IDH.L Regulatory News (IDH)

10 Dec 2007 07:01

Immunodiagnostic Systems Hldgs PLC10 December 2007 IMMUNODIAGNOSTIC SYSTEMS HOLDINGS PLC Unaudited Interim Results for the Six-Month Period to 30 September 2007 Immunodiagnostic Systems Holdings plc ("IDS" or the "Company" or the "Group"), aleading producer of diagnostic testing kits for the clinical and researchmarkets, announces its interim results for the six month period to 30thSeptember 2007. IDS operates in the in-vitro diagnostics ("IVD") market. The Company designs,manufactures and sells immunoassay kits which are used to measure or detectparticular substances within a sample, thus aiding the diagnosis or monitoringof a disease or providing information for research studies. In 2006 theimmunoassay sector of the IVD market was estimated to be worth US$ 5.5bn. Financial Highlights: • Turnover up 49% to £6.77m (2006: £4.53m); • Organic revenue up 17% to £5.30m (2006: £4.53m); • Gross profit up 48% to £4.32m (2006: £2.92m); • EBITA up 88% to £1.54m (2006: £0.82m); • Pre-tax profit up 81% to £1.34m (2006: £0.74m); • Adjusted, fully diluted earnings per share up 33% to 5.6p (2006: 4.2p). Operational Highlights: • Two acquisitions made during the half year; • Two new products preparing for launch in the second half of this financial year; • The appointments of Alain Rousseau as Engineering Director and Ian Cookson as Operations Director. In his statement to shareholders, David Evans, Chairman said: "The outlook for the Group for the second half remains very positive and tradingcontinues to meet expectations. "I see continued growth being achieved across all aspects of the Group'sbusiness and the outlook for the Group going forward remains positive, howeverthe short term challenge is to fully complete the integration of our newlyacquired businesses into our organisation. "I look forward to updating you further as we make progress in relation to theGroup's roll out of automation and our automated panel of immunoassay products." Contacts: IDS Oriel Securities Ltd Parkgreen Communications LtdRoger Duggan, Managing Director Andrew Edwards Paul McManusPaul Hailes, Finance Director Tel: 0191 519 0660 Tel: 020 7710 7600 Tel: 020 7479 7933 Mob: 07980 541 893http://www.ids-direct.com paul.mcmanus@parkgreenmedia.com CHAIRMAN'S STATEMENT Dear Shareholder I am pleased to report an excellent set of results, demonstrating that IDS hascontinued to successfully execute its acquisition and growth strategy. At thesame time revenues and profits have continued to grow organically, with revenuesbenefiting from three months contribution from the Nordic acquisition and onemonth from the Biocode Hycel acquisition: • Nordic Bioscience Diagnostics (NBD), a manufacturer of bone and arthritic diagnostics test kits, was acquired during the period for a total of £17 million - consideration effectively being £10 million cash and £7 million in IDS ordinary shares issued at a price of 251.5p per share; • Biocode Hycel (BCH), a manufacturer of diagnostic test kits and automated instruments, was acquired in September for a total of €23 million - consideration effectively being €12 million in cash and the remainder in shares; • The Company successfully raised £12 million from a secondary issue to help fund the acquisition of BCH; • The Company has also benefited from the appointment of an Operations Director, Ian Cookson, previously of Axis Shield Diagnostics. Ian is contributing tremendously to the integration of NBD and BCH as well as his contribution to our general growth in production and order fulfilment; • The Company has also benefited from the appointment of Alain Rousseau as Engineering Director and we welcome his expertise and experience accumulated over many years within the IVD industry in bringing several automated instruments to the market. Alain has been influential in guiding the 3X3 to its current stage of development. Results These are the first set of results prepared under International FinancialReporting Standards resulting in the adoption of new accounting policies inrelation to a number of key items in particular; accounting for acquisitions andalso research and development expenditure. Profit and Loss Turnover for the Group amounted to £6.8m, which, when compared to same periodlast year, represents a 49% increase. Our core products sales continue to seegrowth both domestically and abroad and are some 17% greater than same periodlast year. The gross margin decreased by 0.55% as a result of the acquisition ofBCH. Other costs increased by £0.72 m which were in line with managementexpectations following the two acquisitions. This has resulted in an EBITA of £1,543,000 (2006: £816,000) and OperatingProfit of £1,463,000 (2006: £782,000) with a Profit before Tax of £1,342,000(2006: £742,000). The Company paid its second annual dividend during the periodamounting to £202,000 (2006: £133,000). Balance Sheet Some key points within the balance sheet following our acquisitions areGoodwill, Intangible Assets and Net Debt: £'000 IDS SBA BCH NBD Total Goodwill - - 13,484 14,729 28,213 IP 536 823 98 1,664 3,121Development Costs 250 - 4,275 - 4,525Intangible Assets 786 823 4,373 1,664 7,646 Analysis of net debt Net debt as at 30th September 2007 was £7,932,000 compared to net funds of£257,000 as at 30th September 2006. The major factor being the £10,000,000 loantaken to partially fund the acquisition of NBD. Business Overview The Group has continued to grow and is benefiting from its direct sales of awider and more complete panel of products (both organically launched by theCompany and also acquired through the two acquisitions) into both the USA andour key European territories of Germany, France, the United Kingdom and nowScandinavia, courtesy of our acquisition of NBD. The acquisition of NBD has increased our Company's profile as a global supplierof bone and skeletal products. We remain very confident that we can continue togrow this business significantly by not only exploiting the margin and revenuebenefits of direct distribution, but also from the longer-term growthopportunities afforded by automating those acquired assays. Ultimately of greater strategic significance is the opportunity