ANNUAL REPORT 2014
EKF Diagnostics Holdings plc
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Contents
1.0 Strategic Review
Financial and operational highlights
At a glance
Business Model
Organisational Structure
Chairman’s Statement
Chief Executive’s Review
Board of Directors
2.0 Governance
Strategic Report
Report of the Directors
Corporate Governance Statement
Report of the Remuneration Committee
Independent Auditors’ Report
3.0 Financial Statements
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated and Company’s
Statements of Financial Position
Consolidated and Company’s
Statements of Cash Flows
Consolidated and Company’s
Statements of Changes in Equity
Notes to the Financial Statements
4.0 Additional Information
Notice of Annual General Meeting
Company Information
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EKF Diagnostics Holdings plc is a global, integrated
medical diagnostics business.
Our expertise extends across three core divisions: The design and manufacture
of diagnostic equipment including analysers and rapid tests; the manufacture of
enzymes and liquid reagents used in clinical chemistry; and molecular diagnostic
test kits and a spectrum of molecular testing services.
The fusion of traditional laboratory testing products, modern Point-of-Care
technology and next generation molecular testing products and services makes
EKF Diagnostics unique in the fi eld of small to mid-sized medtech businesses.
Financial and operational highlights
1.0 Strategic Review
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
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26% increase in revenues year-on-year with
signifi cant contributions from new acquisitions.
• Group revenues of £40.06m (up 26%)
• Organic growth of 6% year-on-year with
acquisitions contributing £6.5m
• 38% increase in revenues in the second half
of 2014 compared to 2013 (£23.3m v £16.9m)
• Gross profi t up 22% to £19.9m
• Adjusted EBITDA up 31% to £6.3m
• Net cash of £2.1m (2013: £0.1m)
• Over 18,000 point-of-care analysers sold
• Almost 56m tests manufactured across the
diagnostic analyser portfolio
• Revenues from Hemo Control hemoglobin
analysers up by 23%
• Revenues from Quo-Lab HbA1c analysers up
by 69%
• Revenues of Beta-Hydroxybutyrate
Liquicolor reagent increased by 9%
2014 built on the achievements of 2013. The
installed base of active point-of-care analysers
is estimated to be more than 80,000 providing
a consistent demand for tests. Clinical
chemistry continues to be a competitive
market and yet Beta-Hydroxybutyrate
Liquicolor sales grew through a sustained
focus in the USA.
Molecular diagnostics contributed revenues for
the fi rst time with Selah Genomics, acquired in
April 2014, providing new revenue streams from
a portfolio of molecular test services. EKF’s
proprietary molecular testing platform,
PointMan™ also delivered revenues from the
research-use-only market ahead of the planned
release of CE marked products in 2015.
Building momentum
Signifi cant increase across all metrics of
fi nancial performance
£40.06 £19.95 £6.26
Turnover (£m)
Gross profi t (£m)
Adjusted EBITDA (£m)
+26%
+22%
+31%
£31.80
2013
£26.06
2012
£21.66
2011
£16.35
2013
£14.31
2012
£10.38
2011
£4.82
2013
£3.20
2012
£1.57
2011
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ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
At a glance
Company history
In the 25 years since EKF was founded it has grown from a humble electrical
engineering company based in the hinterland of the east German city of
Magdeburg into an international, stock market-listed medical technology
business.
The pace of change accelerated at the turn of
the 21st Century when EKF-diagnostic made
the strategic decision to focus on developing
a range of glucose, lactate and hemoglobin
analysers.
When, in 2010, EKF-diagnostic was acquired by
UK AIM-listed company IBL plc, the process
of building a unique international IVD business
began in earnest as Quotient Diagnostics Ltd in
Walton-on-Thames and Dublin based
Argutus Medical were bought. These
acquisitions expanded EKF’s portfolio to
include HbA1c analysers and kidney and liver
biomarkers for use in pharmaceutical research.
In 2011 the business, by now known as EKF
Diagnostics Holdings plc, bought Stanbio
Laboratory, a clinical chemistry manufacturer
and distributor of IVD analysers based near
San Antonio, Texas. The company’s US
presence was increased further in 2014
through the purchase of Separation
Technology Inc., Florida, a manufacturer of
hematocrit analysers and laboratory
centrifuges. This was followed by the purchase
of DiaSpect Medical A.B. a Swedish owned,
German based manufacturer of hematology
products.
EKF Molecular Diagnostics was added to the
company portfolio in March 2013 following the
acquisition of 360 Genomics from Oxitec
Limited and others. This fi rst foray into
molecular diagnostics was complemented in
April 2014 with the purchase of Selah
Genomics Inc, Greenville, South Carolina a
laboratory specialising in molecular
diagnostics for personalised medicine.
A global IVD business
EKF Diagnostics Holdings plc has a global presence with facilities in key
markets around the world.
London
Cardiff
Sailauf
Magdeburg
Leipzig
Krakow
Moscow
Shanghai
Elkhart
San Antonio
Greenville
Sanford
Company Headquarters
Manufacturing
Research & Development
(cid:54)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:50)(cid:73)(cid:180)(cid:70)(cid:72)(cid:86)
Molecular Laboratory Services
Business model
Acquisition
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1.0 Strategic Review
In 2014 EKF Diagnostics Holdings plc purchased three businesses. In March
Separation Technology Inc. (STI) was acquired from Thermo Fisher Scientifi c
Inc. STI manufactures hematology analysers and laboratory centrifuges with the
majority of its sales coming from the US blood banking sector.
In April DiaSpect Medical AB was acquired.
DiaSpect is a leading brand within reagent-free
hemoglobin screening and owns a unique
technology that allows EKF to compete
head-to-head with the market leader.
The purchase of Selah Genomics, a clinical
diagnostic company focused on enabling
personalised medicine, provides EKF with an
increased presence in the growing molecular
diagnostics market. Selah specialises in the
detection of molecular biomarkers to diagnose
and monitor disease, detect risk, and identify
which therapies will work best for individual
patients.
Acquisition timeline
2010
EKF-diagnostic GmbH
Quotient Diagnostics Ltd
Argutus Medical Ltd
Organic growth
2011
2013
Stanbio Laboratory
360 Genomics Ltd
2014
Separation Technology Inc.
DiaSpect Medical AB
Selah Genomics Inc.
Although 2014 was a year in which acquisitions provided signifi cant new
revenues to EKF Diagnostics Holdings plc, the underlying business saw solid
growth of 6%.
This increase was in part attributable to winning
new contracts in China through its Biosen
glucose platform, and in Mexico where both the
hemoglobin and glycated hemoglobin (HbA1c)
analyser platforms performed well.
Meanwhile within EKF’s clinical chemistry range
sales of Beta-Hydroxybutyrate, a biomarker
used to detect the presence of ketones in
blood, rose 7% year on year. This performance
was particularly impressive given the
competitive nature of the ketone testing
market.
New product development
Signifi cant investment was made throughout the year in preparing the ground
for new point-of-care product releases. 2015 will see the launch of new
versions of Hemo Control and Biosen as well as a new lactate platform,
SensPoint, which is aimed at providing the company with a presence in the
maternal medicine market.
EKF’s Central Laboratory division launched
several new products in 2014 including
Procalcitonin (PCT), a marker used in
diagnosing and monitoring sepsis, and
Glycated Serum Protein (GSP) an indicator of
diabetic health.
EKF Molecular Diagnostics’ focus in 2014 was
on CE marking its PointMan test kits, with fi rst
releases expected by Q2 2015.
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ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Organisational structure
EKF Diagnostics’ expertise extends across three distinct branches of the
in-vitro diagnostics sector. Each of the branches plays an important role in
shaping the direction of the company today and in the future.
Point-of-Care
Central
Laboratory
Molecular
Diagnostics
Following the acquisitions made in 2014
EKF estimates that there are more than
80,000 EKF analysers in use today on
a regular basis in doctor’s offi ces, blood
banks, laboratories and clinics. This
installed base of devices provides the
bedrock for the company’s future
revenue projections.
The Point-of-Care division is made up
of three key markets:
• Hematology
• Diabetes Care
• Maternal & Women’s Health
EKF’s Central Laboratory division
comprises of clinical chemistry (also
known as chemical pathology, clinical
biochemistry or medical biochemistry),
blood analysers and a range of
centrifuges.
Unlike POCT central laboratory testing
is a mature market (CAGR 2007-2012
was 2%) with established suppliers
competing for business throughout
the world.
Following the acquisition of Selah
Genomics in April 2014 EKF’s presence
in the molecular diagnostics market
encompasses both products
(PointMan) and testing services (Selah).
EKF’s vision is to create a single entity
for molecular diagnostics by combining
these acquisitions into a holistic
molecular division.
Hematology
Diabetes
Care
Maternal and
Women’s Health
Central
Laboratory
Life
Sciences
Research
Biomarkers
Selah
GENOMICS
Point-of-Care: Hematology
Product portfolio
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1.0 Strategic Review
The Hematology business unit within EKF is the largest in terms of revenues
and the size of the installed base. The addition of DiaSpect and Separation
Technology’s products to the portfolio means that EKF now offers the largest
selection of point-of-care hemoglobin analysers on the market.
DiaSpect Tm
Hemo Control
UltraCrit™
HemataSTAT®
Handheld analyser
utilising reagentless
methodology
Benefi ts of speed
to result (1 second),
shelf-life of
microcuvettes
Successor to
DiaSpect
Hemoglobin T
Uses ‘gold standard’
methodology
(reagent fi lled
microcuvettes)
Hematocrit analyser
using unique
ultrasound
technology
Hematacrit
centrifuge and
analyser used in
laboratories
Data management
capability
Provides a hematocrit
calculation
Proven, robust
analyser sold
worldwide
Strong presence in
US blood banking
sector
International version
also provides
hemoglobin
calculation
Processes multiple
samples
Manufactured in
Sailauf, Germany
Manufactured in
Magdeburg, Germany
Manufactured in
Sanford, USA
Manufactured in
Sanford, USA
Strategy
The opportunities for the Hematology business unit are primarily focused around
two markets – public health initiatives such as anemia screening programmes and
private practices where the cost of testing is paid for by an insurance
company or the patient.
EKF has two distinct strategies – OEM
partnerships with international distributor/
manufacturers such as Alere and Fresenius
Kabi and agreements with smaller distributors
who are focused on the public health
opportunities within their own countries.
The addition of the DiaSpect and UltraCrit
models gives EKF an extended portfolio to
offer to both market segments, as well as
address niche markets such as veterinary and
sports medicine. EKF believes that this
portfolio can provide it with a competitive
advantage to grow its market share in 2015
and beyond.
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ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Point-of-Care: Diabetes Care
Product portfolio
Diabetes has been at the core of EKF’s strategy for well over 10 years starting
with the early models of what became Biosen C-Line and Biosen S-Line. More
recently HbA1c analysers have been developed and launched that address the
diabetes screening market. And, although they do not strictly belong within a
point-of-care framework, clinical chemistry tests such as Glycated Serum
Protein and Beta-Hydroxybutyrate add further provenance to EKF’s claim to
be a signifi cant contributor to diabetes care worldwide.
Biosen
Quo-Lab A1c
Quo-Test A1c
Glucose and/or
lactate measurement
Three models, each
aimed at different
settings
Used as the
benchmark for blood
glucose monitors in
China
HbA1c testing
(glycated
hemoglobin)
HbA1c testing
(glycated
hemoglobin)
Results in four
minutes using a
unique methodology
Same methodology
as Quo-Lab but fully
automated
Targeted at
developing world
markets
Simple operation
requires minimal
training
Manufactured in
Magdeburg, Germany
Manufactured in
Magdeburg, Germany
Manufactured in
Magdeburg, Germany
Strategy
Although glucose testing is the most commonly used method of determining
glycaemic control within diabetics, HbA1c is the accepted long term barometer of
patient wellbeing and their compliance with their treatment regimes. The growth
in popularity of HbA1c measurement has seen an increasing number of entrants
to the point-of-care HbA1c market focused on GP surgeries and diabetes clinics.
Despite this revenues from Quo-Lab increased by 69% in 2014 as EKF grew the
distribution network and registered the product in new markets.
Despite being a relatively mature product in
the company’s range, Biosen’s reputation for
accuracy and reliability saw a signifi cant
increase in demand in 2014. Unit sales of
analysers grew by 9% year on year and this
demand is expected to continue into 2015
following an agreement with a Chinese
distributor that will see 1,900 analysers
shipped between 2014 and the end of 2016.
2014 saw a major operational change within
the Diabetes Care business unit as
manufacturing of Quo-Test and Quo-Lab was
transferred to EKF’s Magdeburg site. This
change has allowed the company to make
signifi cant operational savings as well as
centralise the majority of its European-made
analysers and tests.
Point-of-Care: Maternal & Women’s Health
1.0 Strategic Review
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
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Product portfolio
Maternal and Women’s Health focuses primarily on diagnostics used to
address conditions and complications associated with pregnancy and child
birth. Sales within this business unit include revenues from creamatocrit
centrifuges and hemoglobin meters used in Women and Infant Clinics,
pregnancy test kits and HbA1c analysers used to diagnose gestational diabetes
in pregnant women.
However the main focus of this new division is
to develop the use of lactate within obstetric
medicine. Over the past two years EKF’s R&D
team in Germany have been developing one
of the company’s existing platforms to provide
accurate lactate readings taken during labour
as a method of determining whether
intervention is needed in the form of a
caesarean section. This novel approach will be
launched in 2015 alongside a set of guidelines
issued by a European panel of experts.
Pregnancy kits
Cassette rapid tests
Marketed for use in
hospital settings
SensPoint
Handheld lactate
analyser with
docking station
Strip sensor
technology
Results in 10 seconds
Developed for use in
maternity wards
Creamatocrit
Plus
Small lab centrifuge
Measures the lipid
concentration and
caloric density of
breast milk
Allows professionals
to guide mothers
with underweight
infants
Manufactured in
Magdeburg, Germany
Manufactured in
Sanford, USA
Distributed from
San Antonio, USA
Strategy
EKF’s Maternal and Women’s Health business unit is very much in its infancy. The
current focus is on distributor engagement and education and on developing a
protocol with high level opinion leaders for the use of lactate in obstetric medicine.
EKF is aware of strong commercial interest
in this market as a result of a distributor in
France starting to develop the market using
Lactate Scout+. Lactate Scout+ uses the same
strip system as SensPoint but was developed
primarily for use in sports science.
With the global trend for elective C-Sections,
many of which are an unnecessary expense, as
well as the global imperative to improve
mother and child welfare, EKF is uniquely
placed to take the lead in a developing market.
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ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Central Laboratory
Product portfolio
EKF, through its wholly owned subsidiary Stanbio Laboratory, has had a
presence within central laboratory sales dating back over 50 years. During this
time it has built a global customer base for its clinical chemistry reagents that
can be used on most open-channel analyser platforms.
The Central Laboratory business unit also
includes the manufacture of enzymes,
manufactured at EKF Life Sciences in Elkhart,
Indiana. From this facility EKF Life Sciences sells
enzymes used in Stanbio’s clinical chemistry
portfolio as well as providing contract
manufacturing services for third parties.
The acquisition of Separation Technology Inc.
provided EKF with a third element to its
central laboratory offering. As well as being a
manufacturer of hematology products, STI has
a heritage in manufacturing high quality,
US-built, mini-centrifuges.
Beta-
Hydroxybutyrate
Glycated Serum
Protein
Automated reagent
for the early
detection of ketosis
2-3 week indicator
of average blood
glucose
Primarily sold in USA
through distribution
network
Complementary to
HbA1c in diagnosis and
screening of diabetes
Micro12
High performance
centrifuge
Used for molecular,
clinical, cell and
bacteriology use
PlasmaPrep-12
Plasma and serum
separation
Programmable, multi
sample centrifuge
Strategy
The central laboratory market is experiencing relatively small levels of growth
compared to point-of-care and molecular diagnostics. This is because it is a
mature market that is dominated by large corporations. However opportunities
do exist where niche markets can be addressed with high quality products that
either create a new market or switch Laboratory Managers away from traditional
testing methods.
Beta-Hydroxybutyrate Liquicolor reagent is an
excellent example of how EKF has changed
the way in which central labs test for ketosis.
Almost 1,000 US hospitals now use EKF’s ß-HB
reagent instead of traditional nitroprusside
testing following a concerted sales campaign
focusing on the patient and practitioner
benefi ts. A similar approach is planned for
EKF’s new reagent products Procalcitonin
(PCT) and Glycated Serum Protein (GSP).
Molecular Diagnostics
Product portfolio
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1.0 Strategic Review
EKF Molecular Diagnostics was established in March 2013 following the
acquisition of 360 Genomics Limited. Since then EKF Molecular has launched
seven PointMan™ test kits aimed at the Research Use Only (RUO) and
companion diagnostics markets.
PointMan™ is a highly specifi c and sensitive
technology that enhances genetic detection
processes. This capability is vital for companion
diagnostics particularly in oncology. EKF is
currently engaged with a number of
collaborators, including the world-renowned
cancer centre at Massachusetts General
Hospital, to demonstrate the utility of the
technology in detecting circulating tumour cells
amd circulating free DNA.
The second element within EKF’s molecular
portfolio is Selah Genomics. Selah, based in
South Carolina, USA was acquired in April 2014
as part of EKF’s strategy to expand its footprint
in the sector. Selah offers a range of molecular
testing services to private practices throughout
the USA, and is also involved in several
collaborations with hospital groups and
medtech conglomerates to commercialise new
predictive testing models for cancer treatments.
PointMan™
PrecisionPath™
sTNFR1
Highly sensitive
technology that
enables detection of
mutant cells
Seven kits available,
all within oncology
CE marking of fi rst
kits in 2015
Oncology panel of
tests from Selah
Genomics
Collaborations
ongoing to develop
predictive model for
colon cancer
Companion
diagnostic biomarker
Predictor of End
Stage Renal Disease
in diabetic patients
Strategy
Molecular diagnostics has begun to gain signifi cant traction in the US where
several laboratories specialising in molecular testing services have recently been
acquired by international IVD businesses.
EKF’s focus in 2015 will be to expand the Selah range of test panels and also
integrate PointMan™ into Selah’s offering.
The cornerstone of the company’s molecular
strategy will be the completion and publication
of studies and evaluations that demonstrate
the utility of its portfolio. Many high level
collaborations are already in place, some of
which have attracted sponsorship from
businesses looking to commercialise the
technologies upon the successful completion
of the evaluations. EKF expects the
developments from PointMan™, PrecisionPath™
and sTNFR1 to attract considerable interest in
the next twelve months.
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ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Chairman’s Statement
Dear Fellow Shareholder
The year past has been a curate’s egg of a year for the Company. There have
been many positive factors as we have continued to grow both organically
and by acquisition but they have been offset by certain events largely
beyond our control.
Strategy
From a strategic perspective we believe we
needed to achieve three key objectives in
2014.
The fi rst was to underpin our current point of
care offering particularly in hemoglobin testing
where our existing hemoglobin technology,
widely regarded as the Rolls-Royce of
instruments, was being threatened by newer
technologies. It was against that background
that we acquired DiaSpect Medical AB last
April for an upfront cash and equity
consideration of £16m with an earnout of up to
£4.75m, which was subsequently settled by a
cash payment of £1.425m in January 2015.
We believe that the DiaSpect product suite
allows us to compete more effectively against
our principal competitor. I believe the benefi t
of this acquisition will be more fully evidenced
during 2015.
Secondly, we recognised that we needed to
embolden our presence in molecular
diagnostics. In an ideal world this would have
been in Point-of-Care, but given the plethora
of technologies in development together with
some launched products, not only would we
have been playing catch-up with a me-too
offering, but the scale of investment was not
within our investment capacity.
It was the Board’s view that a different
approach was necessary and one which
sought to build upon the Company’s toe-hold
in molecular diagnostics through its
previous acquisition of 360 Genomics Ltd and
the PointMan™ technology.
We sought to do this through the acquisition
of Selah Genomics Inc primarily for two
reasons; one tactical and the other strategic.
Tactically the DME (Drug Metabolising
Enzymes) testing was growing and set to grow
further and we believed that it would help
underpin our short to medium term growth
ambitions. Strategically, we believed, and still
do more than ever, that the true value will
be evidenced by the work being undertaken
at our facility in Greenville which we believe
is at the forefront of molecular diagnostic
testing in the fi eld of personalised medicine
via next-generation sequencing (NGS) testing
using both internally developed tests and
leveraging externally developed tests.
It was unfortunate that within a very short
period of time after the acquisition the local US
Medicare Administrative Contractor (‘MAC’)
withdrew reimbursement for the DME panel.
We have sought during 2014 to resolve this
issue. We have explored a number of avenues
and the effort that has been expended has
been at the expense of other opportunities.
We have come to the conclusion this month
that the opportunity cost to us in pursuing
DME revenues through the current channels
and without the support of the MAC is too high
when compared to the more signifi cant and
credible upside from PrecisionPath, which
provides a panel of clinically validated
biomarkers that can be used to design specifi c
personalised treatment plans for cancer
patients.
It is beholden upon me to address the key
issue of reimbursement at point of
acquisition. Whilst the risk to reimbursement
was recognised in due diligence, neither
ourselves nor the incumbent management
perceived the threat to be an immediate one.
Given the nature of reimbursement in the USA
had we been located in another state such as
New Hampshire or Connecticut then the ability
to have continued in the execution of our plan
would have gone ahead unfettered. However,
feeling sorry for oneself is likely to elicit zero
sympathy and we believe a more realistic way
forward is to work with the MAC in South
Carolina to provide to their standard the
necessary clinical evidence to support the use
of a DME panel in anticipation of
reimbursement becoming available again at
some stage in the future.
Thirdly, whilst not based on our experience
with DME it is clearly evident to those in the
industry that health payers worldwide cannot
continue to pay for the ever burgeoning
number of new diagnostic tests and
therapeutics unless clear health economic
benefi ts can be demonstrated not in
subjective terms, but in hard cash terms. It
was against that strategic backdrop that we
have taken a minority position in the Toronto
based DxEconomix whose prime objective is
to obtain value based pricing for IVD products
for its clients. Progress has been slower than I
had originally anticipated in that whilst many
organisations recognise the need they are not
yet fully prepared to pay for it.
