Half-yearly Report

29 August 2013 Source BioScience plc (`Source BioScience' or `the Group') HALF YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2013 Source BioScience plc (LSE: SBS) the international diagnostics and geneticanalysis services business, announces its Half Year Report for the six monthsended 30 June 2013. Financial highlights * Revenue increased by 4% to £8.8 million (2012: £8.4 million) * Adjusted EBITDA* increased by 21% to £1.5 million (2012: £1.3 million) * Adjusted operating profit* increased by 60% to £0.8 million (2012: £0.5 million) * Profit before tax increased by 42% to £0.6 million (2012: £0.4 million) * EPS of 0.14p basic (2012: 0.20p basic) * Cash balance of £2.0 million (31 December 2012: £2.2 million) *Adjusted results are stated after eliminating the acquisition costs of £0.1million for Inverclyde Biologicals. The adjusted results have been included topresent a fair comparison of the progress in the underlying business. Operational highlights * Advancement in the Healthcare business, delivering growth: + Acquisition of Inverclyde Biologicals for £1.4 million; bringing cross selling opportunities, expertise in designing and manufacturing clinical grade reagents and enabling geographic expansion into Scotland + Competitive tender won from Kent County and Medway Councils under the National Chlamydia Screening Programme (`NCSP'); contract worth in excess of £1.0 million over three years + Renewal of York Teaching Hospital NHS Foundation Trust cervical cancer screening contract together with the implementation of BD FocalPoint™; contract worth £1.3 million over three years * Further developments in LifeSciences business: + Launch of Overnight Service for DNA sequencing for the Scottish life science market following Inverclyde Biologicals acquisition + DNA sequencing has grown by 60% year on year, driven by Overnight Service and expanded laboratory network + Launch of reSource™ own label products; high quality, cost effective products for life science research, significantly increasing addressable market for the Source BioScience product portfolio Post period event * On 7 August 2013 Source BioScience announced a £12.2 million recommended cash offer for Vindon Healthcare plc. The proposed acquisition is expected to bring multiple benefits including extended geographical reach, additional in-house expertise and an enhanced offering of products and services to customers. Detailed information regarding the proposed acquisition can be found on the Group's website at www.sourcebioscience.com Laurie Turnbull, Chairman of Source BioScience, said: "We have delivered another period of progress across the business with revenuegrowth, additional products and services and significantly enhancedprofitability compared with the first half of last year. We have alsodemonstrated, through our acquisition of Inverclyde Biologicals, our strategyto identify high quality businesses which we can integrate quickly andeffectively into the Group, to generate immediate commercial benefits. "The encouraging first half of the year represents a continuation of the stronggrowth and business performance achieved last year and reflects the substantialopportunities we see for further development across both our Healthcare andLifeSciences divisions." --- ENDS --- For further information, please contact: Source BioScience plcDr Nick AshChief Executive OfficerTel: +44 (0) 115 973 9010www.sourcebioscience.com For investor and media enquiries: N+1 Singer (Financial Advisor, Sponsor and Broker)Aubrey Powell/Joe StroudTel: +44 (0)207 496 3000www.n1singer.com College Hill (PR Agency to Source BioScience)Melanie Toyne-Sewell/Claire DickinsonTel: +44 (0) 207 457 [email protected] Cautionary statement This business review may contain forward-looking statements. By their nature,forward-looking statements involve risk and uncertainty because they relate tofuture events and circumstances. Actual outcomes and results may differmaterially from any outcomes or results expressed or implied by suchforward-looking statements. Any forward-looking statements made by or on behalfof Source BioScience speak only as at the date they are made and norepresentation or warranty is given in relation to them, including as to theircompleteness or accuracy or the basis on which they were prepared. SourceBioScience does not undertake to update forward-looking statements to reflectany changes in the Group's expectations with regard thereto or any changes inevents, conditions or circumstances on which any such statement is based. CHAIRMAN'S STATEMENT Introduction Source BioScience has continued its growth and development throughout the firsthalf of 2013. In our Interim Management Statement issued on 16 May 2013 wereported a robust first quarter performance and this has been sustained for thefull six months to 30 June 2013. Financial Review Revenue for the six months ended 30 June 2013 increased by 4% to £8.8 million(2012: £8.4 million) and the gross margin improved to 47% (2012: 45%). Healthcare grew by 3% to £4.6 million (2012: £4.4 million) and LifeSciencesrevenue grew by 6% to £4.2 million (2012: £4.0 million). Both divisionsdelivered improved profitability and the combined divisional operating profit,before central costs, increased by 22% to £2.3 million (2012: £1.9 million). The Group's cost base has remained tightly controlled; normal administrativeexpenses were broadly consistent at £2.4 million (2012: £2.3 million) andrepresented 27% of revenue (2012: 28% of revenue). As a result of the improved divisional performance and the management of thecost base, adjusted EBITDA* increased by over 20% to £1.5 million (2012: £1.3million). Profit before tax improved by 42% to £0.6 million (2012: £0.4million) even after recognising the transaction costs associated with theacquisition of Inverclyde