Final Results

SOURCE BIOSCIENCE PLC - Final Results

PR Newswire

London, March 18

Source BioScience plc (LSE: SBS), the international diagnostic and geneticanalysis services business announces its unaudited preliminary results for theyear ended 31 December 2012.

Financial highlights

*Adjusted results for the year ended 31 December 2011 are stated aftereliminating non-recurring restructuring costs of £0.6 million and the £2.8million charge to reflect the fair value of the Head Office premises followingtheir purchase during 2011. The adjusted results for 2011 have been included topresent a fair comparison of the progress in the underlying business.

Operational highlights

Post-period event

Laurie Turnbull, Chairman of Source BioScience, said:

"2012 was a year of consolidation and improvement of the business and itsinfrastructure. Revenue and operating profits have increased again and theGroup is in a robust financial and structural positionto accelerate the organicgrowth of the business.

"Significant opportunities are apparent across all areas of the Group, withcustomers seekingfaster access tomore efficient and more accurate moleculardiagnostic testing,and to high quality genomicproducts and services.We are alsoproactively exploring opportunities that are complementary to our existingactivities and will further enhance the Company's portfolio and reputation."

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Cautionary statement

This Business Review contains certain forward-looking statements with respectto the financial condition, results, operations and businesses of SourceBioScience plc. These statements and forecasts involve risk and uncertaintybecause they relate to events and depend upon circumstances that will occur inthe future. There are a number of factors that could cause actual results ordevelopments to differ materially from those expressed or implied by theseforward-looking statements. Nothing in this Business Review should be construedas a profit forecast.

Over the past five years, the Group's focus has been on improving the financialperformance and creating a robust business and financial platform to deliverenhanced shareholder value. We are again pleased to report that SourceBioScience has increased profit and cash generation during the year, in linewith the Board's expectations.

The focus of the Group remains on the provision of leading-edge diagnostic andsequencing services and products to life science research and healthcarecommunities. The cohesion and commonality of our technology platforms andexpertise is critical to driving the organic growth of the business and enablessignificant operational gearing. This represents a "joined up" business builton common technology platforms, laboratory processes and intellectual capital.

*Adjusted results for the year ended 31 December 2011 are stated aftereliminating non-recurring restructuring costs of £0.6 million and the £2.8million charge to reflect the fair value of the Head Office premises followingtheir purchase during 2011. The adjusted results for 2011 have been included topresent a fair comparison of the progress in the underlying business.

Divisional performance

The Group's operating divisions, LifeSciences and Healthcare, performed wellduring 2012 and both divisions returned increased revenue and operatingprofits.

Healthcare

In 2012 we achieved Healthcare revenue of £8.6 million (2011: £7.4 million), anincrease of 16%, and divisional operating profit increased by 25% to £2.8million (2011: £2.2 million). The robust performance was underpinned by ourCytology business which provides systems vital to the preparation and analysisof cervical smear samples in support of the NHS Cervical Cancer ScreeningProgramme.

2012 was a significant year for Cytology following the NHS approval of the BDFocalPoint™ system, our automated imaging platform for cervical cancerscreening, at the end of the previous year. The opportunity this approvalpresented was crystallised effectively, with a rapid roll out of the automatedplatform during the first half of the year. As we move into 2013, demand forthis technology continues and, in February, a further system has been orderedby York Teaching Hospital NHS Foundation Trust. A number of other Trusts areholding discussions with the Company about adopting the technology.

Longer term, we believe the growth in this division will be driven by demandfor our Diagnostics activities, in particular molecular (genetic) and companiondiagnostic testing services. With the sophistication of modern targetedmedicines, there is an increased requirement for patient stratification andcompanion diagnostics to match patients with the most effective treatment.During 2012 we saw demand for gene-based companion diagnostic testing increaseby over 50%. With our expertise in both these areas, we believe SourceBioScience is well placed to exploit such opportunities.

LifeSciences

LifeSciences delivered broadly consistent revenue of £7.9 million (2011: £7.8million) but an increased operating profit of £1.2 million (2011: £0.8million).

Strong growth in our Overnight Service for DNA sequencing was tempered bytechnical issues that impacted the Illumina HiSeq™ next generation sequencingplatforms. These issues were rectified before the second half of the year.Revenue from the products business, comprising our clone and antibodyportfolio, was consistent with last year.

