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LONDON, UK, 02 December 2009 – Optos plc (LSE: OPTS), a leading medical retinal imaging company, today announces its preliminary results for the year ended 30 September 2009. The results are denominated in $US which is the Company’s reporting currency.
Financial Summary
|
Year ended
30/09/09
|
Year ended
30/09/08
|
| Revenue from pay-per-patient contracts |
$93.5m |
$91.7m |
| Total revenue |
$97.2m |
$100.8m |
| Operating profit (pre-exceptional items) |
$8.5m |
$11.7m |
| Exceptional items before tax |
($6.3m) |
- |
| Operating profit (post-exceptional items) |
$2.1m |
$11.7m |
| Profit after tax (pre-exceptional items) |
$1.5m |
$4.6m |
| (Loss) / profit after tax |
($4.3m) |
$4.6m |
| EPS diluted (cents) |
(6.1)c |
6.6c |
| Cash flow from operating activities |
$37.4m |
$39.5m |
| Net debt (cash less lease finance liabilities) |
($46.2m) |
($58.4m) |
Business Highlights
-
Strategic changes implemented and clear focus on customer service starting to yield results
- - Management team streamlined & strengthened with several key appointments
- - New sales force structure implemented, team re-incentivised & re-trained and new customer service group established
- - Overhead reductions at the upper end of the 10%-20% target achieved
- - LEAN enterprise initiative implemented to drive productivity and cost savings
-
Progress made in strengthening the product validation and pipeline
- - Clinical trials underway to provide validation for optomap® as the “gold standard”
- - R&D programmes focused on improving image quality, image products and new platforms
-
Financial performance slightly ahead of expectations
- - Pay- per- patient (PPP) revenues up 2% to $93.5m despite difficult economy and lower installed base
- - Average monthly optomaps® per site were 105 (2008:108) with H2 improved to 108 versus 102 in H1 and with average monthly revenues improving from $2,032 in H1 to $2,099 in H2
- - North American revenues at $85m were at the same levels as in 2008 with Europe continuing to deliver strong growth up 23% from $6.9m to $8.5m
- - Portfolio management saw installed PPP base decline 200 to 3,625
- - Contract renewals rate 85% for the full year, well ahead of 80% target
- - Total revenues down 4% reflecting focus on PPP business
The CEO of Optos, Roy Davis, commented: “2009 has been a year of transition and despite a challenging operating environment, particularly in the first half of the year, we have made good progress in refocusing the business and have delivered financial results slightly ahead of expectations. The modest growth in pay-per-patient revenues is encouraging and average utilisation is trending upwards as a result of our emphasis on asset utilisation and reflecting our sales team’s focused efforts to drive usage of our optomaps®. With a proven technology, clinical studies underway, the sales force realigned, a dynamic customer focus and a strengthened management team we have put the building blocks in place to enable us to become the leading provider of retinal diagnostic imaging.”
Enquiries
Optos plc
Roy Davis, CEO
Christine Soden, CFO |
Tel: 01383 843 300 |
FD
Ben Atwell / Mo Noonan |
Tel: 020 7831 3113 |
About Optos Plc
Optos plc is a leading retinal imaging company. Our vision is to be recognised as the leading provider of retinal diagnostics through leveraging our unique wide-field imaging technology. Both eye and non-eye diseases often first exhibit in the periphery of the retina. These are very difficult to detect clinically with conventional examination equipment and techniques. Optos' devices produce ultra wide-field, high resolution images of approximately 82% of the retina, something no other device is capable of doing in any one image. The images provide optometrists and ophthalmologists with enhanced clinical information which facilitates the early detection, management and treatment of disorders and diseases evidenced in the retina such as retinal detachments and tears, glaucoma, diabetic retinopathy and age-related macular degeneration. Retinal imaging can also indicate evidence of non-eye or systemic diseases such as hypertension and certain cancers. Optos has a range of medical devices that support different customer segments and patient levels: the P200 device is concentrated on wellness screening carried out by optometrists and ophthalmologists in primary care; the P200C device is designed to meet the need for more exacting clinical imaging capabilities and standards in secondary care within the ophthalmology market and at optometric practices that are clinically managing a patient base with advanced ocular disease; and the P200MA device supports retinal specialists, working primarily with a diabetic patient base, in the medical care market through an advanced medical angiography procedure. Optos' technology provides an unequalled combination of wide-field retinal imaging, speed and convenience for the practitioner and patient resulting in more targeted treatment regimes and improved patient outcomes. 75% of all blindness can be treated or prevented if diagnosed early enough and our Optos technology supports this objective.
For more information please visit our website www.optos.com
Forward-Looking Statements
Certain statements made in this announcement are forward-looking statements. These forward-looking statements are not historical facts but rather are based on the Company's current expectations, estimates and projections about its industry, its beliefs and assumptions. Words such as 'anticipates,' 'expects,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates,' and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors, some of which are beyond the Company's control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The Company cautions shareholders and prospective shareholders not to place undue reliance on these forward-looking statements, which reflect the view of the Company only as of the date of this announcement. The forward-looking statements made in this announcement relate only to events as of the date on which the statements are made. The Company will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this announcement except as required by law or by any appropriate regulatory authority.
OPTOS PLC
Preliminary Results Statement
Year Ended 30 September 2009
Chairman’s Statement
Since our products were first commercialised some nine years ago, Optos has played an increasingly important role in the early diagnosis of eye diseases through our ultra wide-field imaging of the retina. Our devices have now been used by over 4,000 customers and the number of optomap® retinal examinations performed by those health professionals now exceed 22 million. The images from our optomap® exams may also divulge early indicators of the presence and progress of a number of systemic diseases.
Optos has had a tough couple of years during which the Board has been highly active in putting in place the best management team to fulfil the potential of the Company’s world-leading technology and optomap® imaging. The appointment of Roy Davis as CEO in 2008 has led to a significant change in the strategy, structure and management of the business, delivering good results, particularly during the second half of the year. His management team has been strengthened during the year through the appointment of a number of experienced industry executives.
During this financial year we focused our sales teams’ efforts on working with our customers to increase further usage and awareness of the benefits of regular optomap® imaging. This has had two effects – as planned, our installed base of machines reduced by some 200 to 3,797 as certain lower-usage customers were deinstalled while our existing and new customers began, in the second half, to increase their use of our devices. Consequently our overall pay-per-patient revenues in the year increased from $91.7m to $93.5m, modestly ahead of our expectations. With our focus on increasing asset utilisation by customers combined with the challenging economic environment, our capital sales as expected were lower this year leading to total revenues of $97.2m (2008: $100.8m). Operating profits, before exceptional items, reduced as a result to $8.5m (2008: $11.7m). The restructuring within our operations led to certain exceptional costs being incurred, resulting in a post-tax loss for the year of $4.3m compared to a profit of $4.6m last year. The benefits of this restructuring are expected to be seen in enhanced profitability going forward.
A number of changes to our Board have been made during the year. David Guyer and Saad Hammad retired as non-executive directors in March and Allan Watson, our CFO, left the company in August. We thank them all for their significant contribution to the development of Optos and wish them well. Douglas Anderson resigned from the Board in March however he remains on the Operating Board as Vice President Global Advocacy. We were pleased to announce on 1 December the appointment as CFO of Christine Soden. As a highly experienced CFO of life sciences businesses, Christine has been able to assimilate into the business rapidly since joining Optos as interim CFO in September 2009.
Given the restructuring and cost reductions we believed were necessary to make Optos more effective in a difficult economic environment, this has been a challenging year for many of the people who work for us. On behalf of the Board my best wishes for future success go to those that have left the company and I praise the management team and all of our employees for grasping the challenges and opportunities that have arisen.
It remains our aim to ensure that wide-field retinal imaging becomes the “gold standard” for optometrists and ophthalmologists world-wide, and clinical trials and product development are underway to support this goal. Looking forward, we believe that with the increase in the attention being given to our customers, increased operating efficiencies and targeted investment in product development and supporting clinical trials, we are confident in our ability to become the leading provider of retinal diagnostic imaging and to deliver improving value to our shareholders.
Dr John M. Padfield, Chairman
Business Review
We have made good progress in re-focusing the business and have delivered financial results slightly ahead of expectations, despite the challenging environment experienced towards the end of 2008 and into this last year. We have focused on improving the performance of our existing customer base and limited our growth in new sites to higher quality opportunities. The modest growth in pay-per-patient revenues is encouraging and average utilisation is trending upwards, reflecting our sales team’s efforts to drive usage of our optomap® exams. With a proven technology, a number of exciting clinical trials underway, the sales team realigned, and the new management team in place, we are confident in our ability to become the leading provider of retinal diagnostics.
