Preliminary Results

11 September 2017

ABCAM PLC

Double-digit earnings growth enabling investment for sustained future growth

Abcam plc ("Abcam" or "the Company", AIM: ABC), a global leader in the supply of life science tools, is pleased to announce its preliminary results for the year ended 30 June 2017 *.

FINANCIAL HIGHLIGHTS

· Total revenue increased 26.5% on a reported basis to £217.1m (FY 2016: £171.7m). On a constant exchange rate (CER)1 basis the increase was 9.9%2, meeting our full year guidance

· Catalogue revenue increased by 27.4% on a reported basis to £202.5m (FY 2016: £159.0m) and 10.8% on a CER basis

o RabMAb® primary antibody and non-primary antibody revenues grew on a reported basis by 43.9% and 33.0%, and 25.2% and 15.6% on a CER basis, respectively, both delivering on our key performance indicator (KPI) targets

· Reported gross margin of 70.1% following the reclassification of certain costs3 (FY 2016: 70.2%). On a like for like basis FY 2016 gross margin was 69.2%

· EBITDA margin was 32.5% (FY 2016: 33.6%). Adjusted EBITDA margin4 was 33.8% (FY 2016: 34.9%), reflecting the continued investment in the business

· Profit before tax (PBT) on a reported basis was £51.9m (FY 2016: £45.4m) and £64.6m (FY 2016: £53.8m) on an adjusted basis5

· Reported diluted earnings per share (EPS) increased by 11.9% to 20.74 pence (FY 2016: 18.53 pence). Adjusted diluted EPS6 increased by 13.9% to 25.46 pence (FY 2016: 22.35 pence)

· Closing cash and cash equivalents and term deposits were £84.8m (30 June 2016: £70.7m)

· Proposed full year dividend increase of 14% to 10.18 pence per share (FY 2016: 8.91 pence)

OPERATIONAL HIGHLIGHTS

· Continued to gain market share globally as a result of our direct customer focus and digital marketing leadership

· Led stakeholder discussions to raise industry quality standards through knockout validation, expansion of recombinant antibody portfolio, and other quality initiatives

· Expanded use of the FirePlex® (formerly Firefly) platform within the kits/assays range by introducing 142 validated antibody pairs and validated a range of these pairs in multiplex immunoassays

· Further expanded our addressable market in custom products and licensing by providing 'Abcam Inside' for multiple pharmaceutical and diagnostic development partners

· Accelerated AxioMx technology milestone payments in recognition of technical success demonstrated with the unique antibody development capabilities at AxioMx

· Launched several of the Oracle Cloud modules of our new ERP system and made good progress towards full implementation in FY 2018

· Completed recruitment of the Executive Leadership Team with the appointment of a new CFO as well as new hires of Senior VP of Technology and Senior VP of Global Manufacturing & Supply Chain

· Commissioned construction of Abcam's purpose-built global HQ at the expanding Biomedical Campus in Cambridge, UK, with expected occupancy in FY 2019

Commenting on the preliminary results, Alan Hirzel, Abcam's Chief Executive Officer, said:

"It has been a year of progress for Abcam as we have once again delivered on our financial goals. We have delivered 10% constant currency revenue growth, meeting our full year guidance, while continuing to invest in the long-term future of the Company. We look forward to continuing to expand our business as we move toward our ambition of becoming the most influential life sciences company for the research communities globally."

1. Constant currency is calculated by applying prior period's actual exchange rates to this period's results.

2. Unaudited figures in our pre-close update stated 10.2% revenue growth. As a result of the completion of the year-end financial review and audit, actual total revenue growth in the year is 9.9%.

3. This refers to goods-in processing costs, which are costs incurred in receiving, resizing, and storing brought-in product. These costs are only incurred in relation to selling product and management has concluded that it is more appropriate to include the costs in gross margin as a cost of sales to give a more accurate representation of the true cost of product sales. These costs had previously been shown as an operating expense.

4. Excluding acquisition and integration costs, the change in fair value of contingent consideration, the initial incremental costs associated with the systems and process improvements and R&D tax credits relating to prior years.

5. Excluding acquisition and integration costs, the change in fair value of contingent consideration, unwinding of discount factor on contingent consideration and fees, amortisation of acquisition-related intangible assets, the initial incremental costs associated with the systems and process improvements and R&D tax credits relating to prior years.

6. Excluding acquisition and integration costs, the initial incremental costs of systems and process improvements, unwinding of discount factor on contingent consideration and fees, the change in fair value of contingent consideration, amortisation of acquisition-related intangible assets, R&D tax credits relating to prior years and the tax effect of adjusting items.

See Our Financials for detailed reconciliations between reported and adjusted measures.

* This announcement, including any information included or incorporated by reference in this announcement, may contain forward-looking statements (including words such as "believe", "expect", "estimate", "intend", "anticipate" and words of similar meaning) which are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Abcam group. All statements other than statements of historical facts may be forward-looking statements and should not be treated as guarantees of future performance. These forward-looking statements involve risks and uncertainties, many of which are beyond the control of the Abcam group, and there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements speak only as at the date of this announcement and accordingly undue reliance should not be placed on such statements. The Abcam group does not assume any obligation to, and does not intend to, revise or update these forward-looking statements, except as required pursuant to applicable law.

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Notes for editors:

About Abcam plc

As an innovator in reagents and tools, Abcam's purpose is to serve life science researchers globally to achieve their mission, faster. Providing the research and clinical communities with tools and scientific support, the Company offers highly validated biological binders and assays to address important targets in critical biological pathways.

Already a pioneer in data sharing and ecommerce in the life sciences, Abcam's ambition is to be the most influential company in life sciences by helping advance global understanding of biology and causes of disease, which, in turn, will drive new treatments and improved health. Two-thirds of the world's 750,000 life science researchers use Abcam's affinity binders, reagents, biomarkers and assays and the Company's products are mentioned in over 20,000 of the 56,000 peer-reviewed papers published each year in the life sciences.

By actively listening to and collaborating with researchers, the Company continuously advances its portfolio to address their needs. A transparent programme of customer reviews and datasheets, combined with an industry-leading validation initiative, gives researchers increased confidence in their results.

Abcam's twelve locations are located in the world's leading life science research hubs, enabling local services and multi-language support. Founded in 1998 and headquartered in Cambridge, UK, the Company sells to more than 130 countries. Abcam was admitted to AIM in 2005 (AIM: ABC).

To find out more, please visit www.abcam.com and www.abcamplc.com

CHAIRMAN'S STATEMENT

I am pleased to report that Abcam has made good progress, both financially and strategically, over the course of the past twelve months. We have continued to successfully implement our growth strategy and once again delivered double-digit catalogue revenue growth, performing at levels well above market growth rates. At the same time we have significantly strengthened the organisation's underlying capabilities to deliver further growth in the future.

We are a global leader in the sale of research antibodies and have a reputation for providing high quality products, along with comprehensive supporting scientific data, to researchers who strive to understand the molecular basis of biology and disease. We continue to ensure we are at the forefront of scientific advances by investing in new technologies as well as in methods that ensure the quality of our products, including knockout validation. We are excited about the successes we have made and the further opportunities we see in custom products and licensing. As a result we are putting increasing resources behind this part of our business.

Strengthened the foundations for growth

We are confident that the investments we are making in our systems and processes, our facilities and our teams will enable us to continue to deliver solid growth over the long-term.

