ANNUAL
REPORT
2017
EKF Diagnostics Holdings plc
EKF Diagnostics Holdings plc | Annual Report 2017 1
Contents
1.0 Strategic Review
2-13
Financial and Operational Highlights
At a Glance
Chairman’s Statement
Chief Executive’s Review
Finance Director’s Review
Board of Directors
2.0 Corporate Governance
14-29
Strategic Report
Report of the Directors
Corporate Governance Statement
Report of the Remuneration Committee
Independent Auditors’ Report
3.0 Financial Statements
30-71
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 Statement of Changes in Equity
Company’s Statement of Changes in Equity
Notes to the Financial Statements
4.0 Additional Information
72-75
Notice of Annual General Meeting
Company Information
2
3
8
9
10
12
14
17
20
23
25
30
31
32
33
34
35
36
72
75
2 Annual Report 2017 | EKF Diagnostics Holdings plc
Financial and Operational Highlights
Financial Highlights
• Revenue up 8% to £41.6m (2016: £38.6m)
• Gross profit up 25% to £22.9m (2016: £18.3m)
• Adjusted EBITDA* up 52% to £9.3m (2016: £6.1m)
• Earnings per share of 0.59p (2016: nil)
• Cash generated from operations of £10.1m (2016: £8.8m)
• Cash at 31 December 2017 of £8.2m (31 Dec 2016: £7.9m),
net cash of £7.0m (31 Dec 2016: £2.2m)
• Capital restructure creates distributable reserves and allows share buy back programme
* Excluding exceptional items and share based payments
Operational Highlights
• Continued effect of improvements to operational efficiency
• Closure of Polish operations brings sites down from twelve to seven
• Creation of Renalytix AI, Inc in January 2018 to exploit sTNFR technology
2017 Revenue
2017
2016
+/-
Revenue (£m)
£41.6 £38.6 8%
Net cash (£m)
£7.0
£2.2
218%
Adjusted
EBITDA (£m)
£9.3
£6.1
52%
£38.6
2017
£41.6
£37.1
2014
2016
8%increase in
revenues year
on year
2013
£31.8
2012
£26.1
*
2015
£30.0
*Restated
Annual revenues
£m
+10%
HEMOGLOBIN
REVENUES
+13%
DIABETES
REVENUES
+5%
CENTRAL
LABORATORY
REVENUES
FY 2017
£12,911 (£k)
FY 2017
£11,547 (£k)
FY 2017
£12,597 (£k)
FY 2016
£11,704 (£k)
FY 2016
£10,203 (£k)
FY 2016
£12,051 (£k)
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 3
At a Glance
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.
The POC business is built around a large installed base of analysers each of which generates a
regular demand for tests, often for the entire life cycle of the analyser. In 2017 we sold an estimated
70 million tests. This approach – sometimes known as the ‘razor/razorblade’ model – permits a
percentage of organic growth each year.
The EKF Central Laboratory range includes clinical reagents and centrifuges which are manufactured
at premises near San Antonio, Texas. Clinical chemistry reagents are sold for use on open channel
systems or on EKF’s own brand of analysers.
EKF Life Sciences, based in Elkhart, Indiana, manufactures diagnostic enzymes and contracted
custom products for use in medical diagnostics, pharmaceuticals and industry.
+7%
Tests
sold
2017
70,217,529
2016
69,371,019
+1m
2017 Sales
Analysers
sold
2017
14,556
2016
13,649
Geographical Performance
EMEA (£k)
FY 2017 £17,005
Moscow, Russia
APAC (£k)
FY 2017 £4,210
Cardiff, UK
Leipzig, Germany
Barleben, Germany
Americas (£k)
FY 2017 £20,369
Elkhart, IN
San Antonio, TX
Shanghai, China
1.0 Strategic ReviewRevenueFY 2017 (£k)FY 2016 (£k)+/- (£k)APAC4,2103,930+280EMEA17,00515,558+1,447AMERICAS20,36919,101+1,268 4 Annual Report 2017 | EKF Diagnostics Holdings plc
Point-of-Care: Hemoglobin Analysers
Product Portfolio
The hemoglobin analysers 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
• Proven, robust analyser
sold worldwide
• Handheld analyser utilising
reagentless methodology
• Benefits of speed to result
(one second), and shelf-
life of microcuvettes
• Connectivity to a mobile
phone application now
available
• Tests serum, plasma,
aqueous solutions or
stored erythrocytes
• Estimates the degree
of hemolysis
• Results in less than
two seconds
• Reagent-free
microcuvettes
UltraCritTM
HemataStat IITM
• Hematocrit analyser
using unique ultrasound
technology
• Strong presence in US
blood banking sector
• Laboratory hematocrit
centrifuge and analyser
• Processes multiple
samples
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.
In 2017 EKF sold more than 22 million tests for the DiaSpect Tm range, and 19 million tests for
Hemo Control and HemoPoint® H2
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 5
Point-of-Care: Diabetes Care
Product Portfolio
EKF’s Diabetes Care range aims to provide affordable, easy-to-use technology that reduces 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
• Results in four minutes
at different settings
• Strong presence in
using a unique
methodology
Eastern Europe and China
in diabetes clinics and
research
• Semi-automated analyser
aimed at cost-sensitive
markets
• Used by professional and
amateur sports clubs.
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 wellbeing 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.
Since transferring manufacturing from the UK to Germany EKF has engaged in programmes
to automate the production of cartridges to increase capacity and improve quality. In addition,
these changes have allowed EKF Diagnostics to make significant operational savings through the
centralisation of manufacturing, warehousing and logistics, and customer service.
1.0 Strategic Review 6 Annual Report 2017 | EKF Diagnostics Holdings plc
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.
Sales include revenues from Creamatocrit centrifuges and hemoglobin meters used in Women and
Infant Clinics, pregnancy test kits and HbA1c analysers used to diagnose gestational diabetes in
pregnant women.
Creamatocrit PlusTM
Pregnancy Testing
SensPoint
• Small lab centrifuge used
in Women and Infant
Clinics
• Measures the lipid
concentration and caloric
density of breast milk
• Allows professionals
to guide mothers with
underweight infants
• Cassette rapid tests
• Handheld lactate analyser
• Marketed for use in
hospital settings
with docking station
• Results in 10 seconds
• Undergoing European
evaluation at the time of
publication
Lactate Scout+
• Handheld lactate analyser
• Results in 10 seconds
• Developed for use in sports medicine
• Applications in medical and veterinary
medicine
• New model to be launched in 2018
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 in which the lactate testing function is used in the preparation of elite squads of
athletes such as Premier League and Budesliga football teams and Olympians.
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 7
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, produced 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 enzymes and proteins used in industrial
applications. These are then sold in bulk or used in the production of in-vitro diagnostic devices
(IVDs).
The acquisition of Separation Technology Inc. provided EKF with a third element to its central
laboratory offering. As well as being a manufacturer of hematology products STI has a heritage in
manufacturing high quality, US-built, mini-centrifuges.
AltairTM 240
Beta-Hydroxybutyrate
• Automated bench-top
• Liquid reagent for the
analyser
early detection of ketosis
• Runs up to 400 tests per
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 of sepsis
• 2-3 week indicator of
average blood glucose
• Targeted at certain
European markets
• Complementary to HbA1c
in diagnosis and screening
of diabetes
Strategy
The central laboratory market continues to experience relatively low levels of growth. This is in part
because sales of chemistry reagents are often 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.
Further opportunities continue to exist in 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 withdrawal 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.
1.0 Strategic Review 8 Annual Report 2017 | EKF Diagnostics Holdings plc
Results overview
The Chief Executive’s and Finance Director’s
statements contain a review of the year and an
overview of the financial performance of the
Group.
Board
All of the Board members have served
throughout the year. Non-executive Directors
their standard
to waive
have continued
director’s fees, however as each has performed
considerable amounts of work for the Group in
addition to their duties as directors, they have
been paid an appropriate bonus.
Outlook
Trading in 2017 has been positive and this has
continued into the early part of 2018. Trading is
in line with management expectations.
Christopher Mills
Non-executive Chairman
14 March 2018
Chairman’s Statement
I am delighted to present results which show
continued good progress with
revenues,
earnings, and net cash all significantly improved
compared with the previous year.
Strategy
The Group has continued to follow the path
which led to the successful turnaround of
the business in 2016, namely concentrating
its activities on point-of-care diagnostics
and the related central laboratory reagents
business, while reducing costs and simplifying
the business. In the first half, we closed our
manufacturing site in Poland and transferred
activities to our main European hub in Barleben,
Germany. This led to a small number of
redundancies, and we thank those affected and
wish them well for the future. As a result, the
number of sites used by the Group has reduced
from a peak of twelve to seven, of which four
are in Europe, two in the USA and one in China.
While we are not currently planning further
closures, our efforts to improve efficiency and
therefore reduce costs continue.
After considerable deliberation and discussion
with our professional advisors, we were unable
to proceed with our plan to split out the central
laboratory business in a tax efficient manner.
sTNFR venture
Subsequent to the year end, on 11 January
2018 the Group announced its intention to
spin-out its sTNFR biomarker technology into
a separate entity, Renalytix AI, Inc., which has
been registered in the USA. sTNFR1/2 (Soluble
Tumour Necrosis Factor Receptors
1 and
2) are novel biomarkers used in combination
with artificial intelligence to identify which
diabetes patients are at the highest risk of
progressive Diabetic Kidney Disease (DKD)
potentially leading to End Stage Renal Disease
(ESRD). Plans for the entity are at an early stage
and discussions with partners are continuing.
Capital changes
The Directors have taken a number of actions
during the year to create distributable reserves
and to reduce the number of actual and potential
shares in issue. In June 2017, 21.6m share
options which had been granted to employees
and others were cancelled at the election of the
holders, in return for payments totalling £1.5m.
In September 2017, court and shareholder
approval were received for a capital reduction,
allowing us to create distributable reserves
through the write-off of the Company’s share
premium account, and to buy back up to 15% of
the Company’s ordinary shares. Subsequently,
a total of 6.7m shares have been cancelled. As
a result of these actions, the total number of
potential shares has reduced by nearly 6%.
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 9
Chief Executive’s Review
It is pleasing to be able to report a strong set
of results for 2017. In particular, cash generation
has once again been very strong, with net cash
growing from £2.2m to £7.0m during the year,
despite spending £1.4m on capital expenditure
and £1.5m on the cancellation of share options.
Operations
We have succeeded in our aim for 2017 of
driving the existing business and continuing
to reduce cost. Gross margins have improved
at a greater rate than the increase in sales.
We have sold around 15,000 analysers and 70
million tests during the year and cemented
our place as number one supplier of Beta
Hydroxybutyrate (β-HB) reagent in the USA,
and number two worldwide in Hemoglobin
point-of-care products.
and
customers
During the year we completed the restructuring
of our manufacturing operations by closing our
manufacturing facility in Poland. Production
volume was shifted to our factory in Barleben,
Germany
successfully
transitioned away from the older style cuvette
previously made in Poland. In Barleben we have
in modern production equipment
invested
including new automated equipment
for
the manufacture and packaging of the Quo-
Test cartridge. At our Elkhart facility, where
we manufacture a number of wet chemistry
products, we have a medium term programme
to update the facilities to improve quality and
volumes.