Our three technology platforms, the P200 which is largely focused on the optometry market and our newer P200C and P200MA products which are targeted primarily at the ophthalmologists and retinal specialists have been used by over 4,000 customers in North America, our principal market, and certain European markets. The results for the year bear testament to our technology and with more than 22 million exams having been carried out to date, we believe our goal of making the optomap® exam the gold standard in retinal imaging is both valid and achievable.
As with most businesses, the challenges represented by the world-wide recession caused us to review and adjust our strategy and ways of working. Regrettably this led to some difficult decisions aimed at improving the longer-term prospects for our business. This included reducing our workforce by more than 50, adapting our supply chain, reviewing the viability of and stopping some non- essential development programmes. As a result of these actions, we incurred exceptional costs of $6.3m in the year. Equally importantly, we reviewed the service we were delivering to our customers As a result we have now reorganised our customer-facing teams to ensure customers are visited more regularly and listened to closely. We have also improved our customer education, service levels, product reliability, product quality and ease of use, and are currently undertaking further major clinical studies to provide our eye doctors with proof of the utility of the optomap® exam in diagnosing and helping treat a number of significant diseases and conditions.
Overview
Our core pay-per-patient revenues grew 2% from $91.7m to $93.5m representing 96% of our total revenue. As previously reported, the first quarter of this financial year in particular showed a decline in revenues, but we are pleased that the actions we have taken to focus on asset utilisation appear to be having a positive effect with a stronger performance in the second half. Geographically, sales of pay-per-patient optomap® exams in North America were steady at $85m (2008: $84.8m) with sales in the EU growing 23% to $8.5m (2008 $6.9m). The combination of these revenues represent the total of the monthly minimum payments receivable from customers of $73.8m (2008: $74m) plus $19.7m payments for additional tests over the monthly minimum (2008: $17.7m). Some 53% of our customers are averaging optomap® exams above the minimum (2008:56%). Total revenues for the 2009 financial year decreased by 4% or $3.6m from $100.8m in 2008 to $97.2m reflecting the expected decline in capital sales as we focused on our core pay-per-patient business.
The growth in pay-per-patient revenues was achieved despite a reduction in the number of sites operating on that business model and a lower average optomap® price. This reflects our focus on improving asset utilisation which is starting to show results, with average monthly optomaps® per site of 108 in the second half of the year compared to 102 in H1. Furthermore our average monthly revenue per site increased to $2,099 in H2 from $2,032 in H1, a significant increase particularly since in the last three years we have seen a reduction in the second half of the year. On a like-for-like basis, the average numbers of optomap® exams for sites in place for the full year were 108 per month, with the deinstalled sites averaging 39 and the newly installed sites showing good promise.
In a difficult economic climate, we saw reductions in the average rate of optomap® examinations at the beginning of the financial year. Unsurprisingly it was increasingly difficult to place new devices and a number of existing customers found it hard to cover the cost of the minimum monthly charges to which they had committed and took the opportunity to return devices once validation periods ended. We also took the decision to de-install some sites but our main effort was to work with our remaining customers to increase adoption and usage of the optomap® procedure. We focused on improving the services we delivered to our customers and helping them understand and promote the utility of our technology. We also implemented pricing structures that reward both high usage by and loyalty from our customers.
As a result of these factors, we saw an expected reduction in our installed base of pay-per-patient customers over the financial year from 3,825 to 3,625 world-wide. This change reflected 491 de-installations and 291 new installations of customers. In addition we sold outright a further 14 devices in the year, taking our customer-owned base to 172 devices. Our average optomaps® per site fell during the early part of the year reflecting primarily the decrease in footfall in optometrist offices seen widely in the US. We are pleased to report, however, that our close attention to customer service appears to be effective, resulting in an increase in average asset utilisation in the last few months of the financial year. Pay-per-patient contract renewal rates for the full year were 85% which is ahead of our 80% target but down slightly from the prior year rate of 89%.
Revenues from capital sales of P200, P200C and P200MA devices were $2.5m against $8.5m in 2008 and revenues from service and warranty agreements rose from $0.5m to $1.2m.
The year-end cash balance of $30.1 million was up by $2.6 million from the same time last year. We continue to have strong support for our business from our asset–backed financing partners.
Our operating profit for the year before exceptional items was $8.5m compared to $11.7m in 2008, with most of the variance attributable to the lower focus on capital sales. Our profit after tax before exceptional items was $1.5m (2008: $4.6m) and after exceptional items, we recorded a loss for the year of $4.3m compared to a profit of $4.6m in 2008.
Business Model
Our principal business model is a pay-per-patient model. We install our optomap® devices with clinicians in their practices and our customers typically enter into a fixed-term contract (usually for a 36 month term) during which they pay a fixed monthly payment that allows them a minimum monthly number of optomap® exams. The customer pays the fixed minimum monthly payment (MMP) plus a per-optomap® fee for each exam conducted over the contractual minimum (usually 75 or 100 per month). These contracts provide a high degree of predictable recurring revenue from the MMPs over the contract term. Each device installed in the field records the actual number of daily examinations performed and reports this back real-time to the Company enabling accurate billing for the additional optomaps® above the minimum levels. The contract generally allows the customer to receive service, replacement parts and software upgrades free of charge.
This business model provides a security and visibility of future revenues. Future minimum rentals receivable under non-cancellable contracts at the end of 2009 were $156.7m (2008: $177.1m) of which $64.7m are receivable in 2010. The equivalent number in 2008 was $69.1m, meaning some 71% of our 2009 revenues were pre-secured.
With this business model, ownership of the device does not pass to the customer. In some circumstances, however, the Company raises debt finance based around the security of the guaranteed revenue streams offered by these fixed term contracts, with third party finance houses advancing cash to the Company in return for the right to receive the fixed monthly payments. This finance is arranged on a contract by contract basis, with the finance house taking ownership of the underlying device for the period of the loan as further security. This debt finance has allowed the Company to build what is a heavily capital-intensive business without calling on shareholders for additional finance and without putting shareholders’ equity at risk through onerous covenants or recourse. Should a customer default on a finance arrangement, the only risk to Optos is that the financed device is sold to another party who might not deliver such a high return to the Company once the contract term expires. At the end of 2009 around 62% of the fixed-term contracts were the subject of debt-finance with Optos financing the remainder. Future lease payments as at the year-end excluding interest payments totalled $76.3m, 49% of the contractual future revenues described above.
During the year we created a new pay-per-patient offering, the optomap® express, recognising the reluctance of some customers to enter into long-term commitments in difficult economic times. We offered up to 50 new customers the opportunity to access our technology on the basis of pre-paying for a set number of optomap® exams with the ability to “top-up” on a higher per exam price than would be charged under our standard 3-year contract. Whilst some of these opportunities have proved very successful, with some customers finding the technology so useful they chose to convert to a fixed MMP contract, with others it proved less so. Overall, the programme has been profitable but not sufficiently so to warrant rolling out on a more expansive basis.
We continue to seek alternative ways of increasing patient and end-customer awareness of the value of wide-field retinal imaging. During the year we began working with VSP GlobalSM in a co-marketing relationship in the US where specific optomap® retinal imaging technology packages are made available to VSP's 26,000 doctors. VSP is undertaking a programme of consumer awareness among its 55 million members designed to encourage greater understanding of the benefits of retinal screening using advanced technologies such as optomap®. We are very pleased to be partnering with this leading provider of eyecare insurance in the US and will be working with VSP to make optomap® a recommended benefit under their plans in the coming year.
Finally, where appropriate, we are also selling our devices outright. In this model the customer secures service, repair and maintenance and software upgrades through separate financial agreements. As part of our future strategy to increase market penetration of the Optos technology we intend to offer customers more flexibility in the ways in which they can acquire the optomap® capability, for example we are exploring options such as lease-purchase or separate contracts for software or device upgrades.
Markets
Overall, revenues from exam sales in North America were at similar levels to the prior year. Whilst the first half of the year saw a reduction in most metrics (average optomaps® per site, footfall in sites) the second half saw an increase in asset utilisation. The result of this was to bring revenues back to prior year levels despite a lower installed base and a lower average price per optomap®.