The Overnight Service, supported by our network of UK and Europeanlaboratories, continues to be enormously successful and the number of samplessequenced for customers increased by over 40% compared with last year.Extending the reach and customer base for our Overnight Service provides thecommercial platform to deliver higher value services and products to the lifescience research communities.

Staff

Our staff are fundamental to the success of our business. 2012 was another yearof significant improvement in the performance of the business and I would liketo thank everyone for their hard work and dedication. We look forward tosharing continuing success together as the business continues to grow.

Outlook

We believe we have a very strong business model and opportunities for growthare apparent across both Healthcare and LifeSciences. The Board's strategy isto enhance further the service and product offering, enabling greater marketpenetration and delivering increasing returns for shareholders. We aim toachieve this through both organic expansion from our existing operations andcarefully selected acquisitions when the opportunities arise, building on thestrong foundations now inherent in our business.

Source BioScience plc is an international diagnostic and genetic analysiscompany serving the healthcare and life science research markets. Thecommercial activities of the Group are organised into two divisions, Healthcareand LifeSciences. The business activities and performance during 2012, andexpectations for 2013, are described below.

Healthcare

The Healthcare division comprises our Cytology and Diagnostics activitiesincluding cervical cancer screening and diagnostic testing services fordiseases such as cancer.

The division has delivered strongly in the year. Revenue of £8.6 million (2011:£7.4 million) was 16% ahead of last year with divisional operating profitincreasing by 25% to £2.8 million (2011: £2.2 million).

Cytology

Our Cytology (cell analysis) operation provides essential systems to the NHSfor the preparation and analysis of cervical smear samples as part of the NHSCervical Screening Programme and now underpins over 50% of the cervical cancerscreening programme in England and Wales.

Implementation of our BD FocalPoint™ automated imaging solution for cervicalcancer screening progressed well during the year. This is the only automatedcervical screening technology approved for use by the NHS in England and Walesand is the only one of its kind available. The technology can analyse andidentify up to 25% of screening samples that require no primary manualexamination, representing a significant reduction in laboratory workload andimproved turnaround times for reporting to patients.

Access to BD FocalPoint™ was instrumental in the University Hospital of NorthStaffordshire NHS Trust's decision to award the LBC supply contract to SourceBioScience and represented the first time that an NHS Trust had switched itsLBC technology provider. Subsequent to the year end, the availability of the BDFocalPoint™ was a critical factor in York Teaching Hospital NHS FoundationTrust's decision in February 2013 to renew its LBC supply contract with SourceBioScience. The York platform is the seventh platform to be placed with theNHS.

Diagnostics

The Diagnostics operations provide expert histopathology (tissue analysis),molecular diagnostics (genetic analysis) and companion diagnostic testingservices to public and private healthcare providers. This operation hasdelivered good growth in 2012, with revenue up over 8% compared with theprevious year and is expected to drive growth in the longer term.

Demand from the NHS for gene-based companion diagnostic testing has risen bymore than 50% in the year and demonstrates the increasing clinical importanceof this type of diagnostic testing. We believe this growing demand strengthensour commercial advantage; we are one of only a limited number of accreditedlaboratories in Europe with the capability to deliver this type of complextesting.

Our Diagnostics offering has been enhanced during 2012, including thedevelopment and validation of proprietary assays for the most important genetictests for diseases, such as prostate cancer. These proprietary assays improveour laboratory efficiency, reduce our costs and provide a competitiveadvantage, and we expect continuing growth during 2013.

LifeSciences

The LifeSciences division provides ultra-fast DNA sequencing services andrelated products, delivered by our international network of laboratories anddistributors to academic research groups, biotechnology and pharmaceuticalcompanies.

This division delivered consistent revenue in 2012 of £7.9 million (2011: £7.8million) with operating profit up to £1.2 million (2011: £0.8 million).

Services

The launch of the Overnight Service for sequencing during 2011 has helped us tosignificantly increase our market share. We are the only company offering aUK-based sequencing service and we have taken a leading position as anoutsourced provider of DNA sequencing in Europe. Our Overnight Servicecontinues to power the growth of the sequencing business and volumes during theyear increased by more than 40% compared with 2011. This growth has beensustained into 2013.

