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Vindon HealthcarePlc (VDN)

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Tuesday 26 March, 2013

Vindon HealthcarePlc

Preliminary Results

RNS Number : 8380A
Vindon Healthcare Plc
26 March 2013
 



26 March 2013

VINDON HEALTHCARE PLC

 

("Vindon" or the "Company" and, together with its subsidiaries, the "Group")

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

 

Vindon, (AIM: VDN), provides controlled environment services and products to the pharmaceutical, life sciences and heritage sectors in the UK, Ireland, Europe and North America.

 

 


2012

2011

Change

Revenue

£7.21m

£6.83m

+5.6%

Gross profit

£3.70m

£3.69m

+0.2%

Operating profit

£0.98m

£1.13m

-13.6%

Profit before tax

£0.95m

£1.10m

-13.5%

Earnings per share (fully diluted)

0.88p

0.96p

-8.3%

Dividend per share

0.182p

0.182p

-

Net debt

£0.69m

£1.58m

-56.1%

 

Key Business Highlights

 

 

·      Group revenue up 5.6% with demand for storage facilities increasing

·      Group profit before tax down 13.5% with continued pressure on gross margins for equipment sales

·      Overseas activities encouraging with revenues increasing by 16% and gross margins exceeding 50%

·      Dividend per share level maintained underpinned by strong balance sheet and cash generation

·      Net Debt continued to fall, down 56% on the year to £692,000

·      Investment in the Tramore facility (Ireland) in 2011 has been recouped

 

Since the period ended, the Company:

 

·      Has commenced work on a new storage facility in Southern California

·      Is in the process of finalising a collaboration agreement with a contract research organisation in California to provide storage for controlled substances for Vindon clients

 

Liam Ferguson, Chairman, commented:

 

This has been a year of consolidation in which our balance sheet and cash position has strengthened. We have retained our strong profit record in a difficult equipment market and have made progress overseas.

 

Enquiries:

Vindon Healthcare plc

Liam Ferguson  (Chairman)

Jon Scopes (Finance Director)

01706 716710

WH Ireland Limited

Dan Bate (Nominated Adviser)

Jessica Metcalf (Corporate Broking)

0161 832 2174

Zeus Capital Limited

Andrew Jones (Financial Adviser)

0161 831 1512

The Communications Portfolio
Philip Ranger/Ariane Comstive (PR Adviser)
[email protected]

020 7536 2028/2029

 

 

Chairman's Statement

 

On behalf of the Board, I am pleased to present the results for the year ended 31 December 2012. Whilst the market for equipment sales has been subdued, we have continued to make good progress in our storage business in particular and in our overseas businesses, helping to drive another increase in the Group's turnover for the year.

 

Revenues from our storage services grew both in the UK and overseas and we were able to maintain margins in this aspect of our business. However, we experienced considerable price competition in the equipment market.

 

Although levels of equipment sold increased during the year, over the last 3 years equipment buyers in our domestic market and in the USA have increasingly prioritised price as the overwhelming determinant for buying decisions. The result has been that margins have been under strong pressure for an extended period and, as a consequence, Group profit before tax reduced by £148,000. Nonetheless, the profit before tax represented a return of 13.1% on sales.  

 

Results and dividend

 

Group revenue increased 5.6% to £7,214,000 (2011: £6,831,000). A significant factor in this increase was continued growth in Ireland and the USA. Total overseas business grew revenues by £253,000 to £1,825,000.

 

Group gross margin reduced to 51.3% (2011: 54.1%) due to pricing pressure in the UK but overseas gross margin improved from 45.5% to 50.3%. Group indirect costs grew, mainly due to increased activity in Ireland and the USA. Overall, Group profit before tax decreased by 13.5% to £948,000 (2011: £1,096,000).  Fully diluted earnings per share for 2012 were 0.88p (2011: 0.96p).

 

The Board is pleased to announce Vindon's intention to pay a dividend of 0.182p for the year due, largely, to the Company's balance sheet continuing to strengthen and the business's ability to generate substantial free cashflow.

 

Strategy

 

During the year we carried out a thorough review of our business strategy. We reaffirmed the importance of growing the core business of equipment manufacture and providing storage services to the pharmaceutical and healthcare markets, and we also committed to a number of other important new initiatives.

 

The strategy for our equipment business remains one of improving the cost competiveness and quality of our offer. For storage our strategy is to continue extending the geographical coverage of our satellite operations, following the model of our very successful business in Ireland.

 

The Group has made significant advances in the way in which equipment is manufactured and installed, and in the USA, we have identified local suppliers for bulk materials. We now build direct to site on a regular basis in the UK and abroad. The Board believes that these changes will enhance the competiveness of our products during 2013.

 

We have undertaken comprehensive research into suitable locations for additional storage facilities and will be opening our second North American facility, in Southern California, in 2013. Other potential future locations have been identified and which may be progressed in due course.

 

Vindon's reputation in the pharmaceutical and healthcare sectors places the Group in a good position to sell additional products and services into those markets. Following our strategy review we are actively seeking and evaluating suitable acquisitions, both in the UK and USA. Furthermore, we are also investigating a number of opportunities for either partnering with small high tech companies supplying innovative products and services into the bio-pharma market, or licensing their technology for use in our business.

 

The ability of the business to generate free cash flow and its low gearing will facilitate our proposed expansion.