Our new enterprise resource planning (ERP) system is a significant investment and is providing a new platform for the way in which we do business. We have gone live with a number of modules over the course of the year and are making good progress towards its full implementation in FY 2018.

Another goal for us this year was to progress the development of our global facilities. Investments have been made to initiate and complete manufacturing and distribution improvement related projects in China, the US and the UK.

We have completed the hiring of our Executive Leadership Team and have re-organised the business to create separate Research & Development and Global Manufacturing & Supply Chain teams.

Our dual growth strategy combines organic in-house development with a track record of successfully completing partnerships and acquisitions. We remain committed to this strategy and continue to proactively evaluate the landscape for opportunities which align with our business objectives and that will provide increased scale.

Our team

I am grateful for the hard work, enthusiasm and dedication of all our employees. My thanks to them and to our shareholders for their ongoing support.

I would also like to thank my current and previous Board colleagues for their hard work, guidance and oversight of the business through a successful period of growth and change. Gavin Wood joined the Company as CFO-elect in July 2016, replacing Jeff Iliffe as CFO and Executive Director on 12 September 2016. Additionally, Jim Warwick retired from Abcam and stepped down from the Board on 31 December 2016, and Anthony Martin and Michael Ross did not seek re-election as Non-Executive Directors at the AGM in November 2016, leaving the Board on 31 October 2016. I am pleased to say that over the year we have completed the hiring of our Executive Leadership Team and, as well as appointing Gavin as our new CFO, we have also added a Senior Vice President of Technology and a Senior Vice President of Global Manufacturing & Supply Chain.

Governance

We are committed to high standards of governance and continue to comply in all material respects with the UK Corporate Governance Code, despite it not being a requirement for an AIM-listed company. In addition, we operate a robust framework of systems and controls to maintain high standards throughout the Company.

Dividend

The Board is proposing a final dividend of 7.355 pence per share (FY 2016: 6.556 pence per share). Added to the 2017 interim dividend of 2.825 pence per share, this brings the total dividend for the financial year ended 30 June 2017 to 10.18 pence per share (FY 2016: 8.91 pence per share), representing an increase of 14.3% over the previous year.

Outlook

We believe we are well placed to continue to gain market share from our leadership position in research antibodies and to continue to make progress in related markets. We remain confident that we have the right strategy and the right people to achieve our long-term goals and build significant value for all our stakeholders.

Murray Hennessy

Chairman

CHIEF EXECUTIVE OFFICER'S REVIEW

A year of progress

We have led Abcam further toward achieving our goal of becoming the most influential life sciences company for researchers worldwide. We remain the market leader in the primary antibody market and have grown above market in all our product categories and territories, despite a highly competitive landscape. This outcome reflects our clear growth strategy, strong product line and dedication from our team.

Our strategy leads to long-term sustainable growth 

FY 2017 was another year of good progress as we continue to build on the growth strategy that we announced in 2014. Our customer feedback has never been stronger and we continue to make market share gains worldwide. To prepare for further growth, we have made substantial investments in our systems and processes, our facilities and our people, and we continue to work hard to ensure these investments support our long-term growth aspirations. Underpinning our transformation is the solid financial foundation we have established. Overall, we believe the changes we are creating will enable us to double the scale of Abcam from 2016 to 2023 in terms of the life science research influence and commercial scale of the Company. 

We have delivered strong revenue growth, with all geographic areas and main product categories performing at levels above underlying market growth rates. In a year with political uncertainty in large markets such as the US and Europe, our business has remained focused on serving customers well. Our history and strengths in digital marketing continue to support our business well and we are making increasing use of data to enhance our product selection, website and marketing in order to attract new customers and satisfy more needs of our existing customers.

Our research use only product catalogue revenues at reported values grew to £202.5m (FY 2016: £159.0m), a 27.4% increase over the previous year. By product type, we continue to grow primary antibody revenue ahead of the global market growth rate. Our market leading recombinant antibodies, including RabMAb® rabbit monoclonal antibodies, are major contributors to that success. Constant currency revenues from RabMAb® products are in line with our full year expectations, growing by over 25%, and now represent £41.5m of our total £159.8m primary research antibody revenue. With over 11,000 RabMAb® primary antibodies in our catalogue, 10,000 of which are recombinant, these and other recombinant antibodies are expected to continue to play an important part in our future growth.

Product quality is a priority for our customers and, therefore, a major focus of our work and investment at Abcam. We are investing to increase the standards and breadth of product validation, including over 900 products that now benefit from market leading knockout validation. Our investments in the latest antibody production technology mean that our 10,000 recombinant antibodies ensure the highest standard of repeatability for researchers and drug development teams. We continue to work closely with our suppliers to ensure that they meet our high standards.

Non-primary antibody revenues on a constant currency basis grew 16%, aggregated across several product categories. Kits and assays are the largest sub-category within this part of our product portfolio, representing approximately 60% of the revenue. Following the mid-year revision to lower growth targets for this portfolio, the products performed within our expectations and all product categories within this group grew at double-digit levels versus the prior year.

Kits and assays remain a very important growth opportunity for Abcam. These products contain all the reagents researchers need to run an experiment and save researchers considerable time. For example, our SimpleStep ELISA® kit reduces the time it takes to run the simple ELISA experiment from approximately four hours to just ninety minutes, with the added benefit that the kit minimises potential variability between experiments. We are investing and innovating to move our market leading antibodies into these products as rapidly as possible. In the last year, we have created new assay products from integrating antibody and assay technologies from our recently acquired companies. These combinations resulted in the introduction of approximately 500 new products including matched antibody pairs, singleplex immunoassays, and multiplex immunoassays using the FirePlex® particle platform.

*Includes royalty income, custom products and licensing revenue.

Beyond the research use product market that we serve through our catalogue, we are working to grow our custom products and services by working with leading diagnostic and pharmaceutical companies worldwide. Forecasts estimate that the end market value of antibody and immunoassay use in diagnostics and therapeutics is expected to grow to circa $80bn by 2022. We believe Abcam can address up to $5bn of that total through in vitro diagnostic (IVD) products, other antibodies and immunoassays and biological therapeutics.

We have an emerging reputation for successfully partnering with pharmaceutical, diagnostic and instrument companies. These businesses work with Abcam to develop antibodies and immunoassays that they then take to market. Abcam benefits from the relationships through opportunities to license, and from downstream milestones and potential royalties, as well as from the opportunity to sell the research-grade version of the antibody or immunoassay into our core research markets via our website. This is a model we are replicating across many commercial agreements around the world to establish future growth for our business.

Underlying markets growing

We observed single-digit underlying market growth for our products in all regions and customer segments with one exception - China. China continues to invest public funds to support a life science strategy such that we are seeing 12-15% annual revenue growth for the markets our products serve. In our largest market, the US, it has been a year of uncertainty around the funding environment following the presidential election. This resulted in an eventual increase in National Institute of Health (NIH) funding for 2017, coupled with a buoyant biopharma cycle. In Europe, there has been increased funding but Brexit has caused some disruption to the UK market as researchers move to replace EU research funding with domestic sources. Elsewhere in the world, the markets continued to grow but growth remained relatively low compared to the major three of the US, China and Europe.

Our five strategic priorities

· Grow our core reagents business faster than the market

· Establish new growth platforms

· Scale organisation capabilities

· Sustain attractive economics

· Selectively pursue partnerships and acquisitions

Read more about our achievements against these priorities in the Strategic Priorities section.