Results overview
The Group has seen strong growth during the
year with revenue of £40.1m (2013: £31.8m), an
increase of 26%. This is despite the impact of
a weak dollar and the well publicised issues in
Russia, which include a very signifi cant
currency deterioration. Revenues would have
been higher by £2.6m had they been
translated at 2013 rates. Within this, organic
growth was 6%.
Adjusted earnings before interest, tax,
depreciation, and amortisation (AEBITDA),
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
11
1.0 Strategic Review
which excludes share-based payments and
exceptional items, is our preferred
measurement of income, and is up 31% to
£6.3m (2013: £4.8m).
more than 30% of last year’s due to the
continued impact of sanctions; and, the
continued downward pressure on
reimbursement globally.
Board
During the year Gordon Hall retired as a
Director having been on the EKF Board since
2005. Having known Gordon for over twenty
years I would like to thank him for his support
both for the Company and for me personally
and I wish him well for the future.
Subsequent to Gordon’s departure we
strengthened the Board’s Non-Executive
contingent through the appointment of
Doris-Ann Williams and David Toohey, both of
whom have immense industry knowledge and
experience. Their contribution to the Board
since joining has been invaluable.
The Board’s Executive contingent was
strengthened through fi rstly the appointment
of Paul Foulger as Chief Financial Offi cer – Paul
has been with us from the start and it was a
natural progression for Paul to make. Secondly,
Tito Bacarese-Hamilton was appointed Chief
Technology Offi cer. In the coming year a
considerable burden rests on Tito’s shoulders
as we seek to launch a number of new
products.
Regarding the passing of my baton, that will
be done when the time is right, we must
absolutely deliver on our expectations this
year and restore the confi dence in our
shareholders for the team of which I am part.
The pursuit of a signifi cantly more expansionist
strategy under different chairmanship cannot
be contemplated until that confi dence is
restored and the share price responds
accordingly.
Restructuring
During the year we moved our Quo-Test and
Quo-Lab manufacturing to Barleben and
closed our Dublin facility.
In 2015 we have refi ned our existing divisional
structure of Point-of-Care and Molecular.
Julian Baines, whilst retaining overall Group
CEO responsibilities, has been tasked with the
day-to-day running of the Molecular Division
with a primary focus of providing diagnostic
tests directed at therapeutic intervention and
monitoring.
Richard Evans will assume day-to-day
responsibility for the whole of our Point of
Care Division with that division being split into
four main Business Units of Hemoglobin,
Diabetes, Maternal & Women’s Health, and
Central Laboratory.
We believe this focus will bring benefi ts during
2015 and that the latent value in our molecular
diagnostics offering will be realised.
Outlook
Despite the above and an industry which is
experiencing overall growth rates of 5% our
ambitions remain to achieve double digit
growth and to be able to exploit the
opportunities in front of us.
We are under no illusion that we must
deliver on sensible expectations and that as
we continue to seek to grow we must do this
in a non-dilutory fashion. As with all my years
with the Company the results are back-end
weighted and 2015 appears to be no exception
to this.
We will continue to review the frequent
approaches from private equity groups as to
whether this is to the benefi t of Shareholders
but thus far none of the approaches represent
anything more than opportunism.
The key deliverables for 2015 are set out below.
Point-of-Care
• Further develop the hemoglobin business
across the whole spectrum of hemoglobin
applications and markets using connected
solutions to open new markets in monitoring
• Use EKF’s expertise to establish lactate
measurement in peri-natal settings as a
marker of maternal and neonatal well-being
• Continue to build on EKF’s experience in
very accurate glucose measurement by
introducing the Biosen instrument to new
markets, particularly in Asia and Latin
America
• Incorporate connectivity and data
management in all our major revenue
generating product lines
• Development of the fi rst ever POC
monitoring system for patients with
Phenylketonuria (PKU)
Molecular Diagnostics
• CE Marking for PointMan™ T790M assay
• Reimbursement for PrecisionPath™
• Complete the development of PrecisionPath
Discovery
• Launching the initial tests for the Oncomine
programme through PrecisionPath Discovery
• Launch the Ferrer Incode products into
Private Payer and Corporate Wellness
markets
• Transfer the manufacture of PointMan™ into
Selah
• Achieve ISO 13485 in the Selah facility
• Progress the colon cancer programme with
Becton Dickinson, DecisionQ and Greenville
Health System
• Deliver more pharma partnerships
I am buoyed by the opportunities in front of us
and in particular the opportunities presented by
PrecisionPath™ .
As we move into 2015 the overall outlook
is positive despite some headwinds; Russia
where revenues this year are likely to be no
David Evans
Executive Chairman
16 March 2015
12
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Chief Executive’s Review
During 2014 we made progress as we saw the organic growth of the core
business continue to be above the global industry average. Additionally, we
made three strategic acquisitions and although at times challenging, these
acquisitions have been quickly integrated and have given us signifi cant growth
opportunities over the next three years. Year-on-year we have seen continuous
improvement in both revenue and AEBITDA despite the decrease in healthcare
spending worldwide, reduction in re-imbursement, tighter regulatory controls
and the instability in Russia and the Middle East.
We now have a fi rm footing in the global Point
of Care market with over 80,000 instruments
installed globally. We have seen a large
increase in the sales of our Quo-Lab and Hemo
Control instruments. We are also making
progress with our Molecular Diagnostics
division with the signing of contracts with
Massachusetts General Hospital, Gilupi and
Angle, supporting our belief that our
PointMan™ product will become key to some
major new technologies, especially in the
detection of circulating tumour cells in whole
blood. In addition Selah has given us a valuable
platform and relationships that will enable us
to deliver signifi cant opportunities in the
United States and beyond in 2015.
EKF Group has a lot to deliver in 2015 but
those deliverables are clear and defi ned as we
have laid the base foundations in key areas to
deliver growth above the industry average.
Operations
Structural change
During the year we have continued to initiate a
number of signifi cant structural changes to the
business with the aim of improving effi ciency,
reducing cost, and driving revenue. With
minimal disruption we successfully transferred
the manufacture of the Quo-Test and Quo-Lab
product lines, including both instruments and
cartridges, into our main European production
base in Barleben, Germany. This involved the
commissioning of a new Quo-Lab cartridge
production line which was designed and built
by EKF’s in house production engineering
team and which has reduced the cost of
manufacture signifi cantly. Having the
ability to transfer production and build our
own automated production lines is very rare
and valuable to EKF.
Our facility in Ireland has been closed
following the termination of the building lease.
While a small core project management team
will remain in place, the majority of
development projects, and the manufacture of
the biomarker products have been transferred
to the Walton-on-Thames site.
With the successful transfer of production of
Quo-Test and Quo-Lab instruments and
reagents cartridges to the Barleben
manufacturing site and the closure of the
Dublin site, the Company expects to
benefi t from operational savings in the region
of £0.75m annually. In addition, work has now
begun on expanding the Barleben site which
will provide increased production capacity.
As production levels rise, the Company
expects this to have an additional positive
impact on product margins, as well as creating
further overhead effi ciency opportunities. The
Company will also continue to integrate the
acquisitions made in 2014 and to exploit
cross-selling initiatives and cost effi ciency
opportunities.
We have recently enhanced and expanded our
regional structure, including in China where we
are about to open a representative offi ce in
Shanghai. At the same time we have improved
our distributor support, introducing a Premier
Partner Programme, held our fi rst international
distributor meeting, and intend to employ a
dedicated distribution chain manager.
The strengthening of the Sales and Marketing
Infrastructure by bringing in experienced
Business Unit Directors from major
diagnostic organisations demonstrates that
EKF is developing a global presence in the
diagnostic industry and investment in this area
will be key to continued growth.
Acquisitions
The three acquisitions made in the fi rst half
of the year have expanded our product line
capabilities in hematology and molecular
diagnostics.
Separation Technology, Inc. (STI) brings a
successful line of centrifugal separation
products all of which are FDA 510(k)
approved. Additionally, it brings Ultracrit, an
ultrasound based hematology analyser which
is being used in a number of major US blood
banks. STI has been successfully integrated
and has shown continued growth in the US
market through the expanded sales coverage
via our US sales team.
DiaSpect Medical has designed a hematology
instrument which is available in both desktop
and handheld formats. Both formats use
DiaSpect’s patented reagentless cuvette
technology, which allows cheaper
manufacture, longer shelf life and results in
under two seconds, which is particularly useful
in blood banks where time to result is critical.
The DiaSpect range is sold into blood banks
via our partnership with Fresenius, the world’s
leading supplier of blood bank products. We
announced on 5 January 2015 that the
Company agreed to make a cash payment
of £1.425m as fi nal settlement for the total
deferred cash consideration due. The original
maximum deferred consideration totalled
£4.75m.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
13
1.0 Strategic Review
Selah Genomics, Inc. is a US CLIA certifi ed
supplier of panels of molecular diagnostic tests
to patients who are referred by general
practitioners or by corporate health teams
in the USA. Funding is usually either through
Medicare or private health insurers. The
company provides EKF with signifi cant
opportunities through their relationships with
major partners (Becton Dickenson, Greenville
Health System, DecisionQ) as well as a high
quality product range (PrecisionPath,
PrecisionPath Discovery and the Ferrer InCode
products). Delivery will be the main focus for
the molecular diagnostics business in 2015.
Point-of-Care
During 2014 we focused on improving our
distribution channels into major markets.
Whilst we still have some way to go we have
had success in introducing Human, Arkray,
Fresenius, Alere Japan, and Multiclone as
distributors, therefore strengthening our
global sales capabilities. The current year will
be focused on delivery. We have a strong mix
of mature and new products and with the
strengthening of the commercial team we will
aim to continue to grow at a higher rate than
the industry average.
The Point-of-Care business continues to
perform well, with growth being seen across
most products. In particular, Quo-Lab
instrument sales are up more than 30% on the
previous year with the product now registered
in more countries than ever, including Japan,
which offers EKF a signifi cant growth
opportunity. Quo-Lab is a glycated
hemoglobin analyser used in diabetes
monitoring.
Biosen instrument sales are showing an
increase of more than 8% on the previous year,
mainly due to strong growth in Asia where we
have signed a multi-million Euro contract with
a new partner based in northern China. We
do have signifi cant challenges in Russia where
Biosen is the major product line; we would
expect to see a 70% drop in revenues in Russia
due to the reduction in healthcare spending
and the impact of the rouble. A large contract
win in China will go some way to mitigate this.
Biosen is a range of analysers which
measure glucose and lactate quickly and
precisely in clinics, laboratories and sports
medicine facilities.
Hemo Control continues to perform well
especially in Mexico and Latin America where
we have continued to win signifi cant tenders.
The performance by Alere in the US market
has been disappointing as the growth has not
been as expected but we have continued to
increase market share. The new sales
infrastructure will enable us to support Alere
in continuing to grow the US market.
Hemo Control is a point of care device that
provides immediate, lab-quality results for
both hemoglobin and hematocrit from one
simple test.
Central Laboratory
The main product in the Central Laboratory
division, ß-HB, grew by 9%. Conversely, the
Central Laboratory market is very
competitive and we saw a decline overall. In
2014 we took steps to mitigate this and in 2015
we will launch a Procalcitonin marker (PCT) for
sepsis diagnosis as a new product and also a
new desktop Clinical Chemistry analyser. The
Business Unit Director will also be responsible
for expanding the Clinical Chemistry Business
outside the US.
Molecular Diagnostics
Selah Genomics had a major setback in May
2014 with the announcement that the
reimbursement for the DME panel testing was
to be signifi cantly reduced. This led to the
announcement that revenues for 2014 would
be materially lower. Whilst DME testing
continues, it will not be the focus of the
management in 2015. Alongside PointMan™,
Selah offers a signifi cant opportunity for EKF
over the next 3 years. In 2015 we will have a
number of deliverables as set out in the
Chairman’s Statement.
To deliver these we will be bringing all
molecular products and services under one
corporate identity as well as introducing US
and UK industry experts to drive the molecular
business which has real potential.
In 2014 Selah contributed £3.0m to full year
revenues. Whilst we still face some choppy
waters in the short term the change of focus
has led to increased commercial
opportunities and the potential for further
signifi cant partnerships. For example, as
mentioned earlier, we have announced a
collaboration with the Greenville Health
System’s ITOR facility, DecisionQ, and BD
Technologies which will use PrecisionPath as
the basis of a system that supports improved
clinical decisions in the treatment of colon
cancer patients. This is one of a number of
opportunities for Selah in 2015.
The initial Selah purchase agreement was
drafted to accommodate the risk of reduced
reimbursement payments via a reduction in
deferred consideration payments if certain
performance targets were not met; the lower
than anticipated sales from Selah is likely to
result in the year one earn-out payment of
$17.5m not being payable. We still believe that
Selah represents a signifi cant value
opportunity to shareholders over the short to
medium term if we deliver on the above.
During 2014 the value of PointMan™ to the
molecular industry has become clear.
PointMan™ signifi cantly enhances the sensitivity
of any molecular platform, as well as working
on a number of sample types such as biopsy
or liquid biopsy (whole blood), and can be
utilised in the latest technologies such as
circulating tumour cells and circulating free
DNA. Additionally this has led to MGH, Gilupi
and Angle evaluating PointMan™ on their
differing technologies and we look forward to
reporting on results in the near future.
14
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Chief Executive’s Review continued
Our collaboration with The Institute of Life
Sciences in Swansea has shown that PointMan™
is effective in isolating and characterising
certain low-level DNA mutations in blood,
paving the way for the development of a
simple cancer screening and diagnostic test
based on a blood sample rather than a biopsy.
The data highlighted the utility of a
blood-based test and critically demonstrated
that PointMan™ was highly sensitive and can
detect just three mutant cells in a background
of 10,000 wild type cells.
The unifi cation of the molecular business, the
progress being made with PrecisionPath
and the continued development of the
commercial offering of PointMan™ provide
the Company with confi dence that 2015 will
be a very signifi cant year for establishing the
credentials of the EKF Molecular Diagnostics
division and a considerable generator of
shareholder value.
New products
During 2014 we introduced or entered
late-stage development of a number of new or
improved product lines. These include:-
• SensPoint, a POC lactate measuring system
designed for use in peri-natal settings.
• Enhancements to major revenue
generating product lines to equip our
customers with data-management and
connectivity capability.
• Procalcitonin - this is a Central Laboratory
test for measuring sepsis.
• sTNFR1/2 biomarkers that will predict fast
progressors to Chronic Kidney Disease
(CKD) in both Type 1 and 2 diabetics. If
untreated CKD can lead to End Stage Renal
Disease which is one of the costliest
conditions for healthcare payers. sTNFR1 has
been exclusively licenced from Joslin
Diabetes Centre in Boston and is a
signifi cant development project for EKF.
EKF is working very closely with major
pharmaceutical and dialysis companies to
incorporate sTNFR1/2 as complementary
diagnostics with their therapies.
• Inborn Errors of Metabolism - EKF is
developing a POC system for monitoring
Phenylalanine levels in PKU (a rare genetic
condition that is present from birth). The
company is working very closely with a
major pharmaceutical company with PKU
therapies on the market and signifi cantly
improved drugs in late development. In PKU,
Phenylalanine (an amino acid) builds up and
if untreated can lead to mental retardation,
behavioural disorders, seizures and other
serious medical problems.
Results
Revenue
Revenue for the year was £40.1m (2013:
£31.8m), an increase of 26%. Overall,
acquisitions contributed £6.5m to revenues.
Underlying organic revenues accounted for
£33.6m of total revenues which represented
6% organic growth year-on-year.
Gross profi t
Gross profi t has increased to £19.9m (2013:
£16.3m), which is an increase of 22%. Gross
profi t as a percentage of revenue is 49.8%
(2013: 51.4%), largely as a result of the
structurally lower margins on the Selah
business because of the arrangements made
with their billing and marketing partners.
Administration costs and research and
development costs
Administrative expenses have increased by
59.6%. The increase comes from the
acquisitions, the additional amortisation
associated with the acquisitions, added
investment in sales resources, and from a
number of exceptional items including the
closure costs for our Dublin facility, the costs
of moving manufacture of the Quo-Test and
Quo-Lab products, and the costs of making
the three acquisitions in the year. In addition
to the R & D costs, included in administration
costs of £1.3m, a further £1.5m of expenditure
has been capitalised.
The charge for depreciation of fi xed assets and
for the amortisation of intangibles is £5.0m
(2013: £3.6m).
Operating profi t and adjusted earnings before
interest tax and depreciation
The Group has made an operating loss of
£2.5m (2013: profi t of £2.4m) for the reasons
outlined above. We consider a more
meaningful measure of underlying
performance to be adjusted EBITDA which for
2014 was £6.3m (2013: £4.8m). This excludes
the effects of share-based payments of £0.5m
(2013: £0.7m) and exceptional losses of £3.3m
(2013: exceptional gains of £1.8m).
Finance costs
Finance costs have decreased to £1.6m (2013:
£1.8m). The decrease is largely a result of
fair value adjustments associated with the
deferred shares withheld as part of the tax
warranty claim.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
15
1.0 Strategic Review
Outlook
Whilst we acknowledge that 2014 was a
challenging year where we had setbacks, we
performed very creditably with 26% overall
growth and we made very signifi cant
progress. It is clear what we have to deliver in
2015 and we are very confi dent that this will
be achieved. In 2015 we will see a number of
new products being brought to market as well
as improvements to some of our important
existing products.
The integration of Selah and EKF Molecular
Diagnostics into one company will reap short
and medium term rewards and Selah’s
PrecisionPath service, which provides a panel
of clinically validated biomarkers that can be
used to design specifi c personalised treatment
plans for cancer patients, represents a huge
opportunity for growth. This has the potential
to become a very high margin reimbursable
testing service and the Company will keep
Shareholders updated as this progresses.
Additionally, it is clear how advantageous
PointMan™ will be in the next generation of
molecular diagnostic testing.
We believe that this report provides
Shareholders with very clear guidance on
our deliverables for 2015. In addition to these
operational goals we are determined to deliver
sensible fi nancial goals and as such have set
as one of our key performance indicators the
challenge to deliver at least 10% annual organic
growth therefore outperforming our industry
peers. We are convinced that by taking a more
measured approach we are putting in place all
of the factors required to become even more
successful and to produce long term
sustainable double digit growth, and value for
shareholders.
Julian Baines
Chief Executive Offi cer
16 March 2015
Tax
There is a tax charge of £1.4m (2013: £1.5m).
The charge is largely the result of the
utilisation of a deferred tax asset associated
with the Quotient business, as well as
unrelieved losses made in certain jurisdictions.
The effect of the potential tax warranty claim
has been reduced following negotiations
between the Group’s German subsidiary, its
tax advisers, and the German tax authorities.
We are hopeful this issue will be fully resolved
early in 2015. The reduced tax charge has an
associated reduction of the warranty claim,
this amount has been included in exceptional
items.
Balance sheet
Property, plant and equipment
We have invested £1.0m (2013: £1.2m) in
property plant and equipment. Major projects
include building work at Barleben and
additional equipment at Selah, both to increase
capacity.
Intangible assets
Intangible assets have increased substantially
following the three acquisitions made in March
and April, plus further capitalisation of
development costs. Following the closure
of the Group’s Dublin facility, the associated
goodwill and trade secret assets, and the
capitalised development cost associated with
the Renastat project of £1.2m, have been
impaired in full.
Deferred consideration
The fi nal payment of deferred consideration of
£0.4m in respect of the acquisition of Quotient
Diagnostics Ltd was made during the year. The
small remaining provision has been credited to
exceptional items. The deferred consideration
payable to the vendors of DiaSpect Medical
was renegotiated down to £1.4m and this was
paid in January 2015.
Cash and working capital
Cash used in operations in 2014 is £3.3m (2013:
£3.1m generated). Following the fund raising in
April, the Group had cash on hand at 31
December 2014 of £8.3m (2013: £2.5m), and
a net cash position of £2.1m (2013: £0.1m).
Trade debtors at year end are especially high
as a result of sales to Mexico made during the
year and especially in December. Payment of
some of these outstanding amounts totalling
£5.5m has been delayed because of slow
payments to the relevant distributors by the
Mexican Government.
16
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Board of Directors
Executive Board
David Evans
Executive Chairman (aged 54)
David has signifi cant experience and contacts worldwide within the IVD industry and is currently
Chairman of the following listed companies: Omega Diagnostics Group plc, Collagen Solutions plc,
Epistem Holdings plc, Scancell Holdings plc, Venn Life Sciences Holdings plc, Premaitha Health
plc, and Opibiotix Health plc. In addition he was formerly Chairman of Immunodiagnostics Systems
Holdings plc and BBI Holdings Limited (“BBI”) and Joint-Managing Director of Axis-Shield plc. He
also sits on the Board of a number of private companies.
Julian Baines
Chief Executive Offi cer (aged 50)
Julian was Group CEO of BBI where he undertook a management buyout in 2000, a fl otation on AIM
in 2004 and was responsible for selling the business to Alere Inc. in 2008 for circa £85 million. In
December 2009 Julian became CEO of the Group and has subsequently successfully completed
fund raisings in 2010, 2011 and 2014, and the acquisition and subsequent integration of eight
businesses in seven countries building revenue from zero to over £40m.
Richard Evans
Chief Operating Offi cer (aged 57)
Richard qualifi ed as a Chartered Management Accountant in 1983 and holds a Bachelor of
Commerce in Business Studies and Law from Edinburgh University and an MBA from INSEAD.
Before joining EKF Richard was Finance Director, General Manager and fi nally Global Account
Director at Hitachi Data Systems GmbH. He has also held positions at Fisher Scientifi c, TRW Seat
Belt Systems, Maxtor Corporation, United Technologies Carrier and Abbot Diagnostics GmbH in
Germany.
Paul Foulger
Finance Director and Company Secretary (aged 45)
Paul is a qualifi ed certifi ed accountant with extensive public and private company experience
having been Finance Director at Venn Life Sciences Holdings plc, First Africa Oil plc, Cielo Holdings
plc, Elsevier Science, Orogen Gold plc and Porta Communications plc, amongst others. Paul was
Finance Director for EKF until September 2011 and was then reappointed in July 2013 when Richard
Evans was promoted to Chief Operating Offi cer; he currently holds several other directorships,
including, Autoclenz Group Limited and Arcis Biotechnology Limited. Paul holds an MBA from
Warwick Business School.
