Optos plc ("Optos" or "the Company") Preliminary Results for the Year-Ended 30 September 2007
11/29/2007
LONDON, 29 November 2007 – 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 2007. All numbers are denominated in $USD which is the Company’s reporting currency and prepared under International Financial Reporting Standards (IFRS).
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Year-ended 30 September 2007
(audited)
$M
|
Year-ended
30 September 2006
(audited)
$M |
%
Change |
|
Revenue |
$86.8 |
$67.7 |
28% |
|
Operating profit before share-based payments |
$9.8 |
$6.5 |
52% |
|
Operating profit after share-based payments |
$6.5 |
$4.3 |
50% |
|
Profit / (loss) before tax |
$1.6 |
($1.1) |
n/m |
|
(Loss) /profit after tax |
($0.2) |
$10.8 |
n/m |
|
EPS Basic before tax (cents) |
2.4 |
(1.9) |
n/m |
|
EPS Basic after tax (cents) |
(0.3) |
18.5 |
n/m |
|
Cash flow from operating activities |
$31.6 |
$26.7 |
19% |
Group Highlights
§ Financial Performance:
- 28% increase in revenue to $86.8 million (2006: $67.7 million)
- 52% increase in operating profit before share-based payments to $9.8 million (2006: $6.5 million)
- 50% increase in operating profit after share-based payments to $6.5 million (2006: $4.3 million)
- $1.6 million profit before tax versus a loss of $1.1 million in 2006
- 19% increase in cash from operating activities to $31.6 million (2006: $26.7 million)
§ Operational Progress:
- 3,367 total pay-per-patient and capital customer locations - 89% contract renewal rate
- 3,266 pay-per-patient customer locations, up by 26% from 2,593 in 2006
- 673 devices installed on a pay-per-patient basis and 58 on capital basis during the year
- 4 million optomap® Retinal Exams
- New European geographic markets (France, Spain, Switzerland, Norway)
“Strong levels of new business in all of our markets and improvement in the base cost line generated an excellent set of results for 2007. We are very pleased that our technology is used as a standard of care measure in primary care and that the prospects for our new P200MA device in the medical care market are so promising,” said Thomas W. Butts, Chief Executive Officer. “The ultra wide-field image of the retina that our devices capture responds directly and uniquely to the demographic and lifestyle trends that are raising certain eye and non-eye diseases, including diabetes, to epidemic levels. 2008 will be another exciting year for Optos.”
For the year ending 30 September 2008, Optos expects revenue growth of between 20% - 25% over the $86.8 million generated in 2007 and for contract renewal rates to be at least consistent with the Company’s longer term target of 85%.
Management will host a meeting for analysts at 09h30 GMT today at the offices of Goldman Sachs International, Peterborough Court, 133 Fleet Street, London EC4A 2BB. Analysts wishing to attend should contact Yvonne Alexander, Citigate Dewe Rogerson, +44 (0)20 7638 9571. An audio replay of the preliminary results presentation will be available for 30 days following the announcement. This will be accessible on +44 (0)20 7806 1970 (UK Toll), or +00 (1) 718-354-1112 (USA Toll), through the replay access code: 6652346#.
Enquiries:
Optos plc |
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John McNeil, Director of Communications & Assistant Company Secretary |
+44 (0)1383 843 337
+44 (0)7870 240 325 |
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 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.
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 for the Year-Ended 30 September 2007
OVERVIEW
Strong levels of new business in all of our markets, with sustained growth in North America and excellent levels of underlying growth in Europe, underlined an excellent performance in 2007. Revenue for the year was $86.8 million, up from $67.7 million or by 28% over last year. Revenue is generated primarily on a pay-per-patient examination basis from the sale of the optomap® Retinal Exam by the practitioner to the patient, with an agreed minimum monthly usage level. We delivered a full year profit before tax on ordinary activities of $1.6 million for the year versus a loss of $1.1 million last year. Profit before tax has now been reported in each of the last three consecutive six-month reporting periods. An 89% contract renewal rate demonstrated continued high levels of customer satisfaction and provides confirmation of the reliability of our revenue model. Overall, our results for 2007 extend our track record of executing on our stated growth plan and provide a considerably stronger foundation for continued progress in 2008.
