RNS Number:3190D
Cozart PLC
05 September 2007
Cozart plc
Preliminary results
Cozart plc increases revenue by 52% and trebles operating profit
Abingdon, Oxfordshire, UK, 5 September 2007: Cozart plc ("Cozart" the "Company"
or "the Group"), the medical diagnostics company, is pleased to announce its
annual results for the year ending 31 May 2007.
The Board has also today recommended a cash offer of 57.5p from Concateno plc
(see separate announcement).
Financial highlights
* Revenue up 52% to #16.9m (2005/6: #11.1m) with organic revenue growth of
23%
* Profit before tax ("PBT") of #1.1m (2005/6: #0.3m) and adjusted* PBT of
#1.6m (2005/6: #0.5m)
* Gross margin 51% (2005/6: 54%) reflecting business mix post acquisition of
Spinreact
* Basic and diluted earnings per share ("EPS") of 0.81p (2005/6: 0.16p) and
adjusted* EPS (basic and diluted) of 1.28p (2005/6: 0.33p)
* Cash and current asset investments as at 31 May 2007 of #3.6m (2006:
#4.4m). Net funds as at 31 May 2007 of #0.1m (2006: #0.8m). Cash position
strengthened by investment by Philips post period end of #1.9m
* Figures exclude Scandinavian restructuring charge of #0.2m (2005/6: #nil) and
goodwill amortisation of #0.3m (2005/6: #0.2m)
Operational highlights
* Drug testing under the UK Home Office's Drug Interventions Programme
increased by 43% in the 12 months to 31 May 2007
* Acquisitions of HL and Nemesis Scientific strengthened Cozart's position
in the Scandinavian and workplace drug testing markets
* Strong commercial progress with a number of contract wins including the
Scottish Executive, Emirates Airlines and UK Home Office confirmation
testing
* Significant Commercialisation Agreement with Philips for development of
next generation of drug testing system. Philips increased shareholding to 9%
in June 2007
Sir Brian Richards, Chairman of Cozart plc, commented:
"We have seen continued strong financial performance with a 52 per cent. rise in
revenues and a trebling of operating profit. Commercially, we have achieved some
notable contract wins which should continue to drive financial performance of
the business going forward.
"Importantly, we have also continued to build on our leading-edge technology
position through the signing of a commercialisation agreement with Philips
Electronics, a major milestone for the Group.
"We were pleased to announce the offer today by Concateno plc which we believe
is an attractive price for Cozart Shareholders and represents a 41 per cent
premium to the pre-Offer share price of 40.75p."
Enquiries:
Cozart plc:
Tel: +44 (0) 1235 861 483
Dr Chris Hand, Chief Executive
Chris Yates, Finance Director
www.cozartgroup.com
Numis:
Tel : +44 (0) 207 260 1277
Michael Meade
Financial Dynamics:
Tel: +44 (0) 207 831 3113
Ben Atwell
A conference call for analysts will take place at 12:00pm today. For further
information contact Gemma Cross Brown on +44 (0) 207 831 3113
Notes to Editors - Cozart plc
Cozart is a medical diagnostics company focused on building a leading position
in the global drugs of abuse market. Cozart was founded in 1993 by Dr Chris Hand
(currently Chief Executive) and Philip Hand (currently Chief Operating Officer).
The Company floated on London's AIM (trading symbol: CZT) in July 2004 at 30p
per share with a market capitalisation of approximately #27m. Cozart has
offices in 4 countries and over 170 employees.
Cozart supplies an international customer base with its point of contact testing
products, laboratory services and forensic testing kits in the criminal justice
(e.g. police forces, probation services and prisons), medical (e.g. hospitals
and drug dependency clinics), workplace (e.g. pre-employment, random and 'for
cause' testing) and roadside markets.
Cozart provides leading-edge technology solutions to its customers through
continued innovation of its product and service portfolio. Cozart currently
supplies the Cozart(R) DDS system, a portable devices used for the on-site
testing of drugs of abuse in saliva (oral fluid) samples and is working with
Philips Electronics to develop the next generation of point of contact drug
testing system.
Chairman's Statement
During the year, we have continued to execute our strategy of building a leading
position in the drugs of abuse testing market whilst driving a strong increase
in both revenues and profits. We have expanded our international sales and
distribution platform and further developed our leading-edge technology.
Financial review
We are pleased to announce a 52% increase in revenue to #16.9m (2005/6: #11.1m),
with gross profit of #8.7m (2005/6: #5.9m), reported profit before tax of #1.1m
(2005/6: #0.3m) and adjusted* profit before tax trebling to #1.6m (2005/6:
#0.5m). Net funds as at 31 May 2007 were #0.1m (2006: #0.8m) with cash and
current asset investments of #3.6m (2006: #4.4m).
The strong increase in revenues was driven both by continued organic growth
(2006/7: 23%, 2005/6: 23%) and the impact of the acquisitions of HL Scandinavia
("HL"), Nemesis Scientific ("Nemesis") and a full year's contribution from
Spinreact. Our net funds position of #0.1m (2006: #0.8m) was augmented post
period end by the #1.9m investment by Philips in the Company in June 2007
through the exercise of their share option.
Business review
We achieved significant commercial success in the year with a number of contract
wins, including the Scottish Executive drug testing programme, the UK Home
Office laboratory confirmations contract and a workplace testing contract with
Emirates Airlines. The workplace testing market represents an attractive market
opportunity for the Group and, as such, we were delighted to acquire Nemesis in
March 2007. Nemesis is a leading provider of workplace services with an
impressive blue-chip client base. Following the 2007 year-end we announced the
award of a contract to supply a consortium of 11 English police forces with
workplace hair testing services, underlining the revenue synergies being
generated from Cozart's technology and Nemesis' expertise in providing workplace
testing solutions.
Our important contract with the UK Home Office's Drug Interventions Programme ("
DIP") continued to grow with a 43% increase in testing volumes compared to the
prior year. Furthermore, the announcement of "National Standards" by the Home
Office in July 2007 should lead to further expansion of the programme by
allowing police forces to implement drug testing force-wide, provided they meet
the various requirements set by the DIP.
Our international business continued to expand and now represents approximately
60% of our revenues (2005/6: 52%). Spinreact, our Spanish subsidiary, continued
to perform well and generated organic growth of approximately 15%. Furthermore,
we have been pleased with the integration and financial performance of HL, the
Swedish business we acquired in August 2006 for #1.0m.
