Omega Diagnostics Group PLC Annual Report 2014

Plain-text annual report

Fighting the battle against HIV and global health challenges Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 About Us We’re committed to addressing global health challenges Our mission is to improve human health and well-being through innovative diagnostic products and global partnerships. Founded in 1987 by the current CEO Andrew Shepherd, the Omega business is focused on selling a wide range of specialist products, primarily in the immunoassay, in-vitro diagnostics (IVD) market within three segments: Allergy and autoimmune, Food intolerance and Infectious diseases. p18 p8 Financial Review Our Core Markets Allergy and autoimmune Food intolerance Infectious diseases Main products: Main products: Main products: − Allergozyme − Allergodip − Genesis Elisa Revenue share £4.0m − Genarrayt® Microarray − Immutrep Syphilis − Food Detective − Micropath Bacterial tests − Foodprint service − Dengue Elisa Revenue share £5.2m Revenue share £2.4m 34% 45% 21% Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 Financial Highlights Contents 01 O v e r v e w i Sales (£m) £11.6m 3% 11.6 11.3 11.1 2012 2013 2014 Gross proﬁt (£m) £7.4m 5% 7.4 7.1 7.0 2012 2013 2014 Adjusted proﬁt before tax (£m) £1.1m 1.0 0.8 41% 1.1 Overview IFC About Us 01 Financial Highlights 02 Our Year at a Glance 04 Chairman’s Statement Strategic Report 06 Our Business Model 08 Our Core Markets 10 Our Strategy 11 Key Performance Indicators 12 Risks and Risk Management 14 Chief Executive’s Review 16 Product Case Study 18 Financial Review Governance 20 Board of Directors 21 Senior Management Team 22 Corporate Governance Report 24 Advisers 25 Directors’ Report 27 Directors’ Remuneration Report 29 Statement of Directors’ Responsibilities Financial Statements 30 Independent Auditors’ Report 31 Consolidated Statement of Comprehensive Income 31 Adjusted Proﬁt Before Taxation 32 Consolidated Balance Sheet 33 Consolidated Statement of Changes in Equity 34 Consolidated Cash Flow Statement 35 Company Balance Sheet 36 Company Statement of Changes in Equity 37 Company Cash Flow Statement 38 Notes to the Financial Statements 63 Notice of Annual General Meeting 2012 2013 2014 64 Notes to the Notice of Annual General Meeting Gross proﬁt (%) 63.6% 1ppt 63.0 62.6 63.6 2012 2013 2014 Find up-to-date information at www.omegadiagnostics.com Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 02 Our Year at a Glance The Company has made progress on its strategic initiatives for the beneﬁt of all stakeholders Grant of US patent for Visitect® CD4 In the year, increased patent protection with patent awards in the US and Africa. This widens the protection from territories where patents have already been granted and with patents pending in other territories. Visitect® CD4 – successful completion of technology transfer In February 2014 the Company successfully completed a three-batch validation of the manufacturing protocol for the Visitect® CD4 test meeting the design parameters of clinical sensitivity, speciﬁcity, accuracy and reproducibility. p4 Chairman’s Statement p16 Product Case Study Visitect® CD4 at actual size. The test is designed to determine CD4+ T-cell levels to be determined quickly and conveniently using a ﬁnger-prick blood sample, enabling patients to receive life-saving antiretroviral treatment. Visitect® CD4 chosen for Inaugural Nominet Trust 100 Our product has been chosen for the Inaugural Nominet Trust 100, a list that celebrates the people and organisations who are utilising digital technology to change the world for the better. p16 Product Case Study Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 03 O v e r v e w i $600,000 grant from UNITAID to support manufacture Equity placing to raise £4 million completed In February 2014 the company, in conjunction with UNITAID and the Burnet Institute, Melbourne, was awarded US $600,000 of grant funding to support initial inventory build and to establish an assembly facility in India for the Visitect® CD4 test. US $540,000 was received by Omega in March 2014 and we have located a suitable facility in Pune, India. p18 Financial Review On 10 June 2013 the Company raised £4 million before expenses through the issue of 23,529,412 new ordinary shares at 17 pence per share. The placing was oversubscribed and was supported by both new and existing shareholders. www.omegadiagnostics.com Keep up to date with our latest news. View our RNS announcements online. VISITECT® CD4 App development Development completed and expected to be fully available in the coming year which will offer integration into cloud databases. This “mHealth” solution has met with great enthusiasm by global health organisations. Signiﬁcant progress on the IDS-iSYS automated analyser To date eight allergens have completed all claim support work, an additional ﬁve allergens are now in various stages of the claim support programme and a further eleven allergens have been optimised and are ready to enter claim support at the earliest opportunity. Optimisation work continues with approximately twelve allergens in the early stages of assay development. 24/40 allergens optimised Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 04 Chairman’s Statement Strategy Point-of-care (POC) testing The Group has a clear strategy to become a market leader in the provision of POC testing for infectious diseases in large parts of the world where resources remain constrained and where there are substantial unmet needs. Visitect® CD4 is the ﬁrst example of this where an estimated 17 million HIV positive patients cannot obtain the treatment they need through a lack of access to CD4 testing in rural areas. Visitect® CD4 is an instrument-free device that requires no power and no refrigeration facilities and can generate a result in 40 minutes. Beta studies in Kenya and India are providing further patient data to determine what, if any, aspects of the test require further optimisation. As this test nears commercialisation, we will continue to partner with major NGOs and global health organisations to ensure this test is delivered at the point of most need. Through our partnership with the Burnet Institute, we also have access to a POC test for syphilis which can differentiate between active infections and past infections. According to World Health Organisation (WHO) estimates, there are 12 million new cases of syphilis each year with 90% occurring in developing countries. At present, there are no POC assays on the market that can detect speciﬁc IgM antibodies and we have recently increased our in-house resource and capability to move this project forward to provide a valuable tool for improved control of syphilis worldwide. Automation When we purchased the IVD allergy business in Germany in 2010, it was the ﬁrst step in a plan to become a leading provider of allergy tests into clinical laboratories in a global market estimated to be worth over US $500 million per annum, dominated by one competitor. Since then, we have exclusively licensed the use of IDS’ automated iSYS instrument for allergy testing and invested in a long development programme covering initial feasibility, lock-down of assay protocol, optimisation and claim support work. We have also set up an in-house manufacturing facility for reagent ﬁlling. During the second half of the year, we ﬁnally saw the ﬁrst allergens to emerge from this programme following a successful claim support phase. We have eight allergens which can be run on the iSYS instrument that show comparable results to the market-leading competitor and a further 16 allergens which have now completed optimisation. Our strategic aim remains unaltered: to launch with a panel of 40 allergens, followed by a programme of menu extensions to achieve a number two market position. Our initial commercialisation plans involve working with IDS in markets where it has a direct presence, followed by expansion into other territories through third party distributors. Financial performance The Group performed well, particularly in the second half of the year, with turnover for the whole year increasing by 3% to £11.6 million (2013: £11.3 million). Gross proﬁt increased to £7.4 million (2013: £7.1 million) and total overheads were maintained at approximately £6.8 million. Adjusted proﬁt before tax (as deﬁned on page 31) increased by 41% to £1.1 million, from million £0.8 million the year before, and adjusted earnings per share were 1.2 pence (2013: 1.3 pence) reﬂecting the higher average number of shares in issue throughout the year. The Group remains in a strong cash position with cash reserves of £3.1 million (2013: £0.2 million) at the year end following the fundraising completed in June last year. A strong contribution from operating activities generated a cash inﬂow during the year of £1.7 million (2013: £1.0 million), ensuring we continued to manage our working capital with efﬁciency. David Evans Non-executive Chairman In summary – Increased patent protection for CD4 with patent awards in the US and Africa. – We successfully raised £4 million (before expenses) to ensure sufﬁcient resources are available for our CD4 and allergy projects. – Successful completion of the CD4 technology transfer project into a fully scalable manufacturing protocol. – Finalisation of the speciﬁc allergy assay protocol for use with the IDS-iSYS instrument with allergens successfully completing the development programme. – Burnet Institute and Omega successful in attracting grant funding from UNITAID with Omega receiving £0.4 million. The Group remains in a strong cash position with cash reserves of £3.1 million. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 05 O v e r v e w i Corporate governance The size and structure of the Board and its committees are kept under review to ensure an appropriate level of governance operates throughout the year. The Board comprises two Non-executive Directors and three Executive Directors who meet frequently during the year to discuss strategy and to review progress and outcomes against objectives. Whilst, as an AIM-quoted company, the Group is not required to comply with the full requirements of the UK Corporate Governance Code, we believe the Board has a good mix of skills and experience and a culture that easily enables the Non-executive members of the Board to challenge and advise the Executive team as appropriate. The Audit Committee and the Remuneration Committee are comprised of the two Non-executive Directors and the Board believes the current make-up and number of committees remain appropriate for a Group of our size. Board and employees I am very pleased that we were able to appoint Bill Rhodes as a Non-executive Director to the Board during the year and his input and insightfulness is already providing a valuable contribution. His knowledge and experience from many years spent at Becton Dickinson and elsewhere will continue to support our strategy outlined above. I would like to reiterate past thanks to Mike Gurner who retired from the Board last year, and who contributed much to the Group since it ﬁrst became a public company. Much of the progress we have made would not be achieved without the hard work of our employees. We now have 145 individuals around the world and I would personally like to thank each and every one of them for their contribution throughout this year. Positive outlook Trading in the new ﬁnancial year to date is in line with management expectations with the marginal growth in food intolerance testing being offset by the marginal decline in Allergy and Infectious disease testing. Our future landscape is brightened, as well as dominated, by the prospects for our Visitect® CD4 test, which is now well into its ﬁeld trials. However, we all have a dislike for complete uncertainty and that is our challenge in being able to set our budgets for the current year in relation to both the timing and quantum of CD4 revenues. CD4 will, without doubt, be a successful product for the Group, but we would be foolish to believe that our crystal ball is better than yours in being able to forecast with certainty the decision outputs from the NGO’s we are working with. This is primarily a global tender-based business, with timing driven by the availability of funds and the then current view of the various governments as to need. Due to this fundamental timing uncertainty we have erred on the side of caution in terms of both revenues and building our overhead base ahead of the revenue curve. When those cautious assumptions change we will update the market accordingly. We will make signiﬁcant progress this year in terms of gaining market acceptance for CD4 and I believe the prospects for the Group overall are positive. David Evans Non-executive Chairman 20 June 2014 We are determined to deliver the true beneﬁts and value from our unique Visitect® CD4 product. p14 p20 Chief Executive’s Review Governance Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 06 Our Business Model 1 We are committed to addressing global health challenges… Andrew Shepherd Chief Executive In summary Our aim is to maximise shareholder value and improve human health and well-being by generating returns from our wide range of specialist and innovative diagnostic products and through global partnerships. – The proﬁtability and strong cash contribution from core operating activities added to the commercial opportunities from the Visitect® CD4 test and automated iSYS platform are key to maximising shareholder value. – The ongoing validation studies for the Visitect® CD4 test will lead to the roll out of the test in areas of the world where patients are currently unable to access testing and treatment. Andrew Shepherd Chief Executive 20 June 2014 Our focus encompasses: Targeting areas of signiﬁcant opportunity Omega’s global reputation stems from its beginnings as a manufacturer of tests for a range of infectious diseases. This reputation led to the opportunity to license the CD4 technology to develop a point-of-care (POC) test for an estimated 17 million HIV positive patients who cannot currently access testing. We also have access to a POC test for syphilis which can differentiate between active and past infections. WHO estimates there are 12 million new cases of syphilis each year, with currently no POC assays on the market for detecting speciﬁc IgM antibodies. Team of experts In recent years Omega has signiﬁcantly expanded the senior management team, recruiting a number of key staff with years of experience within the medical diagnostics industry. Four additional development scientists have been recruited since the year end, further increasing in-house resource to accelerate the development projects. Bill Rhodes was also appointed in the year as a Non-executive Director and brings a wealth of global experience to Omega. Strategic partnerships Partnership with the Burnet Institute in Australia resulted in Omega securing an exclusive global licence to a unique, simple, lateral ﬂow POC device which conﬁrms whether a patient’s CD4 count is above or below 350 cells μl. This has the opportunity to reduce signiﬁcantly the number of patients lost to care as a result of the length of time between testing and treatment. Partnership with Immunodiagnostic Systems Group plc (IDS) enabling Omega to develop a range of allergy immunoassays on IDS’s automated system (IDS-iSYS). Combined with Omega’s experience in assay development, this forms a strong platform for allergy testing. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 2 through the commercialisation of a wide range of diagnostic products… 3 and ensuring our products reach those who need them most 07 S i t r a t e g c R e p o r t We achieve this through: This is accomplished via: Global distribution network Omega has a strong distribution network in over 100 countries and a number of the distributors in place have had long-standing relationships with Omega and sell a wide range of the Company’s products. Direct markets In Germany and India where Omega has a direct presence we have sales teams focused on the needs of end user customers. Global health initiatives The commercialisation of the Visitect® CD4 test will see us working closely with Non-Governmental Organisations (NGOs), government ministries of health and global aid agencies in order to get the test to patients who urgently require to be tested and gain access to treatment. Licensing in opportunities The Group will license in its needs in areas where it does not have in-house expertise, with the IDS instrument being an example of this. The Group looks to collaborate with world-leading global health partners who are well placed to undertake the early research phase and who then look to license out those opportunities, the Burnet Institute being an example of this. In-house development The majority of Omega’s products across all segments have been developed over many years through an investment in skilled teams of scientists. Manufacturing and marketing expertise Omega has acquired more than 25 years’ experience in the development and manufacture of products within three segments: Allergy and autoimmune, Food intolerance and Infectious disease, with each of its sites possessing ISO 9001 and ISO 13485 accreditation and being compliant with directive 98/79/EC on medical devices. Omega has a skilled and experienced global marketing team who are highly knowledgeable in the Group’s products and the markets that they are sold into. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 08 Our Core Markets Well positioned to beneﬁt from a truly global business Omega is one of the UK’s leading companies in the fast growing area of immunoassay. It has a global presence in over 100 countries worldwide through a combination of direct subsidiaries and a strong distribution network. Group revenue share by geography North America 3% 13% South/ Central America 6% 40% UK 7% 15% Europe 57% 3% Americas Europe Market Dynamics – Strong economy in Brazil and Mexico. Market Dynamics – Continued reimbursement pressure in Germany. – Huge regulatory requirement in the US (FDA). – Depressed markets in Southern Europe. Performance highlights – Growth of 88% of Food intolerance products in Brazil. Market Outlook – Focus on Mexico for growth opportunities. – Expand on a strong market position for Food intolerance in Canada. – New markets opening in Eastern Europe. Performance highlights – Business stabilised in Germany through a focus on customer service, education and training. – Regional Allergodip panel development to support Export sales. – Food intolerance remains strong in Spain and Italy. – Food intolerance continues to grow (12%). Market Outlook – Grow export business out of Germany. – Diversiﬁcation of business in Germany to maximise resources. – Continued growth in Food intolerance. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 09 A global reach allows the group to beneﬁt from fast growing economies in emerging markets while simultaneously mitigating challenging economic and political instability in certain regions of the world. Countries where our products are distributed Countries where we have a direct presence S i t r a t e g c R e p o r t Key Infectious diseases Allergy and autoimmune Food intolerance Africa and Middle East 13% 3% Asia and Far East 14% 7% Middle East and Africa Market Dynamics – Political and economic instability. – Currency availability and devaluation. – Strong market in Africa for current infectious disease products but increased competition and price pressure. Performance Highlights – Launch of FoodPrint Arabia in Gulf Countries. Asia and Far East Market Dynamics – Fast growing economies and increased expenditure on healthcare. – Currency devaluation in India. Performance Highlights – Continued growth in India despite currency devaluation combined with improved product mix. – Appointment of new distributor in Indonesia. – Strong growth in Nigeria. – New Food intolerance partner in Malaysia & Singapore. Market Outlook – Continued growth of Food intolerance in Gulf Countries. – Reverse trend in Infectious disease through Visitect® CD4 sales. Market Outlook – Diversify portfolio in India. – Focus on tier 2 & 3 cities in India. – Implement manufacturing facility in India to gain access to lower production costs. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 10 Our Strategy A clear strategy to further the Group’s progress The Group’s strategy is to increase proﬁtability and shareholder value by becoming a market leader in the provision of POC testing for infectious diseases where there are substantial unmet needs and by becoming a leading provider of allergy tests in clinical laboratories. 1 2 3 POC testing for infectious diseases Progress in 2014 Major step forward in the year with the successful completion of the technology transfer of the Visitect® CD4 test and the commencement of beta trials in India and Kenya. Completion of the development of the android smartphone App to record and transmit CD4 test results. Signiﬁcant effort in priming the market for the test, establishing the Group as a serious contender in the global health arena. Priorities for 2015 – Commercialisation of the CD4 test and roll-out to key target markets in Africa and beyond. – Progress the development of Syphilis POC as well as a test for Schistosomiasis. Automation of allergy tests on the IDS iSYS instrument Progress in 2014 Eight allergens now fully completed and can be run on the iSYS instrument showing comparable results to the market-leading competitor and a further sixteen allergens which have now completed optimisation. Agreement to work alongside IDS in markets where it has a direct presence. Continue to grow Food intolerance revenues Progress in 2014 Continued growth with sales of £5.2 million in year, an increase of 18% on the prior year. Additional instruments placed and broadening base of markets. Priorities for 2015 – Launch the iSYS instrument with a panel of 40 allergens. Priorities for 2015 – Continue to increase Genarrayt revenue per instrument. – Further programme of menu extensions – Grow revenues with introduction of new to increase competitiveness. dried blood spot test. – Broadening the portfolio in nutritional assessment. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 11 Key Performance Indicators It has been a year of solid performance for our core business. Total revenue was up by 3% to £11.6 million, principally due to a strong performance from our Food intolerance division. S i t r a t e g c R e p o r t Sales (£m) Gross proﬁt (%) Adjusted proﬁt before tax (£m) £11.6m 3% 63.6% 1ppt £1.1m 41% 11.1 11.3 11.6 63.0 62.6 63.6 1.0 0.8 1.1 2012 2013 2014 2012 2013 2014 2012 2013 2014 Progress made in 2014 Core business performed well especially in the second half of the year. Progress made in 2014 Margin improved through revenue and product mix. Progress made in 2014 Increased by 41% on prior year. Strategy for 2015 Commercialise iSYS and CD4 and continue to grow sales in India. Strategy for 2015 Increase gross proﬁt through the introduction of iSYS and CD4 sales. Strategy for 2015 Increase proﬁtability through the commercialisation of iSYS and CD4. Food intolerance – Genarrayt® (£m) Food Detective sales (£m) £2.12m 15% £1.7m 36% 2.12 1.7 1.84 1.56 1.3 1.0 2012 2013 2014 2012 2013 2014 Progress made in 2014 Continued revenue growth across a number of markets. Progress made in 2014 Continued growth in the top ﬁve markets. Strategy for 2015 Continue to grow revenue per instrument and introduce dried blood spot testing. Strategy for 2015 Continue to promote the beneﬁts of food intolerance in key markets. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 12 Risks and Risk Management Operating a system of internal control and risk management The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces. The Group’s principal risks and uncertainties are brieﬂy outlined below. Risk and description Mitigating actions Change General economic conditions The Group may be faced with changes in the general economic climate in each territory in which it operates that may adversely affect the ﬁnancial performance of the Group. Factors which may contribute include the level of direct and indirect competition against the Group, industrial disruption, rate of growth of the Group’s product segments and interest rates. The Group seeks to mitigate this risk by conducting operations on a broad geographic basis and by introducing new technologies to remain innovative. World economies in which the Group operates continue to steadily recover from the recent economic downturns. Regulatory risk The manufacturing, marketing and use of the Group’s products are subject to regulation by government and regulatory agencies in many countries. Of particular importance is the requirement to obtain and maintain approval for a product from the applicable regulatory agencies to enable the Group’s products to be marketed. Approvals can require clinical evaluation of data relating to safety, quality and efﬁcacy of a product. The Group seeks to mitigate regulatory risk by increasing the resource in this area and by conducting its operations within recognised quality assurance systems and undergoes external assessment to ensure compliance with these systems. The Group continues to operate in the same jurisdictions and there have been no detrimental changes during the year. Acquisition risk The success of the Group depends on the ability of the Directors to assimilate and integrate the operations, personnel, technologies and products of acquired companies. The Group seeks to mitigate this risk by selecting companies that meet certain criteria and by conducting a detailed due diligence review. No acquisitions in the year. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 Key Increase in risk No change in risk Decrease in risk 13 S i t r a t e g c R e p o r t Risk and description Mitigating actions Change Eurozone risk The euro area combines 18 countries with multiple domestic policies all having to operate under common monetary conditions. The legacy of the ﬁnancial crisis and differing policy choices will continue to weigh more heavily on some than others. Development risk The Group continues to undertake an increased level of development activity than in the past with the aim of launching new products in the future. There is no guarantee that development activity will lead to the future launch of products. Such development activity can meet technical hurdles that are unable to be overcome and market and competition activity can render the output from development activities obsolete. Foreign currency risk A signiﬁcant proportion of the Group’s sales are denominated in euros through Omega GmbH and in US dollars and the growing business through Omega Dx in India means that the Group is subject to risks associated with currency movements. Geopolitical tensions also exist in certain parts of the world which can lead to a tightening of monetary conditions. The Group monitors those countries under pressure and mitigates the risk in those countries where it has trading relationships, with tighter credit control procedures and credit limits where necessary. Although we have seen an easing of difﬁcult economic conditions in Europe there remains risk around deﬂation and GDP growth forecasts. The Group seeks to mitigate the risk around development activities by ensuring that development programmes are planned in accordance with recognised industry quality standards, managed by people with the requisite skills. The Group also continues to monitor industry trends and customers’ needs to ensure its development targets remain relevant. Completion during the year of the CD4 technology transfer moves the Group closer to commercial launch of the product although the competition landscape continues to evolve and show signs of progress. The progress on the number of allergens optimised for use on the IDS-iSYS also moves the Group closer to the commercial launch of the product. Natural hedging is adopted where possible whereby certain goods and services are sourced in euros and US dollars to match liabilities with trading income in these currencies. It is currently the Group’s policy to settle intercompany balances with Omega GmbH and Omega Dx within a short timescale. Due to the investment in both Omega GmbH and Omega Dx we have increasing exposure to intercompany balances. We have also seen a devaluation of the Iranian currency have an adverse effect on sales in that country. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 14 Chief Executive’s Review IDS-iSYS Allergy Development efforts have continued throughout the year and we continue to invest in facilities and skilled manpower to bring this project to fruition. We all appreciate that this project has taken longer to reach a marketable product than ﬁrst anticipated and this has been a source of frustration for all concerned. However, when we do launch this product, from the results seen to date, we will have a product that will compete very well and will support our objective to secure a number two market position behind the current market leader. CD4 Technology transfer Our strategy of maximising shareholder value through the development of innovative new products, such as Visitect® CD4, using global partnerships with groups, such as the Burnet Institute, has taken a major move forward in the year with the successful completion of the technology transfer from bench top manufacture to a scalable and robust manufacturing protocol. You will recall that this involved successfully completing a three-batch validation of our manufacturing protocol, a process which involved validation of the test on venous blood samples at a UK reference laboratory. Manufacturing In the year, we established our UK facility for Visitect® CD4 production which is now fully validated under ISO approved procedures. We have also leased a facility and we will shortly commence the interior build of a manufacturing base in Pune, India. This has been part funded by a £0.4 million grant from the Burnet Institute which itself received a grant for US$1.6 million from UNITAID to fund large scale ﬁeld trials in South Africa and India. The establishment of an Indian manufacturing facility will enable us to produce the test locally, thereby avoiding a punitive import duty rate that currently exists for Rapid Test imports into India. As well as producing Visitect® CD4 tests, we are aiming to manufacture other Rapid Tests for the Indian market and beyond where cost per test is a major barrier to market entry. Field evaluations The next stage of the process has involved testing the product under ﬁeld conditions with the intention that patient data is used to determine what, if any, aspects of the test require ﬁne-tuning. Such Beta trials are underway in Kenya and India and are providing the clinical data we need. In India, 140 patient samples have been tested to date. Based on an interim analysis of these data, the test has produced results on venous blood samples which match with the Company’s performance design parameters. Results to date on ﬁnger stick blood show similar overall diagnostic performance but with slightly lower levels of sensitivity and corresponding higher levels of speciﬁcity. This is being investigated as the trial proceeds. The trial in Kenya has been extended beyond the initial 200 patients because test performance was just below optimal performance on both venous and ﬁnger stick blood and additional devices have already been sent to Kenya for further evaluation. The investigative site has also received additional user training by Omega staff, and we expect that these additional tests will allow us to determine, and correct, the root cause of this difference. Andrew Shepherd Chief Executive In summary – Solid business performance – Group revenue increased by 3% to £11.6 million. – Adjusted proﬁt before tax increased by 41% to £1.1 million. – Completed much of the foundation work for marketing Visitect® CD4 in a number of east African states and have begun this process in India, francophone Africa and the Far East. – Global health activities enhanced by new product developments which positions us well for future growth. – Board strengthened by appointment of Bill Rhodes. Good progress being made to deliver the full value of Visitect® CD4 and exploit other opportunities through an increased presence in the global health market. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 15 Procurement A country’s ability to purchase commercial quantities of Visitect® CD4 is dependent upon receiving a positive recommendation from its regulatory authority and Omega having attained CE Mark status for the product which is within sight. In resource-poor countries, supplies will be funded with NGO/Aid money and procured through supplier-approved channels. One major procurement agency has already evaluated our quality management system and conﬁrmed Omega to be a very low risk supplier with regard to manufacturing Visitect® CD4. As well as ease of use, another driver for the introduction of new CD4 testing technologies is a reduction in the cost per test which will allow more people to be tested and treated using available funds. Marketing and training Over the last year there has been a major effort in priming the market for the test to the point where the Company has developed a strong presence in the global health arena and is recognised as a serious contender. Visitect® CD4 is still the only instrument-free, disposable CD4 test available in the world despite competition from several other groups. Training is a vital element in launching any new test technology and a training package has been developed which has proved successful in the initial ﬁeld trial roll-out in Africa and India. mHealth In addition to the test itself, the development of the Android smartphone App to record and transmit Visitect® CD4 test results has completed its development and is also undergoing ﬁeld trials. We expect this App to be fully available in the new ﬁnancial year which will offer integration into cloud/LIMS host databases to provide last mile solutions in resource challenged environments. This so-called “mHealth” solution has met with great enthusiasm by NGOs and global health organisations as the test/App combination offers a complete solution from test site to management headquarters. mHealth itself is being seen as a new way of educating and providing health information solutions to governments and aid agencies so with the Visitect® App we are at the forefront of these developments. Other global health developments HIV Viral Load This area of diagnostic testing is very challenging given that a complex test is expected to be used in a resource-poor setting by low skilled workers. While a few systems have been developed, they are far from true point-of-care (POC) tests. Discussions with several groups are underway which may deliver the test that is required but it is likely to be some time before any signiﬁcant progress will be made due to the complexity of the technologies being utilised and the settings where the test will be used. Moving into the HIV Viral Load testing arena means an entrance into the molecular diagnostics market, the fastest growing sector of the IVD market. Syphilis Our development team is now working on other projects which have a high demand in the global health arena. One such assay is the Syphilis POC test developed by the Burnet Institute, and exclusively licensed to Omega, which can be used in the same resource-poor settings as Visitect® CD4. As a global leader in the ﬁeld of syphilis diagnostics we are already well placed to exploit this development as we are already promoting our current range of products around the world into many resource-poor countries. Currently, there are no POC tests that can detect active Syphilis, although many tests can detect past treated infections. The test, developed by Burnet, allows for the detection of an antibody that is only present at the active stage of infection and which disappears after successful treatment. This test will accurately diagnose active Syphilis and allow for immediate treatment at the point of care without the need for further laboratory analysis. This test could therefore result in signiﬁcant improvements in the health of women and children through the prevention of stillbirths and severe neonatal morbidity. In 2008, the mortality associated with congenital Syphilis amounted to 1.4 million pregnant women. In addition to the test development, it is anticipated that an App will also be developed to work on the same Android smartphone as the Visitect® CD4 App, thereby linking the point of care result to management database systems. S i t r a t e g c R e p o r t Neglected Tropical Diseases (NTD) Neglected Tropical Diseases (NTDs) disproportionately affect the world’s poorest and most vulnerable people, inﬂicting serious disﬁgurement and disability, reducing productivity, quality of life, often resulting in death. The combined impact of NTDs rivals the effects of human immunodeﬁciency virus (HIV), Tuberculosis and Malaria. More and more funding is being donated to overcome these diseases to the point where development of appropriate diagnostic tests are now commercially viable. Schistosomiasis One example of an NTD is Schistosomiasis which is a disease caused by a worm that is present in many tropical countries. 