Biologicals. The financial position of the Group remains strong with net assets of £16.5million (31 December 2012: £16.2 million). The Group's cash balance was £2.0million at 30 June 2013 (31 December 2012: £2.2 million) and borrowings were £2.7 million (31 December 2012: £3.1 million). Cash generated from operating activities was £1.9 million in the period (2012:£1.9 million) and net cash outflow was £0.2 million (2012: £0.8 million inflow)after the acquisition of Inverclyde Biologicals for net £1.4 million (includingtransaction costs) and capital expenditure of £0.4 million. Healthcare division The Healthcare division comprises our Cytology and Diagnostics operationsincluding cervical cancer screening and diagnostic testing services for cancerand other diseases. The division has delivered a strong performance in the period. Revenue of £4.6million was ahead of the same period last year (2012: £4.4 million) anddivisional operating profit increased by 6% to £1.5 million (2012: £1.4million). 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 underpins approximately 50% of the cervicalcancer screening programme in England and Wales. Implementation of our BD FocalPoint™ automated imaging solution for cervicalcancer screening continues. This is the only automated cervical screeningtechnology which has been approved for use by the NHS in England and Wales andis the only one of its kind available. The technology can analyse and identifyup to 25% of screening samples that require no primary manual examination,representing a significant reduction in laboratory workload and improvedturnaround times for reporting to patients. In February we announced the renewal of the York Teaching Hospital NHSFoundation Trust liquid based cytology contract, together with the installationof the seventh BD FocalPoint™ platform. The contract is worth £1.3 million overthree years. Our Diagnostics operations provide expert histopathology (tissue analysis),molecular diagnostics (gene-based analysis) and companion diagnostic testingservices to public and private healthcare providers. We continually evaluate our Diagnostics offering to ensure it meets therequirements of our customers and addresses unmet demand in the healthcaremarket. For example, the Group has successfully developed and validatedproprietary gene-based assays for use as diagnostic tests for cancer and otherdiseases and launched a range of new services based on our existing expertiseand technology platforms. This expansion of the portfolio of assays, coupled with continued growth in thecore expert histopathology service, generated an increase in Diagnosticsrevenue of 40% in the period compared with the same period last year. Webelieve the growing demand for gene-based testing for disease strengthens ourcommercial advantage as we are one of only a limited number of accreditedlaboratories in Europe with the capability to deliver this type of complextesting. Our expertise in gene-based testing, and significant experience of supportingthe UK Cervical Cancer Screening Programme, was instrumental in SourceBioScience winning the tender to provide testing services to Kent County andMedway Councils under the National Chlamydia Screening Programme. The contract,which commenced in August, is for the delivery of over 40,000 tests per annumand is worth more than £1.0 million over three years. This contract award is anexample of the Group crystallising commercial opportunities which arecomplementary to our existing activities and capabilities. In April, the Group acquired Inverclyde Biologicals, based in Bellshill,Scotland. Inverclyde Biologicals is a market leading manufacturer of highquality diagnostic kits and blood group serology reagents; a product portfoliowhich is complementary with the existing Source BioScience healthcare productsbusiness. The acquisition creates cross selling opportunities, brings expertisein designing and manufacturing clinical grade reagents and also enablesgeographic expansion into Scotland, providing the opportunity to establish anOvernight Service for DNA sequencing locally. Substantial progress has alreadybeen made towards crystallising a number of these new opportunities. LifeSciences division 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. LifeSciences revenue increased by 6% to £4.2 million (2012: £4.0 million) anddivisional operating profit increased by 73% to £0.8 million (2012: £0.5million) as a result of the increased revenue and operational enhancement oftechnology platforms and laboratory processes. Our ambition is to become Europe's leading commercial provider of DNAsequencing and our Overnight Service, supported by our network of UK andEuropean laboratories, is instrumental in achieving this. The number of samplessequenced for customers increased by over 30% compared with the same periodlast year. This momentum is being sustained by the introduction of new servicesand the expansion of our laboratory network including the launch of theOvernight Service from our facilities in Bellshill, Scotland. In March, we launched the reSource™ range of own branded products, initiallyfocused on the critical life science research work flow requirements for DNAextraction and preparation. It is our intention to migrate the majority of ourproduct portfolio across to the reSource™ branding, which will eliminateexisting geographical commercial restrictions and expand our addressablemarket. GenomeCube®, our proprietary search engine and bioinformatics tool for ourclone and antibody portfolio, has been very successful during the period.Website traffic has increased and internet orders are up compared with the sameperiod last year. We regard GenomeCube® as a major element of the growthstrategy for the medium to longer term and all of the Group's products,including the reSource™ range, will be available through