provided by theacquisition of BCH to automate not only the existing IDS product range but alsoto widen our product offering through menu range extension. This will beachieved both in partnership with other companies for designated product areas,such as Infectious Diseases and Auto-immune Disease with Bouty of Italy, andthrough our own internal biochemistry development programme. We are confidentthat we can add to the number of 3X3 alliances during 2008. The expenditure on the 3X3 programme going forward will be funded from currentresources and the Board is cognisant of the impact that BCH has on the Profitand Loss Account in the short to medium term and all efforts are being made tominimize the outflows (excluding development expenditure on the 3X3) from theircurrent operations without damaging the infrastructure necessary to support the3X3 in the future. As a consequence of the 3X3 acquisition we have lost the Kryptor distributorship(due to conflict of interest with the 3X3) in the UK which accounted for£326,000 sales in the first six months of this year. The termination of thiscontract will be effective as of 31 December 2007 and has been handledprofessionally and amicably by both parties. 3X3 The development of the 3X3 instrument and assays for that instrument remain oursingle biggest priority. The instrument development programme is progressing well and the design shouldbe frozen by January 2008, early user trials in non-clinical environments haveprovided us with useful feedback with regard to the robustness of both theinstrument hardware and software as well as its ease of use. The assay development programme is also progressing well at both Boldon andLiege and we anticipate the first menu relating to our bone panel tests will beavailable on the 3X3 by H2 2008. Whilst individual products will be availableearlier, the true benefit will only be gained by having a comprehensive menu forspecific disease areas. In this particular respect the Board believes that itwill have the most comprehensive automated bone panel in the world and it willseek to add to its IP in this area where long-term value will accrue. Board Management and Team I am delighted that we were able to secure the services of both Alain Rousseauand Ian Cookson. Alain has had many years of experience within automation andhas successfully launched a number of automated solutions into the diagnosticmarket; Ian Cookson brings with him a level of knowledge and detail which ourproduction and operations departments will benefit from, allowing us to keep upwith demand for our products in an efficient and timely manner. Outlook The outlook for the Group remains positive as we continue to trade marginallyahead of expectation. The 3X3 instrument and assay development programme remains on course and we willadd new partners during the course of 2008 and we anticipate, as expected, thefirst benefits of this flowing through in the next financial year. A milestonein development was to achieve CE mark, according to the IVD Directive, for theinstrument and to transfer our first automated test, on time, under contract toa major Pharmaceutical company in November. The past six months has been a time of considerable activity within the Groupand the progress we have made and continue to make would not have been possiblewithout the dedicated effort of all our employees and I would like to thank themfor helping the Group progress and expand as rapidly as it has done. David Evans 7 December 2007 Chief Executive's Review Introduction IDS has continued to grow organically, accelerated by judicious acquisition. Asa result, we now have direct sales presence, and take full margin on sales, inthe USA, Germany, France and Scandinavia, in addition to the UK. We havesignificantly bolstered our product offering with the acquisition of NBD, andalso secured a major engine of forward growth in the acquisition of BCH. Market Conditions The market for diagnostic products continues to grow, with higher growth in thespecialist niche areas occupied by IDS, in particular Bone & Skeletaldiagnostics, with a burgeoning demand for vitamin D determinations. The organicgrowth of 17% in IDS products continues to closely match those of managementexpectations. This strong growth has been delivered by an existing range of 'manual'laboratory products in the major IVD markets of the world, where we now havevigorous young subsidiaries hungry for sales. Their performance will beenhanced with the addition of the well-respected clinical and research productsacquired along with NBD. We believe strongly that there is a growing demand for automated solutions tothe increasing workloads being experienced in the clinical environment todiagnose bone, skeletal and growth disorders, and increasingly for monitoringthe efficacy of expensive therapeutic regimens. The acquisition of BCH wasstrategically important to secure access to a 'state of the art' closedautomated system (known as the 3X3) for our existing products, and hasadditionally delivered an excellent springboard to the adjacent arenas ofcoagulation (haemostasis) and biochemistry. This bodes well for future growth. Operating Review IDS currently has its major manufacturing site in Boldon in the UK, and ongoingmanufacture of NBD products in Denmark until mid-2008, by which time these willhave transferred to the UK. Manufacture of 3X3 products will be centred in our (BCH) facility in Liege(Belgium). Haematology and biochemistry reagent manufacture will continue inLiege and Rennes (France), and instrument manufacture will be centred inPouilly, France. New product development continues in Boldon, Liege and Oulu (Finland), in aspirited and constructively competitive manner that encourages successfulprogress. Financial Results in Summary Revenues, profits and earnings per share all substantially increased compared tosame period last year: Turnover by Product Area: Period Ending 30th September: 2007 2006 Change £'000 £'000 %Vitamin D 3,157 2,414 30.78Octeia 607 632 (3.96)Other 313 189 65.61 Total of IDS manufactured products 4,077 3,235 26.03 Distribution of third party sales 1,218 1,298 (6.16)Nordic Bioscience products 893 0Biocode Hycel products 579 0 6,767 