Tito Bacarese-Hamilton
Chief Technology Offi cer (aged 57)
Tito is a clinical biochemist by training and brings more than 25 years of research and industrial
experience in the medical and life sciences sector. Prior to joining EKF he was Vice President, R&D at
LifeScan, a Johnson & Johnson company, where he had global responsibility for the full-scale
development and commercial launch of all new products and platforms. Tito was also a founder of
Quotient Diagnostics, which was acquired by EKF in 2010. Tito graduated from King’s College,
London and earned his PhD at the Royal Postgraduate Medical Centre in London. He is a Fellow of
the American National Association of Clinical Biochemistry, a member of the European Association
for the Study of Diabetes and has published more than 50 peer-reviewed articles on a variety of
topics related to pathology, oncology and laboratory medicine.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
17
1.0 Strategic Review
Non-Executive Board
David Toohey
Non-Executive Director (aged 57)
David has over 30 years’ experience in international business; in electronics system design and
manufacturing settings and in medical devices. After holding senior positions in Bausch+Lomb and
Boston Scientifi c he joined Inverness Medical (now Alere Inc) in 2001, where he fulfi lled a number of
roles including VP New Products, President Global Professional Diagnostics and President
International Business Operations. He is a Fellow of Engineers Ireland and a Chartered Engineer,
holds an MBA and is a member of the Institute Of Directors. He is CEO and founder of Syncrophi
Systems Ltd, a company pioneering the development of next-generation frontline patient care and
clinical informatics solutions and is on the board of Croi, the non-profi t West of Ireland Cardiology
Foundation.
Adam Reynolds
Non-Executive Director (aged 52)
Adam is a former stockbroker specialising in corporate fi nance. He has built, rescued and
re-fi nanced a number of public companies. He is currently Chairman of Autoclenz Group Limited,
Orogen Gold plc, and Hubco Investments plc and a Director of OptiBiotix Health plc, Premaitha
Health plc, and Verdes Management plc.
Doris-Ann Williams MBE
Non-Executive Director (aged 54)
Doris-Ann Williams has been Chief Executive of the British In Vitro Diagnostics Association (BIVDA)
since October 2001 and has more than 30 years’ experience working in the IVD sector. She has had
a variety of experience, initially in R&D and subsequently in commercial roles. She is on the editorial
board of IVD Technology, sits on a number of steering groups including that of the Technology
Strategy Board and is currently on the NHS Implementation Board for Innovation, Health and Wealth.
She also works closely with European Diagnostic Manufacturers Association and other global IVD
industry associations. She was awarded an MBE in January 2011 and was recognised as a Friend of the
Royal College of Pathologists in November 2012.
Kevin Wilson
Non-Executive Director (aged 64)
Kevin has been on the board of a number of public and private businesses and was Senior
Independent Director of BBI from its AIM fl otation to its sale in 2008. He has been active in
Investment Banking and Stockbroking for 30 years as a corporate fi nance adviser and is FSA
registered. He carries a PhD in Finance and an MBA in Business and is a Visiting Fellow at
Manchester Business School and Visiting Senior Lecturer in Finance and Accounting at the
University of Lancaster Management School.
18
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Strategic Report for the year ended 31 December 2014
Review of the business
A review of the business is contained in the Chairman’s Statement on pages 10 and 11, and in the Chief
Executive’s Review on pages 12 to 15.
Risk management
We recognise that effective risk management is essential to the successful delivery of the Group’s
strategy and will help us build a world class in-vitro diagnostic business. As we continue to grow our
business we believe it is important to develop and enhance our approach to risk management, and
to ensure it remains fi t for purpose. In the last quarter of 2014 we began enhancing and formalising
our risk management processes and have started the journey of maturing our approach to how we
identify and manage risks across the Group, in a consistent and robust manner. As such we are in the
process of establishing a Risk Steering Committee, reporting to the Group Chairman and Finance
Director, whose aim will be to formally review and manage the Group’s risk profi le and control
environment.
Below we describe our risk management approach, the principal risks and uncertainties faced by the
Group and the controls in place to manage them.
Overview of risk management approach
Each business area is responsible for identifying, assessing and managing the risks in their respective
area. Risks are identifi ed and assessed by all business areas on a periodic basis and are measured
against a defi ned set of criteria, considering likelihood of occurrence and potential impact. The
Executive Board members also conduct a strategic risk identifi cation and assessment exercise to
identify risks, including those that could impact the business model, future performance, solvency or
liquidity. This risk information is combined with a consolidated view of the business area risks. The
most signifi cant risks identifi ed form our Group Risk Profi le, which is reported to the Executive Board
for review and challenge, ahead of it being submitted to the Group Board for fi nal review, challenge
and approval. The Board has the overall accountability for ensuring that risk is effectively managed
across the Group and therefore ensuring that it is comfortable with the nature and extent of the
principal risks faced in achieving its strategic objectives. During the course of 2015 the policies and the
improved internal control environment established will underpin our approach to the risk
management.
Principal risks and uncertainties
Set out below are the principal risks which we believe could materially affect the Group’s ability to
achieve its fi nancial and operating objectives and control or mitigating activities adopted to manage
them. The risks are not listed in order of signifi cance.
Key employees
Lack of retention of key employees affects the continuity and effectiveness of on-going relationships
with key customers and suppliers.
This risk is minimised by ensuring that a minimum of two individuals manage every relationship with
key customers and suppliers. In addition, in retaining the key employees, incentivisation packages are
offered through a mixture of sales commission, profi t related bonuses and participation in the Group
LTIP and share option schemes. Main Board Directors are incentivised as detailed in the Directors’
Remuneration Report.
Political risk
A signifi cant proportion of the Group’s revenues are accounted for by agreements in developing
countries. Any instability in these countries could signifi cantly affect the operations and the revenue
of the Group. In particular, the Group has signifi cant revenue from customers in Mexico and Russia
which are ultimately largely funded by the governments of those countries.
The Group spreads the risk through seeking a portfolio of diversifi ed revenue streams geographically
with a mixture of distribution partners in developing and developed countries.
Supply chain continuity
The Group relies on third party manufacturers for the supply of the majority of raw materials.
Problems with obsolescence and manufacturer facilities may lead to delay and disruptions in the
supply chain which could have a signifi cant negative impact on the Group. The Group maintains a
close dialogue with key suppliers and closely monitors its inventory status and customer demand to
ensure that any problems with the supply chain can be managed and back up sources of supply are
maintained where possible.
Regulatory risk
There can be no guarantee that any of the Group’s products will be able to obtain or maintain the
necessary regulatory approvals in any or all of the territories in respect of which applications for such
approvals are made. Where regulatory approvals are obtained, there can be no guarantee that the
conditions attached to such approvals will not be considered too onerous by the Group or its
distribution partners in order to be able to market its products effectively.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
19
2.0 Corporate Governance
The Group seeks to reduce this risk by manufacturing the products to recognised standards, by
keeping appraised with changes in the standards geographically, by seeking advice from regulatory
advisers, consultations with regulatory approval bodies and by working with experienced
distribution partners.
Competition risk
Due to the Group’s current and future potential competitors, such as major multinational
pharmaceutical and healthcare companies having substantially greater resources than those of the
Group, the competitors develop systems and products that are more effective or economic than any
of those developed by the Group, rendering the Group’s products obsolete or otherwise
non-competitive.
The Group seeks to mitigate this risk by securing patent registration protection for its products,
maintaining confi dentiality agreements regarding the Group’s know-how and technology,
monitoring technological developments and by selecting leading businesses in their respective fi elds
as distribution partners capable of addressing signifi cant competition, should it arise.
Intellectual property risk
The commercial success of the Group and its ability to compete effectively with other companies
depends, amongst other things, on its ability to obtain and maintain patents suffi ciently broad in
scope to provide protection for the Group’s intellectual property rights against third parties and to
exploit its products. The absence of any such patents may have a material adverse effect on the
Group’s ability to develop its business.
The Group mitigates this risk by developing products where legal advice indicates patent
protection would be available, seeking patent protection for the Group’s products, maintaining
confi dentiality agreements regarding Group know-how and technology and monitoring
technological developments and the registration of patents by other parties. The commercial
success of the Group also depends upon not infringing patents granted, now or in the future, to third
parties who may have fi led applications or who have obtained, or may obtain, patents relating to
business processes which might inhibit the Group’s ability to develop and exploit its own
products.
Foreign exchange risk
The Group has transactional currency exposures as the majority of revenues and expenditure and
certain borrowings and deferred consideration are denominated in foreign currencies. Fluctuations in
exchange rates between the Group’s functional currency of Sterling and the currency of the overseas
operations could adversely impact the fi nancial results. In most cases the Group matches the currency
receipts and expenditure of the overseas operations. The Group also endeavours to match the foreign
currency assets of the foreign operations by funding through borrowings and loans denominated in
the currency of the overseas operations, and to negotiate currency protection in major contracts.
Reimbursement levels
There is no guarantee that the Group may be able to sell its products or services profi tably if the
reimbursement levels from third party payers, including government and private health insurers, is
unavailable or limited. Third party payers are increasingly attempting to contain health care costs
through measures that could impact the Group including challenging the prices charged for health
care products and services, limiting both coverage and the amount of reimbursement for new
diagnostics products and services, and denying or limiting coverage for products that are approved
by the regulatory agencies but are considered experimental by third party payers.
The Group understands that due to third party dependency it is extremely diffi cult to eradicate this
risk. However, the Group manages this risk with constant dialogue and educating the third party
payers on the Group’s products and also developing new technologies in order to seek additional
reimbursements.
Financial reporting and disclosure
Due to the growth of the Group there is a constant pressure to report accurate fi nancial information in
compliance with accounting standards and applicable legislation.
This risk is mitigated with the Group’s internal controls over the fi nancial information and reporting
overseen by the local fi nancial heads and then reviewed by the central fi nance team, including the
Finance Director. The annual fi nancial statements are also subject to audit by the Group’s external
auditors.
Review of strategy and business model
The Board of Directors judges the Company’s fi nancial performance by reference to the internal
budget which it establishes at the beginning of each fi nancial year.
EKF’s strategy is to create a world class IVD business through acquisition and organic growth, a
so-called “buy and build” strategy. IVD has a wide spectrum, and within this spectrum we have
chosen to concentrate on three distinct areas: Point-of-Care, especially in the areas of diabetes,
hemotology, and women’s health; Central Laboratory; and Molecular Diagnostics.
20
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Strategic Report for the year ended 31 December 2014
We have succeeded in identifying and acquiring businesses in these areas with strong product lines
and distribution networks which can benefi t from better, more professional management, greater
resources, and from the synergistic benefi ts of being part of a larger group.
We sell worldwide to over 100 countries. In many territories we sell through local distributors,
however where appropriate we sell direct to end users which include hospitals, laboratories, and
government agencies. Our distributors are supported by a network of regional sales managers and
by product managers who are specialists in our product range. We manufacture the majority of the
products we sell ourselves, but also distribute a number of carefully chosen products on behalf of
others. We have research and development centres in the UK and Germany, and also perform or
manage research and development projects in the USA.
The Group works mainly on the principle of selling value priced instrumentation which generates
long-term revenue streams from the subsequent sale of consumables. The Molecular Diagnostics
division sells kits which are used for the enrichment of samples for DNA testing and provides
diagnostic tests to physicians and their patients. The Group has an existing portfolio of technologies
which produce revenues and will add technologies which are strategically appropriate to this
portfolio should they become available and providing the additions make economic sense.
Future outlook
The Chairman’s Statement on pages 10 and 11 and the Chief Executive’s Review on pages 12 to 15
give information on the future outlook of the Group, including the main trends and factors likely to
affect its future development.
Key Performance Indicators (KPIs)
The key performance indicators currently used by the Group are revenue, gross margin, adjusted
EBITDA and cash resources. The Group intends to establish other key performance indicators in due
course once the Group has matured suffi ciently. The Group does not use and does not at present
intend to use non-fi nancial key performance indicators. KPIs are discussed in more detail in the
Chief Executive’s Review on pages 12 to 15.
Environment
The Directors consider that the nature of the Group’s activities is not inherently detrimental to the
environment. The Group is committed to minimising any effect on the environment caused by its
operations.
Employees
The Group places value on the involvement of its employees and they are regularly briefed on the
Group’s activities. The Group closely monitors staff attrition rates which it seeks to maintain at
current low levels and aims to structure staff compensation levels at competitive rates in order to
attract and retain high calibre personnel.
Disabled employees
Applications for employment by disabled persons are always fully considered, bearing in mind the
specifi c aptitudes of the applicant involved. It is the policy of the Group that the training, career
development and promotion of disabled persons, as far as possible, be identical with that of other
employees.
Social, community, and human rights
The Board recognises that the Group has a duty to be a good corporate citizen and to respect the
laws and where appropriate the customs and culture of the territories in which it operates. The
Group has donated products to selected appropriate charities which operate within its area, and
supports staff who are taking part in charitable activities which are related to our business areas or
customers. It contributes, as far as is practicable, to the local communities in which it operates and
takes a responsible and positive approach to employment practices.
The Strategic Report was approved by the Board on 16 March 2015 and signed on its behalf by:
Paul Foulger
Finance Director and Company Secretary
Report of the Directors for the year ended 31 December 2014
2.0 Corporate Governance
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
21
The Directors have pleasure in submitting this report together with the audited consolidated
fi nancial statements of EKF Diagnostics Holdings plc for the year ended 31 December 2014.
Corporate details
EKF Diagnostics Holdings public limited company is incorporated and registered in England and
Wales number 4347937. The registered offi ce is Avon House, 19 Stanwell Road, Penarth, Cardiff
CF64 2EZ.
Directors
The Directors who held offi ce during the year and as at the date of signing the fi nancial
statements were as follows:
David Evans
Julian Baines
Tito Bacarese-Hamilton (appointed 2 June 2014)
Richard Evans
Paul Foulger
Gordon Hall (resigned 31 March 2014)
Adam Reynolds
David Toohey (appointed 15 August 2014)
Doris-Ann Williams (appointed 15 August 2014)
Kevin Wilson
Principal activities
During the year the principal activities of the Group and Company were the development,
manufacture and supply of products into the in-vitro diagnostics (IVD) market place, and the
development and supply of products and services into the molecular diagnostics market. Future
developments and research and development activities are discussed in the Chairman’s
Statement on pages 10 and 11 and the Chief Executive’s Review on pages 12 to 15.
Dividends
There were no dividends paid or proposed by the Company in either year.
Going concern
The Directors have considered the applicability of the going concern basis in the preparation
of these fi nancial statements. This included the review of internal budgets and fi nancial results
which show, taking into account reasonably probable changes in fi nancial performance, that the
Group should be able to operate within the level of its current funding arrangements.
After making enquiries, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future. The Group
therefore continues to adopt the going concern basis of preparation for its consolidated
fi nancial statements.
Financial risk management
Financial risk management is discussed in Note 3 of the fi nancial statements.
Creditors payment policy
It is the policy of the Group and Company to agree appropriate terms and conditions for its
transactions with suppliers (ranging from standard written terms to individual negotiated
contracts) and for payment to be made in accordance with these terms provided the supplier
has complied with its obligations. The average numbers of days credit taken by the Group as at
31 December 2014 was 29 days (2013: 23 days).
Employee policies
Employee policies are discussed in the Strategic Report on pages 18 to 20.
22
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Report of the Directors for the year ended 31 December 2014
Directors’ interests
The interests of those Directors serving at 31 December 2014 and as at the date of signing of
these fi nancial statements, all of which are benefi cial, in the share capital of the Company were
as follows:
On 31 December 2014
Ordinary Shares of 1p each
On 1 January 2014*
Ordinary Shares of 1p each
David Evans
Julian Baines
Tito Bacarese-Hamilton
Richard Evans
Paul Foulger
Adam Reynolds
David Toohey
Doris-Ann Williams
Kevin Wilson
1,805,753
1,721,955
106,429
178,842
3,488,589
3,229,724
-
-
1,534,325
1,550,527
106,429
96,700
3,410,018
3,176,153
-
-
947,846
897,846
*or at the date of appointment where later.
On 20 March 2014, David Evans subscribed for 71,428 ordinary shares, Julian Baines subscribed
for 71,428 ordinary shares, Richard Evans subscribed for 57,142 ordinary shares, Paul Foulger
subscribed for 28,571 ordinary shares, and Adam Reynolds subscribed for 28,571 ordinary
shares, all at 35p. On 8 May 2014 David Evans purchased 100,000 ordinary shares, Julian Baines
purchased 100,000 ordinary shares, Richard Evans purchased 25,000 shares, Paul Foulger
purchased 50,000 ordinary shares, Adam Reynolds purchased 25,000 ordinary shares, and
Kevin Wilson purchased 50,000 ordinary shares, all at 25.07p. David Evans purchased
100,000 ordinary shares at a purchase price of 23 pence per share on 1 October 2014.
Substantial shareholdings
As at 12 March 2015, the following interests in 3% or more of the issued Ordinary Share capital
had been notifi ed to the Company:
Number of shares
Percentage of issued
share capital
Chase Nominees Limited
Nortrust Nominees Limited
HSBC Client Holdings Nominee (UK) Limited
HSBC Global Custody Nominee (UK) Limited
Vidacos Nominees Limited
The Bank of New York (Nominees) Limited
Pershing Nominees Limited
State Street Nominees Limited
Statement of Directors’ responsibilities
56,110,396
36,306,403
33,019,975
32,940,459
23,250,034
22,512,092
21,529,250
12,718,488
13.3%
8.6%
7.8%
7.8%
5.5%
5.3%
5.1%
3.0%
The Directors are responsible for preparing the Annual Report and the fi nancial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare fi nancial statements for each fi nancial year.
Under that law the Directors have prepared the Group and Parent Company fi nancial
statements in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under Company law the Directors must not approve the
fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of
affairs of the Group and the Company and of the profi t or loss of the Group for that period. In
preparing these fi nancial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union have been followed,
subject to any material departures disclosed and explained in the fi nancial statements; and
• prepare the fi nancial statements on the going concern basis unless it is inappropriate to
presume that the Company and the Group will continue in business.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
23
2.0 Corporate Governance
The Directors are responsible for keeping adequate accounting records that are suffi cient to
show and explain the Company’s transactions and disclose with reasonable accuracy at any
time the fi nancial position of the Company and the Group and enable them to ensure that the
fi nancial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of fi nancial
statements may differ from legislation in other jurisdictions.
Directors’ liability insurance
The Company has entered into deeds of indemnity for the benefi t of each Director of the
Company in respect of liabilities to which they may become liable in their capacity as Director
of the Company and of any Company in the Group. Those indemnities are qualifying third party
indemnity provisions for the purposes of Section 234 of the Companies Act 2006 and have
been in force during the whole of the fi nancial year and up to the date of approval of the
fi nancial statements.
Independent auditors
PricewaterhouseCoopers LLP has expressed their willingness to continue in offi ce as auditors
and a resolution to reappoint them will be proposed at the forthcoming Annual General
Meeting.
Disclosure of information to the Auditors
The Directors who hold offi ce at the date of approval of this report confi rm that so far as they
are each aware, there is no relevant audit information of which the Company’s auditors are
unaware, and each Director has taken all the steps that he or she ought to have taken as a
Director in order to make himself or herself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
Corporate Governance
The Company’s statement of corporate governance can be found in the Corporate Governance
Statement on pages 24 and 25 of these fi nancial statements. The Corporate Governance
Statement forms part of this Report of the Directors and is incorporated into it by
cross-reference.
Annual General Meeting
The resolutions to be proposed at the forthcoming Annual General Meeting are set out in the
formal notice of the meeting, as set out on page 70.
Recommendation
The Board considers that the resolutions to be proposed at the Annual General Meeting are in
the best interests of the Company and it is unanimously recommended that Shareholders
support these proposals as the Board intends to do in respect of their own holdings.
24
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Corporate Governance Statement
for the year ended 31 December 2014
Compliance
The Directors recognise the value of the principles of the UK Corporate Governance Code (the
Code). Although, as an AIM Company, compliance with the Code is not required, the Group seeks to
apply the Code where practicable and appropriate for a business of its size.
The following statement describes how the Group as at 31 December 2014 sought to address the
principles underlying the Code.
Board composition and responsibility
The Board currently comprises fi ve Executive Directors and four Non-Executive Directors. During
the year Gordon Hall resigned as a Non-Executive Director, Tito Bacarese-Hamilton joined as an
Executive Director, and David Toohey and Doris-Ann Williams joined as Non-Executive Directors.
The Board notes that the Combined Code guidance recommends that at least half the Board should
comprise independent Non-Executive Directors. The Board has determined that Kevin Wilson,
Adam Reynolds, David Toohey, and Doris-Ann Williams are independent in character and
judgement and that there are no relationships or circumstances which could materially affect or
interfere with the exercise of their independent judgement. The Board is satisfi ed with the balance
between Executive and Non-Executive Directors which allows it to exercise objectivity in decision
making and proper control of the Company’s business. The Board considers its composition is
appropriate in view of the size and requirements of the Group’s business and the need to maintain a
practical balance between executives and non-executives. Due to the structure of the Company it is
considered that it is not appropriate to make any further changes to the successful Board
composition at present.
There is a division of responsibilities between the Executive Chairman, who is responsible for the
overall strategy of the Group and running the Board, and the CEO, who is responsible for
implementing the strategy and day to day running of the Group. He is assisted by the Finance
Director, Chief Operating Offi cer, and Chief Technology Offi cer.
All Directors are subject to election by Shareholders at the fi rst Annual General Meeting after their
appointment, and are subject to re-election at least every three years. Non-Executive Directors are
appointed for a specifi c term of offi ce which provides for their removal in certain circumstances,
including under section 168 of the Companies Act 2006. The Board does not automatically
re-nominate Non-Executive Directors for election by Shareholders. The terms of appointment of the
Non-Executive Directors can be obtained by request to the Company Secretary.
The Board’s primary objective is to focus on adding value to the assets of the Group by identifying
and assessing business opportunities and ensuring that potential risks are identifi ed, monitored and
controlled. Matters reserved for Board decisions include strategic long-term objectives and capital
structure of major transactions. The implementation of Board decisions and day to day operations
of the Group are delegated to Management.