GenomeCube®. This willenable the accelerated globalisation of the products business, enabling ourdistributors, and customers, fast and ready access to the enhanced productportfolio. Outlook The Group's strategy is to grow its Healthcare and LifeSciences businesses bothorganically and by way of selected acquisitions to broaden the portfolio ofproducts and services. Acquisition opportunities must enhance the financialperformance of the Group, be readily integrated into existing operations andprovide realisable commercial benefits to deliver long term value. Within our Healthcare division, the acquisition of Inverclyde Biologicals hasdelivered enhanced financial performance and added blood banking and serologyproducts into the Healthcare portfolio. This acquisition has also afforded usthe opportunity to cross sell into existing customers as well as exploit ourexisting international distribution network for the Inverclyde Biologicalsproduct portfolio. The integration of Inverclyde Biologicals operations is nowsubstantially complete. In Healthcare services, the ability to provide many of the new and anticipatedgenetic tests is outside the capability of all but a few hospital andcommercial laboratories, not just in the UK but across Europe. With ongoinguncertainty surrounding healthcare resourcing, we see a significant opportunitywithin Diagnostics to provide a broader and cost effective diagnostic serviceto a wider customer base including infectious disease, cardiovascular andmetabolic disease, in addition to oncology. In LifeSciences we have forged a leading position in Europe for the provisionof DNA sequencing services and genomic products. With our international networkof laboratories, we are ideally placed to meet the growing demand for geneticanalysis. Our share of the UK market for DNA sequencing has continued to growduring the first half of 2013 and we have launched our Overnight Service fromour new facilities in Bellshill, Scotland. The launch of the reSource™ range of products in March, has eliminated many ofthe geographical commercial restrictions on our product portfolio andsignificantly expanded the addressable market. Utilising the power of ourGenomeCube® platform, we will accelerate the globalisation of our productsbusiness enabling distributors, and customers, fast and ready access to theenhanced product portfolio. The second half of the year has begun well and is trading in line with theBoard's expectations. We expect the excellent momentum that we saw in the firsthalf to continue through the remainder of the year. Laurie Turnbull Chairman29 August 2013 Unaudited Condensed Consolidated Statement of Comprehensive IncomeFor the six months ended 30 June 2013 Six months Six months Year ended ended ended 30 June 30 June 31 2013 2012 December 2012 Note £'000 £'000 £'000 Revenue 2 8,773 8,411 16,431 Cost of sales (4,653) (4,664) (9,013) Gross profit 4,120 3,747 7,418 Selling and distribution expenses (843) (725) (1,324) Research and development (26) (106) (154) Administrative expenses: - normal (2,404) (2,346) (4,599) - amortisation of intangibles arising (90) (96) (191)from acquisitions - acquisition costs (138) - - Administrative expenses (2,632) (2,442) (4,790) Operating profit 619 474 1,150 Finance income 5 3 8 Finance costs (52) (75) (195) Profit on ordinary activities before tax 572 402 963 Taxation (279) - 2,508 Profit attributable to equity holders of 293 402 3,471the Company Other comprehensive income/(expense) Exchange differences on translation of (58) 13 19foreign operations Total comprehensive income attributable 235 415 3,490to equity holders of the Company Earnings per share: Basic profit per ordinary share 3 0.14p 0.20p 1.70p Diluted profit per ordinary share 3 0.14p 0.20p 1.68p Unaudited Condensed Consolidated Statement of Changes in Shareholders' EquityFor the six months ended 30 June 2013 Attributable to equity holders of the parent company Share Share Merger Special Translation Profit Total capital premium and reserve reserve and equity other loss reserves reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 4,075 - 2,408 10,788 17 (4,657) 12,6312012 Currency translation - - - - 13 - 13adjustments Profit for the period - - - - - 402 402 Total comprehensive - - - - 13 402 415incomefor the period Transactions withowners, recordeddirectly in equity Employee share optionscheme: - value of services - - - - - 22 22provided Balance at 30 June 2012 4,075 - 2,408 10,788 30 (4,233) 13,068 Balance at 1 July 2012 4,075 - 2,408 10,788 30 (4,233) 13,068 Currency translation - - - - 6 - 6adjustments Profit for the period - - - - - 3,069 3,069 Total comprehensive - - - - 6 3,069 3,075income for the period Transactions withowners, recordeddirectly in equity Employee share optionscheme: - value of services - - - - - 32 32provided - proceeds from shares 21 39 - - - - 60issued Balance at 31 December 4,096 39 2,408 10,788 36 (1,132) 16,2352012 Balance at 1 January 4,096 39 2,408 10,788 36 (1,132) 16,2352013 Currency translation - - - - (58) - (58)adjustments Profit for the period - - - - - 293 293 Total comprehensive - - - - (58) 293 235(expense) / incomefor the period Transactions withowners, recordeddirectly in equity Employee share optionscheme: - value of services - - - - - 8 8provided Balance at 30 June 2013 4,096 39 2,408 10,788 (22) (831) 16,478 Unaudited Condensed Consolidated Statement of Financial PositionAs at 30 June 2013 As at As at As at 30 June 30 June 31 December 2013 2012 2012 £'000 £'000 £'000 Non-current assets Goodwill 9,564 8,341 8,343 Other intangible assets 761 1,066 884 Financial assets 91 60 50 Property, plant and equipment 5,156 4,938 5,309 Deferred tax 2,294 - 2,564 17,866 14,405 17,150 Current assets Inventories 867 586 644 Trade and other receivables 3,037 3,163 2,558 Cash and cash equivalents 1,959 1,848 2,217 5,863 5,597 5,419 Current