Central Laboratory
Central laboratory sales have grown by 5%
to £12.6m, from £12.1m last year, again driven
by sales of β-HB Liquicolor reagent which
are higher by a further 17%, having risen by
a very significant percentage in 2016. We
have continued to promote our Altair 240
analyser through an increasing portfolio of
specialist distributors. Sales of other Central
Laboratory products have been stable. We have
discontinued a number of the marginal former
STI products.
New and updated products
We have concentrated in 2017 on widening
the range of regulatory approvals for our
existing product ranges. In particular we have
conducted a number of clinical trials in the USA
in anticipation of submitting applications for
FDA approval in the USA for our DiaSpect Tm
and Quo-Test products. Quo-Test is also in the
lab testing phase of its China FDA registration
and we have secured registration for it in
Brazil alongside Hemo Control, DiaSpect Tm
and Quo-Lab. POC Connect, our connectivity
solution for our DiaSpect Tm handheld analyser
was launched in November 2017. We will soon
be showcasing our new and updated Lactate
Scout 4.0 product. As noted above, we are
working to secure commercial launch of our
sTNFR biomarker (for early detection of
end stage renal disease in diabetic patients),
alongside a number of partners.
Point-of-Care
Outlook
from
EKF’s point-of-care business model continues
to be to sell analysers into the market and
then benefit
revenue
stream generated by sales of the dedicated
consumables. Over the last five years we have
sold over 65,000 analysers for use worldwide,
and each year we supply a growing number of
tests for use on these.
the ongoing
Hematology
Sales of Hematology products have increased
by 10% to £12.9m (2016: £11.7m). Sales of Hemo
Control (sold in the USA as HemoPoint H2)
have built on the strong growth in 2016, rising a
further 7%, while DiaSpect revenues have risen
by a further 23%.
Diabetes
Diabetes revenues are up by 13% at £11.5m
(2016: £10.2m). The Saudi tender won in 2015
was completed during the year, and this has led
to an increase in Quo-Test and Quo-Lab sales of
14%. There has been further success for Biosen
sales which have risen by 10%.
We are looking forward to finalising our two
FDA applications in the first half of 2018, and
to update on progress with our sTNFR project.
At the same time, we anticipate receiving
completed
Beta
Hydroxybutyrate (β-HB) in Mexico, Brazil and
Colombia as well as the Indian registration of
DiaSpect Tm all in the first half of 2018.
registrations
for
We are continuing to work hard to increase
efficiency and reduce costs by investing in
automation and streamlining processes. We are
confident that we will continue to see growth in
the business on a steady and sustainable basis.
Julian Baines
Chief Executive Officer
14 March 2018
1.0 Strategic Review 10 Annual Report 2017 | EKF Diagnostics Holdings plc
Finance Director’s Review
Revenue
Revenue for the year was £41.6m (2016: £38.6m),
an increase of 8%. 6.6% of the increase was
the result of improvements in foreign currency
exchange rates, largely because of a further fall
in the average value of sterling against the US
dollar and Euro especially in the first 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 2017
£’000
FY 2016
£’000
Hematology
12,911
11,704
Diabetes Care
11,547
10,203
Central Laboratory
12,597
12,051
Other
4,529
4,631
Total revenue
41,584
38,589
+/-%
+10%
+13%
+5%
(2)%
+8%
Gross profit
Gross profit
increased to £22.9m (2016:
£18.3m). The gross margin percentage on sales
was 55.0% (2016: 47.5%). The increase was
attributable in part to cost reductions arising
from the actions taken in previous years, partly
through mix and volume effects, and partly as a
result of the release of inventory provisions set
in prior years.
Administration costs and research and
development costs
Administration expenses have again fallen, to
£18.2m (2016: £18.7m). R&D costs included in
administration expenses were £2.2m, with a
further £0.7m being capitalised as an intangible
cost. Gross R&D expenses have therefore
increased to £2.9m from £2.7m in 2016.
The charge for depreciation of fixed assets and
amortisation of intangible assets is £4.6m (2016:
£5.0m). The charge includes an impairment in
the year related to the carrying value of our
Polish operations which were closed during the
year, as well as the reassessment of the carrying
value of certain non-core development projects.
Exceptional items relate to provisions made
and costs incurred in the closure of the Polish
manufacturing site, the increase in the fair
value of the warranty claim associated with the
acquisition of EKF-diagnostic GmbH, which is
attributable to the increase in the Company’s
share price during the year, and to the benefit at
fair value of the shares released to EKF from an
escrow account associated with the acquisition
of Selah Genomics, Inc.
Operating profit and adjusted earnings
before interest tax and depreciation
The Group made an operating profit of £4.7m,
having made a small loss of £0.3m in 2016. This
reflects the considerable efforts made in the
last two years to reduce costs and improve
efficiency. We continue to consider that adjusted
interest, tax, depreciation
earnings before
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
2017 we achieved adjusted EBITDA of £9.3m
(2016: £6.1m). 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 £1.5m (2016: £1.0m), which
increased largely because of the acceleration of
charges as a result of the programme of share
option cancellations, and exceptional profits of
£1.6m (2016: losses of £0.5m). Of the increase in
adjusted EBITDA of £3.2m, £0.6m 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 £0.5m
in 2017 (2016: £0.7m). This is largely as a result
of lower interest costs associated with the
reduction of debt during the year, offset by
higher charges relating to the discounting of
deferred consideration.
Tax
There is an income tax charge of £1.4m
(2016: credit of £1.2m). This is because of a
tax adjustment in the USA caused by timing
differences on the carry back of losses in
previous years, while in 2016 there was a large
credit relating to 2015. In future years the Group
anticipates a positive impact on its tax charge
as a result of the tax policy changes recently
made by the US Government.
Balance sheet
Property, plant and equipment
Additions to fixed assets were £1.4m (2016:
£1.3m). This reflected investment in production
equipment in both Germany and in the USA,
including automated pouching equipment in
Barleben and the replacement of obsolete plant
in Elkhart.
Intangible assets
The value of intangible assets has fallen from
£46.5m to £43.6m year-on-year. This is partially
attributable to the annual amortisation charge,
plus the offsetting effect of additions and
impairments.
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 11
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 now
expected to take place in 2018.
Cash and working capital
Net cash has increased from £2.2m to £7.0m
during the year. Gross cash has increased to
£8.2m (2016: £7.9m), and borrowings have
reduced from £5.7m to £1.2m. All borrowings in
the UK and the USA have have been paid off.
The remaining borrowings is are being reduced
over the loan period to 2023, and were used to
fund the new building in Barleben. £1.5m was
used to buy employees out of share option
agreements and £0.2m was used to acquire
ordinary shares for cancellation.
Inventory has reduced from £6.0m to £5.6m
in 2017 as our programme to reduce inventory
levels continued. While results so far have been
encouraging, and we have seen inventory levels
reduce by over 30% since December 2015,
despite higher revenue, our ambition remains
to reduce our holdings further, while ensuring
production and sales run efficiently.
Trade receivables have reduced, partly because
of the completion of payments relating to
business
in Saudi Arabia which required
extended payment terms. The increase in
payables, reflects increased activity during the
year and the liability recognised in respect of
cash settled share-based payments.
Richard Evans
Finance Director and Chief Operating Officer
14 March 2018
1.0 Strategic Review 12 Annual Report 2017 | EKF Diagnostics Holdings plc
Board of Directors
Executive Directors
Julian Baines MBE
Chief Executive Officer (aged 53)
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. (now part of Abbott
Laboratories) in 2008 for circa £85 million. In December 2009 Julian became CEO of the Group
and has subsequently successfully completed a number of fund raisings 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 60)
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.
1.0 Strategic Review EKF Diagnostics Holdings plc | Annual Report 2017 13
Non-Executive Directors
Non-Executive Directors
Christopher Mills
Non-Executive Chairman (aged 65)
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 a number of
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 55)
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,
Premaitha Health plc, and Concepta plc, and a director of several listed and private companies.
Adam chairs the Audit Committee and is a member of the Remuneration Committee.
Carl Contadini
Non-Executive Director (aged 69)
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.
1.0 Strategic Review 14 Annual Report 2017 | EKF Diagnostics Holdings plc
Strategic Report
for the year ended 31 December 2017
The Directors present their Strategic Report
for the year to 31 December 2017.
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 page 9 and the
Finance Director’s Review on pages 10 and 11.
Risk Management
We recognise that effective risk management
is essential to the successful delivery of the
Group’s strategy. As we continue to grow our
business we believe it is important to develop
and enhance our risk management processes
and control environment on an ongoing basis
and ensure it remains fit for purpose. We
continue to mature our approach to identifying
and managing risks across the Group in a
consistent and robust manner.
Below we describe our risk management
approach, the principal risks and uncertainties
faced by the Group and the controls in place to
manage them.
Overview of risk management approach
is
responsible
Each business area
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
risk
members also conduct a strategic
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.
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
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, and profit related
bonuses. 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.
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.
Following the European Union (EU) membership
referendum in 2016, the UK Government has
commenced the process of withdrawal from
the EU. Although at present the Group does
not anticipate significant issues, the Group has
employees, facilities, customers, and suppliers
in both the United Kingdom and the EU, and
therefore 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
manufacturing the products to recognised
standards, by keeping appraised with changes
in the standards geographically, by seeking
advice from regulatory advisers, consultations
with regulatory approval bodies and by working
with experienced distribution partners.
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 15
Competition risk
Reimbursement levels
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
the Group,
Group’s products obsolete or otherwise non-
competitive.
rendering
The Group seeks to mitigate this risk by
securing patent registration protection for
its products, maintaining
confidentiality
agreements regarding the Group’s know-how
technological
and
developments and by
leading
businesses
respective fields as
distribution partners capable of addressing
significant competition, should it arise.
technology, monitoring
selecting
their
in
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
seeking
protection would be available,
patent protection for the Group’s products,
maintaining
agreements
confidentiality
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 operations by funding
through borrowings and loans denominated
in the currency of the overseas operations,
and to negotiate currency protection in major
contracts.
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
information in compliance with accounting
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. The Group also
has specific insurance cover.
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,
and 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,
2.0 Corporate Governance 16 Annual Report 2017 | EKF Diagnostics Holdings plc
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 Group’s Modern Slavery Act statement is
published on our website.
The Strategic Report was approved by the
Board on 14 March 2018 and signed on its behalf
by:
Richard Evans
Finance Director and Chief Operating Officer
however where appropriate we sell direct to
end users which include hospitals, laboratories,
and government agencies. Our distributors
are supported by a network of regional sales
managers and by product managers who
in our product range. We
are specialists
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 page 9 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 10 and 11.
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.
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.
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 17
Report of the Directors
for the year ended 31 December 2017
The Directors have pleasure in presenting this report together with the audited consolidated
financial statements of EKF Diagnostics Holdings plc for the year ended 31 December 2017.
