Preliminary Results for the Year Ended 30 September 2006
11/30/2006
Optos plc (LSE: OPTS), a leading medical technology company for the design, development, manufacturing and marketing of retinal imaging devices, today announced its preliminary results for the year ended 30 September 2006. All numbers are denominated in US dollars which is the Company’s reporting currency and prepared under International Financial Reporting Standards (IFRS).
“Our operational progress is firmly reflected in our financial performance and I am very pleased to report a strong set of results, with revenues up 40% to $67.7 million for the year,” said Dr John Padfield, Chairman of Optos. “We have delivered on our plan that we set out at the time of our initial public offering to deepen our penetration in our existing markets, broaden our product offering, enter new markets and maintain the highest levels of customer satisfaction.”
Highlights
| Year ended 30 September 2006 $’000 | Year ended 30 September 2005 $’000 | % Change |
Revenue | $67.7m | $48.4m | 40% |
Operating profit before share based payments | $6.5m | $4.5m | 46% |
Operating profit after share based payments | $4.3m | $3.3m | 32% |
Loss before tax | $(1.1)m | $(2.6)m | |
Profit / (Loss) after tax | $10.8m | $(2.2)m | |
Pre tax loss per share (Basic) | $(0.02) | $(0.06) | |
EPS (Basic) | $0.18 | $(0.05) | |
Cash flow from operating activities | $26.7m | $16.8m | 59% |
Solid financial performance
- 40% increase in revenue to $67.7 million
- 58% reduction in loss before tax to $1.1 million for the year
- $1.5 million profit before tax in the second half of the year
- Lower borrowing margin for vendor financing agreed
Strong operational progress on key performance indicators
- 29% increase in installed base of P200 devices to 2,593, up from 2,009 in 2005
- 34% increase in retinal exams to 3.4 million, up from 2.5 million in 2005
- 89% contract renewal rate, consistent with 2005 renewal rate
Excellent performance in North America
- 41% increase in revenue to $64.7 million, up from $46.0 million in 2005
- 29% increase in installed base of P200 devices to 2,475, up from 1,925 in 2005
- National Accounts Group established to target corporate optical retail chains, with encouraging initial success within LensCrafters Inc., Pearle Vision and OptiCare Eye Health & Vision Centers Inc.
European operations performing to plan
- 24% increase in revenue to $3.0 million, up from $2.4 million in 2005
- 40% increase in installed base of P200 devices to 118, up from 84 in 2005
- 15% increase in UK installed base to 77, up from 67 in 2005
- 141% increase in German installed base to 41, up from 17 in 2005
- Strengthened German market infrastructure with new office and appointment of Managing Director
A meeting for analysts is being held at 09h30 today at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London EC4A 2BB. Analysts wishing to attend should contact Janine Hagan on 020 7282 1068. An audiocast of the analyst presentation will be available at www.optos.com/presentations from 14h30 GMT time. For an archived audio playback of the presentation please dial: +44 (0)20 7806 1970 (UK/Europe) or +1 718 354 1112 (US), passcode: 8064435#. This will be available for a period of 30 days following the results.
Enquiries
Optos plc
Allan Watson, Chief Financial Officer and Interim CEO +44 (0) 1383 843 300
John McNeil, Director of Communications +44 (0)1383 843 337 or +44 (0) 7870 240325
Citigate Dewe Rogerson
+44 (0)20 7638 9571
Kevin Smith/David Dible/Yvonne Alexander
Notes to Editors
Optos plc is a leading and rapidly growing medical technology company for the design, development, manufacturing and marketing of devices that image the retina, the light-sensitive area at the back of the eye. Optos' platform technology is the Panoramic200 Scanning Laser Ophthalmoscope device - known as the P200. In a quarter of a second the P200 device produces a high resolution image of up to 200 degrees or approximately 82 percent of the retina in a single capture. The image - branded the optomap® Retinal Exam - provides eye care practitioners with clinically useful information that facilitates the early detection of disorders and diseases evidenced in the retina, such as glaucoma, diabetic retinopathy and age-related macular degeneration. Retinal imaging can also indicate evidence of non-eye or systemic diseases such as diabetes, hypertension and certain cancers. The Company has recently gained regulatory clearance (CE and FDA 510(k)) to market a second device - P200MA. Optos’ technology provides an unequalled combination of wide-field retinal imaging, speed and convenience for both practitioner and patient and can help save sight and save lives.