The Company introduced these strategic priorities in 2014 and the broad headlines remain the same, and they continue to serve us well. As the Company progresses, our KPIs continue to be updated to reflect the needs of the Company and the dynamic markets in which we operate.

Our KPI performance was within full year guidance for all measures:

Abcam has consistently delivered against these strategic priorities and achieved growth rates ahead of the underlying market rate. As the Company and the market direction are evolving, we are refining our multi-year goals and KPIs. For FY 2018 our goals are as follows:

· Sustain antibody and digital marketing leadership

· Expand in related growth markets

· Invest in operating capabilities to double our scale from 2016 to 2023

· Sustain attractive economics

· Supplement organic growth through acquisitions and partnerships

As we indicated at the half year, we have now revised our KPIs moving into 2018 to better reflect the overall direction of the business and our updated goals.

Delivering results from our investments

Business systems

Abcam is a rapidly growing organisation and it is important that we have the IT systems infrastructure and business processes to support this growth. We are investing in building enhanced capabilities, processes and systems centred around the Oracle Cloud ERP system.

We are putting significant emphasis on organisational preparation, training and transformation to support the improvements that the ERP system will make in the way we do business and support the growth that we are working to deliver. We are resolutely focused on delivering a high-quality solution that is scalable and will deliver future efficiency improvements. During the year, we have chosen to adopt additional functionality, including a Warehouse Management System, and we have successfully implemented the HR and certain customer service modules and are making good progress towards full implementation in FY 2018.

UK facilities

We currently operate from three separate sites in Cambridge, which are not only at the end of their leases, but also at the end of their operational lives. We have started construction of our new HQ facility and we are looking forward to relocating to the Cambridge Biomedical Campus in early 2019, following completion of the build and fit-out.

Leadership Team

Over the year we have completed the hiring of our Executive Leadership Team and are confident that we have the right team and expertise in place to lead Abcam in our next stage of development.

Outlook

There is significant momentum across the business as we continue to grow our revenues ahead of the market in every region we serve. The investments we are making are enabling Abcam to grow and achieve the stretching targets we have set for ourselves and we believe the Company is in a strong position for a successful future. Based on our clearly defined strategy, together with our history of results, we expect our total revenue growth for FY 2018 to be similar to FY 2017's total growth rate.

Alan Hirzel

Chief Executive Officer

Our Strategic Priorities

Our strategy is designed to increase growth and improve our long-term financial performance, in support of our ambition to become the most recommended brand by life science researchers.

Our KPIs

We measure our performance against a number of KPI targets. Success against these KPIs forms a component of the Executive Directors' and senior management's incentives.

RabMAb® primary antibodies CER revenue growth

Strategic alignment: 1, 2, 4, 5

25%

How we performed

At a constant exchange rate (CER) growth rate of 25.2%, our RabMAb® revenues, despite increasing the target in March 2017, have again outperformed our high expectations in the year.

Non-primary antibody products CER revenue growth

Strategic alignment: 2, 5

16%

How we performed

We revised the guidance of our non-primary antibody revenues in March 2017 due to large volume orders in the previous period not repeating. Led by our kits and assays business, non-primary antibody CER revenue growth was 16%.

Brand Net Promoter Score (NPS)

Strategic alignment: 1, 2

24%

How we performed

We conducted several formal consumer surveys during the year to determine the likelihood of consumers recommending Abcam's products and services to a colleague. The balance of promoters and detractors is then computed into an NPS using standard industry methods.

Market position

Strategic alignment: 1, 2, 5

#1 in primary research antibodies

Ongoing targets

· Maintain #1 position in primary research antibodies

· Gain share in at least two other product categories

How we performed

Market research has confirmed that we remain the #1 company for research antibodies and that we continue to gain market share across other categories.

Our 2018 KPIs

As indicated at the half year, we have revised our KPIs moving into 2018 to better reflect the overall direction of the business and our updated goals.

Revised KPIs for FY 2018 are listed below:

OUR FINANCIALS

Summary

· Reported revenue for the year increased by 26.5% to £217.1m (FY 2016: £171.7m)

· At constant exchange rates (CER1), catalogue product revenues grew by 10.8% and total revenues by 9.9%

· The reported profit before tax for the year increased by 14.3% to £51.9m (FY 2016: £45.4m). Adjusted profit before tax1 increased by 20.1% to £64.6m (FY 2016: £53.8m)

· Strong operating cash generation with net cash inflow from operating activities of £66.4m (FY 2016: £47.3m), and closing cash and cash equivalents of £84.8m (FY 2016: £68.9m)

· £18.5m continued investment in infrastructure, systems and processes, including our Oracle Cloud ERP project, to support future scalability of the business

Revenue

Total reported revenues for the year increased by 26.5% to £217.1m. Sterling was considerably weaker against the basket of foreign currencies in which the Group trades for the entire year following the UK Brexit vote. Adjusting for this weakening in Sterling, CER revenue growth was 9.9% (FY 2016: 15.9%).

Catalogue revenue growth is up 27.4% on 2016 financial year (10.8% at CER), with RabMAb® sales growing 43.9% (25.2% at CER). Catalogue revenue represented 93.3% of total revenues.

Custom products and licensing contributed 6.7% to total revenues. This has been an area of increased focus for the Group in the year under review and, whilst ending in line with expectations with a small decline at CER from FY 2016 due to the conclusion of certain one-off prior year projects, the platform is now well placed to expand in the coming years.

Gross margins

Reported gross margin was in line with the prior year at 70.1% (FY 2016: 70.2%). However, this reported number was after the reclassification of goods-in processing costs from administration and management expenses in the year. Restating FY 2016 gross margin on a like for like basis results in a gross margin of 69.2% for the prior year, an expansion of 90 basis points in FY 2017. The expansion in gross margin comes from both product mix and productivity improvements across our manufacturing sites.

Administration and management expenses

We have continued to invest in Abcam's capabilities, people, processes and systems to support and drive our medium and long-term growth and this has increased our cost base. Administration and management expenses were also impacted by the effect of our forward currency contracts, because hedging the positive effect of currency rates on revenue results in an offsetting charge to administrative costs. Administration and management expenses increased by £17.0m (28%) to £78.4m. Included in the increase are:

· £11.4m owing to the relative weakness of Sterling consisting of £3.5m in relation to costs denominated in the currency of the Group's overseas entities (which, when translated into a weaker Sterling results in higher charges to expenses), and £7.9m of net currency losses from forward selling currency contracts together with transaction and translational currency impacts;

• £3.0m additional performance-related remuneration charges driven by the strong Group results in the year;

• £1.4m spend to further strengthen commercial and support teams as part of building business scalability, with key people being recruited for IVD, an area of future strategic importance, and marketing teams supporting the RabMAb® and core primaries product categories; and

• £2.0m cost increase in global operations and logistics, related to the increase in revenue volumes and organisation structure improvements, including securing key senior roles to build in-house expertise in global operational processes and increased premise space to accommodate expansion of operations, and the costs associated with closing a small reagent manufacturing facility in Bristol following a review of the Group's manufacturing footprint.

We have realised one-off benefits within administrative and management expenses during the year comprising of a release of bad debt provision of £0.7m following an update to the Group's historical write-off experience, £2.2m reclassification of goods-in processing costs to cost of sales and £0.9m re-assessment of contingent consideration and fees in line with the final settlement of our contingent consideration liabilities relating to the acquisition of AxioMx in November 2015.