Board meetings
11 Board meetings were held during the year. The Directors’ attendance record during the year,
along with the number of meetings held during their tenure is as follows:
David Evans (Executive Chairman)
Julian Baines (Chief Executive Offi cer)
Tito Bacarese-Hamilton (Chief Technology Offi cer)
Richard Evans (Chief Operating Offi cer)
Paul Foulger (Finance Director and Company Secretary)
David Toohey (Non-Executive Director)
Doris-Ann Williams (Non-Executive Director)
Kevin Wilson (Non-Executive Director)
Adam Reynolds (Non-Executive Director)
Gordon Hall (Non-Executive Director)
11
11
6
10
11
4
3
10
11
3
(11)
(11)
(6)
(11)
(11)
(4)
(4)
(11)
(11)
(3)
Audit Committee
This comprises three Non-Executive Directors, Kevin Wilson (Chairman), David Toohey, and Adam
Reynolds. Kevin Wilson is the Senior Independent Director and has recent and relevant fi nance
experience. The principal duties of the Committee are to review the half-yearly and annual fi nancial
statements before their submission to the Board and to consider any matters raised by the auditors.
The Committee also reviews the independence and objectivity of the auditors.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
25
2.0 Corporate Governance
The terms of reference of the Committee refl ect current best practice, including authority to:
• Recommend the appointment, re-appointment and removal of the external auditors;
• Ensure the objectivity and independence of the auditors including occasions when non-audit
services are provided; and
• Ensure appropriate ‘whistle-blowing’ arrangements are in place.
The Non-Executive Directors may seek information from any employee of the Group and obtain
external professional advice at the expense of the Company if considered necessary. Due to the
relatively low number of personnel employed within the Group, the nature of the business and the
current control and review systems in place, the Board has decided not to establish a separate
internal audit department. The Committee met once during 2014.
Remuneration Committee
The Company has established a formal and transparent procedure for developing policy on executive
remuneration and for fi xing the remuneration packages of individual Directors. No Director is involved
in deciding his own remuneration.
The remuneration committee is made up of Adam Reynolds (Chairman), Kevin Wilson and Doris-Ann
Williams. The Committee considers the employment and performance of individual Executive
Directors and determines their terms of service and remuneration. It also has authority to grant
options under the Company’s Executive Share Option Scheme. The Committee did not meet during
2014 but intends to do so during the current year.
Board appointments
There is no formal Nominations Committee, the appointment of new Directors being considered by
the full Board.
Internal control
The Directors are responsible for ensuring that the Group maintains a system of internal control to
provide them with reasonable assurance regarding the reliability of fi nancial information used within
the business and for publication and that the assets are safeguarded. There are inherent limitations
in any system of internal control and accordingly even the most effective system can provide only
reasonable, but not absolute, assurance with respect to the preparation of fi nancial reporting and the
safeguarding of assets.
The Group, in administering its business, has put in place strict authorisation, approval and control
levels within which senior management operates. These controls refl ect the Group’s organisational
structure and business objectives. The control system includes clear lines of accountability and covers
all areas of the organisation. The Board operates procedures which include an appropriate control
environment through the defi nition of the above organisation structure and authority levels and the
identifi cation of the major business risks. The Group has commenced a project to enhance and
formalise its internal controls including the establishment of a Risk Steering Committee.
Internal fi nancial reporting
The Directors are responsible for establishing and maintaining the Group’s system of internal
reporting and as such have put in place a framework of controls to ensure that on-going fi nancial
performance is measured in a timely and correct manner and that risks are identifi ed as early as is
practicably possible. There is a comprehensive budgeting system and monthly management accounts
are prepared which compare actual results against both the budget and the previous year. They are
reviewed and approved by the Board and revised forecasts are prepared on a regular basis.
Relations with Shareholders
The Company reports to Shareholders twice a year. The Company dispatches the notice of its Annual
General Meeting, together with a description of the items of special business, at least 21 clear days
before the meeting. Each substantially separate issue is the subject of a separate resolution and all
Shareholders have the opportunity to put questions to the Board at the Annual General Meeting. The
Chair(s) of the Audit and Remuneration Committees normally attend the Annual General Meeting and
will answer questions which may be relevant to their work. The Chairman advises the meeting of the
details of proxy votes cast on each of the individual resolutions after they have been voted on in the
meeting. The Chairman and the Non-Executive Directors intend to maintain a good and continuing
understanding of the objectives and views of the Shareholders.
Corporate social responsibility
The Board recognises that the Group has a duty to be a good corporate citizen and is conscious that
its business processes minimise harm to the environment, that it contributes as far as is practicable to
the local communities in which it operates and takes a responsible and positive approach to
employment practices.
The Report of the Directors was approved by the Board on 16 March 2015 and signed on its behalf by:
Paul Foulger
Finance Director and Company Secretary
26
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Report of the Remuneration Committee for the year ended 31 December 2014
Statement of compliance
This report does not constitute a Directors’ Remuneration Report in accordance with the Directors’ Remuneration Regulations 2007
which do not apply to the Company as it is not fully listed. This report sets out the Group policy on Directors’ remuneration, including
emoluments, benefi ts and other share-based awards made to each Director.
Policy on Executive Directors’ remuneration
Remuneration packages are designed to motivate and retain Executive Directors to ensure the continued development of the Group
and to reward them for enhancing value to shareholders. The main elements of the remuneration package for Executive Directors are
basic salary or fees, performance-related bonuses, benefi ts and share option incentives.
Directors’ remuneration
The remuneration of the Directors for the year ended 31 December 2014 is shown below:
Salary
and fees
£’000
Pension
£’000
Benefi ts
in kind
£’000
Bonus
£’000
2014
£’000
2013
£’000
Executive Directors
David Evans*
Tito Bacarese-Hamilton**
Julian Baines
Paul Foulger
Richard Evans
Non-Executive Directors
David Toohey**
Doris-Ann Williams**
Kevin Wilson
Adam Reynolds
Gordon Hall***
45
182
238
167
184
816
11
11
25
25
12
84
-
4
12
8
5
29
-
-
-
-
-
-
Total fees and emoluments
900
29
-
7
12
7
12
38
-
-
-
3
-
3
41
-
-
-
-
-
-
-
-
-
-
-
-
-
45
193
262
182
201
883
11
11
25
28
12
87
45
-
306
21
229
601
-
-
25
29
25
79
970
680
* David Evans’ remuneration is paid through his personal consultancy, MBA Consultancy.
** Remuneration for Tito Bacarese-Hamilton, David Toohey, and Doris-Ann Williams is shown from their date of appointment.
*** Gordon Hall’s remuneration is shown up to his date of resignation.
Directors’ share options and Long-Term Incentive Plan
As at 31 December 2014 the following options to Directors of the Company existed under the Company’s unapproved share-option
scheme and Long-Term Incentive Plan:
Option Holder
David Evans
Tito Bacarese-Hamilton
Julian Baines
Richard Evans
Paul Foulger
Option price per
Ordinary Share
Number of Ordinary
Shares under option
15p
35p
15p
20p
35p
8,545,638
1,300,000
8,545,638
4,260,000
1,000,000
Exercise period
1 January 2014 – 31 December 2020
30 May 2017-30 May 2024
1 January 2014 – 31 December 2020
1 January 2014 – 31 December 2020
17 April 2017 - 17 April 2024
Half of the options granted to David Evans and Julian Baines and all the options of Richard Evans are subject to the achievement of 15%
compound annual Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) growth for the three years commencing on
1 January 2011. The base EBITDA was equal to twice the audited EBITDA achieved by the Group for the six months ending 31 December
2010. This condition has now been met. The key terms for the remaining awards were revised on 11 June 2013. The key terms of these
are as follows. For each test, the shares will vest if the Company’s mid-market closing share price attains the required price or higher for
a period of 20 (60p options: 30) consecutive days at any time during the period commencing on 1 January 2011 and ending on
31 December 2016 .
a) 1,709,128 notional shares will vest if the share price attains 30 pence. This condition has now been met.
b) 1,709,128 notional shares will vest if the share price attains 37.5 pence.
c) 1,709,128 notional shares will vest if the share price attains 45 pence.
d) 1,709,128 notional shares will vest if the share price attains 52.5 pence.
e) 1,709,126 notional shares will vest if the share price attains 60 pence.
The options granted to Paul Foulger will vest if the Company’s mid-market closing share price attains the required price or higher for a
period of 20 consecutive days at any time during the period commencing on 17 April 2014 and ending on 17 April 2024.
a) one third of the notional shares will vest if the share price attains 50 pence.
b) one third of the notional shares will vest if the share price attains 60 pence.
b) one third of the notional shares will vest if the share price attains 70 pence.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
27
Independent Auditors’ Report to the members of
EKF Diagnostics Holdings plc
Report on the fi nancial statements
Our opinion
In our opinion:
• the fi nancial statements defi ned below, give a true and fair view of the state of the Group’s and of the Company’s affairs as at
31 December 2014 and of the Group’s loss and the Group’s and the Company’s cash fl ows for the year then ended;
• the Group fi nancial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
• the Company fi nancial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006.
What we have audited
EKF Diagnostics Holdings plc’s fi nancial statements comprise:
• the consolidated and company’s statements of fi nancial position as at 31 December 2014;
• the consolidated income statement and the consolidated statement of comprehensive income for the year then ended;
• the consolidated and company’s statements of cash fl ows for the year then ended;
• the consolidated and company’s statements of changes in equity for the year then ended; and
• the notes to the fi nancial statements, which include a summary of signifi cant accounting policies and other explanatory information.
The fi nancial reporting framework that has been applied in the preparation of the fi nancial statements is applicable law and IFRSs as
adopted by the European Union and, as regards the company fi nancial statements, as applied in accordance with the provisions of the
Companies Act 2006.
In applying the fi nancial reporting framework, the Directors have made a number of subjective judgements, for example in respect of
signifi cant accounting estimates. In making such estimates, they have made assumptions and considered future events.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, the information given in the Strategic Report and the Report of the Directors for the fi nancial year for which the fi nancial
statements are prepared is consistent with the fi nancial statements.
Other matters on which we are required to report by exception
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the company fi nancial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration
specifi ed by law are not made. We have no exceptions to report arising from this responsibility.
Responsibilities for the fi nancial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 22, the Directors are responsible for the
preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view.
Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
28
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Independent Auditors’ Report to the members of
EKF Diagnostics Holdings plc continued
What an audit of fi nancial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and
disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of signifi cant accounting estimates made by the Directors; and
• the overall presentation of the fi nancial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the fi nancial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
In addition, we read all the fi nancial and non-fi nancial information in the Annual Report to identify material inconsistencies with the
audited fi nancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Mark Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
16 March 2015
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
29
Consolidated Income Statement
Continuing operations
Revenue
Cost of sales
Gross profi t
Administrative expenses
Other income
Operating (loss)/profi t
Depreciation and amortisation
Share-based payment
Exceptional items
EBITDA before exceptional items and share-based payment
Finance income
Finance costs
(Loss)/profi t before income tax
Income tax expense
Loss for the year
Loss attributable to:
Owners of the parent
Non-controlling interest
Loss per Ordinary Share attributable to the owners of the parent during the year
Basic
From continuing operations
Diluted
From continuing operations
Notes
2014
£’000
2013
£’000
5
6
40,062
(20,113)
31,804
(15,459)
19,949
16,345
6, 7
(22,793)
(14,439)
371
495
(2,473)
(4,950)
(512)
(3,268)
6,257
18
2,401
(3,554)
(709)
1,840
4,824
5
(1,573)
(1,799)
(4,028)
(1,440)
607
(1,500)
(5,468)
(893)
(5,689)
221
(5,468)
(1,126)
233
(893)
Pence
Pence
(1.50)
(0.41)
(1.50)
(0.41)
5
7
5
12
12
13
14
14
The notes on pages 35 to 69 are an integral part of these consolidated fi nancial statements.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company
income statement.
The loss for the Parent Company for the year was £2,882,000 (2013: £1,490,000).
30
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Consolidated Statement of Comprehensive Income
Loss for the year
Other comprehensive income:
Movement on pension scheme
Currency translation differences
Other comprehensive gain for the year
Total comprehensive loss for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive loss for the year
Notes
33
2014
£’000
(5,468)
48
546
594
(4,874)
(4,890)
16
(4,874)
2013
£’000
(893)
9
199
208
(685)
(881)
196
(685)
Items stated above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed
in note 13.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent company
income statement.
The notes on pages 35 to 69 are an integral part of these consolidated fi nancial statements.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
31
Consolidated and Company’s Statements of Financial Position
Notes
Group
2014
£’000
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments
Trade and other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Deferred tax assets
Cash and cash equivalents
Total current assets
Total assets
Equity attributable to owners of the parent
Share capital
Share premium account
Other reserve
Foreign currency reserves
Retained earnings
Non-controlling interest
Total equity
Liabilities
Non-current liabilities
Borrowings
Deferred consideration
Deferred tax liabilities
Retirement benefi t obligation
Total non-current liabilities
Current liabilities
Trade and other payables
Deferred consideration
Current income tax liabilities
Deferred tax liabilities
Borrowings
Total current liabilities
Total liabilities
Total equity and liabilities
16
17
18
20
22
28
23
22
28
24
29
29
32
32
31
26
27
28
33
25
27
28
26
10,568
93,522
-
1,152
-
238
9,785
34,725
–
250
–
903
1,576
-
61,043
1,152
17,799
238
105,480
45,663
81,808
5,793
16,115
45
8,346
30,299
135,779
4,221
91,276
41
26
(8,541)
87,023
353
5,308
7,155
46
2,551
15,060
60,723
2,727
41,783
41
(725)
(3,412)
40,414
508
-
18,508
-
4,390
22,898
104,706
4,221
91,276
-
-
(9,050)
86,447
-
1,616
–
16,630
250
17,799
96
36,391
–
7,275
–
159
7,434
43,825
2,727
41,783
–
–
(6,680)
37,830
–
87,376
40,922
86,447
37,830
2,492
9,536
13,258
-
25,286
7,943
8,493
2,171
756
3,754
23,117
48,403
135,779
2,108
5,471
3,442
103
11,124
4,189
1,778
1,998
380
332
8,677
19,801
-
3,165
-
-
3,165
3,758
8,493
-
-
2,843
15,094
18,259
60,723
104,706
–
–
–
–
–
4,217
1,778
–
–
–
5,995
5,995
43,825
The notes on pages 35 to 69 are an integral part of these fi nancial statements.
The fi nancial statements were approved and authorised for issue by the Board on 16 March 2015.
Julian Baines
Chief Executive Offi cer
EKF Diagnostics Holdings plc
Registered no: 04347937
Paul Foulger
Finance Director
32
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Consolidated and Company’s Statements of Cash Flows
Group
2014
£’000
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
Cash fl ow from operating activities
Cash (used in)/generated by operations
Interest paid
Income tax paid
Notes
35
(3,262)
(241)
(1,241)
3,172
(152)
(1,013)
(12,011)
(69)
(21)
Net cash (used in)/generated by operating activities
(4,744)
2,007
(12,101)
Cash fl ow from investing activities
Purchase of investments
Purchase of property, plant and equipment (PPE)
Purchase of intangibles
Purchase of subsidiaries (net of cash acquired)
Proceeds from sale of PPE
Interest received
Net cash used in investing activities
Cash fl ow from fi nancing activities
Proceeds from issuance of Ordinary Shares
New bank loans
Repayments on borrowings
Dividend payment to non-controlling interest
Payment of deferred consideration
35
29
(902)
(1,038)
(1,595)
(12,379)
22
18
–
(1,185)
(1,097)
61
5
(902)
(17)
-
(10,248)
-
4
(15,874)
(2,216)
(11,163)
(26)
25,007
3,764
(1,855)
(171)
(355)
–
477
(439)
(169)
(1,429)
25,007
2,843
-
-
(355)
Net cash (used in)/generated by fi nancing activities
26,390
(1,560)
27,495
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalents at end of year
24
5,772
2,551
23
8,346
(1,769)
4,331
(11)
2,551
4,231
159
-
4,390
65
–
–
65
–
(26)
–
–
–
–
–
–
–
–
(616)
(616)
(577)
736
–
159
Consolidated and Company’s Statements of Changes in Equity
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
33
Consolidated
At 1 January 2013
Comprehensive income
(Loss)/profi t for the year
Other comprehensive income
Actuarial gain on pension
Currency translation differences
Total comprehensive income
Transactions with owners
Share
capital
£’000
Share
premium
account
£’000
2,671 40,240
–
–
–
–
–
–
–
–
Proceeds from shares issued
56
1,543
Issue of convertible loan notes in subsidiary
Dividends to non-controlling interest
–
–
–
–
–
–
56
1,543
2,727
41,783
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share-based payments
Total contributions by and
distributions to owners
At 1 January 2014
Comprehensive income
(Loss)/profi t for the year
Other comprehensive income
Movement on pension
Currency translation differences
Total comprehensive income
Transactions with owners
Dividends to non-controlling interest
Share-based payments
Total contributions by and
distributions to owners
At 31 December 2014
Proceeds from shares issued
1,494
49,493
Other
reserve
£’000
Foreign
currency
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interest
£’000
Total
£’000
Total
equity
£’000
(961)
(3,004)
38,946
481
39,427
–
–
–
–
–
–
41
–
–
41
41
-
-
-
-
-
-
-
-
–
–
236
236
–
–
–
–
–
(1,126)
(1,126)
233
(893)
9
–
9
236
(1,117)
(881)
–
–
–
709
1,599
41
–
709
709
2,349
–
(37)
196
–
–
(169)
–
(169)
508
9
199
(685)
1,599
41
(169)
709
2,180
40,922
(725)
(3,412)
40,414
-
-
-
751
(5,689)
(5,689)
221
(5,468)
48
-
48
751
-
(205)
48
546
751
(5,641)
(4,890)
16
(4,874)
-
-
-
-
-
512
50,987
-
50,987
-
512
(171)
-
(171)
512
1,494
49,493
4,221
91,276
-
41
-
26
512
(8,541)
51,499
87,023
(171)
353
51,328
87,376
34
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Consolidated and Company’s Statements of Changes in Equity
continued
Company
At 1 January 2013
Comprehensive income
Loss for the year
Total comprehensive income
Transactions with owners
Proceeds from shares issued
Share-based payments
Total contributions by and distributions to owners
At 1 January 2014
Comprehensive income
Loss for the year
Total comprehensive income
Transactions with owners
Proceeds from shares issued
Share-based payments
Total contributions by and distributions to owners
At 31 December 2014
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Total
£’000
2,671
40,240
(5,899)
37,012
–
–
56
–
56
2,727
-
-
–
–
(1,490)
(1,490)
(1,490)
(1,490)
1,543
–
1,543
41,783
–
709
709
(6,680)
1,599
709
2,308
37,830
-
-
(2,882)
(2,882)
(2,882)
(2,882)
1,494
49,493
-
1,494
4,221
-
49,493
91,276
-
512
512
(9,050)
50,987
512
51,499
86,447
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
35
Notes to the Financial Statements for the year ended 31 December 2014
1. General information
EKF Diagnostics Holdings Plc is a company incorporated and domiciled in the United Kingdom. The Company is a public limited
company, which is listed on the AIM market of the London Stock Exchange. The address of the registered offi ce is Avon House,
19 Stanwell Road, Penarth, Cardiff CF64 2EZ.
The principal activity of the Group continued to be the development, manufacture and supply of products and services into the
in-vitro diagnostic (IVD) market place, including the molecular diagnostics sector. The Group has presence in the UK, USA, Germany,
Poland, Russia, China, and Ireland, and sells throughout the world including Europe, the Americas, Asia, and Africa.
The fi nancial statements are presented in British Pounds Sterling, the currency of the primary economic environment in which the
Company’s headquarters is operated. The Group comprises EKF Diagnostics Holdings plc and its subsidiary Companies as set out in
note 18.
The registered number of the Company is 04347937.
2. Summary of signifi cant accounting policies
The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below. The policies
have been consistently applied throughout the year, unless otherwise stated.
Basis of preparation
The consolidated fi nancial statements of EKF Diagnostics Holdings plc have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS’s), IFRIC interpretations and the Companies Act 2006 applicable to
companies reporting under IFRS. Practice is continuing to evolve on the application and interpretations of IFRS.
The consolidated fi nancial statements have been prepared under the historical cost convention, as modifi ed by the revaluation of
available-for-sale assets at fair value through profi t or loss and certain fi nancial liabilities at fair value through profi t and loss.
The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial
statements are disclosed in note 4.
(a) Standards, amendments and interpretations effective in 2014
The following new IFRS pronouncements relevant to the Group have been adopted in these fi nancial statements:
• Amendments to IAS 32: ‘Financial instruments: Presentation’ related to offsetting fi nancial assets and fi nancial liabilities
• Amendments to IAS 36: ‘Impairment’ related to recoverable amount disclosures for non-fi nancial assets
None of the above amendments have had a material impact on the Group consolidated fi nancial statements.
(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by
the group.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the fi nancial
year beginning 1 January 2014 and have not been early adopted:
• IFRS 9: ‘Financial instruments’
• IFRS 15: ‘Revenue from contracts with customers’
• Amendments to IFRS 11: ‘Joint arrangements’ related to the acquisition of interests in joint operations and the sale or
contribution of assets between an investor and its associate or joint venture
• IAS 1: ‘Presentation of fi nancial statements’.
• Amendment to IAS 16: ‘Property, plant and equipment’ and IAS 38: ‘Intangible assets’ related to the clarifi cation of acceptable
methods of depreciation and amortisation
• Annual Improvement Project 2010-2012, 2011-2013 & 2012-2014
• Amendment to IAS 19: ‘Employee benefi ts’ related to employee contributions to defi ned benefi t plans.
• Amendment to IAS 27: ‘Separate fi nancial statements’
The Directors do not anticipate that the application of the Annual Improvement Projects and the Amendments to IAS 1, IAS 16, IAS 19,
IAS 27, IAS 38 and IFRS 11 will have a material impact on the amounts reported and disclosed.
The Group is currently in the process of assessing the impact of IFRS 9 and IFRS 15 and it is currently too early to conclude what
impact these standards will have as a detailed impact assessment is required and therefore it is not practicable to provide a
quantifi ed estimate of the effects of IFRS 9 and IFRS 15. This will be provided once the Group has completed the detailed reviews.
Going concern
The Group meets its day-to-day working capital requirements through the use of cash reserves and existing bank facilities. The
Group has maintained its liquidity profi le through the year.