liabilities Trade and other payables 4,527 3,921 3,214 Financial liabilities - borrowings 755 629 754 5,282 4,550 3,968 Net current assets 581 1,047 1,451 Total assets less current liabilities 18,447 15,452 18,601 Non-current liabilities Financial liabilities - borrowings 1,936 2,384 2,316 Derivative financial instruments 33 - 50 1,969 2,384 2,366 Net assets 16,478 13,068 16,235 Equity Issued share capital 4,096 4,075 4,096 Share premium 39 - 39 Special reserve 10,788 10,788 10,788 Other reserves 2,386 2,438 2,444 Profit and loss reserve (831) (4,233) (1,132) Total equity 16,478 13,068 16,235 Unaudited Condensed Consolidated Statement of Cash FlowsFor the six months ended 30 June 2013 Six months Six months Year ended ended ended 30 June 30 June 31 December 2013 2012 2012 £'000 £'000 £'000 Cash flows from operating activities Profit for the period 293 402 3,471 Adjustments for: Depreciation of tangible fixed assets 534 542 1,098 Recognition of grant income (6) (6) (13) Amortisation of capitalised development 124 114 204costs Amortisation of other intangibles 90 98 191 Profit on sale of property, plant and (11) (33) (36)equipment Fair value gain on investments (19) (22) (12) Finance costs 52 75 195 Finance income (5) (3) (8) Taxation 279 - (2,508) Share-based payments - value of employee 8 22 26service (Increase)/decrease in inventories (189) 123 65 (Increase)/decrease in trade and other (370) - 605receivables Increase in creditors 1,207 674 198 Cash generated from operations 1,987 1,986 3,476 Interest paid (69) (78) (146) Tax received 2 - - Tax paid (1) - - Net cash generated from operating 1,919 1,908 3,330activities Cash flows from investing activities Acquisition of subsidiaries (1,600) - - Cash acquired with subsidiaries 313 Share purchases (34) (52) (52) Purchases of property, plant and (341) (690) (2,257)equipment Proceeds from sale of property, plant and 11 - 450equipment Proceeds from sale of investments 12 54 54 Purchases of intangible assets (78) (163) (222) Interest received 5 3 8 Net cash used in investing activities (1,712) (848) (2,019) Cash flows from financing activities Proceeds from issue of shares - - 60 Repayment of borrowings (243) (245) (492) Proceeds from finance leases - - 414 Finance lease principal repayments (136) (59) (169) Net cash used in financing activities (379) (304) (187) )0 Net (decrease)/increase in cash and cash (172) 756 1,124equivalents Cash and cash equivalents at beginning of 2,217 1,094 1,094period Exchange losses on cash and cash (86) (2) (1)equivalents Cash and cash equivalents at end of 1,959 1,848 2,217period Responsibility Statement We confirm that to the best of our knowledge: * The condensed consolidated interim financial statements for the six months ended 30 June 2013 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and * the half year report includes a fair review of the information required by: + DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) + DTR 4.2.8R (disclosure of related party transactions and charges therein) By order of the Board Laurie Turnbull Dr Nick AshChairman Chief Executive Officer29 August 2013 29 August 2013 Notes to the Condensed Consolidated Interim Financial StatementsFor the six months ended 30 June 2013 1. Basis of preparation Source BioScience plc is a company domiciled in the United Kingdom. Thecondensed consolidated interim financial statements of Source BioScience plc asat and for the six months ended 30 June 2013 comprise those of SourceBioScience plc and its subsidiaries (together referred to as the `Group'). These condensed consolidated interim financial statements have been prepared inaccordance with IAS 34 Interim Financial Reporting as endorsed and adopted foruse in the European Union. They do not include all of the information requiredfor full annual financial statements and should be read in conjunction with theconsolidated financial statements of the Group for the year ended 31 December2012, which have been prepared in accordance with IFRS adopted by the EuropeanUnion. These condensed consolidated interim financial statements have been prepared onthe basis of accounting policies consistent with those applied in thepreparation of the Group's published consolidated financial statements for theyear ended 31 December 2012 except as noted below. The Group has adopted improvements to various standards within the`Improvements to IFRS' programme, none of which have had a significant effecton the reported results or financial position of the Group. The condensed consolidated interim financial statements for the six monthsended 30 June 2013 have neither been audited nor reviewed by the Group'sauditor in accordance with International Standard on Review Engagements 2410issued by the Auditing Practices Board. The comparative figures for the financial year ended 31 December 2012 are notthe Group's statutory consolidated accounts for that financial year butrepresent an extract from those accounts. Statutory accounts for the year ended31 December 2012 were approved by the Board on 25 April 2013 and delivered tothe Registrar of Companies. The report of the auditor on those financialstatements was (i) unqualified, (ii) did not include reference to any mattersto which the auditor drew attention by way of emphasis without qualifying theirreport and (iii) did not contain a statement under section 498 (2) or (3) ofthe Companies Act 2006. The consolidated financial statements of the Group asat and for the year ended 31 December 2012 are available on request from theGroup's registered office at 1 Orchard Place, Nottingham Business Park,Nottingham NG8 6PX or at www.sourcebioscience.com. The condensed consolidated interim financial statements are presented in poundssterling, rounded to the nearest thousand pounds. They are prepared on thehistorical cost basis except for the valuation