The provision of leading-edge technology solutions to our customers remains a
core strategic objective for the Group. The signing of the commercialisation
agreement in June 2007 with Philips Electronics ("Philips") for a new hand-held
drug testing system represents a significant milestone for the Group and
followed the successful completion of the 18 month joint development agreement
with Philips which commenced in January 2006. We anticipate the new system being
commercially available in the first half of 2009.
Finally, on behalf of the Board, I would like to express their appreciation to
all of the Group's employees who have made such a significant contribution
during a very successful year.
Sir Brian Richards CBE
Chairman
* Figures exclude Scandinavian restructuring charge of #0.2m (2005/6: #nil) and
goodwill amortisation of #0.3m (2005/6: #0.2m)
Chief Executive's Review
The financial, operational and technological performance of the Group in the
last financial year has been excellent. Financially, the Group posted
significant revenue growth and delivered a strong increase in profits.
Operationally, we have been awarded a number of major contracts and have
continued to build our route to market through the acquisitions of HL and
Nemesis.
Technology continues to be a core focus for the Group. We are pleased with the
commercial success of the Cozart(R) DDS following launch of this system in May
2006 and the signing of the commercialisation agreement with Philips provides a
significant medium-term market opportunity for the Group.
Strategy
Our strategy remains focused on achieving a market leading position in the drugs
of abuse testing market.
Our strategic objectives are threefold: Firstly, we will focus on oral fluid ("
saliva") point of contact drugs of abuse testing. We believe the inherent
advantages of saliva point of contact testing, means that the growth potential
of this market is significant. Secondly, we will continue to innovate to build
on our leading-edge technology position in the drug testing market. The Group's
key competitive advantage is in the provision of quick, easy to use saliva point
of contact systems. As the market develops and competition emerges it is
important to maintain the Group's leading market position through innovation of
quicker, easier to use drug testing systems. Thirdly, we will continue to build
our route to market. The point of contact drug testing market is a global market
opportunity and it is therefore important for the Group to develop routes to
market in those regions where saliva drug testing is established or where
significant market growth is anticipated.
Technology
A key priority for the Group is to maintain its competitive advantage as the
leading supplier of saliva point of contact drug testing products. Saliva allows
simple, dignified and painless specimen collection. Cozart's point of contact
systems provide customers with accurate and rapid test results facilitating
immediate referral into treatment.
The Group's lead product is the Cozart(R) DDS, a portable device used for the
on-site testing of drugs of abuse in saliva samples. Taking approximately five
minutes to test for up to six drugs of abuse, the Cozart(R) DDS strengthens the
Group's position as a leading provider of leading-edge technology for the drugs
of abuse market and highlights Cozart's ability to improve and enhance its
product offering in response to customer feedback.
In addition to the Group's leading-edge point of contact technology, the Group's
analytical laboratory services division provides customers with the latest
techniques in the screening and confirmation of a range of sample types
including saliva, hair, urine and blood. The Group's laboratories are UKAS
accredited and provide a significant support to the point of contact product
range (for example allowing confirmation of saliva samples) as well as providing
the customer with a complete portfolio of testing solutions.
Following the 2007 year-end, we were delighted to sign a significant
commercialisation agreement with the Healthcare Incubator of Philips, to
manufacture and market a new biosensor system to test for drugs of abuse. The
agreement follows the successful completion of an 18 month collaboration between
Cozart and Philips under the terms of a joint development agreement which
commenced in January 2006. At the same time as signing the commercialisation
agreement, Koninklijke Philips Electronics N.V. exercised in full its option to
acquire 4,971,466 ordinary shares in Cozart at 38 pence per ordinary share
increasing its stake in Cozart to approximately 9%.
Under the terms of the commercialisation agreement, Cozart and Philips are
jointly working towards the launch of an innovative new drugs of abuse testing
system by mid-2009. Philips will have primary responsibility for the manufacture
of the new product with Cozart responsible for sales and marketing. The new
product will have the potential to test for up to eight drugs of abuse in less
than one minute and will have the flexibility to test for different combinations
or numbers of drugs as required by the market. This system is aimed at providing
police forces, medical professionals and the workplace drug testing industry
with an unrivalled, efficient, accurate and lightweight handheld device. The
commercialised product is designed to be used at the roadside, a rapidly
developing market opportunity, where speed and ease of use are key requirements.
We believe the signing of the commercialisation agreement with Philips
represents a major milestone for the Group and validates and strengthens
Cozart's leading-edge technology position within the drugs of abuse market. In
addition, we believe the potential for a hand-held device that can test for up
to eight drugs of abuse in less than one minute provides a major revenue
opportunity for the Group over the medium-term.
Market overview
Cozart's products currently address four major growing markets - criminal
justice, medical, workplace and roadside.
Criminal Justice
The criminal justice market comprises the police, probation services and
prisons. Although, the structure of each market varies by country depending on
the legislative framework in place, one common objective of testing is to break
the link between drugs and crime. The UK Home Office, for example, estimates
that for every #1 spent on drug treatment, at least #9.50 is saved in health and
crime costs.
During the financial year we continued to expand our activities in the criminal
justice market, as reflected by the growth in Cozart's participation in the UK
Home Office's Drug Interventions Programme ("DIP"). In 2006/7 sales to the UK
DIP of drug testing consumables were up 40% with operational (end-user) kit
usage increasing by 43% compared to the prior period. We believe the
announcement of "National Standards" for drug testing in July 2007 will
encourage further expansion of testing under this programme in the next
financial year.
We also achieved a significant success in the criminal justice market with the
award of a drug testing contract with the Scottish Executive in April 2007. The
contract is to supply the Cozart(R) RapiScan oral fluid system for use by the
police for mandatory drug testing of anyone arrested for a trigger offence such
as theft or a drug related crime. Those who test positive for heroin or cocaine
will be required to have a drugs assessment with a view to getting them into
treatment. Initially the programme will cover three police stations in Glasgow,
Edinburgh and Aberdeen.