Corporate details
EKF Diagnostics Holdings public limited company is domiciled, incorporated, and registered in
England and Wales with registration 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
• Julian Baines
• Richard Evans
• Adam Reynolds
• Carl Contadini
The Company Secretary is Salim Hamir.
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 page 9 and the Finance Director’s Review on pages 10
and 11.
Dividends and share buy back
There were no dividends paid or proposed by the Company in either year. During the year the
Company obtained authorisation to acquire up to 15% of its Ordinary Shares in order to reduce the
number of shares in issue. On 3 October 2017 the Company acquired 1,000,000 ordinary shares at
a price of 24 pence per share from Harwood Capital LLP (“Harwood”) as investment manager
to Oryx International Growth Fund Limited. Christopher Mills, the Company’s Non-Executive
Chairman, is a partner and Chief Investment Officer of Harwood and a director and shareholder in
Oryx.
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.
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 and in 2017.
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 14 to 16.
2.0 Corporate Governance 18 Annual Report 2017 | EKF Diagnostics Holdings plc
Directors’ interests
The interests in the share capital of the Company of those Directors serving at 31 December 2017
and as at the date of signing of these financial statements, all of which are beneficial, were as
follows:
Christopher Mills
Julian Baines
Richard Evans
Adam Reynolds
Carl Contadini
On 31 December 2017
Ordinary Shares of 1p each
On 31 December 2016
Ordinary Shares of 1p each
137,000,000
130,000,000
1,855,288
178,842
3,318,613
-
1,855,288
178,842
3,318,613
-
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. On 20 March 2017 NAIT acquired 8,000,000 Ordinary shares, and on 3 October 2017, Oryx
sold 1,000,000 Ordinary shares which were purchased by the Company for cancellation.
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.
Substantial shareholdings
As at 14 March 2018, the following interests in 3% or more of the issued Ordinary Share capital had
been notified to the Company:
Shareholder
Mr Christopher Mills
Lombard Odier Asset Management (Europe)
Schroeder Investment Management
Hargreave Hale Investment Managers
Mr William Pippin
Statement of Directors’ responsibilities
Number of
shares
137,000,000
49,409,204
20,025,000
19,673,193
16,189,675
Percentage of
issued share capital
29.94%
10.80%
4.38%
4.30%
3.54%
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
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 19
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.
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 20 to 22 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 72.
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 14th March 2018 and signed on its
behalf by:
Richard Evans
Finance Director and Chief Operating Officer
2.0 Corporate Governance 20 Annual Report 2017 | EKF Diagnostics Holdings plc
Corporate Governance Statement
for the year ended 31 December 2017
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 2017 sought to address the
principles underlying the Code.
Board composition and responsibility
The Board currently comprises two Executive Directors and three Non-Executive Directors. The
Board notes that the Combined Code guidance recommends that at least half the Board should
comprise independent Non-Executive Directors. The Board has determined that 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 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 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
10 Board meetings were held during the year. The Directors’ attendance record during the year 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)
Audit Committee
9
10
10
10
3
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. 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.
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 21
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 2017. There were no significant
matters communicated to the Committee by the Auditors and no interaction with the Financial
Reporting Council.
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 2017.
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.
2.0 Corporate Governance 22 Annual Report 2017 | EKF Diagnostics Holdings plc
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 became subject to the
requirements of the Modern Slavery Act 2015. The Group has published the required statement on
its website.
The Corporate Governance Statement was approved by the Board on 14th March 2018 and signed
on its behalf by:
Richard Evans
Finance Director and COO
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 23
Report of the Remuneration Committee
for the year ended 31 December 2017
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 based incentives.
Directors’ remuneration - Audited
The remuneration of the Directors for the year ended 31 December 2017 is shown below:
Salary
and fees
£’000
Pension
£’000
Benefits
in kind
£’000
Bonus
£’000
Share option
surrender
£’000
2017
£’000
2016
£’000
Executive Directors
Julian Baines
Richard Evans
Non-Executive Directors
Christopher Mills
Carl Contadini
Adam Reynolds
Lurene Joseph1
252
211
463
-
-
-
-
-
13
6
19
-
-
-
-
-
13
15
28
-
-
4
-
4
Total fees and emoluments
463
19
32
200
200
400
50
101
50
-
201
601
354
295
649
832
727
1,559
319
270
589
-
-
-
-
-
50
101
54
-
205
-
-
-
6
6
649
1,764
595
1
Lurene Joseph’s remuneration is shown up to the date of her resignation.
2.0 Corporate Governance
24 Annual Report 2017 | EKF Diagnostics Holdings plc
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
On 26 June 2017 these options were surrendered at the election of the holders in return for the
payment of one-off cash sums of £354,000 to Mr Baines and £295,000 to Mr Evans.
On 2 June 2016 two Directors were granted a cash settled share-based incentive award. During
2017 both the maximum and minimum amounts payable to each Director were reduced by £0.2m.
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 £0.3m is payable to each Director, which
increases by reference to the sale price achieved. The fair value of this award has been calculated
at £3,351,000 using a modified form of a Black Scholes model. The fair value has been spread over
the assumed vesting period, with a charge of £969,000 recognised in 2017. The key assumptions
used in the model are disclosed in Note 30.
Directors’ interests in the share capital of the Company are disclosed in the Directors’ Report on
page 17.
Approved by the Board on 14 March 2018 and signed on its behalf by:
Richard Evans
Finance Director and COO
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 25
Independent auditors’ report to the
members of EKF Diagnostics Holdings plc
Report on the audit of the financial statements
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 2017 and of the group’s profit and the group’s and the parent company’s cash
flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union
and, as regards the parent company’s financial statements, as applied in accordance with the
provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report (the “Annual
Report”), which comprise: the Consolidated and Company’s Statements of Financial Position
as at 31 December 2017; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income, the Consolidated and Company’s Statements of Cash Flows, and 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 description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our audit approach
Overview
• Overall group materiality: £415,000, based on 1% of revenue.
•
•
•
•
•
Overall parent company materiality: £394,000, based on a
component allocation of group materiality.
We performed full-scope audit procedures in respect of
the group’s largest trading subsidiaries in the USA and in
Germany, as well as EKF Diagnostics Holdings plc in the UK.
Our audit scope also included specified audit procedures in
respect of Separation Technologies Inc. in the USA.
Our audit procedures covered entities contributing 92% of the
group’s revenues for the year ended 31 December 2017.
Goodwill and intangible asset impairment assessments
(Group and parent).
• Share-based payment transactions (Group and parent).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most
significance in the audit of the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation
2.0 Corporate Governance 26 Annual Report 2017 | EKF Diagnostics Holdings plc
of resources in the audit; and directing the efforts of the engagement team. These matters, and
any comments we make on the results of our procedures thereon, were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. This is not a complete list of all risks identified by
our audit.
Key audit matter
How our audit addressed
the key audit matter
We obtained the group’s cash flow forecasts
supporting its assessments and evaluated the
appropriateness of key assumptions, with a focus
on DiaSpect as there is limited headroom in the
impairment review for this CGU. We assessed the
methodology used by management in performing
the assessments and challenged and evaluated key
inputs including:
•
the projected growth rates used, both over the
short-term to 2021 and over the longer-term;
•
the discount rate used;
• other key inputs, including the applicable tax
rate, forecast capital expenditure and forecast
margins.
We also considered 2017 financial performance vs.
budget and the performance in the first part of
2018. We performed a range of sensitivity analyses
to assess the impact of alternative assumptions to
those used by management.
We concur with management’s assertion that no
further impairment charge is required in respect of
goodwill and intangible assets but identified that
if management is unable achieve planned results,
this could reasonably be expected to give rise to
an impairment in the future. Management have
disclosed the results of sensitivity analyses in Note
17 to the accounts.
We obtained the valuation of the share-based
incentive awards and evaluated the independence
and objectivity of management’s expert. We
gained an understanding of and evaluated the
assumptions and methods that are significant to
the management’s expert’s work for their relevance
and reasonableness.
We challenged management in respect of the
assumptions made, including the expected exit date
and expected share-price volatility, and concluded
that the assumptions made by management are
reasonable.
is
appropriate
We concluded that the work of management’s
expert
concur with
management’s accounting for the awards. We have
also evaluated the explanatory disclosures made in
Note 30 to the Financial Statements.
and
Goodwill and intangible asset impairment
assessments (Group and parent).
At 31 December 2017, the Consolidated Statement
of Financial Position includes £43.6m of intangible
assets (2016: £46.5m).
In accordance with the requirements of IFRS,
management has performed impairment reviews
in relation to the goodwill held in the group’s cash
generating units (CGUs). The book values of the
intangible assets and goodwill are supported by
multiple-year profitability projections based on the
budget for 2018.
An impairment of £0.6m (2016: £nil) has been
recognised in the year in respect of the closure of
the group’s operations in Poland during 2017 and
as a result of the reassessment of the carrying
value of development costs.
Significant headroom exists in respect of the
majority of the impairment reviews carried out,
other than in respect of DiaSpect, where £2.4m of
headroom exists (14% of the CGU carrying value).
reviews
impairment
The
significant
estimates and judgements in respect of future
growth rates and cash flows, the discount rate
employed and profitability.
include
Share-based payment transactions
(Group and parent).
During 2016, two directors were awarded a cash-
settled share-based incentive award, which will see
a payment made if the Company is acquired by a
third party before 30 June 2019.
The amount payable under the award varies
depending on the acquisition price per share and is
subject to a minimum amount payable. The awards
have been accounted for in accordance with IFRS
2 as cash-settled share based payments and the
value of the liability recognised as at 31 December
2017 is £1.72m (2016: £0.75m).
Management engaged an independent expert to
value the share-based awards and the movement
in the fair value of the year-end liability has been
recognised in the Consolidated Income Statement
within the charge for share-based payments.
A number of assumptions have been made in
valuing the awards, including the expected date
of an acquisition, share-price volatility and the
premium expected to be paid for acquiring the
Company’s shares. Disclosure in respect of these
awards is included in Note 30 to the Financial
Statements.
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 27
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give
an opinion on the financial statements as a whole, taking into account the structure of the group
and the parent company, the accounting processes and controls, and the industry in which they
operate.
The group has two main manufacturing centres in Germany and the USA, in addition to the Head
Office function based in the United Kingdom (UK). The central finance and accounting team is
located in the UK and is responsible for the financial reporting of EKF Diagnostics Holdings plc.
Stanbio Laboratory (“Stanbio”) and EKF Diagnostics Holdings GmbH (“EKF Germany”) are
assessed as financially significant components of the group, given the significant revenue earned
by the group in these entities. An audit of these entities’ financial information has been carried
out. The audit of Stanbio was conducted by the group engagement team and component auditors
were engaged to audit EKF Germany. Full-scope audit procedures were also performed in respect
of DiaSpect Medical GmbH in Germany (again conducted by the component audit team) and the
parent company, EKF Diagnostics Holdings plc in the UK. The parent company audit was scoped
in accordance with our parent company materiality.
