ANNUAL REPORT 2016
EKF Diagnostics Holdings plc
1.0 Strategic Review
Contents
EKF Diagnostics Holdings plc | Annual Report 2016 1
1.0 Strategic Review
Financial and Operational Highlights
EKF Diagnostics Holdings plc
Chairman’s Statement
Chief Executive’s Review
Finance Director’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
2
3
8
9
11
13
15
18
22
25
27
29
30
31
32
33
35
71
73
2 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Financial and Operational highlights
Financial Highlights
• Revenue up 28% to £38.6m (2015: £30.0m)
• Gross profit up 24% to £18.3m (2015: £14.7m)
• Adjusted EBITDA* of £6.1m (2015: loss of £0.3m)
• Cash generated from operations of £8.8m (2015: £2.9m used)
• Cash at 31 December 2016 of £7.9m (31 Dec 2015: £2.0m), Net cash of £2.2m (31 Dec 2015: £8.8m
Net debt)
* Excluding exceptional items and share based payments
Operational Highlights
• Successful restructuring programme focusing the business on profitability and organic sales
growth
• Strong organic growth delivered across all three point-of-care business areas and Central Laboratory
• 13,649 analysers and 69m tests sold worldwide in 2016
• Business stability has allowed strategically key new products to be identified for further
development
2016 at a glance
28%increase in
revenues year
on year
2016
2015
+/-
Turnover (£m)
£38.6
£30.0
28%
Gross profit (£m)
£18.3
£14.7
24%
Adjusted EBITDA (£m)
£6.1
-£0.3
-
+59%
HEMATOLOGY
REVENUES
+58%
DIABETES CARE
REVENUES
+17%
MATERNAL
& WOMEN’S
HEALTH
REVENUES
+39%
CENTRAL
LABORATORY
REVENUES
1.0 Strategic Review
EKF Diagnostics Holdings plc
EKF Diagnostics Holdings plc | Annual Report 2016 3
Background
EKF Diagnostics is a global medical diagnostics
business with a long history in point-of-care
testing and manufacturing reagents for use in
central laboratories.
Our point-of-care (POC) products, most of which
are designed and manufactured in Germany, have
a hard earned reputation for ease of use, reliability
and accuracy from professionals working in
diabetes, blood banking and sports medicine.
Our Locations
The POC business is built around a large installed
based of analysers each of which generates a
regular demand for tests, often for the entire life
cycle of the analyser. This approach – sometimes
known as the ‘razor/razorblade’ model – permits
a percentage of organic growth each year.
Barleben, Germany
Moscow, Russia
Cardiff, UK
Leipzig, Germany
Krakow, Poland
Elkhart, IN
San Antonio, TX
Shanghai, China
Sold to
111 countries
326 Distributors and
OEM Partners
18 OEM
Partners
2016 at a glance
6%
growth
Analysers
sold
2016
2015
13,649
12,879
10%
growth
Tests
sold
2016
2015
69,443,757
63,351,290
0
2.5k
5k
7.5k
10k
12.5k
15k
0
15k
30k
45k
65k
70k
4 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Point of Care: Hematology
Product portfolio
The hematology product range within EKF
Diagnostics, is the largest in terms of revenues
and the size of the installed base.
The acquisition of DiaSpect and Separation
Technology in 2014 allowed EKF to offer an
unparalleled range of hemoglobin and hematocrit
point-of-care blood analysers manufactured in
Germany and the USA.
Hemo ControlTM
DiaSpect Tm
DiaSpect Hemoglobin T Low
• Uses ‘gold standard’
methodology (reagent filled
microcuvettes)
• Data management capability;
provides a hematocrit
calculation
• Handheld analyser utilising
reagentless methodology
• Tests serum, plasma, aqueous
solutions or stored erythrocytes
• Benefits of speed to result
• Estimates the degree of
(one second), and shelf-life of
microcuvettes
• Successor to DiaSpect
hemolysis
• Results in less than two seconds
• Reagent-free microcuvettes
• Proven, robust analyser sold
Hemoglobin T
worldwide
UltraCrit PlusTM
HemataStat IITM
• Hematocrit analyser using
unique ultrasound technology
• Laboratory hematocrit
centrifuge and analyser
• Strong presence in US blood
• Processes multiple samples
banking sector
• International version also
provides hemoglobin calculation
Strategy
The EKF Diagnostics portfolio of hemoglobin
and hematocrit analysers is unique within the
point-of-care diagnostics sector.
Sales are primarily focused around two markets
– public health initiatives such as anaemia
screening programmes, and private practices
where the cost of testing is paid for by an
insurance company or the patient.
To approach these markets EKF has two
distinct strategies: firstly, OEM partnerships with
international distributor/manufacturers such as
Fresenius Kabi; and secondly agreements with
smaller distributors who are focused on the public
health opportunities within their own countries.
Sports medicine and veterinary medicine provide
two additional niche sources of customer for EKF
distributors.
EKF believes that this portfolio can provide it with
a competitive advantage to grow its market share.
1.0 Strategic Review
Point of Care: Diabetes Care
EKF Diagnostics Holdings plc | Annual Report 2016 5
Product portfolio
EKF’s diabetes range aims to provide affordable,
easy-to-use technology that reduce the costs of
long-term healthcare of the diabetic and pre-
diabetic population.
Diabetes has been at the core of EKF’s strategy
for well over 10 years starting with the early
models of the Biosen C-Line and Biosen S-Line
glucose analysers. More recently HbA1c analysers
have been launched that address the diabetes
screening market.
Although they do not strictly belong within
a point-of-care framework, clinical chemistry
reagents such as Glycated Serum Protein and
Beta-Hydroxybutyrate add further provenance
to EKF’s claim to be a significant contributor to
diabetes care worldwide.
BiosenTM
Quo-Lab® A1c
• Glucose and/or lactate
• HbA1c testing (Glycated
measurement
Hemoglobin)
• Three models, each aimed at
• Results in four minutes using a
different settings
unique methodology
• Used as the benchmark for
• Targeted at developing world
blood glucose monitors in China
markets
Quo-Test® A1c
• HbA1c testing (Glycated
Hemoglobin)
• Same methodology as Quo-Lab
but fully automated
• Simple operation requires
minimal training
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 well being and their
compliance with the 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.
2016 saw the formal transfer of Quo-Test and
Quo-Lab to EKF’s Barleben site completed.
The switch began in 2015 with the transfer of
plant and knowledge-transfer to the German
engineering team, and continued into 2016 with the
hand-over of regulatory control for the products.
These changes have allowed EKF Diagnostics to
make significant operational savings through the
centralisation of manufacturing, warehousing,
logistics and customer service.
6 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Point of Care: Maternal & Women’s Health
Product portfolio
Maternal and Women’s Health focuses primarily
on diagnostics used to address conditions and
complications associated with pregnancy and
child birth.
Women and Infant Clinics, pregnancy test kits
and HbA1c analysers used to diagnose gestational
diabetes in pregnant women.
Sales
from Creamatocrit
centrifuges and hemoglobin meters used in
revenues
include
Creamatocrit PlusTM
Pregnancy kits
• Small lab centrifuge used in
Women and Infant Clinics
• Cassette rapid tests
• Marketed for use in hospital
• Measures the lipid concentration
and caloric density of breast milk
settings
• Allows professionals to guide
mothers with underweight
infants
SensPoint
Lactate Scout+
• Handheld lactate analyser with
• Handheld lactate analyser
docking station
• Results in 10 seconds
• Results in 10 seconds
• Developed for use in sports
• Undergoing UK evaluations at
medicine
the time of writing
• Applications in medical and
• Developed for use in maternity
veterinary medicine
wards
Strategy
EKF’s Maternal and Women’s Health business
unit has seen steady growth since it was created.
SensPoint is awaiting CE marking whilst the
product team continue to work with key opinion
leaders to educate the future target market on
the need for a protocol in the use of lactate in
obstetric medicine.
In parallel there is a slowly building commercial
interest in this market in Europe. Some medical
professionals are using the Lactate Scout+ to
provide accurate lactate readings within ten
seconds.
Lactate Scout+ uses the same strip system as
SensPoint but does not include SensPoint’s data
management functionality.
Lactate Scout+ has historically been sold into
sports medicine, specifically endurance activities
such as cross-country skiing, cycling and rowing.
This market also contributes significantly to
Biosen revenues who use the lactate testing
function in the preparation of elite squads of
athletes such as Premier League football teams
and Olympians.
EKF Diagnostics Holdings plc | Annual Report 2016 7
1.0 Strategic Review
Central Laboratory
Product portfolio
EKF, through its wholly owned subsidiary Stanbio
Laboratory, has had a presence within central
laboratory 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 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.
its
provided EKF with a third element to
central laboratory offering. As well as being a
manufacturer of hematology products STI has a
heritage in manufacturing high quality, US-built,
mini-centrifuges.
AltairTM 240
Beta-Hydroxybutyrate
• Automated bench-top analyser
• Liquid reagent for the early
• Runs up to 400 tests per
detection of ketosis
hour and can handle up to 43
different reagents
• Primarily sold in USA through
national distribution networks
• Calibrated to run the Stanbio
Chemistry range of reagents
Procalcitonin
Glycated Serum Protein
• Liquid reagent for the detection
• 2-3 week indicator of average
of sepsis
blood glucose
• Targeted at European and
Asia-Pacific markets
• Complementary to HbA1c in
diagnosis and screening of
diabetes
Strategy
laboratory market continues to
The central
experience relatively low levels of growth. This
is in part because sales of chemistry reagents
are inextricably linked to the provision of the
analysers on which the tests are performed. EKF
Diagnostics’ approach to the clinical chemistry
market changed in late 2015 with the launch of
the Altair 240, a benchtop analyser calibrated to
run the Stanbio Chemistry range of reagents.
in
Further opportunities continue to exist
niche markets. Sales of Beta-Hydroxybutyrate
Liquicolor® reagent continue to be healthy with
a strong performance from US distributors who
have developed a market capitalising on the
withdrawl of a previous method of testing for
ketosis.
More than 1,000 US hospitals now use EKF’s Beta-
Hydroxybutyrate reagent. A similar approach
is being used for Procalcitonin (PCT) in Europe
where EKF has undertaken awareness activity
using key opinion leaders in target markets.
8 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Chairman’s Statement
Results overview
Please refer to the Chief Executive’s statement
which contains a review of the year and the
Finance Director’s Review which provides an
overview of the financial performance.
Board
Ron Zwanziger, Lurene Joseph, and David Evans
left the Board during the year, and Carl Contadini
and I both joined. Carl has worked with me for
many years and is an expert at cost control
and containment. The Non-Executive Directors
waived their fees during the year.
Outlook
Much has been done very quickly to turn the
Group around, however work continues to simplify
the business to allow the management team to
concentrate on making it more cost efficient so
that we can service our growing customer base
and build for the future. I am confident that
shareholders will see the continuing benefits of
this in 2017, and we are currently trading in line
with management’s expectations.
Christopher Mills
Non-Executive Chairman
20 March 2017
A year ago I stated that the Board intended
to rebuild shareholder value by stabilising
the business, growing
it organically, and
implementing further reductions in the cost base.
The very significant progress that has been made
so far towards fulfilling these aims is shown in
these results.
Strategy and restructuring
Following the divestment of Selah Genomics Inc.
in December 2015 and the mothballing of the
UK molecular diagnostics business, the Group’s
activities are focused on point-of-care and the
related central laboratory reagents business, and
it remains our intention to concentrate on these.
Efforts to reduce cost and simplify the business
have been and are continuing. The operations
of DiaSpect in Sailauf have been closed and
integrated into our main European manufacturing
site in Barleben, Germany. In addition the STI
site in Sanford, Florida, has been shut down
and manufacturing and sales brought into our
main USA site in Boerne, Texas. As a result, staff
numbers have reduced to 299 at year end, over
100 lower than its peak.
The reduction in staff has resulted in large part in
the achievement of cost savings in excess of the
£6.7m target in 2016. These savings are expected
to make a continuing impact in 2017.
Despite the changes resulting from restructuring,
revenue is sharply up, with improvements coming
across the board. In turn this has led to an
improvement in earnings and to significant cash
generation from operations, which, added to the
proceeds from a share issue in June, has allowed
the Group to move to having net cash as at 31
December 2016.
Additional update for Shareholders
On 20 March 2017 we announced that the Directors
are currently evaluating plans under which they
would split the Company into two separate
companies based on the business divisions,
namely Point of Care and Lab Diagnostics. Whilst
both these business divisions are valuable in their
own right, the Directors consider that separating
the companies out represents a better route for
shareholders and one under which they are more
likely to achieve a fair reflection of the value of
each separate business.
We are sympathetic to individual investors’
requirements and therefore in order to provide
those shareholders that do not wish to wait for the
completion of the restructuring and subsequent
potential sale of the two businesses with an exit,
the Company is evaluating the possibility of a
share buyback offer to shareholders. This share
buyback offer would, if completed, be prior to the
commencement of the separation and would be
at a price of 21.5p per share.
1.0 Strategic Review
Chief Executive’s Review
EKF Diagnostics Holdings plc | Annual Report 2016 9
Operations
i.
Hematology
I am delighted to report that 2016 has been a year
of positive transformation which has seen a strong
performance across the Group which exceeded
market forecasts which themselves had been
upgraded throughout the year. We have seen a
considerable improvement in revenue growth
and profitability, with cash generation strong
over the year, which coupled with a successful
share placing in June, 2016 allowed us to move
into a net cash position and significantly reduce
our borrowings.
This turnaround has been achieved with quite
remarkable speed, and all employees can be very
proud of these results. Our plans for 2017 are
equally as ambitious.
Structural change
Actions taken in 2016 have built upon those
started in 2015 and before. Our small remaining
presence in Ireland has ended and the biomarker
business line has been sold to a third party for
a nominal sum. The residual staff who had been
located in the former Quotient facility in Walton-
on-Thames, UK, have also left the Group, and the
building handed back to the landlords. The STI
facility in Sanford, Florida was closed in Q3, and
all activities transferred to our main US facility
in Boerne, Texas. A small number of staff have
transferred or are continuing to operate from
home offices. As part of this transfer we have
taken the opportunity to review and rationalise
the STI product range. Finally, the DiaSpect
facility in Sailauf, Germany has been closed down.