 

Ireland

 

Our facility at Tramore remains highly profitable and continues to grow. The substantial investment made in 2011 to treble capacity at the site has already been recouped and the cash generative nature of this business is demonstrated by the declaration of its maiden intra Group dividend, of €200,000, due in 2013.

 

Total revenues for 2012 were £917,000 (2011: £791,000) and the operation contributed £443,000 to Group profit before tax (2011: £373,000). Contracted future income ("CFI") deriving from Tramore continues to be an important component of Group CFI and stood at £1,025,000 at 31 December 2012.

 

North America

 

We have continued to make solid progress in the USA. Revenues from manufactured goods and storage services both improved, contributing to an overall increase in turnover of 16.3% to £908,000 (2011:£781,000).

 

During the year we made a number of organisational changes in the management of our US operations. Installation of major projects is now directly controlled from the UK, and this is starting to improve efficiency and cost control. Importantly, it has also freed up resource to increase the market research and sales effort based locally in Atlanta.

 

These changes have enabled the identification of new opportunities throughout the USA. In early 2013, the Company committed to the investment to build a new stability storage suite in Southern California. Our research has indicated a strong demand for an independent storage facility in the area. It is planned that the facility will open for business in the third quarter of 2013.

 

specialist storage

 

Vindon is steadily expanding its capability as a provider of specialist storage. Our reputation in the heritage sector led to the Group being approached during the year by a public body to provide storage for important artefacts.

 

Provision of specialist storage services is not restricted to the UK. We are negotiating a collaborative partnership with a company licensed by the US Drug Enforcement Agency to enable us to provide storage for controlled substances for our clients. This service should generate storage revenues in 2013 in addition to those from Atlanta and our new storage suite in California.

 

OUR people

 

The Company has made significant investment in raising skill levels this year. Training and development of our manufacturing workforce has improved capability and enabled us to build direct to site confidently and effectively.

 

We continue to improve skills in our storage business. The team in Ireland has been restructured to enable on-site staff to carry out the substantial annual equipment re-validation exercise rather than diverting fee earning engineers away from client work. We have also carried out training to provide the in-house "Designated Individual" role required by the Human Tissue Authority.

 

Our people are vital to our success and we will continue to invest in their development for their benefit and to continuously improve the products and services that the Group delivers.

 

Outlook

 

Our expectation is that demand for equipment in the UK and Ireland during 2013 will remain at similar levels to 2012. In the USA, whilst the market remains very competitive, the Board believes that increasing recognition of the Vindon brand will provide us with more sales opportunities. More cost effective methods for sourcing materials in the USA will put us in a better position to convert more of these opportunities in 2013. Furthermore, as the stock of Vindon supplied equipment increases in the USA we will be able to increase revenues from annual validation services.

 

Our storage facilities in the UK and Ireland outperformed our expectations in 2012. The outlook for these markets is flatter this year but we expect another strong performance. In Atlanta, we will continue to build on the base of samples already on store and we expect revenues to increase in 2013 and beyond. The addition of the new facility in California will significantly enhance our revenue generating capacity from storage from late 2013 onwards.

 

Contractual commitments made by customers on storage and service contracts in the UK, Ireland and USA considerably enhance the Group's prospects. As at 31 December 2012 this contracted future income amounted to £4.3m (2011: £4.5m).

 

Our business strategy places heavy emphasis on growth overseas, so it is encouraging that both revenues and margins are improving in this area. Coupled with actions to secure the profitability of our UK markets and initiatives to add new sources of revenue, I believe the Group can look forward to improved results in the coming years.   

 

 

 

Liam Ferguson

Chairman

 

 

 

 

 

Financial Review 2012

 

RESULTS SUMMARY

 

Sales for the year ended 31 December 2012 rose by 5.6% to £7,214,000 (2011: £6,831,000). This was entirely due to an increase in revenues from storage and other services. Sales from the Group's overseas businesses grew by 16.1% and are an increasingly important component of Group turnover at 25.3% of the total (2011: 23.0%).

  

Actions were taken to contain costs wherever possible, such as the improved management of the travel costs associated with equipment installation and delivery of services (down from £419,000 in 2011 to £263,000 in 2012). This helped to mitigate market pressure on prices, but gross margin nonetheless reduced to 51.3% (2011: 54.1%). Gross margin in our overseas businesses taken as a whole increased significantly, to 50.3% (2011: 45.5%), principally due to improved utilisation of storage capacity in both Ireland and the USA.

 

The reduction in Group gross margin was offset by the rise in revenues, so gross profit was little changed, at £3,699,000 (2011: £3,693,000).

 

Administrative costs rose by 5.9% to £2,207,000 (2011: £2,084,000). This was mainly due to a £55,000 increase in staffing costs in Ireland and the USA as activity levels grew in those locations, and a £17,000 increase in property costs as a low rent period in Atlanta came to an end.

 

The annual depreciation charge increased to £513,000 (2011: £476,000) primarily due to an increase in  the depreciation rate on company vehicles.

 

The increases in administration costs and depreciation charges led to a reduction in operating profit for 2012 to £979,000 (2011: £1,133,000). Operating profit margin reduced to 13.6% from 16.6% in 2011. The steadily reducing gearing resulted in net financing costs declining to £31,000 (2011: £37,000). Pre-tax profit reduced to £948,000 (2011: £1,096,000).