Europe delivered a strong performance driven by significant growth in Germany. Our pay-per-patient installed base in Europe grew by 11% to 352 devices, up from 318 at the same time last year. We recorded $8.5m in revenue from optomap® exams from our European operations for the year, up from $6.9m last year and representing 24% growth. Germany and Switzerland together generated $5.5m in revenue compared to $3.9m last year, representing 41% year over year growth. The rest of Europe, which includes the UK, Norway, France and Spain, had revenue of $3.0m for the year in line with 2008.
On a ‘like-for-like’ basis our optomap® usage in sites installed throughout the year averaged 108 per month. We de-installed 491sites during the period averaging 39 optomaps® per device per month and installed 291 sites, with those installed in 2009 averaging 108 optomaps® per device per month. Given the overall economic environment and the reported 10% decline in footfall seen in certain major optometrists’ practices in the US in the first quarter of the year we believe this performance indicates our new customer focused strategy is starting to work and bodes well for the future.
Clinical Studies
A number of world-leading academic groups are using our devices and the optomap® images as part of some important and ground-breaking clinical studies. These studies, based in North America, and the EU are both retrospective and prospective in nature and aim to demonstrate the value of the optomap® as a screening tool and the role of the examination of the periphery of the retina in the detection and management of important diseases such as diabetes and age-related macular degeneration (AMD).
We look forward to reporting the results of three of these studies in 2010. The first is being conducted by a world-leading US diabetes centre aiming to show the correlation between digitalised examinations of diabetic retinopathies with those conducted by retinal specialists. The second is a major study in Reykjavik Hospital in conjunction with Moorfields Eye Hospital comparing wide-field optomap® imaging with fundus camera photography in monitoring AMD in the periphery of the retina. The third is comparing optomap® assisted ophthalmoscopy versus traditional eye examinations in determining a range of diseases and indications and is being run by the New England College of Optometry. We believe the results of these studies will assist our customers in better understanding the nature of the progression and treatment of these diseases and give eye specialists greater confidence in the utility of the optomap®when compared to a number of other examination methods.
Furthermore, we have placed our devices with certain opinion leaders and academic institutions, with the aim of introducing the optomap® exam as a core part of the training of optometrists and ophthalmologists.
R&D
We constantly seek ways to improve our product and identify additional opportunities to develop new diagnostic capabilities in retinal care.
In 2009 significant work was required to rectify new product launch and manufacturing issues with the P200C and P200MA products. This work is now complete and the products are once again being manufactured in commercial quantities.
We also reviewed our R&D portfolio as part of our strategic review of the business and decided to curtail some projects that had insufficient future economical benefit relative to cost and risk. We are advancing our technology in three areas, firstly in improving and enhancing our platform and infrastructure, secondly in enhancing the quality of our images and thirdly in adding additional image products to supplement our optomap® wide-field images.
Near-term projects include: in image enhancement, a suite of improvements to our P200, P200C and P200MA products, including lighting balance, colour enhancement, blood vessel highlighting; in new image products the addition of auto-fluorescence as an additional diagnostic tool; and in platform and infrastructure, engineering improvements to improve product efficiency and reduce the size of the device and software solutions to allow the integration of all images taken of a patients’ eye into one analytical tool.
We intend to stay at the leading edge of retinal diagnostics in optometry and ophthalmology. Despite the need to focus R&D on the most effective short to medium term projects, we are delighted to maintain our research into the important area of advanced optics and are pleased to be working with the Children’s Hospital of Philadelphia in evaluating the potential for using advanced optics in the determination of disease progression and efficacy of disease treatments, in particular the use of gene therapy techniques to restore eyesight.
Gross Margins
The overall cost of goods increased slightly from 36% to 39%, with the 2008 margins improved by the lower cost of goods on capital sales. The major component of the costs of goods charge is depreciation of our medical devices of $30.4m (2008:$27.7m). The balance of $7.8m represents , certain freight costs, service and repair costs and promotional costs. As depreciation charges reduce we anticipate an improvement in the gross margin in 2010, depending on sales mix.
Operating Costs, Exceptional Items and Operating Profits
Overheads increased from $52.2m in 2008 to $58.5m in 2009, with all of the $6.3m increase attributable to exceptional items arising upon the restructuring of the business.
The restructuring implemented in the first half of the year targeted a 10%-20% reduction in the overall operating costs of the business with actual savings being implemented near the upper end of this range on a forward run-rate. Some of these relate to the costs of manufacturing the product that will take two to three years to impact margins and others to reductions in general overheads, the impact of which are expected to be seen in 2010 and thereafter.
Excluding exceptional costs, selling marketing and distribution costs were $22.5m or 23% of revenues, some $1.5m higher than the previous year. These are expected to increase to approximately 27% of revenues in 2010 as we build the US sales team to focus further on customer service and asset utilisation. General and administrative expenses, pre-exceptional items including R&D fell by $1.6m to $29.6m from $31.2m. The total investment in R&D, including amortisation, was steady at $4.8m (or 5% of revenues) of which $4.3m was expensed (2008: $2.2m) and $0.5m (2008: $2.7m) met the recognition criteria for capitalisation as an intangible asset. We anticipate investing a similar percentage of revenues in R&D programmes in 2010 but expect significant further reductions in other operating expenses as the benefit of the restructuring is seen.
Exceptional items arose upon the restructuring of the business during the year. Activities were aligned on a global functional basis, with manufacturing and purchasing arrangements amended to reflect revised production plans and R&D programmes curtailed where they did not fit with the Company’s new business strategy. The charges include the costs of making certain employees redundant, early termination of manufacturing contracts and the write-off of inventories and intangible assets that would no longer be used in the Company’s business in the reasonably foreseeable future.
Average numbers of employees rose slightly in the year from 293 to 295 although numbers at the year-end were 269 compared to 305 at the start of the year, and reduced by a further 10 shortly after the year-end. This decrease resulted from the restructuring of the business. Staff costs for the year fell from $28.9m to $25.7m reflecting a change in skills mix and a credit for share-based payments.
Operating profits before exceptional items and share-based payments fell by 43% from $12.0m to $6.8m. The operating profit after share-based payments benefitted from a credit of $1.6m in the year compared to a cost of $0.3m in 2008, reflecting the forfeiture of certain share-based incentives for former executives and other reductions resulting from failure to meet performance conditions. Operating margins, excluding exceptional items, fell to 8.7% from 11.6%.
(Loss)/Profit on Ordinary Activities before Tax
The Group made a profit on ordinary activities before exceptional items and tax of $2.5m, and a loss before tax of $3.8m after exceptional items compared to a pre-tax profit of $5.9m in the prior year. The principal reasons for this decline were a reduction in the number of outright sales of the Company’s product in the year and the $6.3m of exceptional costs incurred in resetting the strategy of the business.
Taxation
The charge to tax for the year was $0.4m (2008 $1.3m), comprising a current tax charge of $0.9m (2008: $0.2m) and a deferred tax credit of $0.5m (2008: $1.1m charge). The current tax charge relates primarily to overseas tax liabilities and includes an accrual for a potential exposure for open enquiries in respect of prior periods. The deferred tax credit results from the annual review of deferred tax asset recognition, the conclusion of which is that it is appropriate to recognise deferred tax assets in respect of the portion of UK and US tax losses that are expected to be utilised in the foreseeable future and in respect of all tax losses in Canada and Germany. In cash terms, the Group incurred only $0.4 m of taxes, levied from certain minimum federal and state taxes in the US.
(Loss)/Profit for the Financial Year
The Group recorded a loss for the financial year after taxation of $4.3m versus a profit in the previous year of $4.6m, which reflected the lower revenues, credit on share-based payments and exceptional items as discussed previously.
Cash Flow
Cash flow from operating activities was strong at $37.4m just $2.1m below the cash-flow of $39.5m in 2008 despite the $8.9m reduction in post-tax profitability. Free cash flow, the operating cashflow after investing activities and before interest increased significantly from $3.3m in 2008 to $18.0m in 2009. Non-cash charges for depreciation, amortisation and share-based payments that were included in the operating loss were $35.8m (2008: $31.1m). Working capital absorbed $0.7m of cash in the year (2008:$3.7m) demonstrating better management of inventory, debtors and creditors. Cash flow used in investing activities decreased significantly from $35.6m in 2008 to $19.3m, mainly due to lower expenditure on property, plant and equipment. Net cash flows from financing activities resulted in a $15.4m outflow (2008: $2.5m inflow) with payments on capital of $48.0m and interest of $6.1m outweighing the $38.7m receipts from new lease arrangements.
The Company anticipates further net repayments of lease-finance debt over the next financial year, absent significant changes in the business, with capital investments in building and refurbishing our devices expected to reduce by some 15% to 20% in the next financial year. This reflects in part the 400 devices held by the Company at the year end.
