5th Sep 2007 07:01
Tepnel Life Sciences PLC05 September 2007 TEPNEL LIFE SCIENCES PLC Interim results for the six months ended 30 June 2007 Manchester, UK, 5 September 2007: Tepnel Life Sciences plc (AIM: TED), theinternational Molecular Diagnostics and Research Products and Services group,announces interim results for the six month period ended 30 June 2007. Theseresults are reported under International Financial Reporting Standards ("IFRS"). 2007 Highlights • Tepnel reports its H1 results for 2007, demonstrating continued growth and profitability. • Revenue increased to £9.02 million from £8.16 million, an increase of 11% year on year and 15% on a constant currency basis • Gross profit increased 22% to £5.07 million with gross margin improving to 56.2% from 50.9% in the previous year • A 562% increase in operating profit pre-exceptional items to £0.5 million from £0.08 million in 2006 • Operating profit increased to £0.5 million compared to a loss of £0.05 million in 2006 • EBITDA pre-exceptional items increased 124% to £0.77 million from £0.35 million in 2006 • Tepnel continues to deliver sustained growth in both revenue and operating profit across both divisions in line with its strategic and operational plans: - Research Products and Services revenue increased by 11% driven by the strong demand for its pharmaceutical outsourcing services - Molecular Diagnostics revenue increased by 17% (on a constant currency basis) with LifeMatch reagent sales continuing to show growth of over 40% compared to the prior period After the period closed, Tepnel completed the first development phase of itsstate-of-the-art pharmaceutical facility in Livingston. This will enable theCompany to meet increased customer demand and broaden its service offering toits pharmaceutical customers Results 6 months ended 6 months ended Change 30 June 2007 30 June 2006 £'000 £'000 Group revenue 9,022 8,164 11%EBITDA (pre exceptionals) 773 345 124%EBIT (pre exceptionals) 503 76 562%EBIT 503 (46) +£0.55mProfit/(loss) after tax 520 (56) +£0.58mBasic EPS 0.23 pence (0.03) pence +0.26 penceGross margin 56.2% 50.9% +5.3% Commenting on the half year results, Ben Matzilevich, CEO of Tepnel, said: "Thisexcellent half year performance continues to demonstrate that Tepnel isachieving its strategic and operational objectives with strong growth in bothrevenue and operating profit across both operating divisions. The Livingstonfacility will be running at full capacity from September which will enable us tomeet the increased customer demand for our outsourced services. Our key productlines continue to perform strongly with LifeMatch reagent sales ahead by over40% compared to the prior year. We are increasingly well positioned for futuregrowth and continue to develop innovative new products and services for themolecular diagnostics and research product sectors of our market. Thesedevelopments are contributing to Tepnel's goal of achieving long term profitsand sustainable growth for shareholders." For further information, please contact: Tepnel Life Sciences plc Capital MS&LBen Matzilevich, CEO Mary Clark or Catie CorcoranTel: +44 161 946 2200 Tel: +44 20 7307 5330 Seymour PierceMark PercyTel: +44 20 7107 8000 About Tepnel Life Sciences Tepnel Life Sciences (AIM:TED) is a UK-based international life sciencesproducts and services group with two divisions, Molecular Diagnostics andResearch Products & Services. The Company has laboratories, manufacturing andoperations in the USA, UK and France with 203 employees. Tepnel provides test kits, reagents and services to two highly synergisticmarkets, these being Molecular Diagnostics and Biomedical Research. The company's strategy has been to identify high growth niche opportunitieswithin these multi-billion pound markets. Tepnel focuses on these opportunitieswith internally developed products, patents, expertise and know-how as well asstrategic acquisitions, to develop a leadership position within these definedmarket segments. Chairman's Statement Overview The first half of 2007 has been a highly successful period for Tepnel as theGroup has continued to deliver its strategic and operational plans resulting insignificant turnover and profit growth. The Group has built on its firstprofitable year in 2006 by achieving growth of 15% on a constant currency basisand operating profits of £0.5m for the 6 months ended 30 June 2007. This performance is a direct result of Tepnel's corporate strategy to buildleadership positions in attractive niche markets in the molecular diagnosticsand research products and services sectors. The key financial highlights include: • Revenue for the six months to 30 June 2007 increased to £9.02m from £8.16m, an increase of 11% year on year and 15% on a constant currency basis. • Operating profit before exceptional items increased 562% to £0.5m from £0.08m in 2006. • Operating profit before interest, tax, depreciation, amortisation (EBITDA) and exceptional items for the half year increased 124% to £0.77m from £0.35m in 2006. • Basic earnings per share for the year were 0.23 pence compared to a loss per share of 0.03p for 2006 • Cash and cash equivalents at the end of the period were £2.38m (2006: £2.89m). Research Products and Services The Research Products and Services division has delivered an 11% increase inrevenue to £3.85m. This division provides outsourcing services for thepharmaceutical, biotechnology and healthcare industries, food safety productsand immunological reagents. This growth has been driven by the demand for Tepnel's pharmaceuticaloutsourcing services including nucleic acid purification, microbiology,chemistry and bioanalysis services, making the increased capacity from the newLivingston facility essential for future growth. Tepnel has now completed the first