Administrative, sales, and finance functions are
now integrated into our main European factory
in Barleben, Germany. The manufacturing
operations have been transferred to DiaSpect’s
long term third party sub-contractor, which has
also taken occupancy of that part of the Sailauf
facility they did not already occupy. We have
therefore now concentrated operations on eight
sites, a reduction of four. We are continuing to
review operations to minimise costs and maximise
efficiency.
As a result of the structural changes, the number
of employees has reduced from a peak of 403 in
early 2015 to 299 by December 2016. Regrettably
much of this reduction has had to be achieved
through compulsory redundancy, and we offer
former employees our best wishes for the future.
Point of Care
Our point-of-care business has seen a very
successful year. EKF’s business model is to sell
analysers into the market and then benefit from
the ongoing revenue stream generated by sales
of the dedicated consumables. Over the last four
years we have sold almost 70,000 analysers for
use worldwide, and in 2016 we supplied almost
70m tests for use on these, an increase of 9.8%
over the previous year.
Sales of Hematology products have increased
by 59% to £11.70m (2015: £7.37m), with revenues
benefiting from the return of US HemoPoint H2
sales to EKF control from Alere in June 2016. This
has led to improved margin and sales, with US
sales of HemoPoint H2 (sold as Hemo Control in
the rest of the world) up 101% year-on-year. Sales
of DiaSpect Tm are up 53%.
ii.
Diabetes Care
In Diabetes, revenues were up by 58% year-on-
year to £10.20m (2015: £6.46m), with a particularly
successful year for Biosen (up 79% year-on-year)
and Quo-Test (up 62%). We have continued to
supply Quo-Test products to Saudi Arabia under
the tender won in 2015, and have been awarded a
follow up contract for 2016-17. Registration issues
which had caused Biosen sales to China to pause
in 2015 have now been solved, which is reflected
in the rise in overall unit sales. Sales of STAT-Site
M β-HB rose by 143% over the previous year.
iii. Maternal & Women’s Health
Revenues from our products that address aspects
of maternal and women’s health increased by 17%
to £2.88m (2015: £2.46m). This has been driven
by an improvement in sales of our Lactate Scout+
product line which are up by 31%, and pregnancy
tests sales have increased by 10%.
Central Laboratory
Our Central laboratory sales show an overall
improvement of 39% on the previous year to
£12.05m (2015: £8.70m), and have continued to
be driven by our β-HB Liquicolor reagent product.
β-HB sales were up by 76% and we have continued
to sign up additional hospitals in the US, resulting
in sales doubling since 2012. We have had some
success with our Altair 240 analyser product and
are continuing to sign up distributors especially
in Asia and the Middle East. As a result, Clinical
Chemistry sales, which included our first Altair
240 sales were up 19%. Sales of our enzymes rose
by 26% compared to last year. Our efforts in this
segment are concentrating on building markets
while continuing to increase penetration of our
β-HB product.
New products
The new building at Barleben, Germany
commenced in 2015 has now been completed
and operations are beginning to move in. The
building will house a number of new and updated
production lines where we have determined that
highly targeted capital expenditure can improve
efficiency and capacity.
We took a conscious decision in early 2016 to
concentrate on product development plus the
development of technologies already owned by
EKF. Not surprisingly this has meant that there
has been relatively little movement in developing
new products, with the majority of effort being
expended on improving the quality of existing
products. However our connectivity solutions for
point-of-care instruments have been showcased
10 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
at distributor shows such as Medica. With cash
flow much improved we are focussing on the
development of our sTNFR biomarker (early
detection of end stage renal disease in diabetic
patients), SensPoint
(maternity care) and
the redevelopment of our Lactate Scout for
ambulatory care (early indication of Sepsis).
Outlook
The actions taken to turn around the Group in
2016 have had rapid and significant positive
effects. We now have a stable platform for further
growth based on driving the existing business
and continuing to reduce cost.
Julian Baines
Chief Executive Officer
20 March 2017
1.0 Strategic Review
Finance Director’s Review
EKF Diagnostics Holdings plc | Annual Report 2016 11
Results
2015 results show Selah Genomics Inc. as a
discontinued business.
Revenue
Revenue for the year was £38.6m (2015: £30.0m),
an increase of 28%. Of the increase, 15.3% was
the result of improvements in foreign currency
exchange rates, largely because of the fall in the
value of sterling against the US dollar and Euro in
the second half of the year. The remainder of the
increase comes from organic growth.
Revenue by disease state, which is presented for
illustration purposes only, is as follows:
FY 2016
£’000
FY 2015
£’000
+/-%
Hematology
Diabetes Care
Maternal Health
11,704
10,203
2,880
7,371
6,463
2,455
Central Laboratory
12,051
8,701
Other
1,751
5,055
+59%
+58%
+17%
+39%
-65%
Total revenue
38,589
30,045
+28%
Gross profit
Gross profit increased to £18.3m (2015: £14.7m).
The gross margin percentage on sales was 47.5%
(2015: 48.8%), a further small decrease. This was
once again affected by additional provisions
taken against older stock balances.
Administration costs and research and
development costs
Administration expenses have fallen substantially
to £18.7m (2015: £29.2m). While 2015 had
seen a sharp rise over the previous year, the
reduction shows the effect of the cost saving
in place during the year.
programmes put
and
Excluding depreciation,
exceptional items, administration expenses were
£14.0m (2015: £16.3m), a 14.1% reduction. R & D
costs included in administration expenses were
£2.0m, with a further £0.6m being capitalised as
an intangible cost. Gross R & D expenses have
therefore reduced from £5.4m in 2015 to £2.6m
this year.
amortisation,
The charge for depreciation of fixed assets and
amortisation of intangible assets is £5.0m (2015:
£8.1m). There have been no impairments during
2016, following the refocusing of the business in
late 2015 on our core products.
Exceptional items mainly relate to provisions made
and costs incurred in the closures and relocations
of the DiaSpect and STI manufacturing sites,
offset by the release of an unutilised provision
relating to EKF Molecular.
Operating profit and adjusted earnings before
interest tax and depreciation
The Group made a small operating loss of £0.3m
(2015: £14.3m). While this shows very considerable
improvement, it indicates that there remains work
to be done on increasing profitability. We continue
to consider that adjusted earnings before
interest, tax, depreciation and amortisation, share
based payments and exceptional items (adjusted
EBITDA) is a better measure of progress because
the Board believes it gives clearer comparability
of operating performance between periods.
In 2016 we achieved adjusted EBITDA of £6.1m
(2015: loss of £0.3m). The calculation of this
non-GAAP measure is shown on the face of the
income statement. It excludes the effect of share-
based payment charges of £1.0m (2015: £0.2m)
and exceptional losses of £0.5m (2015: £5.7m). Of
the increase in adjusted EBITDA of £6.4m, £1.1m
is attributable to the effect of more favourable
exchange rates, with the remainder being
attributable to improved underlying performance.
Finance costs
Finance costs have continued to fall, to £0.7m
in 2016 (2015: £1.4m). This is largely as a result
of lower charges relating to the discounting of
deferred consideration than in previous years.
External debt has been reduced during 2016
which should lead to lower debt interest in 2017
and beyond.
Tax
There is an income tax credit of £1.2m (2015:
£2.2m). This is largely because of a tax refund
received in the USA relating to the carry back of
losses against previous years.
Balance sheet
Property, plant and equipment
Additions to fixed assets were £1.3m (2016:
£2.3m) of which £0.6m related to the completion
of the new building at Barleben.
Intangible assets
The increase in value of intangible assets from
£42.9m to £46.5m is almost entirely attributable
to foreign exchange movements as intangibles on
consolidation are denominated in the functional
currency of the underlying businesses, offset by
the annual amortisation charge.
Deferred consideration
The remaining deferred consideration relates to
the share-based payment to the former owner
of EKF-Diagnostic GmbH. Finalisation of the
contracts to conclude the position is expected to
take place in 2017.
12 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Cash and working capital
included
At 31 December 2015, borrowings
a secured convertible
loan of £3.0m from
Zwanziger Family Ventures LLC (ZFV), a
company associated with the Zwanziger family.
This was repaid in April 2016 from the proceeds of
a new loan of £3.0m from North Atlantic Smaller
Companies Investment Trust PLC, a company
associated with Christopher Mills. This in turn
was repaid from the proceeds of a share placing
which took place in June 2016, and raised £4.5m
net of expenses. Gross cash rose in the year from
£2.0m to £7.9m, and at the same time borrowings
decreased from £10.8m to £5.7m. As a result the
Group moved from having net debt of £8.8m to
having net cash of £2.2m by the 2016 year end.
Of the improvement in net debt, £6.5m has been
generated internally.
Inventory has reduced to £6.0m (2015: £8.2m).
Some of the reduction has come from efforts
made to reduce inventory during the year and the
remainder from increased inventory provisions.
Both receivables and payables have increased,
reflecting increased activity during the year.
Richard Evans
Finance Director and Chief Operating Officer
20 March 2017
EKF Diagnostics Holdings plc | Annual Report 2016 13
1.0 Strategic Review
Board of Directors
Executive Directors
Julian Baines MBE
Chief Executive Officer (aged 52)
Julian was Group CEO of BBI where he undertook a management buyout in 2000, a flotation 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. In 2016 he was awarded an MBE for services to the life sciences industry.
Richard Evans
Chief Operating Officer and Finance Director (aged 59)
Richard qualified 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 finally Global Account Director at Hitachi
Data Systems GmbH. He has also held positions at Fisher Scientific, TRW Seat Belt Systems, Maxtor
Corporation, United Technologies Carrier and Abbott Diagnostics GmbH in Germany.
14 Annual Report 2016 | EKF Diagnostics Holdings plc
1.0 Strategic Review
Board of Directors
Non-Executive Directors
Christopher Mills
Non-Executive Chairman (aged 64)
Christopher founded Harwood Capital Management in 2011, a successor from its former parent
company J.O. Hambro Capital Management, which he co-founded in 1993. He is Chief Executive and
Investment Manager of North Atlantic Smaller Companies Investment Trust plc and Chief Investment
Officer of Harwood Capital LLP. He is a Non-Executive Director of several companies. Christopher was
a Director of Invesco MIM, where he was Head of North American Investments and Venture Capital,
and of Samuel Montagu International. Christopher is a member of the Audit Committee and chairs the
Remuneration Committee.
Adam Reynolds
Non-Executive Director (aged 54)
Adam is a former stockbroker specialising in corporate finance. He has built, rescued and re-financed
a number of public companies. He is currently Chairman of Autoclenz Group Limited, Orogen Gold
plc, OptiBiotix Plc, Premaitha Health Plc, and Concepta Plc, and a Non-executive Director of Big Sofa
Technologies plc. Adam chairs the Audit Committee and is a member of the Remuneration Committee.
Carl Contadini
Non-Executive Director (aged 68)
Carl has been a director of numerous companies throughout his career, predominately focusing on the
healthcare and electronics sectors. He is currently a board member and past Chairman of Waterbury
Healthcare Systems Inc., a US-based healthcare group, and an Operational Adviser to Harwood Capital
LLP, where he assists in sourcing, evaluating and monitoring investments. Carl also holds the positions
of Executive Chairman and Non-Executive Chairman at Utitec Holdings Inc. and Curtis Gilmour Holding
Inc. respectively. Carl has, in the past, also been a director of Bionostics Limited and Celsis Group
Limited. He holds an Associate of Science degree in Business Administration and Marketing from Tunix
Community College, Connecticut and a Batchelor of General Studies degree specialising in Human
Resources from University of Connecticut.
EKF Diagnostics Holdings plc | Annual Report 2016 15
2.0 Corporate Governance
Strategic Report
for the year ended 31 December 2016
Review of the business
A review of the business is contained in the
Chairman’s Statement on page 8, and in the Chief
Executive’s Review on pages 9 and 10 and the
Finance Director’s Review on pages 11 and 12.
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 fit for
purpose. We are in the process of enhancing and
formalising our risk management processes and
control environment, and continuing our journey
of maturing our approach to how we identify and
manage risks across the Group in a consistent
and robust manner.
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, profit 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 significant proportion of the Group’s revenues
are accounted for by agreements in developing
countries. Any instability in these countries
could significantly affect the operations and the
revenue of the Group. In particular the Group
has significant revenue from customers in Russia
which are ultimately largely funded by the
government.
Below we describe our
risk management
approach, the principal risks and uncertainties
faced by the Group and the controls in place to
manage them.
The Group spreads the risk through seeking
a portfolio of diversified revenue streams
geographically with a mixture of distribution
partners in developing and developed countries.
Overview of risk management approach
Each business area is responsible for identifying,
assessing and managing the risks
in their
respective area. Risks are identified and assessed
by all business areas on a periodic basis, and
are measured against a defined set of criteria,
considering
likelihood of occurrence, and
potential impact. The Executive Board members
also conduct a strategic risk identification 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
significant risks identified are included in our
Group Risk Profile, which is reported to the
Executive Board for review and challenge, ahead
of it being submitted to the Group Board for
final 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.
In 2015 the Group faced a number of issues. In
response to these the Group has reduced its risk
profile by returning to a strategy based on point-
of-care and clinical chemistry and reducing its
cost base.
Principal risks and uncertainties
Set out below are the principal risks which we
believe could materially affect the Group’s ability
to achieve its financial and operating objectives
and control or mitigating activities adopted to
manage them. The risks are not listed in order of
significance.
Key employees
Lack of retention of key employees affects
In 2016, following the European Union (EU)
membership referendum, the UK Government
indicated that it would shortly commence the
process for the United Kingdom to withdraw
from the EU. Although at present the Group does
not anticipate significant issues, as the Group
has facilities, customers, and suppliers in both
the United Kingdom and the EU, withdrawal
may affect the Group’s operational abilities and
costs. The Group seeks to manage this risk by
monitoring events and taking mitigating actions
if necessary.
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 significant
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.