 

DIVIDEND

 

The Board is pleased to announce our intention to pay a dividend of 0.182p per share at a cost of £158,067. Subject to shareholder approval at the upcoming Annual General Meeting, the dividend will be paid on 28 June 2013 to those shareholders on the register at the close of business on 7 June 2013.  The ex-dividend date will be 5 June 2013.

 

EARNINGS PER SHARE

 

Basic earnings per share decreased by 8.2% to 0.90p (2011: 0.98p).

 

CASHFLOW AND CAPITAL INVESTMENT

 

Cashflow from operating activities was £1,506,000, slightly down on the level achieved in 2011 (£1,610,000). Cash generated from all aspects of the Group's operations totalled £1,733,000           (2011: £1,813,000). Our strong cash management will enable us to invest in additional  storage capacity in 2013 without additional external funding.

 

Total capital investment in the year was £379,000, significantly down on both 2011 (£989,000) and 2010 (£719,000), years in which substantial investment was made in storage capacity in the USA and Ireland. £204,000 was spent in 2012 to increase storage capacity in the UK, including a tank upgrade in the Cryobank to save on liquid nitrogen usage. It is expected that the new tank will reduce this cost by 50% per annum. Vehicle replacement continued with a further £94,000 being invested in 2012.

 

The relatively low level of capital expenditure in 2012, coupled with effective cash generation from the Group's operations resulted in a very substantial reduction in net debt, to £692,000 (2011: £1,576,000).

 

 

BANKING FACILITIES

 

The Group has two term loans from Co-operative Bank plc, the principal terms of which are as follows:

 

·      a ten year loan at 2.25% over base rate taken out in May 2008 with £1,268,000 outstanding at the year end; and

·      a ten year loan at 1.34375% over base rate taken out in February 2005 with £152,000 outstanding at the year end.

 

The loans are subject to an interest cover covenant of three times and a pre goodwill net assets test of £2,500,000. The Group operated comfortably within its facilities during the year and the Directors believe that the Group will continue to do so during the coming year.

 

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

 

The Group's operations expose it to a variety of financial risks that include the effects of changes in credit risk, liquidity risk, interest rate risk and foreign exchange risk.  The Group has a risk management programme that seeks to limit the adverse effects on the financial performance of the Group by monitoring levels of debt finance and the related finance costs. The Group has implemented policies that require appropriate credit checks on potential customers before sales are made.  The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually. The Group maintains a mixture of long and short-term debt finance that is designed to ensure it has sufficient available funds for operations and planned expansions. Foreign exchange risk is managed by matching assets and liabilities and translating into sterling on a regular basis.

 

See note 14 for further details on each financial risk and how they are managed.

 

 

Jon Scopes

Finance Director

 

 

 

VINDON HEALTHCARE PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2012

 


Note


2012



2011





£'000

£'000


£'000

£'000









Revenue

1



7,214



6,831

Cost of sales




(3,515)



(3,138)

Gross profit




3,699



3,693

Administrative expenses



(2,207)



(2,084)


Depreciation and amortisation expense



(513)



(476)






(2,720)



(2,560)

Operating profit

3



979



1,133

Financial income

5


4



1


Financial expenses

6


(35)



(38)


Net financing costs




(31)



(37)

Profit before tax




948



1,096

Income tax expense

7



(166)



(246)

Profit for the year attributable to owners of the parent




782



850

























Other comprehensive income








Exchange differences on translating foreign operations



(1)



(4)


Income tax relating to components of other recognised income and expense



-



-


Other recognised income and expense for the year, net of tax




(1)



(4)

Total comprehensive income attributable to owners of the parent




781



846

















Earnings per share

8















Basic




0.90p



0.98p









Diluted




0.88p



0.96p

 

 

 

VINDON HEALTHCARE PLC

CONSOLIDATED BALANCE SHEET 

AS AT 31 DECEMBER 2012

 


Note


2012


2011




£'000


£'000

Non-current assets






Property, plant and equipment

9


5,993


6,152

Intangible assets

10


2,760


2,760

Deferred tax assets

16


425


310

Total non-current assets



9,178


9,222







Current assets






Inventories

11


606


479

Trade and other receivables

12


2,005


2,788

Cash and cash equivalents



728


126

Total current assets



3,339


3,393













Total assets



12,517


12,615







Current liabilities






Interest bearing loans and borrowings

13


(293)


(290)

Trade and other payables

15


(747)


(992)

Current tax liabilities



(133)


(145)

Accruals and deferred income



(1,331)


(1,518)

Other liabilities



(28)


(25)

Total current liabilities



(2,532)


(2,970)







Non-current liabilities






Interest bearing loans and borrowings

13


(1,127)


(1,412)

Deferred tax liabilities

16


(245)


(243)

Total non-current liabilities



(1,372)


(1,655)







Total liabilities



(3,904)


(4,625)







Net assets



8,613


7,990







Equity






Share capital

17


889


889

Treasury shares



-


-

Translation reserve



(50)


(49)

Share premium



1,950


1,950

Retained earnings



5,824


5,200

Total equity attributable to equity shareholders



8,613


7,990

 

 

VINDON HEALTHCARE PLC

CONSOLIDATED CASH FLOW STATEMENT 

YEAR ENDED 31 DECEMBER 2012

 

 





2012


2011





£'000


£'000

Cash flows from operating activities







Profit attributable to equity shareholders



782


850

Adjustments for:







Depreciation




513


476

Financial income




(4)