Our audit scope also included specified audit procedures in respect of Separation Technologies
Inc. (STI) in the USA, where we designed audit procedures to gain coverage over certain financial
statement line items (FSLIs). This work was performed by the group engagement team.
Our audit addressed components making up 92% of the group’s revenues for the year ended 31
December 2017.
Where component auditors were engaged, we adopted procedures to ensure we were sufficiently
involved in their audits. This included discussions with component audit teams during the planning,
fieldwork and reporting phases, the issuance of comprehensive audit instructions and a review of
key working papers.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative
thresholds for materiality. These, together with qualitative considerations, helped us to determine
the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a
whole as follows:
Group financial statements
Parent company financial statements
Overall materiality
£415,000
£394,000
How we
determined it
1% of group revenues for the year
ended 31 December 2017.
Limited to component allocation of
group materiality.
Rationale for
benchmark applied
Given the restructuring and
refocusing of the business on its core
point-of-care markets in recent years,
growth is being delivered through
organic growth, meaning revenues
remain a key focus for management
and the directors.
Since the materiality we would
have employed to this entity on a
standalone basis was in excess of the
component allocation,
materiality was capped at the
component materiality allocation.
2.0 Corporate Governance
28 Annual Report 2017 | EKF Diagnostics Holdings plc
For each component in the scope of our group audit, we allocated a materiality that is less than
our overall group materiality. The range of materiality allocated across components was between
£87,000 and £394,000.
We agreed with the Audit Committee that we would report to them misstatements identified
during our audit above £21,000 (group audit) and £19,000 (parent company audit) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require
us to report to you when:
• the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the group’s and parent company’s ability
to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the group’s and parent company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial
statements and our auditors’ report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Report of the Directors, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit,
ISAs (UK) require us also to report certain opinions and matters as described below.
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given
in the Strategic Report and Report of the Directors for the year ended 31 December 2017 is
consistent with the financial statements and has been prepared in accordance with applicable
legal requirements.
In light of the knowledge and understanding of the group and parent company and their
environment obtained in the course of the audit, we did not identify any material misstatements in
the Strategic Report and Report of the Directors.
2.0 Corporate Governance EKF Diagnostics Holdings plc | Annual Report 2017 29
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 18, the
directors are responsible for the preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true and fair view. The directors are
also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and
the parent company’s ability to continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
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 parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements are not in agreement with the accounting records
and returns.
We have no exceptions to report arising from this responsibility.
Jason Clarke (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
14 March 2018
2.0 Corporate Governance
30 Annual Report 2017 | EKF Diagnostics Holdings plc
Consolidated Income Statement
for the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit/(loss)
Depreciation and amortisation
Share-based payments
Exceptional items
EBITDA before exceptional items and share-based payments
Finance income
Finance costs
Profit/(loss) before income tax
Income tax (charge)/credit
Profit for the year
Profit/(loss) attributable to:
Owners of the parent
Non-controlling interest
Earnings/(loss) per Ordinary Share attributable to
the owners of the parent during the year
From continuing operations
Basic
Diluted
Notes
2017
£’000
2016
£’000
5
6
6
5
7
5
12
12
41,584
38,589
(18,721)
(20,267)
22,863
18,322
(18,186)
(18,734)
52
85
4,729
(327)
(4,623)
(4,961)
(1,514)
1,562
9,304
53
(475)
(973)
(532)
6,139
37
(713)
4,307
(1,003)
13
(1,367)
2,940
2,715
225
2,940
1,172
169
(18)
187
169
Pence
Pence
14
14
0.59
0.58
(0.00)
(0.00)
The notes on pages 36 to 71 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 £1,741,000 (2016: loss of £5,474,000).
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 31
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Profit for the year
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Currency translation differences
Other comprehensive (loss)/gain for the year
Total comprehensive gain for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive gain for the year
Notes
2017
£’000
2,940
2016
£’000
169
(622)
(622)
2,318
2,096
222
2,318
9,343
9,343
9,512
9,198
314
9,512
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 36 to 71 are an integral part of these consolidated financial statements.
3.0 Financial Statements
32 Annual Report 2017 | EKF Diagnostics Holdings plc
Consolidated and Company’s Statements
of Financial Position
as at 31 December 2017
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
Notes
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
16
17
18
20
21
27
22
21
27
23
28
29
32
32
31
25
27
24
26
27
25
12,121
12,124
43,600
46,503
1,460
538
1,510
538
-
152
-
34
-
30,521
30,521
152
-
371
152
152
20,894
22,016
34
371
55,907
59,150
53,599
55,108
5,638
7,396
13
8,203
21,250
77,157
4,576
-
108
6,025
9,370
13
7,874
23,282
82,432
4,643
95,393
41
4,892
5,609
-
-
2,569
6,350
-
710
3,279
-
2,567
8,917
56,878
64,025
4,576
-
67
-
4,643
95,393
-
-
50,394
(45,236)
45,403
(45,673)
59,970
60,450
50,046
54,363
528
521
-
-
60,498
60,971
50,046
54,363
872
3,467
4,339
9,429
1,062
1,473
23
333
12,320
16,659
1,130
3,751
4,881
9,401
693
1,160
738
4,588
16,580
21,461
-
-
-
5,770
1,062
-
-
-
6,832
6,832
-
-
-
4,828
693
-
-
4,141
9,662
9,662
Total equity and liabilities
77,157
82,432
56,878
64,025
The notes on pages 36 to 71 are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 14 March 2018
and signed on its behalf by:
Julian Baines
Chief Executive Officer
EKF Diagnostics Holdings plc
Registered no: 04347937
Richard Evans
Finance Director and Chief Operating Officer
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 33
Consolidated and Company’s Statements
of Cash Flows
for the year ended 31 December 2017
Cash flow from operating activities
Cash generated by operations
Interest paid
Income tax (paid)/received
Net cash generated by operating activities
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
Notes
35
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
10,118
(106)
(959)
9,053
8,816
4,270
(496)
623
(48)
(19)
8,943
4,203
-
250
(1,361)
(1,261)
(852)
(663)
128
53
211
37
35
-
(15)
(65)
-
-
646
(283)
(13)
350
250
(27)
(56)
-
-
Net cash (used in)/generated by investing activities
(2,032)
(1,426)
(80)
167
Cash flow from financing activities
Proceeds from issuance of Ordinary Shares
28
-
4,539
-
4,539
Share based payments
Share buy back
New loans
(1,505)
(241)
-
-
(1,505)
(241)
-
-
-
5,957
-
3,500
Repayments on borrowings
(4,458)
(12,555)
(4,141)
(6,000)
Dividend payment to non-controlling interest
(215)
(54)
-
Net cash (used in)/generated by financing activities
(6,419)
(2,113)
(5,887)
Net increase/(decrease) in cash and cash equivalents
602
5,404
(1,764)
Cash and cash equivalents at beginning of year
Exchange (losses)/gains on cash and cash equivalents
7,874
(273)
Cash and cash equivalents at end of year
23
8,203
2,017
453
7,874
2,567
(93)
710
-
2,039
2,556
11
-
2,567
3.0 Financial Statements
34 Annual Report 2017 | EKF Diagnostics Holdings plc
Consolidated Statement of Changes in Equity
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 2016
4,221
91,276
41
(3,607)
(45,438)
46,493
261
46,754
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
-
-
-
-
422
4,117
-
-
-
-
-
-
-
-
(18)
(18)
187
169
9,216
-
9,216
127
9,343
9,216
(18)
9,198
314
9,512
-
-
-
-
-
-
220
4,539
-
220
-
4,539
(54)
-
(54)
220
220
4,759
(54)
4,705
Dividends to non-controlling interest
Share-based payments
Total contributions by and
distributions to owners
At 31 December 2016 and
1 January 2017
Comprehensive income
Profit for the year
Other comprehensive income
Currency translation differences
Total comprehensive (expense)/
income
Transactions with owners
Share cancellation
Capital reconstruction
Dividends to non-controlling interest
Share-based payments
Total contributions by and
distributions to owners
4,643
95,393
41
5,609 (45,236)
60,450
521
60,971
-
-
-
(67)
-
-
-
-
-
-
-
(95,393)
-
-
-
-
-
67
-
-
-
(67)
(95,393)
67
-
2,715
2,715
225
2,940
(717)
98
(619)
(3)
(622)
(717)
2,813
2,096
222
2,318
-
-
-
-
-
(3,121)
(3,121)
95,393
-
545
-
-
545
-
-
(215)
-
(3,121)
-
(215)
545
92,817
(2,576)
(215)
(2,791)
At 31 December 2017
4,576
-
108
4,892
50,394
59,970
528
60,498
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 35
Company’s Statement of Changes in Equity
Share
capital
£’000
Share
premium
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
Company
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
4,221
91,276
-
-
-
-
422
4,117
-
-
422
4,117
At 31 December 2016 and 1 January 2017
4,643
95,393
Comprehensive income
Loss for the year
Total comprehensive expense
Transactions with owners
Share cancellation
Capital reconstruction
Share-based payments
Total contributions by and distributions
to owners
At 31 December 2017
-
-
(67)
-
-
-
-
-
(95,393)
-
(67)
(95,393)
4,576
-
-
-
-
-
-
-
-
-
-
(40,419)
55,078
(5,474)
(5,474)
(5,474)
(5,474)
-
4,539
220
220
220
4,759
(45,673)
54,363
(1,741)
(1,741)
(1,741)
(1,741)
67
(3,121)
(3,121)
-
-
67
67
95,393
545
-
545
92,817
(2,576)
45,403
50,046
3.0 Financial Statements 36 Annual Report 2017 | EKF Diagnostics Holdings plc
Notes to the Financial Statements
for the year ended 31 December 2017
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 has presence in the UK, USA,
Germany, Russia, and China, and sells throughout the world including Europe, the Middle East, 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 all years
presented, 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
(IFRSs), IFRS IC 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 2017. They do not materially impact on the Group results:
• Annual improvements 2010 – 2012
• Annual improvements 2012 – 2014
• Annual Improvements 2014 - 2016
• Amendment to IAS 12, ‘Recognition of Deferred Tax Assets for Unrealised Losses
• Amendment to IAS 7, ‘Disclosure Initiative’
(b) New standards, amendments and interpretations issued but not effective for the financial
year beginning 1 January 2017 and not early adopted.
A number of new standards and amendments to standards and interpretations are effective for
annual periods beginning on or after 1 January 2018, and have not been applied in preparing
these financial statements. None of these is expected to have a significant effect on the financial
statements of the group or parent company, except the following, set out below:
•
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition
of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to
the classification and measurement of financial instruments. IFRS 9 retains but simplifies
the mixed measurement model and establishes three primary measurement categories for
financial assets: amortised cost; fair value through other comprehensive income; and fair
value through profit or loss. The basis of classification depends on the entity’s business
model and the contractual cash flow characteristics of the financial asset. Investments in
equity instruments are required to be measured at fair value through profit or loss with
the irrevocable option at inception to present changes in fair value in other comprehensive
income, not recycling. An expected credit losses model replaces the incurred loss impairment
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 37
•
•
model used in IAS 39. For financial liabilities, there are no changes to classification
and measurement, except for the recognition of changes in own credit risk in other
comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9
is effective for accounting periods beginning on or after 1 January 2018. Early adoption is
permitted. The group is working towards the implementation of IFRS 9 on 1 January 2018. It
anticipates that the classification and measurement basis for its financial assets and liabilities
will be largely unchanged by adoption of IFRS 9, and expects to take the accounting policy
choice to continue to account for all hedges under IAS 39. The main impact of adopting IFRS
9 is likely to arise from the implementation of the expected loss model. No material impact on
profit for future periods is expected.