4,533 49.28 • Gross profit, has increased by £1,402,000 to £4,322,000 (2006:£2,920,000) • Operating Profit has increased by 87% to £1,463,000 (2006: £782,000) • Profit before tax has increased by £600,000 to £1,342,000 (2006: £742,000) • Cash and cash equivalents of £4,404,000 compared to £840,000 in 2006 • Dividends paid during the period amounted to £202,000 (2006:£133,000) IFRS These are the first set of company results to be published under the IFRSstandards. As a consequence, we have included within these financial results asummary of our main accounting policies. Last year's full and interim accountshave been restated and reconciliations are included within the notes to theseaccounts. Roger Duggan 7 December 2007 Unaudited consolidated interim income statementFor the six month period to 30 September 2007 6 Months 6 Months Year ended ended ended 31 March Note 30 Sept 2007 30 Sept 2006 2007 £'000 £'000 £'000Revenue 2 Continuing 5,295 4,533 9,922 Acquisitions 1,472 - - 6,767 4,533 9,922 Cost of Sales (2,445) (1,613) (3,420) Gross Profit 4,322 2,920 6,502 Administrative expenses (2,859) (2,138) (4,288) Operating Profit 1,463 782 2,214 Net interest (payable) / receivable (121) (40) (20) Profit on ordinary activities before 2 1,342 742 2,194taxation Tax on profit on ordinary activities 6 (398) (136) (596) Profit for the period 944 606 1,598 Earnings per share - basic (per share pence) 5 6.059 4.543 11.975 - diluted (per share pence) 5 5.604 4.225 10.955 Unaudited consolidated interim statement of recognised income and expenseFor the six month period to 30 September 2007 6 Months 6 Months Year ended ended ended 31 March Note 30 Sept 2007 30 Sept 06 2007 £'000 £'000 £'000Profit for the period 944 606 1,598 Foreign exchange translationdifferences on foreign currency netinvestments in subsidiaries (62) 31 (11) Total recognised income and expenseattributable to equity holders of theparent 882 637 1,587 Unaudited consolidated interim balance sheetAs at 30 September 2007 6 Months 6 Months Year ended ended ended 31 March Note 30 Sept 2007 30 Sept 2006 2007 £'000 £'000 £'000Assets Non-current assets Property, plant and equipment 2,876 964 1,137 Intangible assets 7,646 1,058 1,392 Goodwill 28,213 - - Investments 3 3 3 38,738 2,025 2,532 Current Assets Inventories 5,637 935 915 Trade and other receivables 4,244 1,478 2,108 Deferred tax asset 561 - - Cash and cash equivalents 4,404 840 960 14,846 3,253 3,983 Total assets 53,584 5,278 6,515 Liabilities Current liabilities Short term portion of long termborrowings 1,836 232 69 Trade and other payables 5,086 1,120 1,659 Income tax liabilities 118 111 286 7,040 1,463 2,014 Net current assets 7,806 1,790 1,969 Non- current liabilities Long term borrowings 10,500 351 16 Provisions 6,177 27 27 Deferred tax - 5 8 Deferred income 20 24 20 16,697 407 71 Total liabilities 23,737 1,870 2,085 Net assets 8 29,847 3,408 4,430 Total equity Share capital 9 479 267 267 Other reserves 26,202 1,704 1,739 Profit and loss account 8 3,173 1,439 2,431 Treasury Shares (7) (2) (7) Equity shareholders' funds 8 29,847 3,408 4,430 Unaudited consolidated interim cash flow statementFor the six month period to 30 September 2007 6 Months 6 Months Year ended ended ended 31 March Note 30 Sept 2007 30 Sept 2006 2007 £'000 £'000 £'000 Operating profit 1,463 782 2,214 Adjustments for: Depreciation and amortisation 167 128 256 Share based payment expense 29 - 77 Interest paid (121) (40) (20) Operating cash flows before movements in (1,538) 870 2,527working capital Movement in inventories (165) (130) (109) Movement in receivables 2,836 85 (545) Movement in payables (3,543) (157) 243 Taxation paid (1,135) (138) (428) Net cash from operating activities (469) 530 1,688Investing activities Purchase of property, plant and equipment Purchase of intangible assets (425) (310) (546) Acquisition of subsidiaries (net of cash - - (246)acquired) Development expenditure on research anddevelopment activities capitalised (18,234) - - (836) - - Net cash used in investing activities (19,495) (310) (792) Financing activities Proceeds from long term borrowings 12,251 Repayment of long term borrowings (132) (688) Dividends paid (202) (133) (133) Proceeds from issue of shares 11,359 - - Net cash used in financing activities 23,408 (265) (821) Net increase / (decrease) in cash and cash 3,444 (45) 75equivalents Cash and cash equivalents at beginning of 960 885 885periodCash and cash equivalents at end of period 4,404 840 960 Notes to the Interim Financial Statements For the period to 30 September 2007 1 This interim statement for the six month period to 30 September 2007is unaudited and was approved by the Directors on 7 December 2007. Theinformation set out does not constitute statutory accounts within the meaning ofSection 240 of the Companies Act 1985. 2 Turnover and segmental information Turnover and profit before tax relate principally to the main activity of themanufacturing and distributing of medical diagnostic products, and areattributable to the continuing operations of the Group. Geographical analysis of turnover by origin: 6 Months 6 Months Year ended ended ended 30 Sept 2007 30 Sept 2006 31 Mar 2007 £'000 £'000 £'000 3,012 2,499 5,736 UKEurope 2,646 1,234 2,658USA 1,109 800 1,528 6,767 4,533 9,922 Geographical analysis of profit before tax by origin: 6 Months 6 Months Year ended ended ended 30 Sept 2007 30 Sept 2006 31 Mar 2007 £'000 £'000 £'000 UK 1,200 713 2,064Europe 138 (12) (14)USA 125 81 164Operating profit 1,463 782 2,214Finance charges (net) (121) (40) (20)Profit on ordinary activities 1,342 742 2,194before tax Geographical analysis of net assets/(liabilities) by origin: 30 Sept 2007 30 Sept 2006 31 Mar 2007 £'000 £'000 £'000 UK 23,298 3,365 4,360Europe 6,308 (87) (102)USA 241 130 172 29,847 3,408 4,430 3 The financial statements are prepared under the historical costconvention in accordance with applicable International Financial ReportingStandards as adopted by the European Union and issued by the InternationalAccounting Standards Board (IFRS). IFRS includes all IFRS, IAS, ISCs and IFRICsand the financial statements have been prepared in accordance with those partsof the Companies Act 1985 applicable to companies under IFRS. The policies havechanged from the previous year when the financial statements were prepared underapplicable United Kingdom Generally Accepted Accounting Principles (UK GAAP).The comparative information has been restated in accordance with IFRS. 4 Basis of consolidation The consolidated financial information incorporates the financial informationrelating to the Company and its subsidiary undertakings, with the exception ofImmunodiagnostic Systems Limited, using the acquisition method of accounting,and the consolidated results of its subsidiary undertaking, ImmunodiagnosticSystems Limited, using the merger method of accounting. 