(1)

Financial expense




35


38

Loss on sale of property, plant and equipment




14


1

Taxation




166


246

Operating profit before changes in working capital provisions


1,506


1,610








Decrease / (Increase) in trade and other receivables




783


(883)

Increase in inventories




(127)


(268)

(Decrease) / Increase in trade and other payables




(429)


1,354

Cash generated from operations





1,813








Tax paid




(291)


(395)








Net cash inflow from operating activities




1,442


1,418








Cash flows from investing activities







Interest received




4


1

Acquisition of property, plant and equipment




(379)


(989)

Proceeds from disposal of property, plant and equipment




11


130

Net cash outflow from investing activities




(364)


(858)








Cash flows from financing activities







Dividends paid




(158)


(143)

Interest paid




(35)


(38)

Repayment of loans




(282)


(280)

Repayment of finance lease liabilities




-


(7)

Net cash outflow from financing activities




(475)


(468)








Net increase in cash and cash equivalents




 

603


 

92

Opening cash and cash equivalents




126


38

Effect of foreign exchange rate changes




(1)


(4)

Closing cash and cash equivalents




728


126








 

 

VINDON HEALTHCARE PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2012

 

Year ended 31 December 2012

Share capital

Share premium

Treasury shares

Translation

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000








Balance at 1 January 2012

889

1,950

-

(49)

  5,200

7,990

Profit for the year

-

-

-

-

782

782

Other comprehensive income for the year

-

-

-

(1)

-

(1)

Total comprehensive income for the year

-

-

-

(1)

782

781

Dividends paid (see note 20)

-

-

-

-

(158)

(158)








Balance at 31 December 2012

889

1,950

-

(50)

5,824

8,613








 

Year ended 31 December 2011

Share capital

Share premium

Treasury shares

Translation

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000








Balance at 1 January 2011

889

1,950

-

(45)

4,493

7,287

Profit for the year

-

-

-

-

850

850

Other comprehensive income for the year

-

-

-

(4)

-

(4)

Total comprehensive income for the year

-

-

-

(4)

850

846

Dividends paid  (see note 20)

-

-

-

-

(143)

(143)








Balance at 31 December 2011

889

1,950

-

(49)

5,200

7,990








 

Share premium

The share premium reserve represents the consideration that has been received in excess of the nominal value of shares on issue of new ordinary share capital less permitted expenses.

 

Treasury shares

The treasury shares reserve represents the Company's own shares which were bought back from the market and that are held by the Company's Employee Benefit Trust.  The Employee Benefit Trust holds these shares for the purpose of satisfying the share options that have been granted under the Group's share option schemes.  At £488 the reserve is not noted above.

 

Translation reserve

The translation reserve represents the retranslation of overseas foreign subsidiaries.

 

Retained earnings

The retained earnings reserve represents profits and losses retained in previous and the current periods.

 

 

 

 

 

 

 

1.    REVENUE




2012

2011




£'000

£'000






Sale of goods



3,428

3,455

Rendering of services



3,786

3,376

Total revenue



7,214

6,831

 

The revenues reported represent revenue generated from external customers.

 

 

2.    SEGMENT REPORTING

 

IFRS 8 requires consideration of the Chief Operating Decision Maker ("CODM") within the Group. In line with Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors, who review internal monthly management reports, budget and forecast information as part of this. Accordingly, the Board of Directors is deemed to be the CODM.

 

The Group's only class of business activity is the manufacture of environmental control products for the pharmaceutical industry, life sciences, heritage and food sectors together with the provision of related services. 

 

The Board does not review assets and liabilities on a segmental basis given the similar nature of each segment as defined under the aggregation criteria of IFRS 8. The operating segments exhibit similar long-term financial performance because they have similar economic characteristics. This is highlighted by applying IFRS 8 criteria in respect of the following points:

 

·     The nature of the products and services are similar, being for environmental control purposes;

·     The nature of the production process is the same for each product;

·     The type or class of customer for each product and service are similar; and

·     The methods used to distribute the products or provide the services are similar.

    

In the opinion of the Directors the Group's activities meet the aggregation criteria of IFRS 8 and therefore the Group only has one reportable segment.

 

The Group's key operating segments are geographical, and are located in the United Kingdom, Ireland and the USA. These geographical regions are the basis on which the Group reports its segment information.

 

A geographical segment is engaged in providing products or services within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments.  A geographical analysis of turnover and the related non-current assets is given below:

 

Net revenue by point of origin:



2012

2011




£'000

£'000






United Kingdom



5,389

5,259

Ireland



917

791

USA



908

781




7,214

6,831

 

 

 

 

Non-current assets:



2012

2011




£'000

£'000






United Kingdom



7,779

7,846

Ireland



526

589

USA



448

477

Deferred tax



425

310




9,178

9,222

 

Information about revenues from external customers for each product and service is provided in note 1.

 

Included within revenues of £7,214,000 (2011: £6,831,000) are revenues of £1,162,000         (2011: £1,563,000) which arose from sales to the Group's largest customer who individually contributed more than 10% of the Group's revenues. Two single customers contributed 10% or more of the Group's revenues in 2011.

