reviewed by the Executive Chairman. Segment information is available only within the Income Statement, the Group does not split out the balance sheet for the Defence business. Segment information about these businesses is presented below:
Year ended 31 December 2016 | BIO £'000 | Defence £'000 | Consolidated £'000 |
Revenue |
|
|
|
Total revenue | 25,170 | 1,315 | 26,485 |
Result |
|
|
|
Segment result before exceptional item | 2,603 | 202 | 2,805 |
Impairment of intangibles | (458) | (204) | (662) |
Segment result | 2,145 | (2) | 2,143 |
Costs associated with Board restructuring |
|
| (858) |
Consolidated result after exceptional items |
|
| 1,285 |
Unallocated head office costs |
|
| (1,231) |
Profit from operations |
|
| 54 |
Finance costs and investment revenue |
|
| 22 |
Profit before tax |
|
| 76 |
Tax |
|
| 321 |
Profit for the year |
|
| 397 |
The impairment of intangibles has no cash impact on the business but it does create a release of the deferred tax liability adding £126,000 to the recognised tax credit on the Income Statement. The costs associated with Board restructuring had a cash impact totalling £858,000 and have been recognised as an allowable deduction for tax purposes.
Year ended 31 December 2015 | BIO £'000 | Defence £'000 | Consolidated £'000 |
Revenue |
|
|
|
Total revenue | 23,363 | 3,514 | 26,877 |
Result |
|
|
|
Segment result before exceptional item | 1,383 | 582 | 1,965 |
Costs associated with reorganisation |
|
| (220) |
Segment result |
|
| 1,745 |
Unallocated head office costs |
|
| (1,194) |
Profit from operations |
|
| 551 |
Finance costs and investment revenue |
|
| 81 |
Profit before tax |
|
| 632 |
Tax |
|
| 5 |
Profit for the year |
|
| 637 |
4. Discontinued operations
On 12 March 2015 the Group entered into a sale agreement to dispose of TRaC Global Limited, which carried out all of theGroup's Testing, Regulatory and Compliance work. The disposal was made to simplify the Group and allow focus on the core decontamination business and to release value for shareholders. The sale was completed on 7 May 2015, on which date controlof TRaC Global Limited passed to the acquirer.
The results of the discontinued operations which have been included in the Consolidated Income Statement in 2015, were as follows:
| Period to 7 May 2015 £'000 |
Revenue | 6,175 |
Expenses | (5,040) |
Profit before tax | 1,135 |
Attributable tax expense | (240) |
Gain on disposal | 33,606 |
Profit attributable to discontinued operations | 34,501 |
During 2015, TRaC Global Ltd contributed £0.6m to the Group's net operating cash flows, paid £0.3m in respect of investing activities and paid £2.0m in respect of financing activities.
A profit of £33.6m arose in 2015 on the disposal of TRaC Global Ltd, being the net proceeds of disposal less the carrying amountof the subsidiary's net assets and attributable goodwill.
5. Profit from operations
Profit from operations has been arrived at after charging/(crediting):
| 2016 £'000 | 2015 £'000 |
Research & development costs | 832 | 559 |
Impairment of intangible assets | 662 | - |
Depreciation of property, plant and equipment | 1,544 | 1,616 |
Amortisation of development costs | 864 | 797 |
Amortisation of trademarks, patents and licence fees | 162 | 178 |
Cost of inventories recognised as an expense | 6,433 | 8,488 |
Cost of inventory written off in the year | 102 | 29 |
Staff costs | 10,169 | 10,563 |
Loss on disposal of property, plant and equipment | 8 | 105 |
Net foreign exchange loss/(gain) | 276 | (34) |
A more detailed analysis of auditors' remuneration is provided below:
| 2016 £'000 | 2015 £'000 |
Fees payable to the Company's auditors for the audit of the Company's annual accounts | 43 | 30 |
Fees payable to the Company's auditors for the audit of the subsidiaries pursuant to legislation | 63 | 66 |
Fees payable for the audit of subsidiaries by other Deloitte firms (France) | 15 | - |
Total audit fees | 121 | 99 |
Audit related assurance services | 9 | 4 |
Total non-audit fees | 9 | 4 |
6. Tax
| 2016 £'000 | 2015 £'000 |
UK corporation tax current year | (42) | (105) |
UK corporation tax prior year | (16) | (68) |
Deferred tax credit current year | 418 | 282 |
Deferred tax adjustment prior year | (39) | (104) |
| 321 | 5 |
Corporation tax is calculated at 20% (2015: 20.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The credit for the year can be reconciled to the profit per the income statement as follows:
| 2016 £'000 | 2015 £'000 |
Profit before tax | 76 | 632 |
Tax at the UK corporation rate of 20% (2015: 20.25%) | (17) | (128) |
Adjusted for: |
|
|
Tax effect of expenses not deductible in determining taxable profit | (33) | (35) |
Effect on deferred tax asset of movement in share price | 71 | - |
Effect of research and development relief | 204 | 301 |
Tax effect of different tax rate of subsidiaries operating in other jurisdictions | (33) | (31) |
Prior year adjustment | (55) | (172) |
Utilisation of tax losses not recognised | 54 | - |
Effective change in tax rate | 130 | 70 |
| 321 | 5 |
Nothing was charged directly to equity in 2016 or 2015.
