Interim Results
Omega Diagnostics Group PLC
07 December 2007
OMEGA DIAGNOSTICS GROUP PLC
('Omega' or the 'Company')
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Omega, which supplies a wide range of immunoassay-based products, announces
interim results for the six months ended 30 September 2007.
Omega operates in niche markets, primarily in infectious diseases (including
Syphilis, TB, Dengue Fever, Chagas disease and Malaria), food intolerance
testing and autoimmune diseases (including anaemia, connective tissue disease
and renal disease). Omega has a strong distribution network in over 100
countries.
Financial Summary:
6 months 6 months
30 September 30 September
2007 2006
Revenue 1,147,777 1,009,211
Gross profit 503,346 432,328
Operating loss (92,369) (77,340)
Loss before tax (132,643) (335,197)
Loss per share (basic and diluted) 2.4p 20.7p
Interim Highlights:
• Omega's first acquisition, of Gensis Diagnostics Ltd and Cambridge
Nutritional Sciences Ltd, completed on 3 September 2007 for an
intitial consideration of £5.7m.
• £2.2m new equity (before expenses) raised via a cash placing of
7,333,333 New Ordinary Shares at 30p a share.
• Appointment of Dr Mike Walker as a new Non-Executive Director
• Acquisition furthers Omega's strategy to become a leading in-vitro
diagnostics company and to grow through selective acquisitions.
• Net cash at the period end of £444,114.
Regarding outlook, David Evans, Chairman, said:
'In the two months since the period covered by this statement, the Group has
achieved sales of around £800,000 and the Board is confident in its continued
prospects and the positive outlook for the remainder of the year and beyond.'
Contacts:
Omega Diagnostics Group PLC Parkgreen Communications Ltd
Tel: 01259 763 030 Paul McManus
Andrew Shepherd, Chief Executive Tel: 020 7479 7933
Kieron Harbinson, Finance Director Mob: 07980 541 893
www.omegadiagnostics.com paul.mcmanus@parkgreenmedia.com
Chairman's Statement
Dear Shareholder
I am pleased to be able to report on good progress for the Group in the first
half of the year that gives us a degree of confidence for the full year outcome.
Strategy
On 3 September 2007, the Group completed its first acquisition since becoming a
public Company in September 2006 with the acquisition of Genesis Diagnostics Ltd
('Genesis') and Cambridge Nutritional Sciences Ltd ('CNS'). Genesis manufactures
and sells a range of products testing for allergy and food intolerance,
autoimmune disorders and infectious diseases. CNS provides a laboratory service
for food intolerance and certain other diseases. This acquisition provides a
good opportunity for the Group to provide additional products through the
extensive Omega distribution network and there are early encouraging signs of
interest in the enlarged product offering.
Ultimately, of greater strategic importance, the products that use the acquired
macro and microarray technologies have shown good sales growth since Genesis was
first identified as an acquisition opportunity and the Board is confident in the
ability of these products to deliver further growth. As I mentioned in the
Annual Report, these technologies also offer applicability across other disease
states, and the strategy will involve expansion of the number of assays that can
be performed on these platforms.
The Board shares your disappointment in the performance of the Company's share
price since the acquisition was completed but we are confident that we have now
laid the foundations from which we can begin to deliver shareholder value and as
and when appropriate we will continue to look for further suitable acquisition
opportunities.
Financial
The results for the period include the contribution for one month of trading
from Genesis and CNS since completion of the acquisition. The Income Statement
separately highlights the results of acquisition but I would draw your attention
to the section entitled International Financial Reporting Standards below for a
full understanding of the financial benefits of the acquisition.
Revenue for the period increased by just under 14% to £1,147,777 (2006:
£1,009,211) as the benefit of the acquisition immediately began to impact. Gross
margin also increased by one percentage point to 43.9% (2006: 42.8%). The
improvement in gross margin is expected to continue for the rest of the year as
the mix of higher margin Genesis and CNS products takes effect (see below under
IFRS).
Administration costs increased to £595,715 (2006: £391,816). This was due mainly
to the increased costs of being a public company for the whole of the period
under review compared to very little by way of equivalent costs in the prior
period due to the timing of becoming a public company. The acquisition has added
£91,737 in the period.
The loss for the period has reduced to £116,417 (2006: £335,197) representing a
loss per share of 2.4p (2006: loss per share of 20.7p). Net cash at the period
end was £444,114 (2006: £480,431) and follows the successful placing of
7,333,333 ordinary shares at 30p per share to part-fund the acquisition. The
expenses of the share issue amounted to £445,889. In addition, the Group raised
new debt of £1.2 million from its principal banker, Bank of Scotland. These
funds were used to repay older loans totalling £60,250 with the balance being
used towards the acquisition cost.