Net cash increased by $2.6m during the year to a year-end cash balance of $30.1m and net debt (cash less finance lease obligations) reduced from $58.4m to $46.2m.
Balance Sheet
Net assets at the year-end were $58.7m, a $5.3m reduction over the year, principally reflecting the loss for the year and adjustment for share-based payments.
Non-current assets reduced from $115.7m to $98.1m, largely as a result of depreciation and amortisation outweighing capital additions. Subject to sales mix, the Company expects a further reduction in 2010 in the net present value of medical devices with modest investment in devices being outweighed by depreciation. Inventory levels increased slightly and trade and other receivables fell. The trade receivables level was high in 2008, reflecting the high level of capital sales in September 2008 but the balances were also reduced with good debt collection. Total liabilities also reduced with lower trade payables reflecting lower levels of inventory and capital investment. Financial liabilities reduced from $85.9m to $76.3m.
Key Performance Indicators
Performance against strategy has been monitored over the last 3 years by means of the following key performance indicators.
|
2009 |
2008 |
2007 |
| Commercial – Pay-per-patient contracts |
|
|
|
| Net installs/de-installs |
(200) |
559 |
673 |
| Number of eye exams sold |
4.7m |
4.5m |
4.0m |
Operational |
|
|
|
| Contract renewal rate |
85% |
89% |
89% |
Financial |
|
|
|
| Revenue growth versus prior year |
(4) % |
16% |
28% |
| Operating profit before exceptional items* |
$8.5m |
$11.7m |
$6.5m |
| (Loss)/ Profit before taxation per Ordinary Share |
(5.5) c |
8.5c |
2.4c |
*We previously excluded share-based payments from this measure but are now measuring after these charges.
As described earlier in this review, strategic decisions to focus on asset utilisation have impacted our comparison on certain metrics. The decline in our number of installed devices for example was driven by our decision to improve our overall customer profile. Clearly, the previously reported exceptional costs arising as a result of the restructuring of our operations have impacted the bottom line. Encouragingly however, the total number of optomap® exams did increase in the year as did our total pay-per-patient revenues. We also saw signs of improvement in all business areas in the second half as we started to see benefits of the changes made earlier in the year. We anticipate a return to a net positive number of devices being installed in 2010, targeting a reversal of the 2009 position.
As the Company matures and introduces new business models, we are evolving additional KPI’s more relevant to current operations and set out below the commercial, operational and financial measures that we intend to monitor over the coming year.
Commercially we believe that the total number of installed devices (whether on pay-per-patient or any other model) is important to monitor as are the average price per optomap® and average revenue per site. Operationally, asset utilisation (the average number of optomaps® per day per site) and the percentage of sites running above the MMP will also be measured.
In terms of financial measures, we will in future monitor the key metrics of revenue growth, gross profits, operating profits before exceptional items but after share-based payments (whilst “non-cash” these are a regular part of our operations and as such should be treated as any other expense), and post-tax as well as pre-tax profit per ordinary share. Furthermore, the ability of the business to generate free cash-flow is critical to the ability to invest in protecting the existing franchise and growing into new business areas. To this end we define free cash-flow as cash-flow from operating activities less investments in property, equipment and intangible assets.
Commercial
|
2009 |
2008 |
| Total number of installed devices at year end |
3,797 |
3,983 |
| Number of PPP customer sites at year end |
3,625 |
3,825 |
| % of sites above MMP |
53% |
56% |
| Average price per optomap® |
$19.7 |
$20.5 |
| Average number of monthly optomaps® per site |
105 |
108 |
| Average monthly revenue per site |
$2,066 |
$2,213 |
| Free cash-flow |
$18.0m |
$3.3m |
Net installs on pay-per-patient (“PPP”) agreements relate to installations of the Group’s medical devices with healthcare professionals, excluding outright sales of devices. The number of eye exams sold relates to actual eye exams undertaken by healthcare professionals under pay-per-patient agreements. Contract renewal rate relates to the number of customers who extend the term of their existing pay-per-patient agreements divided by the total number of those who either extend or cancel such agreements. Revenue growth versus prior year is the total revenue for the year divided by the total revenue for the prior year. Operating profit before exceptional items is the gross profit less selling, distribution and administrative expenses, excluding exceptional costs. Profit before taxation per Ordinary Share is calculated by dividing the profit from continuing operations before tax for the financial year by the weighted average number of Ordinary Shares outstanding during the period.
Trends Affecting the Company’s Business
The Company’s business relies on individuals, healthcare specialists and providers understanding the benefit of regular wellness screening. This screening can lead to the diagnosis and early treatment of a number of important eye and non-eye diseases and conditions. Whilst the acceptance of screening is increasing, given the fact that this is primarily a consumer out of pocket expense the Company is operating in a difficult economic environment and one where pricing pressures continue, where governments are facing ever-increasing healthcare costs and a number of competitive technologies seek to offer alternative screening at lower prices. The Company believes strongly in the benefits of its wide-view retinal screening product and through technology development, manufacturing improvements, clinical evidence and pricing programmes , believes it can continue to grow its business in its current markets, deliver products of sufficient medical benefit to allow additional reimbursement and also expand into new markets.
The Company’s business is somewhat seasonal, with the first quarter of our fiscal year typically delivering the lowest optomap® usage of the year, reflecting the consumer-related influences over our business. The Company’s Q1 is influenced in the US in particular by major holidays and the fact that it is nearing the end of typical annual healthcare benefit packages.
Outlook
We believe retinal diagnostics represents a significant market opportunity that can be accessed through our proven technology. We have a clear vision of the growth potential of our business. While it is early days, we believe the changes we have put in place during 2009 will help increase asset utilisation at our existing customers and deliver increased revenues, profits and cash generation. For 2010 we expect to return to revenue levels comparable to 2008, based on further growth from PPP customers and we are targeting renewal rates in excess of 80%. We are determined to develop a world class sales channel, offer excellence in customer service, and by listening to our customers’ needs broaden our partnerships through enhanced product offerings, both from our own technology and other external sources. As we drive through operating and technology improvements, we see the opportunity to enhance our margins significantly. Our business model affords us strong revenue visibility and we look forward to the next financial year with confidence. Our plans are to increase steadily our total installed base and seek to ensure new customers have the ability to create optomap® as the gold standard of care in the retinal imaging of their patients.