The Group seeks to reduce this risk by
recognised
the products
manufacturing
to
16 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
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 may 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 confidentiality agreements
regarding the Group’s know-how and technology,
monitoring technological developments and by
selecting leading businesses in their respective
fields as distribution partners capable of
addressing significant 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 sufficiently
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
confidentiality 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 filed 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 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 financial
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
funding through borrowings
operations by
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 profitably if
the reimbursement level 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 difficult 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 nature of the Group there is a
requirement
report accurate financial
in compliance with accounting
information
standards and applicable legislation.
to
This risk
is mitigated through the Group’s
internal controls over the financial information
and reporting, overseen by the local financial
heads and then reviewed by the central finance
team, including the Finance Director. The annual
financial statements are also subject to audit by
the Group’s external auditors.
Cyber security risk
The Group uses computers extensively in its
operations and has an online presence but does
not trade online. It is at risk of attack through
hacking or other methods. This risk is mitigated
by the use of robust security measures, staff
training, and back up systems.
Review of strategy and
business model
The Board of Directors judge the Company’s
financial performance by reference to the internal
budget which it establishes at the beginning of
each financial year.
EKF’s strategy is to create a world class IVD
business through organic growth. IVD has a
wide spectrum, and within this spectrum we
have chosen to concentrate on point-of-care,
while maintaining our existing central laboratory
business.
We have identified and acquired businesses
in these areas with strong product lines and
distribution networks which can benefit from
better, more professional management, greater
resources, and from the synergistic benefits 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,
2.0 Governance
EKF Diagnostics Holdings plc | Annual Report 2016 17
2.0 Corporate Governance
Disabled employees
Applications for employment by disabled persons
are always fully considered, bearing in mind the
specific 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 product to
selected appropriate charities which operate
within its area, and encourages staff to take 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 20 March 2017 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
20 March 2017
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 product
support centres in the USA and Germany.
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 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 page 8 and the
Chief Executive’s Review on pages 9 to 10 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 is working
to establish other key performance indicators
including non-financial measures. KPIs are
discussed in more detail in the Finance Director’s
review on pages 11 and 12.
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 keep at low
levels and aims to structure staff compensation
levels at competitive rates in order to attract and
retain high calibre personnel.
18 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Report of the Directors
for the year ended 31 December 2016
The Directors have pleasure in submitting this report together with the audited consolidated financial
statements of EKF Diagnostics Holdings plc for the year ended 31 December 2016.
Corporate details
EKF Diagnostics Holdings public limited company is incorporated and registered in England and Wales
number 4347937. The registered office is Avon House, 19 Stanwell Road, Penarth, Cardiff CF64 2EZ.
Directors
The Directors who held office during the year and as at the date of signing the financial statements
were as follows:
• Christopher Mills (appointed 8 April 2016)
• Julian Baines
• Richard Evans
• Adam Reynolds
• Carl Contadini (appointed 11 July 2016)
• Ron Zwanziger (resigned 11 April 2016)
• Lurene Joseph (resigned 9 May 2016)
• David Evans (resigned 2 June 2016)
Salim Hamir was appointed Company Secretary on 2 March 2016.
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. Future developments and
research and development activities are discussed in the Chairman’s Statement on page 8, the Chief
Executive’s Review on pages 9 and 10 and the Finance Director’s Review on pages 11 and 12.
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
financial statements. This included the review of internal budgets and financial results which show,
taking into account reasonably probable changes in financial performance, that the Group should be
able to operate within the level of its current funding arrangements.
During 2016, the convertible loan provided by the Zwanziger Family Trust in 2015 was repaid using
a loan from the North Atlantic Smaller Companies Investment Trust plc (a company associated with
Christopher Mills). This in turn was repaid using the proceeds of a fundraising in June 2016.
The restructuring and cost saving actions taken in late 2015 and early 2016 have allowed the Group to
become cash generative in the second half of 2016.
Taking these changes into account, and 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 financial statements.
Financial risk management
Financial risk management is discussed in Note 3 of the financial statements.
Employee policies
Employee policies are discussed in the Strategic Report on pages 15 to 17.
2.0 Corporate Governance
EKF Diagnostics Holdings plc | Annual Report 2016 19
Directors’ interests
The interests of those Directors serving at 31 December 2016 and as at the date of signing of these
financial statements, all of which are beneficial, in the share capital of the Company were as follows:
Christopher Mills
Julian Baines
Richard Evans
Adam Reynolds
Carl Contadini
On 31 December 2016
Ordinary Shares of 1p each
On 31 December 2015*
Ordinary Shares of 1p each
130,000,000
81,200,000
1,855,288
178,842
3,318,613
-
1,721,955
178,842
3,229,724
-
*or at the date of appointment where later.
Mr Mills’ interest in the Company’s shares is held through North Atlantic Smaller Companies Investment
Trust PLC (“NAIT”) and Oryx International Growth Fund Limited (“Oryx”). Harwood Capital LLP
(“Harwood”) is investment manager and investment adviser to NAIT and Oryx respectively. Christopher
Mills is a partner and Chief Investment Officer of Harwood. Christopher Mills is also a director of Oryx
and NAIT. He holds 2.16 per cent. of the shares in Oryx in his own name as well as a further 46.44 per
cent. of the shares in Oryx via his 25.06 per cent. shareholding in NAIT. Transactions in the Company’s
share capital during the year by NAIT and Oryx are as follows:
Date
20 May 2016
7 June 2016
9 June 2016
17 June 2016
21 June 2016
23 June 2016
24 June 2016
8 July 2016
18 July 2016
20 July 2016
NAIT
2,450,000
16,297,656
447,666
532,781
4,500,000
2,000,000
2,613,957
3,057,940
9,000,000
2,900,000
Oryx
350,000
4,650,000
-
-
-
-
-
-
-
-
Carl Contadini holds no shares personally, but acts as an Operational Advisor to Harwood which acts
as investment manager and investment adviser to NAIT and Oryx respectively.
On 7 June 2016, Julian Baines acquired 133,333 ordinary shares and Adam Reynolds acquired 88,889
ordinary shares, both at a price of 11.25p per share.
Substantial shareholdings
As at 15 March 2017, the following interests in 3% or more of the issued Ordinary Share capital had been
notified to the Company:
Shareholder
The Bank Of New York (Nominees) Limited
N.Y. Nominees Limited
Securities Services Nominees Limited
HSBC Global Custody Nominee (UK) Limited
Nortrust Nominees Limited
Vidacos Nominees Limited
Pershing Nominees Limited
Number of
shares
Percentage of issued
share capital
90,858,077
47,851,369
40,025,000
28,244,158
27,051,294
20,497,604
16,020,832
19.6%
10.3%
8.6%
6.1%
5.8%
4.4%
3.5%
20 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Statement of Directors’ responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under
that law the directors have prepared the group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial
statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union. Under company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the group and parent
company and of the profit or loss of the group and parent company for that period. In preparing the
financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have been followed for the
group financial statements and IFRSs as adopted by the European Union have been followed for
the company financial statements, subject to any material departures disclosed and explained in
the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume
that the group and parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the group and parent company’s transactions and disclose with reasonable accuracy
at any time the financial position of the group and parent company and enable them to ensure that
the financial statements comply with the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of the group and parent company 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 parent company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the group and
parent company’s performance, business model and strategy.
Each of the directors, whose names and functions are listed in the Report of the Directors confirm that,
to the best of their knowledge:
• the parent company financial statements, which have been prepared in accordance with IFRSs as
adopted by the European Union, give a true and fair view of the assets, liabilities, financial position
and loss of the company;
• the group financial statements, which have been prepared in accordance with IFRSs as adopted by
the European Union, give a true and fair view of the assets, liabilities, financial position and profit
of the group; and
• the Chairman’s Statement, Chief Executive’s Review and Finance Director’s Review include a fair
review of the development and performance of the business and the position of the group and
parent company, together with a description of the principal risks and uncertainties that it faces.
Directors’ liability insurance
The Company has entered into deeds of indemnity for the benefit 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 financial year and up to the date of approval of the financial statements.
Independent auditors
PricewaterhouseCoopers LLP has expressed their willingness to continue in office as auditors and a
resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.
2.0 Corporate Governance
EKF Diagnostics Holdings plc | Annual Report 2016 21
Disclosure of information to the Auditors
The Directors who hold office at the date of approval of this report confirm 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 they ought to have taken as a Director in order to make
themselves 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 22 and 23 of these financial 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 71.
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.
The report of the Directors was approved by the Board on 20 March 2017 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
22 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Corporate Governance Statement
for the year ended 31 December 2016
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 2016 sought to address the
principles underlying the Code.
Board composition and responsibility
The Board currently comprises two Executive Directors and three Non-Executive Directors. During
the year Ron Zwanziger stood down as Non-Executive Chairman and subsequently resigned as a
Non-Executive Director, and David Evans and Lurene Joseph resigned as Non-Executive Directors,
Christopher Mills was appointed Non-Executive Chairman, and Carl Contadini joined as Non-
Executive Director. 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 Adam Reynolds is independent in character and judgement and that there are no relationships
or circumstances which could materially affect or interfere with the exercise of his independent
judgement. The Board considers that Christopher Mills and Carl Contadini do not meet the criteria to
be considered independent because of their relationships with Harwood, NAIT, and Oryx. The Board is
satisfied 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
revised 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 Board
composition at present.
There is a division of responsibilities between the Non-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 and Chief
Operating Officer.
All Directors are subject to election by shareholders at the first Annual General Meeting after their
appointment, and are subject to re-election at least every three years. Non-Executive Directors are
appointed for a specific term of office 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 identified, 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
13 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:
Christopher Mills (Non-Executive Chairman)
Julian Baines (Chief Executive Officer)
Richard Evans (Chief Operating Officer and Finance Director)
Adam Reynolds (Non-Executive Director)
Carl Contadini (Non-Executive Director)
Ron Zwanziger (formerly Non-Executive Chairman)
David Evans (formerly Non-Executive Deputy Chairman)
Lurene Joseph (formerly Non-Executive Director)
Audit Committee
6
13
13
12
3
5
7
6
(7)
(13)
(13)
(13)
(3)
(5)
(8)
(6)
This comprises two Non-Executive Directors, Christopher Mills and Adam Reynolds (Chairman). Adam
Reynolds is the Senior Independent Director and has recent and relevant finance experience. The
principal duties of the committee are to review the half-yearly and annual financial statements before
their submission to the Board and to consider any matters raised by the auditors.
2.0 Corporate Governance
EKF Diagnostics Holdings plc | Annual Report 2016 23
The Committee also reviews the independence and objectivity of the auditors. The terms of reference
of the Committee reflect 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 formally during 2016. There were no significant matters communicated to
the Committee by the Auditors and no interaction with the Financial Reporting Council. During 2016 a
tender process for the audit was completed, as a result of which PricewaterhouseCoopers LLP were
reappointed, subject to shareholder approval.
Remuneration Committee
The Company has established a formal and transparent procedure for developing policy on executive
remuneration and for fixing the remuneration packages of individual Directors. No Director is involved
in deciding his own remuneration.
The remuneration committee is made up of Christopher Mills (Chairman), and Adam Reynolds.
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 met twice during 2016.
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 financial 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 financial 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 reflect 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 definition of the above organisation structure and authority levels and the
identification of the major business risks.
The Group has continued its project to enhance and formalise its internal controls including the
establishment of a Risk Steering Committee.
Internal financial 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 financial performance is
measured in a timely and correct manner and that risks are identified 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.
24 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
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.
With effect from the financial year to 31 December 2016, the Group becomes subject to the requirements
of the Modern Slavery Act 2015. The Group will publish the required statement on its website in due
course.
The Corporate Governance Report was approved by the Board on 20 March 2017 and signed on its
behalf by:
Richard Evans
Finance Director and COO
EKF Diagnostics Holdings plc | Annual Report 2016 25
2.0 Corporate Governance
Report of the Remuneration Committee
for the year ended 31 December 2016
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, benefits 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, benefits and share option incentives.
Directors’ remuneration - Audited
The remuneration of the Directors for the year ended 31 December 2016 is shown below:
Salary
and fees
£’000
Pension
£’000
Benefits
in kind
£’000
Bonus
£’000
2016
£’000
2015
£’000
Executive Directors
Julian Baines
Richard Evans
Tito Bacarese-Hamilton1
Paul Foulger1
Non-Executive Directors
Christopher Mills2
Carl Contadini2
Adam Reynolds3
David Evans4
Ron Zwanziger5
Lurene Joseph5
David Toohey1
Doris-Ann Williams1
Kevin Wilson1
245
190
-
-
435
-
-
-
-
-
6
-
-
-
6
12
6
-
-
18
-
-
-
-
-
-
-
-
-
-
12
24
-
-
36
-
-
-
-
-
-
-
-
-
-
50
50
-
-
319
270
-
-
269
201
357
229
100
589
1,056
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
-
-
-
6
-
-
33
42
-
-
28
28
27
158
1,214
Total fees and emoluments
441
18
36
100
595
1.
2015 remuneration for Tito Bacarese-Hamilton, Paul Foulger, David Toohey, Doris–Ann Williams,
and Kevin Wilson is shown for the period until they ceased to be a director.
2. Remuneration for Christopher Mills and Carl Contadini is shown from their date of appointment.
Both have waived any salary for the period.
3. Adam Reynolds has waived his salary for the period.
4. David Evans’ remuneration was paid through his personal consultancy, MBA Consultancy,
and is shown until his resignation as a director. Mr Evans waived his salary during the period.
5. Ron Zwanziger and Lurene Joseph’s remuneration is shown up to the date of their resignation.
Mr Zwanziger waived his salary during the period.
26 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Directors’ share options and Long-Term Incentive Plan
As at 31 December 2016 the following options to Directors of the Company existed under the
Company’s unapproved share-option scheme and Long-Term Incentive Plan:
Option Holder
Julian Baines
Richard Evans
Option price per
Ordinary Share
Number of Ordinary
Shares under option
Exercise period
15p
20p
5,127,383
1 January 2014 – 31 December 2020
4,260,000
1 January 2014 – 31 December 2020
4,272,819 options granted to Julian Baines and all the options of Richard Evans were subject to a
condition relating to the achievement of an Earnings Before Interest, Tax, Depreciation and Amortisation
(EBITDA) growth target which has been met, and the options have therefore vested. 854,564 options
granted to Julian Baines were subject to a share price condition which has also been met, and have
therefore vested.