 

 

 

3.       OPERATING PROFIT

           





2012

2011

 

Operating profit is stated after charging:



£'000

£'000

 







 

Depreciation of tangible fixed assets






 

- Owned assets




513

474

 

- Leased assets




-

2

 

Loss on disposal of tangible fixed assets




14

1

 

Foreign exchange losses




6

8

 

Directors' remuneration




354

294

 

Auditors' remuneration






 

- Fees payable to the Company's auditor for the




8

5

 

  audit of the Company's annual accounts




 

- Fees payable to the Company's auditor and its






 

  associates for other services:






 

     The audit of the Company's subsidiaries, pursuant to legislation

16

19




     Tax services




5

3

 

     Other services




1

5

 

 

4.       INFORMATION REGARDING DIRECTORS AND EMPLOYEES

 

a.  Directors' remuneration

           


Salary/

Benefits


Total

Total


Fees

in Kind

Pension

2012

2011


£

£

£

£

£

Non Executive Directors






R I Hughes

19,992

-

-

19,992

19,996

M H Burrill

15,529

-

-

15,529

15,375







Executive Directors






M L Ferguson

22,220

-

-

22,220

22,000

K Parkes

54,175

-

-

54,175

-

J E Scopes

70,900

-

-

70,900

66,963

T P Jackson

93,373

12,418

-

105,791

108,043

I Gordon

77,844

14,281

-

92,125

91,915


354,033

26,699

-

380,732

324,292

 

 

The amounts received by the Directors under long-term incentive schemes in 2012 were £nil (2011: £nil).

 

 

b.  Information regarding employees

 

           



2012

2011




The average number of employees (including directors) was:

No.

No.






Service, validation and manufacturing



35

34

Selling and distribution



6

6

Administration



24

21




65

61






Staff costs incurred in respect of these employees were:

£'000

£'000






Wages and salaries



2,052

1,776

Social security costs



242

221

Pension costs



4

-




2,298

1,997

 

The Group's equity-settled share-based payments comprise the Unapproved Share Option Scheme and the Enterprise Management Incentive Scheme.  The amount of shares held by the Employee Share Option Plans and details of shares and share options subject to equity-settled share based payments are set out in note 18.

 

 

5.         FINANCIAL INCOME

 





2012

2011





£'000

£'000







Bank interest receivable



2

-

Other interest receivable



2

1





4

1

 

 

6.         FINANCIAL EXPENSES

 



2012

2011



£'000

£'000





Bank loan interest


32

34

Other interest payable


3

4



35

38

 

7.         INCOME TAX

 

 

Analysis of Tax Charge on Ordinary Activities


2012

2011




£'000

£'000






Current income tax expense:





UK Corporation tax charge for the year



206

273

Overseas tax



57

42

Adjustment re: prior year



16

-




279

315






Deferred income tax expense:





Origination and reversal of timing differences

(note 16)





Credit for the current year



(113)

(69)






Total income tax expense in statement of comprehensive income



166

246











Reconciliation of income tax charge to accounting profit







2012

2011




£'000

£'000






Profit on ordinary activities before tax



948

1,096

 

Profit on ordinary activities by the effective rate of tax of 24.5% (2011: 26.5%)



232

290






Effects of:





Marginal corporation tax relief



(2)

7

Different tax rates of subsidiaries operating in other jurisdictions



(87)

(56)

Adjustment re: prior year



16

-

Expenses not deductible for tax purposes



7

5




166

246

 

A reduction in the main rate of corporation tax from 26% to 24% for the tax year ended 31 March 2013 was substantively enacted on 26 March 2012. A further reduction to 23% for the tax year ended 31 March 2014 was substantively enacted on 17 July 2012. The Company has remeasured its deferred tax liability at the end of the reporting period at 23%.

 

The Chancellor further stated his intention to reduce the main rate of corporation tax from 23% to 21% from 1 April 2014. This change has not been substantively enacted at the balance sheet date.

 

 

8.    EARNINGS PER SHARE

 

The calculation of the basic and diluted earnings per share is based on the following data:

 


                

          2012

         £'000

               

         2011

         £'000

Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company

782

850

 

Effect of dilutive potential ordinary shares

 

-

 

-

Earnings for the purposes of diluted earnings per share

782

850

 


                   

 

             2012

                

 

          2011

Number of shares

Weighted average number of ordinary shares for the purposes of basic earnings per share being issued share capital less 2,000,000 ordinary shares held in Employee Benefit Trust

86,850,000

86,850,000




Effect of dilutive potential ordinary shares: Share options

      2,000,000

 

2,000,000

 

Weighted average number of ordinary shares for the purposes of diluted earnings per share

88,850,000

88,850,000




 

The calculation of basic earnings per share is based upon the profit after taxation of £782,000               (2011: £850,000) divided by the weighted average number of ordinary shares in issue during the year of 86,850,000 (2011: 86,850,000). In accordance with IAS 33 "Earnings Per Share" the shares held by the Employee Benefit Trust (EBT) have not been included within the basic earnings per share calculation.

 

The diluted earnings per share takes the weighted average number of ordinary shares in issue during the year, and adjusts this for dilutive share options existing at the year end.  The diluted weighted average number of shares in the year ended 31 December 2012 was 88,850,000               (2011: 88,850,000).  In accordance with IAS 33 "Earnings Per Share" the effects of anti dilutive potential ordinary shares are ignored when calculating diluted earnings per share.