FINANCIAL REVIEW
Revenues
Revenue increased by 28% from $67.7 million in 2006 to $86.8 million in 2007, representing continued growth across the business. North America generated revenue of $82.2 million, which represented growth of 27% over last year. Europe generated revenue of $4.7 million, up by 57% over the previous year and driven by a 183% year over year uplift in Germany to $2.1 million. Approximately 90% of revenue was generated through pay-per-patient customer contracts, which provides a high rate of recurring revenue looking out. The balance of revenue generated during the year was derived from capital sales.
Gross Margins
Gross margins weakened slightly from 65.6% to 65.1%, reflecting a modest reduction in operating margins.
Operating Costs and Operating Profits
The Company continued to invest in its field and administrative infrastructure in North America and Europe by growing headcount. This is designed to develop and capture new business and strengthen back office support, which will enhance customer service and satisfaction levels and support business expansion. A 67% year over year increase in R&D investment to $3.7 million will support a broadened product offering in the Company’s markets. The majority of this investment met the recognition criteria for capitalisation as an intangible under IAS 38, as well as further investments in longer term research which was fully expensed. Average headcount grew by 23% from 214 to 264. Investment in field-related expenditures increased by 37% to $18.7 million, and in administrative expenses by 16% to $28.0 million. Operating profit before share-based payments increased by 52% from $6.5 million to $9.8 million. Share-based payments increased from $2.2 million to $3.4 million, largely as a result of the award to Thomas W. Butts in January 2007 following his appointment as Chief Executive Officer. The Company also made a number of awards in May 2007, following announcement of its interim results, under its shareholder-approved long term incentive and share option plans. Operating profit after share-based payments increased by 50% from $4.3 million to $6.5 million.
Profit on Ordinary Activities before Tax
The Group made a profit on ordinary activities before tax of $1.6 million versus a loss of $1.1 million during the prior year, and has now delivered three consecutive six-month periods of profit before tax.
Taxation
Following the recognition of $11.9 million deferred tax asset in 2006, the Group has recognised a $1.8 million charge in respect of US profits during the period. In cash terms, the Group incurred only $0.1 million of taxes, levied from certain minimum federal and state taxes in the US. Losses for the Company and its two other overseas subsidiaries were not deemed to meet the recognition criteria of IAS12, and therefore remain unrecognised.
Profit / (loss) for the Financial Year
The Group recorded a loss for the financial year after taxation of $0.2 million versus a profit in the previous year of $10.8 million. This profit reflects the impact of deferred tax recognition policies and masks the underlying improvement in profit demonstrated by the $1.6 million profit before tax described above.
Cash Flow
Net cash flow from operating activities increased by 19% versus prior year at $31.6 million. This was delivered by the increased scale and operating profitability of the business, off-set by short term investments in working capital. Cash flow used in investing activities increased from $33.4 million to $41.1 million, largely due to investments in property, plant and equipment. The majority of this investment represents the costs of new P200 devices installed in the field under pay per patient agreements, which will deliver revenues in future periods. In addition to this, part of this increase also reflected higher inventory levels of major spares related to the Group's P200 assets, which due to IAS 16 are classified as fixed assets as opposed to inventory. Net cash flows from financing activities resulted in a $5.5 million outflow of cash, consistent with the Group's strategy following its initial public offering of making net repayments in vendor finance obligations during the year. Net cash decreased by $15.1 million during the year to a year-end cash balance of $21.1 million, reflecting the Group’s continued investment in growing the business since its initial public offering in February 2006.
Balance Sheet
The Group balance sheet strengthened during the year from $51.3 million to $57.6 million. The increase in total assets was partly due to the continued expansion of the Group's installed base of P200 devices, along with investments in product development and working capital. The Group's asset of $11.9 million in respect of deferred tax assets reduced as the item was part expensed through profit. Total liabilities remained flat versus prior year at $93.9 million, and within that outstanding vendor finance liabilities was reduced from $81.2 million to $78.0 million. Total shareholders’ funds increased from $51.3 million to $57.6 million of which $4.4 million relates to the issue of share capital on the exercise of options.