Optos estimates that its P200 device is targeting a recurring US$2 billion market opportunity. For the year ended 30 September 2006 Optos had revenues of US$67.7 million and 232 employees with an installed base of 2,593 P200 devices in its existing markets in North America and Europe. Optos plc is headquartered in Dunfermline, Scotland and was admitted to the Main Market of the London Stock Exchange on 15 February 2006 trading under the symbol OPTS.
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.
Preliminary Results for the Year Ended 30 September 2006
Operating & Financial Review
Overview
2006 was an extremely good year for Optos. The proceeds from our initial public offering facilitated our growth strategy, on which we executed well on all fronts. We improved our operational efficiencies and delivered solid financial results. Revenue was $67.7 million, up by 40% over the previous year. Our customer renewal rate was 89%. Losses before tax were reduced by 58% to $1.1 million for the full year; however, the second half of the year showed the Group making the transition into profit before tax of $1.5 million.
Operating Performance
During the year we deepened our penetration levels in all of our existing markets, with particularly strong returns in the primary care segment in North America. We increased the installed base of P200 devices by 584 during the year. This brings the total number of the installed base to 2,593, up from 2,009 at the end of the same period last year. 2,475 of these devices are located in North America. During the year 3.4 million retinal exams were performed in our existing markets, up from 2.5 million in the 2005 financial year, an increase of 34%. We believe that this continued uptake demonstrates the confidence eye and health care practitioners have in our technology and the optomap® Retinal Exam and is aligned directly with their commitment to delivering state-of-the-art, efficient and thorough patient care. Critical in attracting more and more eye and health care practices to enter into a contract with us and install the P200 device has been our success at demonstrating to the practitioner that the optomap® Retinal Exam is a very effective tool for improving their ability to detect and diagnose eye disease at an earlier stage and in a more efficient way. Contract renewal rate for the year was 89%, which is consistent with the 2005 rate.
North America
North America remains the largest opportunity for the Company and our excellent progress continued during the year. Revenues in North America grew by 41% to $64.7 million, with $59.3 million generated by our US business and $5.4 million in Canada. Primary care optometry remains our core customer target segment in North America, where we have established that there are approximately 21,300 addressable practices, with an estimated 20,000 of these located in the United States. An addressable practice is one that is sufficiently clinically focused and large enough to commercially integrate the P200 device and the optomap® Retinal Exam into the practice. During the year, we installed 508 new devices in the United States and closed the year with an installed base 2,324 P200 devices. In Canada, our installed base grew by 42 to 151. Our total installed base in North America at the year end stood at 2,475, up by 29% from 1,925 at the end of our last financial year, representing 12% penetration of the addressable market.
During the year we extended our collaboration with Electronic Medical Records providers and produced digital animations to promote the in-practice use of the optomap® Retinal Exam. We also worked in partnership with Johnson & Johnson, Marco, Officemate and Eyemaginations on an exhibit for practitioners that demonstrated how to deliver the optimum patient experience during an eye health examination. These initiatives were well received at the major optometric and ophthalmic meetings and exhibitions during the year, including the AmericanAcademy of Ophthalmology, the American Optometric Association, the South Eastern Congress of Optometry, Vision Source and Vision Expo East and West. At each of these we secured new customer contracts and extended the contract life of many of our existing customers.
Our existing customer base in North America is comprised primarily of independently owned and operated eye care practices. This customer group remains a priority and the addressable market within this segment continues to hold significant potential. We have also determined that there are commercial opportunities within the corporate optical and eye-care chain customer segment. We have stepped up our efforts to capture new business from within this segment. A National Accounts Group under the leadership of a senior sales director has been established with the remit to secure additional business from within the eye-health focused corporate optometric chains, multiple locations and military establishments.
We signed an agreement with LensCrafters Inc., a leading US-based optical retail chain, where 60 of the optometric practices connected with the 1,200 retail locations owned by LensCrafters and its affiliates installed our P200 device. In the latter part of the year a test-marketing television advertising campaign was launched in the Jacksonville, Florida area by Pearle Vision, a LensCrafters affiliate. This direct consumer campaign focused on presenting the Pearle Vision practitioner as a trusted eye health care provider and has led to increased adoption rates of the optomap® Retinal Exam. We believe that the agreement with LensCrafters Inc. provides us with a valuable commercial platform to generate additional business from within LensCrafters and its affiliates. During the year OptiCare Eye Health & Vision Centers Inc. installed the P200 device in each of its 18 eye-care practices in the state of Connecticut.