5 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Group has two classes of dilutive potential ordinary shares: thoseshare options granted to employees where the exercise price is less than theaverage market price of the Company's ordinary shares during the year and thecontingently issuable shares under the Group's share option scheme. At 30September 2007, the performance criteria for the vesting of the awards under theoption scheme had been met and consequently the shares in question are includedin the diluted EPS calculation. The calculations of earnings per share are based on the following profits andnumbers of shares. 6 Months 6 Months Year ended ended ended 30 Sept 2007 30 Sept 2006 31 Mar 2007 £ £ £ Profit on ordinary activities after tax 943,898 606,275 1,598,026 No. No. No.Weighted average no of shares:For basic earnings per share 15,579,053 13,344,667 13,344,667Effect of dilutive potential ordinary shares:-Share Options 1,264,571 1,003,350 1,242,392For diluted earnings per share 16,843,624 14,348,017 14,587,059 Basic earnings per share 6.059p 4.543p 11.975pDiluted earnings per share 5.604p 4.225p 10.955p 6 Taxation Taxation for the 6 months ended 30 September 2007 is based on the effective rateof taxation which is estimated to apply to the year ended 31 March 2008. 7 Acquisitions The Group acquired 100% of the share capital of Nordic Bioscience Diagnostics A/S (NBD) and 99.93% of the share capital of Biocode Hycel S.A. (BCH) during theperiod. The book and fair values acquired were as follows: NBD BCH Book Fair value Fair value Book value Fair value Fair value value adj adj Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Intangible assets - 1,712 1,712 3,540 196 3,736 5,448Property, plant andequipment 14 - 14 1,394 43 1,437 1,451Inventories 596 330 926 3,631 3,631 4,557Receivables 1,174 - 1,174 2,216 - 2,216 3,390Cash and cashequivalents 1,228 - 1,228 (16) - (16) 1,212Payables (727) (60) (787) (6,901) 142 (6,759) (7,546)Deferred tax - (389) (389) - 1,560 1,560 1,171 2,285 1,593 3,878 3,864 1,941 5,805 9,683Goodwill 14,729 13,484 28,213Consideration 18,607 19,289 37,896 Consideration satisfied byShares 6,903 6,446 13,349Cash (including expenses) 11,704 7,742 19,446Earn-out provision - 5,101 5,101 18,607 19,289 37,896 8 Statement of changes in equity Share Other Profit and Treasury Total capital Reserves loss acc Shares £'000 £'000 £'000 £'000 £'000 At 1 April 2007 267 1,739 2,431 (7) 4,430Profit for the period 944 944Foreign exchange translationdifferences on foreign currency netinvestment in subsidiaries. (62) (62)Share based payments charged toequity reserves 29 29 Dividend Paid (202) (202)Shares issued in the period (net ofexpenses) 212 24,496 24,708 At 30 September 2007 479 26,202 3,173 (7) 29,847 Share Other Profit and Treasury Total capital Reserves loss acc Shares £'000 £'000 £'000 £'000 £'000 At 1 April 2006 267 1,673 966 (2) 2,904Profit for the period 606 606Foreign exchange translationdifferences on foreign currency netinvestment in subsidiaries. 31 31 Dividend Paid (133) (133) At 30 September 2006 267 1,704 1,439 (2) 3,408 Share Other Profit and Treasury Total capital Reserves loss acc Shares £'000 £'000 £'000 £'000 £'000 At 1 April 2006 267 1,673 966 (2) 2,904Profit for the year 1,598 1,598Foreign exchange translationdifferences on foreign currency netinvestment in subsidiaries. (11) (11) Acquisition of own shares (5) (5)Share based payments charged toequity reserves 77 77Dividend Paid (133) (133) At 31 March 2007 267 1,739 2,431 (7) 4,430 9 Share Capital 6 Months ended 6 months to ended Year ended 30 Sept 2007 30 Sept 2006 31 March £ £ 2007 £Authorised: 75,000,000 ordinary 2p shares 1,500,00050,000,000 ordinary 2p shares 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Allotted, called up and fully paid: 23,967,686 ordinary 2p shares 479,35313,344,667 ordinary 2p shares 266,893 266,893 479,353 266,893 266,893 10 Other reserves The other reserves consist of the share premium account, the merger reserve, theforeign currency translation reserve and the reserve for shares to be issuedunder employee share option plans. The merger reserve arises on consolidation of the results of ImmunodiagnosticHoldings PLC and the consolidated results of Immunodiagnostic Systems Limited.The reserve represents the difference arising on consolidation between thenominal value of shares issued by Immunodiagnostic Holdings PLC in considerationfor 100% of the share capital of Immunodiagnostic Systems Limited and thenominal value of the shares acquired, plus the share premium account relating tothose shares. 11 Report and Financial Statements The comparative figures for the financial year ended 31 March 2007 which are nowpresented under IFRS are not the statutory financial statements for thatfinancial year. Those financial statements were presented under UK GAAP,reported on by the Group's auditors and delivered to the Registrar of Companies.The report of the auditors was unqualified and did not contain a statement undersection 237 (2) or (3) of the Companies Act 1985. Copies of the Annual Reportfor 2006 are available from the Company's registered office by applying to theCompany Secretary. The interim results for the six months ended 30th September 2007 and 30thSeptember 2006 have not been audited. The financial information set out abovedoes not constitute full financial statements as defined by section 240 of theCompanies Act 1985. 