7. Disposal of TRaC
As referred to in note 4, on 7 May 2015 the Group disposed of its interest in TRaC Global Ltd. There were no disposals in the year ended 31 December 2016. The impact of TRaC Global Ltd on the Group's results in the prior period is disclosed in note 4. The net assets of TRac Global Ltd at the date of disposal and the costs of the disposal transaction are shown below:
|
|
| 7 May 2015£'000 |
Intangible assets |
|
| (125) |
Property, plant & equipment |
|
| (8,121) |
Inventories |
|
| (131) |
Trade and other receivables |
|
| (4,155) |
Cash and cash equivalents |
|
| (891) |
Trade and other payables |
|
| 2,537 |
Current tax liabilities |
|
| 913 |
Borrowings |
|
| 834 |
Attributable goodwill |
|
| (691) |
Attributable tax expense |
|
| 240 |
|
|
| (9,590) |
Costs of disposal* |
|
| (1,304) |
Gain on disposal |
|
| 33,606 |
Total consideration |
|
| 44,500 |
Satisfied by cash |
|
| 44,500 |
* Includes bonuses paid to Directors totalling £227k gross
No tax arose on the disposal of TRaC as the transaction fell within the scope of the Substantial Shareholders Exemption (SSE).
8. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings | Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
Earnings for the purposes of basic earnings per share being net profit from continued operations excluding profit on disposal | 397 | 657 |
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 397 | 35,138 |
Number of shares | Year ended 31 December 2016 | Year ended 31 December 2015 |
Weighted average number of ordinary shares for the purposes of basic earnings per share | 31,174,461 | 42,613,220 |
Effect of dilutive potential ordinary shares: |
|
|
- share options | 1,019,473 | 365,485 |
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 32,193,934 | 42,978,705 |
9. Analysis of net cash
| Year ended 31 December 2016 £'000 | Year ended 31 December 2015 £'000 |
Cash and cash equivalents | 8,756 | 47,573 |
10. Share capital
| 2016 |
| 2015 | ||
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 | 22,004,780 | 2,200 |
| 42,664,082 | 4,266 |
Ordinary shares of 10p each held in Treasury | 940,000 | 94 |
|
| - |
|
| 2,294 |
|
| 4,266 |
During the year 20,405,814 ordinary shares of 10p each were repurchased under the tender offer to purchase own shares announced on 2 June 2016 and repurchased shares have been cancelled. The total consideration for the purchase of the shares was £41,396,375 which includes stamp duty of £204,060 and professional fees of £232,563.
Of this amount £2,040,000 was treated as a reduction of share capital, £60,000 as a charge to the income statement and the remaining charge of £39,396,000 included in retained earnings.
In December 2016 the Company acquired 940,000 shares in the market for £1,269,000. These shares are now held in Treasury.
The Company issued a total of 686,512 ordinary shares of 10p each for £645,000 on the conversion of options under the Executive Share Option schemes and the Save-as-you-earn scheme.
11. Retained earnings
| £'000 |
Balance at 1 January 2015 | 23,869 |
Net profit for the year from continuing operations | 637 |
Profit on disposal of TRaC and from discontinued activities | 34,501 |
Payment of dividend | (1,406) |
Exercised share options | 35 |
Balance at 1 January 2016 | 57,636 |
Net profit for the year from continuing operations | 397 |
Acquisition of own shares for cancellation | (39,296) |
Acquisition of own shares to be held in Treasury | (1,269) |
Exercised share options | 268 |
Balance at 31 December 2016 | 17,736 |
12. Notes to the cash flow statement
| 2016 £'000 | 2015 £'000 |
Profit for the period | 76 | 35,138 |
Adjustments for: |
|
|
Profit on disposal of discontinued operations | - | (34,741) |
Tax charge on discontinued operations | - | 240 |
Finance costs | 110 | 69 |
Investment revenues | (132) | (150) |
Depreciation of property, plant and equipment | 1,544 | 1,645 |
Amortisation and impairment losses of intangible assets | 1,026 | 971 |
Impairment of intangible assets | 662 | - |
Accelerated IFRS2 charge | 60 | - |
Share-based payments | 35 | 119 |
Loss on disposal of property, plant and equipment | 8 | 105 |
Decrease/(increase) in provisions | 156 | (4) |
Operating cash flows before movements in working capital | 3,545 | 3,392 |
Decrease/(increase) in inventories | 976 | (295) |
(Increase)/decrease in receivables | (359) | 2,324 |
Decrease in payables | (51) | (176) |
Cash generated by operations | 4,111 | 5,245 |
Investment revenues | 132 | 150 |
Interest paid | (110) | (69) |
Net cash from operating activities | 4,133 | 5,326 |
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.
13. 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 setout below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. In addition a payment for loss of office was made to Nicholas Adams during the year of £ 514,000. He was paid a further £231,000 as payment in lieu of share options that lapsed upon the termination of his contract.
| 2016 £'000 | 2015 £'000 |
Short-term employee benefits | 724 | 906 |
Post-employment benefits | 60 | 75 |
Share-based payments | 33 | 76 |
| 817 | 1,057 |