OPERATIONAL REVIEW
Growth in Established Markets
We continued to generate strong returns in our established markets in North America and Europe within the primary care customer segment, with very good returns in the USA and Germany. Total installs on a pay-per-patient basis was 673 devices for the year, growing the pay-per-patient customer number to 3,266 across the Group, up from 2,593 at the end of the same period last year and representing 26% year over year growth. An additional 58 devices were installed on a capital sales basis during the year. This brings the total number of devices that have been installed on a capital sales basis to 101, representing 3% of the Group’s total installed base of 3,367 devices at the end of the financial year. Recurring revenue continues to be generated from the devices installed on a capital basis through service and upgrade agreements. The continued growth in our installed base demonstrates a high level of confidence healthcare practitioners have in our technology to assist them in delivering state of the art, efficient and thorough patient care. During the year, approximately 4 million pay per patient eye exams were performed by our devices. This was largely made up of the optomap® Retinal Exam and augmented slightly by our newer optomap® plus Medical Retinal Exam, which we introduced to the customer base over the course of the year. Year over year growth in the total number of pay-per-patient eye exams was 19%.
North America
North America continues to present the largest opportunity for sustained growth within the primary care customer segment. We estimate that there are 20,000 addressable practices in the United States and 1,300 addressable practices in Canada. Once again, our results in North America for the year were strong. Revenue was up by 27% on the year, from $64.7 million to $82.2 million. We generated $75.9 million in the United States, up from $59.3 million last year and representing 28% growth in what is our largest country market. Canada, which has a much smaller addressable market, recorded $6.2 million in revenue, representing modest year over year growth of 15% from $5.4 million last year. Our pay-per-patient installed base in North America grew by 24% to 3,072 devices, up from 2,475 at the same time last year. In the United States, we installed 571 devices in new customer practice locations during the year, taking our installed base from 2,324 to 2,895 devices and representing 25% year over year growth. This represents approximately 14% penetration of the total US addressable market in primary care optometry.
Our National Accounts Group continued focus on developing new business within the corporate customer retail chain segment, at both the regional and national levels. We developed a stronger commercial relationship with Pearle Vision, a leading national US-based chain and wholly-owned subsidiary of Luxottica S.p.A. Pearle Vision maintains a strong clinical focus in the primary care segment throughout its network of owned and franchised customer locations. To support its clinical focus Pearle Vision launched direct consumer television and print-based advertising campaigns in several of its designated marketing areas throughout the United States. These campaigns were rolled out to coincide with the installation of the P200 device in Pearle Vision locations within these defined geographic areas and promoted the importance of the optomap® Retinal Exam as a key component of every comprehensive eye examination. We look forward to strengthening our presence within Pearle Vision and other corporate customer locations in 2008.
Primary care optometry offers the largest commercial opportunity in the United States and during the year Optos continued to work closely with the national governing body, the American Optometric Association (AOA), on a number of outreach and educational initiatives. We increased our institutional presence in a number of different ways during the year, within schools of optometry, through developing new channels for diabetic screening, and within the US military and the US Olympic Committee.
Installing our device in schools of optometry where the optomap® Retinal Exam becomes part of the curriculum and educational training programme ensures that all students entering the profession will have had extensive exposure to what we offer before being admitted professionally to practice. Our device is being used in these institutions to facilitate patient care and to assist students in the recognition of retinal conditions and abnormalities.
There are an estimated 20 million diabetic patients in the United States. Diabetes is a chronic disease that leads to blindness and requires regular screening. Our technology is supporting diabetic screening programmes, including at the University of Virginia (UVa) Health System. The University of Virginia Health System is a nationally renowned academic medical centre committed to providing outstanding patient care, educating tomorrow's health care leaders, and discovering new and better ways to treat diseases. Diabetes is a prevalent condition amongst the clinic’s patients, with approximately 2,000 diabetic patients served by the outpatient clinic.
Our P200 device is now being used at a number of US Military Air Force (USAF) bases - these include in the states of Ohio, Florida, Arizona, California and Arkansas. It has been estimated by the USAF that upwards of 60,000 person-hours have been saved from lost flying time by using the optomap® Retinal Exam as opposed to a dilated-only examination process. The US military operates a capital purchase programme and our devices were sold on a capital as opposed to being installed on our core pay-per-patient basis. The optomap® Retinal Exam has also been integrated by the United States Olympic Committee in its health and wellness screening programme of US Olympic athletes at the Committee’s national training centre in Colorado Springs.