7 of the 16 Schools of Optometry now use the P200 device and include the optomap® Retinal Exam as part of the educational training programme and curriculum. Our aim is to have our P200 device in every such institution to ensure that all students entering the profession have had extensive exposure to our P200 device and the optomap® Retinal Exam during their training and before being admitted to practice.
The USA is our largest country market and offers the most potential for us to significantly grow our business. Accordingly, during the year we put in place a number of initiatives designed to capitalise on the US opportunity. In the latter part of the financial year we rolled out a new programme known as Partner Visit Protocol (PVP), which is designed to increase practice revenue by enabling our Customer Focus Teams to work more closely with our customers to integrate the optomap® Retinal Exam deeper into their practices. Customers have welcomed this initiative and we are seeing improved revenue per site in those practices where PVP has been fully implemented.
We have strengthened the commercial and operational teams which we believe will provide us with an improved market focus, stream-lined decision-making and execution for growing our installed base and integrating the optomap® Retinal Exam into both our existing and prospective customer practices. We re-organised the structure of our US organisation into two separate east and west geographic regions. These are now led respectively by a Vice President and supported by Regional Sales and Clinical Managers tasked with maximising the sales and clinical effectiveness throughout each region. We opened a new Distribution and Service Centre (DSC) close to our Marlborough, Massachussets office during the year. This facility provides the space, capability and capacity to support the continued expansion of our business in North America.
Europe
Revenues in Europe grew by 24% to $3.0 million, with $2.3 million generated by our UK business and $0.7 million in Germany. The European marketplace has very different characteristics than its North American counterpart but offers a further source of growth. In the UK the vast majority of eye examinations are carried out in a retail setting by ophthalmic opticians who tend to focus heavily on retail sales and refraction rather than on preventative care. Accordingly we estimate that there is smaller addressable UK market of approximately 400 practices. The market in Germany is comprised entirely of ophthalmologists operating in private practice who carry out primary as well as secondary care. We estimate that the addressable market in Germany stands at approximately 2,500 practices. Our total installed base in Europe at the close of the financial year was 118, up by 40% from 84 at the same time last year, representing over 3% penetration of the addressable market.
In the UK, our focus is on acquiring and retaining top tier optician practices and during the year our activities were geared to this defined customer segment. The optomap® Retinal Exam is marketed and recommended to all patients as a health screening examination requiring patient payment at the point of service. We improved our penetration rate during the year with our installed base growing by 15% to 77, up from 67 at the same time last year. We continued to participate in continuing education conferences and during the year developed and offered a clinical conference series, held in four locations throughout the UK (London, Glasgow, Birmingham and Manchester) with a focus on acquiring new customers. In our existing customer base, we provided ongoing clinical, educational and marketing resources as well as technical assistance to support the practitioner in maximising patient adoption rates of the optomap® Retinal Exam. Developing a closer working relationship with National Health Service (NHS) bodies continues to form part of our approach to the UK market and during the year development work was undertaken within the Primary Care Trust (PCT) network. Our aim is to assist in establishing Primary Eye Care Centres for triaging and patient management. Penetration in the UK stood at 19% of the addressable market at the close of the financial year, up from 17% at the same time last year.
In Germany, we entered our second full year of operation and we made good progress in establishing Optos as a known and credible provider in the eye and health care market. We installed 24 P200 devices during the year bringing the total installed base to 41, an increase of 141%. A key operating objective during the year in Germany was to strengthen our infrastructure. To this end we opened an office in Mannheim and recruited staff with established contacts within the German ophthalmic market. We now have in place a resident Managing Director who is responsible for day-to-day operations in Germany and additional sales and service-focused personnel who have the know-how to deliver on our aggressive objectives in this market. Our sales and marketing efforts also grew in quantity and quality during the year. Penetration in Germany stood at 2% of the addressable market at the close of the financial year, up from less than 1% at the same time last year.
During the year we designed, commissioned and built our European Service Centre to support our expansion plans in Europe in both our existing and targeted new markets. This facility provides additional manufacturing and distribution capacity. We now manufacture three modules of the P200 device and provide distribution facilities to mainland Europe and within the UK. We also offer a refurbishment capability from this site. This has enabled our manufacturing team to make significant progress in improving the quality of our output.