 

 

9.    PROPERTY, PLANT AND EQUIPMENT


 

Freehold

Property

                  Fixtures &      Fittings

 

Plant &

Machinery

 

Motor

Vehicles

 

 

Equipment

 

 

Total


£'000

£'000

£'000

£'000

£'000

£'000

Cost




At 1 January 2011

2,783

958

2,745

279

208

6,973

Additions

-

72

717

145

55

989

Reclassified from held for sale

375

-

-

-

-

375

Disposals

-

-

(206)

(68)

-

(274)

At 1 January 2012

3,158

1,030

3,256

356

263

8,063

Additions

-

30

235

94

20

379

Disposals

-

-

-

(120)

(5)

(125)

At 31 December 2012

3,158

1,060

3,491

330

278

8,317








Depreciation







At 1 January 2011

108

87

1,063

165

93

1,516

Charge for the year

49

45

305

43

34

476

Reclassified from held for sale

62

-

-

-

-

62

On disposals

-

-

(98)

(45)

-

(143)

At 1 January 2012

219

132

1,270

163

127

1,911

Charge for the year

54

46

304

79

30

513

On disposals

-

-

-

(100)

-

(100)

At 31 December 2012

273

178

1,574

142

157

2,324








Carrying value














At 31 December 2012

2,885

882

1,917

188

121

5,993








At 31 December 2011

2,939

898

1,986

193

136

6,152

 

Finance lease agreements

 

Included within the carrying value of £5,993,000 is £nil (2011: £nil) relating to motor vehicles held under finance lease arrangements. The depreciation charged to the financial statements in the year in respect of such assets amounted to £nil (2011: £2,000).

 

Exchange differences arising from the plant and equipment held by the foreign subsidiary are immaterial.

 

10.        INTANGIBLE ASSETS

 

Goodwill



 

2012

 

2011




£'000

£'000

 

At 1 January and 31 December



 

2,760

 

2,760

 

Goodwill relates to the acquisition of Vindon Scientific Limited and Vindon Scientific (USA) Inc and is tested for impairment at the balance sheet date.  The recoverable amount of goodwill at 31 December 2012 was assessed on the basis of value in use.  As this exceeded carrying value by £5.1m, no impairment loss was recognised.

 

The key assumptions in the calculation to assess value in use are the future revenues and the ability to generate future cash flows. The most recent financial results and initial budgets approved by management for the next year were used and forecasts for three further years, followed by an extrapolation of expected cash flows at a constant growth rate of 0% (2011: 0%).  The projected results were discounted at a rate of 8% which is a prudent evaluation of the post-tax rate that reflects current market assessments of the time value of money and the risks specific to the cash generating units.

 

A sensitivity analysis was also performed to assess the impact of downside risk on the key assumptions underpinning projected results, which confirmed that no impairment loss should be recognised. Management believes that any reasonably possible change in these key assumptions would not cause the carrying amount of goodwill to exceed its recoverable amount.

 

 

11.        INVENTORIES

 




2012

2011




£'000

£'000






Raw materials and consumables



487

394

Work in progress



119

85




606

479

 

The cost of inventories recognised as an expense during the year in respect of continuing operations was £1,555,000 (2011: £1,132,000).

 

The write down of inventories recognised as an expense amounted to £nil (2011: £nil).

 

12.        TRADE AND OTHER RECEIVABLES

 




2012

2011




£'000

£'000






Trade receivables



1,413

1,697

Amounts recoverable on long-term contracts



199

943

Other receivables



393

148




2,005

2,788

 

       The average credit period given on sales of goods was 64 days (2011: 60 days).

 

       Management considers all current year balances to be recoverable and no provision for impairment is required. The ageing of trade receivables which are past due and not impaired is as follows:

           




2012

2011




£'000

£'000

Days outstanding:





31 - 60 days



530

610

61 - 90+ days



319

386









849

996

 

The other asset classes within trade and other receivables do not contain impaired assets.

                            

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.  The Group does not hold any collateral as security.

 

 

13.        INTEREST BEARING LOANS AND BORROWINGS

 




2012

2011




£'000

£'000

Non-current





Bank loans



1,127

1,412




1,127

1,412






Current





Bank loans



293

290




293

290

 

The bank loans are secured by a debenture comprising fixed and floating charges over all the assets and undertakings of the Group. The debenture includes a legal charge over the property at Ceramyl Works, Kiln Green, Diggle and the property at John Boyd Dunlop Drive, Kingsway Business Park, Rochdale.

 

14.        FINANCIAL INSTRUMENTS

 

       The Group has the following categories of financial instruments at the balance sheet date:

               




2012

2011




£'000

£'000

Financial assets





Loans and receivables





- Trade and other receivables



2,005

2,788

- Cash and cash equivalents



728

126




2,733

2,914






Financial liabilities





Financial liabilities measured at amortised cost





- Interest bearing loans and borrowings



1,420

1,702

- Trade and other payables



747

992




2,167

2,694

 

The Group has two term loans from the Co-operative Bank PLC, the principal terms of which are as follows. A ten year loan at 2.25% over base rate taken out in May 2008 with £1,268,000 outstanding at the year end and a ten year loan at 1.34375% over base rate taken out in February 2005 with £152,000 outstanding at the year end.

 

The bank loans are secured by a debenture comprising fixed and floating charges over all the assets and undertakings of the Group.  The debenture includes a legal charge over the property at Ceramyl Works, Kiln Green, Diggle and the property at John Boyd Dunlop Drive, Kingsway Business Park, Rochdale.  These assets have a carrying value of £3,767,000.