On 2 June 2016 two Directors were granted a cash settled share-based incentive award. The awards
vest if a controlling interest in the Company is acquired by a third party prior to 30 June 2019. In these
circumstances a minimum amount of £0.5m is payable to each Director, which increases by reference
to the sale price achieved. The fair value of this award has been calculated at £2,100,000 using a
modified form of a Black Scholes model. The fair value has been spread over the assumed vesting
period, with a charge of £753,000 recognised in 2016. The key assumptions used in the model are
disclosed in Note 30.
2.0 Corporate Governance
Independent auditors’ report to the members of
EKF Diagnostics Holdings plc
EKF Diagnostics Holdings plc | Annual Report 2016 27
Report on the financial statements
Our opinion
In our opinion:
• EKF Diagnostics Holdings Plc’s group financial statements and parent company financial
statements (the “financial statements”) give a true and fair view of the state of the group’s and of
the parent company’s affairs as at 31 December 2016 and of the group’s profit and the group’s and
the parent company’s cash flows for the year then ended;
• the group financial statements have been properly prepared in accordance with International
Financial Reporting Standards (“IFRSs”) as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs
as adopted by the European Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
What we have audited
The financial statements, included within the Annual Report comprise:
• the consolidated and company’s statements of financial position as at 31 December 2016;
• the consolidated income statement and consolidated statement of comprehensive income for the
year then ended;
• the consolidated and company’s statements of cash flows 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 financial statements, which include a summary of significant accounting policies
and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the
notes to the financial statements. These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements
is IFRSs as adopted by the European Union and, as regards the parent company financial statements,
as applied in accordance with the provisions of the Companies Act 2006, and applicable law.
In applying the financial reporting framework, the directors have made a number of subjective
judgements, for example in respect of significant accounting estimates. In making such estimates,
they have made assumptions and considered future events.
Opinions on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Report of the Directors for the financial year
for which the financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Report of the Directors have been prepared in accordance with
applicable legal requirements.
In addition, in light of the knowledge and understanding of the group, the parent company and their
environment obtained in the course of the audit, we are required to report if we have identified any
material misstatements in the Strategic Report and the Report of the Directors. We have nothing to
report in this respect.
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 financial 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 specified by law are not made. We have no exceptions to report arising from
this responsibility.
28 Annual Report 2016 | EKF Diagnostics Holdings plc
2.0 Corporate Governance
Responsibilities for the financial 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 20, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view.
Our responsibility is to audit and express an opinion on the financial 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 parent 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.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence
about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial 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 parent company’s
circumstances and have been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial 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 financial 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 financial and non-financial information in the Annual Report to identify
material inconsistencies with the audited financial 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. With respect to the Strategic Report and
Report of Directors, we consider whether those reports include the disclosures required by applicable
legal requirements.
Jason Clarke (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditor
Cardiff
20 March 2017
3.0 Financial Statements
Consolidated Income Statement
EKF Diagnostics Holdings plc | Annual Report 2016 29
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating loss
Depreciation and amortisation
Share-based payments
Exceptional items
EBITDA before exceptional items and share-based payments
Finance income
Finance costs
Loss before income tax
Income tax credit
Profit/(loss) for the year from continuing operations
Loss for the year from discontinued operations attributable
to the equity holders of the Company
Profit/(loss) for the year
Profit/(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
From discontinued operations
Diluted
From continuing operations
From discontinued operations
Notes
2016
£’000
2015
£’000
5
6
6
6
5
7
5
12
12
13
14
14
14
14
38,589
30,045
(20,267)
(15,376)
18,322
14,669
(18,734)
(29,156)
85
139
(327)
(14,348)
(4,961)
(8,052)
(973)
(532)
6,139
37
(226)
(5,722)
(348)
35
(713)
(1,457)
(1,003)
(15,770)
1,172
2,206
169
(13,564)
-
(23,369)
169
(36,933)
(18)
187
169
(37,123)
190
(36,933)
Pence
Pence
(0.00)
-
(0.00)
(0.00)
-
(0.00)
(3.26)
(5.54)
(8.80)
(3.26)
(5.54)
(8.80)
The notes on pages 35 to 70 are an integral part of these consolidated financial 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 £5,474,000 (2015: loss of £31,595,000).
30 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
Consolidated Statement of Comprehensive Income
Profit/(loss) for the year – continuing
Loss for the year - discontinued
Profit/(loss) for the year
Notes
2016
£’000
169
-
169
2015
£’000
(13,564)
(23,369)
(36,933)
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Recycling of currency translations In respect of previously held interest
In Selah Genomics
32
-
(4,479)
Currency translation differences
Other comprehensive gain/(loss) for the year
Total comprehensive gain/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive gain/(loss) for the year
9,343
9,343
9,512
9,198
314
9,512
792
(3,687)
(40,620)
(40,756)
136
(40,620)
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 70 are an integral part of these consolidated financial statements.
3.0 Financial Statements
Consolidated and Company’s Statements
of Financial Position
EKF Diagnostics Holdings plc | Annual Report 2016 31
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 tax liabilities
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
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
Notes
16
17
18
20
22
28
23
22
28
24
29
29
32
32
31
26
28
25
27
28
26
12,124
10,680
46,503
42,927
1,510
538
1,547
-
-
152
-
371
-
30,521
30,521
402
152
402
-
22,016
18,550
340
371
340
59,150
54,349
55,108
51,360
6,025
9,370
13
7,874
8,234
7,242
47
2,017
23,282
17,540
-
-
6,350
14,549
-
2,567
8,917
-
11
14,560
82,432
71,889
64,025
65,920
4,643
4,221
4,643
4,221
95,393
91,276
95,393
91,276
41
41
5,609
(3,607)
-
-
-
-
(45,236)
(45,438)
(45,673)
(40,419)
60,450
46,493
54,363
55,078
521
261
-
-
60,971
46,754
54,363
55,078
1,130
3,751
4,881
9,401
693
1,160
738
1,167
3,559
4,726
8,331
485
1,087
831
4,588
9,675
16,580
20,409
21,461
25,135
-
-
-
-
-
-
4,828
4,308
693
485
-
-
4,141
9,662
9,662
-
-
6,049
10,842
10,842
Total equity and liabilities
82,432
71,889
64,025
65,920
The notes on pages 35 to 70 are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 20 March 2017
Julian Baines
Chief Executive Officer
EKF Diagnostics Holdings plc
Registered no: 04347937
Richard Evans
Finance Director and Chief Operating Officer
32 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
Consolidated and Company’s Statements
of Cash Flows
Cash flow from operating activities
Cash generated by/(used in) operations
35
8,816
(2,914)
646
(5,970)
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
Notes
(496)
(370)
(283)
Interest paid
Income tax received/(paid)
Net cash generated by/(used in) operating activities
Of which discontinued
Cash flow from investing activities
Sale of investments
Purchase of property, plant and equipment (PPE)
Purchase of intangibles
Proceeds from sale of PPE
Interest received
623
(1,001)
8,943
(4,285)
-
(2,412)
250
-
(1,261)
(2,296)
(663)
(3,096)
211
37
42
35
35
Net cash (used in)/generated by investing activities
(1,426)
(5,315)
Of which discontinued
Cash flow from financing activities
-
(136)
(13)
350
-
250
(27)
(56)
-
-
167
-
(143)
(14)
(6,127)
-
-
(33)
-
-
-
(33)
-
-
6,206
Proceeds from issuance of Ordinary Shares
29
New loans
4,539
5,957
-
7,922
4,539
3,500
Repayments on borrowings
(12,555)
(3,000)
(6,000)
(3,000)
Dividend payment to non-controlling interest
Payment of deferred consideration
Net cash (used in)/generated by financing activities
Of which discontinued
(54)
(228)
-
(1,425)
-
-
(2,113)
-
3,269
2,426
2,039
-
-
(1,425)
1,781
-
Net increase/(decrease) in cash and cash equivalents
5,404
(6,331)
2,556
(4,379)
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
24
2,017
453
7,874
8,346
2
11
-
2,017
2,567
4,390
-
11
3.0 Financial Statements
Consolidated and Company’s Statements
of Changes in Equity
EKF Diagnostics Holdings plc | Annual Report 2016 33
Consolidated
Share
capital
£’000
Share
premium
account
£’000
Other
reserve
£’000
Foreign
currency
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interest
£’000
Total
£’000
Total
equity
£’000
At 1 January 2015
4,221
91,276
41
26
(8,541)
87,023
353
87,376
Comprehensive income
(Loss)/profit for the year - continuing
(Loss)/profit for the year - discontinued
Other comprehensive income
Recycling of currency translations in
respect of previously held interest in
Selah Genomics Inc
Currency translation
differences
Total comprehensive
income/(expense)
Transactions with owners
Dividends to non-
controlling interest
Share-based payments
Total contributions by and
distributions to owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Comprehensive income
(Loss)/profit for the year
Other comprehensive income
Currency translation
differences
Total comprehensive
income/(expense)
Transactions with owners
-
-
-
-
-
-
Proceeds from shares issued
422
4,117
Dividends to non-
controlling interest
Share-based payments
Total contributions by and
distributions to owners
-
-
-
-
422
4,117
-
-
-
-
-
-
-
-
-
(4,479)
846
(13,754)
(13,754)
190
(13,564)
(23,369)
(23,369)
-
-
(23,369)
(4,479)
(4,479)
846
(54)
792
(3,633)
(37,123)
(40,756)
136
(40,620)
-
-
-
-
226
226
-
(228)
(228)
226
226
-
(228)
226
(2)
-
(18)
(18)
187
169
9,216
-
9,216
127
9,343
9,216
(18)
9,198
314
9,512
-
-
-
-
4,539
-
4,539
-
(54)
220
220
-
(54)
220
220
4,759
(54)
4,705
-
-
-
-
At 1 January 2016
4,221
91,276
41
(3,607)
(45,438)
46,493
261
46,754
At 31 December 2016
4,643
95,393
41
5,609
(45,236)
60,450
521
60,971
34 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
Consolidated and Company’s Statements
of Changes in Equity continued
for the year ended 31 December 2016
Company
At 1 January 2015
Comprehensive income
Loss for the year
Total comprehensive income/(expense)
Transactions with owners
Share-based payments
Total contributions by and distributions to owners
At 1 January 2016
Comprehensive income
Loss for the year
Total comprehensive income/(expense)
Transactions with owners
Proceeds from shares issued
Share-based payments
Total contributions by and distributions to owners
Share
capital
£’000
Share
premium
£’000
Retained
earnings
£’000
Total
£’000
4,221
91,276
(9,050)
86,447
-
-
-
-
-
-
-
-
(31,595)
(31,595)
(31,595)
(31,595)
226
226
226
226
4,221
91,276
(40,419)
55,078
-
-
422
-
422
-
-
(5,474)
(5,474)
(5,474)
(5,474)
4,117
-
4,117
-
4,539
220
220
220
4,759
At 31 December 2016
4,643
95,393
(45,673)
54,363
EKF Diagnostics Holdings plc | Annual Report 2016 35
3.0 Financial Statements
Notes to the Financial Statements
for the year ended 31 December 2016
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 office is Avon House, 19 Stanwell Road, Penarth, Cardiff CF64 2EZ.
The principal activity of the Group is the development, manufacture and supply of products and
services into the in-vitro diagnostic (IVD) market place. The Group discontinued its service based
molecular diagnostics business in 2015. The Group has presence in the UK, USA, Germany, Poland,
Russia, and China, and sells throughout the world including Europe, the Americas, Asia, and Africa.
The financial 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 significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are
set out below. The policies have been consistently applied throughout the year, unless otherwise stated.
Basis of preparation
The consolidated financial 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 financial statements have been prepared under the historical cost convention, as
modified by the revaluation of certain financial liabilities at fair value through profit and loss.
The preparation of financial 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 significant to the consolidated financial statements are
disclosed in note 4.
(a) New standards, amendments and interpretations adopted by the Group.
The following standards have been adopted by the Group for the first time for the financial year
beginning on or after 1 January 2016. They do not materially impact on the Group results:
• Annual improvements 2010 – 2012
• Annual improvements 2012 – 2014
• Amendment to IFRS 11, ‘Joint arrangements’ on acquisition of an interest in a joint operation
• Amendment to IAS 16, ‘Property, plant and equipment’ and IAS 38, ‘Intangible assets’, on
depreciation and amortisation
• Amendments to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates
and joint ventures’
(b) New standards, amendments and interpretations issued but not effective for the financial year
beginning 1 January 2016 and not early adopted.
A number of new standards and amendments to standards and interpretations have been endorsed
for annual periods beginning after 1 January 2017 (noted below), and have not been early adopted in
preparing these consolidated financial statements.
• IFRS 15 Revenue from contracts with customers (effective for annual periods beginning on or after
1 January 2018)
• IFRS 9 Financial instruments (effective for annual periods beginning on or after 1 January 2018)
None of these are expected to have a significant effect on the consolidated financial statements of the
Group, however we are undertaking a review of the Group’s contracts with customers in preparation
of the adoption of IFRS 15.
A number of new standards and amendments to standards and interpretations have been issued but
are not yet endorsed for annual periods beginning after 1 January 2017 (noted below), and have not
been adopted in preparing these consolidated financial statements.
• Annual improvements 2014-2016 cycle
• Amendment to IFRS 2, ‘Share based payments’ – classification and measurement of share based
payment transactions
• Amendment to IFRS 7, ‘Statement of cash flows’ on disclosure initiative
36 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
• Amendment to IAS 12, ‘Income Taxes’ on recognition of deferred tax assets for unrealised losses
• Amendment to IFRS 10 and IAS 28 on sale of contribution of assets (postponed)
•
IFRS 16, Leases
With the exception of IFRS 16, none of these amendments are expected to have a significant effect
on the consolidated financial statements of the Group. To prepare for the adoption of IFRS 16 we are
undertaking a review of the Group’s leasing arrangements.