As described in our half year report, during the first quarter of 2012 weexperienced some issues with our high throughput next generation sequencingplatforms which resulted in a period of machine down time and approximately 30%loss of production capacity. As with all cutting edge technology services,there is the potential for technical issues to arise, however, these issueshave been rectified. The market for next generation sequencing is growingstrongly and we continue to experience increasing demand for these services.

In July we announced an extended next generation sequencing service using thenew Illumina MiSeq™ technology platform. The MiSeq™ platform has applicationsin both life sciences, where researchers might be focused on single genestudies rather than whole genome studies on the HiSeq™, and healthcare where itis positioned to be a powerful diagnostic tool. In particular, the ability totest for multiple genetic biomarkers for cancer diagnostics is anticipated tohave a significant positive impact on our companion diagnostic service offeringin Healthcare.

Source BioScience is the only commercial provider of the MiSeq™ technology inthe UK, maintaining the Group's position at the forefront of sequencingservices and the largest UK provider of Illumina sequencing.

Products

GenomeCube®, our proprietary search engine and bioinformatics tool for ourclone and antibody portfolio, has been further developed during the year. Theprimary focus for 2012 was Phase III of the GenomeCube® project, enhancing thefunctionality of the platform and enabling its roll out across an internationaldistributor network. During the year, we announced the appointment of regionalfranchise distributors for the genomic products portfolio and we launchedcountry-specific, local language GenomeCube® modules for Japan and Korea.

Our partners in these countries provide the local research community withimproved access to the largest publically available library of DNA clones,representing nearly every known human and mouse gene, in addition to many genesfrom most model organisms important for biological research.

In addition to our DNA clone portfolio, we offer an extensive catalogue ofantibodies for research applications. Historically, Source BioScience has actedas a distributor of certain antibody and other products, limiting thegeographies into which they could be marketed, constraining growth.

Subsequent to the year end, we launched the reSource™ range of own brandedproducts, initially focused on the critical life science research work flowrequirements for DNA extraction and preparation. It is our intention to migratethe majority of our product portfolio across to the reSource™ branding whichwill eliminate existing geographical commercial restrictions and expand ouraddressable market. All of these products will be available through GenomeCube®which we regard as a major element of the Group's growth strategy for themedium to longer term. It will do this by accelerating the globalisation of ourproducts business, enabling our distributors, and customers, fast and readyaccess to our entire product portfolio.

Financial Review

Financial performance

Group revenue increased by 8% to £16.4 million (2011: £15.2 million). Owing tothe operational gearing generated within our laboratory infrastructure, coupledwith close management of the cost base, gross margins improved to 45% (2011:44%). In the current economic environment with constant pressure on prices andrising input costs, this represents a satisfactory performance.

Normal administrative expenses reduced as a proportion of revenue to 28% (2011:30%). Ongoing administrative expenses are largely fixed and appropriate to thescale of the business.

Operating profit for the year was £1.2 million (2011: loss of £2.9 million).After net finance expense, profit before tax was £1.0 million (2011: loss of £3.0 million), in line with expectations.

Included in the Consolidated Statement of Comprehensive Income are non-cashitems, including depreciation and amortisation, of £1.5 million (2011: £4.2million). After accounting for these non-cash items, non-recurringrestructuring costs, net finance expense and taxation, EBITDA were £2.7 million(2011: £1.9 million), an increase of 43%.

Source BioScience has reported underlying operating profits in each of the lastfour financial years; however, any profits chargeable to corporation tax havelargely been offset against historic tax losses. As the Group has becomeincreasingly profitable it has been appropriate to review, and ultimatelyrecognise, the value of the historic tax losses to the Group. As a result, adeferred tax asset has been recognised at 31 December 2012 and, as aconsequence, a tax credit of £2.5 million has been generated and reported inthe Consolidated Statement of Comprehensive Income. Profit after tax for theyear was £3.5 million (2011: loss of £2.8 million).

Financial position

At 31 December 2012 the Group net assets were £16.2 million (2011: £12.6million).

Non-current assets increased by a net £3.1 million to £17.2 million at 31December 2012 (2011: £14.1 million); the significant element of the increasecomprising the deferred tax asset of £2.6 million. Additionally, significantinvestment of £1.0 million was made in the BD FocalPoint™ platforms which wereinstalled across the NHS during the year.