In June 2007 we also announced a significant contract with the UK Home Office
for the laboratory confirmation testing of oral fluid samples. Cozart's
state-of-the-art laboratories will confirm the presence or absence of the class
A drugs cocaine and heroin following screening in police custody suites across
England and Wales as part of the Home Office DIP. The initial contract, for one
year, is based on a four year Framework Agreement between Cozart and the Home
Office. We believe that this contract win is further validation of our approach
of offering the customer a comprehensive portfolio of on-site drug testing
products with full laboratory support.
Medical
The medical market includes the provision of treatment through drug dependency
clinics and other potential locations such as drug testing in hospitals
(accident and emergency clinics) and ambulances.
The medical market represents a core revenue stream for the Group and has
significant overlap with both the workplace and criminal justice markets. For
example, individuals who test positive for heroin (opiates) or cocaine under the
Home Office DIP will be referred to a drug treatment programme. Cozart supplies
drug treatment centres in a number of countries in Europe and further afield
with a range of drug testing products including the Cozart(R) RapiScan, Cozart
(R) DDS, urine tests and analytical laboratory screening and confirmation
services. We believe the key driver of the growth of the medical market will be
its inter-relationship with other growing market segments such as the workplace
and the criminal justice market.
In July 2006, we strengthened our presence in the Swedish medical market with
the acquisition of HL for #1.0m. The acquisition of HL, combined with Cozart's
existing operation Medib, provides Cozart with a market leading position in the
Swedish market, with over 600 customers, including a significant number of drug
clinics, as well as a platform to develop the Group's operations into the rest
of Scandinavia.
Workplace
The workplace testing market relates to the provision of drug testing to
corporate customers (e.g. pre-employment, random and post-accident testing) and
other services include policy writing, training and the provision of drug
treatment programmes. The United States is currently the most developed
workplace testing market with over 50% of companies carrying out pre-employment
testing. At present, the European market is less developed - for example in the
UK, only approximately 4% of companies drug test their employees.
We believe the workplace drug testing market represents a major market
opportunity for the Group in the short- to medium-term. We expanded our presence
in this market with the acquisition of Nemesis in March 2007, paying up to #1.5m
for this leading provider of workplace services. Nemesis provides workplace drug
and alcohol testing services and products including 24 hour sample collection
and pre-employment, random and "for-cause" drug testing with an established
network of collection agents in the UK and overseas.
This acquisition enables Cozart to integrate Nemesis' services with the
Company's own drug testing products and services (on-site saliva and urine
testing systems together with laboratory screening and confirmation testing).
Since acquiring Nemesis, we have been awarded several significant contracts. In
May 2007 we were awarded a contract with Emirates Airlines, for the provision of
workplace testing services, using Cozart drug and alcohol testing products and
services. It is estimated that the three-year contract is worth approximately
#0.5m. In July 2007 we were pleased to announce a contract with a consortium of
11 regional police forces, led by the West Midlands Police Authority, to provide
workplace drug testing services using hair samples.
Roadside
Roadside testing represents an emerging opportunity for the Group. We believe
that increasing recognition of the social and economic impact of drug driving
will mean that roadside drug testing will become increasingly prevalent. A
recent study in Australia by The Alfred Hospital found that one in six road
crash victims had benzodiazepine (anti-depressants) in their system. In
addition, a recent poll by UK motor insurers, More Than, of UK drivers found
that one in five (21%) had driven shortly after taking illegal drugs.
Currently, a number of countries, such as Australia, are taking the lead in the
implementation of roadside drug testing. Victoria State Police in Australia have
the power to conduct random roadside saliva testing to detect drivers travelling
while affected by illicit drugs. Drug driving is a major contributor to road
fatalities in Victoria. In 2003, a total of 31% of drivers killed in Victoria
tested positive for drugs other than alcohol. The Cozart(R) DDS is currently
used at the roadside in the State of Victoria to test drivers for cannabis (THC)
and the stimulant methamphetamine. The Cozart(R) RapiScan and Cozart(R) DDS are
also used at the roadside in Croatia, Spain and Italy.
We believe the roadside drug testing market has significant growth potential and
we continue to invest in developing innovative drug testing systems that will
improve speed and ease of use; two key requirements of the roadside drug testing
market. Our partnership with Philips is focused on developing a product for use
at the roadside. This system will provide police forces with an unrivalled,
efficient, accurate and lightweight handheld device, with the same speed and
ease of use as current breath alcohol devices.
Summary and Outlook
Overall, Cozart has had an excellent year both financially and operationally,
delivering strong growth in revenues and profits whilst successfully integrating
acquisitions.
The Board is pleased with the Group's performance in the previous year and is
pleased to announce the recommended cash offer for the Group. We believe that
this cash offer represents a good premium for shareholders and that Concateno is
a logical partner for Cozart going forwards.
Dr Chris Hand
Chief Executive
Finance Director's Review
Trading Summary
Revenue increased by 52% to #16.9m (2005/6: #11.1m). We saw impressive organic
revenue growth of approximately 23% in the year, as well as contributions from
our acquisitions of HL and Nemesis and a full year's contribution from
Spinreact. Geographically, sales outside the UK now account for 60% (2005/6:
52%) of revenue. Reported operating profit improved to #1.2m (2005/6: #0.4m) and
adjusted* operating profit improved to #1.7m (2005/6: #0.6m). We were pleased to
report profit before tax of #1.1m (2005/6 #0.3m) and an adjusted* profit before
tax of #1.6m (2005/6: #0.5m). The Group generated #0.9m of cash from operations
(2005/6: #0.6m) and, as at 31 May 2007, the Group had net funds of #0.1m (2006:
#0.8m).
Revenue
Reported Group revenue grew from #11.1m in 2005/6 to #16.9m in 2006/7. Excluding
the effects of the acquisitions of HL and Nemesis, revenue from continuing
businesses grew 41% from #11.1m to #15.7m.
Revenue - by division
12 months 12 months 12 months 12 months
to 31 May to 31 May to 31 May to 31 May
2007 2007 2007 2006
Continuing Acquired
operations operations Total Total
#m #m #m #m
_____ _____ _____ _____
Point of contact 5.5 0.9 6.4 4.0
Drug-testing services 1.6 0.2 1.8 1.5
Laboratory products 8.6 0.1 8.7 5.6
_____ _____ _____ _____
Total 15.7 1.2 16.9 11.1
_____ _____ _____ _____
Point of contact products
Revenues increased in this division from #4.0m to #6.4m. One key contributor was
consumable sales to the Home Office DIP which were #2.3m in the year (2005/6:
#1.6m), an increase of 40% compared to the prior year. In addition, operational
(end-user) kit usage of the Cozart(R) RapiScan drug test kits within the DIP was
43% higher compared to the prior year, with 240,700 cartridges despatched (2005/
6: 168,700).