International Financial Reporting Standards ('IFRS')
The acquisition of Genesis and CNS has been accounted for under IFRS3 Business
Combinations and a full explanation is given in note 2 to this Interim Report.
However, the Standard requires that certain stock items acquired be valued using
selling prices as opposed to cost prices. Whilst the Standard does allow a
deduction in value to be made for certain costs and an element of profit, the
effect has been to increase the value of stock acquired by £49,720 over and
above the value that would have applied if cost price had been used. Since these
stock items were then sold by 30 September, this increased cost of sale has been
charged within the separately identified 'acquisitions' column of the Income
Statement. Excluding this increased cost, the result for Genesis and CNS for the
one month since acquisition would have been a profit before tax of £72,245.
Research and Development
The Group has successfully completed its internal evaluations of its new test
for Herpes Simplex Virus Type 2 infections. The results of an external
evaluation are still awaited before the Group can formally launch the new
product. The acquisition of Genesis has expanded the development capacity of the
Group and I look forward to being able to report on further developments in the
future.
Outlook
In the two months since the period covered by this statement, the Group has
achieved sales of around £800,000 and the Board is confident in its continued
prospects and the positive outlook for the remainder of the year and beyond.
David Evans, CA
Non-Executive Chairman
6 December 2007
Consolidated Income Statement
for the six months ended 30 September 2007
6 months to
30 Sept 2007 6 months to 6 months to 6 months to
Ongoing 30 Sept 2007 30 Sept 2007 30 Sept 2006
operations Acquisitions Total Total
£ £ £ £
Continuing operations
Revenue 953,865 193,912 1,147,777 1,009,211
Cost of Sales (564,303) (80,128) (644,431) (576,883)
Gross Profit 389,562 113,784 503,346 432,328
Administration Costs (503,978) (91,737) (595,715) (391,816)
Other income - government grants
and related assistance - - - 7,015
Exceptional administration costs - - - (124,867)
Operating (loss)/profit (114,416) 22,047 (92,369) (77,340)
Finance Costs (47,253) (261) (47,514) (14,174)
Finance Revenue - interest
receivable 6,501 739 7,240 -
Exceptional items - goodwill - - - (243,683)
(Loss)/profit before taxation (155,168) 22,525 (132,643) (335,197)
Tax credit - 16,226 16,226 -
(Loss)/profit for the period (155,168) 38,751 (116,417) (335,197)
Loss per share - basic and diluted (2.4p) (20.7p)
Consolidated Balance Sheet
as at 30 September 2007
At 30 Sept 2007 At 31 Mar 2007 At 30 Sept 2006
£ £ £
Assets
Non-current assets
Intangibles 5,046,917 - -
Property, plant and equipment 617,321 107,995 84,969
Deferred taxation 58,464 58,464 57,057
5,722,702 166,459 142,026
Current assets
Inventories 654,870 263,637 259,209
Trade and other receivables 913,617 746,108 477,797
Cash and cash equivalents 463,302 634,651 798,153
2,031,789 1,644,396 1,535,159
Total assets 7,754,491 1,810,855 1,677,185
Equity and liabilities
Issued capital 4,415,997 1,234,296 1,280,558
Retained earnings (1,299,469) (1,183,052) (471,204)
Total equity 3,116,528 51,244 809,354
Liabilities
Non current liabilities
Long term borrowings 2,304,558 27,383 18,650
Other financial liabilities 708,100 705,112 91,281
Deferred taxation 584,973 - -
Total non current liabilities 3,597,631 732,495 109,931
Current liabilities
Short term borrowings 259,188 289,698 385,923
Trade and other payables 781,144 737,418 371,977
Total current liabilities 1,040,332 1,027,116 757,900
Total liabilities 4,637,963 1,759,611 867,831
Total equity and liabilities 7,754,491 1,810,855 1,677,185
Consolidated Statement of Changes in Equity
for the six months ended 30 September 2007
Share Share Retained
capital premium earnings Total
£ £ £ £
Balance at 1 April 2006 80,036 156,476 (169,593) 66,919
Reverse acquisition capital adjustment 265,451 - - 265,451
Issue of share capital 514,688 263,907 - 778,595
Loss for the period - - (335,197) (335,197)
Share-based payments - - 33,586 33,586
Balance at 30 September 2006 860,175 420,383 (471,204) 809,354
-
Expenses in connection with share issue - (46,262) - (46,262)
Loss for the period - - (804,621) (804,621)
Share-based payments - - 92,773 92,773
Balance at 31 March 2007 860,175 374,121 (1,183,052) 51,244
Issue of share capital 471,782 2,709,919 - 3,181,701
Loss for the period - - (116,417) (116,417)
Balance at 30 September 2007 1,331,957 3,084,040 (1,299,469) 3,116,528
Consolidated Cash Flow Statement
for the six months ended 30 September 2007
6 months to 30 6 months to 30
Sept 2007 Sept 2006
£ £
Cash flows generated from operations