The Directors have considered the applicability of the going concern basis in the preparation of these fi nancial statements. This
included the review of internal budgets and fi nancial results which show, taking into account reasonably probable changes in
fi nancial performance, that the Group should be able to operate within the level of its current funding arrangements.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for
the foreseeable future. For this reason they have adopted the going concern basis in the preparation of the fi nancial statements.
36
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
2. Summary of signifi cant accounting policies continued
Basis of consolidation
The consolidated fi nancial statements incorporate the fi nancial statements of the Company and its subsidiary undertakings.
Subsidiaries are all entities over which the Group has the power to govern their fi nancial and operating policies generally
accompanying a shareholding of more than fi fty per cent of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for
the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by
the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
agreement. Acquisition related costs are expensed as incurred. Identifi able assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition
basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair
value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifi able net assets acquired is
recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase,
the difference is recognised directly in the income statement.
Investments in subsidiaries are accounted for at cost less impairment.
Inter-Company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
Foreign currency translation
(a) Functional and presentational currency
Items included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated fi nancial statements are presented in British
Pounds Sterling, which is the Company’s functional and presentational currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement within ‘administrative expenses’.
(c) Group companies
The results and fi nancial position of all the Group entities (none of which has the currency of a hyper-infl ationary economy) that have
a functional currency different from the presentational currency are translated into the presentational currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated at average exchange rates; and
• all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other
comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity
are recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identifi ed as the Executive Directors who make strategic decisions.
Government grants
Government grants receivable in connection with expenditure on property, plant and equipment are accounted for as deferred
income, which is credited to the income statement over the expected useful economic life of the related assets, on a basis consistent
with the depreciation policy. Revenue grants for the reimbursement of costs charged to the income statement are credited to the
Income Statement in the year in which the costs are incurred.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any provision for impairment.
Historical cost includes expenditure that is directly attributable to the acquisition of the asset and bringing the asset to its working
condition for its intended use.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only where it is
probable that future economic benefi ts associated with the asset will fl ow to the Group and the cost of the asset can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income
statement during the fi nancial period in which they are incurred. Any borrowing costs associated with qualifying property plant and
equipment are capitalised and depreciated at the rate applicable to that asset category.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
37
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method or reducing balances method to
allocate their cost to its residual values over their estimated useful lives, as follows:
Buildings
Fixtures and fi ttings
Plant and machinery
Motor vehicles
2%–2.5%
20%–25%
20%–33.3%
25%
The assets’ residual values and useful economic lives are reviewed regularly and adjusted if appropriate, at the end of each
reporting period.
An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Gains and losses on the disposal of assets are determined by comparing the proceeds with the carrying amount and are recognised
in administration expenses in the income statement.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets
of the acquired subsidiary at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’.
Goodwill has an infi nite useful life and is tested annually for impairment and carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating
units or groups of cash-generating units that are expected to benefi t from the business combination in which the goodwill arose,
identifi ed according to operating segment.
(b) Trademarks, trade names and licences
Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business
combination are recognised at fair value at the acquisition date. Trademarks and licences have a fi nite useful life and are carried
at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks
and licences over their estimated useful lives of between 8 and 12 years and is charged to administrative expenses in the income
statement.
(c) Customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The
contractual customer relationships have a fi nite useful life and are carried at cost less accumulated amortisation. Amortisation is
calculated using the straight-line method over the expected life of the customer relationship of between 6 and 15 years and is
charged to administrative expenses in the income statement.
(d) Trade secrets
Trade secrets, including technical know-how, operating procedures, methods and processes, acquired in a business combination are
recognised at fair value at the acquisition date. Trade secrets have a fi nite useful life and are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trade secrets over their estimated
useful lives of between 6 and 15 years and is charged to administrative expenses in the income statement.
(e) Development costs
Development costs acquired in a business combination are recognised at fair value at the acquisition date. Development costs have a
fi nite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over
their estimated useful lives of 15 years and is charged to administrative expenses in the income statement.
Expenditure incurred on the development of new or substantially improved products or processes is capitalised, provided that the
related project satisfi es the criteria for capitalisation, including the project’s technical feasibility and likely commercial benefi t. All
other research and development costs are expensed as incurred.
Development costs are amortised over the estimated useful life of the products with which they are associated. Amortisation
commences when a new product is in commercial production. The amortisation is charged to administrative expenses in the income
statement. The estimated remaining useful lives of development costs are reviewed at least on an annual basis.
The carrying value of capitalised development costs is reviewed for potential impairment at least annually and if a product becomes
unviable and an impairment is identifi ed the deferred development costs are immediately charged to the income(cid:162)statement.
(f) Non-compete agreements
Non-compete agreements arising from a business combination are recognised at fair value at the acquisition date. Non-compete
agreements have a fi nite life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line
method to allocate the cost of non-compete agreements over their estimated useful lives of three years and is charged to
administrative expenses in the income statement.
38
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
2. Summary of signifi cant accounting policies continued
Impairment of non-fi nancial assets
Assets that have an indefi nite life such as goodwill are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its
recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the
time value of the money and the risks specifi c to the asset for which the estimates of future cash fl ows have not been adjusted.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash
fl ows. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the
carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (cash-generating unit) in the prior period. A reversal of an
impairment loss is recognised in the income statement immediately. If goodwill is impaired however, no reversal of the impairment is
recognised in the fi nancial statements.
Investments
Investments where the Group does not have a controlling interest are initially recognised at cost. The carrying value is tested
annually for impairment and an impairment loss is recognised for the amount by which the carrying amount exceeds its
recoverable amount.
Financial assets
Classifi cation
The Company classifi es its fi nancial assets in the following categories: loans and receivables and available-for-sale fi nancial
assets. The classifi cation depends on the purpose for which the fi nancial assets were acquired and management determines the
classifi cation of its fi nancial assets at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are
classifi ed as non-current assets. The Company’s loans and receivables comprise ‘trade and other receivables’ and cash and cash
equivalents in the balance sheet.
(b) Available-for-sale fi nancial assets
Available-for-sale assets are non-derivatives that are either designated in this category or not classifi ed as loans and receivables.
They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of
the end of the reporting period.
Recognition and measurement
Regular purchases and sales of fi nancial assets are recognised on the trade date – the date on which the Company commits to
purchase the asset. Assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the risk
and rewards of ownership have been transferred.
Loans and receivables are subsequently carried at amortised cost using the effective interest rate method.
Available-for-sale fi nancial assets are subsequently carried at fair value. Gains and losses arising from changes in fair value are
recognised in other comprehensive income until the asset is disposed at which time the cumulative gain or loss previously
recognised in equity is included in the consolidated income statement for the period. If an available-for-sale investment is determined
to be impaired, the cumulative loss previously recognised in equity is included in the income statement for the(cid:162)period.
Inventories
Inventories and work in progress are stated at the lower of cost and net realisable value. Cost is calculated on a fi rst in and fi rst out
basis and includes raw materials, direct labour, other direct costs and attributable production overheads, where appropriate. Net
realisable value represents the estimated selling price less all estimated costs of completion and applicable selling costs. Where
necessary, provision is made for slow-moving and obsolete inventory. Inventory on consignment and their related obligations are
recognised in current assets and payables respectively.
Trade and other receivables
Trade receivables are initially recognised at fair value, being the original invoice amount, and subsequently measured at amortised
cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not
be able to collect all amounts due according to the original terms of the receivable. Trade receivables that are less than three months
past due are not considered impaired unless there are specifi c fi nancial or commercial reasons that lead management to conclude
that the customer will default. Older debts are considered to be impaired unless there is suffi cient evidence to the contrary that
they will be settled. The amount of the provision is the difference between the asset’s carrying value and the present value of the
estimated future cash fl ows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount
of the loss is recognised in the income statement within administrative expenses. When a trade receivable is uncollectible it is written
off against the allowance account. Subsequent recoveries of amounts previously written off are credited against administrative
expenses in the income statement.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
39
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original
maturity of less than three months, reduced by overdrafts to the extent that there is a right of offset against other cash balances.
For the purposes of the consolidated cash fl ow statement, cash and cash equivalents consist of cash and short-term deposits as
defi ned above net of outstanding bank overdrafts where there is a right of offset.
Share capital
Ordinary Shares are classifi ed as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium
account and are also classifi ed as equity. Incremental costs directly attributable to the issue of new Ordinary Shares or options are
deducted from the share premium account.
Financial liabilities
Debt is measured at fair value, being net proceeds after deduction of directly attributable issue costs, with subsequent measurement
at amortised cost with the exception of deferred equity consideration which is categorised as a fi nancial liability at fair value through
profi t and loss. Debt issue costs are recognised in the income statement over the expected term of such instruments at a constant
rate on the carrying amount.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classifi ed as current liabilities if payment is due within one year or less (or in the normal operating
cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value
and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost. Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to
defer settlement of the liability for at least 12 months after the balance sheet date.
Borrowing costs are expensed in the consolidated Group income statement under the heading ‘fi nance costs’. Arrangement and
facility fees together with bank charges are charged to the income statement under the heading ‘administrative expenses’.
Current and deferred income tax
The tax expense comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates
to items recognised in other comprehensive income where the associated tax is also recognised in other comprehensive(cid:162)income.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and generate taxable income. Management evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised, using the liability method, on all temporary differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred tax liabilities are recognised
in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in
business combinations.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the
extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will
be suffi cient taxable profi ts against which the future reversal of the underlying temporary differences can be(cid:162)deducted.
The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that suffi cient taxable profi t will be available to allow all, or part, of the tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or
the liability is settled, based on the tax rates (and tax laws) that have been substantively enacted at the balance sheet date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net(cid:162)basis.
Provisions
Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of a past event
and it is probable that an outfl ow of resources will be required to settle the obligation and the amount can be reliably(cid:162)measured.
Leases
Leases which transfer substantially all the risks and rewards of ownership of an asset are treated as a fi nance lease. Assets held
under fi nance leases are capitalised at their fair value at the inception of the lease and depreciated over the estimated useful
economic life of the asset or lease term if shorter. The fi nance charges are allocated to the income statement in proportion to the
capital amount outstanding.
All other leases are classifi ed as operating leases. Operating lease rentals are charged to the income statement in equal annual
amounts over the lease term.
Deferred consideration
Deferred consideration is recognised at fair value. Where the value of deferred consideration is based on a future event, management
estimate the likelihood of the consideration becoming payable. Deferred consideration is discounted to take account of the time
value of money at rates based on those used for the valuation of related intangible assets.
40
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
2. Summary of signifi cant accounting policies continued
Employee benefi ts
(a) Pension obligations
Group companies operate various pension schemes and have both defi ned benefi t and defi ned contribution plans. A defi ned
contribution plan is a pension plan under which the Group pays fi xed contributions into a separate entity with the pension cost
charged to the income statement as incurred. The Group has no further obligations once the contributions have been paid.
Under a defi ned benefi t scheme, the amount of retirement benefi t that will be received by an employee is defi ned with respect
to periods of service and fi nal salary. The amount recognised in the balance sheet is the difference between the present value of
the defi ned benefi t obligation at the balance sheet date and the fair value of the scheme assets. The defi ned benefi t obligation
is calculated annually by independent actuaries using the projected unit credit method. The present value of the defi ned benefi t
obligation is determined by discounting the estimated future cash outfl ows.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited in other
comprehensive income in the period in which they arise.
The service cost of providing retirement benefi ts to employees during the year is charged to operating profi t. Past service costs are
recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service
for a specifi ed period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the
average vesting period.
(b) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans, under which the Group receives services from
employees as consideration for equity instruments of the Group. Equity-settled share-based payments are measured at fair value
at the date of grant and are expensed over the vesting period based on the number of instruments that are expected to vest.
For plans where vesting conditions are based on share price targets, the fair value at the date of grant refl ects these conditions.
Where applicable the Group recognises the impact of revisions to original estimates in the income statement, with a corresponding
adjustment to equity for equity-settled schemes. Fair values are measured using appropriate valuation models, taking into account
the terms and conditions of the awards.
When the share-based payment awards are exercised, the Company issues new shares. The proceeds received net of any directly
attributable transaction costs are credited to share capital (nominal value) and share premium.
National insurance on share options
To the extent that the share price at the balance sheet date is greater than the exercise price on options granted under unapproved
share-based payment compensation schemes, provision for any National Insurance Contributions has been based on the prevailing
rate of National Insurance. The provision is accrued over the performance period attaching to the award.
Revenue recognition
(a) Sale of goods
Revenue for the sale of medical diagnostic instruments and reagents is measured at the fair value of the consideration received or
receivable and represents the invoiced value for the sale of the goods and services net of sales taxes, rebates and discounts. Revenue
from the sale of goods is recognised when a Group Company has delivered products to the customer, the customer has accepted
delivery of the products and collectability of the related receivables is reasonably assured.
(b) Sale of services
Revenue for the sale of molecular diagnostic testing services is recognised when the test has been completed and the results
returned to the patient. Billing is carried out by the Group directly or through third party billing agencies. Sales commissions to third
parties are recognised at the same time as revenue is recognised and accrued until due for payment.
(c) Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s
net carrying amount.
(d) Royalty and licence income
Royalty and licence income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
Dividend distribution
Dividend distributions to the Company’s Shareholders are recognised as a liability in the Group’s fi nancial statements in the period in
which the dividends are approved by the Company’s Shareholders. Interim dividends are recognised when paid.
Other income
Other income includes grant income and R & D tax credits passed through income where this is permitted by the relevant jurisdiction.
Exceptional items
These are items of an unusual or non-recurring nature incurred by the Group and include transactional costs and one off items
relating to business combinations, such as acquisition expenses.
3. Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of fi nancial risks: market risk (foreign exchange risk and cash fl ow interest rate
risk), credit risk, liquidity risk, capital risk and fair value risk. The Group’s overall risk management programme focuses on the
unpredictability of the fi nancial markets and seeks to minimise the potential adverse effects on the Group’s fi nancial performance.
The Group does not use derivative fi nancial instruments to hedge risk exposures.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
41
Risk management is carried out by the head offi ce fi nance team. It evaluates and mitigates fi nancial risks in close co-operation with the
Group’s operating units. The Board provides principles for overall risk management whilst the head offi ce fi nance team provides specifi c
policy guidance for the operating units in terms of managing foreign exchange risk, credit risk and cash and liquidity management.
(a) Market risk
(i) Foreign exchange – cash fl ow risk
The Group’s presentational currency is sterling although it operates internationally and is exposed to foreign exchange risk arising
from various currency exposures, primarily between GBP, USD, the Euro, Rouble, and Zloty such that the Group’s cash fl ows are
affected by fl uctuations in the rate of exchange between GBP and the aforementioned foreign currencies.
This exposure is managed by a natural currency hedge as the Group’s operating subsidiaries cost base is also denominated in USDs,
Euros, Roubles, and Zloty as the Group has subsidiary businesses located in the USA, Germany, Ireland, Russia, and(cid:162)Poland.
Management do not use derivative fi nancial instruments to mitigate the impact of any residual foreign currency exposure not
mitigated by the natural hedge within the business model. The Group does not speculate in foreign currencies and no operating
Company is permitted to take unmatched positions in any foreign currency.
(ii) Foreign exchange – Fair value risk
Translation exposures that arise on converting the results of overseas subsidiaries are not hedged. Net assets held in foreign
currencies are hedged wherever practical by matching borrowings in the same currency. The principal exchange rates used by the
Group in translating overseas profi ts and net assets into GBP are set out in the table below.
Rate compared to GBP
Euro
Russian Rouble
Polish Zloty
US Dollar
Average
rate
2014
1.244
64.048
5.206
1.647
Average
rate
2103
1.183
50.155
4.959
1.572
Year end
rate
2014
1.287
91.264
5.465
1.559
Year end
rate
2013
1.203
54.500
4.983
1.657
As a guide to the sensitivity of the Group’s results to movements in foreign currency exchange rates, a one cent movement in the
Euro and US Dollars to Sterling rate would impact annual earnings by approximately £26,000 and £33,000 respectively.
(iii) Cash fl ow and fair value interest rate risk
The Group has interest-bearing assets in the form of cash and cash equivalents and limited interest-bearing liabilities which relate
to long-term borrowing and fi nance lease obligations in the Group’s US and German subsidiaries. Interest rates on cash and cash
equivalents are fl oating whilst interest rates on borrowings have been fi xed and therefore expose the Group to fair value interest rate
risk. The Group does not speculate on future changes in interest rates.
Where overseas acquisitions are made, it is the Group’s policy to arrange any borrowings required in local currency.
It is the Group’s policy not to trade in fi nancial instruments. The Group does not use interest rate swaps.
(b) Credit risk
Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local subsidiary and
operating business unit is responsible for managing and analysing the credit risk for each of their new clients before standard
payment and delivery terms and conditions are offered. It is the Group policy to obtain deposits from customers where possible,
particularly overseas customers. In addition if possible the Group will seek confi rmed letters of credit for the balances due. Credit risk
is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there is
no independent rating, local management assesses the credit quality of the customer, taking into account its fi nancial position, past
experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the
Board. The utilisation of credit limits is regularly monitored. Where extended credit is granted, this is agreed by the Finance Director.
Credit risk also arises from cash and cash equivalents, derivative fi nancial instruments and deposits with banks and fi nancial
institutions, as well as credit exposures to customers.
(c) Liquidity risk
Cash fl ow forecasting is performed in the individual operating entities of the Group and is aggregated by Group fi nance. Group
fi nance monitors cash and cash fl ow forecasts and it is the Group’s liquidity risk management policy to maintain suffi cient cash and
available funding through an adequate amount of cash and cash equivalents and committed credit facilities from its bankers. Due
to the dynamic nature of the underlying businesses, the head offi ce fi nance team aims to maintain fl exibility in funding by keeping
suffi cient cash and cash equivalents available to fund the requirements of the Group.
The Group’s policy in relation to the fi nance of its overseas operations requires that suffi cient liquid funds be maintained in each of its
territory subsidiaries to support short and medium-term operational plans. Where necessary, short-term funding is provided by the
holding Company. In the UK, the working capital bank facility and the management of liquid funds in excess of operational needs are
controlled centrally. Typically excess funds are placed as short-term deposits, to provide a balance between interest earnings and
fl exibility.
The table overleaf analyses the Group’s non-derivative fi nancial liabilities into relevant maturity groupings based on the remaining
period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted
cash fl ows. In the case of deferred consideration the amount shown as payable between 2 and 5 years for 31 December 2014 is the total
gross contractual liability should all performance criteria be met, not the estimated liability based on current and forecast performance.
42
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
3. Financial risk management continued
At 31 December 2014:
Borrowings (inc. fi nance leases)
Deferred consideration
Trade and other payables
At 31 December 2013:
Borrowings (inc. fi nance leases)
Deferred consideration
Trade and other payables
Less than
one year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
More than
5 years
£’000
3,862
1,425
7,731
348
430
4,023
343
3,943
-
268
–
–
709
1,522
-
797
7,216
–
1,576
5,101
-
1,220
3,198
–
Total
£’000
6,490
11,991
7,731
2,633
10,844
4,023
(d) Capital risk management
The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns
for shareholders and benefi ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of(cid:162)capital.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt
is calculated as total borrowings (including “current and non-current borrowings” as shown in the consolidated balance sheet) less
cash and cash equivalents. Total capital is the sum of net debt plus equity.
The Group is currently largely un-geared, having net cash at 31 December 2014. It is the stated strategy of the Group to grow both
organically and through acquisition with acquisitions to be funded through a mixture of debt and equity funding.
(e) Fair value estimation
The Group has no Level 1, 2 or 3 classifi ed fi nancial assets as at 31 December 2014 (2013: none).
4. Critical accounting estimates and judgements
In the process of applying the Group’s accounting policies, management has made accounting judgements in the determination of
the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates,
actual outcomes will differ from those assumptions and estimates. The following judgements have the most signifi cant effect on the
amounts recognised in the fi nancial statements.
(a) Business combinations
The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets
acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to
the fair value allocation of the purchase price. If any unallocated portion is positive it is recognised as goodwill.
(i) Goodwill
The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price
to the fair value of the identifi able assets acquired and the liabilities assumed. The determination of the fair value of the assets and
liabilities is based, to a considerable extent, on management’s judgement.
Allocation of the purchase price affects the results of the Group as fi nite lived intangible assets are amortised, whereas indefi nite
lived intangible assets, including goodwill, are not amortised and could result in differing amortisation charges based on the
allocation to indefi nite lived and fi nite lived intangible assets.
(ii) Finite lived intangible assets
Finite lived intangible assets include trade secrets and non-compete agreements acquired as part of business combinations. The fair
value of these separately identifi able assets is determined by discounting estimated future net cash fl ows generated by the asset.
The use of different assumptions for the expectations of future cash fl ows and the discount rate would change the valuation of the
intangible assets. The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the
estimated useful lives critical to the Group’s fi nancial position and performance. When assessing the fair value of EKF Molecular
Diagnostics and Selah Genomics, the Group has assumed revenue growth levels which are above industry averages because of the
high growth markets in which these units operate, and the relatively early stage of their development.
(iii) Deferred consideration
In some business combinations the purchase price includes deferred consideration which is contingent on future events. The fair
value of the deferred consideration is determined by discounting estimated future outfl ows which are based on management’s
judgement of the likelihood and timing of future events. The deferred consideration in respect of Selah Genomics, which is based on
the achievement of quarterly revenue targets, has been determined by assuming Selah achieves the required revenue pattern after
the fi rst year of ownership.
(b) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note
2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates as set out in note 17.
(c) Share-based payments
A number of accounting estimates and judgements are incorporated within the calculation of the charge to the income statement in
respect of share-based payments. These are described in more detail in note 30.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
43
(d) Impairment of receivables
Trade and other receivables are carried at the contractual amount due less any estimated provision for non-recovery. Provision is
made based on a number of factors including the age of the receivable, previous collection experience and the fi nancial
circumstances of the counterparty.
The Group has receivables outstanding at year end from certain customers in Mexico totalling $10.2m (£6.5m) some of which are
overdue for payment. Settlement has been delayed because payments to the Group’s Mexican customers have themselves been
delayed. The receivables balance has not been impaired because management judge that the outstanding amounts will be settled in
full. Of the outstanding balance £5.5m is overdue for payment.