12 Accounting policies The significant accounting policies that have been used in thepreparation of the financial statements are summarised below. Basis of accounting The financial statements are prepared under the historical cost convention inaccordance with applicable International Financial Reporting Standards asadopted by the European Union and issued by the International AccountingStandards Board (IFRS). IFRS includes all IFRS, IAS, ISCs and IFRICs and thefinancial statements have been prepared in accordance with those parts of theCompanies Act 1985 applicable to companies under IFRS. The measurement basisand principal accounting policies are set out below. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS. The changes to accounting policies are explained in note13, together with the reconciliation of opening balances. The date oftransition to IFRS was 1 April 2006. Basis of preparation The financial statements are prepared on the historical cost basisexcept for certain financial assets which are stated at their fair values. The preparation of financial statements in conformity with IFRSrequires the directors to make judgements, estimates and assumptions that affectthe application of policies and reported amounts of assets and liabilities,income and expense. The estimates and judgements are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making judgementsabout carrying amounts of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. Theaccounting policies set out below have, unless otherwise stated, been appliedconsistently to all periods presented in these financial statements. Application of IFRS1 Under the first time adoption procedures set out in IFRS1, theCompany is required to establish IFRS accounting policies as at 31 March 2008and to apply these retrospectively in the determination of prior periodcomparatives from 1 April 2006, the date of transition. The accounting policiesset out below have been applied consistently to all of the periods covered inthe financial statements. There are a number of optional exemptions to this general principle, the mostsignificant of which are set out below: IFRS 3, Business Combinations The Group has elected not to restate business combinations prior to the date oftransition. Accordingly, the balance sheet at 1 April 2006 incorporates thefinancial statements of its subsidiary undertaking Immunodiagnostic SystemsLimited using the merger method of accounting and the subsidiary's subsidiaryundertakings using the acquisition method of accounting. Goodwill previouslyrecognised on consolidation has been reviewed for impairment as at 1 April 2006and has been fully written off as at that date. Associates have been deemedwholly immaterial and are treated as investments in the Group accounts. IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement The Group has elected to adopt IAS 32 and IAS 39 from 1 April 2006 and not torestate prior period comparatives. Tables setting out the reconciliation of opening UK GAAP balances to IFRS,together with the effect on the equity, net income and cash flows, are providedin note 13. Foreign currencies The results and financial position of the Group are expressed in poundssterling, its functional currency. Transactions in currencies other than poundssterling are recorded at the exchange rate ruling at the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesat the balance sheet date are translated to sterling at the foreign exchangerate ruling at that date. Exchange differences arising on translation arerecognised in the consolidated income statement for the period. Non-monetary assets and liabilities denominated in foreign currencies that arestated at fair value are translated at the rates prevailing at the dates whenthe fair value was determined. Non-monetary assets and liabilities that aremeasured at historical cost in a foreign currency (eg property, plant andequipment purchased in a foreign currency) are translated using the exchangerate prevailing at the date of the transaction. Exchange differences arising onthe translation of net assets are effected through the statement of recognisedincome and expense. Where a non-monetary foreign currency loan forms part of the net investment in aforeign subsidiary, on consolidation the exchange differences are recogniseddirectly in equity to the extent the loan qualifies as an effective hedge. Business combinations The financial statements incorporate the financial statements of theCompany and all its subsidiaries. Unrealised gains on transactions between theGroup and its subsidiaries are eliminated. Unrealised losses are alsoeliminated unless the transaction provides evidence of an impairment of theasset transferred. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group since date of transition. The cost of an acquisitionis measured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directlyattributable to the acquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date. The excess of the cost of the acquisitionover the fair value of assets and liabilities is recorded as goodwill. If thecost of the acquisition is less than the fair value of the net assets of thesubsidiary acquired the difference is recognised directly in the incomestatement. Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly (but normally through votingrights granted through the Company's shareholdings), to govern the financial andoperating policies of an entity to obtain benefits from its activities. Thefinancial statements of subsidiaries are included in the consolidated financialstatements. Acquisitions On acquisition, the assets and liabilities of a subsidiary, includingidentifiable intangible assets, are measured at their fair value at the date ofacquisition. Any excess of the cost of acquisition over the fair value of theidentifiable net assets acquired is recorded as goodwill. Goodwill is reviewedfor impairment annually and any impairment is recognised immediately in theincome statement. Any excess of fair value of the identifiable net assetsacquired over the cost of acquisition is credited to the income statement onacquisition. Goodwill recorded on business combinations prior to IFRStransition has not been restated and has either been written off to reserves orcapitalised according to the UK GAAP accounting standards then in