 

The loans are subject to an interest cover covenant of three times and a pre goodwill net assets test of £2,500,000. 

 

There is no difference between the fair value of the Group's financial assets and liabilities at the year-end and their book values.

 

Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

 

Interest-bearing loans and borrowings

 

Fair value is calculated based on discounted expected future cash flows.

 

Trade and other receivables / payables

 

For receivables / payables with a remaining life of less than one year, the nominal amount is deemed to reflect the fair value.

 

Capital risk management

The Board maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Board monitors return on capital and the level of dividends paid to ordinary shareholders and seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by lower levels of gearing.

 

Total capital is calculated as 'equity' as shown in the consolidated balance sheet plus net debt.

 

Risk management objectives

The Board is charged with the overall responsibility of establishing and monitoring the Company's risk management policies and processes. The Company's risk management processes and policies are determined in order to identify, analyse and monitor the risks that are faced by the Company.

 

The Group's treasury activities are designed to provide suitable, flexible funding arrangements to satisfy the Group's requirements.  The Group uses financial instruments comprising borrowings, cash, liquid resources and items such as trade receivables and payables that arise directly from its operations.  The main risks arising from the Group financial instruments are currency, interest rate, liquidity and credit risks.

 

Currency risk management

The Group operates in a global industry and is exposed to foreign exchange risk arising from various currency exposures. Transactions with overseas customers are conducted in the presentational currency, consequently no exchange rate risk arises in this respect. Exchange rate differences with regard to the Company's Irish subsidiary, Vindon Scientific (Ireland) Limited and American subsidiary, Vindon Scientific (USA) Inc. arise only through the translation of balances for the purpose of year end consolidation of accounts. Consequently the only risk arising through such translation would be one of impairment in value due to significant decline in the functional currency of the subsidiary relative to the presentational currency. No such impairment currently exists.

 

The Group therefore considers its exposure to foreign exchange risk to be insignificant and therefore sensitivity analysis has not been performed as any impact is considered to be immaterial.

 

Interest rate risk management

The Group has exposure to interest rate risk arising principally on interest-bearing borrowings at variable rates of interest, obligations under finance leases at fixed rates of interest and on cash and cash equivalents amounts held, which are at variable rates of interest.  To manage interest rate risk, the Group ensures the proportion of fixed to variable rate borrowings issued and cash balances held are maintained to Board approved levels and monitors the levels of interest payable and receivable on a regular basis.

 

The Company's interest rate profile of its financial assets and liabilities as at the balance sheet date is as follows:




2012

2011




Total at year end

Weighted average rate at year end

Total at year end

Weighted average rate at year end




£'000

%

£'000

%

Current assets





Interest free

2,733

-

2,914

-


2,733

-

2,914

-

Current and non-current liabilities





Floating rate

1,420

2.21

1,702

1.84

Interest free

747

-

992

-




2,167

1.45

2,694

1.15








 

The Group and Company have used a sensitivity analysis technique that measures the estimated change to the statement of comprehensive income and equity of a 0.5% increase in base rate, with all other variables remaining constant. The sensitivity analysis is based on the assumptions that changes in market interest rates affect the interest income or expense of variable interest rate financial instruments.

 

Under the assumptions, a 0.5% increase in base rate would have decreased profits before tax by £8,000 (2011: £9,000) and equity would have decreased by £6,000 (2011: £7,000).

 

Liquidity risk management

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. To counter this risk, the Company operates with a high level of interest cover and at low levels of net debt relative to its market capitalisation.

 

The following table provides an analysis of the contractual and undiscounted maturity for financial liabilities.

 




< 1 year

1-2 years

2-5 years

>5 years

Total




£'000

£'000

£'000

£'000

£'000

2012








Bank loans and borrowings

293

290

722

115

1,420

Other liabilities

28

-

-

-

28




321

290

722

115

1,448









2011








Bank loans and borrowings

290

288

783

341

1,702

Other liabilities

25

-

-

-

25




315

288

783

341

1,727









 

Credit risk management

Credit risk is the risk that a counter-party will cause a financial loss to the Company by failing to discharge its obligation to the Company.

 

The Group and Company manage their exposure to this risk by applying Board approved limits to the amount of credit exposure to any one counter-party and employ strict minimum credit worthiness criteria as to the choice of counterparty, thereby ensuring that there are no significant concentrations of credit risk.

 

The maximum exposure to credit risk for trade and other receivables and other financial assets is represented by their carrying amount.

 

 

 

15.         TRADE AND OTHER PAYABLES

 




2012

2011




£'000

£'000






Trade payables



465

707

Other payables and accrued expenses



282

285




747

992

 

Trade payables and accrued expenses mainly comprise of amounts owed for trading purchases and associated costs.

 

 

16.        DEFERRED TAX

 




2012

2011

Deferred tax liabilities



£'000

£'000






Balance at 1 January



243

218

Charged directly to the statement of comprehensive income



2

25

Balance at 31 December



245

243






Deferred tax assets





Balance as at 1 January



310

216

Credited directly to the statement of comprehensive income



115

94

Balance at 31 December



425

310






 

Analysis of Deferred tax










Capital allowances in excess of depreciation



224

243

Share options



(107)

(107)

Available tax losses



(297)

(203)




(180)

(67)






At the balance sheet date, the Group has unused US tax losses of £848,000 (2011: £581,000) available for offset against future profits.  A deferred tax asset has been recognised in respect of such losses.