Outside of the Home Office DIP, point of contact sales were #4.1m which was 71%
higher than last year. Revenue growth was driven by increased penetration of
existing markets, such as drug dependency clinics, and growth into new markets
such as Italy and Australia. HL, the Swedish business acquired in August 2006,
contributed #0.9m of revenue. Excluding the impact of HL and the Home Office
DIP, point of contact revenues grew by 33%.
Drug-testing services
Our drug-testing services include our in-house screening and confirmation
testing service based at our state-of-the-art analytical laboratory in Abingdon,
Oxfordshire and our workplace drug testing services business, Nemesis, which we
acquired in March 2007.
In the 12 months to 31 May 2007 revenue from this division increased by #0.3m to
#1.8m (2005/6: #1.5m). The analytical testing services revenues were reasonably
flat year-on-year, due in part to the loss of a testing contract in the early
part of the financial year. Nemesis has performed well since acquisition and
generated #0.2m of revenues which was in line with expectations. In addition, we
were pleased to announce the award of a #0.5m three year workplace testing
contract with Emirates Airlines in May 2007.
Overall, the prospects for this division remain good, with the recent award of
the hair testing contract by a consortium of 11 police forces in England and the
confirmation contract awarded by the UK Home Office in June 2007. These
contracts, and a full year impact from Nemesis, should underpin growth in our
services business revenues over the next financial year.
Laboratory products
Our laboratory products division continued to deliver strong revenue growth.
Revenue increased by 56% from #5.6m to #8.7m. The prior year comparable figure
includes only 8 months' contribution from Spinreact. On a like-for-like basis,
the laboratory products business achieved revenue growth of 14%. The main
drivers of this growth were greater sales of Spinreact's product range, in
particular its serology reagents, to its existing distributor network coupled
with an increase in the number of distributors of Spinreact products.
Revenue - by geography
Over 60% of sales were generated from outside the UK, compared to 52% for the
prior year and 13% in the year to 31 May 2005. In the year to 31 May 2007, the
rest of Europe contributed 28%, South America 13% and Rest of World 19% to the
Group's revenues.
The acquisition of HL and a full year impact from the prior year acquisition of
Spinreact contributed to the development of the Group's increasingly
international business. In addition, the Group has seen growth in drug-testing
product sales in other countries such as Italy and Australia.
Gross profit
Gross profit increased to #8.7m (2005/6: #5.9m). The gross profit margin of 51%
(2005/6: 54%) reflects the Group's changed product mix following the full impact
in this financial year of the acquisition of Spinreact. Excluding Spinreact,
Cozart's gross margin of 66% was broadly in line with the previous period (2005/
6: 64%). Spinreact achieved a gross margin of 35%, which was lower than last
year in part due to the impact of the dollar-euro rate on sales into South
America, which represented 28% of Spinreact's revenues in the year.
Operating expenses
Whilst operating expenses rose from #5.5m in 2005/6 to #7.5m in 2006/7, the
Group's operating expenses decreased as a percentage of sales revenue to 44%
(2005/6: 50%). The main contributors to operating expenses were payroll (44%)
and establishment costs (15%).
Payroll costs of #3.3m represented 44% of operating expenses in the year (2005/
6: 43%). This included share-based compensation of #0.1m in the year (2005/6:
#0.0m). We employed 171 people worldwide as at 31 May 2007 (2006: 132) and the
average for the year was 164 (2005/6: 117).
Expenditure on research and development was #0.4m (2005/6: #0.4m). As a
percentage of sales, research and development expenditure was 3% (2005/6: 4%).
Development expenditure of #0.4m (2005/6: #nil) in relation to the
Philips-Cozart development programme was capitalised during the year.
Capitalised development costs of #0.8m in relation to the Cozart(R) DDS are
being amortised over five years, following launch of the product in July 2006.
An amortisation charge of #0.1m (2005/6: #nil) was recognised in the year.
Goodwill amortisation during the period was #0.3m (2005/6: #0.2m) and
depreciation within operating expenses was #0.2m (2005/6: #0.1m).
Restructuring costs of #0.2m (2005/6: #nil) were incurred during the year in
relation to our Scandinavian operations, following the acquisition of HL in
August 2006.
Operating profit
Operating profit increased three-fold to #1.2m (2005/6: #0.4m).
The Group also reported a significant improvement in adjusted* operating profit
with a #1.1m rise in adjusted* operating profit to #1.7m (2005/6: #0.6m).
Profit before tax
Reported profit before tax was #1.1m (2005/6: #0.3m). Adjusted* profit before
tax improved by #1.1m to #1.6m (2005/6: #0.5m).
Finance costs
Net interest payable was #0.1m (2005/6: #0.1m). Interest payable on net
borrowings was #0.2m (2005/6: #0.2m). Interest cover, the ratio of operating
profit to interest on net borrowings, was 10.7 times (2005/6: 7.9 times).
Taxation
The recognition of a deferred tax asset of #0.3m was offset by a current tax
charge of #0.5m which gave rise to an overall tax charge of #0.2m (2005/6:
#0.1m) in the year. This represented an effective tax rate of 21% (2005/6: 38%).
The majority of the current tax charge of #0.5m was incurred in Spinreact, the
Group's Spanish subsidiary. The effective tax rate in Spain was 22% which was
lower than the official Spanish corporation tax rate of 35% primarily due to the
impact of R&D tax credits received in Spain.
Earnings per share
The Group's reported profit after tax for the year was #0.9m (2005/6: #0.2m).
Based on an average number of shares in issue over the period 103,546,991,
earnings per share for the year were 0.81p (2005/6: 0.16p). Before goodwill
amortisation and Scandinavian restructuring costs, adjusted basic earnings per
share rose to 1.28p (2005/6: 0.33p).
Diluted earnings per share were 0.81p (2005/6: 0.16p). Before goodwill
amortisation and Scandinavian restructuring costs, adjusted diluted earnings per
share rose to 1.28p (2005/6: 0.33p).