(e) Deferred tax assets
Deferred tax assets are only recognised to the extent that it is probable that future taxable profi ts will be available against which
deductible temporary differences can be utilised. A deferred tax asset in respect of tax losses relating to the Company has not been
recognised as insuffi cient future taxable profi t in the Company is currently forecast. A deferred tax asset has not been recognised
in respect of the historic losses within the Group’s Irish business as the business is being transferred to other parts of the Group and
the goodwill, trade secrets and capitalised development costs relating to the Renastat development at the Irish business have been
impaired. The carrying amount of deferred tax assets at the balance sheet date was £283,000 (2013: £949,000). In addition there
were £1,141,000 (2013: £872,000) of deferred tax assets not recognised.
(f) Tax warranties
The Group has been advised by its German tax advisers that there is a potential tax and associated interest liability associated with
the EKF-diagnostic GmbH business prior to acquisition, of up to ¤1.19m (£0.93m). Under the warranties of the acquisition agreement
EKF has already withheld payment of part of the deferred consideration to cover such liability. The warranty claim effect has reduced
as a result of review of the potential liability with the Group’s tax advisers and the German tax authorities. The reduction of the
potential claim is included within administration costs and has been disclosed as an exceptional item. The determination of both the
total tax and interest potentially payable, and the related warranty claim, are based on management judgement.
5. Segmental reporting
Management has determined the Group’s operating segments based on the monthly management reports presented to the Chief
Operating Decision Maker (‘CODM’). The CODM is the Executive Directors and the monthly management reports are used by the
Group to make strategic decisions and allocate resources.
The principal activity of the Group is the design, development, manufacture and selling of diagnostic instruments, reagents and
certain ancillary products. This activity takes place across various countries, such as the USA, Germany, Poland, Russia, United
Kingdom and Ireland, and as such the Board considers the business primarily from a geographic perspective. Although not all the
segments meet the quantitative thresholds required by IFRS 8, management has concluded that all segments should be maintained
and reported, given potential future growth of the segments. In 2015 a new matrix structure for revenue based partly on disease
states will be introduced and this structure will be refl ected in the segmental analysis in future years.
The reportable segments derive their revenue primarily from the manufacture and sale of medical diagnostic equipment. Other
services include the servicing and distribution of third party company products under separate distribution agreements, and the
supply of molecular diagnostic testing services.
Currently the key operating performance measures used by the CODM are Revenue and adjusted EBITDA.
44
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
5. Segmental reporting continued
The segment information provided to the Board for the reportable segments for the year ended 31 December 2014 is as follows:
Germany
£’000
UK
£’000
USA
£’000
Ireland
£’000
Poland
£’000
Russia
£’000
Other
£’000
Total
£’000
15,520
2,539
24,499
(7,297)
(1,848)
(29)
373
-
1,770
(22)
3,162
-
1,738
49,601
(343)
(9,539)
8,223
691
24,470
373
1,748
3,162
1,395
40,062
2014
Income statement
Revenue
Inter-segment
External revenue
Adjusted EBITDA*
Exceptional costs
Share-based payment
EBITDA
Depreciation
Exceptional impairment
Amortisation
Operating profi t/(loss)
Net fi nance costs
Income tax
4,460
4,746
4,579
(481)
(663)
-
-
-
-
(42)
(170)
-
1,079
-
-
3,979
4,083
4,579
(212)
1,079
(609) (117)
(458) (11) (35)
-
-
-
(603)
(624)
(1,465)
2,767
(21)
(58)
3,342
(694)
(714)
2,656
(231)
(687)
(1,162)
(229)
(1,614)
-
141
Profi t/(loss) for the year
2,688
1,934
1,738
(1,473)
Segment assets
Operating assets
26,655
21,147
92,578
1,667
Inter-segment assets
(1,703)
(5,469)
-
-
24,952
15,678
92,578
1,667
1,586
378
240
86
26,538
16,056
92,818
1,753
Inter-segment liabilities
(10,665)
(7,165)
(18,985)
External operating liabilities
4,499
3,928
5,860
15,164
11,093
24,845
441
174
2,591
655
-
655
-
External operating assets
Cash and cash equivalents
Total assets
Segment liabilities
Operating liabilities
Borrowings
Total liabilities
Other segmental information
Non-current assets – PPE
Non-current assets – Intangibles
Non-current assets – additions
* Adjusted EBITDA excludes exceptional items and share-based payments.
4,940
4,102
8,451
655
209
119
29,927
48,403
3,685
13,130
927
135
4,753
11,141
55,502
718
418
14
759
480
167
478
13
59
173
23
1,755
12,339
957
10,568
93,522
3,536
717
-
-
717
(23)
-
(9,282)
6,257
(792)
(512)
(10,586)
(115)
-
(2,106)
(512)
3,639
(1,368)
(1,162)
(24) (529)
(3,582)
670
(11,230)
-
(131)
(614)
198
(2,473)
(1,555)
(1,440)
539
(11,646)
(5,468)
623
20,086
163,712
-
(29,107)
(36,279)
623
553
(9,021)
127,433
4,466
8,346
1,176
(4,555)
135,779
119
-
119
-
26,887
78,920
-
(36,763)
26,887
3,040
42,157
6,246
-
(108)
936
5
(189)
752
956
-
956
1,037
1,993
157
52
209
-
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
45
Germany
£’000
UK
£’000
USA
£’000
Ireland
£’000
Poland
£’000
Russia
£’000
Other
£’000
Total
£’000
Profi t/(loss) for the year
2,393
(1,568)
3,011
(645)
2013
Income statement
Revenue
Inter-segment
External revenue
Adjusted EBITDA*
Exceptional costs
Share-based payment
EBITDA
Depreciation
Exceptional impairment
Amortisation
Operating profi t/(loss)
Net fi nance costs
Income tax
Segment assets
Operating assets
Inter-segment assets
External operating assets
Cash and cash equivalents
Total assets
Segment liabilities
Operating liabilities
13,091
3,143
17,338
(6,191)
(1,099)
–
6,900
2,044
17,338
3,492
(1,341)
4,576
1,575
–
5,067
(662)
–
757
–
(584)
(180)
–
258
–
4,834
(299)
–
(650)
(495)
(728)
3,755
(247)
(1,115)
(1,259)
(488)
179
3,807
(256)
(540)
389
–
389
237
–
–
237
(45)
(750)
(218)
(776)
–
131
16,858
14,147
21,101
2,347
(314)
(43)
–
–
16,544
14,104
21,101
2,347
1,123
244
42
–
17,667
14,348
21,143
2,347
7,335
9,891
13,525
Inter-segment liabilities
(4,663)
(6,350)
(9,981)
External operating liabilities
Borrowings
Total liabilities
Other segmental information
Non-current assets – PPE
Non-current assets – Intangibles
Non-current assets – additions
2,672
481
3,541
166
3,544
1,789
3,153
3,707
5,333
3,386
9,188
1,034
688
11,068
5,851
3,769
11,758
78
* Adjusted EBITDA excludes exceptional items and share-based payments.
402
–
402
–
402
23
1,738
394
1,241
(8)
3,900
–
1,233
3,900
–
–
–
418
746
(3,304)
–
–
746
(15)
–
(41)
–
(709)
(4,013)
(65)
–
–
690
(4,078)
–
(131)
(802)
12
39,102
(7,298)
31,804
4,824
2,590
(709)
6,705
(1,304)
(750)
(2,250)
2,401
(1,794)
(1,500)
559
(4,868)
(893)
1,052
26,325
82,966
–
(24,437)
(24,794)
1,052
727
1,779
1,888
159
58,172
2,551
2,047
60,723
179
–
179
–
179
87
331
77
6,962
38,168
–
(20,807)
6,962
–
17,361
2,440
6,962
19,801
1,626
–
27
9,785
34,725
7,480
–
–
418
(38)
–
(118)
262
(1)
(36)
225
1,136
–
1,136
256
1,392
(126)
187
61
4
65
206
642
19
‘Other’ primarily relates to the holding company and head offi ce costs, and to the operations of DiaSpect which is headquartered in
Sweden.
46
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
5. Segmental reporting continued
Disclosure of Group revenues by geographic location is as follows:
Americas
United States of America
Mexico
Rest of Americas
Europe, Middle East and Africa (EMEA)
Germany
United Kingdom
Rest of Europe
Russia
Middle East
Africa
Rest of World
China
Asia
New Zealand/Australia
Total revenue
Revenues of approximately £6.0m (2013: £2.5m) are derived from a single external customer located in Mexico.
6. Expenses - analysis by nature
Inventories consumed in cost of sales
Employee benefi t expense (note 10)
Depreciation and amortisation
Transaction costs relating to business combinations (note 7)
Research and development expenses
Foreign exchange
Operating lease payments
Other expenses
2014
£’000
2013
£’000
12,711
7,560
2,440
4,848
287
2,791
3,174
687
1,315
2,304
1,892
53
9,873
3,434
1,755
4,002
251
2,702
3,905
763
1,114
2,050
1,913
42
40,062
31,804
2014
£’000
8,726
16,524
4,950
809
1,253
446
492
9,706
2013
£’000
7,515
13,389
3,554
93
1,241
10
258
3,838
Total cost of sales and administrative expenses
42,906
29,898
Included within the above expenses are exceptional items as set out in note 7.
7. Exceptional items
Included within Administrative expenses are exceptional items as shown below:
– Warranty claim
– Exceptional release of provision
– Transaction costs relating to business combinations
– Impairment charges - goodwill
– Impairment charges - other
– Release of deferred consideration provisions
– Cost of closure and transfer of Quotient manufacturing to Germany
– Cost of transfer of EKF Ireland to UK
Exceptional items – continuing
Note
a
a
b
b
c
d
e
2014
£’000
(281)
-
(809)
(254)
(908)
79
(925)
(170)
2013
£’000
1,241
334
(93)
(750)
-
1,108
–
–
(3,268)
1,840
(a) Estimated warranty claim in relation to the acquisition of EKF-diagnostic GmbH and the release of a previously held provision
associated with the tax(cid:162)claim.
(b) Impairment of goodwill and other intangible assets associated with EKF Diagnostics Limited, Ireland.
(c) Release of deferred consideration provisions associated with Quotient Diagnostics Limited.
(d) Costs associated with the move of Quo-Test and Quo-Lab production from the UK to Germany and the closure of the
manufacturing operation in the UK. Costs include severance pay of £303,000, and asset write off of £155,000.
(e) Costs associated with the move of Irish biomarker products to the UK and the closure of the majority of the operations in Ireland.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
47
8. Auditor remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its
associates:
2014
£’000
2013
£’000
Fees payable to Company’s auditor and its associates for the audit of the parent Company
and consolidated fi nancial statements
Fees payable to the Company’s auditor and its associates for other services:
– The audit of Company’s subsidiaries
– Other services
– Tax compliance services
9. Directors’ emoluments
Aggregate emoluments
Contribution to defi ned contribution pension scheme
Retirement benefi ts are accruing to 4 (2013: 2) Directors under a defi ned contribution scheme.
See further disclosures within the Remuneration Report on page 26.
Highest paid Director
Aggregate emoluments
Contribution to defi ned contribution pension scheme
10. Employee benefi t expense
Wages and salaries
Social security costs
Share options granted to Directors and Senior Management
Pension costs – defi ned contribution plans (note 33)
Employee costs of £0.5m (2013: £0.3m) have been capitalised as part of development costs.
11. Monthly average number of people employed
Monthly average number of people (including Executive Directors) employed was:
Administration
Research and development
Sales and marketing
Manufacturing, production and after sales
The total number of employees at 31 December 2014 was 395 (2013: 330).
38
111
71
28
248
2014
£’000
941
29
970
2014
£’000
250
12
2014
£’000
14,865
1,472
512
225
39
69
29
16
153
2013
£’000
672
8
680
2013
£’000
299
7
2013
£’000
11,091
1,672
709
208
17,074
13,680
2014
Number
2013
Number
66
32
78
192
368
59
29
72
160
320
48
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
12. Finance income and costs
Finance costs:
– Bank borrowings
– Finance lease liabilities
– IAS 19 interest expense (note 33)
– Other interest
– Financial liabilities at fair value through profi t or loss – (gains)/losses
– Deferred consideration-unwinding of discount (note 27)
– Convertible debt
Finance costs
Finance income
– Interest income on cash and short-term deposits
– Other interest
Finance income
Net fi nance costs
13. Income tax
Group
Current tax:
Current tax on loss for the year
Adjustments in respect of prior years
Total current tax
Deferred tax (note 28):
Origination and reversal of temporary differences
Adjustment arising in previous period
Impact of deferred tax rate change
Total deferred tax
Income tax charge
2014
£’000
2013
£’000
290
-
-
-
(476)
1,751
8
135
6
4
212
750
685
7
1,573
1,799
18
-
18
2
3
5
1,555
1,794
2014
£’000
2013
£’000
1,677
(263)
1,602
1,022
1,414
2,624
26
-
-
26
1,440
(701)
–
(423)
(1,124)
1,500
On 21 March 2013 the UK Government announced a reduction in the rate of corporation tax to 21% with effect from 1 April 2014, and
to 20% with effect from 1 April 2015.
The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the standard tax rate applicable to
the profi ts of the consolidated entities as follows:
(Loss)/profi t before tax
Tax calculated at domestic tax rates applicable to UK standard rate of tax of 21.5% (2013: 23.25%)
Tax effects of:
– Expenses not deductible for tax purposes
– Losses carried forward
– Adjustment in respect of prior years
– Impact of different tax rates in other jurisdictions
– Utilisation of previously unrecognised tax losses
– Effect of reduction in tax rate
– Impact of utilisation of deferred tax asset
– Other movements
Tax charge
There are no tax effects on the items in the statement of other comprehensive income.
2014
£’000
(4,028)
(866)
748
696
(263)
163
-
-
1,079
(117)
1,440
2013
£’000
607
141
398
531
1,022
467
(173)
(423)
-
(463)
1,500
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014 49
14. Loss per share
(a) Basic
Basic loss per share is calculated by dividing the loss attributable to owners of the parent by the weighted average number of
Ordinary Shares in issue during the year.
2014
£’000
2013
£’000
Loss attributable to owners of the parent
(5,689)
(1,126)
Weighted average number of Ordinary Shares in issue
379,633,724
271,695,776
Basic loss per share
(b) Diluted
(1.50) pence (0.41) pence
Diluted loss per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding assuming conversion
of all dilutive potential Ordinary Shares. The Company has two categories of dilutive potential ordinary share: equity-based long-term
incentive plans and share options. The potential shares are not dilutive in either 2014 or 2013 as the Group has made a loss per share.
Loss attributable to owners of the parent
2014
£’000
2013
£’000
(5,689)
(1,126)
Weighted average diluted number of Ordinary Shares
393,511,556 286,302,764
Diluted loss per share
(1.50) pence (0.41) pence
Weighted average number of Ordinary Shares in issue
Adjustment for:
– Assumed conversion of share awards
– Assumed payment of equity deferred consideration
Weighted average number of Ordinary Shares for diluted loss per share
15. Dividends
There were no dividends paid or proposed by the Company in either year.
2014
£’000
2013
£’000
379,633,724
271,695,776
9,833,892
10,563,048
4,043,940
4,043,940
393,511,556 286,302,764
50
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
16. Property, plant and equipment
Group
Cost
At 1 January 2013 – restated
Additions
Transfers
Exchange differences
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2013 – restated
Charge for the year
Exchange differences
Disposals
At 31 December 2013
Net book value
At 31 December 2013
Cost
At 1 January 2014
Additions
Acquired with subsidiaries
Transfers
Exchange differences
Disposals
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charge for the year
Exceptional impairment
Exchange differences
Disposals
At 31 December 2014
Net book value
At 31 December 2014
Land and
buildings
£’000
Fixtures
and fi ttings
£’000
Plant and
machinery
£’000
Motor
Vehicles
£’000
5,689
344
–
(48)
–
5,985
260
155
3
–
418
746
101
–
3
(17)
833
281
170
4
(17)
438
6,931
669
(114)
120
(87)
7,519
2,873
956
10
(45)
3,794
Total
£’000
13,431
1,185
(114)
72
(132)
14,442
3,417
1,304
15
(79)
65
71
–
(3)
(28)
105
3
23
(2)
(17)
7
4,657
5,567
395
3,725
98
9,785
5,985
127
35
-
147
-
6,294
418
171
-
13
-
602
833
141
7
15
(11)
(31)
954
438
154
-
(21)
(29)
542
7,519
748
1,156
(15)
(314)
(81)
9,013
3,794
1,015
67
(196)
(67)
4,613
105
22
-
-
(45)
-
82
7
28
-
(17)
-
18
14,442
1,038
1,198
-
(223)
(112)
16,343
4,657
1,368
67
(221)
(96)
5,775
5,692
412
4,400
64
10,568
In 2013 opening cost and accumulated depreciation were restated to account for transfers between classifi cations. The restatement
has had no impact in either year on the net book value of property, plant and equipment or the current or prior year income
statements.
Property, plant and equipment includes assets under construction which are not depreciated until they are brought into use. In 2013
an asset previously classifi ed as plant and machinery under construction was reclassifi ed as capitalised development expenditure.
The effect of this is shown as a transfer.
Depreciation expense of £878,000 (2013: £716,000) has been charged to cost of sales and £557,000 (2013: £588,000) has been
charged to administrative expenses, of which £67,000 is included in exceptional items.
16. Property, plant and equipment continued
Company
Cost
At 1 January 2013
Additions
At 31 December 2013
Accumulated depreciation
At 1 January 2013
Charge for the year
At 31 December 2013
Net book value
At 31 December 2013
Cost
At 1 January 2014
Additions
At 31 December 2014
Accumulated depreciation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
51
Land and
buildings
£’000
Fixtures
and fi ttings
£’000
1,670
3
1,673
40
40
80
16
23
39
5
11
16
Total
£’000
1,686
26
1,712
45
51
96
1,593
23
1,616
1,673
-
1,673
80
42
122
39
17
56
16
15
31
1,712
17
1,729
96
57
153
1,551
25
1,576
The Company’s freehold property is in Germany and occupied by its subsidiary undertaking, EKF-diagnostic GmbH Germany.
EKF-diagnostic GmbH is paying rental income of ¤13,900 (£10,800) per month to the parent Company. ¤167,000 (£130,000)
(2013: ¤167,000 (£139,000)) was paid to the parent Company for the year.
Plant and machinery includes the following amounts where the Group is a lessee under a fi nance lease arrangement:
Cost – capitalised fi nance leases
Accumulated depreciation
Net book value
2014
£’000
879
(162)
(717)
2013
£’000
262
(74)
188
The Group leases various assets under non-cancellable fi nance lease agreements. The lease terms are between 2 and 6 years.
The Company has no fi nance lease agreements.
52
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
17. Intangible assets
Group
Cost
At 1 January 2013
Transfer from PPE
Additions
Exchange differences
At 31 December 2013
Accumulated amortisation
At 1 January 2013
Exchange differences
Impairment charge
Charge for the year
At 31 December 2013
Net book value
At 31 December 2013
Cost
At 1 January 2014
Transfer from PPE
Additions
Exchange differences
At 31 December 2014
Accumulated amortisation
At 1 January 2014
Exchange differences
Impairment charge
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
Non-compete
agreements
£’000
Goodwill
£’000
Trademarks, trade
name and licences
£’000
Customer
relationships
£’000
Trade Development
costs
£’000
secrets
£’000
Total
£’000
–
–
70
–
70
–
–
–
18
18
13,442
–
1,178
21
14,641
–
–
750
–
750
1,575
–
36
(15)
8,612
9,548
1,788
34,965
–
–
(133)
–
3,950
154
114
114
1,061
6,295
13
40
1,596
8,479
13,652
2,976
41,414
261
24
–
127
412
1,323
(18)
–
789
2,000
(32)
–
1,152
131
–
–
3,715
(26)
750
164
2,250
2,094
3,120
295
6,689
52
13,891
1,184
6,385
10,532
2,681
34,725
70
14,641
1,596
8,479
13,652
2,976
41,414
-
-
30,899
880
2,335
76
9,672
16,985
367
260
1,897
(44)
61,788
1,539
70
46,420
4,007
18,518
30,897
4,829
104,741
18
-
-
23
41
750
(50)
254
-
954
412
(5)
-
295
702
2,094
(18)
-
1,268
3,120
(136)
287
1,706
295
(5)
621
290
6,689
(214)
1,162
3.582
3,344
4,977
1,201
11,219
29
45,466
3,305
15,174
25,920
3,628
93,522
The amortisation charge and impairment of £4,744,000 (2013: £3,000,000) has been charged to administrative expenses in the income statement.
Goodwill is allocated to the Group’s cash–generating units (CGU’s) identifi ed according to geographic operating segment.
An operating segment-level summary of the goodwill allocation is presented below.
UK
Germany
Poland
Russia
Ireland
US
Other (primarily relating to DiaSpect)
Total
2014
£’000
4,568
3,700
306
85
-
28,085
8,722
45,466
2013
£’000
4,568
3,959
335
142
272
4,615
-
13,891
Goodwill is tested for impairment at the balance sheet date. The recoverable amount of goodwill at 31 December 2014 was assessed
on the basis of value in use. With the exception of the Irish unit, the assessed value exceeded the carrying value and showed
signifi cant head room over it and no impairment loss was recognised. The carrying value the Irish unit has been impaired by
£254,000 to refl ect a reduction in the assessed recoverable amount.
The key assumptions in the calculation to assess value in use are the future revenues and the ability to generate future cash fl ows. The
most recent fi nancial results and initial budgets approved by management for the next year were used and forecasts for a further four
years, followed by an extrapolation of expected cash fl ows at a constant growth rate for each unit and the calculation of a terminal value
based upon the longer term growth rates set out below. The projected results were discounted at a rate which is a prudent evaluation of
the pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the cash-generating units.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
53
The key assumptions used for value in use calculations in 2014 are as follows:
Molecular Quotient EKF Germany EKF Poland EKF Russia Stanbio
%
%
%
%
%
%
STI Selah
%
%
DiaSpect
%
Longer-term growth rate
Discount Rate
3
20
3
14
3
13
3
26
3
26
3
12
3
12
4
12
5
10
The discount rates used are primarily based on those used in the initial purchase price appraisal of the acquisitions. The Group’s
Russian operations are being indirectly affected by economic sanctions and budget cuts by the Russian government, but are
expected to return to normal operations in the near future. A higher discount rate has been used for appraisal of the goodwill
associated with EKF Russia to refl ect the additional risk. During the year the Group announced that its Irish operations would be
closed and the operations transferred elsewhere within the Group, with some R & D projects being reassessed for viability. As a result
the goodwill and intangible assets associated with the Irish operations other than for certain specifi c customer relationships have
been impaired in full.