CONSOLIDATED INCOME STATEMENT
|
|
Before
exceptional
items |
|
Exceptional
items
(Note 3) |
|
2009
|
|
2008
|
|
Notes |
$’000 |
|
$’000 |
|
$’000 |
|
$’000 |
Revenue |
4
|
97,157
|
|
-
|
|
97,157
|
|
100,812
|
| Cost of sales |
|
(38,153) |
|
- |
|
(38,153) |
|
(36,588) |
|
| Gross profit |
|
59,004 |
|
|
|
59,004 |
|
64,224 |
| Selling and distribution costs |
4 |
(22,544) |
|
(100) |
|
(22,644) |
|
(21,052) |
| Administrative expenses |
4 |
(29,620) |
|
(6,245) |
|
(35,865) |
|
(31,183) |
| Share-based payments |
|
1,630 |
|
- |
|
1,630 |
|
(293) |
|
| Operating profit |
|
8,470 |
|
(6,345) |
|
2,125 |
|
11,696 |
| Finance revenue |
5 |
133 |
|
- |
|
133 |
|
571 |
| Finance costs |
5 |
(6,073) |
|
- |
|
(6,073) |
|
(6,373) |
|
| (Loss)/profit from continuing operations before taxation |
|
2,530 |
|
(6,345) |
|
(3,815) |
|
5,894 |
| Income tax charge |
6 |
(1,039) |
|
588 |
|
(451) |
|
(1,278) |
|
| Net (loss)/profit for the year attributable to equity holders of the parent |
|
1,491 |
|
(5,757) |
|
(4,266) |
|
4,616 |
|
| (Loss)/profit before taxation per Ordinary Share |
|
|
|
|
|
|
|
|
| Basic |
7 |
3.6c |
|
|
|
(5.5)c |
|
8.5c |
| Diluted |
7 |
3.6c |
|
|
|
(5.5)c |
|
8.4c |
|
| (Loss)/profit after taxation per Ordinary Share |
|
|
|
|
|
|
|
|
| Basic |
7 |
2.1c |
|
|
|
(6.1)c |
|
6.7c |
|
Diluted |
7 |
2.1c |
|
|
|
(6.1)c |
|
6.6c |
|
CONSOLIDATED BALANCE SHEET
|
|
2009 |
2008 |
|
Notes |
$’000 |
$’000 |
| Non-current assets |
|
|
|
| Property, plant and equipment |
8 |
79,402 |
93,240 |
| Intangible assets |
9 |
8,977 |
13,226 |
| Deferred tax asset |
|
9,716 |
9,223 |
|
| Total non-current assets |
|
98,095 |
115,689 |
|
| Current assets |
|
|
|
| Inventories |
|
8,448 |
8,227 |
| Trade and other receivables |
|
9,543 |
15,393 |
| Cash and cash equivalents |
|
30,059 |
27,466 |
|
| Total current assets |
|
48,050 |
51,086 |
|
| Total assets |
|
146,145 |
166,775 |
|
| Current liabilities |
|
|
|
| Trade and other payables |
|
(9,580) |
(15,365) |
| Financial liabilities |
10 |
(31,977) |
(32,430) |
| Provisions |
|
- |
(10) |
| Government grants |
|
(201) |
(143) |
| Income tax payable |
|
(745) |
(222) |
|
| Total current liabilities |
|
(42,503) |
(48,170) |
|
| Total assets less current liabilities |
|
103,642 |
118,605 |
|
| Non-current liabilities |
|
|
|
| Financial liabilities |
10 |
(44,320) |
(53,462) |
| Provisions |
|
(78) |
(431) |
| Government grants |
|
(584) |
(780) |
|
| Total non-current liabilities |
|
(44,982) |
(54,673) |
|
| Net assets |
|
58,660 |
63,932 |
|
| Equity attributable to equity holders of the parent |
|
|
|
| Issued capital |
|
2,487 |
2,486 |
| Share premium |
|
116,719 |
116,704 |
| Retained earnings |
|
(59,961) |
(54,428) |
| Other reserves |
|
(585) |
(830) |
|
| Total equity |
|
58,660 |
63,932 |
|
Approved by the Board of Directors on 1 December 2009 and signed on its behalf by:
STATEMENT OF RESERVES & EQUITY
|
|
Share |
Share |
Retained |
Foreign |
|
|
|
Capital |
Premium |
Earnings |
Exchange |
Total |
|
Note |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
At 1 October 2007 |
|
2,453
|
115,682
|
(59,884)
|
(623)
|
57,628
|
|
| Exchange differences on foreign operations |
|
- |
- |
- |
(207) |
(207) |
| Profit for the year |
|
- |
- |
4,616 |
- |
4,616 |
|
| Total income and expenses for year |
|
- |
- |
4,616 |
(207) |
4,409 |
|
| Issue of Ordinary Share capital |
|
33 |
1,022 |
- |
- |
1,055 |
| Share-based payments |
|
- |
- |
840 |
- |
840 |
|
| At 1 October 2008 |
|
2,486 |
116,704 |
(54,428) |
(830) |
63,932 |
|
| Exchange differences on foreign operations |
|
- |
- |
- |
245 |
245 |
| Loss for the year |
|
- |
- |
(4,266) |
- |
(4,266) |
|
| Total income and expenses for year |
|
- |
- |
(4,266) |
245 |
(4,021) |
|
| Issue of Ordinary Share capital |
|
1 |
15 |
- |
- |
16 |
| Share-based payments |
|
- |
- |
(1,267) |
- |
(1,267) |
|
| At 30 September 2009 |
2,487 |
116,719 |
(59,961) |
(585) |
58,660 |
|
Share premium
Share premium comprises the difference between the net proceeds and nominal value on issue of the Company’s equity share capital.
Foreign exchange reserve
This reserve includes all cumulative differences on the translation of the Group’s net investment in foreign operations. Optos has elected to deem the cumulative differences on the retranslation into US Dollars of the Group’s net investment in foreign operations to be $nil as at 1 October 2004. As a result, in the event of the subsequent disposal of a foreign operation, any gain or loss on disposal will include cumulative translation differences arising only on or after 1 October 2004.
CONSOLIDATED CASHFLOW
|
|
|
2009 |
|
2008 |
|
Notes |
|
$’000 |
|
$’000 |
| Operating activities |
|
|
|
|
|
| (Loss)/profit for the year |
|
|
(4,266) |
|
4,616 |
| Adjustments to reconcile (loss)/profit for the year to net cash inflow from operating activities: |
|
|
|
|
|
| Income tax charge |
|
|
451 |
|
1,278 |
| Net finance costs |
|
|
5,940 |
|
5,802 |
| Depreciation, amortisation and impairment |
|
|
37,111 |
|
30,214 |
| Inventory write down |
|
|
1,000 |
|
- |
| Loss on disposal of property, plant, equipment and intangibles |
|
|
114 |
|
1,264 |
| Share-based payments |
|
|
(1,267) |
|
840 |
| Decrease/(Increase) in trade and other receivables |
|
|
5,817 |
|
(4,149) |
| Government grants amortisation |
|
|
(138) |
|
(94) |
| Increase in inventories |
|
|
(1,238) |
|
(907) |
| (Decrease)/Increase in trade and other payables |
|
|
(5,303) |
|
1,337 |
| Decrease in provisions |
|
|
(363) |
|
(642) |
|
| Cash flow from operating activities |
|
|
37,858 |
|
39,559 |
| Tax on continuing operations |
|
|
(421) |
|
(88) |
|
| Net cash flow from operating activities |
|
|
37,437 |
|
39,471 |
|
| Cash flows used in investing activities |
|
|
|
|
|
| Interest received |
|
|
133 |
|
571 |
| Purchases of property, plant and equipment |
|
|
(18,546) |
|
(32,678) |
| Expenditure on intangible assets |
|
|
(926) |
|
(3,506) |
|
| Net cash flows used in investing activities |
|
|
(19,339) |
|
(35,613) |
|
| Cash flows from financing activities |
|
|
|
|
|
| Proceeds from finance leases |
|
|
38,715 |
|
51,286 |
| Payment of finance leases |
|
|
(48,039) |
|
(43,422) |
| Proceeds from share issues |
|
|
16 |
|
1,055 |
| Interest paid |
|
|
(6,073) |
|
(6,373) |
|
| Net cash (outflow)/inflow from financing activities |
|
|
(15,381) |
|
2,546 |
|
| Net increase in cash and cash equivalents |
|
|
2,717 |
|
6,404 |
| Effect of exchange on cash and cash equivalents |
|
|
(124) |
|
2 |
| Cash and cash equivalents at beginning of period |
|
|
27,466 |
|
21,060 |
|
| Cash and cash equivalents at end of year |
|
|
30,059 |
|
27,466 |
|
1 BASIS OF PREPARATION
a. Basis of preparation
The financial statements have been prepared in accordance with the Group’s accounting policies which are based on International Financial Reporting Standards (“IFRS”) and IFRIC interpretations endorsed by the European Union (“EU”) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements are presented in US Dollars and all values are rounded to the nearest thousand ($’000), except when otherwise indicated.
The financial information for the years ended 30 September 2009 and 2008 set out above does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 (‘’the Act’’). Statutory accounts for the year ended 30 September 2008 have been delivered to the Registrar of Companies, and the accounts for the year ended 30 September 2009 will be delivered to the Registrar of Companies following the Annual General meeting. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.
The Annual Report and Accounts for the year ended 30 September 2009 will be posted to shareholders on 25 January 2010. The results for 2009 were approved by the Board of directors on 1 December 2009 and are audited. The Annual General Meeting will take place on 25 February 2010.
Interim and preliminary announcements notified to the London Stock Exchange are available on the internet at www.optos.com.
b. Going concern
The Group's business activities and principal risks and uncertainties are set out in Note 11.
Having considered these uncertainties under the current economic environment, and after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
This conclusion has been reached having considered the effect of liquidity risk on the Group’s ability to operate effectively. Currently, liquidity risk is not considered a significant business risk to the Group given its level of cash, available debt facilities and cashflow projections. The key liquidity risks faced by the Group are considered to be the failure of banks where funds are deposited and the inability to secure additional debt finance in order to facilitate the expansion of the Group’s business or to introduce new or improved products.
As part of this review the Directors considered the current levels of available debt facilities, the structure of the debt-finance being multiple asset-backed arrangements that are non-recourse on the Company, and indications of the availability of other sources of debt capital.