development phase of its new state-of-the-artpharmaceutical testing facility based in Livingston, Scotland. This facilitycurrently employs 56 staff who have been relocated from Tepnel's Edinburgh andGlasgow operations. It will accommodate Tepnel's protein analysis and genomictesting laboratories as well as the Company's analytical chemistry, bioanalysisand microbiology facilities. The second development phase will begin in September and will accommodateTepnel's new molecular services group including genotyping, whole genomeamplification, sequencing and gene expression services. In July, Tepnel acquired laboratory service providers Wildlife DNA Services andFood DNA Services. Food DNA Services provides high quality genetic informationfor identifying food composition and origins, and will be integrated intoTepnel's existing food safety business. Wildlife DNA Services is an established provider of genotyping services, andwill accelerate Tepnel's entry into the clinical genotyping market, broadeningits service offering to the pharmaceutical industry. Tepnel's food safety business continues to make progress by further establishingits footprint in the US through our facility in Stamford, Connecticut. Duringthe period three new RAPID 3-D allergen tests for Almond, Hazelnut and Shellfishwere launched and the RAPID tests showed steady growth during the period. Sales of immunological products are progressing well with continued growth, inparticular through our direct US operation and through our recent distributionagreement with Abcam. Molecular Diagnostics The Molecular Diagnostics division continues to see strong growth with a 17%increase in revenue (on a constant currency basis) for the year to £5.17m. Thisdivision is focusing on the organ transplant monitoring, foetal diagnostictesting and genetic predisposition testing markets. Tepnel's innovative productrange includes the LifeMatch transplant monitoring assays and the ELUCIGENEgenetic predisposition assays. The LifeMatch range of products has delivered an increase in sales of over 40%compared to the prior year, securing additional market share. These productsare used for the measurement and detection of HLA (Human Leukocyte Antigen)markers which are used in both bone marrow and solid organ transplantation. The Lifematch range was extended during the period through the launch of DonorSpecific Antigens (DSA) and Lifematch Single Antigens (LSA). DSA allowsclinicians improved screening of antibodies against HLA antigens ensuringcompatibility and minimising rejections whilst LSA allows clinicians to identifyallele level antigens in highly sensitised patients to minimise chances ofrejection and ensure a better outcome. In July, Tepnel extended its licence with Luminex Corporation for access to theLuminex(R) xMAP(R) platform. The Luminex xMAP technology is incorporated intoTepnel's innovative molecular diagnostics LifeMatch products. It is anticipatedthat the extended licence agreement and new products will provide a strong basefor the future growth of the LifeMatch range. Sales of Tepnel's QST*R product for the rapid detection during pregnancy ofcommon genetic abnormalities, has shown strong growth compared to the prior yearand continues to gain momentum. Future Prospects These results are further evidence of Tepnel's continued progress in achievingsustainable profits and growth. We anticipate further growth from our molecular diagnostics LifeMatch andELUCIGENE products in the US and Europe. The new facility in Livingston willenable us to meet the growing customer demand for pharmaceutical outsourcingservices and to broaden the range of services offered to our clients. Thestrategic acquisition of Wildlife DNA Services will allow us to accelerate thedelivery of our clinical genotyping offering to our pharmaceutical customers. We remain committed to building value in the Company for our shareholders, andlook forward to updating shareholders later in the year. Alec CraigNon-Executive Chairman5 September 2007 Group Income Statementfor the 6 months ended 30 June 2007 (unaudited) 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000Continuing operationsRevenue 9,022 8,164 16,156Cost of sales (3,953) (4,009) (7,663)Gross profit 5,069 4,155 8,493 Selling and distribution costs (1,507) (1,354) (2,655)Research and development costs (1,011) (895) (1,775)Administrative expenses - normal (2,048) (1,830) (3,664) - exceptional - (122) (122)Total administrative expenses (2,048) (1,952) (3,786)Operating profit/(loss) 503 (46) 277Finance income 64 35 80Finance expense (69) (81) (143)Profit/(loss) before taxation 498 (92) 214Tax credit 22 36 154Profit/(loss) for the period 520 (56) 368 Operating profit before exceptional items 503 76 399 Basic earnings/(loss) per share 0.23p (0.03)p 0.17pDiluted earnings/(loss) per share 0.21p (0.03)p 0.16p Group statement of recognised income and expensefor the 6 months ended 30 June 2007 (unaudited) 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000Income and expenses recognised directly in equityExchange differences on retranslation of foreign (14) (19) (58)operationsProfit/(loss) for the period 520 (56) 368Total recognised income and expenses for the period 506 (75) 310 Group Balance Sheetas at 30 June 2007 (unaudited) 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Non-current assetsProperty, plant and equipment 4,241 1,679 2,246Intangible assets 1,843 1,770 1,836Deferred tax asset 104 - 104 6,188 3,449 4,186Current assetsInventories 2,495 2,745 2,645Trade and other receivables 4,229 3,782 3,051Income tax receivable 110 37 88Cash and short-term deposits 2,380 2,893 3,857 9,214 9,457 9,641 Total assets 15,402 12,906 13,827 Current liabilitiesTrade and other payables (6,054) (5,869) (5,108)Financial liabilities (192) (42) (88)Income tax payable (152) (119) (151) (6,398) (6,030) (5,347)Non-current liabilitiesFinancial liabilities (1,289) (92) (1,307) Total liabilities (7,687) (6,122) (6,654) Net assets 7,715 6,784 7,173 Capital and reservesEquity share capital 36,878 36,899 36,878Foreign exchange reserve (72) (19) (58)Retained earnings (29,091) (30,096) (29,647) Total equity 7,715 6,784 7,173 Group Cash Flow StatementFor the 6 months ended 30 June 2007 (unaudited) 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000Operating activitiesProfit/(loss) for the period 520 (56) 368Adjustments to reconcile profit/(loss) for the period to net cash flow from operating activities: Tax credit (22) (36) (154)Net finance costs 5 46 63Depreciation of property, plant and equipment 264 263 509Amortisation of intangible fixed assets 6 6 11Share based payments 36 - 25(Increase)/decrease in trade and other receivables (1,186) (888) (221)(Increase)/decrease in inventories 115 (551) (547)Increase/(decrease) in trade and other payables 69 802 (4)Cash generated from operating activities (193) (414) 50Income tax received - 75 73 Net cash inflow/(outflow) from operating activities (193) (339) 123 Investing activitiesInterest received 64 48 80Purchase of business - (40) (39)Payments to acquire property, plant and equipment (1,301) (315) (1,213)Proceeds from sale of property, plant and equipment 8 - -Payments to acquire intangible assets (2) - (5)Net cash outflow from investing activities (1,231) (307) (1,177) Financing activitiesInterest paid (10) (16) (22)Proceeds from issue of share capital - 1,300 1,276Repayment of capital element of finance leases (40) (20) (36)New borrowings - - 1,234Net cash inflow from financing activities (50) 1,264 2,452 Increase in cash and cash equivalents (1,474) 618 1,398Cash and cash equivalents at the beginning of the period 3,657 2,279 2,279Effect of exchange rates on cash and cash equivalents (3) (4) (20)Cash and cash equivalents at the end of the period 2,180 2,893 3,657 Notes to the Group financial statements 1. Significant accounting policies Basis of preparation The consolidated financial statements of Tepnel Life Sciences plc for the 6month ended 30 June 2007 were authorised for issue by the directors on 4September 2007. The financial information contained in this interim statement is unaudited anddoes not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The audited UK GAAP annual financial statements for the yearended 31 December 2006 have been delivered to the Registrar of Companies andcontained an unqualified audit opinion. These consolidated interim financial statements are presented in Sterling andall values are rounded to the nearest thousand (£'000) except when otherwiseindicated. Prior to 2007 the Group prepared its audited financial statements under UK GAAP.For the year ended 31 December 2007, the Group is required to prepare its annualconsolidated financial statements in accordance with International FinancialReporting Standards as adopted in the European Union ("IFRS"). IFRS 1 'Firsttime adoption of International Financial Reporting Standards', requires anentity to comply with each IFRS effective at the reporting date for its firstIFRS financial statements. The accompanying financial information has beenprepared based on the current status of IFRS or Interpretations issued by theInternational Financial Reporting Interpretations Committee ('IFRIC'). It should be noted that there is a possibility that the full year IFRScomparatives may require adjustment before constituting final IFRS accounts.This is because the IFRS standards that will be applicable at 31 December 2007including those that will be applicable on an optional basis are not known withcertainty at the time of preparing this document. As a general rule, IFRS 1 requires the standards effective at the reporting dateto be applied retrospectively. However retrospective application is prohibitedin some areas, particularly where retrospective application would requirejudgement by management about past conditions after the outcome of theparticular transaction is already known. A number of optional exemptions fromfull retrospective application of IFRS are granted where the cost of complianceis deemed to exceed the benefits to users of the financial statements. Whereapplicable, the options selected by management are set out in note 10 below. Asrequired by IFRS 1, the effect of transition from UK GAAP to IFRS on the Group'sequity and profit has been explained in note 10. Changes in accounting policies Accounting policies detailed below have been adopted and these are in compliancewith IFRS. Basis of consolidation The consolidated accounts incorporate the financial statements of Tepnel LifeSciences Plc and all of its subsidiary undertakings made up to 30 June 2007.Subsidiaries are fully consolidated from the date on which control istransferred to the Group, and deconsolidated from the date that control ceases. The financial statement of subsidiaries used in the preparation of theconsolidated financial statements are prepared for the same reporting period ofthe parent company and are based on consistent accounting policies.Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated, including unrealised profits or losses. Revenue Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured.Revenue is measured at the fair value of the consideration received, excludingdiscounts, rebates, VAT and other sales taxes or duty. The following criteriamust also be met before revenue is recognised: Sale of goods Revenue from sale of goods is recognised when the significant risks and rewardsof ownership of the goods have passed to the buyer, usually on dispatch of thegoods. Rendering of services Revenue from the provision of services is recognised when the services have beenperformed. Licence fees and royalties Licence fees and royalties are recognised over the period of the groups relatedobligations. Interest income Revenue is recognised as interest accrues using the effective interest ratemethod. The effective interest rate is the rate that exactly discountsestimated future cash receipts through the expected life of the financialinstrument to its net carrying amount. Goodwill and business combinations Business combinations on or after 1 January 2006 are accounted for under IFRS3using the purchase method. Any excess of the cost of the business combinationover the Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities is recognised in the balance sheet asgoodwill and is not amortised. To the extent that the net fair value of theacquired entity's identifiable assets, liabilities and contingent liabilities isgreater than the cost of the investment, a gain is recognised immediately in theincome statement. Goodwill recognised as an asset at 31 December 2005 isrecorded at its carrying amount under UK GAAP and is not amortised. After initial recognition goodwill is stated at cost less any accumulatedimpairment losses, with the carrying value being reviewed for impairmentannually and whenever events or changes in circumstances indicate that thecarrying value may be impaired. For the purpose of impairment testing, goodwill is allocated to the relatedcash-generating units monitored by management, usually at business segment levelor statutory company level as the case may be. Where the recoverable amount ofthe cash-generating unit is less than its carrying amount, including goodwill,an impairment loss is recognised in the income statement. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Such cost includes expenditure that is directlyattributable to the acquisition of the asset or in making the asset capable ofoperating as intended. Depreciation is provided on a straight line basis to write off the cost, lessestimated residual values, of all tangible fixed assets over their expecteduseful lives. It is calculated using the following rates: Freehold land is not depreciatedBuildings 2% per annumShort leasehold improvements equally over the lease periodPlant and equipment 15-33% per annumFixtures and fittings 20-33% per annum Depreciation is not provided for on assets in construction. Annual reviews are performed on the expected useful lives and estimated residualvalues of the individual assets. The carrying values of tangible fixed assetsare reviewed for impairment if events or changes in circumstances indicate thecarrying value may not be recoverable. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with theircarrying amount and are included in the income statement. Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use or sale, areadded to the cost of these assets, until such time as the assets aresubstantially ready for their intended use or sale. All other borrowing costsare recognised in profit or loss in the period in which they are incurred. Inventories Inventories are valued at the lower of cost and net realisable value. Costswhich includes appropriate labour and overhead absorption is calculated on thebasis of costs of purchase on a first in, first out basis. Net realisable valueis based on estimated selling price less further costs to completion anddisposal. Lease and hire purchase contracts Assets held under finance leases, which transfer to the Group substantially allthe risks and benefits incidental to ownership of the leased items, arecapitalised at the inception of the lease, with a corresponding liability beingrecognised for the lower of the fair value of the leased asset and the presentvalue of the minimum lease payments. Lease payments are apportioned between thereduction of the lease liability and finance charges in the income statement soas to achieve a constant rate of interest on the remaining balance of theliability. Assets held under finance leases are depreciated over the shorter ofthe estimated useful life of the asset and the lease term. Leases where the lessor retains a significant portion of the risks and benefitsof ownership of the asset are classified as operating leases and rentals payableare charged to the income statement on a straight line basis over the leaseterm. Foreign currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("functional currency"). The consolidated financial statementsare presented in sterling, which is the Group's functional and presentationalcurrency. Foreign currency transactions of individual companies are translated at therates ruling when they occurred. Foreign currency monetary assets andliabilities are translated at the rates at the balance sheet date. Anydifferences are taken to the income statement. The assets and liabilities of foreign operations are translated into sterling atthe rate of exchange ruling at the balance sheet date. Income and expenses aretranslated at weighted average exchange rates for the year. The resultingexchange differences are taken directly to a separate component of equity. Exchange differences on loans to overseas subsidiary undertakings which aretreated as being similar to equity funding, are taken directly to reservestogether with the exchange difference on the net investment in thoseenterprises. Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rates as at the dates of the initialtransactions. Non-monetary items measured at fair value in a foreign currencyare translated using the exchange rates at the date when the fair value wasdetermined. Research and development Research expenditure is recognised in the income statement in the year in whichit is incurred. Expenditure relating to clearly defined and identifiable development projects isrecognised as an intangible asset only after all the following criteria are met: • The project's technical feasibility and commercial viability can bedemonstrated; • The availability of adequate technical and financial resources and anintention to complete the project have been confirmed; and • The correlation between development costs and future revenues has beenestablished. Any intangible assets relating to product development (both internally generatedand externally acquired) are subject to impairment testing at each balance sheetdate. All intangible assets are tested for impairment when there are indicationsthat the carrying value may not be recoverable. Any impairment losses arerecognised immediately in the income statement. Taxation Current tax assets and liabilities are measured at the amount expected to berecovered from or paid to the taxation authorities, based on tax rates and lawsthat are enacted or substantively enacted by the balance sheet date. Deferred taxation is recognised in respect of all temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts inthe financial statements, with the following exceptions: • Where the temporary difference arises from the initial recognition ofgoodwill or of an asset or liability in a transaction that is not a businesscombination that at the time of the transaction affects neither accounting nortaxable profit or loss; • In respect of taxable temporary differences associated withinvestments in subsidiaries, where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differenceswill not reverse in the foreseeable future; and • Deferred taxation assets are recognised only to the extent that it isprobable that there will be suitable taxable profits from which the futurereversal of the underlying temporary differences can be deducted. Deferred taxation is measured on an undiscounted basis at the taxation ratesthat are expected to apply in the periods in which temporary differencesreverse, based on taxation rates and laws enacted or substantively enacted atthe balance sheet date. Share capital Ordinary shares are classified as equity. Incremental transaction costs directly attributable to the issue of equity areaccounted for as a deduction from equity, net of any related income tax benefit. Government grants Grants relating to expenditure on tangible fixed assets are credited to theincome statement at the same rate as the depreciation on the assets to which thegrants relate. The deferred element of grants is included in creditors asdeferred income. Grants of a revenue nature are credited to the income statementin the period in which the expenditure to which the grant relates is incurred. Share based payments The Group operates a number of employee share schemes and issues equity settledshare based payments to certain employees. The cost of equity-settled transactions with employees is measured by referenceto the fair value at the date at which they are granted and is recognised as anexpense over the vesting period, which ends on the date on which the relevantemployees become fully entitled to the award. Fair value is determined by anexternal valuer using an appropriate pricing model. In valuing equity-settledtransactions, no account is taken of any vesting conditions, other thanconditions linked to the price of the shares of the Company (market conditions). No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non-market conditions and ofthe number of equity instruments that will ultimately vest or, in the case of aninstrument subject to a market condition, be treated as vesting as describedabove. The movement in cumulative expense since the previous balance sheet dateis recognised in the income statement, with a corresponding entry in equity. Where the terms of an equity-settled award are modified or a new award isdesignated as replacing a cancelled or settled award, the cost based on theoriginal awards terms continues to be recognised over the original vestingperiod. In addition, an expense is recognised over the remainder of the newvesting period for the incremental fair value of any modification, based on thedifference between the fair value of the original award and the fair value ofthe modified award, both as measured on the date of the modification. Noreduction is recognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the incomestatement for the award is expensed immediately. Any compensation paid up tothe fair value of the award at the cancellation or settlement date is deductedfrom equity, with any excess over fair value being treated as an expense in theincome statement. Employee Benefits The Group operates a defined contribution pension scheme for the benefits ofcertain employees. The Group also contributes to certain employees' personalpension plans. The pension cost charge to the income statement representspension contributions payable by the Group in the period. A defined contribution plan is a pension plan under which the Group pays fixedcontributions into a separate entity. The Group has no legal or constructiveobligations to pay further contributions if the fund does not hold sufficientassets to pay all employees the benefits relating to employee service in thecurrent and prior periods. Cash and cash equivalents Cash and cash equivalents principally comprise cash and short term deposits heldwith banks and other financial institutions with an original maturity of threemonths or less. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less anallowance for any uncollectible amounts. Should an amount become uncollectibleit is written off to the income statement in the period in which it isidentified. Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events, when it is probable that an outflow ofresources will be required to settle the obligation and when the amount has beenreliably estimated. Interest bearing loans and borrowings All interest-bearing loans are initially recognised at fair value of theconsideration received net of issue costs associated with the borrowing. Afterinitial recognition interest bearing loans and borrowings are subsequentlymeasured at amortised cost under the effective interest rate method. Exceptional items The Group presents as exceptional items on the face of the income statement,those material items of income and expense which, because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to assess better trends in financial performance. New standards and interpretations not applied IASB and IFRIC have issued the following standards and interpretations with aneffective date after the date of these interim financial statements: International Accounting Standards (IAS/IFRSs) Effective date IFRS 8 Operating Segments 1 January 2009 International Financial Reporting Interpretations Committee (IFRIC) IFRIC 12 Service Concession Arrangements 1 January 2008IFRIC 13 Customer Loyalty Plans 1 January 2008IFRIC 14 The Limit on a Defined Benefit Asset Minimum 1 January 2008 Funding Requirement and their Interaction The Directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the Group's financial statementsin the period of initial application. 2. Critical accounting policies, judgements and estimates The preparation of financial statements requires management to make estimatesand assumptions that affect the amounts reported for assets and liabilities asat the balance sheet date and the amounts reported for revenues and expensesduring the year. The nature of estimation means that actual outcomes coulddiffer from those estimates. Key sources of estimation uncertainty andcritical accounting judgements are as follows: Deferred taxation: In the preparation of the financial statements, the Group estimates the incometaxes in each of the taxing jurisdictions in which the Group operates as well asany deferred taxes based on temporary differences. Deferred tax assets relatingto tax loss carry-forwards and temporary differences are recognised in thosecases when future taxable income is expected to permit the recovery of those taxassets. Changes in assumptions in the projections of future taxable income aswell as changes in tax rates could result in significant differences in thevaluation of deferred taxes. Goodwill and intangibles: The measurement and impairment of indefinite life intangible assets (includinggoodwill) are key sources of estimation uncertainty that have a risk of causingadjustment to the carrying amounts of assets and liabilities within the nextfinancial year. The measurement of intangible assets other than goodwill on a businesscombination involves estimation of future cash flows and the selection of asuitable discount rate. The Group determines whether indefinite life intangibleassets are impaired on an annual basis and this requires an estimation of thevalue in use of the cash generating units to which the intangible assets areallocated. This involves estimation of future cash flows and choosing asuitable discount rate. Share-based payments: The estimation of share-based payment costs requires the selection of anappropriate valuation model, consideration as to the inputs necessary for thevaluation model chosen and the estimation of the number of awards that willultimately vest, inputs for which arise from judgements relating to thecontinuing participation of employees. 3. Segmental analysis The primary segment reporting format is determined to be business segments asthe Group's risks and returns are affected predominantly by differences in theproducts and services provided. Secondary segment information is reportedgeographically. The Group operates in two business segments which reflect the risks and returnsinherent in the two segments and the internal organisation and managementstructure of the Group. These segments are Molecular Diagnostics (MD) andResearch Products and Services (RPS) Business Segments 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Research Products and Services 3,851 3,476 7,275Molecular Diagnostics 5,171 4,688 8,881 Total revenue 9,022 8,164 16,156 Geographical Segments 6 months ended 30 June 2007 Research Molecular Total Products and Diagnostics Services £'000 £'000 £'000 UK 2,286 540 2,826Rest of Europe 1,024 1,500 2,524US 269 2,355 2,624Asia 25 381 406Rest of World 247 395 642 Total revenue 3,851 5,171 9,022 6 months ended 30 June 2006 Research Molecular Total Products and Diagnostics Services £'000 £'000 £'000 UK 1,795 252 2,047Rest of Europe 1,356 1,011 2,367US 191 2,079 2,270Asia 37 1,147 1,184Rest of World 97 199 296 Total revenue 3,476 4,688 8,164 Year ended 31 December 2006 Research Molecular Total Products and Diagnostics Services £'000 £'000 £'000 UK 3,888 740 4,628Rest of Europe 2,452 1,654 4,106US 663 4,281 4,944Asia 73 1,626 1,699Rest of World 199 580 779 Total revenue 7,275 8,881 16,156 4. Exceptional items 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Settlement of unfair dismissal claim - (122) (122) On 24 May 2006, the Group settled the unfair dismissal claim which had beenbrought by Mr G P Ffoulkes-Davies, the former Group Finance Director followingthe termination of his employment contract in November 2005. The £122,000charge reflects the settlement made in excess of the provision made in 2005 aswell as associated legal costs incurred. 5. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theperiod attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing net profitsattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares outstanding during the period (adjusted for theeffects of dilutive options and warrants). Continuing operations 6 months 6 months ended Year ended 31 ended 30 June 2006 December 2006 30 June 2007 £'000 £'000 £'000 Earnings attributable to ordinary 520 (56) 368shareholders Number Number Number 000's 000's 000'sBasic weighted average number of 230,211 215,436 222,884ordinary sharesDilutive effect of: - employee share options 2,166 - 1,222 - warrants 15,507 - 227Diluted weighted average number 247,884 215,436 224,333of shares Basic earnings/(loss) per share 0.23p (0.03)p 0.17pDiluted earnings/(loss) per share 0.21p (0.03)p 0.16p 6. Reconciliation of movements in equity Equity Share Foreign Retained Capital Exchange Reserve Earnings £'000 £'000 £'000At 1 January 2006 35,733 - (30,040)Total recognised income and expense - (19) (56)Share-based payments - - -Shares issued, net of issue costs 1,166 - -At 30 June 2006 36,899 (19) (30,096)Total recognised income and expense - (39) 424Share-based payments - - 25Shares issued, net of issue costs (21) - -At 31 December 2006 36,878 (58) (29,647)Total recognised income and expense (14) 520Share-based payments 36 At 30 June 2007 36,878 (72) (29,091) 7. Additional financial information 30 June 30 June 31 December 2006 2007 2006 £'000 £'000 £'000 Operating profit/(loss) 503 (46) 277Exceptional items - 122 122Depreciation 264 263 509Amortisation 6 6 11 EBITDA pre exceptional items 773 345 919 8. Foreign currency The principal exchange rates used were as follows: 6 months ended 6 months ended Year end 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 US dollar - average 1.97 1.79 1.84 - closing 2.00 1.82 1.96Euro - average 1.48 1.46 1.47 - closing 1.49 1.45 1.49 2007 results compared with 2006 at constant 2006 exchange rates 6 months ended 6 months ended 30 June 30 June 2007 2006Revenue £'000 £'000 % change Research Products and Services 3,875 3,476 11%Molecular Diagnostics 5,489 4,688 17% Total revenue 9,364 8,164 15% 9. Analysis of net funds 1 January Cash flow Non-cash movement 30 June 2007 2007 £'000 £'000 £'000 £'000 Cash and cash equivalents (i) 3,657 (1,474) (3) 2,180Loans (1,234) - - (1,234)Finance leases (161) 40 (126) (247) Net funds 2,262 (1,434) (129) 699 i) Cash held in Escrow Cash of £200,000 is held in an Escrow account in respect of the building of thenew laboratories in Livingston, Scotland. This amount will be used to satisfythe final milestone payments in respect of the construction contract. Thisamount is treated as cash in the Group balance sheet but treated as investmentin fixed deposit in the cash flow statement and net funds note. 10. Transition to IFRS Application of IFRS 1 - First Time Adoption of IFRS For all periods up to and including the year ended 31 December 2006, the Groupprepared its financial statements in accordance with UK GAAP. The Group's financial statements for the year ended 31 December 2007 will befirst annual financial statements that comply with IFRS. These interimfinancial statements have been prepared as described in note 1 and in accordancewith the accounting policies outlined in note 1. The Group's date of transitionto IFRS is 1 January 2006 and all comparative information in the financialstatements is restated to reflect the Group's adoption of IFRS except whereotherwise required or permitted under IFRS 1. In preparing these interim financial statements in accordance with IFRS 1, theGroup has taken advantage of certain optional exemptions from full retrospectiveapplication of IFRS as detailed below. a) Business combinations IFRS 3 'Business Combinations' has not been applied to acquisitions ofsubsidiaries that occurred before 1 January 2006; b) Cumulative translation differences Cumulative foreign exchange translation differences have been set to zero as atthe date of 1 January 2006; Impact of IFRS and reconciliation to UK GAAP The impact of the transition to IFRS on the profit/(loss) for the 6 months ended30 June 2006 and year ended 31 December 2006 and on equity as at 1 January 2006,30 June 2006 and 31 December 2006 are set out in the reconciliations below. The transition to IFRS has no effect on the cash flows of the Group but thereare certain presentational differences in the cash flow statement under IFRS andUK GAAP. The adjustments recognised as a result of the implementation of IFRS aredetailed below: a) Goodwill and amortisation Under UK GAAP, the Group amortised goodwill over its useful economiclife. IFRS 3 requires that goodwill is not amortised but is subject to an annualimpairment review instead. As required by IFRS1, an impairment test was carriedout at the date of transition to IFRS. No impairment was identified and noadjustment to the carrying value of goodwill was made. The adjustments to theGroup balance sheets as at 30 June 2006 and 31 December 2006 were £101,000 and£207,000 respectively relating to an increase in goodwill and in reserves, beingthe amortisation of goodwill that was charged during those periods under UKGAAP. b) Foreign exchange Translation differences arise from the consolidation of results offoreign operations at average rate and the balance sheet at the year end rate ofexchange. Under UK GAAP, the Group was not required to separately record suchcumulative translation differences or to account for them in subsequentdisposals of foreign operations. Under IFRS, the translation differencesarising are separately recorded in equity. On disposal of a foreign operation,the cumulative translation differences for that foreign operation will betransferred to the income statement as part of the gain or loss on disposal. Under IFRS 1, the Group has taken advantage of the option to resetcumulative translation differences to zero at 1 January 2006 and adjustmentshave been made to show the effect on reserves and equity for the 6 months ended30 June 2006 and the year ended 31 December 2006 for translation