Loss for the period (116,417) (335,197)
Adjustments for:
Goodwill write off - 243,683
Taxation (16,226) -
Finance costs 47,514 14,174
Finance income (7,240) -
Operating loss before working capital movement (92,369) (77,340)
Decrease/(increase) in trade and other receivables 409,949 (14,895)
Decrease/(increase) in inventories 37,086 (911)
(Decrease)/increase in trade and other payables (252,451) 81,752
Government grant amortisation - (2,667)
Depreciation 17,369 14,332
Amortisation of intangible assets 8,229 -
Share-based payments - 33,586
Net cash flow from operating activities 127,813 33,857
Investing activities
Finance income 7,240 -
Purchase of property, plant and equipment (131,191) (7,660)
(Outflow)/inflow on acquisition of subsidiary (2,896,258) 21,767
Net cash (used)/from investing activities (3,020,209) 14,107
Financing activities
Finance costs (47,514) (14,174)
Proceeds from issue of share capital 1,754,111 778,595
New loans 1,324,826 -
Loan repayments (72,733) (34,100)
Net cash from financing activities 2,958,690 730,321
Net increase in cash and cash equivalents 66,294 778,285
Cash and cash equivalents at beginning of period 377,820 (297,854)
Cash and cash equivalents at end of period 444,114 480,431
Notes to the Interim Report
for the six months ended 30 September 2007
1. Basis of Preparation
For the purpose of preparing the March 2007 Annual financial statements the
Directors opted to use IFRS as adopted by the EU in advance of the requirements
by the AIM Rules that apply to the current financial year. In preparing these
interim financial statements, the same accounting policies have been used as set
out in the Group's Annual Report for the year ended 31 March 2007. The Group has
not applied IAS 34 Interim Financial Reporting, which is not mandatory for AIM
companies, in the preparation of these interim financial statements. As a result
of the current period's business combination, the following additional
accounting policies have been applied.
Intangible Assets
Intangible assets acquired as part of a business combination are recognised
outside goodwill if the asset is separable or arises from contractual or other
legal rights and its fair value can be measured reliably. Following initial
recognition at fair value at the acquisition date, the historic cost model is
applied, with intangible assets being carried at cost less accumulated
amortisation and accumulated impairment losses. Intangible assets with a finite
life have no residual value and are amortised on a straight line basis over the
expected useful lives with charges included in administration costs, as follows:
• Technology assets - 20 years
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable.
Basis of Consolidation
The Group financial statements consolidate the financial statements of Omega
Diagnostics Group PLC and the entities it controls (its subsidiaries).
Subsidiaries are consolidated from the date of acquisition, being the date on
which the Group obtains control, and continue to be consolidated until the date
that such control ceases. The financial statements of the subsidiaries used in
the preparation of the consolidated financial statements are based on consistent
accounting policies. All inter-company balances and transactions, including
unrealised profits arising from them, are eliminated. The format of the
consolidated income statement presented in these interim financial statements is
that which will be adopted in the financial statements for the current year.
This differs from that used in the Group's 2007 Annual Report. The revised
format, which includes a separate column showing the results of the acquisition
made in the current year separately from ongoing operations, has been adopted as
it presents information in a format that is more relevant to users of the
financial statements.
The interim financial statements are unaudited but have been formally reviewed
by the auditors and their report which is unqualified will be published in the
Interim Report to be sent to shareholders. The information shown in the
consolidated balance sheet as at 31 March 2007 does not constitute statutory
accounts as defined in Section 240 of the Companies Act 1985 and has been
extracted from the Group's 2007 Annual Report which has been filed with the
Registrar of Companies. The report of the auditors on the financial statements
contained within the Group's 2007 Annual Report was unqualified and did not
contain a statement under either Section 237 (2) or Section 237 (3) of the
Companies Act 1985.
These interim financial statements were approved by the Board of Directors on 6
December 2007.
2. Business Combination
Acquisition of Genesis Diagnostics Ltd and Cambridge Nutritional Sciences Ltd.