force. Ondisposal or closure of a previously acquired business, the attributable goodwillpreviously written off to reserves is not included in determining the profit orloss on disposal. The results and cash flows relating to the business are included in theconsolidated accounts from the date of combination. In accordance with Section 230 of the Companies Act 1985, a separate profit andloss account of Immunodiagnostic Systems Holdings PLC is not presented. Revenue recognition Revenue is measured by reference to the fair value of consideration received orreceivable for goods and services provided in the normal course of business,excluding VAT. Revenue is recognised upon the performance of services ortransfer of risk to the customer. Where services are based on performance orspecific deliverables the income is accounted for as the right to considerationfor performance is earned. Goodwill and other intangible assets Goodwill is measured at cost less any accumulated impairment losses.Goodwill is reviewed for impairment annually. All research costs, which consist predominantly of salaries, are charged to theincome statement as incurred. Development costs, which consist predominantly of salaries and third partydirect costs, are capitalised as an intangible asset when recognition criteriaare met and, in particular, it is clear that the development expenditure willgenerate future economic benefit. Otherwise development costs are charged tothe income statement as incurred. Capitalised costs are amortised over 5 yearsfrom the date the product commences commercial production. All development expenditure incurred on automation of IDS products on the 3X3will be capitalised and amortised over 5 years from the date the productcommences commercial production. Development expenditure on research use onlyproducts will be expensed as incurred as there is uncertainty as to themagnitude of future revenues being sufficient to cover the development costs. Research and development of clinical products - all expenditure incurred up tofeasibility stage is expensed off - all expenditure post feasibility will becapitalised and amortised post product launch over 5 years. Other intangible assets acquired as part of a business acquisition arecapitalised at fair value at the date of acquisition. Purchased intangibleassets acquired separately are capitalised at cost. After initial recognition,all intangible fixed assets are measured at cost less accumulated amortisationand any accumulated impairment losses. The TRAP patent was recognised at fair value on the acquisition of a subsidiary.The amount capitalised is the consideration in excess of the book values of theassets and liabilities at the date of acquisition. The directors consider 20years as a reasonable period of estimated useful life. Where an intangible asset has been assigned an indefinite useful life, it is notamortised and is reviewed for impairment either annually or more frequently ifevents or changes in circumstances indicate a possible decline in the carryingvalue. Intangible assets which have been assigned a finite life areamortised on a straight line basis over the assets' useful life of up to 20years and are tested for impairment if events or changes in circumstancesindicate that the carrying value may have declined. Useful lives are examinedevery year and adjustments are made, where applicable, on a prospective basis. Tangible assets Property, plant and equipment Property, plant and equipment is shown at cost, net of depreciation and anyprovision for impairment. Depreciation is provided on all property, plant andequipment at varying rates calculated to write off cost to the expected currentresidual value by equal annual instalments over their estimated useful economiclives. The principal rates employed are: Leasehold Property - over the life of the lease Plant & Machinery - over 7 years Fixtures & Fittings - over 5 years Motor Vehicles - over 4 years Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. The gain or loss arising from thesale is included in administrative expense in the income statement. Investments Fixed asset investments are stated at cost after making provision for anyimpairment in the value. Impairment Impairment is determined by comparing the recoverable amount of thecash-generating unit or Group of cash-generating units ("CGU") which areexpected to benefit from the asset to its carrying value. The recoverableamount is the greater of an asset's value in use and its fair value less coststo sell. Value in use is calculated by discounting the future cash flowsexpected to be derived from the asset or Group of assets in a CGU at anappropriate pre tax discount rate. Where the recoverable amount is less thanthe carrying value, the asset is considered impaired and is written down throughthe income statement to its recoverable amount. Inventories Stocks are valued at the lower of cost and net realisable value, after makingdue allowance for obsolete and slow moving items. Net realisable value is basedon estimated selling price less estimated cost of disposal. Work in progress is valued on the basis of direct costs plus attributableoverheads based on normal level of activity. Provision is made for anyforeseeable losses where appropriate. No element of profit is included in thevaluation of the work in progress. Lease and hire purchase commitments Assets held under hire purchase agreements are capitalised in thebalance sheet at the fair value of the assets and are depreciated over theiruseful lives. The capital element of future obligations under the contract isincluded in liabilities in the balance sheet. The interest element of the rental obligations is charged to theincome statement over the period of the lease and represents a constantproportion of the balance of capital repayments outstanding. All other leases are classified as operating leases and rentals are charged tothe income statement on a straight line basis over the lease term. Pensions Trading companies operate defined contribution pension schemes for employees.The assets of the schemes are held separately from those of the Company. Theannual contributions payable are charged to the income statement. Financial