Going concern
The Group meets its day-to-day working capital requirements through the use of cash reserves and
existing bank facilities.
The Directors have considered the applicability of the going concern basis in the preparation of these
financial statements. This included the review of internal budgets and financial results which show,
taking into account reasonably probable changes in financial performance, that the Group should be
able to operate within the level of its current funding arrangements.
During 2016, the convertible loan provided by the Zwanziger Family Trust in 2015 was repaid using
a loan from the North Atlantic Smaller Companies Investment Trust plc (a company associated with
Christopher Mills). This in turn was repaid using the proceeds of a fundraising in June 2016.
The restructuring and cost saving actions taken in late 2015 and early 2016 have allowed the Group to
become cash generative in the second half of 2016.
The Directors believe 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 financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its
subsidiary undertakings. Subsidiaries are all entities over which the Group has the power to govern
their financial and operating policies generally accompanying a shareholding of more than fifty
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. Identifiable 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 identifiable 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 financial 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 financial 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’.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 37
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-
inflationary 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 identified 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 benefits associated with the asset will
flow 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 financial 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.
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
2%–2.5%
Fixtures and fittings
20%–25%
Plant and machinery
20%–33.3%
Motor vehicles
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 identifiable assets of the acquired subsidiary at the date of the acquisition. Goodwill on
acquisitions of subsidiaries is included in ‘intangible assets’. Goodwill has an infinite useful life and is
tested annually for impairment and carried at cost less accumulated impairment losses. Impairment
38 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
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 benefit
from the business combination in which the goodwill arose, identified 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 finite 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 finite 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
finite 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 finite 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 satisfies the criteria for capitalisation, including the
project’s technical feasibility and likely commercial benefit. 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, currently 4 to 5 years. 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 identified the deferred development
costs are immediately charged to the income 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 finite 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.
Impairment of non-financial assets
Assets that have an indefinite 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 flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows. 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.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 39
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 financial 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
Classification
The Company classifies its financial assets in the following categories: loans and receivables and
available-for-sale financial assets. The classification depends on the purpose for which the financial
assets were acquired and management determines the classification of its financial assets at initial
recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed 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 classified 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 financial assets
Available-for-sale assets are non-derivatives that are either designated in this category or not classified
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 financial 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 financial 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 period.
Inventories
Inventories and work in progress are stated at the lower of cost and net realisable value. Cost is
calculated on a first in and first 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 specific financial or commercial reasons that lead
management to conclude that the customer will default. Older debts are considered to be impaired
unless there is sufficient 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
flows. 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.
40 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
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 flow statement, cash and cash equivalents consist of cash
and short-term deposits as defined above net of outstanding bank overdrafts where there is a right
of offset.
Share capital
Ordinary Shares are classified as equity. Proceeds in excess of the nominal value of shares issued are
allocated to the share premium account and are also classified 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 financial liability at fair value through profit 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 classified 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 classified 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 ‘finance
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 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 financial 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 sufficient taxable profits against
which the future reversal of the underlying temporary differences can be 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 sufficient taxable profit 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 basis.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 41
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 outflow of resources will be required to settle the
obligation and the amount can be reliably measured.
Leases
Leases which transfer substantially all the risks and rewards of ownership of an asset are treated as
a finance lease. Assets held under finance 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 finance charges are allocated to the income statement in proportion to the capital amount
outstanding.
All other leases are classified 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.
Employee benefits
(a) Pension obligations
Group companies operate various pension schemes all of which are defined contribution plans. A
defined contribution plan is a pension plan under which the Group pays fixed 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.
The Group no longer has any defined benefit schemes.
(b) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans, under which the
Group receives services from employees and others 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
reflects 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.
The Group operates a cash-settled compensation plan for certain senior employees. Cash-settled
share-based payments are measured at fair value at the date of grant and are expensed over the
expected vesting period. The fair value amount is recognised in liabilities.
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
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 services is measured at the fair value of the consideration received or receivable
and represents the invoiced value for the sale of the services net of sales taxes, rebates and discounts.
Revenue from the sale of services is recognised when a Group Company has completed the services
and collectability of the related receivables is reasonably assured.
42 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
(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 financial 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
financial 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 financial risks: market risk (foreign exchange risk and
cash flow 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 financial markets and seeks to
minimise the potential adverse effects on the Group’s financial performance. The Group does not use
derivative financial instruments to hedge risk exposures.
Risk management is carried out by the head office finance team. It evaluates and mitigates financial risks
in close co-operation with the Group’s operating units. The Board provides principles for overall risk
management whilst the head office finance team provides specific 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 flow 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 flows are affected by fluctuations 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, Russia, and Poland.
Management do not use derivative financial 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 profits 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
2016
Average
rate
2015
Year end
rate
2016
Year end
rate
2015
1.229
1.376
1.170
1.359
90.826
94.362
75.550
108.480
5.365
1.356
5.766
1.528
5.193
1.233
5.808
1.476
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 43
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 £8,000 and £50,000 respectively.
(iii) Cash flow and fair value interest rate risk
The Group has interest-bearing assets in the form of cash and cash equivalents and interest-bearing
liabilities which relate to borrowings and finance lease obligations in the Group’s UK, US and German
subsidiaries. Interest rates on cash and cash equivalents are floating whilst interest rates on certain
borrowings have been fixed 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 financial 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 confirmed 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 financial 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 financial instruments and deposits
with banks and financial institutions, as well as credit exposures to customers.
(c) Liquidity risk
Cash flow forecasting is performed in the individual operating entities of the Group and is aggregated
by Group finance. Group finance monitors cash and cash flow forecasts and it is the Group’s liquidity
risk management policy to maintain sufficient 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 office finance team aims to maintain flexibility in funding
by keeping sufficient cash and cash equivalents available to fund the requirements of the Group.
The Group’s policy in relation to the finance of its overseas operations requires that sufficient 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 flexibility.
The table below analyses the Group’s non-derivative financial 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 flows.
At 31 December 2016:
Borrowings (inc. finance leases)
Deferred consideration
Trade and other payables
At 31 December 2015:
Borrowings (inc. finance 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
Total
£’000
4,750
693
9,300
9,917
485
8,028
221
664
347
5,982
-
-
-
-
-
-
693
9,300
431
573
234
-
-
-
-
-
-
11,155
485
8,028
44 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
(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 benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of 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.
(e) Fair value estimation
The Group has no Level 1, 2 or 3 classified financial assets as at 31 December 2016 (2015: 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 significant effect on the
amounts recognised in the financial statements.
(a) Going concern
The Directors believe that the Group has adequate resources to conduct normal business for the
foreseeable future and as a result the Group continues to adopt the going concern basis of preparation
for its consolidated financial statements.
In order to reach this conclusion, the Directors have prepared month-by-month forecasts for the
period to 31 December 2018. These forecasts are based on estimates for sales, profitability, capital
expenditure and other balance sheet items which the Directors consider to be reasonable. Working
capital estimates assume that inventory levels continue to reduce during the period as a proportion
of sales. The Directors have applied sensitivities to these forecasts to model the effect of lower sales.
(b) Legal disputes
A dispute has arisen between EKF-diagnostic GmbH and a distributor involving disputed invoices
from the distributor, relating mainly to the period prior to the acquisition of the company by the Group.
The dispute is not covered by any outstanding warranty from the former owner. Earlier litigation in the
UK has been settled in EKF’s favour. Having taken legal advice the Directors believe that no provision
is required in relation to this dispute.
A dispute has arisen with a second distributor in relation to issues with the registration of a product,
for which the distributor is claiming damages. EKF contend that the registration was the distributor’s
responsibility and that in any case there is no liability for damages. The dispute is likely to go to
mediation in the UK.
(c) 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.
(d) 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.
(e) 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 financial circumstances of the counterparty. Trade receivables
with a gross value of £5.1m are considered to have no value, and were impaired in full in 2015 and
written off in 2016.
(f) Deferred tax assets
Deferred tax assets are only recognised to the extent that it is probable that future taxable profits 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 insufficient future taxable
profit in the Company is currently forecast. The carrying amount of deferred tax assets at the balance
sheet date was £384,000 (2015: £387,000). In addition there were £6,374,000 (2015: £2,532,000) of
deferred tax assets not recognised, primarily relating to the UK Companies.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 45
(g) Tax warranties
The Group has been assessed for and has paid taxation in Germany relating to the periods prior
to acquisition by the Group. Under the warranties contained in the acquisition agreement EKF has
withheld payment of part of the deferred consideration. The warranty claim effect which reduced in
prior periods as a result of reduction in the Company’s share price, has increased during the current
year. The increase of the potential claim is included within administration costs and has been disclosed
as an exceptional item. The determination of the related warranty claim, is based on management
judgement.
(h) Impairment of aged inventories
Inventories are carried at the lower of cost and net realisable value (NRV), less any estimated provision
for impairment. When calculating the inventory provision management considers the nature and
condition of inventory as well as applying assumptions around anticipated saleability of finished
instruments and consumables, and future usage of raw materials. Further details are given in Note 23.
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, and the United Kingdom, 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. The new matrix structure for
revenue based partly on disease states introduced in 2015 has been discontinued and this structure
has not therefore been reflected in the segmental analysis.
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.
Currently the key operating performance measures used by the CODM are Revenue and adjusted
EBITDA.
46 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
5. Segmental reporting continued
The segment information provided to the Board for the reportable segments for the year ended 31 December 2016
is as follows:
2016
Income statement
Revenue
Inter-segment
External revenue
Adjusted EBITDA*
*Exceptional items (Note 7)
*Share-based payment (Note 30)
EBITDA
Depreciation
Amortisation
Operating profit/(loss)
Net finance costs
Income tax
Retained profit/(loss)
Segment assets
Operating assets
Inter-segment assets
Cash
Total assets
Segment liabilities
Operating liabilities
Germany
£’000
USA
£’000
Poland
£’000
Russia
£’000
Other
£’000
Total
£’000
17,835
21,199
(4,683)
1
13,152
21,200
1,582
(33)
1,549
2,677
-
2,677
33
(22)
43,326
(4,737)
11
38,589
3,074
(28)
-
3,046
(678)
6,136
(525)
-
5,611
(405)
(2,063)
(1,519)
305
(47)
225
483
3,687
(155)
1,245
4,777
43,199
30,170
(125)
(3,870)
1,803
2,192
-
-
908
(33)
(61)
814
6
(157)
663
1,504
(528)
976
229
908
599
(4,578)
-
-
21
(973)
6,139
(532)
(973)
(327)
(676)
1,172
169
(5,530)
4,634
(66)
(80)
(1,209)
(3,752)
599
(27)
(29)
543
29
(126)
(5,676)
(509)
(15)
446
(6,200)
623
37,570
113,066
-
(33,985)
(38,508)
623
959
3,585
2,691
74,558
7,874
44,877
28,492
1,205
1,582
6,276
82,432
17,277
27,463
Inter-segment liabilities
(10,490)
(22,082)
External operating liabilities
Borrowings
Total liabilities
Other segmental information
Non-current assets – PPE
Non-current assets – Intangibles
PPE - additions
Intangible assets – additions
6,787
1,191
7,978
5,898
29,351
1,058
285
5,381
195
5,576
4,538
15,555
169
308
* Adjusted EBITDA excludes exceptional items and share-based payments.
82
-
82
-
82
106
329
-
-
137
-
137
-
137
71
151
7
-
9,290
54,249
(5,934)
(38,506)
3,356
4,332
7,688
15,743
5,718
21,461
1,511
1,117
27
70
12,124
46,503
1,261
663
External operating assets
43,074
26,300
EKF Diagnostics Holdings plc | Annual Report 2016 47
Germany
£’000
US
£’000
Poland
£’000
Russia
£’000
Discont
£’000.
Other
£’000
Total
£’000
3.0 Financial Statements
5. Segmental reporting continued
2015
Income statement
Revenue
Inter-segment
15,106
16,399
(4,904)
(40)
1,228
(20)
2,243
-
External revenue
10,202
16,359
1,208
2,243
Adjusted EBITDA*
Exceptional items (Note 7)
Share based payments (Note 30)
1,234
(351)
-
2,879
544
598
(2,413)
-
-
-
-
-
-
-
-
-
-
-
93
35,069
(60)
(5,024)
33
30,045
(5,603)
(348)
(2,958)
(5,722)
(226)
(226)
EBITDA
Depreciation
Amortisation
883
466
544
598
-
(8,787)
(6,296)
(586)
(367)
(1,855)
(2,378)
(32)
(102)
(20)
(20)
-
-
(168)
(1,173)
(2,524)
(6,879)
Operating profit/(loss)
(1,558)
(2,279)
410
558
-
(11,479)
(14,348)
Net finance costs
Income tax
Discontinued operations
(95)
1,209
-
(124)
10
12
-
(1,225)
(1,422)
574
-
(70)
(113)
- 606
2,206
-
-
(23,369)
-
(23,369)
Retained profit/(loss)
(444)
(1,829)
350
457
(23,369)
(12,098)
(36,933)
Segment assets
Operating assets
43,419
43,472
1,250
Inter-segment assets
(455)
(19)
(446)
External operating assets
42,964
43,453
1,283
83
804
154
470
(4)
466
398
-
-
-
-
44,700
133,311
(62,515)
(63,439)
(17,815)
69,872
99
2,017
44,247
43,536
958
864
-
(17,716)
71,889
Cash
Total assets
Segment liabilities
Operating liabilities
13,723
18,401
Inter-segment liabilities
(9,348)
(16,053)
External operating liabilities
Borrowings
Total liabilities
4,375
2,540
6,915
2,348
2,070
4,418
Other segmental information
Non-current assets – PPE
5,043
4,066
Non-current assets – Intangibles
26,828
13,978
PPE- additions
Intangible assets – additions
1,768
1,225
427
576
96
-
96
-
96
127
348
2
-
91
(4)
87
1
88
8
125
41
-
-
-
-
-
-
-
-
-
-
23,231
55,542
(15,844)
(41,249)
7,387
6,231
14,293
10,842
13,618
25,135
-
1,376
10,680
1,648
42,927
58
1,295
2,296
3,096
*Adjusted EBITDA excludes exceptional items and share-based payments.