IFRS 15, ‘Revenue from contracts with customers’, deals with revenue recognition and
establishes principles for reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. Revenue is recognised when a customer obtains control of a good
or service and thus has the ability to direct the use and obtain the benefits from the good
or service. Variable consideration is included in the transaction price if it is highly probable
that there will be no significant reversal of the cumulative revenue recognised when the
uncertainty is resolved. The standard replaces IAS 18, ‘Revenue’, and IAS 11, ‘Construction
contracts’, and related interpretations. The standard is effective for annual periods beginning
on or after 1 January 2018, and earlier application is permitted. The group is working towards
the implementation of IFRS 15 on 1 January 2018 and has carried out a review of existing
contractual arrangements as part of this process. The directors anticipate there will be no
material impact. The profile of cash receipts is not affected by this standard.
IFRS 16, ‘Leases’, addresses the definition of a lease, recognition and measurement of leases,
and it establishes principles for reporting useful information to users of financial statements
about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is
that most operating leases will be accounted for on balance sheet for lessees. The standard
replaces IAS 17, ‘Leases’, and related interpretations. The standard is effective for annual
periods beginning on or after 1 January 2019, and earlier application is permitted, subject to
EU endorsement and the entity adopting IFRS 15, ‘Revenue from contracts with customers’,
at the same time. Based on existing operating leases under IAS 17, the directors estimate that,
if IFRS 16 were implemented on 1 January 2018, additional land and buildings of £480,000,
and vehicles and machinery of £128,000 would be recognised, together with an additional
lease liability of £608,000. In future periods, the operating lease charge would be replaced by
a depreciation charge that, whilst lower over the life of the lease than the current operating
lease charge, is not expected to be materially different. The directors are in the process of
reviewing contracts to identify any additional lease arrangements that would need to be
recognised under IFRS 16.
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.
The restructuring and cost saving actions taken in late 2015 and early 2016 allowed the Group to
become cash generative in the second half of 2016, and this has continued through 2017. As a result
the Group has been able to significantly reduce its borrowings during the year.
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.
3.0 Financial Statements 38 Annual Report 2017 | EKF Diagnostics Holdings plc
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’.
(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.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 39
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
Fixtures and fittings
Plant and machinery
Motor vehicles
2%–2.5%
20%–25%
20%–33.3%
25%
The assets’ residual values and useful economic lives are reviewed regularly, and adjusted if
appropriate, at the end of each reporting period.
An asset’s carrying value is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
Gains and losses on the disposal of assets are determined by comparing the proceeds with the
carrying amount and are recognised in administration expenses in the income statement.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share
of the net 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 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.
3.0 Financial Statements
40 Annual Report 2017 | EKF Diagnostics Holdings plc
(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.
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.
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
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 41
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.
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
3.0 Financial Statements 42 Annual Report 2017 | EKF Diagnostics Holdings plc
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.
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
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 43
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.
(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 each reporting date 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.
(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
3.0 Financial Statements 44 Annual Report 2017 | EKF Diagnostics Holdings plc
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, and Rouble, 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, and Roubles, as the Group has subsidiary businesses
located in the USA, Germany, and Russia.
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
US Dollar
Average
rate
2017
Average
rate
2016
Year end
rate
2017
Year end
rate
2016
1.145
1.229
1.125
1.170
75.689
90.826
77.963
75.550
1.295
1.356
1.350
1.233
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 £45,000 and £73,000 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.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 45
(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 or require payment in advance
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 insurance is taken out where appropriate and cost effective.
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 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, where the benefit outweighs the administrative cost.
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 2017:
Borrowings (inc. finance leases)
Deferred consideration
Trade and other payables
At 31 December 2016:
Borrowings (inc. finance leases)
Deferred consideration
Trade and other payables
188
1,062
9,429
4,750
693
9,300
Less than
one year
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
More than
5 years
£’000
Total
£’000
1,134
1,062
9,429
193
599
154
-
-
-
-
-
-
221
664
347
5,982
-
-
-
-
-
-
693
9,300
(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 2017 (2016: none).
3.0 Financial Statements 46 Annual Report 2017 | EKF Diagnostics Holdings plc
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) 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, however litigation in Germany is continuing.
Having taken legal advice the Directors believe that no settlement provision is required in relation
to this dispute, however an accrual for legal costs has been set.
A dispute which had arisen with a second distributor in relation to issues with the registration of a
product was settled during the year.
(b) Impairment of goodwill and intangible assets
The Group tests annually whether goodwill and other intangible assets have suffered any
impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of
cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates as set out in note 17.
(c) Share-based payments
A number of accounting estimates and judgements are incorporated within the calculation of the
charge to the income statement in respect of share-based payments. These are described in more
detail in note 30.
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 sale of diagnostic
instruments, reagents and certain ancillary products, as well as central laboratory reagents. This
activity takes place across various countries, such as the USA, Germany, 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.
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.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 47
5. Segmental reporting continued
The segment information provided to the Board for the reportable segments for the year ended 31
December 2017 is as follows:
2017
Income statement
Revenue
Inter-segment
Germany
£’000
USA
£’000
Russia
£’000
Other
£’000
Total
£’000
21,006
22,856
2,742
4
46,608
(5,024)
-
-
-
(5,024)
External revenue
15,982
22,856
2,742
4
41,584
Adjusted EBITDA*
5,883
7,730
686
(4,995)
9,304
Exceptional items (Note 7)
(207)
19
-
1,750
1,562
Share-based payments (Note 30)
-
-
-
(1,514)
(1,514)
EBITDA
Depreciation
Amortisation
5,676
7,749
(808)
(300)
686
(30)
(4,759)
9,352
(22)
(1,160)
(2,673)
(1,036)
(28)
274
(3,463)
Operating profit/(loss)
2,195
6,413
628
(4,507)
Net finance costs
(48)
14
37
(425)
4,729
(422)
Income tax
476
(1,322)
(177)
(344)
(1,367)
Retained profit/(loss)
2,623
5,105
488
(5,276)
2,940
Segment assets
Operating assets
40,959
24,219
573
26,363
92,114
Inter-segment assets
(168)
-
-
(22,992)
(23,160)
External operating assets
40,791
24,219
3,118
3,376
573
994
3,371
715
68,954
8,203
43,909
27,595
1,567
4,086
77,157
Cash
Total assets
Segment liabilities
Operating liabilities
13,543
20,467
Inter-segment liabilities
(8,294)
(14,990)
External operating liabilities
5,249
5,477
Borrowings
Total liabilities
1,056
-
6,305
5,477
132
-
132
-
132
4,472
38,614
124
(23,160)
4,596
15,454
149
1,205
4,745
16,659
Other segmental information
Non-current assets – PPE
6,443
4,164
53
Non-current assets – Intangibles
28,461
13,638
119
PPE – additions
Intangible assets – additions
1,033
293
290
23
484
-
1,461
1,382
15
75
12,121
43,600
1,361
852
* Adjusted EBITDA excludes exceptional items and share-based payments.
3.0 Financial Statements 48 Annual Report 2017 | EKF Diagnostics Holdings plc
5. Segmental reporting continued
2016
Income statement
Revenue
Inter-segment
Germany
£’000
US
£’000
Russia
£’000
Other
£’000
Total
£’000
19,417
21,199
2,677
33
43,326
(4,716)
1
-
(22)
(4,737)
External revenue
14,701
21,200
2,677
11
38,589
Adjusted EBITDA*
Exceptional items (Note 7)
Share based payments (Note 30)
3,982
(28)
-
6,136
599
(4,578)
6,139
(525)
-
-
-
21
(973)
(532)
(973)
EBITDA
Depreciation
Amortisation
3,954
5,611
599
(5,530)
4,634
(711)
(405)
(2,124)
(1,519)
(27)
(29)
(66)
(80)
(1,209)
(3,752)
Operating profit/(loss)
1,119
3,687
543
(5,676)
Net finance costs
Income tax
(41)
68
(155)
1,245
29
(509)
(126)
(15)
Retained profit/(loss)
1,146
4,777
446
(6,200)
(327)
(676)
1,172
169
Segment assets
Operating assets
44,703
30,170
623
37,570
113,066
Inter-segment assets
(653)
(3,870)
-
(33,985)
(38,508)
External operating assets
44,050
26,300
2,032
2,192
623
959
3,585
74,558
2,691
7,874
46,082
28,492
1,582
6,276
82,432
Cash
Total assets
Segment liabilities
Operating liabilities
17,359
27,463
Inter-segment liabilities
(10,490)
(22,082)
External operating liabilities
Borrowings
Total liabilities
6,869
1,191
5,381
195
8,060
5,576
Other segmental information
Non-current assets – PPE
6,004
4,538
Non-current assets – Intangibles
29,680
15,555
PPE- additions
Intangible assets – additions
1,058
285
169
308
137
-
137
-
137
71
151
7
-
9,290
54,249
(5,934)
(38,506)
3,356
4,332
7,688
1,511
1,117
27
70
15,743
5,718
21,461
12,124
46,503
1,261
663
* Adjusted EBITDA excludes exceptional items and share-based payments.
‘Other’ primarily relates to the holding company and head office costs. Poland is included in Germany as a result of the
closure of the Polish operations during the year.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 49
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
Asia and Rest of World
China
Rest of Asia
New Zealand/Australia
Total revenue
2017
£’000
2016
£’000
17,174
3,195
6,016
300
3,423
2,743
2,912
1,611
915
3,168
127
15,122
3,979
6,082
276
2,761
2,687
2,870
882
929
2,922
79
41,584
38,589
No single external customer represented more than 10% of revenues in either 2017 or 2016.
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
Exceptional items (note 7)
Research and development expenses
Foreign exchange
Operating lease payments
Other expenses
Total cost of sales and administrative expenses
Included within the above expenses are exceptional items as set out in note 7.
2017
£’000
7,848
2016
£’000
11,388
17,005
14,636
(364)
4,623
(1,562)
(267)
4,961
532
2,203
2,039
239
480
481
477
6,435
4,754
36,907
39,001
3.0 Financial Statements 50 Annual Report 2017 | EKF Diagnostics Holdings plc
7. Exceptional items
Included within administrative expenses are exceptional items as shown below:
– Warranty claim
– Business reorganisation costs
- Cancellation of shares
Exceptional items
Note
a
b
c
2017
£’000
339
(183)
1,406
1,562
2016
£’000
129
(661)
-
(532)
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 in 2017 with the closure of EKF’s Polish facility
and other restructuring activities.
c. Fair value of shares released to EKF by former shareholders of Selah Genomics Inc. which had been issued as
part of the consideration for the acquisition of Selah, but held in escrow. These shares have subsequently been
cancelled.