to fair value of certain assetsas indicated. The preparation of the condensed consolidated interim financial statementsrequires management to make judgements, estimates and assumptions that affectthe application of accounting policies and the reported amounts of assets andliabilities, income and expense. Actual results may differ from theseestimates. In preparing these condensed consolidated interim financial statements, thesignificant judgements made by management in applying the Group's accountingpolicies and the key source of estimation uncertainty were the same as thoseapplied to the consolidated financial statements as at and for the year ended31 December 2012. There have been no related party transactions or changes in related partytransactions described in the latest annual report that could have a materialeffect on the financial position or performance of the Group in the first sixmonths of this financial year. The condensed consolidated interim financial statements for the six monthsended 30 June 2013 were approved by the Board of Directors on 29 August 2013. 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: * Healthcare (comprising the business units of Cytology and Diagnostics) * LifeSciences During the period there were immaterial sales between business segments (sixmonths ended 30 June 2012: immaterial; year ended 31 December 2012: 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. Six months ended 30 June 2013 Life Healthcare Sciences Unallocated Group £'000 £'000 £'000 £'000 Revenue 4,568 4,205 - 8,773 Segment result 1,492 791 (1,664) 619 Finance income 5 5 Finance costs (52) (52) Profit before tax (1,711) 572 Taxation (279) (279) Profit / (loss) for the 1,492 791 (1,990) 293period Segment assets 4,830 10,965 - 15,795 Unallocated assets - property, plant and 2,787 2,787equipment - financial assets 91 91 - deferred tax asset 2,294 2,294 - debtors and prepayments 803 803 - cash and cash equivalents 1,959 1,959 Total assets 4,830 10,965 7,934 23,729 Segment liabilities 1,117 1,901 - 3,018 Unallocated liabilities - borrowings 2,691 2,691 - derivative financial 33 33instruments - creditors and accruals 1,509 1,509 Total liabilities 1,117 1,901 4,233 7,251 Other segment items Capital expenditure - tangible assets 43 198 100 341 - intangible assets - 78 - 78 Depreciation 177 217 140 534 Amortisation of intangible 35 179 - 214assets Other non-cash expenses - share option scheme - - 8 8 All results derive from continuing operations. Six months ended 30 June 2012 Life Healthcare Sciences Unallocated Group £'000 £'000 £'000 £'000 Revenue 4,431 3,980 - 8,411 Segment result 1,410 457 (1,393) 474 Finance income 3 3 Finance costs (75) (75) Profit before tax (1,465) 402 Taxation - - Profit/(loss) for the period 1,410 457 (1,465) 402 Segment assets 3,405 11,273 - 14,678 Unallocated assets - property, plant and 2,784 2,784equipment - financial assets 60 60 - debtors and prepayments 632 632 - cash and cash equivalents 1,848 1,848 Total assets 3,405 11,273 5,324 20,002 Segment liabilities 1,254 1,589 - 2,843 Unallocated liabilities - borrowings 3,013 3,013 - creditors and accruals 1,078 1,078 Total liabilities 1,254 1,589 4,091 6,934 Other segment items Capital expenditure - tangible assets 666 224 40 930 - intangible assets - 163 - 163 Depreciation 116 293 133 542 Amortisation of intangible 30 182 - 212assets Other non-cash expenses - share option scheme - - 22 22 All results derive from continuing operations. Year ended 31 December 2012 Life Healthcare Sciences Unallocated Group £'000 £'000 £'000 £'000 Revenue 8,564 7,867 - 16,431 Segment result 2,752 1,167 (2,769) 1,150 Finance income 8 8 Finance costs (195) (195) Profit before tax (2,956) 963 Taxation 2,508 2,508 Profit/(loss) for the 2,752 1,167 (448) 3,471year Segment assets 3,578 11,029 - 14,607 Unallocated assets - property, plant and 2,706 2,706equipment - financial assets 50 50 - deferred tax asset 2,564 2,564 - debtors and prepayments 425 425 - cash and cash 2,217 2,217equivalents Total assets 3,578 11,029 7,962 22,569 Segment liabilities Unallocated liabilities 836 1,358 - 2,194 - borrowings 3,070 3,070 - derivative financial 50 50instruments - creditors and accruals 1,020 1,020 Total liabilities 836 1,358 4,140 6,334 Other segment items Capital expenditure - tangible assets 1,143 538 524 2,205 - intangible assets 31 191 - 222 Depreciation 283 545 270 1,098 Amortisation of 60 335 - 395intangible assets Other non-cash expenses - share option scheme - - 26 26 All results derive from continuing operations. 3. Earnings per share Basic earnings per share amounts are calculated by dividing net result for theperiod attributable to ordinary equity shareholders of the Company by theweighted average number of shares outstanding during the period. Dilutedearnings per share amounts are calculated by dividing the net profitattributable to ordinary equity shareholders by the weighted average number ofordinary shares outstanding during the period adjusted for the effects ofdilutive options. The calculation of basic and diluted earnings per share for each respectiveperiod is outlined in the table below: Six months Six months Year ended ended ended 30 June 30 June 31 December 2013 2012 2012 Earnings (£'000) 293 402 3,471 Basic earnings per share Weighted average number of shares (`000s) 204,783 203,765 203,974 Earnings per share (pence) 0.14 0.20 1.70 Diluted earnings per share Weighted average number of shares (`000s) 204,783 203,765 203,974 Dilutive options adjustment (`000s) 3,951 1,703 2,899 Weighted average number of shares adjusted 208,734 205,468 206,873for dilutive options (`000s) Diluted earnings per share (pence) 0.14 0.20 1.68 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. 