Cash flow and Treasury
The cash flow is summarised below:
2006/7 2005/6
#m #m
_____ _____
EBITDA 2.1 0.8
Share-based payment charge 0.1 0.0
Change in working capital (1.3) (0.2)
_____ _____
Net cash inflow from operating activities 0.9 0.6
_____ _____
Capital expenditure (1.1) 0.5
Interest and tax (0.5) (0.2)
Acquisitions (2.1) (6.9)
Financing 2.1 2.9
_____ _____
Net funds flow during the year (0.7) (3.1)
_____ _____
Net funds at the start of year 0.8 3.9
Net funds at the end of year 0.1 0.8
_____ _____
Net cash inflow from operating activities was #0.9m (2005/6: #0.6m). This was
due to improved EBITDA performance as a result of organic revenue growth and the
impact of the acquisitions undertaken in the current and prior year. Working
capital as a percentage of revenue during the year was 26% (2005/6: 30%).
Net cash outflow from capital expenditure was #1.1m (2005/6: inflow #0.5m),
contributing to the increase in the value of tangible fixed assets to #1.6m
(2006: #1.3m). The capital expenditure was principally the investment in the fit
out of the first floor of the Group's facility in Abingdon, Oxfordshire. This
included the establishment of a new R&D laboratory, the expansion of the
analytical laboratory and the establishment of a clean room packing facility for
DNA kit assembly. In addition, the Group incurred #0.4m of capitalised
development costs (2005/6: #0.5m) principally in relation to the Cozart-Philips
development project.
There were cash outflows of #1.0m and #1.1m respectively for the acquisitions of
HL and Nemesis. The HL acquisition was funded through a vendor placing of
3,700,000 ordinary shares at a price of 28.0p per share. The Nemesis acquisition
was financed through a vendor placing of 3,636,363 ordinary shares at a price of
33.0p per share. In addition, #0.4m of deferred consideration is payable in the
form of shares to the vendors of Nemesis if revenue targets are met in the two
years following the acquisition of Nemesis.
Net funds as at 31 May 2007 were #0.1m (2006: #0.8m) consisting of #3.6m of cash
and cash equivalents, the #3.0m senior debt facility incurred on acquisition of
Spinreact and #0.4m of CDTI loans in Spain, which are nil interest bearing
loans, granted by the Catalan regional authority to fund research and
development. The Company's cash balances were strengthened in June 2007
following the exercise by Philips of its option over ordinary shares in Cozart
plc, which raised a further #1.9m.
The Group had undrawn committed facilities of #0.5m as at 31 May 2007 (2006:
#3.5m).
Treasury
The Group's policy governing the investment of cash resources is to invest in
low-risk cash or cash equivalent investments to safeguard the principal to
ensure that these resources remain available to fund the Group's operations,
while still seeking to maximise returns.
Transactions in foreign currencies are matched where possible. A significant
proportion of operating and intangible assets are denominated in Euros. However,
the Group's borrowings are predominantly in Sterling. Translation effects of
exchange rate movements in the income statement are not hedged.
Balance Sheet
The balance sheet is summarised below:
2007 2006
#m #m
_____ _____
Intangible fixed assets 8.2 5.5
Tangible fixed assets 1.6 1.3
Net current assets 8.1 7.7
Creditors > 1 year (3.4) (3.6)
Provisions for liabilities and charges (1.9) (1.8)
Shareholders' funds 12.6 9.1
_____ _____
The Group's balance sheet remained robust with net current assets of #8.1m
(2006: #7.7m) and net assets of #12.6m (2006: #9.1m).
The carrying value of goodwill arising from acquisitions was #7.1m. (2006:
#4.7m). In accordance with UK Generally Accepted Accounting Principles ("UK GAAP
") the goodwill is being amortised over 20 years. In addition, the Group had
capitalised development costs in relation to the developed Cozart(R) DDS system
and the on-going development of the Cozart-Philips system of #1.1m (2006:
#0.8m). Capitalised development costs of #0.8m in relation to the Cozart(R) DDS
are being amortised over five years, following its launch in 2006.
The main components of "Other net assets" were trade receivables, stock, a
deferred tax asset, trade payables and deferred consideration.
Stock grew by #0.4m to #2.8m (2006: #2.4m). Trade debtors increased from #3.7m
to #4.5m due to relatively very high sales in the last few months of the
financial year. Debtor days were 99 compared to 121 in the prior year.
A deferred tax asset of #0.3m was recognised in the year; the majority of this
is in relation to tax losses carried forward in the Group's main UK subsidiary,
Cozart Bioscience Limited, as a result of recent and forecast trading, the level
of UK taxable profits are expected to be sufficient to utilise these tax losses
carried forward.
Current liabilities increased to #3.9m (2005/6: #3.3m). Trade payables increased
from #0.8m to #1.2m. Creditors due after more than one year, of #3.4m (2006:
#3.6m), consisted of a #3.0m bank facility with Bank of Scotland and local
government loans of #0.4m in Spain.
Post Balance Sheet Events
On 28 June 2007, the Company announced a joint commercialisation agreement with
Philips. Under an existing Subscription and Option Agreement, Koninklijke
Philips Electronics N.V. has exercised in full its option to acquire 4,971,466
ordinary shares in Cozart plc at 38p per ordinary share (being the 20 day moving
average prior to the signing of the commercialisation agreement as specified in
the option agreement signed in January 2006), raising #1.9m for Cozart and
giving Philips, as at 24 August, a stake of 8.7% in the Company.
On 5 September 2007, Concateno plc made an offer to acquire the Company, for
cash consideration of 57.5p per ordinary share. The Board recommended this offer
to shareholders on this date.