assets Trade receivables Trade receivables are initially recognised at fair value and thereafter atamortised cost using the effective interest rate. A provision for impairment oftrade receivables is established when there is objective evidence that theCompany will not be able to collect all amounts due according to the originalterms of these receivables. The amount of the provision is recognised in theincome statement. Trade receivables do not carry any interest charge. Cash Cash includes cash in hand, deposits held at call with banks, and bankoverdrafts. Bank overdrafts are shown within current liabilities on the balancesheet. Financial liabilities Trade payables Trade payables are non-interest-bearing and are initially measured at fair valueand thereafter at amortised cost using the effective interest rate. Borrowings Interest-bearing loans and bank overdrafts are initially carried at the fairvalue. Finance charges, including premia payable on settlement or redemptionand direct issue costs, are accounted for on an accruals basis to the incomestatement using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. Employee Benefit Trust Assets held in the Employee Benefit Trust are recognised in thefinancial statements of the Group until they vest unconditionally in identifiedbeneficiaries. The consideration paid for the Company's own shares is deducted in arriving atshareholders funds, where the shares have not vested unconditionally in theemployees. When unconditional awards are made to employees the cost recognisedis the fair value of the shares at the date of the award, which is spread overthe period to which the employee's performance relates. Government grants Government grants in respect of capital expenditure are treated as deferredincome and are credited to the profit and loss account over the estimated usefullife of the assets to which they relate. Revenue grants are credited to theprofit and loss account in the period to which they relate. Share based payments All goods and services received in exchange for the grant of any share-basedpayment are measured at their fair values. The Group issues equity-settled andcash-settled share-based payments to certain employees. Equity-settledshare-based payments are measured at fair value at the date of grant. The fairvalue determined at the grant date of equity-settled share-based payments isexpensed on a straight-line basis over the vesting period, based on the Group'sestimate of shares that will eventually vest. The fair value is measured by the use of the Black-Scholes option pricing model.The expected life used in the model has been adjusted, based on management'sbest estimate, for the effect of non-transferability, exercise restrictions, andbehavioural considerations. A liability equal to the portion of the goods or services received is recognisedat the current fair value determined at each balance sheet date for cash-settledshare-based payments. Changes in fair value are recognised through the profitand loss account. All equity-settled share-based payments are ultimately recognised asan expense in the income statement with a corresponding credit to reserves. If vesting periods or other non-market vesting conditions apply, theexpense is allocated over the vesting period, based on the best availableestimate of the number of share options expected to vest. Estimates aresubsequently revised if there is any indication that the number of share optionsexpected to vest differs from previous estimates. Any cumulative adjustmentprior to vesting is recognised in the current period. No adjustment is made toany expense recognised in prior periods if share options ultimately exercisedare different to that estimated on vesting. Upon exercise of share options the proceeds received net ofattributable transaction costs are credited to share capital and, whereappropriate, share premium. Taxation Current tax is the tax currently payable based on taxable results for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. However, deferred tax is not provided on the initial recognitionof an asset or a liability unless the related transaction is a businesscombination or affects tax or accounting profit. Deferred tax is generallyprovided on the difference between the carrying amounts of assets andliabilities and their tax bases. In addition, tax losses available to becarried forward as well as other income tax credits to the Company are assessedfor recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferredtax assets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of thatinstrument. The Group uses foreign currency loans to hedge its overseas exposure and fixedrate interest swaps to hedge its term loan interest rate exposure. The Groupdoes not use derivative financial instruments for speculative purposes. Interest rate swaps are initially recognised at cost and are subsequentlyre-measured to fair value at each balance sheet date. Changes in the fair valueof derivative financial instruments that do not qualify for hedge accounting arerecognised in the income statement as they arise. These valuations are providedby the issuing financial institution. Derivatives embedded in other financial instruments or other host contracts aretreated as separate derivatives when their risks and characteristics are notclosely related to those of the host contracts and the host contracts are notcarried at fair value with unrealised gains or losses reported in the incomestatement. Equity Equity comprises the following: • share capital represents the nominal value of equity shares. • share premium represents the excess over nominal value of thefair value of consideration received for equity shares, net of expenses of theshare issue. • retained earnings include all current and prior period resultsas disclosed in the income statement. • Merger reserve represents the share premium and capitalredemption reserve in existence in the subsidiary at the date of merger. • Share based payment reserve is the corresponding entry to theexpense arising from equity-settled share-based payments. Critical judgements in applying the Company's accounting policies In the process of applying the Group's accounting