4. Acquisition of subsidiary On 26 April 2013 the Company completed the acquisition of the entire ordinaryshare capital of Inverclyde Biologicals Limited for gross consideration of £1.6million. Transaction costs were £0.1 million and £0.3 million of cash wasacquired with the business, resulting in a net investment of £1.4 million. Theprincipal activity of Inverclyde Biologicals is the manufacture anddistribution of high quality diagnostic kits and blood group serology reagents. The acquired business contributed revenue of £128,000 and net profit of £44,000to the Group for the period from 26 April 2013 to 30 June 2013. If theacquisition had occurred on 1 January 2013, Group revenue would have been £375,000 higher and the net profit would have increased by £129,000 on a proforma basis. The book and provisional fair values of the assets and liabilities acquiredwere as follows: Acquiree's Fair value carrying amount £'000 £'000 Tangible assets - property, plant and equipment 24 24 Inventories 34 34 Other current assets 422 422 Current liabilities (101) (101) Value of net assets acquired 379 379 Goodwill arising on acquisition 1,221 1,221 Consideration 1,600 1,600 Consideration is made up as follows: Initial cash consideration 1,600 1,600 Cash flow: Consideration paid, satisfied in cash (1,600) Cash balance acquired 313 Net cash outflow of acquisition (1,287) The goodwill represents future economic benefits arising from assets that arenot capable of being identified individually nor recognised as separate assets.This will include acquirer specific synergies that arise in thepost-acquisition period such as cross selling opportunities and the enhancementof technologies and processes between existing and acquired sites; thetechnical skills and customer support provided by the business and attributableto the workforce and access to Inverclyde Biologicals' product portfolio. The fair value adjustments shown above are provisional figures, being the bestcurrently available. Detailed exercises to identify the fair value adjustmentsare expected to be completed in the second half of the year. 5. Half Year Report Copies of the Half Year Report for the six months ended 30 June 2013 will beposted on the Group's website at www.sourcebioscience.com --- ENDS --- About Source BioScience Source BioScience plc (LSE: SBS) is an international diagnostics and geneticanalysis services business serving the healthcare and research markets. TheLifeSciences division provides core laboratory research support fromconceptualisation to implementation, calling upon a wide range of cutting-edgetechnology platforms including an online catalogue of biomolecular tools. TheGroup is a trusted provider of a complete range of sophisticated microarray,next generation and conventional sequencing services. GLP, GCP and CPAaccreditations make the sequencing offerings also very attractive forapplications in regulatory studies or clinical settings. Its Healthcareoperations provide screening and reference laboratory diagnostic testing forcancer and other diseases in addition to complementary products for serologyand diagnostic applications. The Group has its headquarters in Nottingham, UKand additional information about the Source BioScience Group, and itsactivities, can be found at www.sourcebioscience.com GLOSSARY Antibodies Proteins that are found in blood or other bodily fluids; they are naturally used by the immune system to identify and neutralise foreign objects, such as bacteria and viruses. Experimentally, antibodies are also used as highly specific probes for detecting proteins of interest in tissues. A wide range of antibodies with a large variety of cellular targets is available to research scientists through distributors such as Source BioScience. BD FocalPoint™ (`FP') An automated imaging system for screening BD SurePath™ liquid based cytology slides. Using complex algorithms it interprets the images of each slide using the same morphologic features used during screening with the human eye. It can archive up to 25% of cases as requiring "no further review" (`NFR') which then do not need to be manually primary screened. BRAF The BRAF gene encodes a signalling protein. Somatic mutations of the BRAF gene are quite common in melanoma and colorectal cancer. In colorectal cancer, such mutations make a tumour resistant to inhibitors of the EGFR signalling pathway. Bioinformatics The application of information technology, and computer science, to the field of molecular biology. Common activities in bioinformatics include mapping and analysing DNA and protein sequences, aligning different DNA sequences to compare them and handling and analysing huge data sets generated by the latest sequencing technologies. Blood bank A cache or bank of blood or blood components, gathered as a result of blood donation or collection, stored and preserved for later use Blood group serology A group of reagents which are used to test for thereagents presence or absence of antigens in the blood an determine the blood group. Biomarkers Biomarkers often refer to substances found in blood, urine or tissue, changes in which may be used to indicate presence of disease or response to treatment. More generally the term biomarker refers to any molecule that can be used to monitor a particular cellular process and may be a protein, DNA or RNA molecule. Capillary Electrophoresis DNA sequences are determined using a chemicalDNA Sequencing reaction that results in an array of products that terminate in a different fluorescent coloured dye,(also known as Sanger which vary in size by one nucleotide. The productssequencing or conventional are separated, like the rungs of a ladder, bysequencing) passing them through a capillary with an electric current and determining the order in which they emerge. This method was used for the large DNA sequencing projects of the last 15 years and remains the best way of inexpensively analysing large numbers of small sets of samples (see also Next Generation DNA Sequencing below). Care Quality Commission As a provider of healthcare laboratory and(`CQC') pathology services to the NHS, which is a regulated activity under the Health and Social Care Act 2008, we are required to be registered with the CQC, a government body established to regulate and inspect health and social care services in England, and ensure organisations maintain good standards and follow appropriate procedures. CYP2D6 Breast cancer patients with certain genetic variations in the CYP2D6 gene may be slow metabolisers of the drug tamoxifen to its active metabolite endoxifen. In this case changes to the treatment regime may be indicated because the efficacy of the drug is reduced. Circulating Tumour Cells The identification of small numbers of cancer(`CTC') cells circulating in the blood has been shown to be of potential prognostic significance in breast cancer, colorectal or prostate cancer, and useful for monitoring response to drug therapy. Clinical Pathology CPA is the accreditation body for clinicalAccreditation pathology services in the UK. Accreditation(`CPA') involves audit of the ability of a laboratory to provide a service of high and consistent quality by declaring a defined standard of practice, which is performed by the CPA accreditation body. Clone A section of DNA sequence, such as a gene, that is isolated from an organism and can be endlessly replicated by genetic engineering techniques. Companion Diagnostic A test based on a biomarker (which might be a protein, DNA or RNA molecule), the presence or absence of which is associated with the likely efficacy of a drug or other treatment. Companion diagnostics are useful in stratifying patients into groups which are known to respond in a particular way to a drug. A good example of such a test from the Source BioScience breast cancer portfolio is the HER2 test, which assesses levels of the HER2 protein, expression of which is correlated with response to Herceptin™. Deoxyribo Nucleic Acid (DNA) DNA is a large, complex molecule which, by virtueand complementary DNA (cDNA) of a unique sequence of building blocks, contains all the genetic information required to create a cell or organism. cDNA can be made from all the genes in a genome, from a single gene, or from part of a gene. cDNA is DNA that has been synthesised artificially using an RNA template (see below) from the gene(s) selected. Duty of Care Review An audit of a specific pathologist's practice. Pathology departments have a duty of care to patients whose treatment or clinical management may need to be changed in the light of revised opinions arising from a review of a pathologist's or team's work. Where good practice is suspected to have broken down it may be necessary to arrange a systematic review of cases to fulfil a department's duty of care to their patients. Source BioScience offers a full duty of care review service to pathology departments that need specialist second opinion in these circumstances. EGFR mutation testing Human EGFR is a cellular transmembrane receptor found on the surface of cells. Clinicians wishing to prescribe Gefitinib™ (Iressa) for lung cancer patients are required to confirm the presence of any mutations found in the tyrosine kinase domain on the EGFR gene. Fluorescence in situ in situ Hybridisation (`ISH') is a powerfulHybridisation technique, not unlike immunohistochemistry(`FISH') (below), for visualising the presence of specific sequences of DNA or RNA in cells. The technique uses short synthetic sequences of DNA or RNA which will bind, or hybridise, to the tissue with high specificity for the DNA or RNA of interest within the issue. Fluorescent `tags' are attached to these synthetic sequences, allowing them to be visualised with a special microscope, even when present at very low levels (FISH). GenomeCube® Source BioScience's proprietary database, search engine and e-commerce tool for Life Science products. GenomeCube® contains over 26 million clones and over 200,000 antibodies all of which contain downloadable annotation. GenomeCube is available in foreign language and foreign currency versions. Genomics The study of an organism's genome, where the genome of an organism is its whole hereditary information and is encoded in the DNA (see above) and RNA (see below). This includes both the genes and the non-coding sequences of the DNA. Genomic clone libraries A clone library is a collection of clones containing complementary DNA (`cDNA') (see above) and is often intended to represent the genes that are expressed within a given cell or tissue type at a given period. Genomic products and In this instance, DNA or RNA extracted andreagents purified from a range of species and provided in a variety of forms for research purposes. Genotyping and sequencing DNA sequencing is the process of precisely determining the order of the building blocks, or nucleotides, of an organism's DNA. The method can be used to determine short sequences of DNA or, in larger experiments, to sequence the entire genome of an organism. Genotyping, in turn, is the process whereby DNA is characterised and then compared to reference data or, if large numbers of samples are genotyped, the data can be examined for patterns which might lead to discoveries of the fundamental causes of inherited diseases. Genotyping is commonly performed by PCR (below) or DNA sequencing. Good Clinical Practice GCP is an international ethical and scientific(`GCP') quality standard for designing, conducting, recording and reporting clinical trials that involve the participation of human subjects. Compliance with this standard provides public assurance that the rights, safety and well-being of trial subjects are protected, consistent with principles that have their origin in the Declaration of Helsinki. Compliance with the principles