ODX.L Regulatory News (ODX)

7 Dec 2007 07:01

Omega Diagnostics Group PLC07 December 2007 OMEGA DIAGNOSTICS GROUP PLC ("Omega" or the "Company") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Omega, which supplies a wide range of immunoassay-based products, announcesinterim results for the six months ended 30 September 2007. Omega operates in niche markets, primarily in infectious diseases (includingSyphilis, TB, Dengue Fever, Chagas disease and Malaria), food intolerancetesting and autoimmune diseases (including anaemia, connective tissue diseaseand renal disease). Omega has a strong distribution network in over 100countries. Financial Summary: 6 months 6 months 30 September 30 September 2007 2006 Revenue 1,147,777 1,009,211Gross profit 503,346 432,328Operating loss (92,369) (77,340) Loss before tax (132,643) (335,197) Loss per share (basic and diluted) 2.4p 20.7p Interim Highlights: • Omega's first acquisition, of Gensis Diagnostics Ltd and Cambridge Nutritional Sciences Ltd, completed on 3 September 2007 for an intitial consideration of £5.7m.• £2.2m new equity (before expenses) raised via a cash placing of 7,333,333 New Ordinary Shares at 30p a share.• Appointment of Dr Mike Walker as a new Non-Executive Director• Acquisition furthers Omega's strategy to become a leading in-vitro diagnostics company and to grow through selective acquisitions.• Net cash at the period end of £444,114. Regarding outlook, David Evans, Chairman, said: "In the two months since the period covered by this statement, the Group hasachieved sales of around £800,000 and the Board is confident in its continuedprospects and the positive outlook for the remainder of the year and beyond." Contacts: Omega Diagnostics Group PLC Parkgreen Communications LtdTel: 01259 763 030 Paul McManus Andrew Shepherd, Chief Executive Tel: 020 7479 7933Kieron Harbinson, Finance Director Mob: 07980 541 893www.omegadiagnostics.com paul.mcmanus@parkgreenmedia.com Chairman's Statement Dear Shareholder I am pleased to be able to report on good progress for the Group in the firsthalf of the year that gives us a degree of confidence for the full year outcome. Strategy On 3 September 2007, the Group completed its first acquisition since becoming apublic Company in September 2006 with the acquisition of Genesis Diagnostics Ltd('Genesis') and Cambridge Nutritional Sciences Ltd ('CNS'). Genesis manufacturesand sells a range of products testing for allergy and food intolerance,autoimmune disorders and infectious diseases. CNS provides a laboratory servicefor food intolerance and certain other diseases. This acquisition provides agood opportunity for the Group to provide additional products through theextensive Omega distribution network and there are early encouraging signs ofinterest in the enlarged product offering. Ultimately, of greater strategic importance, the products that use the acquiredmacro and microarray technologies have shown good sales growth since Genesis wasfirst identified as an acquisition opportunity and the Board is confident in theability of these products to deliver further growth. As I mentioned in theAnnual Report, these technologies also offer applicability across other diseasestates, and the strategy will involve expansion of the number of assays that canbe performed on these platforms. The Board shares your disappointment in the performance of the Company's shareprice since the acquisition was completed but we are confident that we have nowlaid the foundations from which we can begin to deliver shareholder value and asand when appropriate we will continue to look for further suitable acquisitionopportunities. Financial The results for the period include the contribution for one month of tradingfrom Genesis and CNS since completion of the acquisition. The Income Statementseparately highlights the results of acquisition but I would draw your attentionto the section entitled International Financial Reporting Standards below for afull understanding of the financial benefits of the acquisition. Revenue for the period increased by just under 14% to £1,147,777 (2006:£1,009,211) as the benefit of the acquisition immediately began to impact. Grossmargin also increased by one percentage point to 43.9% (2006: 42.8%). Theimprovement in gross margin is expected to continue for the rest of the year asthe mix of higher margin Genesis and CNS products takes effect (see below underIFRS). Administration costs increased to £595,715 (2006: £391,816). This was due mainlyto the increased costs of being a public company for the whole of the periodunder review compared to very little by way of equivalent costs in the priorperiod due to the timing of becoming a public company. The acquisition has added£91,737 in the period. The loss for the period has reduced to £116,417 (2006: £335,197) representing aloss per share of 2.4p (2006: loss per share of 20.7p). Net cash at the periodend was £444,114 (2006: £480,431) and follows the successful placing of7,333,333 ordinary shares at 30p per share to part-fund the acquisition. Theexpenses