*‘Other’ primarily relates to the holding company and head office costs.
48 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
5. Segmental reporting continued
Disclosure of Group revenues by geographic location of customer is as follows:
Americas
United States of America
Rest of Americas
Europe, Middle East and Africa (EMEA)
Germany
United Kingdom
Rest of Europe
Russia
Middle East
Africa
Rest of World
China
Rest of Asia
New Zealand/Australia
Total revenue
No single external customer represented more than 10% of revenues in either 2016 or 2015.
6. Expenses – analysis by nature
Inventories consumed in cost of sales
Employee benefit expense (note 10)
Employee costs capitalised as intangible assets
Depreciation and amortisation
Transaction costs relating to business combinations (note 7)
Exceptional items
Research and development expenses
Foreign exchange
Operating lease payments
Other expenses
2016
£’000
2015
£’000
15,122
10,857
3,979
3,394
6,082
5,057
276
2,761
2,687
2,870
882
238
2,637
2,259
1,676
916
929
677
2,922
2,242
79
92
38,589
30,045
2016
£’000
2015
£’000
11,388
6,856
14,636
20,127
(267)
4,961
-
532
2,039
481
477
4,754
(837)
8,052
178
5,722
2,346
432
1,263
393
Total cost of sales and administrative expenses
39,001
44,532
Included within the above expenses are exceptional items as set out in note 7.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 49
7. Exceptional items
Included within administrative expenses are exceptional items as shown below:
Warranty claim
Business reorganisation costs
Transaction costs relating to business combinations
Impairment charges – other
Release of deferred consideration provisions
Impairment of investment
Bad debts written off
Exceptional items
Note
a
b
c
d
e
f
g
2016
£’000
129
(661)
-
-
-
-
-
2015
£’000
(349)
(727)
(178)
(5,948)
7,353
(750)
(5,123)
(532)
(5,722)
a. Estimated warranty claim in relation to the acquisition of EKF-diagnostic GmbH increased because
of higher share price.
b. Restructuring costs, mainly redundancy and notice costs, associated with the closure of STI and
DiaSpect’s Sailauf facility, the transfer of production of Quo-Test and Quo-Lab to Germany, and other
restructuring activities.
c. Transaction costs in 2015 relate to additional costs of acquisition in the previous year.
d.
Impairment of EKF Molecular Diagnostics Ltd, and the remaining value of EKF Ireland and
capitalised R & D.
e. Reduction of carrying value of deferred contingent consideration associated with EKF Molecular
and Stanbio.
f.
Impairment of investment in DX Economix Inc.
g. Write off of bad debts associated with certain customers in Mexico.
8. Auditor remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from
the Company’s auditor and its associates:
Fees payable to Company’s auditor and its associates for the audit of the parent
Company and consolidated financial 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 defined contribution pension scheme
2016
£’000
2015
£’000
28
38
64
19
11
122
87
32
13
170
2016
£’000
577
18
595
2015
£’000
1,179
35
1,214
Retirement benefits are accruing to 2 (2015: 4) current directors under a defined contribution scheme.
See further disclosures within the Remuneration Report on page 25.
50 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
10. Employee benefit expense
Wages and salaries
Social security costs
Share based payments granted to Directors and senior management (Note 30)
Pension costs – defined contribution plans (Note 33)
Employee costs of £0.3m (2015: £0.8m) 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 2016 was 299 (2015: 365).
12. Finance income and costs
Finance costs:
– Bank borrowings
– Other interest
– Financial liabilities at fair value through profit or loss – losses/(gains)
– 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 finance costs
2016
£’000
11,681
1,763
973
219
2015
£’000
16,920
2,663
226
318
14,636
20,127
2016
Number
2015
Number
56
16
63
173
308
80
35
87
195
397
2016
£’000
2015
£’000
338
158
208
-
9
713
37
-
37
312
50
(395)
1,482
8
1,457
34
1
35
676
1,422
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 51
13. Income tax
Group
Current tax:
Current tax on loss for the year
Adjustments for prior periods
Total current tax
Deferred tax (note 28):
Origination and reversal of temporary differences
Total deferred tax
Income tax credit
2016
£’000
2015
£’000
1,602
(2,219)
(617)
220
(76)
144
(555)
(555)
(2,350)
(2,350)
(1,172)
(2,206)
The Finance Act 2015 which was substantially enacted in 2015 included legislation to reduce the main rate of UK
corporation tax to 19% from 1 April 2019 and the Finance Act 2016 which was substantially enacted in 2016 included
legislation to reduce the main rate of UK corporation tax to 17% from 1 April 2020.
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 profits of the consolidated entities as follows:
Loss before tax
Tax calculated at domestic tax rates applicable to UK standard rate of tax of 20%
(2015: 20%)
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
– Other movements
Tax credit
2016
£’000
2015
£’000
(1,003)
(15,770)
(201)
(3,154)
390
(63)
(2,219)
428
493
5,518
(4,628)
76
(272)
254
(1,172)
(2,206)
There are no tax effects on the items in the statement of other comprehensive income.
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.
Loss attributable to owners of the parent
Loss from continuing operations attributable to equity holders of the company
Loss from discontinued operations attributable to equity holders of the company
2016
£’000
(18)
(18)
-
2015
£’000
(37,123)
(13,754)
(23,369)
Weighted average number of Ordinary Shares in issue
446,042,831
422,057,074
Basic loss per share
Basic loss per share from continuing operations
Basic loss per share from discontinued operations
(0.00) pence
(8.80) pence
(0.00) pence
(3.26) pence
-
(5.54) pence
52 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
(b) Diluted
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 2016 or 2015 as the Group has made a loss per share.
Loss attributable to owners of the parent
Loss from continuing operations attributable to equity holders of the company
Loss from discontinued operations attributable to equity holders of the company
2016
£’000
(18)
(18)
-
2015
£’000
(37,123)
(13,754)
(23,369)
Weighted average diluted number of Ordinary Shares
446,042,831
422,057,074
Diluted loss per share
Basic loss per share from continuing operations
Basic loss per share from discontinued operations
(0.00) pence
(8.80) pence
(0.00) pence
(3.26) pence
-
(5.54) pence
2016
£’000
2015
£’000
Weighted average number of Ordinary Shares in issue
446,042,831
422,057,074
Adjustment for:
– Assumed conversion of share awards
– Assumed payment of equity deferred consideration
Weighted average number of Ordinary Shares including
potentially dilutive shares
15. Dividends
-
4,272,819
4,043,940
4,043,940
450,086,771
430,373,833
There were no dividends paid or proposed by the Company in either year. The Board’s policy is to
enhance shareholder value mainly through the growth of the Group. The Board will consider the
payment of dividends if and when appropriate, however the Company at present does not have
available cash and has a significant deficit on reserves.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 53
16. Property, plant and equipment
Group
Cost
At 1 January 2015
Additions
Disposal with subsidiaries
Transfers
Exchange differences
Disposals
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
Charge - discontinued business
Disposal with subsidiaries
Transfers
Exchange differences
Disposals
At 31 December 2015
Net book value at 31 December 2015
Cost
At 1 January 2016
Additions
Transfers
Exchange differences
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
Exchange differences
Disposals
At 31 December 2016
Net book value at 31 December 2016
Land and
buildings
£’000
Fixtures &
fittings
£’000
Plant and
machinery
£’000
Motor
vehicles
£’000
Total
£’000
6,294
1,476
(40)
-
147
-
954
146
-
57
2
(79)
7,877
1,080
602
171
-
(9)
-
18
-
782
7,095
542
152
-
-
29
(5)
(63)
655
425
7,877
1,080
623
214
1,146
(31)
9,829
782
232
124
(31)
1,107
8,722
135
(13)
170
(232)
1,140
655
168
104
(144)
783
357
9,013
634
(1,009)
(57)
(260)
(250)
8,071
4,613
825
232
(299)
(29)
(141)
(225)
4,976
3,095
8,071
496
(201)
1,349
(1,027)
8,688
4,976
781
829
(876)
5,710
2,978
82
40
-
-
(16)
(9)
97
18
25
-
-
-
(8)
(3)
32
65
97
7
-
49
(11)
142
32
28
24
(9)
75
67
16,343
2,296
(1,049)
-
(127)
(338)
17,125
5,775
1,173
232
(308)
-
(136)
(291)
6,445
10,680
17,125
1,261
-
2,714
(1,301)
19,799
6,445
1,209
1,081
(1,060)
7,675
12,124
Depreciation expense of £774,000 (2015: £878,000) has been charged to cost of sales and £435,000 (2015:
£557,000) has been charged to administrative expenses.
54 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
16. Property, plant and equipment continued
Company
Cost
At 1 January 2015
Additions
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Net book value
At 31 December 2016
Land and
buildings
£’000
Fixtures and
fittings
£’000
1,673
-
1,673
122
41
163
56
33
89
31
21
52
Total
£’000
1,729
33
1,762
153
62
215
1,510
37
1,547
1,673
-
-
1,673
163
40
-
203
89
27
(1)
115
52
24
(1)
75
1,762
27
(1)
1,788
215
64
(1)
278
1,470
40
1,510
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 (£11,880) per month to the parent Company.
€167,000 (£142,700) (2015: €167,000 (£130,000)) was paid to the parent Company for the year.
Plant and Machinery includes the following amounts where the Group is a lessee under a finance lease
arrangement:
Group
Cost – capitalised finance leases
Accumulated depreciation
Net book value
2016
£’000
2015
£’000
37
(3)
34
372
(71)
301
The Group leases various assets under non-cancellable finance lease agreements. The lease terms are between 2
and 6 years.
The Company has no finance lease agreements.
EKF Diagnostics Holdings plc | Annual Report 2016 55
3.0 Financial Statements
17. Intangible assets
Group
Cost
Non-
compete
agreements
£’000
Trademarks,
trade name and
licences
£’000
Goodwill
£’000
Customer
relationships
£’000
Trade
secrets
£’000
Development
costs
£’000
Total
£’000
At 1 January 2015
70
46,420
18,518
30,897
-
-
4,829
3,066
104,741
3,096
(5,142)
(14,282)
-
(44,320)
Additions
Disposal
Exchange differences
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Exchange differences
Impairment charge
Disposal
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
Cost
At 1 January 2016
Additions
Exchange differences
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Exchange differences
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
-
-
-
70
41
-
6
-
23
70
-
70
-
-
70
70
-
-
70
-
-
(23,541)
839
23,718
954
(50)
1,178
-
-
2,082
21,636
4,007
30
(1,355)
(189)
2,493
702
(2)
-
(194)
872
1,378
1,115
439
13,815
263
16,878
3,344
50
53
(492)
1,600
4,555
9,260
4,977
(132)
3,225
(1,366)
2,162
8,866
8,012
(113)
7,782
1,201
(31)
1,486
1,239
64,756
11,219
(165)
5,948
-
(2,052)
2,222
4,878
6,879
21,829
2,904
42,927
7,782
618
385
64,756
663
8,526
23,718
2,493
13,815
16,878
-
3,319
27,037
2,082
146
-
2,228
24,809
45
514
3,052
1,378
187
332
1,897
1,155
-
2,561
16,376
4,555
844
1,418
6,817
9,559
-
1,747
18,625
8,785
73,945
8,866
654
1,074
4,878
30
928
21,829
1,861
3,752
10,594
5,836
27,422
8,031
2,949
46,503
Amortisation charge of £34,000 (2015: Nil) has been charged to cost of sales and £3,718,000 (2015: £6,277,000) has been charged to
administrative expenses in the income statement.
56 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
Goodwill is allocated to the Group’s cash–generating units (CGU’s) identified according to geographic operating
segment. An operating segment-level summary of the goodwill allocation is presented below.
Germany
Poland
Russia
USA
Total
2016
£’000
2015
£’000
17,055
15,154
322
103
7,329
288
72
6,122
24,809
21,636
Germany includes EKF-Diagnostic, Senslab, and DiaSpect, while the USA includes Stanbio and STI.
Goodwill is tested for impairment at the balance sheet date. The recoverable amount of goodwill at 31
December 2016 was assessed on the basis of value in use. The assessed value exceeded the carrying
value and no impairment loss was recognised.
The key assumptions in the calculation to assess value in use are future revenues and the ability to
generate future cash flows. The most recent financial results and initial budgets approved by the
Board for the next year were used and forecasts for a further four years, followed by an extrapolation
of expected cash flows 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 reflects current market assessments of the
time value of money and the risks specific to the cash-generating units. The discount rates applied
reflect a risk-adjusted weighted average cost of capital.
The key assumptions used in 2016 for the value in use calculations of cash generating units with
significant goodwill are as follows:
Longer-term growth rate
Discount rate
EKF Germany
DiaSpect
Stanbio
%
3
10
%
2
10
%
3
10
STI
%
3
10
The impairment assessments for EKF Germany, Poland, Russia, Stanbio, and STI showed assessed
values that exceeded the carrying values with significant headroom.
For DiaSpect, the impairment assessment has been carried out over a 5 year period with a terminal
value based on the long-term growth rate. The Directors estimate that growth rates in the 5 year
period from the DiaSpect products will be high because they are relatively new products that will
bring market benefits.
In Year 1 a growth rate of 19% has been used, reflecting the current sales run-rate, followed by 20% for
years 2-4, reflecting a combination of continuing instrumentation sales and increasing consumable
volumes as the established instrument base increases in the market. The forecast growth rates then
fall to 2% thereafter. The Directors believe that market benefits will allow the product to be sold at a
margin in excess of other products sold by the Group. A one percentage point increase in the discount
rate or a reduction in forecast revenue growth rates in year 2-4 to 18% would result in an impairment.