of GCP is assured via monitoring by a governmental agency, the Medicines and Healthcare products Regulatory Agency (`MHRA'). Good Laboratory Practice GLP is a set of principles that provides a(`GLP') framework within which laboratory studies are planned, performed, monitored, recorded, reported and archived. These studies are undertaken to generate data by which the hazards and risks to users can be assessed for pharmaceuticals (only preclinical studies). GLP helps assure regulatory authorities that data submitted is a true reflection of the results obtained during the study and can therefore be relied upon when making risk/safety assessments. Compliance with the principles of GLP is assured via monitoring by the Medicines and Healthcare products Regulatory Agency (`MHRA'). Human Epidermal Growth HER2 is a protein the over-expression of whichFactor Receptor 2 (HER2) within a breast or gastric/gastro-oesophageal tumour sample may indicate a patient is suitable for treatment with Herceptin™. A test for such over-expression is carried out on all new breast cancer patients or patients with advanced stomach cancer. Human Papilloma Virus HPV is a family of viruses that commonly infect(`HPV') human tissues. Several members of this family in particular genotype 16 & 18 are sexually transmitted and persistent infection with these subtypes plays a key role in the development of cervical intraepithelial neoplasia (CIN) and invasive cancer of the cervix. HPV infection is also associated with other cancers, including those of the head and neck. Histopathology The study of changes in tissues and cells as a consequence of some disease or toxic processes. Human Tissue Authority The HTA licenses organisations that store and use(`HTA') human tissue for purposes such as research, patient treatment, post-mortem examination, teaching and public exhibitions. The HTA also inspect organisations to check that they maintain good standards and follow appropriate procedures against the legislation of the Human Tissue Act 2004. Immunohistochemistry (`IHC') IHC is a technique for visualising proteins and other molecules in thin sections of tissue. This technique uses antibodies raised in other species against the protein of interest as a tool, and exploits their exquisite sensitivity and specificity for binding to that protein. K-RAS K-RAS is a gene that produces an important cell signalling protein responsible for cell growth. The presence of a mutated form of the K-RAS gene in colorectal cancer may indicate that a patient is unsuitable for new anti-EGFR drugs such as Erbitux™ and Vectibix™. Liquid based cytology LBC is a process for collecting and processing(`LBC') cervical cytology samples from epithelial tissues such as the cervix. It produces a cleaner preparation of cells, without the other materials which frequently contaminate the sample such as blood or mucus. Microarray Microarrays are a microscopic series of nucleic acid spots of known sequence which are deposited in a regular array typically onto a glass slide. A DNA or RNA probe can then be hybridised to the slide which results in a DNA or RNA fingerprint of the sample in the probe enabling scientists to determine genotypes or gene expressions levels. Next Generation DNA NGS refers generically to a set of recentSequencing (`NGS'), Illumina technologies, in our case Illumina HiSeq 2000™ andHiSeq 2000™ and Illumina Illumina MiSeq™, in which extremely large numbersMiSeq™ of short sequences can be determined in a single experiment; for example the Illumina HiSeq 2000™ selected by Source BioScience can sequence two human genomes in ten days. No further review (`NFR') A unique feature of the BD FocalPoint™ automated cytology imaging platform that can identify up to 25% of cytology slides that are considered to be negative. These slides do not require further primary manual review, thereby improving the turnaround time and efficiency in the laboratory operations, saving time and cost for the NHS. Polymerase Chain Reaction PCR is a laboratory technique which specifically(`PCR') and exponentially amplifies a single or a few copies of a segment of DNA. The resulting product is an indicator of the presence of the original segment of DNA or the product can be used as the material for further experiments, for example genotyping or DNA sequencing. Proteomics The study of specific amino acids, proteins or the entire proteome (a complete translated genome, see above) of an organism. Proteomic techniques include, for example, surveying complex biological samples for protein content, or determining the level of specific proteins in tissues using techniques like immunohistochemistry (IHC, see above). reSourceTM Brand name carried by the Source BioScience LifeSciences product portfolio. RiboNucleic Acid (`RNA') RNA is a molecule similar to DNA, but is an intermediate product between the DNA of the gene, and the ultimate protein product of that gene. The level of expression of a gene can be gauged by the amount of RNA synthesised from that gene, a process usually measured by quantitative real-time polymerase chain reaction (`Q-PCR'). RNA expression analysis A process to measure the activity of a number of genes simultaneously, generating a global picture of cellular function. The expression analyses, or profiles, can distinguish between cells that are actively dividing, for example, or show how the cells react to a particular treatment. Testing of genome-wide RNA expression levels have been performed by microarray analysis but the experiments are now as likely to be performed by NGS. Serology The study of general antigen-antibody reactions in a laboratory setting and the specific blood test conducted to test for the presence of antibodies. A serology test is performed to determine a patient's blood type and to test for, and identify, an infection.