New Markets
At the time of our initial public offering we identified France, Spain and Japan as holding favourable fundamentals for geographic expansion, with an indicative time line of eighteen months for the European markets and some two years for Japan.
The markets in France and Spain are made up primarily of ophthalmologists. As in Germany, these practitioners operate in private practice and carry out both primary and secondary care. Market evaluation to confirm the attractiveness of the fundamentals continued during the year. We test-marketed at the two largest national exhibitions in these country markets: Société Française d'Ophtalmologie (SFO) held in Paris, France in May 2006 and at Sociedad Española de Oftalmología (SEO) in La Coruna, Spain in September 2006. A number of devices have also been placed in ophthalmic practices in both markets to test the suitability of our business model and patient willingness to pay for the optomap® Retinal Exam at point of service. We are assessing the results from our market evaluations to determine the merits of full commercial launch.
Japan is the second largest market in the world for ophthalmic equipment after the USA. Market research continued and a full regulatory filing has been prepared for submission. We expect to initiate pre-market evaluation similar to that carried out in the targeted European expansion markets.
Broadening the Product Offering
Our core product is the optomap® Retinal Exam, which is used in preventative or primary eye and health care and is generally non-reimbursable by insurance or other third-party providers. During the year we continued to invest in research and development in order to strengthen and expand upon our core product offering and provide practitioners with more advanced diagnostic capabilities within the reimbursable, secondary eye and health care market. We have two new products in this area designed to add strengthened dimensions to our product line.
- optomap® plus Medical Retinal Exam allows the practitioner to clearly distinguish between the retinal health check offered by the optomap® Retinal Exam and the monitoring of a known retinal condition, where the interpretation, reporting and documentation of the pathology is more stringent and leads to reimbursement;
- optomap® fa Medical Procedure is generated by the P200MA device, which received European CE marking and US FDA 510k clearance to market earlier this year, and provides retinal specialists with advanced diagnostic, monitoring and treatment capabilities for particular eye disorders, including diabetic retinopathy and age related macular degeneration.
Our new v2.3 software will offer a number of new features to enhance the reviewing capabilities of patient images. We expect this new software will help improve patient education and strengthen the relationship between the patient and the practitioner. The product development team also localised our software to support our strategy of expanding into new geographical markets. Software has been translated into German, French, Spanish, US Spanish and Canadian French.
The intellectual propertyrepresented by our technology platform is comprehensively protected through a portfolio of patents and know-how. Recently we have strengthened and extended this position through aLicence Agreement with the University of Rochester (NY) for the use of adaptive optics in retinal imaging. Adaptive optics may allow for the direct observation of the impact and effectiveness of emerging pharmaceutical therapies for the leading causes of blindness and certain, major systemic diseases.
During the year we continued to work closely with both existing suppliers and also identified new suppliers to manufacture components that meet the exacting standards of our products. As part of our drive to reduce procurement costs we established a long-term programme to source optical components through a local long-term supplier with operations in China.
Maintaining Customer Satisfaction
What we offer assists eye and health care practitioners in detecting disease, saves time, enhances the experience their patients have while having a comprehensive eye examination and builds practice revenue. An 89% customer renewal rate for the full year confirmed our continued progress on this strategic objective.
FINANCIAL REVIEW
Revenues
Revenues increased by 40% from $48.4 million in 2005 to $67.7 million in 2006. Growth was seen in all areas of the business, with the majority of the increase generated in North America, where revenues grew by 41% to $64.7million.
Gross Margins
Gross margins strengthened from 65.0% to 65.6%, reflecting a modest increase in operating margins.
Operating Costs and Operating Profits
The business continued to invest in its field and administrative infrastructure, in both North America and Europe. Average headcount grew by 24% from 173 to 214. Investment in field related expenditures increased by 42% to $13.7 million, and in administrative expenses by 37% to $24.2 million. Operating profit before share based payments increased by 46% from $4.5 million to $6.5 million. Share based payments increased from $1.2 million to $2.2 million, largely driven by the initial public offering in February which accelerated the vesting of certain stock awards and increased the fair value of the Company’s stock. Operating profit after share based payments increased by 32% from $3.3 million to $4.3 million.