The remaining average useful lives of the intangibles are as follows:
Trade name
2–8 years
Customer relations
0–13 years
Trade secrets
0–13 years
Development costs
4-10 years
The Company holds capitalised development costs with a cost and net value of £1,253,000 and
£538,000 respectively. These are amortised over their useful life and an amortisation charge of
£317,000 has been recognised in the income statement in 2016.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 57
18. Investments in subsidiaries
Company Shares in Group undertakings
1 January
Disposal
Impairment
31 December
2016
£’000
2015
£’000
30,521
61,043
-
-
(28,922)
(1,600)
30,521
30,521
The disposal in 2015 relates to Selah Genomics Inc. The impairment relates to the investment in EKF
Molecular Diagnostics Limited.
Investments in Group undertakings are recorded at cost, which is the fair value of the consideration
paid, less any impairment.
The subsidiaries of EKF Diagnostics Holdings plc are as follows:
Name of Company
Note
Proportion Held
Class of
Shareholding
Nature of Business
EKF Diagnostics Limited (UK)*
Quotient Diagnostics Limited*
360 Genomics Limited*
EKF Molecular Diagnostics Limited*
DiaSpect Medical AB
DiaSpect Medical GmbH
EKF-diagnostic GmbH
Senslab GmbH
EKF Diagnostyka Sp.z.o.o.
000 EKF Diagnostika
EKF Diagnostics Inc
Stanbio Laboratory LP
EKF Life Sciences LP
Separation Technology, Inc
1261 N Main LP
Stanlab Management LLC
1261 N Main Management LLC
Argutus Intellectual Property Limited
EKF Diagnostics Limited (Ireland)
EKF Diagnostics (Shanghai) Co. Ltd
1
1
1
1
2
3
3
3
4
5
6
6
6
6
6
6
6
7
7
8
100%
100%
100% (indirect)
100%
100%
100%
100%
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100% (indirect)
Ordinary
100% (indirect)
Ordinary
Head Office
Sale of diagnostic equipment
Sale of diagnostic equipment
Manufacture and sale of diagnostic
equipment
Head office and IP licencing
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
60% (indirect)
100%
Ordinary
Ordinary
Sale of diagnostic equipment
Intermediate holding company
100% (indirect)
Partnership
100% (indirect)
Partnership
100%
100%
100%
100%
100% (Indirect)
100%
100%
Ordinary
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Dormant
Dormant
Dormant
Dormant
Manufacture and sale of diagnostic
equipment
Dormant
Notes
1.
2.
3.
Incorporated, registered and having its principal place of business in the United Kingdom, with its
registered office being Avon House, 19 Stanwell Road, Penarth Vale of Glamorgan, CF64 2EZ.
Incorporated in Sweden. The principal place of business is in Germany. The registered address is
Lytta Gard, 75593 Uppsala, Sweden.
Incorporated, registered, and having its principal place of business in Germany at Ebendorfer Chaussee 3,
39179 Barleben, Germany.
58 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
4.
5.
6.
7.
8.
Incorporated, registered, and having its principal place of business in Poland at ul. Kazimierza Wielkiego
58, 32-400 Myślenice, Poland.
Incorporated, registered, and having its principal place of business in Russia at 117648, Moscow, PO Box:
30, District Severnoe Chertanovo, House 2, building 207.
Incorporated and registered, or formed, and having its principal place of business in the United States of
America at 1261 North Main Street, Boerne, Texas, USA 78006.
Incorporated and registered in Ireland c/o Mazars, Harcourt Centre, Block 3, Harcourt Road, Dublin 2. Its
principal place of business is in the United Kingdom.
Incorporated and registered in China, Suite 1202, Jin Hong Qiao International Center Building I, No. 523
Loushan-guan Road, Changning District, Shanghai, P.R.C. 200051
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 file audited accounts by virtue of section
479A of the Companies Act 2006. As part of this process, the Company has provided statutory
guarantees to these subsidiaries.
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
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
8,481
7,874
16,355
6,403
2,017
8,420
28,286
2,567
30,853
32,970
11
32,981
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 finance lease liabilities)
Finance lease liabilities
Trade and other payables
Deferred consideration
Total
Group
2016
£’000
5,685
33
9,300
693
15,711
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
10,439
403
8,028
485
19,355
4,141
-
4,776
693
9,610
6,049
-
4,076
485
10,610
Liabilities in the analysis above are all categorised as ‘other financial liabilities at amortised cost’ for the
Group and Company, with the exception of deferred equity consideration totalling £693,000 (2015:
£485,000) that is categorised as a financial liability at fair value through profit and loss.
(c) Credit quality of financial assets
The Group is exposed to credit risk from its operating activities (primarily for trade receivables
and other receivables) and from its financing activities, including deposits with banks and financial
institutions, foreign exchange transactions and other financial instruments.
The Group’s maximum exposure to credit risk, due to the failure of counterparties to perform their
obligations as at 31 December 2016 and 31 December 2015, in relation to each class of recognised
financial assets, is the carrying amount of those assets as indicated in the accompanying balance
sheets.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 59
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
Disposals
Impairments
31 December
2016
£’000
2,929
4,945
7,874
2015
£’000
13
2,004
2,017
2016
£’000
402
(250)
-
152
2015
£’000
1,152
-
(750)
402
The investment consists of a 0.67% holding in Epinex Diagnostics Inc., a US based privately held
company operating in the medical diagnostics industry; and a 19.90% holding in DX Economix, Inc., a
Canadian based privately held company operating in the healthcare consultancy industry the value
of which has been 100% impaired. In December 2016, the Group disposed of its investment in Arcis
Biotechnology Holdings Limited, a UK based privately held company, at cost.
21. Disposal
On 23 December 2015 the Company disposed of all of its 100% shareholding in Selah Genomics Inc. for
a consideration of $10. Selah Genomics Inc. filed for dissolution on 3 November 2016.
22. Trade and other receivables
Non-current
Amounts owed by subsidiary undertakings
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Prepayments
Amounts owed by subsidiary undertakings
Corporation tax receivable
Other receivables
Group
2016
Group
2015
Company
2016
Company
2015
-
-
22,016
18,550
5,669
(69)
5,600
212
-
677
2,881
9,370
9,640
(5,575)
4,065
229
-
610
2,338
7,242
-
-
-
80
6,233
-
37
-
-
-
129
14,376
-
44
6,350
14,549
The Directors consider that the carrying amount of trade and other receivables approximates to their
fair value.
60 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
As of 31 December 2016, trade receivables of £818,000 (2015: £490,000) 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
2016
£’000
805
13
-
818
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
266
223
1
490
-
-
-
-
-
-
-
-
As of 31 December 2016, trade receivables of £69,000 (2015: £5,575,000) 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 one year
Greater than one year
Total
Group
2016
£’000
-
-
69
-
69
Group
2015
£’000
-
23
429
5,123
5,575
Company
2016
£’000
Company
2015
£’000
-
-
-
-
-
-
-
-
-
-
Movements on the provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
Disposal of Selah Genomics
Exchange differences
At 31 December
Group
2016
£’000
5,575
2
(5,123)
(458)
-
73
69
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
978
5,191
-
(178)
(419)
3
5,575
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Group
2016
£’000
295
5,256
3,226
96
497
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
277
4,460
2,199
44
262
6,051
4,123
9,007
8,193
18,192
15,899
-
-
-
-
9,370
7,242
28,366
33,099
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 61
23. Inventories
Raw materials
Work in progress
Finished goods
Group
2016
£’000
3,026
1,019
1,980
Group
2015
£’000
3,892
1,466
2,876
6,025
8,234
Company
2016
£’000
Company
2015
£’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 £3,237,000 (2015: £1,641,000).
The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to £11,388,000
(2015: £6,856,000).
The Company held no inventories.
24. Cash and cash equivalents
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
Cash at bank and in hand
7,874
2,017
Cash and cash equivalents (excluding bank overdrafts)
7,874
2,017
2,567
2,567
11
11
The Directors consider that the carrying amount of cash and cash equivalents approximates to their
fair value.
25. Trade and other payables
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
Trade payables
1,198
2,090
Amounts due to subsidiary undertakings
Social security
Other payables
Accrued expenses and deferred income
-
101
2,193
5,909
9,401
-
303
1,129
4,809
8,331
145
2,983
52
800
848
489
2,812
232
-
775
4,828
4,308
62 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
26. Borrowings
Non-current
Bank borrowings
Convertible loan
Finance lease liabilities
Current
Bank borrowings
Convertible loan
Other borrowing
Finance lease liabilities
The maturity profile 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
(a) Bank borrowings
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
1,130
-
-
665
182
320
1,130
1,167
–
–
–
–
–
–
–
–
4,364
6,592
4,141
3,049
191
-
33
-
3,000
83
-
-
-
-
3,000
-
4,588
9,675
4,141
6,049
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
4,588
9,675
4,141
6,049
211
610
309
401
549
217
-
-
-
-
-
-
5,718
10,842
4,141
6,049
Bank borrowings have maturity profiles from 2017 through to 2022 and bear an average fixed coupon
of 2.81% annually (2015: 3.21%).
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 loan
period which may be one month, two months, or six months.
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 fixed in nature.
The fair value of both current and non-current borrowings equals their carrying amount, as the impact
of discounting is not significant.
The carrying amounts of the Group’s bank borrowings are denominated in the following currencies:
Euros
US Dollar
GBP
Total
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
1,191
2,440
3,803
4,817
500
-
5,494
7,257
-
3,641
500
4,141
-
3,049
-
3,049
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 63
(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 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 finance 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 finance charges on finance leases
Present value of finance lease liabilities
The present value of finance lease liabilities is as follows:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
(d) Other borrowing
2016
£’000
2015
£’000
37
-
-
37
(4)
33
99
85
363
547
(144)
403
2016
£’000
2015
£’000
33
-
-
33
83
67
253
403
In December 2015 Zwanziger Family Ventures LLC (“ZFV”) loaned the Company £3,000,000 by way
of a convertible loan, secured on the assets of the Group, which had a maximum term of two years
and an interest rate of 5% above LIBOR. The ultimate beneficiaries of ZFV are the family of Ron
Zwanziger who was at the time a director of the Company. On 10 May 2016 this loan was redeemed
in full. At the same time North Atlantic Smaller Companies Investment Trust PLC (“NAIT”) loaned the
Company £3,000,000 by way of a non-convertible loan secured on the assets of the Group, which
had an interest rate of 5% above LIBOR. This loan was repayable on 30 days’ notice from NAIT. NAIT
is a company associated with Christopher Mills, a director of the Company. On 8 June 2016 this loan
was redeemed in full.
27. Deferred consideration
At 1 January
Unwinding of discount (note 12)
Fair value adjustment
Reduction of provisions
Payments made
Exchange differences
At 31 December
Current portion
Non-current portion
Group
2016
£’000
Group
2015
£’000
Company
2016
£’000
Company
2015
£’000
485
18,029
485
11,658
-
208
-
-
-
693
693
-
1,482
(395)
(17,350)
(1,425)
144
485
485
-
-
644
208
(395)
-
-
-
693
693
-
(9,997)
(1,425)
-
485
485
-
64 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
The deferred consideration consists of 4,043,940 Ordinary Shares originally valued at £605,000 to
be issued as part of the consideration paid for the acquisition of EKF-diagnostic GmbH Germany.
The value of the shares has been adjusted to its fair value at 31 December 2016 of £693,000. Whilst
agreement has been reached in principle to conclude the position, the contract amendment has not
yet been signed.
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
Discontinued
Income statement movement (note 13)
At 31 December
2016
£’000
2015
£’000
(13)
(371)
(384)
3,751
738
4,489
4,105
2016
£’000
4,003
657
-
(555)
4,105
(47)
(340)
(387)
3,559
831
4,390
4,003
2015
£’000
13,731
325
(7,703)
(2,350)
4,003
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 2015
Credited to the income statement
Discontinued business
Exchange differences
At 31 December 2015
At 1 January 2016
Credited to the income statement
Exchange differences
At 31 December 2016
Accelerated tax
depreciation
£’000
14,014
(2,247)
(7,703)
326
Total
£’000
14,014
(2,247)
(7,703)
326
4,390
4,390
4,390
(569)
668
4,489
4,390
(569)
668
4,489
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 65
Deferred tax assets
At 1 January 2015
Charged to the income statement
Exchange differences
At 31 December 2015
At 1 January 2016
Charged to the income statement
Exchange differences
At 31 December 2016
Tax losses
£’000
(45)
(1)
(1)
Other
£’000
(238)
(102)
-
(47)
(340)
Total
£’000
(283)
(103)
(1)
(387)
(47)
45
(11)
(13)
(340)
(387)
(31)
-
14
(11)
(371)
(384)
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit
through future taxable profits is probable. The Group did not recognise deferred income tax assets
of £6,374,000 (2015: £5,120,000) mainly in respect of tax losses amounting to £33,109,000 (2015:
£24,381,000), primarily arising in the UK entities, that can be carried forward against future taxable
income, as the likely timing of recovery is considered too remote.
Company
Deferred tax assets
Deferred tax asset to be recovered after more than 12 months
Deferred tax
2016
£’000
2015
£’000
371
371
387
387
29. Share capital and premium
Group and Company
At 1 January 2016
Issue of shares
31 December 2016
Number of
Shares
Share capital
£’000
Share premium
£’000
Total
£’000
422,057,074
42,205,707
464,262,781
4,221
422
4,643
91,276
95,497
4,117
4,539
95,393
100,036
On 2 June 2016, 42,205,707 ordinary shares were issued at a price of 11.25p as a result of an equity
placing. Transaction costs associated with the placing of £209,000 have been offset against the share
premium account.
30. Share options and share-based payments
The share options and share incentive schemes in existence were as follows:
(a) Long-term Incentive Plans (‘LTIP’)
At 1 January 2016
Waived
At 31 December 2016
Number
of notional shares
17,091,276
(6,836,510)
10,254,766
Long-term incentive plan share awards over notional shares totalling 17,091,276 were granted to an
Executive Director and a now former Executive Director. The key terms of the awards were revised on
11 June 2013. On 15 June 2016 the option holders waived options over 6,836,510 shares. The conditions
relating to the remaining grants have been met and the options have therefore vested in full. The
remaining options have an exercise price of 15p, and can be exercised at any time before 31 December
2020.