Our strong relationships with existing customers and the sustainable initiatives we have in place to drive new installs and increase the number of pay-per-patient examinations will provide us with a stronger platform for continued growth in North America in primary care. We also expect to capture share in the secondary care segment through the optomap® plus Medical Retinal Exam and in the medical care market with the optomap® fa Medical Procedure.
Europe
Market characteristics in Europe vary from country to country and are considerably different from North America. The vast majority of eye examinations in the UK are carried out in a retail setting by ophthalmic opticians who tend to focus heavily on retail sales and refraction as opposed to preventative eye and health care. Germany is a pure ophthalmology market where ophthalmologists carry out both primary and secondary eye and health care in a clinical setting. On this basis we estimate that there are approximately 400 addressable practices in the UK and 2,500 addressable practices in Germany.
The business had an exceptional year in Europe, driven by accelerated growth in the UK and aggressive growth in Germany. We recorded $4.7 million in revenue from our European operations for the year, up from $3.0 million last year and representing 57% growth. Our UK business unit returned $2.6 million in revenue for the year, up by 15% from $2.2 million last year. Germany generated $2.1 million in revenue compared to $0.7 million last year, representing 183% year over year growth. Our pay per patient installed base in Europe grew by 64% to 194 devices, up from 118 at the same time last year. We grew our UK installed base by 25% and closed the year with 96 devices, up from 77 at the end of our last financial year. This represents approximately 25% of the UK addressable market. Germany delivered tremendous growth for the year, with installs up by 139% to close the year with 98 devices compared to 41 devices at the same time last year.
A significant development in Germany during the year was entering into a cooperation agreement with Bundesverband der augenärztlicher Diagnostik Centren (BADC) which is the Federal Association of Eye Diagnostic Centres. BADC is the most influential body in eye care in Germany and is comprised of approximately 110 Ophthalmic Diagnostic Centres (ADC) which together are staffed by approximately 1,200 ophthalmologists. BADC works on the basis of evidenced based medicine and acts as a ‘buying group’ with the objective of purchasing and integrating the most innovative diagnostic devices into its shared network of ophthalmologists to provide the best medical treatment possible for its patients. Our objective with the BADC is to have our device in each individual BADC member ophthalmology practice and have the optomap® Retinal Exam offered as the first part of every eye examination that is performed. Patients with pathology would then be referred to one of the ADC’s for advanced diagnostic assessment and procedures. Optos has a co-marketing agreement with the BADC where the optomap® Retinal Exam is promoted to all of its member ophthalmologists.
Our progress overall in Europe was to plan. Looking ahead, we will continue to grow our penetration in the UK by targeting primary care customer locations that are sufficiently clinically focused and large enough to integrate our device and the optomap® Retinal Exam into the practice. Germany, however, is our core European market for growth. Germany presents the business with an opportunity to deliver our ultra wide-field exam in each of the primary, secondary and medical care markets. Our agreement with BADC accords us a unique position with thought-leaders in the German ophthalmology marketplace. Examination on pay-per-patient basis accounts for approximately 90% of the German market, which is aligned with, and supports, our business model.
New Markets
Market research and trial placement of our devices were completed in a number of new geographic markets during the year, after which we announced our plans to expand into four new European country markets - France, Spain, Switzerland and Norway. These are four very different but exciting new markets in terms of growing our presence and share of the eye and health care market across Europe. The estimated combined immediate addressable market for these new country markets is 770 practice locations to add to the estimated addressable market of 2,900 practice locations in the UK and Germany. We will continue to market and distribute direct to customers and will install our retinal imaging devices primarily using our pay-per-patient model in the new markets.
France and Spain are made up primarily of ophthalmologists. As in Germany, practitioners operate in private practice and carry out both primary and secondary care. Growth will initially be generated from within the advanced secondary and medical health care market, which we estimate has a combined immediate addressable market of 320 retinal specialist locations. We will look to progress to an offering within the primary care market through ophthalmologists operating in private practice once a foothold has been established in the secondary and medical care market segment. Switzerland is a pure ophthalmology market with ophthalmologists carrying out primary to secondary and medical care. The immediate addressable market has been estimated at 250 private medical practices. Norway represents an opportunity for growth in the primary and preventative care market carried out by optometrists. The immediate addressable market is approximately 200 optometric practice locations.