The UK includes the cash generating units Quotient Diagnostics Limited and EKF Molecular Diagnostics Limited (which includes
360 Genomics). The Directors estimate that long-term growth from the EKF Molecular businesses will be high because of the
characteristics of its markets. EKF Molecular is a start-up business operating in a high growth segment of the diagnostics market.
Revenues and cash fl ows have been assessed over a six year period. Year 1 of the revenue forecast is the fi rst year of signifi cant
revenue. In Years 2 and 3 growth rates of 100% have been used, falling to 17% in Year 4. Because of the low starting base and the
potential for this business a long-term growth rate of 10% has been used for Year 5 onwards. If revenues are lower than those
forecast by approximately 10%, then impairment will be required.
The main business and assets of Quotient Diagnostics have been transferred to the Group’s main German subsidiary.
The US includes the cash generating units Stanbio, STI and Selah. The Selah business is at a fairly early stage of its development and
again is starting from a low base. The Group is confi dent about its future prospects as it is in a high growth sector and there are
signifi cant opportunities for PrecisionPath and other products. Revenue and cash fl ows have been assessed over a six year period.
The growth rates used are as follows:
Revenue growth rate
Year 1
Base
Year 2
67%
Year 3
124%
Year 4
84%
Year 5
17%
Year 6
3%
A long term growth rate of 4% has been used because of the high growth rate of the sector in which the business operates. There is
no signifi cant headroom using these rates so if revenues are lower than forecast then impairment will be necessary.
The impairment assessments for Germany, Poland, Russia, Stanbio and STI showed assessed values that exceeded the carrying value
and showed signifi cant headroom.
The remaining average useful lives of the intangibles are as follows:
Trade name
Customer relations
Trade secrets
Development costs
Non-compete agreements
The Company has no intangible assets.
4–9 years
2–15 years
2–15 years
12 years
2 years
54
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
18. Investments in subsidiaries
Company Shares in Group undertakings
1 January
Additions
Impairment
31 December
2014
£’000
16,630
46,013
(1,600)
2013
£’000
15,613
1,600
(583)
61,043
16,630
The additions in 2014 relate to the acquisitions of Diaspect Medical AB, and Selah Genomics Inc. (see note 21). The impairment relates
to the investment in EKF Diagnostics Limited (Ireland).
Investments in Group undertakings are recorded at cost, which is the fair value of the consideration paid, less any impairment.
The principal subsidiaries of EKF Diagnostics Holdings plc are as follows:
Name of Company
Note
Proportion Held
EKF Diagnostics Limited
Quotient Diagnostics Limited
360 Genomics Limited
EKF Molecular Diagnostics Limited
DiaSpect Medical AB
DiaSpect Medical GmbH
EKF-diagnostic GmbH Germany
Senslab GmbH
EKF Diagnostyka Sp.z.o.o.
000 EKF Diagnostika
EKF Diagnostics Inc
Stanbio Laboratory LP
Stanbio Life Sciences LP
Separation Technology, Inc
Selah Genomics Inc
EKF Diagnostics Limited
1
1
1
1
2
3
3
3
4
5
6
6
6
6
6
7
100%
100%
Class of
Shareholding
Ordinary
Ordinary
Nature of Business
Head Offi ce
Sale of diagnostic equipment
100% (indirect) Ordinary
Manufacture and sale of diagnostic equipment
100%
100%
100%
100%
Ordinary
Ordinary
Ordinary
Ordinary
Manufacture and sale of diagnostic equipment
Head offi ce and IP licencing
Manufacture and sale of diagnostic equipment
Manufacture and sale of diagnostic equipment
100% (indirect) Ordinary
Diagnostic testing
100% (indirect) Ordinary
Manufacture and sale of diagnostic equipment
60% (indirect) Ordinary
Sale of diagnostic equipment
100%
Ordinary
Intermediate holding company
100% (indirect)
Partnership
Manufacture and sale of diagnostic equipment
100% (indirect)
Partnership
Manufacture and sale of diagnostic equipment
100%
Ordinary
Manufacture and sale of diagnostic equipment
100% (Indirect) Ordinary
Supply of molecular diagnostic services
100%
Ordinary
Manufacture and sale of diagnostic equipment
Notes
1. Incorporated and registered in the United Kingdom.
2. Incorporated in Sweden.
3. Incorporated and registered in Germany.
4. Incorporated and registered in Poland.
5. Incorporated and registered in Russia.
6. Incorporated and registered in the United States of America.
7. Incorporated and registered in Ireland.
All subsidiaries are included in the consolidation. The proportions of voting shares held by the parent Company do not differ from the
proportion of Ordinary Shares held.
All UK subsidiaries are exempt from the requirement to fi le audited accounts by virtue of section 479A of the Companies Act(cid:162)2006.
As part of this process, the Company has provided statutory guarantees to these subsidiaries.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
55
19. Financial instruments by category
(a) Assets
31 December
Assets as per balance sheet
Trade and other receivables excluding prepayments and corporation tax
Cash and cash equivalents
Total
Group
2014
£’000
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
14,947
8,346
23,293
6,406
2,551
8,957
36,155
4,390
24,996
159
40,545
25,155
Receivables in the analysis above are all categorised as ‘loans and receivables’ for the Group and Company.
(b) Liabilities
31 December
Liabilities as per balance sheet
Borrowings (excluding fi nance lease liabilities)
Finance lease liabilities
Trade and other payables
Deferred consideration
Total
Group
2014
£’000
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
5,348
898
7,731
18,029
32,006
2,071
369
4,023
7,249
13,712
2,843
-
3,679
11,658
-
-
4,166
1,778
18,180
5,944
Liabilities in the analysis above are all categorised as ‘other fi nancial liabilities at amortised cost’ for the Group and Company, with
the exception of deferred equity consideration totalling £880,000 (2013: £1,355,000) that is categorised as a fi nancial liability at fair
value through profi t and loss.
(c) Credit quality of fi nancial assets
The Group is exposed to credit risk from its operating activities (primarily for trade receivables and other receivables) and from
its fi nancing activities, including deposits with banks and fi nancial institutions, foreign exchange transactions and other fi nancial
instruments.
The Group’s maximum exposure to credit risk, due to the failure of counterparties to perform their obligations as at 31(cid:162)December
2014 and 31 December 2013, in relation to each class of recognised fi nancial assets, is the carrying amount of those assets as
indicated in the accompanying balance sheets.
Trade receivables
The credit quality of trade receivables that are neither past due nor impaired have been assessed based on historical information
about the counterparty default rate. The Group does not hold any other receivable balances with customers, whose past default has
resulted in the recovery of the receivables balances.
Cash at bank
The credit quality of cash has been assessed by reference to external credit ratings, based on reputable credit agencies’ long-term
issuer ratings:
AA-
Ratings lower than AA- or unrated
Total
20. Investments
Group and Company
1 January
Additions
31 December
2014
£’000
4,749
3,597
8,346
2014
£’000
250
902
1,152
2013
£’000
42
2,509
2,551
2013
£’000
250
–
250
The investment consists of a 2.63% (2013: 2.63%) shareholding in Arcis Biotechnology Holdings Limited, a UK based privately held
company operating in the biotechnology industry; a 19.90% holding in DX Economix, Inc., a Canadian based privately held company
operating in the healthcare consultancy industry; and a 0.67% holding in Epinex Diagnostics Inc., a US based privately held company
operating in the medical diagnostics industry.
56
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
21. Business combinations
Acquisition of Separation Technology Inc.
On 11 March 2014 the Group acquired, through its subsidiary company EKF Diagnostics Inc., 100% of the share capital of Separation
Technology Inc. (STI), a US based company which manufactures and sells devices for the hematology testing market.
The goodwill of £833,000 arising from the acquisition is attributable to the expected future benefi ts arising from the acquired
business.
The following table summarises the provisional fair values of the consideration paid for STI and the amounts of the assets acquired
and liabilities assumed recognised at the acquisition date. Acquisition related costs of £50,000 have been written off against income
and disclosed as an exceptional item.
Provisional fair values
Consideration
Cash
Recognised amounts of identifi able assets acquired and liabilities assumed
Trade name – included within intangibles
Customer relationships – included in intangibles
Trade secrets – included in intangibles
Plant, property and equipment
Cash
Inventories
Trade and other debtors
Trade and other payables
Deferred tax
Total identifi able net assets
Goodwill
£’000
2,400
2,400
228
1,074
210
177
72
353
310
(267)
(590)
1,567
833
The revenue included in the consolidated statement of comprehensive income since 11 March 2014 contributed by STI was £2.1m. STI
also contributed a loss of £0.2m after tax and management charges over the same period.
Had STI been consolidated from 1 January 2014 the consolidated statement of income would show pro forma revenue of £40.5m and
loss of £5.2m.
Acquisition of DiaSpect Medical AB
On 17 April 2014 the Group acquired 100% of the share capital of Diaspect Medical AB (DiaSpect), a group based in Sweden and
Germany which manufactures and sells point-of-care hemoglobin analysers and their associated consumables.
The goodwill of £9,239,000 arising from the acquisition is attributable to the expected future benefi ts arising from the acquired
business.
The following table summarises the provisional fair values of the consideration paid for DiaSpect and the amounts of the assets
acquired and liabilities assumed recognised at the acquisition date. Acquisition related costs are disclosed below.
Consideration
Cash
Equity instruments
Deferred contingent consideration
Provisional fair values
£’000
10,248
5,555
1,288
17,091
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
57
21. Business combinations continued
Recognised amounts of identifi able assets acquired and liabilities assumed
Trade name – included within intangibles
Customer relationships – included in intangibles
Trade secrets – included in intangibles
Development costs – included in intangibles
Plant, property and equipment
Cash
Inventories
Trade and other debtors
Trade and other payables
Borrowings
Deferred tax
Total identifi able net assets
Goodwill
840
4,049
4,140
370
443
39
841
216
(633)
(186)
(2,267)
7,852
9,239
A revision to the deferred consideration was agreed in December 2014. A single payment of £1,425,000 will be made in 2015. The
amount has been discounted to take account of the time value of money.
The revenue included in the consolidated statement of comprehensive income since 17 April 2014 contributed by DiaSpect was
£1.4m. DiaSpect also contributed £nil after tax and management charges over the same period.
Had Diaspect been consolidated from 1 January 2014 the consolidated statement of income would show pro forma revenue of
£40.7m and loss of £5.4m.
Acquisition of Selah Genomics Inc.
On 17 April 2014 the Group acquired 100% of the share capital of Selah Genomics Inc. (Selah), a US company which develops
molecular diagnostics for personalised medicine.
The goodwill of £20,827,000 arising from the acquisition is attributable to the expected future benefi ts arising from the acquired
business.
The following table summarises the provisional fair values of the consideration paid for Selah and the amounts of the assets acquired
and liabilities assumed recognised at the acquisition date. Costs relating to the acquisitions of both DiaSpect and Selah of £759,000
have been written off against income and disclosed as an exceptional item. Because the acquisitions of DiaSpect and Selah were
simultaneous it is not possible to split the costs.
Provisional fair values
Consideration
Equity instruments
Deferred contingent consideration
Recognised amounts of identifi able assets acquired and liabilities assumed
Recognised amounts of identifi able assets acquired and liabilities assumed
Trade name – included within intangibles
Customer relationships – included in intangibles
Trade secrets – included in intangibles
PPE
Cash
Inventories
Trade and other debtors
Trade and other payables
Borrowings
Deferred tax
Total identifi able net assets
Goodwill
£’000
20,425
8,497
28,922
1,199
4,549
12,635
578
158
149
628
(2,978)
(1,286)
(7,537)
8,095
20,827
58
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
The deferred contingent consideration is payable over a period of up to two years, and is contingent upon the achievement of certain
revenue milestones. The maximum contingent consideration payable is $35,000,000 however the Board’s judgement based on
revenue forecasts is that the deferred consideration relating to revenue in the fi rst year after acquisition ($17,500,000) will not be paid
and this has not been provided. The amount has been discounted at a rate of 13.2% to take account of the time value of money.
The revenue included in the consolidated statement of comprehensive income since 17 April 2014 contributed by Selah was £3.0m.
Selah also contributed a loss of £0.6m after tax and management charges over the same period.
Had Selah been consolidated from 1 January 2014 the consolidated statement of income would show pro forma revenue of £41.4m
and loss of £5.6m.
Had all three acquisitions been consolidated from 1 January 2014 the consolidated statement of income would show pro forma
revenue of £42.4m and loss of £5.3m.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
59
22. Trade and other receivables
Non-current
Amounts owed by subsidiary undertakings
-
-
17,799
17,799
Group
2014
£’000
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Prepayments
Amounts owed by subsidiary undertakings
Corporation tax receivable
Other receivables
12,763
(978)
11,785
331
-
837
3,162
16,115
4,896
(91)
4,805
270
-
479
1,601
7,155
-
-
-
152
18,315
-
41
-
-
-
78
7,142
-
55
18,508
7,275
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
As of 31 December 2014, trade receivables of £6,842,000 (2013: £62,000) were past due but not impaired. These relate to a number
of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Up to 3 months
3 to 6 months
6 months to 12 months
Group
2014
£’000
4,498
2,330
14
6,842
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
62
-
-
62
-
-
-
-
-
-
-
-
As of 31 December 2014, trade receivables of £978,000 (2013: £91,000) were impaired and provided for. The ageing of these
impaired receivables is as follows:
Up to 3 months
3 to 6 months
6 months to 12 months
Movements on the provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Acquired with subsidiaries
Receivables written off during the year as uncollectible
Unused amounts reversed
Exchange differences
At 31 December
Group
2014
£’000
6
329
643
Group
2014
£’000
91
613
349
-
(70)
(5)
978
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
-
-
91
Group
2013
£’000
334
41
-
(284)
-
-
91
-
-
-
-
-
-
Company
2014
£’000
Company
2013
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
22. Trade and other receivables continued
The other classes within trade and other receivables do not contain impaired assets.
The carrying amounts of the Group’s trade and other receivables denominated in foreign currencies were as follows:
UK Sterling
Euros
US dollar
Russian rouble
Polish zloty
23. Inventories
Raw materials
Work in progress
Finished goods
Group
2014
£’000
356
4,739
10,712
70
238
16,115
Group
2014
£’000
3,225
553
2,015
5,793
Group
2013
£’000
682
2,452
3,716
104
201
Company
2014
£’000
Company
2013
£’000
7,359
9,458
19,490
-
-
6,483
7,146
11,445
-
-
7,155
36,307
25,074
Group
2013
£’000
3,615
501
1,192
(cid:162)5,308
Company
2014
£’000
Company
2013
£’000
-
-
-
-
-
-
-
-
The Directors are of the opinion that the replacement values of inventories are not materially different to the carrying values stated
above. The carrying values above are stated net of impairment provisions of £969,000 (2013: £445,000).
The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to £8,726,000 (2013: £7,515,000).
The Company held no inventories.
24. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
Cash and cash equivalents (excluding bank overdrafts)
Group
2014
£’000
4,422
3,924
8,346
Group
2013
£’000
2,275
276
(cid:162)2,551
Company
2014
£’000
Company
2013
£’000
595
3,795
4,390
159
-
159
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
25. Trade and other payables
Trade payables
Amounts due to subsidiary undertakings
Social security and other taxes
Other payables
Accrued expenses and deferred income
Cash and cash equivalents (excluding bank overdrafts)
Group
2014
£’000
1,500
-
212
2,354
3,877
7,943
Group
2013
£’000
959
-
166
412
2,652
(cid:162)4,189
Company
2014
£’000
Company
2013
£’000
209
2,913
79
-
557
3,758
145
2,837
51
-
1,184
4,217
26. Borrowings
Non-current
Bank borrowings
Convertible loan
Finance lease liabilities
Current
Bank borrowings
Finance lease liabilities
The maturity profi le of borrowings was as follows:
Amounts falling due
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
More than 5 years
Total borrowings
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
61
Group
2014
£’000
1,668
174
650
2,492
3,506
248
3,754
Group
2014
£’000
3,754
320
653
1,519
6,246
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
1,614
166
328
2,108
291
41
332
-
-
-
-
2,843
-
2,843
-
-
-
-
-
-
-
Group
2013
£’000
Company
2014
£’000
Company
2013
£’000
332
246
512
1,350
2,440
2,843
-
-
-
2,843
-
-
-
-
-
(a) Bank borrowings
Bank borrowings have maturity profi les from 2015 through to 2022 and bear an average fi xed coupon of 3.19% annually
(2013:(cid:162)4.79%).
Bank borrowings are secured against certain assets of the Group. The Parent Company has also provided guarantees against those
bank borrowings which are denominated in foreign currencies.
The Group facility, and the US Dollar and Euro denominated borrowings have covenants attached to them. The Group has been
compliant with these covenants throughout the year.
The bank borrowings are repayable by either monthly or quarterly instalments, or at the end of a six month loan period.
The Group is not exposed to interest rate changes or contractual re-pricing dates at the end of the reporting period, as the
borrowings are fi xed in nature.
The fair value of both current and non-current borrowings equals their carrying amount, as the impact of discounting is not
signifi cant. The fair values are based on cash fl ows discounted using a rate based on the borrowing rate of 5% (2013: 5%).
The carrying amounts of the Group’s bank borrowings are denominated in the following currencies:
Euros
US Dollar
Polish Zloty
Group
2014
£’000
398
4,776
-
5,174
Group
2013
£’000
413
1,488
4
(cid:162)1,905
Company
2014
£’000
Company
2013
£’000
-
2,843
-
2,843
-
-
-
-
62
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
26. Borrowings continued
(b) Convertible loan
Andrew Webb has loaned £200,000 to EKF Molecular Diagnostics Limited in return for a convertible loan note. The note is redeemable on
31(cid:162)December 2017 or convertible under certain circumstances on or before 30 November 2017 into shares representing 20% of the share
capital of EKF Molecular Diagnostics Limited. Interest only becomes payable in the event of a default. The principal has been split into a
debt element and an equity element. The equity element is disclosed in Other Reserves. The note is denominated in sterling.
(c) Finance lease liabilities
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
Gross fi nance lease liabilities – minimum lease payments
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
Future fi nance charges on fi nance leases
Present value of fi nance lease liabilities
The present value of fi nance lease liabilities is as follows:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
27. Deferred consideration
At 1 January
On acquisition of subsidiaries
Unwinding of discount (note 12)
Fair value adjustment
Reduction of provisions
Payments made
Exchange differences
At 31 December
Current portion
Non-current portion
2014
£’000
294
442
308
1,044
(146)
898
2014
£’000
248
408
242
898
2013
£’000
45
68
263
376
(7)
369
2013
£’000
44
66
259
369
Group
2014
£’000
7,249
9,785
1,751
(475)
(79)
(355)
153
18,029
8,493
9,536
Group
2013
£’000
5,714
2,639
685
750
(1,108)
(1,429)
(2)
(cid:162)7,249
(cid:162)(cid:162)1,778
(cid:162)5,471
Company
2014
£’000
Company
2013
£’000
1,778
9,785
1,004
(475)
(79)
(355)
-
11,658
8,493
3,165
2,439
-
55
750
(850)
(616)
-
1,778
1,778
-
The deferred consideration is made up as follows:
• 4,043,940 Ordinary Shares originally valued at £605,000 to be issued as part of the consideration paid for acquisition of EKF-diagnostic
GmbH Germany. The value of the shares has been adjusted to its fair value at 31 December 2014 of £880,000.
• $4,000,000 contingent consideration payable in respect of the acquisition of Stanbio Laboratory LP. The discounted value at the year-end
amounted to £2,566,000 (2013: £2,352,000). The contingent consideration is mainly based on achieving targets prior to 31 December 2015.
• £8,000,000 contingent consideration payable in respect of the acquisition of 360 Genomics Limited. The discounted value at the year end
amounted to £3,805,000 (2013: £3,119,000). The contingent consideration is based on achieving revenue targets or a sale of the business.
• £1,425,000 consideration for the acquisition of DiaSpect Medical AB. The discounted value at the year end amounted to £1,410,000
(2013: £nil). This was paid in January 2015.
• $17,500,000 contingent consideration payable in Ordinary Shares of the Company as part of the consideration for acquisition of Selah
Genomics, Inc. The contingent consideration is based on achieving revenue targets in the period to 31 March 2016. The discounted value at the
year-end amounted to £9,368,000 (2013: £nil).
• The contingent consideration payable as part of the consideration for Quotient Diagnostics Limited has been satisfi ed in full during the year.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
63
28. Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority
on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The amounts
concerned are as follows:
Group
Deferred tax assets
Deferred tax asset to be recovered within 12 months
Deferred tax asset to be recovered after more than 12 months
Deferred tax liabilities
Deferred tax liability to be recovered after more than 12 months
Deferred tax liability to be recovered within 12 months
Deferred tax liabilities – net
The gross movement on the deferred income tax account is as follows:
At 1 January
Exchange differences
On acquisition of subsidiaries
Effect of reduction in tax rate
Income statement movement (note 13)
At 31 December
2014
£’000
(45)
(238)
(283)
13,258
756
14,014
13,731
2014
£’000
2,873
438
10,394
-
26
13,731
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Deferred tax liabilities
At 1 January 2013
Credited to the income statement
On acquisition of subsidiaries
Impact of deferred tax rate change
Exchange differences
At 31 December 2013
At 1 January 2014
Credited to the income statement
On acquisition of subsidiaries
Exchange differences
At 31 December 2014
Accelerated tax
depreciation
£’000
4,210
(652)
804
(539)
(1)
3,822
3,822
(638)
10,394
436
14,014
2013
£’000
(46)
(903)
(cid:162)(949)
3,442
380
(cid:162)3,822
(cid:162)(cid:162)2,873
2013
£’000
3,193
-
804
(423)
(701)
2,873
Total
£’000
4,210
(652)
804
(539)
(1)
3,822
3,822
(638)
10,394
436
14,014
64
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
28. Deferred income tax continued
Deferred tax assets
At 1 January 2013
Charged to the income statement
Impact of deferred tax rate change
Exchange differences
At 31 December 2013
At 1 January 2014
Charged to the income statement
Exchange differences
At 31 December 2014
Tax losses
£’000
(935)
(35)
116
1
(853)
(853)
806
2
(45)
Other
£’000
(82)
(14)
–
Total
£’000
(1,017)
(49)
116
1
(96)
(949)
(96)
(142)
-
(238)
(949)
664
2
(283)
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefi t through future taxable profi ts
is probable. The Group did not recognise deferred income tax assets of £1,141,000 (2013: £872,000) mainly in respect of tax losses
amounting to £5,707,000 (2013: £4,154,000) that can be carried forward against future taxable income.