66 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
(b) Unapproved share option scheme
2016
2015
Av. Exercise
price per share
(£)
0.254
0.15
0.278
0.197
Options
(Number)
10,510,000
6,600,000
(3,600,000)
13,510,000
Av. Exercise
price per share
(£)
0.27
0.218
0.3175
0.254
Options
(Number)
10,210,000
1,800,000
(1,500,000)
10,510,000
At 1 January
Granted
Expired
At 31 December
The unapproved share options include the following:
• 4,260,000 options were in issue at an exercise price of 20p per share subject to certain non-market
based performance conditions. These conditions have now been met and the options have vested
in full.
• 200,000 options were in issue to a senior employee of the Group at an exercise price of 25.25p per
share subject to certain non-market based performance conditions. These conditions have now
been met and the options have vested in full.
• 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. These vested during the year.
• 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.
• 500,000 options were issued to a third party on 17 May 2015 at an exercise price of 23.5p. The
shares will vest from 6 April 2016 subject to the completion of certain contractual obligations, and
to the Company’s mid-market closing share price attaining 35p or higher. The maximum term is 10
years from grant.
• On 12 September 2016, 6,600,000 options were issued to senior employees at an exercise price
of 15p, subject to certain non-market conditions. 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 13,510,000 (2015: 10,510,000) outstanding
options 5,110,000 (2015: 8,060,000) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry Date
31.12.2016
31.12.2016
16.06.2021
28.09.2021
07.07.2023
21.01.2024
06.04.2025
12.09.2026
Exercise
price per share
(£)
-
-
0.200
0.252
0.2725
2016
Options
(Number)
-
-
4,260,000
200,000
650,000
0.37625
1,300,000
0.200
0.150
500,000
6,600,000
13,510,000
Exercise
price per share
(£)
0.35
0.225
0.200
0.252
0.2725
0.37625
0.200
-
2015
Options
(Number)
1,300,000
1,300,000
4,260,000
1,200,000
650,000
1,300,000
500,000
-
10,510,000
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2016 67
The weighted average fair value of options granted during 2016 determined using the Black-Scholes
valuation model was £0.127 (2015: £0.048). The significant inputs into the model are detailed below:
Weighted average share price
Weighted average option exercise price
Expected volatility
Risk-free interest rate
Expected option life
Dividend yield
2016
2015
15.9p
15.0p
86.4%
0.25
13.7p
21.8p
76.8%
0.50
10 years
3.5 years
-
-
Expected volatility was determined by calculating the volatility in the historic share price over a period
of one year. 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.
On 2 June 2016 two Directors were granted a cash settled share-based incentive award. The awards
vest if a controlling interest in the Company is acquired by a third party prior to 30 June 2019. In
these circumstances a minimum amount of £0.5m is payable to each Director, which increases by
reference to any sale price achieved. The fair value of this award has been calculated at £2,100,000
using a modified form of a Black Scholes model. The key assumptions in the model included expected
volatility of 60.2%, a risk free rate of (0.03%) and an assumed acquisition premium and option life.
£753,000 has been recognised as an expense in administrative expenses in the current year, and is
shown as a liability on the balance sheet at 31 December 2016 within trade and other payables.
31. Retained earnings
At 1 January 2015
Loss for the year
Share-based payment
At 31 December 2015
At 1 January 2016
Loss for the year
Share-based payment
At 31 December 2016
32. Other reserves
Group
£’000
Company
£’000
(8,541)
(9,050)
(37,123)
(31,595)
226
226
(45,438)
(40,419)
(45,438)
(40,419)
(18)
220
(5,474)
220
(45,236)
(45,673)
Group
At 1 January 2015
Currency translation differences
Recycling of reserves in respect of previously held interest in Selah
Genomics
At 31 December 2015
At 1 January 2016
Currency translation differences
At 31 December 2016
Foreign
currency
£’000
Other
£’000
26
846
(4,479)
(3,607)
(3,607)
9,216
5,609
41
-
41
41
-
41
Total
£’000
67
846
(4,479)
(3,566)
(3,566)
9,216
5,650
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.
68 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
33. Retirement benefit obligations
Pension benefits
The Company operates defined contribution pension schemes the assets of which are held separately
from those of the Company in independently administered funds. The pension cost for the year
represents contributions made by the Company to the funds and amounted to £219,000 (2015:
£318,000).
34. Commitments
(a) Capital commitments
The Group has contracted £nil (2015: £606,000) capital expenditure at the end of the reporting period
that had not yet been incurred.
(b) Operating lease commitments
The Group leases various offices and manufacturing buildings under non-cancellable operating lease
agreements. The lease terms are between one and five years.
The Group also leases various office equipment and assets under non-cancellable operating lease
agreements. The lease terms are between one and five 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 and no later than 5 years
Later than 5 years
Total
Land and buildings
2016
£’000
2015
£’000
2016
£’000
149
23
-
172
219
661
123
80
124
-
1,003
204
Other
2015
£’000
114
146
-
260
EKF Diagnostics Holdings plc | Annual Report 2016 69
3.0 Financial Statements
35. Cash used in operations
Loss before tax
Adjustments for:
– Depreciation
– Amortisation
– Impairment of intangibles, excluding discontinued business
– Impairment of investment
– Warranty claim
– Loss on disposal of fixed assets
– Restructure of operations
– Share-based payments
– Release of deferred consideration
– Fair value adjustment
– Foreign exchange
– Bad debt written down
– Net finance costs/(income)
Changes in working capital
– Inventories
– Trade and other receivables
– Trade and other payables
Net cash generated by/(used in) operations
Group
2015
£’000
Company
2016
£’000
2015
£’000
2016
£’000
(1,003)
(15,770)
(5,492)
(27,791)
1,209
3,752
-
-
(129)
30
1,173
6,879
5,948
750
349
5
(360)
(2,055)
220
226
-
(7,353)
64
317
-
-
-
-
-
220
-
62
-
-
750
-
-
18,088
226
-
208
481
-
468
(395)
208
(395)
432
(5,221)
8,717
5,123
1,817
(1,366)
(634)
141
-
2,767
(2,760)
-
-
(1,127)
2,300
1,901
816
8,816
(2,914)
2,679
3,033
520
646
550
(5,970)
In the statement of cash flows, proceeds from the sale of property, plant and equipment comprise:
Group
Net book value
Loss on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Non-cash transactions
2016
£’000
241
(30)
211
2015
£’000
47
(5)
42
The principal non-cash transactions are; movements on deferred consideration provisions; the fair
value adjustment relating to the deferred equity consideration in respect of EKF Germany, the warranty
claim, and release of accruals no longer required.
36. Related Party Disclosures
Directors
Ron Zwanziger is a substantial shareholder in Lumira Diagnostics Limited (“Lumira”) and in the
Company, through the Zwanziger Family Trust. Between January 2016 and April 2016 the Group
shared certain human resources and their associated costs with Lumira totalling £47,000. In December
2015 The Zwanziger Family Trust lent £3,000,000 to the Group, secured by a debenture. This loan was
repaid in April 2016. Interest charges for the period of the loan were £66,000.
Christopher Mills controls 28% of the Company’s share capital through North Atlantic Smaller
Companies Investment Trust PLC (“NAIT”) and Oryx International Growth Fund Limited (“Oryx”).
Harwood Capital LLP (“Harwood”) is investment manager and investment adviser to NAIT and Oryx
respectively. Christopher Mills is a partner and Chief Investment Officer of Harwood. Christopher Mills
is also a director of Oryx and NAIT. He holds 2.16 per cent. of the shares in Oryx in his own name as
well as a further 46.44 per cent. of the shares in Oryx via his 25.06 per cent. shareholding in NAIT. In
70 Annual Report 2016 | EKF Diagnostics Holdings plc
3.0 Financial Statements
April 2016 NAIT loaned £3,000,000 to the Group on commercial terms, secured by a debenture. This
loan was repaid in June 2016. Interest charges were £14,000.
The Group was invoiced £18,000 (2015: £18,000) by J & K (Cardiff) Limited for property rent. Julian
Baines is a Director of J & K (Cardiff) Limited.
Carl Contadini acts as an Operational Advisor to Harwood which acts as investment manager and
investment adviser to NAIT and Oryx respectively.
Directors’ emoluments are set out in the Remuneration Committee report and in note 9.
Other related party transactions
Sergey Kots who is Chief Executive of OOO EKF Diagnostika (“EKF Russia”), owns 20% of the
subsidiary’s share capital. During the year EKF Russia invoiced £656,000 (2015: £589,000) to OOO
Laboratory Diagnostic Systems, a company of which Mr Kots’ brother is a director.
Andrzej Biedron is the Chief Executive of EKF Diagnostyka Sp. z.o.o (“EKF Poland”). Mr Biedron is a
shareholder and director of P.H.P.U. Allmed (”Allmed”). During the year the Group invoiced £237,000
(2015: £212,000) to Allmed. In addition the Group paid £40,000 for consulting services to Firma
Laser-med, a company owned by Mr Biedron’s partner, and was invoiced £50,000 (2015: £50,000) for
property rent by A.B Inwestycje Sp.z.o.o., a company of which Mr Biedron is part owner.
Key management compensation
Key management compensation for the year was as follows:
Salaries and other short-term employee benefits
Share-based payments
Employer contribution to pension scheme
2016
£’000
577
753
18
2015
£’000
1,179
116
35
1,348
1,330
Key management includes the Directors of the Company only.
The Company
During the year the Company invoiced management charges of £2,268,000 (2015: £1,799,000) and
interest of £1,649,000 (2015: £1,421,000) to its subsidiary companies. It purchased goods and services
from subsidiaries totalling £120,000 (2015: £228,000). At 31 December 2016 the Company was owed
£28,249,000 (2015: £32,926,000) by its subsidiaries and owed £2,983,000 (2015: £2,812,000) to other
subsidiaries.
4.0 Additional information
Notice of Annual General Meeting
EKF Diagnostics Holdings PLC (Company)
EKF Diagnostics Holdings plc | Annual Report 2016 71
NOTICE IS HEREBY GIVEN that the Annual General Meeting (Meeting) of EKF Diagnostics Holdings
plc (Company) will be held at the offices of Harwood Capital LLP, 6 Stratton Street, Mayfair, London,
W1J 8LD on 10 May 2017 at 11.00 a.m. for the following purposes:
Ordinary Resolutions
1.
To receive and adopt the statement of accounts for the year ended 31 December 2016 together with the
reports of the Directors and the auditors thereon.
2. To re-elect Julian Baines, who retires by rotation, as a Director.
3. To re-elect Carl Contadini, who has been appointed since the previous Annual General Meeting, as a
Director.
4. 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 fix their remuneration.
5. 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) up to a maximum nominal amount of £237,647.66 (in pursuance of the exercise of outstanding share
options granted by the Company but for no other purpose)
(ii) up to an aggregate nominal amount of £464,262.78 (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 2018, 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.
Special Resolution
6. That, subject to the passing of the above Resolution the Directors be given the general power to allot
equity securities (as defined 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) the allotment of equity securities on the exercise of the share options granted by the Company;
(ii) 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 £464,262.78 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 2017, 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 Office
BY ORDER OF THE BOARD
Avon House
19 Stanwell Road
Penarth
CF64 2EZ
20 March 2017
Salim Hamir
Company Secretary
72 Annual Report 2016 | EKF Diagnostics Holdings plc
4.0 Additional Information
Notes:
1.
2.
The Company specifies that only those members registered on the Company’s register of members at
close of business on 8 May 2017 or if this general meeting is adjourned, at close of business on the day
two days prior to the adjourned meeting shall be entitled to attend and vote at the General Meeting.
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 Annual General Meeting to
represent you. Details of how to appoint the chairman of the Annual 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 Annual lGeneral 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.
6.
To appoint a proxy using the Proxy Form, the Proxy Form must be:
i.
ii.
iii.
completed and signed;
sent or delivered to Capita Asset Services, The Registry, 34 Beckenham Road, Kent BR3 4TU; and
received by Capita Asset Services, at the address provided in paragraph 5(b) above no later than
11.00 a.m. on 8 May 2017.
7.
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 officer of the company or an attorney for the company.
8. Any power of attorney or any other authority under which the Proxy Form is signed (or a duly certified
copy of such power or authority) must be included with the Proxy Form. 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 first-named
being the most senior).
9.
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.
10.
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 Registrars at the address noted in note 5 above.
11.
12.
13.
14.
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.
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 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 officer 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 certified 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 11.00 a.m. on 8 May 2017.
If you attempt to revoke your proxy appointment but the revocation is received after the time specified
then, subject to the paragraph directly below, your proxy appointment will remain valid.
15. 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.
16. 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.
17. Voting on all resolutions will be conducted by way of a poll rather than on a show of hands.
18. 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 464,262,781 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 464,262,781.
EKF Diagnostics Holdings plc | Annual Report 2016 73
4.0 Additional Information
Company Information
Directors:
Solicitors to the Company:
Christopher Mills
(Non-Executive Chairman)
Julian Baines MBE
(Chief Executive Officer)
Richard Evans
(Chief Operating Officer and Finance Director)
Carl Contadini
(Non-Executive Director)
Adam Reynolds
(Non-Executive Director)
Company Secretary:
Salim Hamir
Registered Office and Head Office:
Avon House
19 Stanwell Road
Penarth
Cardiff
CF64 2EZ
Place of incorporation:
England and Wales
(Company number – 4347937)
Berry Smith LLP
Haywood House
Dumfries Place
Cardiff, CF10 3GA
Registrars:
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
If you have a query regarding your shareholding
please call (from inside the UK) 0871 664 0300
(calls cost 12p per minute plus network extras),
or (from outside the UK) +44 371 664 0300
or e-mail:
shareholder.services@capitaregistrars.com
Financial public relations:
Walbrook PR Limited
4 Lombard Street
London
EC3V 9HD
Independent Auditors:
Investor relations email:
PricewaterhouseCoopers LLP
investors@ekfdiagnostics.com
Chartered Accountants and Statutory Auditors
One Kingsway
Cardiff
CF10 3PW
Nominated Advisor and Broker:
N+1 Singer
1 Bartholomew Lane
London EC2N 2AX
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