The Directors also considered the levels of future business guaranteed under its pay- per-patient customer agreements and the pattern of future debt repayments associated with current finance obligations.
c. Format & Exceptional Items
The format of the consolidated income statement presented in this preliminary results announcement differs from that used in the Group's consolidated financial statements for the year ended 30 September 2008 and presents exceptional items in separate columns, in order to present information in a format that is more relevant to users of the financial statements.
Material items of income and expense which, because of the nature and infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group's financial performance for the period, are presented as exceptional items on the face of the income statement to facilitate comparisons with prior periods and assessment of trends in financial performance.
2 SEGMENTAL ANALYSIS
The primary segment reporting format is determined to be geographic segments as the Group’s risks and rates of return are affected predominantly by differences in the geographic locations of the markets served. The Group’s principal area of activity is the design, development, manufacture and marketing of medical devices delivering retinal examinations at customer sites. These sites are fully supported by the Group’s employees. Revenue is primarily generated on a pay-per-examination basis, usually with a minimum monthly usage level being agreed. For the year ended 30 September 2009, “pay per patient” agreements accounted for approximately 97% of revenues (2008: 92%). Additional revenue is generated from the sale of medical devices and associated income from the sale of service contracts and warranty, in which case revenue is recognised when the significant risks and rewards, of ownership of the goods have passed to the buyer or the service delivered.
Since all revenues are derived from the sale or use of the Company’s medical devices, the group has only one class of business and the Directors have determined that a geographical analysis of operations is most appropriate.
The Group’s operations are managed on a global functional basis. The Group’s geographical segments are based on the location of the Group’s customers and sales to external customers are disclosed on that basis.
Transfer prices between segments are set at cost. Segment revenue, segment expense and segment result include transfers between geographical segments. Those transfers are eliminated on consolidation.
An analysis by geographical market is given below for the year ended 30 September 2009:
|
North America |
Europe |
Eliminations |
Total |
|
2009 |
2009 |
2009 |
2009 |
|
$’000 |
$’000 |
$’000 |
$’000 |
| Revenue |
|
|
|
|
| Sales to external customers |
88,308 |
8,849 |
- |
97,157 |
| Inter-segment sales |
- |
13,900 |
(13,900) |
- |
|
| Segment revenue |
88,308 |
22,749 |
(13,900) |
97,157 |
|
| Result |
|
|
|
|
| Segment result before (charging)/crediting; |
23,065 |
(16,225) |
- |
6,840 |
| Inter-segment costs |
(18,284) |
18,284 |
- |
- |
| Exceptional items |
(903) |
(5,442) |
- |
(6,345) |
| Share-based payments |
1,003 |
627 |
- |
1,630 |
|
| Operating profit |
4,881 |
(2,756) |
- |
2,125 |
| Net interest |
|
|
|
(5,940) |
|
| Loss from continuing operations before taxation |
|
|
|
(3,815) |
| Taxation |
|
|
|
(451) |
|
| Net loss for the year |
|
|
|
(4,266) |
|
| Assets and liabilities |
|
|
|
|
| Segment assets |
76,930 |
84,411 |
(54,971) |
106,370 |
| Unallocated assets |
|
|
|
39,775 |
|
| Total assets |
|
|
|
146,145 |
|
| Segment liabilities |
49,198 |
16,216 |
(54,971) |
10,443 |
| Unallocated liabilities |
|
|
|
77,042 |
|
| Total liabilities |
|
|
|
87,485 |
|
| Other segment information |
|
|
|
|
| Capital expenditure: |
|
|
|
|
|
- Property, plant and equipment |
10,734 |
7,812 |
- |
18,546 |
|
- Intangible fixed assets |
23 |
903 |
- |
926 |
|
- Depreciation |
27,391 |
4,601 |
- |
31,992 |
|
- Amortisation |
29 |
1,600 |
- |
1,629 |
|
- Loss on disposal |
18 |
96 |
- |
114 |
|
- Impairment loss |
- |
3,490 |
- |
3,490 |
|
Unallocated assets primarily comprise cash and short-term deposits and deferred tax assets.
Unallocated net liabilities comprise net debt and taxation.
SEGMENTAL ANALYSIS CONTINUED
An analysis by geographical market is given below for the year ended 30 September 2008:
|
North America |
Europe |
Eliminations |
Total |
|
2008 |
2008 |
2008 |
2008 |
|
$’000 |
$’000 |
$’000 |
$’000 |
| Revenue |
|
|
|
|
| Sales to external customers |
93,265 |
7,547 |
- |
100,812 |
| Inter-segment sales |
- |
24,466 |
(24,466) |
- |
|
| Segment revenue |
93,265 |
32,013 |
(24,466) |
100,812 |
|
| Result |
|
|
|
|
| Segment result before (charging)/crediting; |
27,539 |
(15,550) |
- |
11,989 |
| Inter-segment costs |
(16,415) |
16,415 |
- |
- |
| Share-based payments |
(506) |
213 |
- |
(293) |
|
| Operating profit |
10,618 |
1,078 |
- |
11,696 |
| Net interest |
|
|
|
(5,802) |
|
| Profit from continuing operations before taxation |
|
|
|
5,894 |
| Taxation |
|
|
|
(1,278) |
|
| Net profit for the year |
|
|
|
4,616 |
|
| Assets and liabilities |
|
|
|
|
| Segment assets |
102,797 |
88,861 |
(61,572) |
130,086 |
| Unallocated assets |
|
|
|
36,689 |
|
| Total assets |
|
|
|
166,775 |
|
| Segment liabilities |
56,164 |
22,136 |
(61,572) |
16,728 |
| Unallocated liabilities |
|
|
|
86,115 |
|
| Total liabilities |
|
|
|
102,843 |
|
| Other segment information |
|
|
|
|
| Capital expenditure: |
|
|
|
|
| - Property, plant and equipment |
25,238 |
7,510 |
- |
32,748 |
| - Intangible fixed assets |
1 |
3,505 |
- |
3,506 |
| - Depreciation |
26,040 |
3,278 |
- |
29,318 |
| - Amortisation |
44 |
852 |
- |
896 |
| - Loss on disposal |
1,142 |
122 |
- |
1,264 |
| - Impairment loss |
- |
- |
- |
- |
|
Unallocated assets primarily comprise cash and short-term deposits and deferred tax assets.
Unallocated net liabilities comprise net debt and taxation.
3 EXCEPTIONAL ITEMS
|
2009 |
2008 |
|
$’000 |
$’000 |
| Restructuring costs: |
|
|
| Redundancy payments |
(1,079) |
- |
| Inventory write down |
(1,000) |
- |
| Research and development write down |
(2,804) |
- |
|
| Total exceptional charges recognised at 31 March 2009 |
(4,883) |
- |
| Intellectual property write down |
(301) |
- |
| Penalties from suppliers |
(776) |
- |
| Research and development write down |
(385) |
- |
|
| Total exceptional charges recognised in the year |
(6,345) |
- |
|
Following the appointment of Roy Davis as Chief Executive Officer a comprehensive strategic review of the business was undertaken. This review resulted in a decision to focus on the Group’s core optometry business which would be managed on a global functional basis. As a result the Company instigated a restructuring programme which was announced by the Company on 26 February 2009 and which resulted in redundancy payments of $1,079,000 being expensed.
This strategic review together with some technical changes in the Company’s products led to changes in the Company’s product processes and future production plans. As a result inventory with a book value of $1,000,000 was identified which would no longer be used in the production of any of the Company’s products going forward and it was written off.
The change to future production plans resulted in a decision to no longer outsource integration of the medical devices and to bring it back in house. As a consequence of this the Company suffered penalties totalling $776,000 from suppliers for cancelling contracts which has been expensed.
In addition a review of completed and ongoing development programmes was undertaken which resulted in the write down of $3,189,000 development costs previously capitalised as intangible fixed assets and which related to projects which will no longer form part of the strategic focus and are no longer expected to be commercialised. At 31 March 2009 projects with a net book value of $2,804,000 were written off. Subsequently in the second half of the year it was determined that the technologies underlying two further development projects would not be capable of commercialisation in the foreseeable future and $385,000 relating to the carrying value of these projects was also written off.
In August 2009 the Company appointed a new Vice President of Operations whose review of the supply chain resulted in a decision to write off the intellectual property of $301,000 purchased in 2008 relating to certain manufacturing processes that the Company no longer expects to deploy.
The costs noted above have been disclosed as exceptional items as they all related to a change of strategic direction and are not expected to recur next year. The severance costs have been allocated $100,000 to selling and distribution costs reflecting the roles which have been made redundant.