The Group has historically been funded primarily through equity although debthas been raised as and when appropriate for the needs of the business. At 31December 2012 the Group had aggregate debt of £3.1 million (2011: £3.3million). This debt represents the balance of £2.5 million on the term loansecured to purchase the premises in 2011 in addition to finance leaseliabilities of £0.6 million, mainly in respect of BD FocalPoint™ financing.

Cash flows and liquidity

Cash generated from operating activities was £3.3 million (2011: £0.6 million)and after financing and capital expenditure net cash inflow was £1.1 million(2011: £3.1 million outflow).

In aggregate we invested £2.4 million to support the growth of the business,including £1.0 million in BD FocalPoint™ automated imaging capability and £1.0million on laboratory infrastructure and GenomeCube®.

The Group's cash balance was £2.2 million as at 31 December 2012 (2011: £1.1million) and net debt was £0.9 million (2011: £2.3 million).

Current trading and opportunities

We are seeing growth across both divisions which is in line with the strategicplan implemented for the Group.

Healthcare

In Healthcare, the approval by the NHS of the BD FocalPoint™ automated imagingsystem was an important trigger to further growth of our Cytology business.Demand is evident from a number of NHS Trusts and we expect further contractsto be signed during 2013.

In Diagnostics, patient and disease stratification is becoming increasinglyrelevant. With ongoing uncertainty surrounding NHS resourcing, we see this as asignificant opportunity to provide a broader and cost effective diagnosticservice to a wider clinical diagnostic base including infectious disease,cardiovascular and metabolic disease, in addition to oncology.

LifeSciences

In LifeSciences, our share of the UK market for DNA sequencing has continued togrow and we are now the largest outsourced provider of sequencing in the UK, amarket worth an estimated £10 million per annum. Our aim, ultimately, is to berecognised as Europe's leading sequencing provider.

We are currently in Phase III of the business development of GenomeCube®,delivering the operational and commercial infrastructure to drive theglobalisation of our products business. The first priority is to establish anetwork of franchise distributors across South East Asia, representing aninternational expansion opportunity that has previously been limited. We havealready appointed franchise partners in Japan and South Korea and are indiscussions with other potential partners in this region.

In addition to these operational and commercial infrastructure improvements,the launch of the reSource™ brand for our LifeSciences products is anotherimportant step in harnessing the value inherent in our product portfolio. ThereSource™ products will eliminate existing geographical restrictions, attractpotential new suppliers and expand our accessible market.

Outlook and conclusion

The Board remains confident that the opportunities for growth remain strong andwe expect the demand for our services and products to continue to strengthen.We are exploring new markets and will continue to exploit the cross-sellingopportunities we now have from our broad customer base, enhanced portfolio andextended geographical reach. In order to match the demand for our services andproducts, we continue to equip the Group with the breadth and depth of serviceoffering, technology platforms, expertise and products to deliver controlledgrowth and value to shareholders.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 31 December 2012

Balance at 31 December 4,075 - 2,408 10,788 17 (4,657) 12,6312011

Balance at 31 December 4,096 39 2,408 10,788 36 (1,132) 16,2352012

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

For the year ended 31 December 2012

Notes to the Consolidated Preliminary Financial Statements

For the year ended 31 December 2012

1. Basis of preparation

These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (`IFRS') adopted for use in the EU (`AdoptedIFRS') in accordance with EU law (IAS Regulation EC 1606/2002).

The financial information contained in this announcement of preliminaryfinancial statements does not constitute the Company's statutory financialstatements for the years ended 31 December 2012 or 2011. Neither the Directorsof the Company, nor our auditor, have as yet approved the statutory financialstatements for the financial year ended 31 December 2012. These financialstatements are therefore unaudited. The financial information for 2011 isderived from the statutory financial statements for 2011 which have beendelivered to the Registrar of Companies. The auditor has reported on the 2011accounts and that report was (i) unqualified, (ii) did not include a referenceto any matters to which the auditor drew attention by way of emphasis withoutqualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The statutory financial statements for2012 will be finalised on the basis of the financial information presented bythe Directors in this preliminary announcement and will be delivered to theRegistrar of Companies in due course.