Company
Deferred tax assets
Deferred tax asset to be recovered after more than 12 months
Deferred tax
29. Share capital and premium
Group and Company
At 1 January 2014
Issue of shares
At 31 December 2014
The shares issued during the year were as follows:
Reason
Exercise of share options by former employee
Exercise of share options by Mr G Hall
2014
£’000
2013
£’000
238
238
96
96
Number of
shares
Share capital
£’000
Share
premium
£’000
Total
£’000
272,717,369
149,339,705
422,057,074
2,727
1,494
4,221
41,783
49,493
44,510
50,987
91,276
95,497
Date
Number of
Shares
27 January 2014
26 March 2014
225,000
600,000
Price
18p
1p
35p
35p
In association with the acquisitions of Diaspect Medical AB and Selah Genomics Inc
26 March 2014
14,285,714
In association with the acquisitions of Diaspect Medical AB and Selah Genomics Inc
17 April 2014
134,228,991
149,339,705
Transaction costs in respect of the equity fund raising associated with the acquisitions of Diaspect and Selah of £1,040,000 have
been offset against the share premium account.
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
65
30. Share options and share-based payments
The shares issued during the year were as follows:
(a) Long-term Incentive Plans (‘LTIP’)
At 1 January 2014 and 31 December 2014
2014 number 2013 number
of notional
shares
of notional
shares
17,091,276
17,091,276
Long-term incentive plan share awards over notional shares totalling 17,091,276 have been granted to two Executive Directors. The
key terms of the awards were revised on 11 June 2013. The key terms of the awards relating to the grants noted above are as(cid:162)follows.
a) 1,709,128 notional shares, with an exercise price of 15p will vest if the Company’s mid-market closing share price attains 30(cid:162)pence
or higher per share for a period of 20 consecutive days (on which The London Stock Exchange is open for business) at any time
during the period commencing on 1 January 2011 and ending on 31 December 2016. This condition has been met.
b) 1,709,128 notional shares, with an exercise price of 15p will vest if the Company’s mid-market closing share price attains 37.5(cid:162)pence
or higher per share for a period of 20 consecutive days (on which The London Stock Exchange is open for business) at any time
during the period commencing on 1 January 2011 and ending on 31 December 2016.
c) 1,709,128 notional shares, with an exercise price of 15p will vest if the Company’s mid-market closing share price attains 45(cid:162)pence
or higher per share for a period of 20 consecutive days (on which The London Stock Exchange is open for business) at any time
during the period commencing on 1 January 2011 and ending on 31 December 2016.
d) 1,709,128 notional shares, with an exercise price of 15p will vest if the Company’s mid-market closing share price attains 52.5(cid:162)pence
or higher per share for a period of 20 consecutive days (on which The London Stock Exchange is open for business) at any time
during the period commencing on 1 January 2011 and ending on 31 December 2016.
e) 1,709,126 notional shares, with an exercise price of 15p will vest if the Company’s mid-market closing share price attains 60(cid:162)pence
or higher per share for a period of 30 consecutive days (on which The London Stock Exchange is open for business) at any time
during the period commencing on 1 January 2011 and ending on 31 December 2016.
f) 8,545,638 notional shares, with an exercise price of 15p will vest if the Company’s EBITDA for the year to 31 December 2013 is at
least 52.0875% (being growth at 15% per annum compounded) higher than twice the EBITDA for the six months to 31(cid:162)December
2010. For these purposes EBITDA shall mean EBITDA (earnings before interest, taxes, depreciation and amortisation) as shown in the
audited fi nancial statements for the period in question, as adjusted to remove any adjustment, accrual or expense in respect of the
grant of or exercise of the Award granted to the Award holder. This condition has been met.
(b) Unapproved share option scheme
Group and Company
At 1 January
Granted
Exercised
Forfeited
At 31 December
2014
2013
Av. Exercise price
per share (£)
Options
(Number)
Av. Exercise price
per share (£)
Options
(Number)
0.224
0.359
0.180
0.264
7,735,000
3,600,000
(225,000)
(900,000)
0.221
0.273
-
7,085,000
1,150,000
-
0.252
(500,000)
0.270
10,210,000
0.224
7,735,000
The unapproved share options include the following:
• 4,260,000 options were in issue at an exercise price of 20p per share. The shares will vest if the Company’s EBITDA for the year
to 31 December 2013 is at least 52.0875% (being growth at 15% per annum compounded) higher than the target adjusted EBITDA
of £777,408. All EBITDA contribution from current and future acquisitions of the Company will be used in assessing if the annual
compound growth rate is achieved. For these purposes EBITDA shall mean EBITDA (earnings before interest, taxes, depreciation
and amortisation) as shown in the audited fi nancial statements for the period in question. This condition has been met.
• 1,700,000 options were in issue to senior employees of the Group at an exercise price of 25.25p(cid:162)per share. The shares will vest if
the Company’s EBITDA for the year to 31 December 2013 is at least 52.0875% (being growth at 15% per annum compounded)
higher than the target adjusted EBITDA of £777,408. All EBITDA contribution from future acquisitions of the Company will be
excluded in assessing if the annual compound growth rate is achieved. For these purposes EBITDA shall mean EBITDA (earnings
before interest, taxes, depreciation and amortisation) as shown in the audited fi nancial statements for the period in question. This
condition has now been met.
66
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
30. Share options and share-based payments continued
• 650,000 options were issued on 7 July 2013 to senior employees at an exercise price of 27.25p per share. These options are
exercisable from the third anniversary of grant with a maximum term of 10 years.
• 1,300,000 options were issued on 21 January 2014 to senior employees at an exercise price of 37.625p per share. These options are
exercisable from the third anniversary of grant with a maximum term of 10 years.
• 1,000,000 options were issued to a director on 17 April 2014 at an exercise price of 35p. The options granted will vest if the
Company’s mid-market closing share price attains the required price or higher for a period of 20 consecutive days at any time
during the period commencing on 17 April 2014 and ending on 17 April 2024.
a) 333,333 of the notional shares will vest if the share price attains 50 pence.
b) 333,333 of the notional shares will vest if the share price attains 60 pence.
c) 333,334 of the notional shares will vest if the share price attains 70 pence.
• 1,300,000 options were issued to a director on 30 May 2014 at an exercise price of 35p. These options are exercisable from the
third anniversary of grant with a maximum term of 10 years.
All share option awards are equity settled. Out of the 10,210,000 (2013: 7,735,000) outstanding options 5,960,000 (2013:(cid:162)4,485,000)
were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry Date
29.01.2014
16.06.2021
28.09.2021
19.04.2022
07.07.2023
21.01.2024
17.04.2024
30.05.2024
2014
2013
Exercise price
per share (£)
Options
(Number)
Exercise price
per share (£)
Options
(Number)
-
0.200
0.252
-
0.2725
0.37625
0.35
0.35
-
4,260,000
1,700,000
-
650,000
1,300,000
1,000,000
1,300,000
10,210,000
0.180
0.200
0.252
0.252
0.2725
-
-
-
225,000
4,260,000
1,700,000
400,000
1,150,000
-
-
-
7,735,000
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
67
The weighted average fair value of options granted during 2014 determined using the Black-Scholes valuation model was £0.109
(2013: £0.113). The signifi cant inputs into the model are detailed below:
Weighted average share price
Weighted average option exercise price
Expected volatility
Risk-free interest rate
Expected volatility
Dividend yield
2014
2013
31.44p
36.31p
41.3%
0.50
27.25p
27.25p
44.6%
0.70
6.5 years
6.5 years
-
-
Expected volatility was determined by calculating the volatility in the historic share price over a period consistent with the expected
exercise period of the option. This level of volatility has then been benchmarked by comparing the level of share price volatility for
other quoted medical diagnostic businesses over a three to ten year period.
The weighted average fair value of options granted during 2014 determined using the Monte Carlo valuation model was
£0.095 (2013: nil). The signifi cant inputs into the model are detailed below:
Share price at date of grant
Exercise price
Expected volatility
Risk-free interest rate
Expected option life (years)
Dividend yield
2014
2013
35p
35p
47.1%
0.40%
1.06
-
-
-
-
-
-
-
Expected volatility was determined by calculating the volatility in the historic share price over a period consistent with the expected
exercise period of the option. This level of volatility has then been benchmarked by comparing the level of share price volatility for
other quoted medical diagnostic businesses over a three to ten year period.
(c) Bonus and share incentive scheme (‘BAPSI’)
At 1 January
Exercised
At 31 December
The remaining 600,000 BAPSI options were exercised during the year.
31. Retained earnings
At 1 January 2013
Loss for the year
Share-based payment
Actuarial gain on pension scheme
At 31 December 2013
At 1 January 2014
Loss for the year
Share-based payment
Movement on pension scheme
At 31 December 2014
2014 number
of notional
shares
2013 number
of notional
shares
600,000
(600,000)
600,000
-
-
600,000
Group
£’000
Company
£’000
(3,004)
(1,126)
(5,899)
(1,490)
709
9
709
-
(3,412)
(6,680)
(5,689)
(2,882)
512
48
512
-
(8,541)
(9,050)
68
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notes to the Financial Statements continued
for the year ended 31 December 2014
32. Other reserves
Group
At 1 January 2013
Currency translation differences
Issue of convertible loan notes in subsidiary
At 31 December 2013
At 1 January 2014
Currency translation differences
At 31 December 2014
Foreign
currency
£’000
Other
£’000
(961)
236
-
(725)
751
26
-
-
41
41
-
41
In return for a payment of £200,000, Andrew Webb has been granted a loan note convertible into equity in EKF Molecular
Diagnostics Limited. The equity element has been included in other reserves. The debt element is included in borrowings.
33. Retirement benefi t obligations
Group
Liability in the balance sheet for pension benefi ts
Income statement charge for:
Pension benefi ts
Actuarial (gains)/losses recognised in the statement of other comprehensive income in the year
Cumulative actuarial losses recognised in the statement of other comprehensive income
2014
£’000
-
-
(48)
-
Total
£’000
(961)
236
41
(684)
751
67
2013
£’000
103
4
(9)
21
Pension benefi ts
The Group operated a funded defi ned benefi t plan for Berthold Walter, the former owner of EKF-diagnostic GmbH Germany. This
has now been closed.
The Group operates a defi ned contribution pension scheme the assets of which are held separately from those of the Company in
an independently administered fund. The pension cost for the year represents contributions made by the Company to the fund and
amounted to £225,000 (2013: £208,000).
34. Commitments
a) Capital commitments
The Group has contracted approximately £nil (2013 – £0.1m) capital expenditure at the end of the reporting period that had not yet
been incurred.
b) Operating lease commitments
The Group leases various offi ces and manufacturing buildings under non-cancellable operating lease agreements. The lease terms are
between one and fi ve years.
The Group also leases various offi ce equipment and assets under non-cancellable operating lease agreements. The lease terms are
between one and ten years.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Group
No later than 1 year
Later than 1 year no later than 5 years
Later than 5 years
Total
Land and buildings
2014
£’000
303
1,344
609
2,256
2013
£’000
29
175
665
869
Other
2014
£’000
126
243
34
403
2013
£’000
-
89
-
89
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
69
35. Cash used in operations
(Loss)/profi t before tax
Adjustments for:
Depreciation
Amortisation
Impairment
Warranty claim
Profi t on disposal of fi xed assets
Profi t on disposal of available-for-sale assets
Share- based payments
Release of deferred consideration
Fair value adjustment
Release of provision
Exchange movements on operating activities
Net fi nance costs/(income)
Changes in working capital
Inventories
Trade and other receivables
Trade and other payables
Net cash (used in)/generated by operations
Group
2014
£’000
(4,028)
1,368
3,582
1,229
281
(6)
-
512
(79)
(476)
-
-
2,031
728
(8,467)
63
(3,262)
2013
£’000
607
1,304
2,250
750
(1,241)
(8)
-
709
(1,108)
750
(334)
-
1,044
(298)
(1,930)
677
3,172
In the statement of cash fl ows, proceeds from the sale of property, plant and equipment comprise:
Group
Net book value
Profi t on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Company
2013
£’000
2013
£’000
(3,003)
(1,458)
57
-
1,600
-
-
-
512
(79)
-
-
(678)
(132)
-
(9,829)
(459)
(12,011)
51
-
583
-
-
-
709
(850)
750
-
-
55
-
(404)
629
65
2014
£’000
2013
£’000
16
6
22
53
8
61
Non-cash transactions
The principal non-cash transactions are the issue of Ordinary shares in relation to the acquisition of DiaSpect Medical AB and Selah
Genomics Inc.; the release of the deferred consideration provision; the fair value adjustment relating to the deferred equity
consideration in respect of EKF Germany, the warranty claim, and the impairment charge in relation to Ireland.
36. Related Party Disclosures
Directors
The Group was invoiced £18,000 (2013: £18,000) by J & K (Cardiff) Limited for property rent. Julian Baines is a Director of J & K (Cardiff) Limited.
Directors’ emoluments are set out in the Remuneration Committee report and in note 9.
Key management compensation
Key management compensation for the year was as follows:
Salaries and other short-term employee benefi ts
Share- based payments
Employee contribution to pension scheme
Key management includes all the Directors only.
2014
£’000
941
414
29
1,384
2013
£’000
627
663
8
1,298
The Company
During the year the Company invoiced management charges of £2,526,000 (2013 – £1,485,000) and interest of £726,000 (2013(cid:162)– £1,180,000) to
its subsidiary companies. It purchased goods and services from subsidiaries totalling £619,000 (2013(cid:162)–(cid:162)£303,000). At 31 December 2014 the
Company was owed £36,307,000 (2013 – £24,941,000) by its subsidiaries and owed £2,913,000 (2013 – £2,837,000) to other subsidiaries.
70
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Notice of Annual General Meeting
EKF Diagnostics Holdings PLC (Company)
NOTICE IS HEREBY GIVEN that the Annual General Meeting (Meeting) of EKF Diagnostics Holdings plc (Company) will be held at the offi ces
of Panmure Gordon & Co, One New Change, 1 New Change, London EC4M 9AF on 19 May 2015 at 2.00 p.m. for the following purposes:
Ordinary Resolutions
1.
2.
3.
To receive and adopt the statement of accounts for the year ended 31 December 2014 together with the reports of
the Directors and the auditors thereon.
To re-elect Richard Evans, Tito Bacarese-Hamilton, David Toohey, and Doris-Ann Williams, who retire by rotation,
as Directors.
To re-appoint Messrs PricewaterhouseCoopers LLP as auditors to act as such until the conclusion of the next General Meeting
of the Company at which the requirements of section 437 of the Companies Act 2006 are complied with and to authorise the
Directors of the Company to fi x their remuneration.
4.
That in substitution for any existing such authority, the Directors be and are hereby generally and unconditionally authorised
pursuant to section 551 of the Companies Act 2006 (the “2006 Act”) to allot Relevant Securities of the Company:
(i)
(ii)
up to a maximum nominal amount of £273,012.76 (in pursuance of the exercise of outstanding share options granted
by the Company but for no other purpose);
up to an aggregate nominal amount of £422,057.07 (in addition to the authorities conferred in sub-paragraphs
(i) above) representing approximately 10% of the Company’s Issued Share Capital,
such authorities (unless previously renewed, revoked or varied) to expire at the conclusion of the next Annual General
Meeting of the Company to be held in 2016, save that the Company may, before such expiry, make an offer or agreement
which would or might require Relevant Securities to be allotted after such expiry and the directors may allot Relevant
Securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
5.
To approve the Directors remuneration report for the fi nancial year ending 31 December 2014.(cid:162)Shareholders should note that
this vote is advisory only and does not affect the actual remuneration paid to any individual director. The Directors’
remuneration report is set out in full in the Annual Report.
6.
Special Resolution
That, subject to the passing of the above Resolution the Directors be given the general power to allot equity securities (as
defi ned in section 560 of the 2006 Act) pursuant to the authority conferred by the Resolution above as if section 561(1) of the
2006 Act did not apply to any such allotments provided that this power shall be limited to:
(i)
(ii)
the allotment of equity securities on the exercise of the share options granted by the Company;
the allotment of equity securities (otherwise than pursuant to sub-paragraphs (i) above) for cash in connection with
any rights issue or pre-emptive offer in favour of holders of equity securities generally; and
(iii)
the allotment (otherwise than pursuant to sub-paragraphs (i) and (ii) above) of equity securities for cash up to
an aggregate nominal amount of £422,057.07 representing approximately 10% of the Company’s Issued Share Capital;
provided that such power (unless previously renewed, revoked or varied) shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2016, save that the Company may, before such power expires, make an offer or
enter into an agreement which would or might require equity securities to be allotted after such power expires and the
Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred
by this resolution has expired.
Registered Offi ce
Avon House
19 Stanwell Road
Penarth
CF64 2EZ
16 March 2015
BY ORDER OF THE BOARD
Paul Foulger
Director and Company Secretary
EKF Diagnostics Holdings plc | ANNUAL REPORT 2014
71
Notes:
(1)
The Company specifi es that only those members registered on the Company’s register of members at 6.00 p.m. on 17 May 2015 or if
this general meeting is adjourned, at 6.00 p.m. on the day two days prior to the adjourned meeting shall be entitled to attend and
vote at the General Meeting.
(2)
If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any
of your rights to attend, speak and vote at the General Meeting and you should have received a Proxy Form with this notice. You can
only appoint a proxy using the procedures set out in these notes and the notes to the Proxy Form.
(3)
A proxy does not need to be a member of the Company but must attend the General Meeting to represent you. Details of how to
appoint the chairman of the General Meeting or another person as your proxy using the Proxy Form are set out in the notes to the
Proxy Form. If you wish your proxy to speak on your behalf at the General Meeting you will need to appoint your own choice of proxy
(not the chairman) and give your instructions directly to them.
(4)
You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not
appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please contact the
Company’s registrars at the address set out in note 5.
(5)
The notes to the Proxy Form explain how to direct your proxy how to vote on each resolution or withhold their vote.
To appoint a proxy using the Proxy Form, the Proxy Form must be:
(a)
(b)
(c)
completed and signed;
sent or delivered to Capita Asset Services, PXS, 34 Beckenham Road, Kent BR3 4TU; and
received by Capita Asset Services, at the address provided in paragraph 5(b) above no later than 2.00 p.m. on 17 May 2015.
In the case of a member which is a company, the Proxy Form must be executed under its common seal or signed on its behalf
by an offi cer of the company or an attorney for the company.
Any power of attorney or any other authority under which the Proxy Form is signed (or a duly certifi ed copy of such power or
authority) must be included with the Proxy Form.
(6)
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by
the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the
Company’s register of members in respect of the joint holding (the fi rst-named being the most senior).
(7)
To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off
time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment
received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-
copy proxy form, please contact Capita Asset Services at the address noted in note 5 above.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies
will take precedence.
(8)
In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your
intention to revoke your proxy appointment to Capita Asset Services at PXS, 34 Beckenham Road, Kent, BR3 4TU. In the case of a
member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an offi cer of
the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is
signed (or a duly certifi ed copy of such power or authority) must be included with the revocation notice.
The revocation notice must be received by Capita Asset Services no later than 2.00 p.m. on 17 May 2015.
If you attempt to revoke your proxy appointment but the revocation is received after the time specifi ed then, subject to the
paragraph directly below, your proxy appointment will remain valid.
Appointment of a proxy does not preclude you from attending the general meeting and voting in person. If you have appointed a
proxy and attend the general meeting in person, your proxy appointment will automatically be terminated.
(9)
A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as
a member provided that no more than one corporate representative exercises power over the same share.
(10)
Voting on all resolutions will be conducted by way of a poll rather than on a show of hands.
(11)
As at 5.00 p.m. on the day immediately prior to the date of posting of this notice, the Company’s issued share capital comprised
422,057,074 Ordinary Shares of 1p each. Each ordinary share carries the right to one vote at a general meeting of the Company and,
therefore, the total number of voting rights in the Company as at 5.00 p.m. on the day immediately prior to the date of posting of this
notice is 422,057,074.
If you have a query regarding your shareholding please call 0871
664 0300 (calls cost 10p per minute plus network extras) or e-mail
ssd@capitaregistrars.com
Public relations:
Walbrook PR Limited
4 Lombard Street
London
EC3V 9HD
Investor relations email:
investors@ekfdiagnostics.com
72
ANNUAL REPORT 2014 | EKF Diagnostics Holdings plc
Company Information
EKF Diagnostics Holdings PLC (Company)
Directors:
David Evans (Executive Chairman)
Julian Baines (Chief Executive Offi cer)
Richard Evans (Chief Operating Offi cer)
Paul Foulger (Finance Director and Company Secretary)
Tito Bacareses-Hamilton (Chief Technology Offi cer)
David Toohey (Non-Executive Director)
Doris-Ann Williams (Non-Executive Director)
Kevin Wilson (Non-Executive Director)
Adam Reynolds (Non-Executive Director)
Registered Offi ce and Head Offi ce:
Avon House
19 Stanwell Road
Penarth
Cardiff
CF64 2EZ
Place of incorporation:
England and Wales (Company number – 4347937)
Independent Auditors:
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
One Kingsway
Cardiff
CF10 3PW
Nominated Advisor and Broker:
Panmure Gordon & Co
One New Change
London
EC4M 9AF
Solicitors to the Company:
Berry Smith LLP
Haywood House
Dumfries Place
Cardiff
CF10 3GA
Registrars:
Capita Asset Services
PXS
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Designed by Washington Design Consultants
www.washdesign.co.uk | +44 (0)29 20 711911
EKF Diagnostics Holdings plc
Avon House,
19 Stanwell Road,
Penarth,
Cardiff
CF64 2EZ
Tel: +44 (0)29 20 710570
Fax: +44 (0)29 20 705715
Email: investors@ekfdiagnostics.com
ekfdiagnostics.com