Research and development expenditure

Research and development (R&D) expenditure relates to the development of new products, as well as costs incurred in identifying and implementing production process improvements. These costs do not meet the requirements to be capitalised as an intangible asset and are therefore expensed through the income statement.

Whilst total R&D expenditure increased by £5.8m to £18.6m (FY 2016: £12.8m) there were certain one-off costs within this total. These include the effect of exchange rate movements that contributed £1.1m of the increase; the amortisation of acquisition-related intangible assets which increased by £1.9m due to the full year impact of the assets acquired as part of the AxioMx Inc acquisition in FY16 and the FirePlex® platform (previously held as in progress and therefore not amortised), and a one-off £1.3m prior years' R&D tax credit in FY 2016. Following these adjustments the underlying increase in R&D costs was £1.5m, predominantly from the full year impact of AxioMx costs (compared with only eight months in FY 2016), including increased resource and materials to support the pipeline of future product development and increased depreciation charges from capitalised development costs.

The Group remains focused on improving the quality of its product catalogue and invested £0.9m during the year, sustaining a similar level of investment as in the prior year.

Investing in infrastructure, systems and processes

We are investing in our IT systems infrastructure, capabilities and business processes and have selected Oracle Cloud as our core ERP system. We had targeted a full implementation of the ERP system in late 2017. We now expect the remaining modules to be implemented in FY 2018. As a result of the incremental functionality and the extended project timelines we have chosen to invest in, we expect the total cost of the project to be in the region of £44m to £46m, split between capital expenditure of £29m to £31m and operating expenses of £15m.

In FY 2017 with the ramp-up of work performed on the Oracle Cloud ERP project, we incurred capital expenditure of £10.6m (FY 2016: £5.5m) and incremental operating costs of £4.4m (FY 2016: £4.0m), as well as depreciation of £0.6m on the modules fully implemented and deployed in the year.

We are planning to relocate from our current premises in Cambridge to a new, purpose-built HQ on the Cambridge Biomedical Campus in early 2019. We entered into an agreement for a 20-year lease in FY 2017 for the building. As previously announced, the total build cost will be in the region of £46.3m with Abcam contributing approximately £16m. Additionally, professional fees, laboratory and office design costs, and office fit-out costs will be in the region of £8m. During the year we have spent approximately £1.1m of capital expenditure on our new global HQ and also transferred £6.1m to an escrow account to partly fund our element of the build costs.

We have also expanded our Branford, Connecticut, site during the year to enhance the manufacturing capacity of our AxioMx business and, as noted above, we have made significant investment in the headcount of our support, operational and commercial functions.

Earnings and tax

Reported profit before tax for the year was £51.9m (FY 2016: £45.4m). This was after finance costs of £3.4m (FY 2016: £1.1m) in relation to the unwind of the discount on contingent consideration and fees associated with the early settlement during the year of the remaining contingent consideration liability from the AxioMx acquisition.

After taking into account the acquisition-related income and costs, incremental costs associated with the ERP improvements, and the tax losses relating to the Epitomics acquisition claimed in the year, the reported effective tax rate would be 18.3% (FY 2016: 17.6%).

Adjusted profit before tax for the year was £64.6m, on which the effective tax rate was 19.5%, which includes a one-off 1.9% rate reduction from £1.3m of prior year and one-off tax charge adjustments (FY 2016: £53.8m and 16.0% respectively, which included a one-off 5.2% rate reduction from £2.8m of prior year tax charge adjustments). Group profits arise in the UK, the US and other overseas territories and as a consequence the effective tax rate is a blend of the varying tax rates in different jurisdictions.

Basic earnings per share (EPS) were 20.90 pence (FY 2016: 18.61 pence) on a profit after tax of £42.4m (FY 2016: £37.4m), with adjusted EPS of 25.66 pence (FY 2016: 22.45 pence) on an adjusted profit after tax of £52.0m (FY 2016: £45.2m). The adjusting items are disclosed in the Alternative Performance Measures section.

Balance sheet

Goodwill and other intangibles

Goodwill at 30 June 2017 was £115.5m (FY 2016: £112.5m). The increase of £3.0m is related to exchange rate movements due to the location of businesses acquired being predominantly based in the United States. The Directors have performed the required impairment test and no impairment was necessary. For more details, please see note 12.

Other intangible assets at 30 June 2017 were £73.6m (FY 2016: £70.2m). The increase primarily reflects capitalisation of software costs as part of the Group's global ERP improvement project and exchange rate movements arising on assets where the functional currency of the entity to which the asset belongs is not Sterling.

The amortisation charge on acquisition-related intangible assets was £5.9m (FY 2016: £3.7m). £1.5m of the increase was due to starting amortisation of FirePlex® technology at the beginning of the year with the remaining increase mainly coming from exchange rate movements as the functional currency of these assets is US Dollars. The amortisation charge on the other intangible assets was £3.8m (FY 2016: £3.8m) including £0.6m of accelerated amortisation of existing software which was replaced by the ERP implementation (FY 2016: £1.3m) which is included within the incremental costs of the ERP improvements.

Property, plant and equipment

Property, plant and equipment additions of £10.2m (FY 2016: £8.0m) have been made in the year. This reflects continued investment in support of our growth strategy, with £3.6m spent on improvements to research and manufacturing sites including an investment of £2.4m in significant expansion of our Branford, Connecticut, site and £3.6m on continued development of the Group's product catalogue.

The capital expenditure figure above includes a £1.1m contribution to the initial ground preparation and fit-out work for our HQ building (FY 2016: £0.6m).

Non-current liabilities

Consideration payable on the acquisition of AxioMx included an element of performance-based payments; a contingent liability of £10.9m reflecting the expected future payment was included in non-current liabilities at 30 June 2016. During the year an early settlement of certain milestones was negotiated and performance against the other outstanding milestones was met. Consequently there is no further liability associated with this acquisition. See note 24 for further details.

Cash flow

Strong cash generation from the business continued in the year resulting in cash inflow from operations of £66.4m (FY 2016: £47.3m) and free cash flow of £41.1m (FY 2016: £31.7m), including favourable working capital movements of £4.7m. A reconciliation of the adjusted measure is included in the Alternative Performance Measures section.

Cash outflow on investment activities of £33.0m (FY 2016: £21.5m) includes £9.8m in relation to the settlement of the remaining contingent consideration and fees from the AxioMx acquisition (FY 2016: outflow of £6.3m for the initial acquisition consideration) and additional spend compared with FY 2016 of £5.7m for the step-up in capital activity for the ERP improvements and on the new HQ building.

In relation to the new HQ building, £6.1m has been paid into an escrow account in accordance with the agreement for lease terms. This is excluded from cash and is disclosed within other receivables on the balance sheet.

The cash and cash equivalents position was £84.8m (FY 2016: £70.7m including term deposits), giving a net increase of £14.1m. The term deposits have matured during the year and there was no bank debt at 30 June 2017.

Looking forward

The revenue growth this year and in previous years is a measure of the continued success of our strategy and provides a solid foundation as we continue to invest in the capabilities, systems and people at Abcam. These investments and our financial strength will enable us to continue to deliver against our commitments to grow revenue sustainably and continue to fulfil our mission to help life science researchers discover more.

Gavin Wood

Chief Financial Officer

Note 1 The directors use a number of alternative performance measures, including adjusted profit measures that are considered key to understanding the Group's performance. The measures and their use are defined and reconciled in the Alternative Performance Measures section.