On 3 September 2007, the Group acquired 100% of the voting shares of Genesis
Diagnostics Ltd ('Genesis') and Cambridge Nutritional Sciences Ltd ('CNS'), both
unlisted companies based in Cambridgeshire, UK. Genesis is an established
business in the medical diagnostics industry developing, producing and selling a
range of test kits specialising in the areas of autoimmune disease, infectious
diseases and food intolerance. CNS provides a testing service for food
intolerance and some other diseases.
The acquisitions have been accounted for using the purchase method of accounting
and the interim consolidated financial statements include the results of Genesis
and CNS for the one month period from the acquisition date. The provisional fair
values of the identifiable assets and liabilities of Genesis and CNS as at the
date of the acquisition were:
Genesis CNS book Fair value
book value value adjustments Total
£ £ £ £
Intangible assets - - 1,975,000 1,975,000
Property, plant and equipment 211,947 31,139 152,418 395,504
Inventories 373,599 5,000 49,720 428,319
Trade and other receivables 544,916 72,599 - 617,515
Cash and cash equivalents 168,921 213,152 - 382,073
Borrowings (45,500) - - (45,500)
Trade and other payables (128,298) (16,925) (30,000) (175,223)
Deferred tax liability - - (601,199) (601,199)
Net Assets 1,125,585 304,965 1,545,939 2,976,489
Goodwill on acquisition 3,080,146
6,056,635
Fair value of consideration 5,978,303
Acquisition costs 78,332
6,056,635
Valuation of Acquired Intangible Assets
The valuation of acquired intangible assets has been performed in accordance
with recognised industry standards. Intangible assets, which have been
separately identified from goodwill, comprise the technology assets of the
microarray, macroarray and microplate. Where necessary, the Group has consulted
with independent external valuation experts in determining fair value and has
assessed the net present value of future cash flows from these assets using the
relief-from-royalty method. A discount rate of 14% has been used as representing
the Group's weighted average cost of capital.
Inventories
The fair value adjustment to inventories of £49,720 represents the uplift in
value of the acquired finished goods in Genesis as required by IFRS3, which
states that finished goods should be valued at selling prices less costs to sell
and less a reasonable profit allowance. The increased value should then be
recognised as a charge through cost of sales in the Income Statement to match
with when the finished goods are sold. Since all the finished goods at the
acquisition date were sold by 30 September, cost of sales for Genesis and CNS
for the one month of September includes this additional charge.
Cost of the Acquisition
The total acquisition cost of £6,056,635 comprised a cash payment of £3,200,000,
4,461,220 shares in the Company with a fair value of £1,427,590 based on the
market price at acquisition, loan notes totalling £1,100,000 discounted to a
fair value of £959,539, an earn-out based on the future performance of certain
products, estimated at £400,000 discounted to a present value of £329,540, a
deferred cash payment of £61,634 payable 12 months after completion and
acquisition costs of £78,332. The earn-out accrues at 7% of sales of the
relevant products over the three year period from 1 November 2006 to 31 October
2009, and is payable in three annual instalments once amounts are finally
agreed.
Funding
To fund the cost of the acquisition, the Group raised £2,200,000 (before
expenses of £445,889) via the placing of 7,333,333 new ordinary shares at a
price of 30p per share. In addition, the Group borrowed £1.2 million under a
senior term loan facility from its principal banker, repayable over five years.
The loan carries interest at 2.5% over base rate for the first year and may fall
to 2% over base rate thereafter provided the Group remains within agreed
covenants. The vendors of Genesis and CNS were issued loan notes of £1,100,000
repayable in three equal instalments on anniversary dates in 2013, 2014 and
2015. Interest accrues at base rate and is payable with the final instalment.
Cash Outflow on Acquisition
£
Net cash acquired with Genesis and CNS 382,074
Acquisition costs (78,332)
Cash paid (3,200,000)
Net cash outflow (2,896,258)
Goodwill
The goodwill recognised above is attributed to the synergies of the business
combination which are expected to come from combining the assets and operations
of Genesis and CNS with the assets and existing infrastructure of the Omega
Group.
3. Earnings per Share
2007 2006
£ £
Net profit attributable to equity holders of the Group (116,417) (335,197)
2007 2006
number number
Basic average number of shares 4,939,728 1,618,262
The diluted loss per share is based on the same number of shares above as the
effect of outstanding warrants and options is anti-dilutive.
On 30 August 2007, the Company undertook a capital reorganisation dividing each
1p ordinary share into an intermediate ordinary share of 0.1p and a deferred
ordinary share of 0.9p. The deferred ordinary shares created are valueless. The
intermediate ordinary shares were subsequently consolidated on the basis of one
new ordinary share of 4p for each 40 intermediate ordinary shares in existence.
There have been no other transactions involving ordinary shares between the
reporting date and the date of completion of these interim financial statements.
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