Loss on Ordinary Activities before Tax
Finance income increased from $0.1 million to $1.1 million due to interest received on the proceeds from the initial public offering in February. Finance costs comprised mainly interest arising on the company’s vendor financing arrangements, although approximately half the increase seen versus the previous year is due to the IAS32 requirement to impute interest on loan notes repaid at the time of the IPO. Loss on ordinary activities before tax was reduced by 58% from $2.6 million to $1.1 million. At the half year un-audited results reported a loss before tax of $2.6 million, indicating that the Group generated a profit before tax of $1.5 million in the second half of the year. We recently negotiated a lower borrowing margin for our vendor financing arrangements, which is consistent with our ongoing commitment to reducing costs and in improving operational efficiencies across the business. We believe this also reflects an additional level of confidence the providers have in our business model.
Taxation
The Group recognised a deferred tax asset of $11.9 million in the period, relating to the value of historical tax losses incurred by its US subsidiary Optos Inc. This recognition took place after a review of the prospects for that subsidiary and the judgement of the Board that the historical losses that have arisen in that subsidiary now meet the recognition criteria as laid out under IAS12. Historical losses for Optos plc and its two other overseas subsidiaries were not deemed to meet the recognition criteria of IAS12 and remain unrecognised.
Profit / (Loss) for the Financial Year
The Group recorded a profit for the financial year after taxation of $10.8 million versus a loss in the previous year of $2.2 million. This profit reflected both reduced Losses on Ordinary Activities driven by revenue growth described previously, as well as the recognition of historical deferred tax assets in its US subsidiary.
Cashflow
Cashflow from operating activities increased 59% from $16.8 million to $26.7 million. This was driven by the increased scale and operating profitability of the business. Cashflow used in investing activities decreased from $37.1 million to $33.4 million. Under IFRS standards, this includes the capital costs of new P200 devices installed with customers, as well as the value of major stock and spares items previously classified under UK GAAP as inventory. Net cashflows from financing activities were heavily influenced by the initial public offering and listing on the London Stock Exchange in February 2006 and were $49.2 million. Other items within this category relate principally to the net cash movements from the Group’s vendor financing arrangements which reduced significantly from $10.0 million to $(1.1) million. Net cash increased by $41.3 million during the year, with the cash balance at the end of the year finishing at $36.2 million versus a net overdraft of $4.7 million for the prior year.
Balance Sheet
The Group balance sheet strengthened considerably during the year primarily due to the impact of the initial public offering in February 2006. Total Net Assets closed the financial year at $51.3 million compared to net liabilities of $21.0 million at the end of the same period last year. Non Current Assets increased from $72.1 million to $97.4 million. This increase is partly due to increases in property, plant and equipment. In addition the Group recognised an increase in the intangible asset value attributed to product development work, as specified under IAS38. The Group created a provision of $11.9 million in respect of deferred tax assets as specified under IAS12. Total current assets increased considerably due to the cash raised through the initial public offering in February. Total Liabilities reduced due to the repayment of the bank overdraft and conversion of loan stock instruments at the time of the initial public offering. Financial liabilities arising under finance leases increased from $76.1 million to $81.2 million. Total shareholders funds increased from $(21.0) million to $51.3 million.
Outlook
Revenue growth is the primary driver of shareholder value creation. North America will remain our core market and principal focus. Further penetration will be driven by new placements within the independently owned and operated eye-care practice sector and within the corporate retail chain network. We expect to realise additional revenue from our optomap® plus Medical Retinal Exam as we fully integrate this product into our existing and prospective customer base and from of our optomap® fa Medical Procedure. We expect continued growth in Canada and in our European markets, where we will hasten uptake. By deepening our penetration in our existing markets, moving into new markets, strengthening our product offering and always maintaining high levels of customer satisfaction we aim to profitably grow revenues and generate value for our shareholders.
Consolidated Income Statement |
For the year ended 30 September 2006 |
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2006 2005 |
|
|
|
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Cost of Sales (23,304) (16,956) |
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Gross Profit 44,416 31,443 |
Other Income - 321 |
Selling and Distribution costs (13,714) (9,689) |
Administrative expenses (24,216) (17,622) |
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Operating Profit before share based payments 6,486 4,453 |
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Share based payments (2,163) (1,170) |
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Operating profit after share based payments 4,323 3,283 |
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Finance costs (6,541) (5,954) |
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Loss from continuing operations before Taxation (1,100) (2,593) |
Income tax credit 3 11,907 396 |
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Net Profit/(Loss) for the year |
attributable to Equity Holders of the parent 10,807 (2,197) |
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Profit/(Loss) per ordinary share |
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