Alternative Performance Measures

The Group's performance is assessed using a number of financial measures which are not defined under IFRS (the financial reporting framework applied by the Group). These measures are therefore considered Alternative Performance Measures (APMs).

Management use the adjusted or alternative measures as a part of their internal financial performance monitoring and when assessing the future impact of operating decisions.

The measures allow more effective year-on-year comparison and identification of core business trends by removing the impact of items occurring either outside the normal course of operations or as a result of intermittent activities such as a corporate acquisition. The principles to identify adjusting items have been applied on a basis consistent with previous years.

The measures used in the financial review are defined in the table below and reconciliations to the nearest related IFRS measure are included subsequently below.

The tables below show a reconciliation between the alternative measures and the related IFRS measures for financial performance and cash flows for the last two years.

Reconciliation of Adjusted income/(expense) measures

*Operating profit margin is operating profit divided by revenue

Reconciliation of Alternative profit measures

Reconciliation of Alternative cash measures

Consolidated income statement

For the year ended 30 June 2017

Consolidated statement of comprehensive income

For the year ended 30 June 2017

Consolidated balance sheet

As at 30 June 2017

The preliminary financial information of Abcam plc, registered number 3509322, were approved by the Board of Directors and authorised for issue on 8 September 2017.

They were signed on its behalf by:

Gavin Wood

Director

Consolidated statement of changes in equity

For the year ended 30 June 2017

1 Exchange differences on translation of overseas operations and net foreign investment hedges.

2 Gains and losses recognised on cash flow hedges.

3 The share-based payment reserve and tax reserve, which were previously shown separately, have been combined within retained earnings for presentational purposes.

Consolidated cash flow statement

For the year ended 30 June 2017

Cash and term deposits at end of year comprise:

Notes to the Preliminary Financial Information

For the year ended 30 June 2017

1. Presentation of the preliminary financial information

a. General information

Abcam plc (the Company) is incorporated and domiciled in the UK and registered in England under the Companies Act 2006. The address of the registered office is 330 Cambridge Science Park, Milton Road, Cambridge CB4 0FL, UK. The Company is a public limited company whose shares are listed on AIM of the London Stock Exchange.

The Company and its subsidiaries (together the Group) produce and distribute high quality research-grade antibodies and associated protein research tools. The Group operates through its ultimate parent company Abcam plc and through a channel of wholly owned manufacturing and distribution subsidiaries mainly based in the US and Asia Pacific, which allows it to serve a global customer base of over 100 countries.

b. Basis of preparation

The preliminary financial information of Abcam plc is prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and the Companies Act 2006 as applicable to companies reporting under IFRS, and comply with Article 4 of the EU IAS Regulation.

The preliminary financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The Group preliminary information is presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.

The accounting policies adopted in the preparation of the preliminary financial information are consistent with those followed in the preparation of the statements for the year ended 30 June 2016 except where disclosed otherwise in this note.

The results shown for the year ended 30 June 2017 and 30 June 2016 are audited. The consolidated financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts of the Company in respect of the financial year ended 30 June 2017 were approved by the Board of directors on 8 September 2017 and will be delivered to the Registrar of Companies in due course. The report of the auditors on those accounts was unqualified and did not contain an emphasis of matter paragraph nor any statement under Section 498 of the Companies Act 2006.

c. Provision for bad or doubtful debts

A review of historical debtor defaults undertaken during the year showed a low trend of actual write-offs, thereby resulting in a revision of the expected collectability of the Group's debtor portfolio. Consequently, £693,000 of the provision has been released to the income statement in the year.

d. Presentation of goods-in processing costs

Goods-in processing costs relate to costs incurred in receiving, resizing, and storing brought-in product. These costs have previously been shown as operating expenses but, as the costs are only incurred in relation to selling product, management has concluded that it more appropriate to include the costs in gross margin as a cost of sales to give a more accurate representation of the true cost of product sales. This has led to £2,210,000 being reclassified from operating expenses to cost of sales, a reduction in gross margin of 1.0%. The comparative costs for the year to 30 June 2016 were £1,794,000 representing a gross margin reduction of 1.0%. The prior year income statement has not been restated on the grounds of immateriality.

e. Going concern

The Group meets its day-to-day working capital requirements from the cash surpluses generated as a result of normal trading. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the limits of its available resources.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least one year from the date of approval of the preliminary financial information. For this reason, they continue to adopt the going concern basis in preparing the Group's preliminary information.

2. Changes in accounting policies and disclosures

New standards, amendments and interpretations adopted by the Group

In the current year, the Group has adopted the following new and revised standards, amendments and Interpretations which have been assessed as having no financial or disclosure impact on the numbers presented:

IAS 19 Employee benefits (Amendment)

IAS 38 Intangible Assets (Amendment)

New standards, amendments and interpretations not yet adopted

At the date of authorisation of this preliminary financial information the following standards and interpretations were in issue but not yet effective, and have not been applied in preparing this preliminary financial information:

* In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting.

Impact on future periods of the adoption of new standards and interpretations

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments was issued in July 2014 and replaces IAS 39 Financial Instruments: Recognition and Measurement.

It is effective for accounting periods beginning on or after 1 January 2018. The Group will apply the standard retrospectively for the first time in the half year report ending 31 December 2018 and the annual report ending 30 June 2019.

IFRS 9 is applicable to financial assets and financial liabilities, and covers classification, measurement and derecognition.

On adoption of IFRS 9, the main areas of change that are relevant for the Group are:

· requirement to use an expected credit loss method for impairment calculation; and

· broadening of hedge accounting application with more focus on risk management alignment.

These areas are not expected to have a significant impact on the Group's net results or net assets.

An initial review of expected impairment losses on the current receivable ledger under the new methodology indicates an increase in the provision of less than £0.2m due to the Group's customer profile. The full impact will be subject to further assessment and is dependent on the receivables open at the transition date.

The standard was endorsed by the EU on 22 November 2016.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers was issued in May 2014.

It is effective for accounting periods beginning on or after 1 January 2018. The Group will apply the standard for the first time in the half year report ending 31 December 2018 and the annual report ending 30 June 2019.

The new standard will replace existing accounting standards used to determine the measurement and timing of revenue recognition, and requires an entity to align the recognition of revenue to the transfer of goods or services at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard also requires enhanced revenue disclosure.

The adoption of IFRS 15 is not expected to have a significant impact on the Group's recognition of its' catalogue product revenue which contributes approximately 93% of the Group's revenue.

For the Group's other revenue streams, an initial review has been performed on a sample of custom service, licence and royalty agreements and no significant change to the timing of revenue recognition has been identified. However, given the customised nature of these types of agreement, and that the portfolio of open contracts will continue to change up to the transition date, the final impact assessment may not reflect the current view of the likely impact based on the sample. The Group is continuing to assess the full impact on these areas of revenue.

The standard was endorsed by the EU on 22 September 2016.

IFRS 16 Leases

IFRS 16 Leases was issued in January 2016 and will replace IAS 17 Leases.

It is effective for accounting periods beginning on or after 1 January 2019, with the Group's initial date of application being 1 July 2019. The Group will apply the standard for the first time in the half year report ending 31 December 2019 and the annual report ending 30 June 2020.

The new standard will introduce a single lessee accounting model, eliminating the previous classification of leases as either operating or finance. All leases will require recognition of an asset and a related liability unless the lease term is 12 months or less or the underlying asset value is low.