differences of£19,000 and £58,000 respectively arising since 1 January 2006. c) Short term compensated absences Under IAS 19, an accrual must be made for any short term compensated absencesaccrued but not used at the balance sheet date. The reduction in net assets at1 January 2006, 30 June 2006 and 31 December 2006 were £36,000, £100,000 and£44,000 respectively. d) License fees and patent costs This relates to the capitalisation and subsequent amortisation of patent costsand license fees under IAS 38. The increases in net assets at 1 January 2006, 30June 2006 and 31 December 2006 were £45,000, £39,000 and £39,000 respectively. Reconciliation of loss at 30 June 2006 UK GAAP Effect of IFRS transition to in IFRS format IFRS £'000 £'000 £'000 Continuing operations Revenue 8,164 - 8,164 Cost of sales (4,009) - (4,009) Gross profit 4,155 - 4,155 Selling and distribution costs (1,354) - (1,354) Research and development costs (895) - (895) Administrative expenses - normal(i), (ii), (iii) (1,861) 31 (1,830) - exceptional (122) - (122) Total administrative expenses (1,983) 31 (1,952) Operating loss (77) 31 (46) Finance income 35 - 35 Finance expense (81) - (81) Loss before taxation (123) 31 (92) Tax credit 36 - 36 Loss for the period (87) 31 (56) Operating profit before exceptional items 45 31 76 Notes to reconciliation of loss for 30 June 2006 £'000 (i) Goodwill amortisation 101(ii) License fees and patent costs (6)(iii) Short term compensated absences (64) 31 Reconciliation of profit at 31 December 2006 UK GAAP Effect of IFRS transition to in IFRS format IFRS £'000 £'000 £'000 Continuing operations Revenue 16,156 - 16,156 Cost of sales (7,663) - (7,663) Gross profit 8,493 - 8,493 Selling and distribution costs (2,655) - (2,655) Research and development costs (1,775) - (1,775) Administrative expenses - normal(i), (ii), (iii) (3,857) 193 (3,664) - exceptional (122) - (122) Total administrative expenses (3,979) 193 (3,786) Operating profit 84 193 277 Finance income 80 - 80 Finance expense (143) - (143) Profit before taxation 21 193 214 Tax credit 154 - 154 Profit for the year 175 193 368 Operating profit before exceptional items 206 193 399 Notes to reconciliation of profit for 31 December 2006 £'000 (i) Goodwill amortisation 207(ii) License fees and patent costs (6)(iii) Short term compensated absences (8) 193 Reconciliation of equity at 1 January 2006 (date of transition to IFRS) UK GAAP Effect of IFRS transition to in IFRS format IFRS £'000 £'000 £'000 Non-current assets Property, plant and equipment 1,500 - 1,500 Intangible assets (i) 1,665 45 1,710 3,165 45 3,210 Current assets Inventories 2,247 - 2,247 Trade and other receivables 3,065 - 3,065 Income tax receivable 75 - 75 Cash and short term deposits 2,279 - 2,279 7,666 - 7,666 Total assets 10,831 45 10,876 Current liabilities Trade and other payables (ii) (4,819) (36) (4,855) Income tax payable (118) - (118) Provisions (190) - (190) (5,127) (36) (5,163) Non-current liabilities Financial liabilities (20) - (20) Total liabilities (5,147) (36) (5,183) Net assets 5,684 9 5,693 Capital and reserves Equity share capital 35,733 - 35,733 Retained earnings (30,049) 9 (30,040) Total equity 5,684 9 5,693 Notes to the reconciliation of equity at 1 January 2006 £'000 (i) License fees and patent costs 45(ii) Short term compensated absences (36) 9 Reconciliation of equity at 31 December 2006 (date of last UK GAAP FinancialStatements) UK GAAP Effect of IFRS transition to in IFRS format IFRS £'000 £'000 £'000 Non-current assets Property, plant and equipment 2,246 - 2,246 Intangible assets (i), (iii) 1,590 246 1,836 Deferred tax asset 104 - 104 3,940 246 4,186 Current assets Inventories 2,645 - 2,645 Trade and other receivables 3,051 - 3,051 Income tax receivable 88 - 88 Cash and short term deposits 3,857 - 3,857 9,641 - 9,641 Total assets 13,581 246 13,827 Current liabilities Trade and other payables (ii) (5,064) (44) (5,108) Financial liabilities (88) - (88) Income tax payable (151) - (151) (5,303) (44) (5,347) Non-current liabilities Financial liabilities (1,307) - (1,307) Total liabilities (6,610) (44) (6,654) Net assets 6,971 202 7,173 Capital and reserves Equity share capital 36,878 - 36,878 Foreign exchange reserve (iv) - (58) (58) Retained earnings (29,907) 260 (29,647) Total equity 6,971 202 7,173 Notes to reconciliation of equity at 31 December 2006 £'000 (i) Goodwill amortisation 207(ii) Short term compensated absences (44)(iii) License fees and patent costs 39 202 (iv) Movement of foreign exchange reserve from retained earnings (58) Reconciliation of equity at 30 June 2006 UK GAAP Effect of IFRS transition to in IFRS format IFRS £'000 £'000 £'000 Non-current assets Property, plant and equipment 1,679 - 1,679 Intangible assets (i), (iii) 1,630 140 1,770 3,309 140 3,449 Current assets Inventories 2,745 - 2,745 Trade and other receivables 3,782 - 3,782 Income tax receivable 37 - 37 Cash and short term deposits 2,893 - 2,893 9,457 - 9,457 Total assets 12,766 140 12,906 Current liabilities Trade and other payables (ii) (5,769) (100) (5,869) Financial liabilities (42) - (42) Income tax payable (119) - (119) (5,930) (100) (6,030) Non-current liabilities Financial liabilities (92) - (92) Total liabilities (6,022) (100) (6,122) Net assets 6,744 40 6,784 Capital and reserves Equity share capital 36,899 - 36,899 Foreign exchange reserve (iv) - (19) (19) Retained earnings (30,155) 59 (30,096) Total equity 6,744 40 6,784 Notes to reconciliation of equity at 30 June 2006 £'000 (i) Goodwill amortisation 101(ii) Short term compensated absences (100)(iii) License fees and patent costs 39 40 (iv) Movement of foreign exchange reserve from retained earnings (19) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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