Chris Yates
Finance Director
* Figures exclude Scandinavian restructuring charge of #0.2m (2005/6: #nil) and
goodwill amortisation of #0.3m (2005/6: #0.2m)
Consolidated Profit and Loss Account
For the year ended 31 May 2007
2007 2007 2007
Continuing Acquired operations
operations HL Nemesis
Notes #m #m #m
Turnover 2 15.8 0.9 0.2
Cost of sales (7.7) (0.4) (0.1)
_____ _____ _____
Gross profit 8.1 0.5 0.1
Other operating expenses 3 (7.0) (0.4) (0.1)
_____ _____ _____
Operating profit before
Scandinavian restructuring costs and
goodwill amortisation
1.6 0.1 0.0
Scandinavian restructuring costs 4 (0.2) - -
Goodwill amortisation (0.3) - -
_____ _____ _____
Operating profit 1.1 0.1 0.0
Finance (charges)/income (net) 5 (0.1) 0.0 (0.0)
_____ _____ _____
Profit on ordinary activities
before taxation 6 1.0 0.1 0.0
Tax charge on profit on
ordinary activities 8 (0.2) (0.0) (0.0)
_____ _____ _____
Retained profit for the year 0.8 0.1 0.0
_____ _____ _____
Consolidated Profit and Loss Account
For the year ended 31 May 2007
(continued from table above)
Restated
2007 2006
Total
Notes #m #m
Turnover 2 16.9 11.1
Cost of sales (8.2) (5.2)
_____ _____
Gross profit 8.7 5.9
Other operating expenses 3 (7.5) (5.5)
_____ _____
Operating profit before
Scandinavian restructuring costs and
goodwill amortisation
1.7 0.6
Scandinavian restructuring costs 4 (0.2) -
Goodwill amortisation (0.3) (0.2)
_____ _____
Operating profit 1.2 0.4
Finance (charges)/income (net) 5 (0.1) (0.1)
_____ _____
Profit on ordinary activities
before taxation 6 1.1 0.3
Tax charge on profit on
ordinary activities 8 (0.2) (0.1)
_____ _____
Retained profit for the year 0.9 0.2
_____ _____
Earnings per share (pence per share)
Basic and diluted 9 0.81 0.16
Results for the year ended 31 May 2006 have been restated to reflect the impact
of the adoption of FRS 20 "Share-based payment". See note 12 for details.
Consolidated Statement of Total Recognised Gains and Losses
For the year ended 31 May 2007
Restated
2007 2006
#m #m
Profit for the financial year 0.9 0.2
Translation of the financial statements of overseas subsidiaries (0.1) 0.0
_____ _____
Total recognised gains and losses relating to the year 0.8 0.2
_____ _____
Results for the year ended 31 May 2006 have been restated to reflect the impact
of the adoption of FRS 20 "Share-based payment". See note 12 for details.
Consolidated Balance Sheet
As at 31 May 2007
Restated
2007 2006
Notes #m #m
Fixed assets
Intangible assets 10 8.2 5.5
Tangible assets 1.6 1.3
_____ _____
9.8 6.8
_____ _____
Current assets
Stock 2.8 2.4
Debtors 5.6 4.2
Current asset investments 1.6 1.3
Cash at bank and in hand 2.0 3.1
_____ _____
12.0 11.0
_____ _____
Creditors: amounts falling due within one year (3.9) (3.3)
_____ _____
Net current assets 8.1 7.7
_____ _____
Total assets less current liabilities 17.9 14.5
Creditors: amounts falling due after more than one
year
(3.4) (3.6)
Provisions for liabilities and charges (1.9) (1.8)
_____ _____
Net assets 12.6 9.1
_____ _____
Capital and reserves
Called-up share capital 11 1.1 1.0
Share premium account 13 9.6 7.5
Merger reserve 13 2.9 2.9
Shares to be issued 13 0.4 -
Profit and loss account 13 (1.4) (2.3)
_____ _____
Shareholders' funds 12.6 9.1
_____ _____
The balance sheet as at 31 May 2006 has been restated to reflect the impact of
the adoption of FRS 20 "Share-based payment". See note 12 for details.
Consolidated Cash Flow Statement
For the year ended 31 May 2007
Restated
2007 2006
Note #m #m
Net cash inflow from operating activities 14 0.9 0.6
Returns on investments and servicing of finance
Interest and other income received 0.1 0.1
Interest paid (0.2) (0.1)
Interest element of finance lease rentals 0.0 0.0
_____ _____
Net cash (outflow)/inflow (0.1) 0.0
_____ _____
Taxation
Overseas corporation tax paid (0.4) (0.2)
_____ _____
Net cash outflow (0.4) (0.2)
_____ _____
Capital expenditure and financial investment
Development costs capitalised (0.4) (0.5)
Purchase of tangible fixed assets (0.7) (0.1)
Sale of tangible fixed assets 0.0 1.1
_____ _____
Net cash (outflow)/inflow (1.1) 0.5
_____ _____
Acquisitions and disposals
Purchase of subsidiary undertakings (2.1) (7.4)
Acquisition expenses (0.1) (0.6)
Cash at bank and in hand acquired with subsidiaries 0.1 1.1
_____ _____
Net cash outflow (2.1) (6.9)
_____ _____
Cash outflow before management of liquid resources and (2.8) (6.0)
financing
_____ _____
Management of liquid resources
(Increase)/decrease in short-term deposits (0.3) 3.2
_____ _____
Net cash (outflow)/inflow (0.3) 3.2
_____ _____
Financing
Issue of ordinary share capital (net of expenses) 2.1 2.8
Exercise of share options 0.0 0.0
Capital element of finance lease repayments 0.0 0.0
(Decrease)/increase in debt during the year (0.1) 2.9
_____ _____
Net cash inflow 2.0 5.7
_____ _____
(Decrease)/increase in cash in the period (1.1) 2.9
_____ _____
Subsidiary undertakings acquired in the year contributed #0.05m to the Group's
net operating cash flows, paid #0.04m in respect of taxation, and paid #0.03m in
respect of capital expenditure and financial investment.
Results for the year ended 31 May 2006 have been restated to reflect the impact
of the adoption of FRS 20 "Share-based payment". See note 12 for details.
Notes to the Financial Statements
For the year ended 31 May 2007
Selected notes to the financial statements.
1 Basis of preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2007 or 2006, but is derived from
those accounts. Statutory accounts for 2006 have been delivered to the Registrar
of Companies and those for 2007 will be delivered following the company's annual
general meeting. The auditors have reported on those accounts; their reports
were unqualified and did not contain statements under s. 237(2) or (3) Companies
Act 1985.
This announcement is prepared on the basis of the accounting policies as stated
in the previous year's financial statements with the exceptions of FRS 20 "
Share-based payment" which was adopted during the year. See note 12 for details.