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
2017
£’000
2016
£’000
28
28
69
23
11
131
64
19
11
122
2017
£’000
1,745
19
1,764
2016
£’000
577
18
595
Retirement benefits are accruing to 2 (2016: 2) current directors under a defined contribution scheme. See
further disclosures within the Remuneration Report on page 23.
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)
Group
2017
£’000
13,304
2,019
1,514
168
Group
2016
£’000
11,681
1,763
973
219
17,005
14,636
Company
2017
£’000
Company
2016
£’000
2,177
240
1,514
45
3,976
1,696
303
973
47
3,019
Employee costs of £0.4m (2016: £0.3m) have been capitalised as part of development costs in the Group.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 51
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
Group
2017
Number
Group
2016
Number
Company
2017
Number
Company
2016
Number
54
17
61
160
292
56
16
63
173
308
10
4
3
-
17
11
3
4
-
18
The total number of employees (FTEs) in the Group at 31 December 2017 was 296 (2016: 299), and in the
Company was 17 (2016: 19).
12. Finance income and costs
Finance costs:
– Bank borrowings
– Other interest
– Financial liabilities at fair value through profit or loss – losses/(gains)
– Convertible debt
Finance costs
Finance income
– Interest income on cash and short-term deposits
– Other interest
Finance income
Net finance costs
2017
£’000
2016
£’000
83
23
369
-
475
14
39
53
338
158
208
9
713
37
-
37
422
676
3.0 Financial Statements
52 Annual Report 2017 | EKF Diagnostics Holdings plc
13. Income tax
Group
Current tax:
Current tax on profit/(loss) for the year
Adjustments for prior periods
Total current tax
Deferred tax (note 27):
Origination and reversal of temporary differences
Total deferred tax
Income tax charge/(credit)
2017
£’000
2,045
(100)
1,945
(578)
(578)
1,367
2016
£’000
1,602
(2,219)
(617)
(555)
(555)
(1,172)
The Finance Act 2015 which was substantively enacted in 2015 included legislation to reduce the main rate of
UK corporation tax to 19% from 1 April 2017 and the Finance Act 2016 which was substantively 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 profit/(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:
Profit/(loss) before tax
Tax calculated at domestic tax rates applicable to UK standard
rate of tax of 19.25% (2016: 20%)
Tax effects of:
– Expenses not deductible for tax purposes
– Remeasurement of deferred tax – change in future tax rate
– Income not subject to tax
– Utilisation of losses carried forward/ group relief
– Adjustment in respect of prior years
– Impact of different tax rates in other jurisdictions
– Other movements
Tax charge/(credit)
2017
£’000
4,307
829
31
(360)
267
(178)
(100)
634
244
1,367
2016
£’000
(1,003)
(201)
390
-
-
(63)
(2,219)
428
493
(1,172)
There are no tax effects on the items in the statement of other comprehensive income.
14. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by
the weighted average number of Ordinary Shares in issue during the year.
Profit/(loss) attributable to owners of the parent
2017
£’000
2,715
2016
£’000
(18)
Weighted average number of Ordinary Shares in issue
463,098,526
446,042,831
Basic profit/(loss) per share
0.59 pence
(0.00) pence
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 53
(b) Diluted
Diluted earnings 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 shares: equity-based long-term incentive plans and
share options. The potential shares were not dilutive in 2016 as the Group made a loss per share.
Profit/(loss) attributable to owners of the parent
2017
£’000
2,715
2016
£’000
(18)
Weighted average diluted number of Ordinary Shares
469,343,547
446,042,831
Diluted profit/(loss) per share
0.58 pence
(0.00) pence
Weighted average number of Ordinary Shares in issue
463,098,526
446,042,831
2017
2016
Adjustment for:
– Assumed conversion of share awards
– Assumed payment of equity deferred consideration
2,201,081
-
4,043,940
4,043,940
Weighted average number of Ordinary Shares
including potentially dilutive shares
469,343,547
450,086,771
15. Dividends
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, and through a programme
of share buy backs. The Board will however consider the payment of dividends if and when
appropriate.
3.0 Financial Statements
54 Annual Report 2017 | EKF Diagnostics Holdings plc
16. Property, plant and equipment
Group
Cost
Land and
buildings
£’000
Fixtures &
fittings
£’000
Plant and
machinery
£’000
Motor
vehicles
£’000
At 1 January 2016
7,877
1,080
Additions
Transfers
Exchange differences
Disposals
623
214
1,146
(31)
8,071
496
(201)
1,349
135
(13)
170
(232)
(1,027)
At 31 December 2016
9,829
1,140
8,688
Accumulated depreciation
At 1 January 2016
Charge for the year
Exchange differences
Disposals
At 31 December 2016
Net book value at 31 December 2016
Cost
At 1 January 2017
Additions
Exchange differences
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charge for the year
Exchange differences
Disposals
At 31 December 2017
Net book value at 31 December 2017
782
232
124
(31)
1,107
8,722
9,829
197
(265)
(106)
9,655
1,107
278
(54)
(61)
1,270
8,385
655
168
104
(144)
783
357
1,140
136
(39)
(19)
1,218
783
181
(17)
(19)
928
290
4,976
781
829
(876)
5,710
2,978
8,688
1,006
243
(267)
9,670
5,710
672
117
(226)
6,273
3,397
97
7
-
49
(11)
142
32
28
24
(9)
75
67
142
22
(2)
(23)
139
75
29
-
(14)
90
49
Total
£’000
17,125
1,261
-
2,714
(1,301)
19,799
6,445
1,209
1,081
(1,060)
7,675
12,124
19,799
1,361
(63)
(415)
20,682
7,675
1,160
46
(320)
8,561
12,121
Depreciation expense of £733,000 (2016: £774,000) has been charged to cost of sales and £427,000
(2016: £435,000) has been charged to administrative expenses.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 55
16. Property, plant and equipment continued
Company
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
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charge for the year
At 31 December 2017
Net book value
At 31 December 2017
Land and
buildings
£’000
Fixtures
and fittings
£’000
1,673
-
-
1,673
163
40
-
203
89
27
(1)
115
52
24
(1)
75
Total
£’000
1,762
27
(1)
1,788
215
64
(1)
278
1,470
40
1,510
1,673
-
1,673
203
40
243
115
15
130
75
25
100
1,788
15
1,803
278
65
343
1,430
30
1,460
The Company’s freehold property is in Germany and occupied by its subsidiary undertaking, EKF-
diagnostic GmbH. EKF-diagnostic GmbH is paying rental income of €13,900 (£11,880) per month
to the parent Company. €167,000 (£148,400) (2016: €167,000 (£142,700)) 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
2017
£’000
2016
£’000
-
-
-
37
(3)
34
3.0 Financial Statements 56 Annual Report 2017 | EKF Diagnostics Holdings plc
17. Intangible assets
Group
Cost
Non-compete
agreements
£’000
Goodwill
£’000
Trademarks,
trade name and
licences
£’000
Customer
relationships
£’000
Trade
secrets
£’000
Development
costs
£’000
Total
£’000
At 1 January 2016
70
23,718
2,493
13,815
16,878
7,782
64,756
Additions
Exchange differences
-
-
-
3,319
45
514
-
2,561
-
1,747
618
385
663
8,526
At 31 December 2016
70
27,037
3,052
16,376
18,625
8,785
73,945
Accumulated amortisation
At 1 January 2016
70
2,082
Exchange differences
Charge for the year
-
-
146
-
At 31 December 2016
70
2,228
1,378
187
332
1,897
4,555
8,866
4,878
21,829
844
1,418
654
1,074
30
928
1,861
3,752
6,817
10,594
5,836
27,442
Net book value
At 31 December 2016
Cost
At 1 January 2017
Additions
Elimination
Exchange differences
At 31 December 2017
70
-
(70)
-
-
-
-
(38)
26,999
Accumulated amortisation
At 1 January 2017
70
2,228
Exchange differences
Charge for the year
Elimination
Impairment
At 31 December 2017
Net book value
At 31 December 2017
-
-
(70)
-
-
-
42
-
-
333
2,603
-
24,809
1,155
9,559
8,031
2,949
46,503
27,037
3,052
16,376
18,625
8,785
73,945
135
-
(18)
3,169
1,897
4
273
-
-
-
-
-
-
(655)
15,721
362
18,987
717
(434)
142
852
(504)
(207)
9,210
74,086
6,817
(246)
1,310
-
-
10,594
5,836
27,442
161
917
-
-
124
356
(434)
274
85
2,856
(504)
607
2,174
7,881
11,672
6,156
30,486
24,396
995
7,840
7,315
3,054
43,600
Amortisation charge of £49,000 (2016: £34,000) has been charged to cost of sales and £2,807,000 (2016: £3,718,000)
has been charged to administrative expenses in the income statement.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 57
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
2017
£’000
17,602
-
100
2016
£’000
17,055
322
103
6,694
7,329
24,396
24,809
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 2017 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 2017 for the value in use calculations of cash generating units with
significant goodwill are as follows:
Longer-term growth rate
Discount rate
EKF
Germany
%
3
10
DiaSpect
%
Stanbio
%
2
10
3
10
STI
%
3
10
The discount rate used is based on a common risk profile across the Group.
The impairment assessments for EKF Germany, 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 7% 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
14% would result in an impairment.
The remaining average useful lives of the intangibles are as follows:
Trade name
Customer relations
Trade secrets
Development costs
2–6 years
1–11 years
4–11 years
4-11 years
The Company holds capitalised development costs with a cost and net value of £1,876,000 (2016:
£1,253,000) and £538,000 (2016: £538,000) respectively. These are amortised over their useful
life and an amortisation charge of £65,000 (2016: 317,000) has been recognised in the income
statement in 2017.
3.0 Financial Statements
58 Annual Report 2017 | EKF Diagnostics Holdings plc
18. Investments in subsidiaries
Company Shares in Group undertakings
At 1 January and 31 December 2017
2017
£’000
2016
£’000
30,521
30,521
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 as at 31 December 2017 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
Separation Technology, Inc
1261 N Main LP
Stanlab Management LLC
1261 N Main Management LLC
EKF POC, LLC
Argutus Intellectual Property Limited
EKF Diagnostics Limited (Ireland)
EKF Diagnostics (Shanghai) Co. Ltd
Notes
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% (Indirect)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
Ordinary
100% (indirect)
Ordinary
100% (indirect)
Ordinary
60% (indirect)
100%
Ordinary
Ordinary
100% (indirect)
Partnership
100% (indirect)
Ordinary
100% (indirect)
Partnership
100% (indirect)
100% (indirect)
100% (indirect)
100% (indirect)
100%
Ordinary
Ordinary
Ordinary
Ordinary
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
Sale of diagnostic equipment
Intermediate holding company
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Dormant
Dormant
Dormant
Dormant
Dormant
Manufacture and sale of
diagnostic equipment
100%
Ordinary
Dormant
1. 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.