The Group has conducted an initial review of its lease contracts and based on the operating leases in place at 30 June 2017, including judgements over expected extension options and lease terms for the new Group HQ property, expects a decrease in net assets on transition to the new standard of less than £5m as at the date of transition, 30 June 2019. In the years after transition, there would also be an impact on the Group's income statement when the fixed rental expense is replaced by a depreciation charge and an interest expense. This will lead to an increase in operating profit as a result of removing the operating lease expense net of the new leased asset depreciation charge. The overall impact to the Group's reported profit after tax is expected to be immaterial with a small net decrease in the initial years after transition which will reverse in later years as the leases in existence at transition come closer to ending.

The final transition impact assessment is still in progress and will be dependent on the transition method selected by the Group and the leases in existence at the transition date. Consequently, the actual transition impact may differ from the above impact guidance depending on business decisions made during the period to July 2019.

The standard has not yet been endorsed by the EU.

3. Significant accounting policies

Consolidation

The consolidated preliminary financial information incorporates the preliminary financial information of the Company and entities controlled by the Company made up to 30 June each year. Control is achieved when the Company has power over the entity and the ability to use its power to affect the returns it receives from its involvement with the entity.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Where necessary, adjustments are made to the preliminary financial information of subsidiaries to bring the accounting policies in line with those used by the Group. All intra-group transactions, balances, equity, income and expenses are eliminated on consolidation.

Business combinations

Business combinations are accounted for using the acquisition method. On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value cannot be reliably measured in which case the value is subsumed into goodwill. The consideration transferred for the acquisition includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Contingent consideration may include specific research and development or other operational milestones and/or financial targets. Each element is fair valued at the date of acquisition using actual and projected data and statistical techniques. Key inputs include probability of success and consideration of expected timing. Future internal forecasts may also be used to help determine any financial targets.

Changes in the fair value of any contingent consideration from additional information obtained during the measurement period (up to a year from date of acquisition) about facts and circumstances that existed at the acquisition date are adjusted retrospectively against goodwill. Changes in the fair value that do not qualify as measurement-period adjustments are not recognised until settlement if the contingent consideration was classified as equity at acquisition or are recognised immediately in profit if it was classified as an asset or liability on the balance sheet. Unsettled amounts of consideration are held at fair value within the relevant category of the balance sheet.

Acquisition-related costs are expensed to the income statement in the period they are incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination that meet the recognition criteria under IFRS 3 Business Combinations (2008) are measured at their fair values at the date of acquisition, except that:

• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

• liabilities or equity instruments relating to the replacement by the Group of an acquiree's share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and

• assets (or disposal groups) that are classified as held for sale are measured in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Investments in subsidiaries are accounted for at cost less impairment. Where applicable, cost is adjusted to reflect changes in consideration arising from contingent consideration amendments.

Goodwill

Goodwill represents the excess of the fair value of the consideration over the fair value of the net assets acquired. Where the fair value of the consideration is less than the fair value of the acquired net assets, the deficit is recognised immediately in profit or loss as a bargain purchase. Goodwill is capitalised and subject to an impairment review at least annually and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed in subsequent periods.

For the purpose of impairment testing, goodwill is allocated to cash-generating units ("CGUs") that are expected to benefit from the synergies of the combination. The CGUs to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the carrying value may not be recoverable. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of that foreign operation and as such are translated at the relevant foreign exchange rate at the balance sheet date. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Revenue and income recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Sales of goods are recognised when title and risk have passed to the customer.

Custom service revenue is recognised proportionately when the outcome of each discrete stage of the contract can be estimated reliably and is based on the stage of completion of the contract activity per agreed milestones set out in the contract. Where the outcome cannot be estimated reliably, revenue is recognised to the extent of costs incurred where it is probable these will be recovered. In instances where it is probable that the costs will be in excess of the contract revenue, the expected loss is recognised as an expense immediately.

Licence fee income is recognised on delivery of the licensed technology where the Group's continued performance or future research and development services are not required. Payments received prior to this are recorded as deferred income.

Royalty revenue is recognised on an accruals basis based on the contractual terms and the substance of the agreements with the counterparty, provided that the amount can be reliably measured and it is probable that the economic benefit will flow to the Group.

Grant income is recognised in the same period as the related R&D expenses are incurred and is recorded through the corresponding expense line of the income statement.

Revenue derived from the Company's conferences is recognised when the conference is held; however, it is not material.

Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Foreign currencies

For the purposes of the consolidated preliminary financial information, the results and financial position of each Group company are expressed in Sterling, which is the functional currency of the Company and the reporting currency for the consolidated preliminary financial information.

Foreign currency transactions in the individual companies are booked in the functional currency of that entity at the exchange rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are retranslated into their functional currency at the rates ruling at the balance sheet date. Exchange differences are included in the income statement.

On consolidation, the results and cash flows of overseas subsidiaries are translated into Sterling using the average exchange rates during the period, and the balance sheets translated at the rates ruling at the balance sheet date. Exchange differences arising on this translation are classified as equity and recognised in the translation reserve.

Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

• differences arising on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting) which are recognised through other comprehensive income; and

• differences arising on foreign currency assets or liabilities designated as a net investment hedge of the Group's overseas operations which are recognised in the translation reserve.

Retirement benefit costs

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the nature of the Group's obligations under the schemes is equivalent to those arising in a defined contribution retirement benefit scheme. The Group has no further obligations once the contributions have been paid.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes some items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

The benefit of UK research and development is recognised under the UK's Research and Development Expenditure Credit (RDEC) scheme. The benefit is recorded as income included in profit before tax, netted against research and development expenses, as the RDEC is of the nature of a government grant.

Where the current tax deduction in respect of share option exercises exceeds the share option accounting charge for the period, the excess is recorded in the reserves rather than the income statement.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the preliminary financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred tax asset is recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

The Group's liability for deferred tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity respectively .

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases:

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Residual values of assets and their useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets under the course of construction are not depreciated.

Intangible assets

Payments made to acquire software, distribution rights, capitalised development work and contract-based intangibles from third parties are capitalised at cost and amortised on a straight-line basis over their estimated useful lives. The principal expected useful lives used for this purpose are as follows:

Patents, technology and know-how assets are only amortised once the development is complete and being utilised for its intended purpose; until this point the asset is deemed to be in progress. Other assets under the course of construction are not amortised.

Expenditure on development activities including internally generated intangible assets is recognised as an asset if and only if it meets the recognition criteria set out in IAS 38 Intangible Assets. Expenditure on research activities is recognised as an expense in the period in which it is incurred. Intangible assets under construction are not amortised.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, a review of the carrying amounts of the Group's and the Company's tangible and intangible assets is performed to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and an attributable portion of production overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the standard cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow-moving or defective items where appropriate.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's and the Company's balance sheets when the Group or the Company becomes a party to the contractual provisions of the instrument.

Available-for-sale financial assets

Where the Group holds an investment in shares which is classified as an available-for-sale financial asset it is stated at cost less any provision for impairment and estimated costs associated with the sale, unless the investment is in relation to shares traded on an active market where a fair valuation for all the shares can be obtained. Such investments are held at fair value, taken as the closing market value of the shares. Any revaluation gain or loss is recorded through other comprehensive income.

Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently held at amortised cost, less provision for impairment. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. When a trade receivable is considered uncollectable, it is written off. Subsequent recoveries of amounts previously written off are credited to the income statement. Changes in the carrying amount of receivables are recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Term deposits

Term deposits represent bank deposits and a charitable bond all with an original maturity of over three months.

Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group or the Company after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

Trade payables

Trade payables are not interest bearing and are stated at amortised cost.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

Forward contracts are used by the Group and the Company to manage the exposure to foreign exchange rate risk associated with the variability in foreign currency rates and values in relation to both recognised assets or liabilities and forecast future transactions.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income statement depends on the nature of the hedge relationship.

A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than twelve months and it is not expected to be realised or settled within twelve months. Other derivatives are presented as current assets or current liabilities.

Hedge accounting

The Group and the Company designate certain derivatives as cash flow hedges of highly probable forecast foreign currency transactions. The Group and the Company have also designated contingent consideration payable as a hedge of their net investment in foreign operations.

At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows or net investment of the hedged item.

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss and is included in the 'administration and management expenses' line of the income statement.

Amounts deferred in equity are recycled in the income statement in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or it no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in other comprehensive income at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in other comprehensive income is recognised immediately in profit or loss.

Hedges of net investments in foreign operations

Hedges of net investment in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in the translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the 'administration and management expenses' line of the income statement.

Amounts accumulated in the translation reserve are reclassified to profit or loss in the same way as exchange differences relating to the foreign operation.

Share-based payments

Incentives in the form of shares are provided to employees under share option, Share Incentive Plan ("SIP"), Long Term Incentive Plan ("LTIP") and Deferred Share Award schemes. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest.

The grant date fair value of options issued under the Group's share option schemes is measured by the use of the Monte Carlo simulation.

The grant date fair value of the awards under the Group's LTIP is measured by the use of the Monte Carlo simulation for any market related performance conditions and the Black Scholes model for EPS and strategic performance conditions.

The grant date fair value of an equity-settled payment under the SIP is measured as the face value of the award on the date of grant.

The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Charges made to the income statement in respect of share-based payments are credited to the reserves.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market based vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The Group operates a scheme whereby the Non-Executive Directors of the Group are issued with options, the fair value of which is issued measured by the use of the Black Scholes model.

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity financial statements.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

The Group operates an employee share benefit trust as part of its incentive plans for UK-based employees. All assets and liabilities of the trust are recorded in the balance sheet as assets and liabilities of the Company until such time as the assets are awarded to the beneficiaries. All income and expenditure of the trust is similarly brought into the results of the Company.

Own shares

Own equity instruments which are acquired are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in reserves.

Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's preliminary financial information in the period in which the dividends are approved by the Company's shareholders or, in the case of interim dividends, when paid.

4. Risks and uncertainties

In the application of the Group's accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the amounts of assets, liabilities, revenue and expenses reported in the preliminary financial information. Actual amounts and results may differ from those estimates.

The Directors regularly evaluate the estimates and judgements. Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or prior periods, or in the period of the revision and future periods if the revision affects both current and future periods.

The key accounting judgements and estimates included in the Group's preliminary financial information are discussed below.

a. Critical accounting judgements

Capitalisation of intangible assets

The Group capitalises internal software development costs relating to the enhancement of the Group's core IT systems architecture and developments, where the costs meet the recognition criteria of IAS 38. Judgement is required in applying the capitalisation criteria of IAS 38, differentiating between enhancements and maintenance, and in assessing an expected useful life of the resulting enhancement or development.

During the year £11.2m was capitalised, £8.7m within assets under construction and £2.5m within software assets, in relation to the Group's systems and process improvement project. The costs include external consultant costs and incremental staffing costs. In establishing the principles on which the costs are capitalised, the Directors have reviewed the nature of work being performed under the different phases of the project and the nature of the associated deliverables against the capitalisation criteria of IAS 38 and have identified the activities through the life of the project where the related costs should be expensed through the income statement.

Valuation of own manufactured inventory

The costs absorbed into the value of own manufactured inventory require a number of assumptions concerning the allocation of materials, labour and overheads. The assumptions have been made with reference to the requirements of IAS 2 Inventories. Judgement is used mainly in the application of materials to products produced and in selecting the types of overhead and company personnel that are appropriate to be included in the valuation.

b. Key sources of estimation uncertainty

Goodwill and other intangible asset impairment

Goodwill is deemed to have indefinite life and so is not amortised. The Group tests whether goodwill is impaired on at least an annual basis or more frequently when there are indications of possible impairment. The impairment review requires estimating the value-in-use of the Group's CGU, this estimation uses a number of input assumptions where management must apply judgement including:

· the estimation of forecast future cash flows, risk adjusted where relevant;

· the selection of an appropriate discount rate in order to calculate present value; and

· the selection of an appropriate terminal growth rate.

The assumptions used in the impairment test are set out in note 12. The valuations indicate that the Group has sufficient headroom and that a reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.

Other intangible assets are amortised. The Group reviews their carrying amount at each balance sheet date or if events occur which call into question the carrying values of the assets.

With the live release of certain initial modules of the Group's new Enterprise Resource Planning ("ERP") system during the year, a further review of the carrying value of existing software assets was conducted to identify any instances where the current development work will replace the predecessor development. A number of assets were identified and their remaining useful life shortened based on the expected replacement date. Consequently additional amortisation of £0.3m has been recognised in the current year (2016: £1.3m) to accelerate the amortisation.

The assumptions relating to future cash flows, estimated useful lives and discount rates are based on business forecasts and therefore inherently include an element of management judgement. Future events could cause the assumptions used in these impairment tests to change which may in turn mean future impairment charges to be recognised.

Provision for slow-moving or defective inventory

The provision for slow-moving inventory is based on management's estimation of the future sales of each of the Group's products over the period from the balance sheet date to the expiry date of the product, (the next eight years where evidence of normal product life cycle is shorter). Estimated future sales are based on historical actual sales and a growth rate assumption which is derived from the average annual growth over the product life to date.

If actual unit sales growth rates differ from those estimated by management, both the level of provision against existing inventory and the rates of provision applied to inventory in future periods would need to be revised.

Provision for bad or doubtful debts

The Group has a significant trade receivable balance from a large number of customers at any given point in time. Consequently estimating the required provision for such a debtor book requires a regular review to identify those customers where events (either historical or current) give management an indication that future collectability may be uncertain.

During the year a review of the historical default rate was undertaken to update the provision input assumption. The recent historical trend showed a very low level of actual write-offs, thereby resulting in a revision of the expected collectability of the Group's debtor portfolio. Consequently £0.7m of the provision has been released to the income statement.

Taxation

The Group is subject to income taxes in various jurisdictions. Significant judgement is employed to determine the income tax provision on a global basis. There are numerous transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters differs from amounts initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The Group holds significant deferred tax assets on the balance sheet in relation to acquired tax losses. Assessments were performed by third party experts to verify the availability of these acquired tax losses and as such partly utilise them within both the tax returns submitted for the year ended 30 June 2016 and against the provision at 30 June 2017. 

The carrying value of the deferred tax asset is based on expected levels of future taxable profit in the relevant jurisdictions which are estimated from management forecasts. If actual profitability differs significantly by jurisdiction in the future, this could impact the level of losses that it is possible to utilise and therefore would require an impairment of the tax asset value.

5. Operating segments

Products and services from which reportable segments derive their revenues

The Directors consider that there are no identifiable business segments that are engaged in providing individual products or services or a group of related products and services that are subject to risks and returns that are different to the core business. The information reported to the Group's Chief Executive Officer, who is considered the chief operating decision maker, for the purposes of resource allocation and assessment of performance is based wholly on the overall activities of the Group. The Group has therefore determined that it has only one reportable segment under IFRS 8 Operating Segments, which is 'sales of antibodies and related products'. The Group's revenue and assets for this one reportable segment can be determined by reference to the Group's income statement and balance sheet.