2 Segmental information
2007 2006
#m #m
Turnover
By geographical destination
United Kingdom 6.7 5.3
Other European countries 4.7 2.5
Rest of World 5.5 3.3
_____ _____
16.9 11.1
_____ _____
Turnover
By location of operation
United Kingdom 7.5 5.8
Other European countries 9.4 5.3
Rest of World - -
_____ _____
16.9 11.1
_____ _____
Profit/(loss) before taxation
By location of operation
United Kingdom (0.2) (0.4)
Other European countries 1.3 0.7
Rest of World - -
_____ _____
1.1 0.3
_____ _____
Net assets
By location of operation
United Kingdom 7.2 4.6
Other European countries 5.4 4.5
Rest of World - -
_____ _____
12.6 9.1
_____ _____
In the opinion of the Directors, the Group's activities constitute one class of
business.
3 Operating expenses
2007 2006
#m #m
Administrative expenses 7.3 5.3
Distribution costs 0.2 0.2
_____ _____
7.5 5.5
_____ _____
4 Scandinavian restructuring costs
2007 2006
#m #m
Employee costs in respect of restructuring 0.1 -
Other operating costs in respect of restructuring 0.1 -
______ ______
0.2 -
______ ______
During the year, the Group's Scandinavian-based operations were restructured. In
order to assist in the understanding of these items to the current period's
results, the Directors believe that it is appropriate to show separately the
operating profit of the Group before the non-recurring costs on the face of the
profit and loss account as additional information.
5 Finance (charges)/income
2007 2006
#m #m
Investment income
Bank interest receivable 0.1 0.1
Interest payable and similar charges
Bank loans and overdrafts (0.2) (0.2)
______ ______
Finance (charges)/income (net)
Interest payable and similar charges (0.2) (0.2)
Investment income 0.1 0.1
______ ______
(0.1) (0.1)
______ ______
6 Profit on ordinary activities before taxation
Profit on ordinary activities before taxation is stated after charging:
2007 2006
#m #m
Depreciation on tangible fixed assets
- owned 0.4 0.3
- leased 0.0 0.0
Loss on disposal of tangible fixed assets 0.0 0.0
Amortisation of patents and trademarks 0.0 0.0
Amortisation of capitalised development costs 0.1 -
Research and development
- current period expenditure 0.4 0.4
Amortisation of goodwill 0.3 0.2
Operating lease rentals
- plant and machinery 0.0 0.1
- other - land and buildings 0.3 0.3
Auditors' remuneration
- audit services 0.1 0.1
- non-audit services 0.0 0.0
______ ______
The auditors for the years ending 31 May 2007 and 31 May 2006 were Deloitte &
Touche LLP. Fees payable to the Company's auditor for the audit of the Company's
annual accounts were #15,000 (2006: #10,000). Fees payable to the Company's
auditor and its associates for the audit of the Company's subsidiaries, pursuant
to legislation, were #57,000 (2006: #55,000). Fees payable in respect of interim
review procedures during the year were #13,000 (2006: #15,000) and fees payable
in respect of tax services were #2,500 (2006: #nil).
7 Staff costs
The average monthly number of employees (including Directors) for the Group over
the whole 12 month reporting period was:
2007 2006
Number Number
Production and development 105 70
Distribution 2 2
Sales and administration 57 45
______ ______
164 117
______ ______
Their aggregate remuneration comprised:
2007 2006
#m #m
Wages and salaries 4.3 3.0
Social security costs 0.6 0.3
Other pension costs 0.2 0.1
______ ______
5.1 3.4
______ ______
8 Tax charge on profit on ordinary activities
The tax charge comprises:
2007 2006
#m #m
Current tax
UK corporation tax 0.0 0.3
Double tax relief - (0.3)
Foreign tax 0.5 0.1
______ ______
Total current tax 0.5 0.1
Total deferred tax (0.3) 0.0
______ ______
Total tax on profit on ordinary activities 0.2 0.1
______ ______
The difference between the total current tax shown above, and the amount
calculated by applying the standard rate of UK corporation tax of 30%, to the
profit before tax, is as follows:
2007 2006
#m #m
Profit on ordinary activities before tax 1.1 0.3
Tax at 30% (2006: 30%) thereon 0.3 0.1
Effects of:
Expenses not deductible for tax purposes 0.2 0.4
Capital allowances in excess of depreciation 0.0 0.0
Tax losses not recognised and other timing differences 0.1 (0.1)
R&D tax relief (0.2) (0.1)
Double tax relief - (0.3)
Higher tax rate on overseas earnings 0.1 0.1
______ ______
Current tax charge for the period 0.5 0.1
______ ______
The tax charge in future periods may be affected by the availability of R&D tax
relief and the utilisation of tax losses carried forward.
9 Earnings per share
Earnings per share is calculated by dividing the profit attributable to ordinary
shareholders by the weighted average number of ordinary shares held during the
year.
Restated
Basic Basic
and diluted and diluted
2007 2006
#m #m
For basic and diluted earnings per share
Profit for the year 0.9 0.2
______ ______
For adjusted earnings per share
Profit for the year 0.9 0.2
add back goodwill amortisation 0.3 0.2
add back Scandinavian restructuring costs 0.2 -
______ ______
Adjusted profit for the year 1.4 0.4
______ ______
Weighted average number of ordinary shares
For basic earnings per share 103,546,991 96,069,917
Exercise of share options 891,871 698,535
______ ______
For diluted earnings per share 104,438,862 96,768,452
______ ______
Basic and diluted earnings per share (pence per share) 0.81 0.16
Reconciliation to adjusted earnings per share:
Impact of goodwill amortisation 0.31 0.17
Impact of Scandinavian restructuring costs 0.16 -
______ ______
Adjusted basic and diluted earnings per share (pence per share) 1.28 0.33
______ ______
10 Acquisitions
On 9 August 2006, the Group acquired HL Scandinavia AB ("HL"), based in
Stockholm, Sweden, for cash consideration of #1.0m, financed through a vendor
placing.
On 12 March 2007 the Group acquired Nemesis Scientific Limited ("Nemesis"),
based in Wakefield, England for #1.5m. Initial cash consideration of #1.1m was
financed through a vendor placing. Deferred consideration of #0.4m is payable on
the first and second anniversaries of the acquisition (#0.25m and #0.15m
respectively in shares) if certain performance criteria are met.