2. Incorporated in Sweden. The principal place of business is in Germany. The registered address
is Lytta Gard, 75593 Uppsala, Sweden.
3. Incorporated, registered, and having its principal place of business in Germany at Ebendorfer
Chaussee 3, 39179 Barleben, Germany.
4. Incorporated, registered, and having its principal place of business in Poland at ul. Kazimierza
Wielkiego 58, 32-400 Myślenice, Poland.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 59
5. Incorporated, registered, and having its principal place of business in Russia at 117648,
Moscow, PO Box: 30,
District Severnoe Chertanovo, House 2, building 207.
6. 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.
7. 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.
8. 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
Subsequent to 31 December 2017 Renalytix AI, Inc. was incorporated and registered in the United
States of America. It is directly owned by the parent Company.
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 financial statements 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
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
Trade and other receivables excluding prepayments
and corporation tax
7,120
8,481
23,325
28,286
Cash and cash equivalents
8,203
7,874
710
2,567
Total
15,323
16,355
24,035
30,853
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
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
Borrowings (excluding finance lease liabilities)
1,205
5,685
Finance lease liabilities
Trade and other payables
Deferred consideration
Total
-
9,320
1,062
33
9,300
693
-
-
5,718
1,062
4,141
-
4,776
693
11,587
15,711
6,780
9,610
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 £1,062,000
(2016: £693,000) 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 2017 and 31 December 2016, 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
60 Annual Report 2017 | EKF Diagnostics Holdings plc
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
31 December
2017
£’000
1,997
6,206
8,203
2017
£’000
152
-
152
2016
£’000
2,929
4,945
7,874
2016
£’000
402
(250)
152
The investment consists of a 0.66% (2016: 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.
21. Trade and other receivables
Non-current
Amounts owed by subsidiary undertakings
-
-
20,894
22,016
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Prepayments
Amounts owed by subsidiary undertakings
Corporation tax receivable
Other receivables
5,476
(285)
5,191
272
-
4
1,929
7,396
5,669
(69)
5,600
212
-
677
2,881
9,370
-
-
-
-
-
-
137
80
2,374
6,233
-
58
-
37
2,569
6,350
The Directors consider that the carrying amount of trade and other receivables approximates to
their fair value.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 61
As of 31 December 2017, trade receivables of £1,286,000 (2016: £818,000) 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
Group
2017
£’000
761
525
1,286
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
805
13
818
-
-
-
-
-
-
As of 31 December 2017, trade receivables of £285,000 (2016: £69,000) were impaired and
provided for. The ageing of these impaired receivables is as follows:
6 months to one year
Total
Group
2017
£’000
285
285
Group
2016
£’000
69
69
Company
2017
£’000
Company
2016
£’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
Exchange differences
At 31 December
Group
2017
£’000
69
221
(4)
-
(1)
285
Group
2016
£’000
5,575
2
(5,123)
(458)
73
69
Company
2017
£’000
Company
2016
£’000
-
-
-
-
-
-
-
-
-
-
-
-
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
2017
£’000
195
3,763
3,259
72
107
Group
2016
£’000
295
5,256
3,226
96
497
Company
2017
£’000
Company
2016
£’000
195
8,304
6,051
4,123
14,963
18,192
-
-
-
-
7,396
9,370
23,462
28,366
3.0 Financial Statements
62 Annual Report 2017 | EKF Diagnostics Holdings plc
22. Inventories
Raw materials
Work in progress
Finished goods
Group
2017
£’000
3,763
582
1,293
Group
2016
£’000
3,026
1,019
1,980
5,638
6,025
Company
2017
£’000
Company
2016
£’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 £2,162,000 (2016: £3,237,000).
The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to
£7,848,000 (2016: £11,388,000).
The Company held no inventories at 31 December 2017 or at 31 December 2016..
23. Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents (excluding bank overdrafts)
Group
2017
£’000
8,203
8,203
Group
2016
£’000
7,874
7,874
Company
2017
£’000
Company
2016
£’000
710
710
2,567
2,567
The Directors consider that the carrying amount of cash and cash equivalents approximates to
their fair value.
24. Trade and other payables
Trade payables
Amounts due to subsidiary undertakings
Social security
Other payables
Accrued expenses and deferred income
Group
2017
£’000
1,492
-
109
1,926
5,902
9,429
Group
2016
£’000
1,198
-
101
2,193
5,909
9,401
Company
2017
£’000
Company
2016
£’000
123
145
3,060
2,983
52
1,722
813
52
800
848
5,770
4,828
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 63
25. Borrowings
Non-current
Bank borrowings
Current
Bank borrowings
Convertible loan
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
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
872
872
184
149
-
333
1,130
1,130
4,364
191
33
4,588
-
-
-
-
-
-
-
–
4,141
-
-
4,141
Group
2017
£’000
Group
2016
£’000
Company
2017
£’000
Company
2016
£’000
333
184
550
138
4,588
211
610
309
1,205
5,718
-
-
-
-
-
4,141
-
-
-
4,141
(a) Bank borrowings
Bank borrowings mature in 2023 and bear an average fixed coupon of 2.5% annually (2016: 2.81%).
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 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 quarterly instalments.
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.
3.0 Financial Statements
64 Annual Report 2017 | EKF Diagnostics Holdings plc
The carrying amounts of the Group’s bank borrowings are denominated in the following currencies:
Euros
US Dollar
GBP
Total
Group
2017
£’000
1,056
-
-
Group
2016
£’000
1,191
3,803
500
1,056
5,494
Company
2017
£’000
Company
2016
£’000
-
-
-
-
-
3,641
500
4,141
(b) Convertible loan
In 2013 Andrew Webb loaned £200,000 to EKF Molecular Diagnostics Limited in return for a
convertible loan note. The note was 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. The principal was split into a debt element and an equity
element. The equity element is disclosed in Other Reserves. The note is denominated in sterling. In
July 2017 it was agreed to make repayments of the principal of the debt up to a total of £102,000.
Mr Webb has waived any rights to interest or to conversion and been granted certain rights to
participate in any future commercialisation of EKF Molecular’s technology. Following the completion
of payment of the £102,000, payment of the remaining £98,000 will either be waived, or if agreed
by both parties, paid to Mr Webb as compensation for waiving his future commercialisation rights.
(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
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
26. Deferred consideration
At 1 January
Fair value adjustment
At 31 December
2017
£’000
2016
£’000
-
-
-
-
37
37
(4)
33
2017
£’000
2016
£’000
-
-
33
33
Group
2017
£’000
693
369
1,062
Group
2016
£’000
485
208
693
Company
2017
£’000
Company
2016
£’000
693
369
1,062
485
208
693
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 2017 of £1,062,000.
Whilst agreement has been reached in principle to conclude the position, the contract amendment
has not yet been signed. All of the outstanding balance is current.
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 65
27. 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
Income statement movement (note 13)
At 31 December
2017
£’000
(13)
(34)
(47)
3,467
23
3,490
3,443
2017
£’000
4,105
(84)
(578)
3,443
2016
£’000
(13)
(371)
(384)
3,751
738
4,489
4,105
2016
£’000
4,003
657
(555)
4,105
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 2016
Credited to the income statement
Exchange differences
At 31 December 2016
At 1 January 2017
Credited to the income statement
Exchange differences
At 31 December 2017
Accelerated tax
depreciation
£’000
4,390
(569)
668
4,489
4,489
(915)
(85)
3,489
Total
£’000
4,390
(569)
668
4,489
4,489
(915)
(85)
3,489
3.0 Financial Statements
66 Annual Report 2017 | EKF Diagnostics Holdings plc
Deferred tax assets
At 1 January 2016
Charged to the income statement
Exchange differences
At 31 December 2016
At 1 January 2017
Charged to the income statement
At 31 December 2017
Tax losses
£’000
(47)
45
(11)
(13)
(13)
-
(13)
Other
£’000
(340)
(31)
-
(371)
(371)
337
(34)
Total
£’000
(387)
14
(11)
(384)
(384)
337
(47)
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 £1,173,000 (2016: £6,374,000) mainly in respect of tax losses amounting to £6,092,000
(2016: £33,109,000), 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
28. Share capital
Group and Company
At 1 January 2017
Cancellation of Ordinary shares
31 December 2017
2017
£’000
2016
£’000
34
34
371
371
Number of Shares
464,262,781
(6,708,145)
457,554,636
Share capital
£’000
4,643
(67)
4,576
On 3 October 2017 the Company acquired 1,000,000 Ordinary shares at a price of 24p per share.
On 20 October 2017 the Company acquired 5,630,032 Ordinary shares which were previously held
in escrow at a fair value of 24p per share. On 3 November 2017 the Company cancelled 6,630,032
Ordinary shares. On 22 December 2017 the Company acquired and cancelled 78,113 Ordinary shares.
29. Share premium account
Group and Company
At 1 January 2017
Cancellation of Share premium account
31 December 2017
Share premium account
£’000
95,393
(95,393)
-
Cancellation of the Company’s share premium account was approved by shareholders on 27 July
2017 and by the court on 6 September 2017. The amount has been credited to a distributable
reserve.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 67
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 2017
Cancelled
At 31 December 2017
Number
of notional shares
10,254,766
(10,254,766)
-
On 26 June 2017 the remaining options, which had an exercise price of 15p per share, were cancelled
at the election of the option holders in return for an average cash payment of approximately 6.7
pence per option share.
(b) Unapproved share option scheme
At 1 January
Granted
Cancelled
Expired
2017
Av. Exercise
price per share
(£)
2016
Av. Exercise
price per share
(£)
Options
(Number)
Options
(Number)
0.197
13,510,000
0.254
10,510,000
-
-
0.15
6,600,000
0.179
(11,360,000)
-
-
0.349
(900,000)
0.278
(3,600,000)
At 31 December
0.252
1,250,000
0.197
13,510,000
On 26 June 2017 options over a total of 11,360,000 shares, which had exercise prices of between
15p and 37.625p per share, were cancelled at the election of the option holders in return for an
average cash payment of approximately 7.1 pence per option share.
The remaining unapproved share options include the following:
• 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 options have vested.
• 100,000 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. These options vested during the year.
• 500,000 options were issued to a third party on 17 May 2015 at an exercise price of 20p.
The shares will vest from 6 April 2016 subject to certain contractual obligations which
have subsequently been completed, and to the Company’s mid-market closing share price
attaining 35p or higher. The maximum term is 10 years from grant.
All share option awards are equity settled. Out of the 1,250,000 (2016: 13,510,000) outstanding
options 750,000 (2016: 5,110,000) were exercisable at 31 December 2017.