Japan is the second-largest market in the world for ophthalmic equipment after the United States. Our market research continued during the year and a full regulatory filing and company registration has been completed. Pre-market evaluation was initiated in the 2007 and a decision on commercial launch will be taken in 2008.
New Product Development
We expanded our product range into the secondary care market by rolling-out the optomap® plus Medical Retinal Exam during the year. This exam offers practitioners additional capabilities in the image capture and review process to facilitate diagnosis and documentation of previously detected pathology. The pre-market evaluation of our P200MA device at evaluation sites in the USA and Germany was completed. The P200MA is a new imaging platform that will generate the optomap® fa Medical Procedure. Full commercial launch of our P200MA device and the optomap® fa Medical Procedure is scheduled for the second quarter of the 2008 financial year.
We completed the roll-out of the latest version of our proprietary software - V2® Vantage - to our existing customer base during the year. The new features offer innovative clinical advancements and enhancements for both the practitioner and the patient. ResMax™ is a high resolution enhancement of the central pole over a smaller field of view. This feature has been extremely useful for diseases affecting the central pole such as glaucoma and age-related macular degeneration. 3DWrap™ is a patient orientation tool that allows the practitioner to create a three dimensional representation of the human eye on to which the patient’s image from the optomap® Retinal Exam is projected. This graphical capability allows for a complete visualisation of the shape and location of disease. Our new software and its core features are proving particularly helpful to our customers carrying out secondary care with our optomap® plus Medical Retinal Exam, which provides access to reimbursement and enables practitioners to monitor known disease conditions. V2® Vantage delivers on our promise within our customer partnership agreements to keep our customers on the leading edge of retinal imaging technology.
We invested in establishing a Clinical Trials team during the year to support existing and new products. This team will allow us to generate high quality clinical data to leverage growth in sales and expand into new therapeutic areas. It will also allow us to generate evidence in ophthalmology to support the clinical benefits and value statement of our optomap® fa Medical Procedure. Publications in peer reviewed journals to support and expand our product life cycle are another priority for this new team.
Customer Satisfaction
An 89% contract renewal for the full year is unchanged from 2006. Working towards delivering world-class levels of customer service is a strategic business imperative. As more eye care practitioners integrate the optomap® Retinal Exam into their practices we know that in order to continue to meet this imperative that we needed to strengthen our customer service capabilities. We did this in North America during the year by re-organising our clinical, sales, and customer service functions with the objective of delivering world-class customer service. We created a structure of highly skilled, dedicated teams that will help drive satisfaction and performance among our customer base. The changes will ensure our operational efficiencies are capable of meeting the demands of a growing customer base.
Outlook
Preventative eye and health care regimes are not simply a matter of avoiding emergency problems; they are an essential tool in the earlier detection, treatment and management of disease. Our aim is to ensure that the optomap® Retinal Exam becomes the accepted standard of care in primary care. In those patient examinations where pathology exhibits our optomap® plus Medical Retinal Exam provides practitioners with additional capabilities in the image capture and review process. This facilitates diagnosis and documentation. This new product was rolled out to our customer base in North America in 2007 and usage is expected to increase substantially in the coming financial year. A full commercial launch of the P200MA and the optomap® fa Medical Procedure is planned in early 2008. This is a very exciting new imaging platform that holds much promise, particularly for diabetic patients and how doctors will be able to treat the disease in a much more targeted and efficient way. This will result in significantly improved patient outcomes. We are very pleased that our technology is used as a standard of care measure in primary care and that the prospects for our new P200MA device in the medical care market are so promising. 2008 will be another exciting year for Optos.
Thomas W. Butts, Chief Executive Officer
Allan M. Watson, Chief Financial Officer
Consolidated Income Statement
For the year ended 30 September 2007
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2007 |
2006 |
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$’000 |
$’000 |
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Revenue |
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86,831 |
67,720 |
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Cost of sales |
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(30,297) |
(23,304) |
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