 

 

17.       CALLED UP SHARE CAPITAL

           




2012

2011




£'000

£'000






Authorised:





120,000,000 ordinary shares of £0.01 each



1,200

1,200






Allotted, issued and fully paid:





88,850,000 ordinary shares of £0.01 each (2011: 88,850,000)

889

889

 

The Company has one class of ordinary share that carries no right to fixed income. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

 

As at 31 December 2012, options over 1,230,770 and 769,230 ordinary shares were outstanding under Unapproved Share Option Plans and Enterprise Management Incentive Schemes respectively.  Details of outstanding share options awarded to employees including executive and non-executive directors are set out below:

           

Date of grant

At 1 Jan 2012

 

At 31 Dec 2012

Exercise share price

Exercise period






8 December 2005

2,000,000

2,000,000

0.05p

2008 - 2015

 

 

18.       EQUITY-SETTLED SHARE BASED PAYMENTS

 

The Unapproved Share Option Plan and Enterprise Management Incentive Schemes were introduced in December 2005.  Under these plans the trustees of the Employee Benefit Trust (EBT) can grant options over shares in the Company to employees of the Group.  Options are granted with a fixed exercise price.  Options may be exercised no earlier than the third anniversary of the date of the grant and no later than the tenth anniversary of the date of the grant. Awards under the schemes are generally reserved for employees at senior management level and above and one employee is currently participating. 

 

Exercise of an option is subject to continued employment, the only vesting condition.  Options were valued using the Black Scholes option pricing model.  The fair value per option granted and the assumptions used in the calculation were as follows:

 

 

Grant date



8 December 2005

Share price at grant date



£0.13

Exercise price



£0.0005

Number of employees



1

Shares under option - Unapproved Share Option Plan



1,230,770

Shares under option - Enterprise Management Incentive Scheme



769,230

Vesting period



3 years

Expected volatility



31.8%

Risk free rate



4.33%

Option life (years)



10 years

Expected life (years)



3 years

Expected dividends expressed as a dividend yield


0%

Fair value per option



£0.1296

 

 

 


 

 

 

       Number

       of share

        options

2012

Weighted

   average

   exercise

        price

         (in £)

 

 

 

  Number

of share

   options

2011

   Weighted

      average

    exercise

          price

         (in £)

 

Outstanding at beginning of period

2,000,000

0.0005

2,000,000

0.0005

 

Forfeited during the period

-

-

-

-

 

Outstanding at the end of the period

2,000,000

0.0005

2,000,000

0.0005

 

Exercisable at the end of the period

2,000,000

0.0005

2,000,000

0.0005

 

 

 

The options outstanding at 31 December 2012 had a weighted average exercise price of £0.0005, and a remaining contractual life of 3 years.

 

The expected volatility is based on historical volatility from the date of flotation to the date of grant.  The expected life is the average expected period to exercise.  The total charge for the year relating to employee share based payment plans was £nil (2011: £nil), all of which related to equity settled share based payment transactions.

 

The Vindon Healthcare plc EBT Trust ("the Trust") holds 2,000,000 ordinary shares with a total cost of £488.  In accordance with IAS32 "Financial Instruments Presentation", this shareholding has been shown as a deduction from shareholder funds.  These shares were acquired in November 2005 by the Trust.  The Trust used funds provided by Vindon  to meet the Group's obligations under the Share Option Scheme.  Share options are granted to employees at the discretion of Vindon  and shares are awarded to employees by the Trust in accordance with the wishes of Vindon.

 

All shares in the Trust are held to satisfy the Group's obligation in respect of share options granted.

 

 

19.       CAPITAL COMMITMENTS

 

Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows

 




2012

2011




£'000

£'000






Property, plant and equipment



64

-

 

 

20.       RELATED PARTY TRANSACTIONS

 

Zeus Capital Limited is a connected party by reason of R I Hughes's interest in both Zeus Capital Limited and Vindon.

 

The Company has entered into a consultancy agreement with Zeus Capital Limited dated 14 February 2005 under which the Company has appointed Zeus Capital Limited to act as financial advisers.

 

During the period, fees totalling £15,000 (2011: £15,000) were paid to Zeus Capital Limited and the total amount owing to Zeus Capital Limited at 31 December 2012 was £nil (2011: £nil).

 

Key management personnel are considered to be executive and non-executive directors. Refer to note 4 for information about key management personnel compensation.

 

 

21.      DIVIDENDS

 

During the year a dividend of 0.182 pence per share, totalling £158,067 (2011: 0.165 pence per share, totalling £143,303) was paid to the shareholders.

 

The Directors recommend that a final dividend of 0.182 pence per share (2011: 0.182 pence per share) be paid in accordance with a resolution to be proposed at the Annual General Meeting to be held on 24 May 2013. The final dividend amounts to £158,067 (2011: £158,067) and has not been included as a liability in these accounts.

 

 

22.     Ultimate controlling party

 

The Group does not have an ultimate controlling party.

 

 

23.       ACCOUNTS

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

The financial statements for the year ended 31 December 2012 will be despatched to shareholders on 23 April 2013. Copies will also be available to the public, free of charge, from the Company's registered office at John Boyd Dunlop Drive, Kingsway Business Park, Rochdale, OL16 4NG, or can be downloaded from the Company's website at www.vindonhealthcare.com


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