of the share issue amounted to £445,889. In addition, the Group raisednew debt of £1.2 million from its principal banker, Bank of Scotland. Thesefunds were used to repay older loans totalling £60,250 with the balance beingused towards the acquisition cost. International Financial Reporting Standards ('IFRS') The acquisition of Genesis and CNS has been accounted for under IFRS3 BusinessCombinations and a full explanation is given in note 2 to this Interim Report.However, the Standard requires that certain stock items acquired be valued usingselling prices as opposed to cost prices. Whilst the Standard does allow adeduction in value to be made for certain costs and an element of profit, theeffect has been to increase the value of stock acquired by £49,720 over andabove the value that would have applied if cost price had been used. Since thesestock items were then sold by 30 September, this increased cost of sale has beencharged within the separately identified 'acquisitions' column of the IncomeStatement. Excluding this increased cost, the result for Genesis and CNS for theone month since acquisition would have been a profit before tax of £72,245. Research and Development The Group has successfully completed its internal evaluations of its new testfor Herpes Simplex Virus Type 2 infections. The results of an externalevaluation are still awaited before the Group can formally launch the newproduct. The acquisition of Genesis has expanded the development capacity of theGroup and I look forward to being able to report on further developments in thefuture. Outlook In the two months since the period covered by this statement, the Group hasachieved sales of around £800,000 and the Board is confident in its continuedprospects and the positive outlook for the remainder of the year and beyond. David Evans, CANon-Executive Chairman 6 December 2007 Consolidated Income Statementfor the six months ended 30 September 2007 6 months to 30 Sept 2007 6 months to 6 months to 6 months to Ongoing 30 Sept 2007 30 Sept 2007 30 Sept 2006 operations Acquisitions Total Total £ £ £ £Continuing operationsRevenue 953,865 193,912 1,147,777 1,009,211Cost of Sales (564,303) (80,128) (644,431) (576,883) Gross Profit 389,562 113,784 503,346 432,328Administration Costs (503,978) (91,737) (595,715) (391,816)Other income - government grantsand related assistance - - - 7,015Exceptional administration costs - - - (124,867) Operating (loss)/profit (114,416) 22,047 (92,369) (77,340) Finance Costs (47,253) (261) (47,514) (14,174)Finance Revenue - interestreceivable 6,501 739 7,240 -Exceptional items - goodwill - - - (243,683) (Loss)/profit before taxation (155,168) 22,525 (132,643) (335,197)Tax credit - 16,226 16,226 -(Loss)/profit for the period (155,168) 38,751 (116,417) (335,197) Loss per share - basic and diluted (2.4p) (20.7p) Consolidated Balance Sheetas at 30 September 2007 At 30 Sept 2007 At 31 Mar 2007 At 30 Sept 2006 £ £ £ AssetsNon-current assets Intangibles 5,046,917 - - Property, plant and equipment 617,321 107,995 84,969 Deferred taxation 58,464 58,464 57,057 5,722,702 166,459 142,026 Current assets Inventories 654,870 263,637 259,209 Trade and other receivables 913,617 746,108 477,797 Cash and cash equivalents 463,302 634,651 798,153 2,031,789 1,644,396 1,535,159Total assets 7,754,491 1,810,855 1,677,185 Equity and liabilitiesIssued capital 4,415,997 1,234,296 1,280,558Retained earnings (1,299,469) (1,183,052) (471,204)Total equity 3,116,528 51,244 809,354 LiabilitiesNon current liabilities Long term borrowings 2,304,558 27,383 18,650 Other financial liabilities 708,100 705,112 91,281 Deferred taxation 584,973 - -Total non current liabilities 3,597,631 732,495 109,931 Current liabilities Short term borrowings 259,188 289,698 385,923 Trade and other payables 781,144 737,418 371,977Total current liabilities 1,040,332 1,027,116 757,900Total liabilities 4,637,963 1,759,611 867,831Total equity and liabilities 7,754,491 1,810,855 1,677,185 Consolidated Statement of Changes in Equityfor the six months ended 30 September 2007 Share Share Retained capital premium earnings Total £ £ £ £Balance at 1 April 2006 80,036 156,476 (169,593) 66,919Reverse acquisition capital adjustment 265,451 - - 265,451Issue of share capital 514,688 263,907 - 778,595Loss for the period - - (335,197) (335,197)Share-based payments - - 33,586 33,586Balance at 30 September 2006 860,175 420,383 (471,204) 809,354 -Expenses in connection with share issue - (46,262) - (46,262)Loss for the period - - (804,621) (804,621)Share-based payments - - 92,773 92,773Balance at 31 March 2007 860,175 374,121 (1,183,052) 51,244 Issue of share capital 471,782 2,709,919 - 3,181,701Loss for the period - - (116,417) (116,417)Balance at 30 September 2007 1,331,957 3,084,040 (1,299,469) 3,116,528 Consolidated Cash Flow Statementfor the six months ended 30 September 2007 6 months to 30 6 months to 30 Sept 2007 Sept 2006 £ £Cash flows generated from operationsLoss for the period (116,417) (335,197)Adjustments for:Goodwill write off - 243,683Taxation (16,226) -Finance