The provisional fair value of net assets acquired on each acquisition were as
follows:
Nemesis Nemesis HL book and
Fair Provisional provisional
Nemesis value fair value to fair value to
Book value adjustment the Group the Group
#'000 #'000 #'000 #'000
Fixed assets 73 (25) 48 10
Stock 4 - 4 27
Debtors 233 - 233 88
Cash (46) - (46) 98
_____ _____ _____ _____
Total assets 264 (25) 239 223
_____ _____ _____ _____
Creditors: amounts falling due within (218) - (218) (123)
one year
Creditors: amounts falling due after (5) - (5) -
more than one year
_____ _____ _____ _____
Total liabilities (223) - (223) (123)
_____ _____ _____ _____
Total net assets 41 (25) 16 100
_____ _____ _____ _____
Goodwill 1,558 918
Total purchase cost 1,574 1,018
_____ _____
Satisfied by:
Total consideration 1,540 972
Cash paid for acquisition expenses 34 46
_____ _____
1,574 1,018
Less: deferred consideration (400) -
_____ _____
Net cash outflow in respect of purchase 1,174 1,018
_____ _____
The provisional fair value adjustment above relates to the elimination of
Nemesis' acquired goodwill (#25,000).
HL's (loss)/profit before tax for the period 1 July 2006 to 9 August 2006 was #
(12,000), and for the year ended 30 June 2006, was #84,000.
Nemesis' profit before tax for the period 1 October 2006 to 12 March 2007 was
#17,000, and for the year ended 30 September 2006, was #68,000.
During the year, the fair value of Spinreact's net assets acquired was adjusted
to #4,622,000 (2005/6: provisional fair value #4,894,000). This fair value
adjustment has given rise to an increase in goodwill of #272,000.
The goodwill on these acquisitions is being written off on a straight-line basis
over a period of 20 years.
11 Called up share capital
The share capital of the Company is shown below:
2007 2006
#m #m
Authorised share capital:
130,000,000 ordinary shares of #0.01 each 1.3 1.3
_____ _____
Allotted, called up and fully paid
106,977,855 (2006: 99,493,884) ordinary shares of #0.01 each 1.1 1.0
_____ _____
During the year the following ordinary shares of #0.01 were issued by the
Company in respect of share options:
Total nominal Total share Total
Number of value premium consideration
Shares # # #
_____ _____ _____ _____
Exercise of share options 147,608 1,476 15,599 17,075
_____ _____ _____ _____
12 Share based payments
The Group has applied the requirements of FRS 20 (IFRS 2) Share-based Payment in
the period. In accordance with the transitional provisions, FRS 20 has been
applied to all grants of equity instruments after 7 November 2002 that were
unvested as of 1 June 2005.
The Company provides benefits to employees (including Directors) of the Company
in the form of share-based payment transactions, whereby employees render
services in exchange for rights over shares ("equity-settled transactions"). The
fair value of the employee services rendered is determined by reference to the
fair value of the options granted.
All share options are valued using an option-pricing model (Black-Scholes). This
fair value is charged to the profit and loss account over the vesting period of
the share-based payment scheme, with the corresponding increase in equity. The
value of the charge is adjusted in the profit and loss account over the
remainder of the vesting period to reflect expected and actual levels of options
vesting, with the corresponding adjustment made in equity.
The adoption of FRS 20 has resulted in a change in accounting policy for
share-based payments. A prior year adjustment has been made to the financial
information set out for the period to 31 May 2006 to apply charges to the profit
and loss account for share options granted.
The Group has recognised a total expense of #76,287 relating to equity settled
share option scheme transactions in the year to 31 May 2007 (#45,714 in the year
to 31 May 2006). The impact on net assets was #nil (2006: #nil).
13 Reserves
Share premium Merger Shares to be Profit and
reserve issued loss
account Total
#m #m #m #m #m
Group
At 1 June 2006 7.5 2.9 - (2.3) 8.1
Premium on shares issued during
the period (net of expenses) 2.1 - - - 2.1
Exercise of share options 0.0 - - - 0.0
Share-based payments reserve - - - 0.1 0.1
movement
Deferred consideration - - 0.4 - 0.4
Retained profit for the financial - - - 0.9 0.9
year
Currency translation differences - - - (0.1) (0.1)
_____ _____ _____ _____ _____
At 31 May 2007 9.6 2.9 0.4 (1.4) 11.5
_____ _____ _____ _____ _____
14 Reconciliation of operating cash flows
2007 2006
#m #m
Operating profit 1.2 0.4
Depreciation and amortisation 0.9 0.4
Share based payment charge 0.1 0.0
Increase in stocks (0.4) (0.2)
Increase in debtors (1.1) (0.5)
Increase in creditors 0.2 0.5
_____ _____
Net cash inflow from operating activities 0.9 0.6
_____ _____
15 Analysis and reconciliation of net funds/(debt)
1 June 2006 Cash flow Acquired in 31 May 2007
Period
#m #m #m #m
Cash held as short term investment 1.3 0.3 - 1.6
Cash at bank and cash in hand 3.1 (1.2) 0.1 2.0
Debt due within one year (0.1) (0.0) - (0.1)
Debt due after more than one year (3.5) 0.1 - (3.4)
_____ _____ _____ _____
Net funds 0.8 (0.8) 0.1 0.1
_____ _____ _____ _____
2007 2006
#m #m
(Decrease)/increase in cash in the period (1.1) 2.9
Cash outflow/(inflow) from change in debt financing 0.1 (3.6)
Cash outflow/(inflow) from change in liquid resources 0.3 (2.4)
_____ _____
Change in net funds resulting from cash flows (0.7) (3.1)
Net funds at beginning of period 0.8 3.9
_____ _____
Net funds at end of period 0.1 0.8
_____ _____
16 Subsequent events
On 28 June 2007, the Company entered into a commercialisation agreement with the
Healthcare Incubator of Philips Electronics to manufacture and market a new
biosensor system to test for drugs of abuse. On the same date, Koninklijke
Philips Electronics N.V. exercised in full its option to acquire 4,971,466
ordinary shares in the Company at 37.6 pence per ordinary share thus raising
#1.9m for the Company. Following this exercise, their shareholding increased to
8.7% as at 30 August 2007.
On 5 September 2007, Concateno plc made an offer to acquire the Company, for
cash consideration of 57.5p per ordinary share. The Board recommended this offer
to shareholders on this date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSSSIISWSEEU
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