The Group has no individual product or customer which contributes more than 10% of its revenues.

Geographical information

The Group's revenue from external customers and information about its non-current segment assets (excluding deferred tax and derivative financial instruments) by geographical location is detailed below:

Revenues are attributed to countries on the basis of the customer's location. No country included within 'Other countries' contributes more than 5% of the Group's total revenue.

Revenue by type is shown below:

1 Includes custom services, IVD/IHC, royalties and licence income.

6. Profit for the year

Profit for the year has been arrived at after charging/(crediting):

7. Auditors' remuneration

A detailed analysis of the auditors' remuneration on a worldwide basis is provided below:

1 This relates to the interim review.

2 This relates to subscription to accounting reference materials and grant claim reporting.

Details of the Group's policy on the use of the auditors' for non-audit services are set out in the Audit and Risk Committee Report of the annual report. No services were provided pursuant to contingent fee arrangements.

8. Employees and remuneration

The average monthly number of employees (including Executive Directors) was:

Their aggregate remuneration comprised:

1 Staff costs capitalised relates to Group staff costs directly attributable to system development, which include the implementation of the new ERP system, being capitalised as part of internally generated intangible software assets under IAS 38 (see note 13).

9. Finance income and costs

10. Taxation

UK corporation tax is calculated at 19.75% (2016: 20%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The standard rate of UK corporation tax reduced from 20% to 19% on 1 April 2017.

In the budget of 16 March 2016, the Chancellor of the Exchequer announced that the Corporation Tax main rate will be reduced by an additional 1% for the Financial Year beginning 1 April 2020. The legislation in Finance Act 2016 set the rate at 17%, replacing the rate set for Financial Year 2020 in the Finance (No. 2) Act 2015. This will have an effect on the Group's future tax position. The standard rate of UK corporation tax will now reduce to 17% from 1 April 2020. These proposed changes were substantively enacted when the Finance Bill 2016 received Royal Assent on 15 September 2016

The above changes to the rate of corporation tax will impact the amount of future cash tax payments to be made by the Group and also the future valuation of any deferred tax liabilities or assets.

The charge for the year can be reconciled to the profit per the income statement as follows:

1 Adjustments includes an additional tax charge in relation to the Company's election to move to the above the line research and development expenditure credit in relation to the years ended 30 June 2015 and 30 June 2014, a tax credit in relation to the usual two year claim and elections made in the resubmission of the UK tax return for the year ended 30 June 2014, and credits related to changes in estimates of the prior year tax charges following receipt of refunds.

2 The recognition of deferred tax not previously recognised relates to the tax attributes acquired from Epitomics Inc. During the year ended 30 June 2017 a third party report to determine the availability of these attributes was analysed and implemented by management. It was concluded that these attributes were available for utilisation and would be utilised within the required time limits. Therefore a one-off adjustment was made to recognise these attributes, some of which has already unwound.

11. Earnings per share

The calculation of the basic and diluted EPS, shown below the income statement, is based on the following data:

Basic EPS is calculated by dividing the earnings attributable to the owners of the parent by the weighted average number of shares outstanding during the year. Diluted EPS is calculated on the same basis as basic EPS but with a further adjustment for the weighted average shares in issue to reflect the effect of all dilutive potential ordinary shares. The number of dilutive potential ordinary shares is derived from the number of share-based options and awards granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and where it is considered performance conditions will be met.

Adjusted earnings per share

The calculation of adjusted EPS is based on adjusted profit after tax, which is as follows:

The adjusted EPS information is provided to allow a clear method for year-on-year comparison. The denominators used are the same as those detailed above for both basic and diluted earnings per share. A reconciliation from profit after tax to adjusted profit after tax is provided within Alternative Performance Measures.

12. Goodwill

Goodwill is converted at the exchange rate on the date of acquisition and retranslated at the balance sheet date.

Group goodwill acquired in the year ended 30 June 2016 relates to the acquisition of AxioMx Inc ("AxioMx") on 11 November 2015. Note 27 contains further details of the transaction and resulting financial impact on the Group.

Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. The Directors consider there to be one CGU as acquisitions are integrated into the Group's operations and product portfolio; see note 5. Any discrete financial information which is available for an individual entity does not reflect the true substance of the performance of that entity or its value in use within the Group. There have been no changes to the Group organisation during the period which would require a reallocation of the goodwill balance.

The Abcam Group CGU is tested for impairment on a Group-wide basis using the future forecast cash flows arising from the Abcam business as a whole.

The Group performs an annual test for goodwill impairment or more frequently if there are any indications that goodwill might be impaired.

The recoverable amount of the CGU is determined from value in use calculations. The key assumptions considered most sensitive for the value in use calculations are those regarding the discount rates and growth rates after five years.

Management has projected cash flows based on financial forecasts over a period of five years. A growth rate of 2.3% has been used in the extrapolation of cash flows beyond the five years based on expected inflationary increases of the economies in which the Group predominantly trades. A pre-tax discount rate of 9.4% has been estimated using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.

Management has performed a sensitivity analysis on the key assumptions mentioned above. Based on the results of this analysis, management is satisfied that the recoverable amount of goodwill exceeds its carrying amount. As such, no impairment of goodwill has been recognised at the balance sheet date.

Due to the headroom which exists between the recoverable amount and the carrying value there is currently no reasonable possible change in any of these key assumptions which would cause the CGU's carrying amount to exceed its recoverable amount.

13. Intangible assets

The amortisation period for the upfront licence fees, software and distribution rights is referred to in note 3.

Material intangible assets

Software intangible assets relate to software licences, as well as the core IT systems, inclusive of the new ERP system.

Contract-based intangibles relates to:

• an agreement with the University of Oregon, under which the university supplies monoclonal antibodies to MitoSciences Inc, which has full rights and entitlement to commercially exploit these materials in exchange for an ongoing fee. The remaining amortisation period is seven years, being the remaining term of the agreement; and

• a support agreement with a third party acquired during the year ended 30 June 2016 as part of the AxioMx acquisition that had a remaining term of three years at acquisition which has been adopted as the asset's useful life. The remaining amortisation period is four months.

Assets under construction are software related. The costs capitalised relate to the development of the core IT systems architecture, including the build of the new ERP system. These are not amortised until available for use in the business.

Customer relationships mainly relates to access to new customers as part of the Epitomics acquisition, namely in the reagents and services business. The remaining amortisation period is five years in line with the history of the business.

Patents, technology and know-how relates to acquired technology as part of the Group's acquisitions:

• RabMAb® technology as part of the Epitomics business with a remaining amortisation period of ten years, being the remaining term of the primary patent;

• multiplex and complex assay technology acquired as part of the Firefly BioWorks business. The amortisation period will be the remaining term on the primary patent, which is twelve years; and

• in-vitro monoclonal antibody production technology was acquired during the year ended 30 June 2016 with the acquisition of AxioMx. The useful life was set in line with the remaining life on the patents existing at acquisition. The remaining amortisation period is sixteen years.

Trade names relate to RabMAb® and Epitomics. The remaining amortisation period is three years.

14. Property, plant and equipment

15. Deferred tax assets and liabilities

The following are the deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting years.