costs 47,514 14,174Finance income (7,240) - Operating loss before working capital movement (92,369) (77,340)Decrease/(increase) in trade and other receivables 409,949 (14,895)Decrease/(increase) in inventories 37,086 (911)(Decrease)/increase in trade and other payables (252,451) 81,752Government grant amortisation - (2,667)Depreciation 17,369 14,332Amortisation of intangible assets 8,229 -Share-based payments - 33,586Net cash flow from operating activities 127,813 33,857 Investing activitiesFinance income 7,240 -Purchase of property, plant and equipment (131,191) (7,660)(Outflow)/inflow on acquisition of subsidiary (2,896,258) 21,767Net cash (used)/from investing activities (3,020,209) 14,107 Financing activitiesFinance costs (47,514) (14,174)Proceeds from issue of share capital 1,754,111 778,595New loans 1,324,826 -Loan repayments (72,733) (34,100)Net cash from financing activities 2,958,690 730,321 Net increase in cash and cash equivalents 66,294 778,285Cash and cash equivalents at beginning of period 377,820 (297,854)Cash and cash equivalents at end of period 444,114 480,431 Notes to the Interim Reportfor the six months ended 30 September 2007 1. Basis of Preparation For the purpose of preparing the March 2007 Annual financial statements theDirectors opted to use IFRS as adopted by the EU in advance of the requirementsby the AIM Rules that apply to the current financial year. In preparing theseinterim financial statements, the same accounting policies have been used as setout in the Group's Annual Report for the year ended 31 March 2007. The Group hasnot applied IAS 34 Interim Financial Reporting, which is not mandatory for AIMcompanies, in the preparation of these interim financial statements. As a resultof the current period's business combination, the following additionalaccounting policies have been applied. Intangible Assets Intangible assets acquired as part of a business combination are recognisedoutside goodwill if the asset is separable or arises from contractual or otherlegal rights and its fair value can be measured reliably. Following initialrecognition at fair value at the acquisition date, the historic cost model isapplied, with intangible assets being carried at cost less accumulatedamortisation and accumulated impairment losses. Intangible assets with a finitelife have no residual value and are amortised on a straight line basis over theexpected useful lives with charges included in administration costs, as follows: • Technology assets - 20 years The carrying value of intangible assets is reviewed for impairment wheneverevents or changes in circumstances indicate the carrying value may not berecoverable. Basis of Consolidation The Group financial statements consolidate the financial statements of OmegaDiagnostics Group PLC and the entities it controls (its subsidiaries).Subsidiaries are consolidated from the date of acquisition, being the date onwhich the Group obtains control, and continue to be consolidated until the datethat such control ceases. The financial statements of the subsidiaries used inthe preparation of the consolidated financial statements are based on consistentaccounting policies. All inter-company balances and transactions, includingunrealised profits arising from them, are eliminated. The format of theconsolidated income statement presented in these interim financial statements isthat which will be adopted in the financial statements for the current year.This differs from that used in the Group's 2007 Annual Report. The revisedformat, which includes a separate column showing the results of the acquisitionmade in the current year separately from ongoing operations, has been adopted asit presents information in a format that is more relevant to users of thefinancial statements. The interim financial statements are unaudited but have been formally reviewedby the auditors and their report which is unqualified will be published in theInterim Report to be sent to shareholders. The information shown in theconsolidated balance sheet as at 31 March 2007 does not constitute statutoryaccounts as defined in Section 240 of the Companies Act 1985 and has beenextracted from the Group's 2007 Annual Report which has been filed with theRegistrar of Companies. The report of the auditors on the financial statementscontained within the Group's 2007 Annual Report was unqualified and did notcontain a statement under either Section 237 (2) or Section 237 (3) of theCompanies Act 1985. These interim financial statements were approved by the Board of Directors on 6December 2007. 