3.0 Financial Statements
68 Annual Report 2017 | EKF Diagnostics Holdings plc
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry Date
16.06.2021
28.09.2021
07.07.2023
21.01.2024
06.04.2025
12.09.2026
2017
Exercise price
per share
(£)
-
-
Options
(Number)
-
-
2016
Exercise price
per share
(£)
Options
(Number)
0.200
4,260,000
0.252
200,000
0.2725
650,000
0.2725
650,000
0.37625
100,000
0.37625
1,300,000
0.200
500,000
0.200
500,000
-
-
0.150
6,600,000
1,250,000
13,510,000
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 £0.3m is payable to each Director, which increases by
reference to any sale price achieved. The fair value of this award has been calculated at £3,351,000
(2016: £2,100,000) using a modified form of a Black Scholes model. The key assumptions in the
model included expected volatility of 39% (2016: 60.2%), a risk free rate of 0.39% (2016: (0.03%))
and an assumed acquisition premium and option life. The increase in the liability is largely due to
the increase in share price over the period. £969,000 (2016: £753,000) has been recognised as
an expense in administrative expenses in the current year, and £1,722,000 (31 December 2016:
£753,000) is shown as a liability on the balance sheet at 31 December 2017 within trade and other
payables. The remainder of the charge to the income statement is made up of charges relating to
equity settled share-based payments relating to share options.
31. Retained earnings
At 1 January 2016
Loss for the year
Share-based payment
At 31 December 2016
At 1 January 2017
Profit/ (loss) for the year
Shares cancelled
Capital reconstruction
Share-based payment
Currency translation differences
At 31 December 2017
Group
£’000
Company
£’000
(45,438)
(40,419)
(18)
220
(5,474)
220
(45,236)
(45,673)
(45,236)
(45,673)
2,715
(492)
(3,121)
(3,121)
95,393
95,393
545
98
545
(1,249)
50,394
45,403
3.0 Financial Statements
EKF Diagnostics Holdings plc | Annual Report 2017 69
32. Other reserves
At 1 January 2016
Currency translation differences
At 31 December 2016
At 1 January 2017
Shares cancelled
Currency translation differences
At 31 December 2017
Group
Foreign
currency
reserve
£’000
(3,607)
9,216
5,609
5,609
-
(717)
4,892
Other
reserve
£’000
41
-
41
41
67
-
Total
£’000
(3,566)
9,216
5,650
5,650
67
(717)
108
5,000
In return for a payment of £200,000, Andrew Webb was granted a loan note convertible into equity
in EKF Molecular Diagnostics Limited. The equity element has been included in Other Reserves.
The debt element is included in borrowings.
33. Retirement 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 £168,000
(2016: £219,000).
34. Commitments
a) Capital commitments
The Group has contracted £166,000 (2016: £nil) 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
2017
£’000
2016
£’000
2017
£’000
180
278
58
516
149
23
-
172
79
54
-
133
Other
2016
£’000
80
124
-
204
3.0 Financial Statements 70 Annual Report 2017 | EKF Diagnostics Holdings plc
35. Cash generated by operations
Profit/(loss) before tax
4,307
(1,003)
(1,385)
(5,492)
Group
2017
£’000
Company
2016
£’000
2017
£’000
2016
£’000
Adjustments for:
– Depreciation
– Amortisation
– Warranty claim
– Loss on disposal of fixed assets
– Restructure of operations
– Share-based payments
– Escrow cancellation
– 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
1,160
3,463
(339)
(33)
1,209
3,752
(129)
30
-
(360)
1,510
(1,371)
369
233
-
53
306
1,535
(1,075)
220
-
208
481
-
468
2,767
(1,127)
2,300
Net cash generated by operations
10,118
8,816
65
65
-
-
-
1,510
(1,371)
369
93
374
64
317
-
-
-
220
-
208
(5,221)
8,717
(1,031)
(1,366)
-
-
5,608
2,679
(27)
4,270
520
646
In the statement of cash flows, proceeds from the sale of property, plant and equipment comprise:
Group
Net book value
Profit/(loss) on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment
2017
£’000
95
33
128
2016
£’000
241
(30)
211
Non-cash transactions
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
Christopher Mills’ controls 29% 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.
The Group was invoiced £18,000 (2016: £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.
3.0 Financial Statements EKF Diagnostics Holdings plc | Annual Report 2017 71
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 £594,000 (2016: £656,000) to OOO
Laboratory Diagnostic Systems, a company of which Mr Kots’ brother is a director.
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
2017
£’000
1,745
969
19
2016
£’000
577
753
18
2,733
1,348
Key management includes the Directors of the Company only.
The Company
During the year the Company invoiced management charges of £3,141,000 (2016: £2,268,000)
and interest of £1,079,000 (2016: £1,649,000) to its subsidiary companies. It purchased goods and
services from subsidiaries totalling £169,000 (2016: £120,000). At 31 December 2017 the Company
was owed £23,268,000 (2016: £28,249,000) by its subsidiaries and owed £3,060,000 (2016:
£2,983,000) to other subsidiaries.
3.0 Financial Statements
72 Annual Report 2017 | EKF Diagnostics Holdings plc
NOTICE OF ANNUAL GENERAL MEETING
EKF Diagnostics Holdings PLC (Company)
NOTICE IS HEREBY GIVEN that the Annual General Meeting (Meeting) of EKF Diagnostics Holdings
plc (Company) will be held at the offices of Harwood Capital LLP, 6 Stratton Street, Mayfair, London,
W1J 8LD on 8 May 2018 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 2017
together with the reports of the Directors and the auditors thereon.
2. To re-elect Richard Evans, who retires by rotation, as a Director.
3. 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.
4. That in substitution for any existing such authority, the Directors be and are hereby generally
and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the
“2006 Act”) to allot Relevant Securities of the Company:
(i) up to a maximum nominal amount of £62,500 (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 £457,554.64 (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 2019, 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 Resolutions
5. 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 £457,554.64 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 2019, 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.
6. That the Company be and is generally and unconditionally authorised for the purposes of
section 701(1) of the Companies Act 2006 (the “Act”) to make one or more market purchases
(within the meaning of section 693(4) of the Act) on the London Stock Exchange of ordinary
shares of £0.01 each in the capital of the Company (“Ordinary Shares”) provided that:
4.0 Additional information
EKF Diagnostics Holdings plc | Annual Report 2017 73
(i) the maximum aggregate number of Ordinary Shares authorised to be purchased is 68,633,195
(representing approximately 15 per cent. of the Company’s issued ordinary share capital);
(ii) the minimum price (excluding expenses) which may be paid for such Ordinary Shares is £0.01
per share;
(iii) the maximum price (excluding expenses) which may be paid for an Ordinary Share shall not
be more than 5 per cent. above the average of the middle market quotations for an Ordinary
Share as derived from The London Stock Exchange Daily Official List for the five business
days immediately preceding the date on which the Ordinary Share is purchased;
(iv) unless previously renewed, varied or revoked, the authority conferred shall expire at the
conclusion of the Company’s next annual general meeting or 30 June 2019, if earlier; and
(v) the Company may make a contract or contracts to purchase Ordinary Shares under the
authority conferred prior to the expiry of such authority which will or may be executed wholly
or partly after the expiry of such authority and may make a purchase of Ordinary Shares in
pursuance of any such contract or contracts.
Registered Office
Avon House
19 Stanwell Road
Penarth
CF64 2EZ
14 March 2018
BY ORDER OF THE BOARD
Salim Hamir
Company Secretary
4.0 Additional information
74 Annual Report 2017 | EKF Diagnostics Holdings plc
Notes:
1. The Company specifies that only those members registered on the Company’s register of
members at close of business on 4 May 2018 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.
2. If you are a member of the Company at the time set out in note 1 above, you are entitled to
appoint a proxy to exercise all or any of your rights to attend, speak and vote at the General
Meeting and you should have received a Proxy Form with this notice. You can only appoint a
proxy using the procedures set out in these notes and the notes to the Proxy Form.
3. A proxy does not need to be a member of the Company but must attend the General Meeting
to represent you. Details of how to appoint the chairman of the General Meeting or another
person as your proxy using the Proxy Form are set out in the notes to the Proxy Form. If you
wish your proxy to speak on your behalf at the General Meeting you will need to appoint your
own choice of proxy (not the chairman) and give your instructions directly to them.
4. You may appoint more than one proxy provided each proxy is appointed to exercise rights
attached to different shares. You may not appoint more than one proxy to exercise rights
attached to any one share. To appoint more than one proxy, please contact the Company’s
registrars at the address set out in note 5.
5. The notes to the Proxy Form explain how to direct your proxy how to vote on each resolution
or withhold their vote.
To appoint a proxy using the Proxy Form, the Proxy Form must be:
(a) completed and signed;
(b) sent or delivered to Link Asset Services, The Registry, 34 Beckenham Road, Kent BR3 4TU; and
(c)
received by Link Asset Services, at the address provided in paragraph 5(b) above no
later than 11.00 a.m. on 4 May 2018.
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.
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.
6. In the case of joint holders, where more than one of the joint holders purports to appoint a
proxy, only the appointment submitted by the most senior holder will be accepted. Seniority
is determined by the order in which the names of the joint holders appear in the Company’s
register of members in respect of the joint holding (the first-named being the most senior).
7. To change your proxy instructions simply submit a new proxy appointment using the
methods set out above. Note that the cut-off time for receipt of proxy appointments (see
above) also apply in relation to amended instructions; any amended proxy appointment
received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change
the instructions using another hard-copy proxy form, please contact Link Asset Services at
the address noted in note 5 above. If you submit more than one valid proxy appointment,
the appointment received last before the latest time for the receipt of proxies will take
precedence.
8. In order to revoke a proxy instruction you will need to inform the Company by sending a
signed hard copy notice clearly stating your intention to revoke your proxy appointment to
Link Asset Services at PXS, 34 Beckenham Road, Kent, BR3 4TU. In the case of a member
which is a company, the revocation notice must be executed under its common seal or
signed on its behalf by an 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 Link Asset Services no later than 11.00 a.m. on 4 May
2018. 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.
Appointment of a proxy does not preclude you from attending the general meeting and
voting in person. If you have appointed a proxy and attend the general meeting in person,
your proxy appointment will automatically be terminated.
9. A corporation which is a member can appoint one or more corporate representatives who
may exercise, on its behalf, all its powers as a member provided that no more than one
corporate representative exercises power over the same share.
10. Voting on all resolutions will be conducted by way of a poll rather than on a show of hands.
11. As at 5.00 p.m. on the day immediately prior to the date of posting of this notice, the
Company’s issued share capital comprised 457,554,636 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 457,554,636.
4.0 Additional information
EKF Diagnostics Holdings plc | Annual Report 2017 75
Company information
Directors:
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
Registrars:
Link 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 shareholderenquiries@linkgroup.co.uk
Financial public relations:
Walbrook PR Limited
4 Lombard Street
London
EC3V 9HD
Place of incorporation:
Investor relations email:
England and Wales (Company number –
4347937)
investors@ekfdiagnostics.com
Independent Auditors:
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
One Kingsway
Cardiff
CF10 3PW
Nominated Advisor and Broker:
N+1 Singer
1 Bartholomew Lane
London EC2N 2AX
Solicitors to the Company:
Berry Smith LLP
Haywood House
Dumfries Place
Cardiff
CF10 3GA
4.0 Additional information
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