No revisions to Adopted IFRS that became applicable in 2012 have a significantimpact on the Group's financial statements.

2. Operating segments

Information about reporting segments

For the purposes of management reporting to the chief operating decision maker,the commercial activities of the Group are organised into two divisions:

* LifeSciences

* Healthcare (comprising the business units of Cytology and Diagnostics)

Financial information for each operating division is also available in adisaggregated form in line with the identified cash generating units. Duringthe year there were immaterial sales between business segments (2011:immaterial) and where these do occur they are at arm's length pricing.

Unallocated costs represent corporate expenses and common operating costs.Segment assets include intangible assets including goodwill, plant andequipment, stocks and debtors. Unallocated assets include property, centraldebtors and prepayments and operating cash. Segment liabilities compriseoperating liabilities and exclude borrowings. Segment capital expenditurecomprises additions to plant and equipment and capitalised development costs.

2. Operating segments (continued)

2. Operating segments (continued)

3. Restructuring costs in the comparative period

The integration of the acquired imaGenes business was completed as plannedduring 2011. This entailed significant commercial and operational changes tothe acquired business, in addition to infrastructure modifications in the UK tosupport the enlarged Group. The one-off costs associated with the integrationamounted to £0.6 million.

4. Purchase of Head Office premises in the comparative period

On 28 December 2011, the Group announced the purchase of the freehold land andbuildings of its business and Head Office premises in Nottingham, UK. The Groupoccupied the premises under a 25 year lease that, at the date of the purchase,had a remaining term of 17 years. The purchase price of £5.2 million, includingstamp duty land tax and fees, comprised the market value of the freehold landand buildings in conjunction with the attached lease with 17 years remaining.In the Consolidated Statement of Financial Position, the premises wereinitially recognised at their open market valuation of £2.4 million, withoutascribing value to the lease. The element of the purchase price attributable tothe remaining term of the lease was recognised as a one-off cost of £2.8million in the Consolidated Statement of Comprehensive Income for the yearended 31 December 2011.

5. Earnings per share

Basic earnings per share amounts are calculated by dividing the net result forthe year attributable to ordinary equity shareholders of the Company by theweighted average number of shares outstanding during the year. Diluted earningsper share amounts are calculated by dividing the net profit attributable toordinary equity shareholders by the weighted average number of ordinary sharesoutstanding during the year, adjusted for the effects of dilutive options.

The calculation of basic earnings per share for the year was based on theprofit attributable to ordinary shareholders of £3,471,000 (2011: loss of £2,795,000) and 203,973,846 ordinary shares (2011: 203,765,232 ordinary shares),being the weighted average number of ordinary shares in issue.

The calculation of diluted earnings per share for the year is based on theprofit attributable to ordinary shareholders of £3,471,000 (2011: loss of £2,795,000) and the weighted average number of ordinary shares in issue,adjusted for 2,899,581 dilutive options (2011: nil dilutive options), of206,873,427 (2011: 203,765,232).

IAS 33 Earnings per share requires presentation of diluted earnings per sharewhen a company could be called upon to issue shares that would decrease netprofit or increase net loss per share. Assuming that option holders will notexercise out of the money options, no adjustment has been made to the dilutedearnings per share for out of the money share options.

Reconciliation of the earnings and weighted average number of shares used inthe calculations are set out below:

Source BioScience plc (LSE: SBS) is an international diagnostics and geneticanalysis business serving the healthcare and research markets. The LifeSciencesdivision provides core laboratory research support from conceptualisation toimplementation, calling upon a wide range of cutting-edge technology platformsincluding an online catalogue of biomolecular tools. The Group is a trustedprovider of a complete range of sophisticated microarray, next generation andconventional sequencing services. GLP, GCP and CPA accreditations make thesequencing offerings also very attractive for applications in regulatorystudies or clinical settings. Its Healthcare operations provide screening andreference laboratory diagnostic testing for cancer and other diseases andadditional predictive testing for treatment optimisation for clinicians andpatients. The Group has its headquarters in Nottingham, UK. Further informationabout Source BioScience can be found at www.sourcebioscience.com.

BD FocalPoint™ (`FP') An automated imaging system for screening BD

Capillary Electrophoresis DNA sequences are determined using a chemicalDNA Sequencing