2. Business Combination Acquisition of Genesis Diagnostics Ltd and Cambridge Nutritional Sciences Ltd. On 3 September 2007, the Group acquired 100% of the voting shares of GenesisDiagnostics Ltd ('Genesis') and Cambridge Nutritional Sciences Ltd ('CNS'), bothunlisted companies based in Cambridgeshire, UK. Genesis is an establishedbusiness in the medical diagnostics industry developing, producing and selling arange of test kits specialising in the areas of autoimmune disease, infectiousdiseases and food intolerance. CNS provides a testing service for foodintolerance and some other diseases. The acquisitions have been accounted for using the purchase method of accountingand the interim consolidated financial statements include the results of Genesisand CNS for the one month period from the acquisition date. The provisional fairvalues of the identifiable assets and liabilities of Genesis and CNS as at thedate of the acquisition were: Genesis CNS book Fair value book value value adjustments Total £ £ £ £Intangible assets - - 1,975,000 1,975,000Property, plant and equipment 211,947 31,139 152,418 395,504Inventories 373,599 5,000 49,720 428,319Trade and other receivables 544,916 72,599 - 617,515Cash and cash equivalents 168,921 213,152 - 382,073Borrowings (45,500) - - (45,500)Trade and other payables (128,298) (16,925) (30,000) (175,223)Deferred tax liability - - (601,199) (601,199)Net Assets 1,125,585 304,965 1,545,939 2,976,489Goodwill on acquisition 3,080,146 6,056,635 Fair value of consideration 5,978,303Acquisition costs 78,332 6,056,635 Valuation of Acquired Intangible Assets The valuation of acquired intangible assets has been performed in accordancewith recognised industry standards. Intangible assets, which have beenseparately identified from goodwill, comprise the technology assets of themicroarray, macroarray and microplate. Where necessary, the Group has consultedwith independent external valuation experts in determining fair value and hasassessed the net present value of future cash flows from these assets using therelief-from-royalty method. A discount rate of 14% has been used as representingthe Group's weighted average cost of capital. Inventories The fair value adjustment to inventories of £49,720 represents the uplift invalue of the acquired finished goods in Genesis as required by IFRS3, whichstates that finished goods should be valued at selling prices less costs to selland less a reasonable profit allowance. The increased value should then berecognised as a charge through cost of sales in the Income Statement to matchwith when the finished goods are sold. Since all the finished goods at theacquisition date were sold by 30 September, cost of sales for Genesis and CNSfor the one month of September includes this additional charge. Cost of the Acquisition The total acquisition cost of £6,056,635 comprised a cash payment of £3,200,000,4,461,220 shares in the Company with a fair value of £1,427,590 based on themarket price at acquisition, loan notes totalling £1,100,000 discounted to afair value of £959,539, an earn-out based on the future performance of certainproducts, estimated at £400,000 discounted to a present value of £329,540, adeferred cash payment of £61,634 payable 12 months after completion andacquisition costs of £78,332. The earn-out accrues at 7% of sales of therelevant products over the three year period from 1 November 2006 to 31 October2009, and is payable in three annual instalments once amounts are finallyagreed. Funding To fund the cost of the acquisition, the Group raised £2,200,000 (beforeexpenses of £445,889) via the placing of 7,333,333 new ordinary shares at aprice of 30p per share. In addition, the Group borrowed £1.2 million under asenior term loan facility from its principal banker, repayable over five years.The loan carries interest at 2.5% over base rate for the first year and may fallto 2% over base rate thereafter provided the Group remains within agreedcovenants. The vendors of Genesis and CNS were issued loan notes of £1,100,000repayable in three equal instalments on anniversary dates in 2013, 2014 and2015. Interest accrues at base rate and is payable with the final instalment. Cash Outflow on Acquisition £Net cash acquired with Genesis and CNS 382,074Acquisition costs (78,332)Cash paid (3,200,000)Net cash outflow (2,896,258) Goodwill The goodwill recognised above is attributed to the synergies of the businesscombination which are expected to come from combining the assets and operationsof Genesis and CNS with the assets and existing infrastructure of the OmegaGroup. 3. Earnings per Share 2007 2006 £ £Net profit attributable to equity holders of the Group (116,417) (335,197) 2007 2006 number numberBasic average number of shares 4,939,728 1,618,262 The diluted loss per share is based on the same number of shares above as theeffect of outstanding warrants and options is anti-dilutive. On 30 August 2007, the Company undertook a capital reorganisation dividing each1p ordinary share into an intermediate ordinary share of 0.1p and a deferredordinary share of 0.9p. The deferred ordinary shares created are valueless. Theintermediate ordinary shares were subsequently consolidated on the basis of onenew ordinary share of 4p for each 40 intermediate ordinary shares in existence. There have been no other transactions involving ordinary shares between thereporting date and the date of completion of these interim financial statements. This information is provided by RNS The company news service from the London Stock Exchange