4 REVENUE & EXPENSES
|
2009 |
2008 |
|
$’000 |
$’000 |
| Revenue |
|
|
| Sales of goods |
2,465 |
8,472 |
| Rendering of services |
94,692 |
92,340 |
|
| Revenue |
97,157 |
100,812 |
| Finance revenue |
133 |
571 |
|
| Total revenue |
97,290 |
101,383 |
|
No revenue was derived from exchanges of goods or services. Revenues from the rendering of services includes $93.5m (2008: $91.7m) from revenues from pay-per-patient contracts with customers, being $73.8m (2008: $74.0m) from fixed monthly minimum payments to which customers have contracted plus $19.7m (2008: $17.7m) from the variable per optomap® revenue for tests performed over the monthly minimum levels.. The balance relates to revenues from contracts to maintain and service the Company’s devices.
The Company treats the contractual arrangements with the customers as operating lease arrangements. Future minimum rentals receivable under non-cancellable operating leases with customers are as follows:
|
2009 |
2008 |
|
$’000 |
$’000 |
| Not later than one year |
64,680 |
69,124 |
| After one year but not more than five years |
91,399 |
106,940 |
| After five years |
657 |
1,004 |
|
|
156,736 |
177,068 |
|
Administrative expenses comprise general and administrative expenses.
|
2009 |
2008 |
|
$’000 |
$’000 |
The (loss)/profit from continuing operations before taxation
is stated after charging/(crediting): |
|
|
| Depreciation charge for the period |
31,992 |
29,318 |
| Research and development expenditure (1) |
4,261 |
2,165 |
| Amortisation of software (Note 9) |
357 |
302 |
| Operating leases |
804 |
863 |
| Foreign exchange differences |
(92) |
(99) |
|
(1) Includes $1,272,000 (2008: $594,000) in respect of amortised intangible assets. In addition, $514,000 (2008: $2,671,000) was incurred in respect of research and development, which has not been charged in arriving at the pre-tax profit for the period as it has been capitalised as an intangible asset. Further information is included in Note 9 to the Group accounts.
Services provided by the Group’s auditor and network firms
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:
|
2009 |
|
2008 |
|
$’000 |
|
$’000 |
| Fees payable to the Company’s auditor for the audit of the Company’s annual accounts (including estimated expenses): |
115 |
|
164 |
| Fees payable to the Company’s auditor and its associates for other services (including estimated expenses): |
|
|
|
| Other services pursuant to legislation |
38 |
|
61 |
| Tax services |
- |
|
119 |
| All other services |
74 |
|
34 |
|
|
227 |
|
378 |
|
5 FINANCING
|
2009 |
2008 |
|
$’000 |
$’000 |
| Finance costs |
|
|
| Lease finance |
6,073 |
6,373 |
|
|
6,073 |
6,373 |
|
| Finance revenue |
|
|
| Bank interest receivable |
133 |
571 |
|
|
133 |
571 |
|
6 TAXATION
|
2009 |
2008 |
| Analysis of tax charge in the year: |
$’000 |
$’000 |
|
| Tax on profit on ordinary activities: |
|
|
| Corporation tax at 28% (2008: 29%) |
|
|
| Current year tax charge |
110 |
- |
| Overseas taxes – prior year |
748 |
(58) |
| Overseas taxes – current year |
86 |
222 |
|
| Current year tax charge |
944 |
164 |
|
| Deferred tax |
(493) |
1,114 |
|
| Total deferred tax (credit)/charge |
(493) |
1,114 |
|
| Total income tax charge |
451 |
1,278 |
|
7 PROFIT/ (LOSS) PER ORDINARY SHARE
Basic earnings per share amounts are calculated by dividing the (loss)/ profit before taxation and the (loss)/profit after taxation for the financial year by the weighted average number of Ordinary Shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the profit before taxation and the (loss)/ profit after taxation for the financial year by the weighted average number of Ordinary Shares outstanding during the period (adjusted for the effects of dilutive options). In the case of a loss, no impact for further dilution is reflected as this would not have the effect of increasing the loss per share and is therefore not dilutive.
The (loss)/profit per Ordinary Share is calculated as follows:
|
2009 |
2008 |
| Weighted average number of Ordinary Shares in issue |
69,528,126 |
69,183,072 |
| Effect of dilution: share options |
- |
876,101 |
|
Adjusted weighted average number of Ordinary Shares
for diluted earnings per share |
69,528,126 |
70,059,173 |
|
| Profit before exceptional items and taxation ($000s) |
2,530 |
n/a |
| Basic profit before exceptional items and taxation per share (cents) |
3.6c |
n/a |
| Diluted profit before exceptional items and taxation per share (cents) |
3.6c |
n/a |
| Profit before exceptional items after taxation ($000s) |
1,491 |
n/a |
| Basic profit before exceptional items after taxation per share (cents) |
2.1c |
n/a |
| Diluted profit before exceptional items after taxation per share (cents) |
2.1c |
n/a |
|
| (Loss)/Profit before taxation ($’000s) |
(3,815) |
5,894 |
| Basic (loss)/profit before taxation per share (cents) |
(5.5)c |
8.5c |
| Diluted (loss)/profit before taxation per share (cents) |
(5.5)c |
8.4c |
| (Loss)/Profit after taxation ($’000s) |
(4,266) |
4,616 |
| Basic (loss)/profit after taxation per share (cents) |
(6.1)c |
6.7c |
| Diluted (loss)/profit after taxation per share (cents) |
(6.1)c |
6.6c |
|
8 PROPERTY PLANT AND EQUIPMENT
|
Leasehold |
Medical |
Plant and |
|
|
Improvements |
Devices |
Equipment |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
| Cost |
|
|
|
|
| At 1 October 2008 |
1,407 |
194,055 |
7,673 |
203,135 |
| Additions |
79 |
17,622 |
845 |
18,546 |
| Disposals |
(3) |
(3,683) |
(306) |
(3,992) |
| Exchange adjustment |
- |
(560) |
(5) |
(565) |
|
| At 30 September 2009 |
1,483 |
207,434 |
8,207 |
217,124 |
|
| Depreciation |
|
|
|
|
| At 1 October 2008 |
698 |
104,547 |
4,650 |
109,895 |
| Charge for year |
178 |
30,412 |
1,402 |
31,992 |
| Disposals |
(2) |
(3,683) |
(249) |
(3,934) |
| Exchange adjustment |
- |
(232) |
1 |
(231) |
|
| At 30 September 2009 |
874 |
131,044 |
5,804 |
137,722 |
|
| Net book value at 30 September 2009 |
609 |
76,390 |
2,403 |
79,402 |
|
| Cost |
|
|
|
|
| At 1 October 2007 |
1,535 |
165,406 |
6,758 |
173,699 |
| Additions |
65 |
31,056 |
1,561 |
32,682 |
| Disposals |
(193) |
(2,032) |
(649) |
(2,874) |
| Exchange adjustment |
- |
(375) |
3 |
(372) |
|
| At 30 September 2008 |
1,407 |
194,055 |
7,673 |
203,135 |
|
| Depreciation |
|
|
|
|
| At 1 October 2007 |
679 |
78,112 |
3,792 |
82,583 |
| Charge for year |
190 |
27,710 |
1,418 |
29,318 |
| Disposals |
(171) |
(881) |
(558) |
(1,610) |
| Exchange adjustment |
- |
(394) |
(2) |
(396) |
|
| At 30 September 2008 |
698 |
104,547 |
4,650 |
109,895 |
|
| Net book value at 30 September 2008 |
709 |
89,508 |
3,023 |
93,240 |
|
Medical devices refer to retinal examination equipment located at customer sites and being utilised on a pay-per-examination basis and significant parts and major spares. Medical devices are depreciated upon activation at the relevant customer site. In certain circumstances medical devices are returned, upgraded and relocated at a new customer site. Depreciation is then recalculated to write off the remaining net book value over the next 5 years from relocation.
The carrying value of plant and equipment and medical devices held subject to finance leases at 30 September 2009 was $39,600,000 (2008: $52,771,000). Legal title to the leased assets transfers to the debt provider as security for the term of the agreement.