policies, management has madethe following judgements that have the most significant effect on the amountsrecognised in the financial statements. Research and development Research and development expenditure is capitalised as an intangible asset whenrecognition criteria are met and, in particular, it is clear that thedevelopment expenditure will generate future economic benefit. The developmentof the 3X3 instrument and a range of tests to be run on it are seen asdevelopment expenditure so relevant costs are capitalised and amortised over 5years from the date the product commences commercial production. Identification and valuation of intangible assets on acquisition During the year the Group completed the acquisitions described in note 7. TheGroup's policies require that a fair value at the date of acquisition beattributed to the intangible assets owned by the acquired companies. Thedirectors use their judgement to identify the separate intangible assets andthen determine a fair value for each based upon the consideration paid, thenature of the asset, industry statistics, future potential and other relevantfactors. These fair values will be reviewed for impairment annually. Segmental analysis The Company's principal activity consists of manufacturing and distributingmedical diagnostic products. The directors believe that these activitiescomprise one business unit and consequently segmental analysis by businesssegment is not considered necessary. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year, are discussed below. Useful lives The Group uses forecast cash flow information and estimates of future growth toassess whether goodwill and other intangible fixed assets are impaired, and todetermine the useful economic lives of its goodwill and intangible assets. Ifthe results of operations in a future period are adverse to the estimates used areduction in useful economic life may be required. Standards not yet effective The directors do not expect any of the standards detailed below which are issuedbut not yet effective to have a material impact on the financial information. IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009) IFRIC 12 Service Concession Arrangements (effective 1 January 2008) IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008) IFRIC 14, IAS19 Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction (effective 1 January 2008) Although the following standards will not have a material effect onthe results they will have a material effect on the disclosures: IAS 1 revised (effective 1 January 2009) IFRS 8 Operating Segments (effective 1 January 2009) 13 Transition to International Financial Reporting standards Immunodiagnostic Systems PLC is adopting International FinancialReporting Standards (IFRS) for its Group accounts for the financial year ending31 March 2008. Previously the Group has applied United Kingdom generallyaccepted accounting principles (UK GAAP). These interim financial statements arethe Group's first published financial statements under IFRS; the first annualreport and accounts to be prepared on this basis will be in respect of the yearending 31 March 2008. Summary of IFRS impact The areas of accounting that are most significantly impacted are: • The treatment of purchased goodwill • Accounting for business combinations • Deferred taxation The following table summarises the impact of the adoption on the Group's profitfor the six months ended 30 September 2006 and the year ended 31 March 2007. 6 months to Year ended Sept 2006 31 March 2007 £'000 £'000Profit before tax as reported under UK GAAP 737 2,189 IFRS adjustments Reversal of goodwill amortisation 8 8 Holiday pay accrued (3) (3) Profit before tax as reported under IFRS 742 2,194 The impact on total equity (and net assets) at 31 March 2006, 30 September 2006and 31 March 2007 is shown in the table below: 31 March 30 September 31 March 2006 2006 2007 £'000 £'000 £'000Net assets as previously reported under UK GAAP 2,868 3,366 4,434 Prior year adjustment in accounts to 31 March 2007 46 46 Net assets under UK GAAP as restated 2,914 3,412 4,434 IFRS adjustments Elimination of share of associates' net liabilities 13 13 12 Impairment of goodwill (8) Holiday pay accrued (22) (25) (23) Deferred tax 7 8 7 Net assets as reported under IFRS 2,904 3,408 4,430 The treatment of associates under IFRS requires the Group to derecognise theirshare of net liabilities and the corresponding entry in the income statement.Based on the directors' assessment of the resultant immaterial impact on theaccounts and their expectations for the future activities of these investments,they consider they should be treated as simple investments, recorded in thebalance sheet at their original cost less impairment. The carrying value of the goodwill at transition of £8,000 was written off ontransition as the directors considered that future cash flows could not beidentified from the acquired business which would support the ongoing carryingvalue. The intangible asset acquired as part of the acquired business isconsidered to generate all the ongoing net cash inflows which supports thecarrying value of that intangible asset. Company: Name: Immunodiagnostic Systems Holdings PLC Address: 10 Didcot Way Boldon Business Park Boldon Tyne &Wear NE35 9PD Board of Directors: David Eric Evans Non-Executive Chairman Dr Roger Thomas Duggan Managing Director Paul Hailes Finance Director Tony Wilks Sales & Marketing Director Dr Martha Garrity Technical Director Ian Cookson Operations Director Alain Rousseau Engineering Director William Michael Dracup Non- Executive Director Dr Edward Duncan Blair Non- Executive Director Company Secretary: Paul Hailes Nominated Adviser and Broker: Oriel Securities Ltd 125 Wood Street London EC2V 7AN Auditors: Baker Tilly UK Audit LLP 1 St James' Gate Newcastle Upon Tyne NE1 4AD Registrars: Computershare Investor Services Plc Corporate Actions PO Box 859 The Pavilions Bridgewater Road Bristol BS99 1XZ Solicitors: Shepherd and Wedderburn 155 St Vincent Street Glasgow G2 5NR Bankers: HSBC Bank Plc 110 Grey Street Newcastle Upon Tyne NE1 6JG This information is provided by RNS The company news service from the London Stock Exchange