9 INTANGIBLE ASSETS
|
Development |
Software |
Intellectual |
|
|
Costs |
Costs |
Property Costs |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
| Cost |
|
|
|
|
| At 1 October 2008 |
12,859 |
2,621 |
301 |
15,781 |
| Additions – internal development |
514 |
- |
- |
514 |
| Additions – purchased externally |
- |
412 |
- |
412 |
| Disposals |
- |
(70) |
- |
(70) |
|
| At 30 September 2009 |
13,373 |
2,963 |
301 |
16,637 |
|
| Accumulated amortisation |
|
|
|
|
| At 1 October 2008 |
666 |
1,889 |
- |
2,555 |
| Amortisation in year |
1,272 |
357 |
- |
1,629 |
| Impairment loss |
3,189 |
- |
301 |
3,490 |
| Disposals |
- |
(14) |
- |
(14) |
|
| At 30 September 2009 |
5,127 |
2,232 |
301 |
7,660 |
|
| Net carrying amount
At 30 September 2009 |
8,246 |
731 |
- |
8,977 |
|
| Cost |
|
|
|
|
| At 1 October 2007 |
10,188 |
2,159 |
- |
12,347 |
| Additions – internal development |
2,671 |
- |
- |
2,671 |
| Additions – purchased externally |
- |
534 |
301 |
835 |
| Disposals |
- |
(72) |
- |
(72) |
|
| At 30 September 2008 |
12,859 |
2,621 |
301 |
15,781 |
|
| Accumulated amortisation |
|
|
|
|
| At 1 October 2007 |
72 |
1,659 |
- |
1,731 |
| Amortisation in year |
594 |
302 |
- |
896 |
| Disposals |
- |
(72) |
- |
(72) |
|
| At 30 September 2008 |
666 |
1,889 |
- |
2,555 |
|
| Net carrying amount
At 30 September 2008 |
12,193 |
732 |
301 |
13,226 |
|
Development costs are capitalised as intangible assets to the extent the Board considers that individual projects meet the recognition criteria under the relevant standard. As at 30 September 2009, $7.2m (2008: $10.0m) of these costs related to the design of a common technology platform. Costs related to the development of the common technology platform commenced amortisation in 2007 and will be amortised over the benefits anticipated to accrue in the first five years of operations (included within administrative expenses). The costs will be fully amortised by 30 September 2012. During the period the carrying value of development costs including costs related to the common technology platform were reviewed for impairment and $3,189,000 was written off and included within exceptional items (note 3).
Intellectual property costs acquired in 2008 related to the purchase of technical know-how and intellectual property rights for the manufacture of a component that the Company expected to produce in Asia. The costs were intended to be amortised over the first three years of production. The Company appointed a new Vice President of Operations during the year and he determined that the project was no longer commercially viable and so the costs were fully written off. Further information is included in exceptional items (note 3).
10 FINANCIAL LIABILITIES
|
2009 |
2008 |
|
|
$’000 |
$’000 |
|
| Finance lease obligations |
|
|
|
| Current |
31,977 |
32,430 |
|
| Non-current |
44,320 |
53,462 |
|
|
|
|
76,297 |
85,892 |
|
|
|
|
2009 |
2008 |
|
|
$’000 |
$’000 |
|
| Amounts payable: |
|
|
|
| Within one year |
36,269 |
37,747 |
|
| Between one and two years |
25,709 |
28,949 |
|
| Between two and five years |
21,906 |
29,301 |
|
|
|
|
83,884 |
95,997 |
|
| Less: finance charges allocated to future periods |
(7,587) |
(10,105) |
|
|
|
|
76,297 |
85,892 |
|
|
|
Finance lease commitments
Upon placement of medical devices at a customer site, where the customer enters into a fixed-term contract to pay the Company fixed and variable amounts of revenue, the Group may enter into a financing agreement with a third-party provider of debt finance. The debt-finance provider advances the company funds in return for taking the right to receive the guaranteed revenue streams and also takes security over the underlying device. In such cases there is a transfer of legal title of the relevant device to the debt provider with legal title being transferred back to the Company at the end of the term of the debt. As the significant risks and rewards of ownership are retained by the Group, the proceeds received from the third-party providers of debt finance are recorded as fixed-rate obligations which are repayable by installments and are secured over the related medical device. In such cases the medical devices are recorded as property plant and equipment and the debt finance as finance leases. The Company treats the arrangements with customers as operating leases, since the customers have no right to acquire the device at the end of the lease or revenue contract. As at 30 September 2009 62% of the numbers of contracts were collateralised against debt finance.
The weighted average outstanding lease term is 23.5 months (2008: 21.6 months). The weighted average effective borrowing rate for 2009 was 7.0% (2008: 7.7%). All leases are on a fixed repayment term and no arrangements have been entered into for contingent rental payments.
11 PRINCIPLE RISKS & UNCERTAINTIES
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which have been identified within the business which could have a material impact on the Company’s long-term performance. These are not all of the risks which the Directors have identified but those that the Directors currently consider likely to be material.
The Company’s operating results and financing capacity could be adversely affected by economic cycles.
Any continuation of the current downturn or further significant downturn in economic markets would be likely to impact adversely on disposable incomes, which may in turn result in reduced public demand for the Company’s product and thereby materially and adversely affect the Company’s business and financial position. A reduction in footfall in optometrists’ offices or closure of those offices could adversely impact the Company’s ability to earn revenues from optomap® examinations above the MMP and might cause a reduction in the renewal rate of contracts. The Company does, however, benefit from good visibility of secured forward revenues through its contracts that are typically have a term of around three years although there can be no guarantee that customers will not default under those contracts. Furthermore, the Company’s growth has been financed substantially through asset-backed debt and the inability to secure further debt could adversely impact on expansion plans.
The Company depends heavily on the success of its technology platform and its continued development.
The Company is heavily reliant on its medical devices, which produce the Company’s retinal exam products. These products, together with related services, accounted for all of the Company’s revenues for the year ended 30 September 2009. If any third party produces a more advanced device with improved functionality to these devices, or a similar device with significantly lower build costs, this could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company seeks to address this risk through investing significant resources in demonstrating the clinical efficacy and superiority of its devices and developing the quality and functionality of its products in order to seek to address competitive threats. The Company’s typical contracts with a three year term help raise the hurdle for competitor products.
The Company is subject to pricing pressures in common with other consumer-based businesses and relies in part on reimbursement agreements with insurers and government health authorities.
There can be no guarantee that the Company can deliver continued improvements in asset utilisation by its customers, nor can there be any certainty that the optomap® product will continue to qualify under health reimbursement schemes or that the reimbursement rates will not decrease. The Company may also be subject to healthcare-related taxes imposed by government agencies such as a medical-devices tax that is currently under consideration by the US Government. The success of the Company’s business depends on consumers understanding the benefit of regular optomap® examinations at the price offered by the Company and healthcare professionals. The Company seeks to drive adoption and awareness of its product through strong educational programmes and compelling evidence from clinical studies.
The Company operates in a highly regulated industry.
The Company’s medical devices are subject to strict US Federal Food and Drug Administration (“FDA”) regulations and the requirements of similar foreign regulatory bodies. Although the Company’s devices are currently FDA cleared to market, if the Company or its third party manufacturers fail to satisfy regulatory requirements or regulations change, this could result in the imposition of sanctions on the Company or cause the Company to be unable to sell its product in certain markets or face adverse publicity. The Company operates to relevant ISO guidelines and monitors and anticipates developments in regulatory thinking.
Intellectual property suits that are brought against the Company may significantly harm the business, as could significant litigation.
Technology-based companies are frequently subject to litigation with respect to patent and other intellectual property rights. Any litigation to determine the validity of third-party infringement claims or defend the Company’s IP could at a minimum be costly. The Company believes the core patent protection around its product is strong and is not aware of any significant actual or pending suits. The Company’s business exposes it to the risk of certain litigation, for example, a patient suffering harm during the image process or the Company’s retinal image system not identifying an underlying medical problem. The Company does not offer diagnostic or treatment services and its customers are all qualified eyecare clinicians who are fully trained in the use and interpretation of the optomap® product. The Company maintains product liability insurance although there can be no certainty the insurance coverage would be sufficient to meet the cost of any claims.
The Company’s business is international and it operates in several countries and currencies and its results are impacted by changes in currency exchange rates.
Optos reports its results in US$, the currency in which the majority of its revenues and costs arise. The Group monitors its non-US$ foreign currency exposure and, when deemed necessary by the Board, seeks to minimise its transaction exposure by using forward foreign currency contracts to eliminate exposures on any committed significant transactions. Wherever possible the majority of cash balances are maintained in US$ to mitigate the impact of currency fluctuation.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
The Board of Directors confirm to the best of their knowledge:
The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
The Directors’ Report includes a fair view of the development and performance of the business and the position of the issuer and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
| Roy Davis |
Chief Executive Officer |
| Christine Soden |
Chief Financial Officer |