200 million people are estimated to be infected with a further 600 million at risk. After Malaria, Schistosomiasis is the second most important disease caused by a parasite. It is likely that as programmes to control Schistosomiasis roll out in Africa there will be an increasing need for a test that detects the disease sensitively and speciﬁcally. Omega is working with an expert in this disease area and good early progress is being made in the development of a new lateral ﬂow test. It is anticipated that ﬁeld trials could commence in the second half of the year. Outlook The new ﬁnancial year is set to be a dynamic one with Visitect® CD4 coming to the market. The sales potential is high but, as alluded to above, in the NGO/aid market sector there are some hurdles to overcome such as individual country evaluations and approvals. We remain conﬁdent about selling signiﬁcant quantities of product; however, the timing to forecast when this business will materialise is not an exact science. The core business remains in good shape as evidenced by the increase in Food intolerance sales and increased proﬁt before tax so we are well positioned to take advantage of the good conditions to deliver on our goals of launching Visitect® CD4 and the iSYS Allergy platform later in the year. By focusing on our core strategic areas and with increased focus on global health markets we believe that we are building a secure and stable platform for growth and enhanced proﬁtability. Andrew Shepherd Chief Executive 20 June 2014 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 16 Product Case Study HIV remains the primary cause of global disease burden in 12 countries, including South Africa and India. We are addressing this challenge through our revolutionary Visitect® CD4 test Training health care workers in Kenya to run Visitect® CD4 tests. Further to the completion of the technology transfer announced in February 2014, Visitect® CD4 tests have been supplied for initial ﬁeld validation studies to evaluate performance in India and Kenya. As well as patient sample evaluations the Kenyan study also included evaluation of the Visitect® CD4 mHealth App Smartphone Reader. The success of these initial studies will lead to a roll-out of validation studies into other countries. In parallel with these trial activities, claim support studies have commenced in the UK to support the regulatory requirements in connection with CE-Marking the test. Sign posts directing patients to the Kenya Medical Research Institute in Busia, Kenya where the initial ﬁeld trial has been taking place. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 17 HIV is a major global health challenge affecting approximately 33 million people worldwide South Africa Nigeria Uganda Zimbabwe S i t r a t e g c R e p o r t India Kenya Russian Federation Zambia Mozambique Tanzania Malawi China Top 12 countries by HIV population * Reference: UNAIDS report on the global AIDS epidemic (2010). More than 2/3 of this population are in developing countries That’s 26.3 million people But more than half don’t have access to treatment – 17.1 million people The advantages of the Visitect® CD4 test Finger-prick blood sampling Instrument-free testing Results obtained in 40 minutes Convenient and easy to use Low cost – just US$5 per test Visitect® CD4 is portable and light Perform multiple tests at once Proven lateral ﬂow technology Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 18 Financial Review Financial performance It has been a year of solid performance for our core business. Total revenue was up by 3% to £11.6 million, principally due to a strong performance from our Food intolerance division. Gross proﬁt increased by 5% to £7.4 million, leading to a higher margin of 63.6%. Costs have been carefully managed throughout the year so that overheads were effectively unchanged at £6.8 million. Adjusted proﬁt before tax increased signiﬁcantly to £1.1 million compared to £0.8 million the year before. The UK companies continue to beneﬁt from the enhanced R&D tax credit system and a net tax credit of £0.15 million has been recognised in the year. Accordingly, adjusted proﬁt after tax of £1.25 million, on an average 104 million shares in issue, resulted in adjusted earnings per share of 1.2 pence. This is slightly reduced from 1.3 pence in the previous year where adjusted after tax proﬁts of £1.1 million were earned on an average 85 million shares in issue. Segmental revenue performance Food intolerance The Food intolerance division has consistently performed well over a number of years, exhibiting an 18% compound annual growth rate in revenue over the last ﬁve years. For this year, total Food intolerance sales were £5.18 million (2013: £4.39 million). Sales of Food Detective® grew by 35% to £1.69 million (2013: £1.25 million) with particularly strong sales performances in Poland and Brazil. Total volumes exceeded 100,000 units for the ﬁrst time, achieving sales of 106,312 (2013: 85,214). Excluding component sales to China, the average selling price per kit was £22.55 (2013: £22.01), the highest level seen in the last three years. Sales of Genarrayt® reagents grew by 15% to £2.12 million (2013: £1.84 million) with strong performances again in both the Spanish and French markets. However, it is pleasing to see a broadening base of other markets with the top ﬁve markets by revenue accounting for 63% of total sales this year versus 70% last year. The Group sold a further 13 instruments in the year, taking the cumulative number of installations to 132 instruments in 35 countries, and revenue per instrument (excluding Spain) increased by 7% to £13,746 (2013: £12,885). Our Foodprint® laboratory service achieved sales of £0.64 million (2013: £0.61 million) and we produced and sold 7,985 patient reports in the year (2013: 7,529) at an average price of £79.55 per report (2013: £80.65). Allergy and autoimmune Sales for the Allergy and autoimmune division are comprised of Allergy sales of £3.52 million (2013: £3.62 million) and sales of autoimmune products of £0.45 million (2013: £0.54 million). The Allergy sales are derived almost exclusively from our Omega GmbH business in Germany which is operating in an environment of reimbursement restrictions. 12 out of the 17 health regions we operate in are under such restrictions, but despite these regions collectively accounting for approximately 54% of total allergy sales, the overall reduction in Omega GmbH allergy sales was limited to 6% in euro terms. In reported sterling terms, the reduction was only 3% due to an average stronger euro/sterling exchange rate throughout the year of 1.186 (2013: 1.223). The strategy has been to reinforce customer relationships through training, service and account management to secure the business and to prioritise allergy testing over other testing (e.g. microbiology tests) in a market which has declined by approximately 5% over the last two years. We continue to sell autoimmune products into markets where automation is ever increasing. Despite these headwinds, most of our country markets have maintained their position and the drop-off is attributable to a reduction in Iran where reimbursement restrictions have occurred due to a severe devaluation of the Iranian currency. Kieron Harbinson Finance Director In summary – Group revenue increased by 3% to £11.6 million. – Food intolerance sales increased by 18% to £5.2 million. – Increase in gross margin percentage to 63.6%. – Adjusted proﬁt before tax increased by 41% to £1.1 million. – Adjusted earnings per share of 1.2 pence. – Cash in hand at the end of the year of £3.1 million. We are focusing our resources on achieving commercialisation of Visitect® CD4 and our Allergy iSYS project. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 19 Infectious disease Infectious disease sales amounted to £2.45 million (2013: £2.71 million) in the year. The reduction of £0.26 million is principally down to two factors. First, the loss of business from a UK customer who experienced ﬁnancial difﬁculties led to a sales reduction of £0.16 million. Since the year end, we have recommenced selling small volumes of product to this customer as its situation has recently begun to improve. Second, the devaluation of the Iranian currency referred to above has also had a similar effect in reducing Infectious disease sales through our distributor by £0.1 million. Despite these issues, they have been mitigated by growth in other areas, particularly in India and Brazil. Research and development Total investment in research and development was £1.61 million (2013: £1.17 million) representing 14% of Group turnover. Expenditure is focused on our two key areas of interest. We spent £0.94 million (2013: £0.83 million) on our Allergy iSYS project and £0.43 million (2013: £0.20 million) on our Visitect® CD4 project. Both these amounts have been capitalised on the balance sheet in accordance with IAS 38 – Development Costs. Earlier stage R&D expenditure amounted to £0.24 million (2013: £0.14 million) which has been expensed through the income statement. Intangible assets The Group has intangible assets of £11.3 million comprising goodwill of £4.7 million, separately identiﬁable intangible assets of £3.9 million and capitalised development costs of £2.7 million. Goodwill Goodwill of £4.7 million arose as to £3.0 million on acquiring Genesis/CNS in 2007, £0.4 million on acquiring Co-Tek in 2009 and £1.3 million in acquiring the allergy IVD business in Germany in 2010. There has been no impairment of goodwill on any of the acquisitions to date. Intangible assets Separately identiﬁable intangible assets have been recognised on acquisition: £2.0 million on Genesis/CNS of which £0.6 million has been amortised to date; £0.1 million on Co-Tek which has been fully amortised; and £1.8 million on Omega GmbH of which £0.8 million has been amortised to date. A purchased licence of £1.5 million, the ﬁnal £0.5 million instalment for which was paid in the year (2013: £0.1 million), relates to the exclusive global access rights to the IDS-iSYS platform for allergy testing, which, to date, has not been amortised. Capitalised development costs Capitalised development costs have been incurred to date comprising £2.1 million on the Allergy iSYS project and £0.6 million on the Visitect® CD4 project, neither of which has been amortised to date. The amortisation of these capitalised development costs, along with the purchased licence referred to above, will only start after commercialisation of these assets. Going forward, this particular subset of amortisation charges will not be added back in the computation of the Group’s routinely reported adjusted proﬁt before tax. Property, plant and equipment The Group has invested £0.5 million (2013: £0.3 million) in the year, including a combined £0.4 million at the Alva-based headquarters in Scotland on its Visitect® CD4 manufacturing assembly unit along with plant and machinery to undertake the bottle ﬁlling of individual allergy reagents for the iSYS system. Financing In June last year, the Company successfully completed an institutional placing of 23,529,412 ordinary shares, at 17 pence per share, raising £4 million (gross) in the process. At the year end, the Group still had over £3 million of cash in hand. In May of this year, the Company renewed its overdraft facility at a level of £1 million and, accordingly, the Group remains in a strong position to fund its activities. Grant funding We announced in the year that the Burnet Institute was successful in being awarded a UNITAID grant for US $1.6 million to initiate ﬁeld evaluations in India and South Africa. Omega is the collaborating partner in this initiative and is the means by which the Burnet Institute will be able to deliver on its project manufacturing goal. The Burnet Institute agreed to provide Omega with grant funding of £0.36 million and 90% of these funds were received before the end of the year. Manufacturing facilities have been located in Pune, India, and since the year end, a ﬁve-year lease has been taken out over these premises to accelerate delivery of this goal. We also received an interim instalment of £32,000 from Scottish Enterprise under the Regional Selective Assistance Programme. S i t r a t e g c R e p o r t Operating cash ﬂow Omega continues to manage its working capital efﬁciently and generated operating income of £1.67 million (2013: £1.01 million) in the year, including the grant income referred to above. Excluding this grant income, the Group has achieved a conversion rate of adjusted operating proﬁt (operating proﬁt plus amortisation of intangible assets plus share-based payments) to operating cash of 122% (2013: 129%). Foreign exchange The Group has investments in overseas operations and conducts trading transactions in currencies other than sterling. The principal currencies used and the average foreign exchange rates in the year are as follows: Sterling/US dollar Sterling/euro Sterling/Indian rupee 2013/14 2012/13 1.60 1.186 96.33 1.58 1.223 85.54 Proﬁt and loss account The Group has foreign-denominated bank accounts to allow for the receipt and settlement of amounts in connection with its normal trading operations. These transactions are subject to timing differences between when they are transacted and when they are settled which can give rise to foreign exchange differences. Foreign-denominated receivables, payables and bank balances are restated into sterling at closing balance sheet dates which also gives rise to foreign exchange differences. During the year, the Group incurred exchange losses of £74,000 (2013: £2,000) on these transactions which has been charged through the income statement. Other comprehensive income The Group has net assets in Germany and India, held in fully owned subsidiaries. The original investments in these subsidiaries are held at historic exchange rates. The difference between these historic balances and their restated amounts at the most recent closing balance sheet rates gives rise to movements which are recorded through other comprehensive income and included within retained earnings on the balance sheet. During the year, there has been a charge of £127,000 (2013: £27,000 credit) on the retranslation of foreign operations. Kieron Harbinson Group Finance Director 20 June 2014 Andrew Shepherd Chief Executive 20 June 2014 The Strategic Report was approved by the Board of Directors on 20 June 2014 and signed on its behalf by Kieron Harbinson, Group Finance Director, and Andrew Shepherd, Chief Executive. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 20 Board of Directors David Evans Non-executive Chairman David joined Omega in 2000 as Non-executive Chairman. He has considerable experience within the diagnostics industry. As Financial Director he was a key member of the team that ﬂoated Shield Diagnostics Limited in 1993. He became Chief Executive Ofﬁcer responsible for the merger of Shield Diagnostics Group plc with Axis Biochemicals ASA of Norway in 1999 to create Axis-Shield plc. In addition to his role as Non-executive Chairman of Omega, he holds Non-executive Directorships in a number of other companies. Andrew Shepherd Chief Executive Andrew is the Founder and Chief Executive of Omega. He has worked in the medical diagnostics industry for 40 years. In 1986 he moved to Scotland to join Bioscot Limited and shortly afterwards, established Omega. He has used his technical experience and knowledge of exporting to oversee the signiﬁcant growth of the export of Omega products. He is an active member of a number of relevant trade associations, and was a member of the Bill and Melinda Gates Foundation’s (BMGF) Global Health Diagnostics Forum, which provided guidance to BMGF in advising on technology and future investments in worldwide diagnostics programmes for developing countries. Kieron Harbinson Finance Director Kieron joined Omega in August 2002 as Finance Director. He has a broad experience in technology and related businesses. He started his career with Scotia Holdings PLC in 1984 and remained with the company for 14 years, occupying various senior ﬁnance roles. These roles enabled him to acquire experience in corporate acquisitions, disposals and intellectual property matters. In addition he gained experience in various debt and equity transactions, and was involved in raising over £100 million for the company. He then joined Kymata Limited, a start-up optoelectronics company, as Finance Director. Over a period of 18 months, he was involved in raising approximately US$85 million of venture capital funding. Jag Grewal Sales and Marketing Director Jag joined Omega in June 2011 as Group Sales and Marketing Director. He has worked in the medical diagnostics industry for 20 years having started out as a Clinical Biochemist in the NHS. In 1995 he joined Beckman Instruments where he developed a career spanning 15 years in sales and marketing holding a variety of positions in sales, product management and marketing management. In 2009 he left as Northern Europe Marketing Manager to join Serco Health where he helped create the ﬁrst joint venture within UK pathology between Serco and Guys and St Thomas’ Hospital. He is also past Chairman and current treasurer of the British In-Vitro Diagnostics Association (BIVDA). Michael Gurner (resigned 8 July 2013) Non-executive Director Michael led the ﬂotation of the Company on AIM in 2006. He qualiﬁed as a Chartered Accountant in 1967, before embarking on a career in merchant banking with Keyser Ullmann, including M&A activities with the Ryan Group of Companies and holding senior management positions, including Managing Director of a fully listed company, Continuous Stationery plc, an acquisitive business forms manufacturer between 1986 and 1991. Thereafter he focused on turning around under-performing and ailing businesses, in association with Postern Executive Group Limited (“Postern”), a leading UK turnaround specialist which provided management teams for troubled companies. William Rhodes (appointed 1 May 2013) Non-executive Director During his 14 year career with Becton, Dickinson and Co., one of the world’s leading suppliers of medical, diagnostic and life science research products, Bill held a number of senior leadership positions, and until the end of 2012, was BD’s Senior Vice President, Corporate Strategy and Development, being responsible for BD’s worldwide mergers and acquisitions and corporate strategies. Previously, he was Worldwide President of BD Biosciences, a business segment with turnover of over US$1.0 billion, including the provision of ﬂow cytometry instruments and their associated reagents for CD4 testing used in a wide range of laboratory settings. Prior to working for BD, Bill held senior business development positions with Pﬁzer Inc. and Johnson and Johnson. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 21 Senior Management Team Dr Edward Valente Group Research and Development Director Edward joined Omega in March 2011 as Allergy Systems Director. He has worked in the medical diagnostics industry for 30 years. He started his career with Amersham International in 1983 where he held scientiﬁc and managerial positions in clinical diagnostics research and development. He then joined Shield Diagnostics in 1988 and held managerial positions in R&D and marketing. Latterly, he was responsible for market development of new markers, including clinical studies, and design and development of immunoassay products on automated platforms for industry majors. Mike Gordon Group Operations Director Mike joined Omega in October 2011 as Group Operations Director. He has worked in the Medical diagnostics industry for 30 years. He started his career with Inveresk Research International as a Development Scientist. He then joined Bioscot Ltd working through its transition to Cogent Diagnostics Ltd and onwards to Hycor Biomedical Ltd. During this time he has held the positions of Quality Manager, Production Director and latterly as Production and Logistics Manager for its last corporate owners. During this period he was responsible for the implementation of ISO 9001 and for successfully navigating the company through the process of US FDA registration and inspection. Iain Logan Group Financial Controller Iain joined Omega in November 2010 as Group Financial Controller. He qualiﬁed as a Chartered Accountant in 2002 with PricewaterhouseCoopers in Edinburgh. He then worked at Murray International Holdings Limited in the head ofﬁce ﬁnance team for three years performing a variety of ﬁnancial accounting roles. He then moved on to Murray Capital Limited, the investment management company of Murray International Holdings Limited, gaining experience in all aspects of acquisitions, disposals and investment portfolio company analysis and management. His current role primarily covers responsibility for the ﬁnancial reporting of the Group and management of the Group ﬁnance team. G o v e r n a n c e Prashant Maniar Managing Director – Omega Dx (Asia) Pvt Limited Prashant joined Omega Dx (Asia) in October 2011 as Managing Director. He has worked in the diagnostics industry for 24 years. He started his career as Production Head in Cadila Laboratories. He then spent 15 years working for GlaxoSmithKline and ThermoFisher Scientiﬁc in various roles establishing their diagnostic business in India with 14 collaborations with national and multinational companies. In his most recent role he established the Microbial Control business for Lonza India. He has been responsible for the commercial set up of Omega Dx (Asia) Pvt Ltd and has transitioned the Group’s business in India from distributor to wholly owned subsidiary. Jamie Yexley Site Manager – Genesis Diagnostics Limited, Cambridge Nutritional Sciences Limited Jamie joined Genesis and CNS in June 1999 as a Production Laboratory Assistant. He was promoted to Production Manager in 2005 and Operations Manager in 2009. He has been instrumental in seeing the Company through a sustained period of rapid growth and change. In 2012 he moved to the role of Site Manager. He has 20 years manufacturing experience with 13 years speciﬁcally in the medical diagnostics industry. Educated in Cambridge he has spent his professional career working in the manufacturing industry starting in an FMCG environment. Throughout his time with the Company he has been responsible for ICT where he is recognised as the Group’s foremost expert. Karsten Brenzke Site Manager – Omega Diagnostics GmbH Karsten joined Omega GmbH in November 2010 as a consultant to facilitate the acquisition of the IVD business from Allergopharma. He was then appointed on a permanent basis initially as Finance Manager before being appointed as Site Manager in May 2012. He has worked for different industry companies in the ﬁnance control function with his longest stay of seven years at Zeppelin Power Systems where he gained experience in mergers and post-merger integration. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 22 Corporate Governance Report As an AIM-quoted company, the Group is not required to produce a corporate governance report nor comply with the requirements of the UK Corporate Governance Code. However, the Directors are committed to providing information on an open basis and present their Corporate Governance Report as follows: The Board of Directors The Board currently comprises: one Non-executive Chairman; one Non-executive Director; and three Executive Directors, who are the Chief Executive, the Finance Director and the Sales and Marketing Director. David Evans, Non-executive Chairman, and William Rhodes, Non-executive Director, are considered by the Board to be independent in character and judgement. The Board meets at regular intervals and is responsible for setting corporate strategy, approving the annual budget, reviewing ﬁnancial performance, agreeing the renewal of and any new banking/treasury facilities, approving major items of capital expenditure and reviewing and approving acquisitions. The Board is provided with appropriate information in advance of Board meetings to enable it to discharge its duties effectively. William Rhodes was appointed to the Board as a Non-executive Director on 1 May 2013. During the ﬁnancial year, the Board met on eleven occasions. Of the eleven meetings David Evans, Andrew Shepherd, Kieron Harbinson and Jag Grewal attended all eleven and William Rhodes attended nine out of ten meetings he was entitled to attend. Michael Gurner resigned as a Director on 8 July 2013 and attended three out of three meetings he was entitled to attend. The Chairman has additional Non-Executive Directorships of the following companies: – Epistem Holdings plc – Momentum Biosciences Limited – Scancell Holdings plc – EKF Diagnostics plc – Cytox Limited – Venn Life Sciences plc – Diagnostic Capital Limited – Lochglen Whisky Limited – St Andrews Golf Art Limited Responsibilities of the Board – Setting corporate strategy – Approving the annual budget – Reviewing ﬁnancial performance – Agreeing the renewal of and any new banking/ treasury facilities – Approving major items of capital expenditure – Reviewing and approving acquisitions The Board is provided with appropriate information in advance of Board meetings to enable it to discharge its duties effectively. Executive/Non-executive Board membership 1 1 3 Non-executive Chairman 1 Non-executive Director 1 Executive Director 3 – Spectrum Limited (Rainbow Seed Fund) Board attendance throughout the year David Evans Andrew Shepherd Kieron Harbinson Jag Grewal Michael Gurner William Rhodes Board 11/11 11/11 11/11 11/11 3/3 9/10 Audit Remuneration 3/3 3/3 — — — — — — — — 3/3 3/3 – OptiBiotix Health Limited – Permaitha Limited – Integrated Magnetic Systems Limited – Collagen Solutions plc The Audit Committee The Audit Committee has met on two occasions during the year and once since the year end. The Committee is comprised of David Evans, as Chairman, and William Rhodes and has primary responsibility for monitoring the quality of internal controls, ensuring that the ﬁnancial performance of the Group is properly measured and reported on, and for reviewing reports from the Group’s auditors relating to the Group’s accounting and ﬁnancial reporting, in all cases having due regard to the interests of shareholders. The Committee shall also review preliminary results announcements, summary ﬁnancial statements, signiﬁcant ﬁnancial returns to regulators and any ﬁnancial information contained in certain other documents, such as announcements of a price-sensitive nature. William Rhodes replaced Michael Gurner who resigned from the Board on 8 July 2013. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 23 Communication with shareholders The Board recognises the importance of communication with its shareholders. The Group maintains informative websites for Omega Diagnostics Limited, Cambridge Nutritional Sciences Limited and Omega GmbH containing information likely to be of interest to existing and new investors. In addition, the Group retains the services of ﬁnancial PR consultants, providing an additional contact point for investors. The Board encourages shareholder participation at its Annual General Meeting, where shareholders can be updated on the Group’s activities and plans. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report, which runs on pages 6 to 19. The ﬁnancial position of the Group, its cash ﬂows, liquidity position and borrowing facilities are described in the Financial Review on pages 18 and 19. In addition, Note 22 to the ﬁnancial statements includes the Group’s objectives, policies and processes for its ﬁnancial risk management objectives; details of its ﬁnancial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The recent renewal of overdraft facilities as well as the successful fundraising of £4 million in June 2013 means that the Group has signiﬁcant ﬁnancial resources together with long-term relationships with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully and fully capitalise on the new product opportunities despite the current uncertain economic outlook. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual ﬁnancial statements. By order of the Board G o v e r n a n c e Kieron Harbinson Company Secretary 20 June 2014 The Committee considers and makes recommendations to the Board, to be put to shareholders for approval at the Annual General Meeting, in relation to the appointment, re-appointment and removal of the Group’s external auditors. The Committee also oversees the relationship with the external auditors including approval of remuneration levels, approval of terms of engagement and assessment of their independence and objectivity. In so doing, they take into account relevant UK professional and regulatory requirements and the relationship with the auditors as a whole, including the provision of any non-audit services. Ernst & Young LLP have been auditors to Omega Diagnostics Limited (ODL) since 2000 and were appointed as auditors to the Group following completion of the reverse takeover of ODL in September 2006. The Committee has reviewed the effectiveness of the Group’s system of internal controls and has considered the need for an internal audit function. At this stage of the Group’s size and development, the Committee has decided that an internal audit function is not required, as the Group’s internal controls system in place is appropriate for its size. The Committee will review this position on an annual basis. The Committee also reviews the Group’s arrangements for its employees raising concerns, in conﬁdence, about possible wrongdoing in ﬁnancial reporting or other matters. The Committee ensures that such arrangements allow for independent investigation and follow-up action. The Remuneration Committee The Remuneration Committee has met on three occasions during the year. The Committee is comprised of David Evans, as Chairman, and William Rhodes and has primary responsibility for determining and agreeing with the Board the remuneration of the Company’s Chief Executive, Chairman, Executive Directors, Company Secretary and such other members of the Executive management as it is designated to consider. The remuneration of the Non-executive Directors shall be a matter for the Chairman and the Executive Directors of the Board. No Director or manager shall be involved in any decisions regarding their own remuneration. William Rhodes replaced Michael Gurner who resigned from the Board on 8 July 2013. Internal control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness throughout the year. Such a system can only provide reasonable assurance against misstatement or loss. The Board monitors ﬁnancial controls through the setting and approval of an annual budget and the regular review of monthly management accounts. Management accounts contain a number of indicators that are designed to reduce the possibility of misstatement in ﬁnancial statements. Where the management of operational risk requires outside advice, this is sought from expert consultants, and the Group receives this in the areas of employment law and health and safety management. The Group is compliant with industry standard quality assurance measures and undergoes regular external audits to ensure that accreditation is maintained. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 24 Advisers Nominated adviser and broker ﬁnnCap Limited 60 New Broad Street London EC2M 1JJ Auditors Ernst & Young LLP G1 5 George Square Glasgow G2 1DY Solicitors Brodies LLP 15 Atholl Crescent Edinburgh EH3 8HA Registrar Share Registrars Limited Suite E First Floor, 9 Lion and Lamb Yard Farnham Surrey GU9 7LL PR Walbrook PR Limited 4 Lombard Street London EC3V 9HD Country of incorporation England & Wales Omega Diagnostics Group PLC Registered number: 5017761 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 25 Directors’ Report The Directors present their Annual Report and Group ﬁnancial statements for the year ended 31 March 2014. Principal activities The principal activity of the Company is as a holding company. The principal activity of the Group is the manufacture, development and distribution of medical diagnostics products. Results and dividends The result for the year is a proﬁt of £692,851 (2013: £582,266) which has been taken to reserves. The Directors do not propose to pay a dividend. The results are disclosed in more detail in the Strategic Report on pages 6 to 19. The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own income statement in these ﬁnancial statements. The Company proﬁt for the year ended 31 March 2014 is £65,166 (2013: £59,896). Business review and future development A review of business and future development is discussed in more detail in the Strategic Report. Key performance indicators are disclosed and discussed on page 11. Research and development Research and development activity has increased in the year. Details of research and development activity are contained in the Chief Executive’s Review on pages 14 and 15. Costs in the year amounted to £1,615,240 (2013: £1,167,274). Costs of £245,873 in relation to research activities (2013: £140,810) were expensed through the statement of comprehensive income and costs of £1,369,367 in relation to product development (2013: £1,026,464) were capitalised and included within intangible assets as detailed in Note 8. Directors The names of the Directors who have served the Group throughout the year are: – David Evans – Michael Gurner (resigned 8 July 2013) – Kieron Harbinson – Andrew Shepherd – Jag Grewal – William Rhodes (appointed 1 May 2013) Biographies of all Directors serving at the year end are on page 20. G o v e r n a n c e Directors’ interests The beneﬁcial interests of Directors who have served throughout the year are listed in the Directors’ Remuneration Report on pages 27 and 28. There are no non-beneﬁcial interests held by Directors. There have been no changes to any Director’s interests in the shares of the Group between 31 March 2014 and the date of this report. Major interests in shares As at 31 May 2014 the following shareholders held more than 3% of the Group’s issued ordinary share capital: Legal & General Investment Management Liontrust Asset Management Octopus Investments Limited Mobeus Equity Partners LLP Unicorn Asset Management Charles Stanley Stockbrokers Barclays Stockbrokers Killik & Co LLP Richard Sneller Number of 4 pence ordinary shares Percentage 19,476,471 8,711,494 6,676,930 6,541,600 4,266,750 3,695,149 3,406,962 3,395,643 3,365,000 17.91% 8.01% 6.14% 6.02% 3.92% 3.40% 3.13% 3.12% 3.09% Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 26 Directors’ Report continued Employees The Group encourages communication with its employees and favours an environment where staff can put forward their ideas, suggestions and concerns on any matter that involves them. The Group gives full and fair consideration to applications for employment made by disabled people, having regard to their particular aptitudes and abilities. Where an employee becomes disabled in the course of their employment, where possible, arrangements will be made for appropriate retraining to match their abilities with their duties. Principal risks and uncertainties The Board meets regularly to review operations and to discuss risk areas. The Strategic Report contains details of the Group’s system of internal control. Note 22 to the ﬁnancial statements contains details of ﬁnancial risks faced by the Group. Donations The Group made no charitable donations in the year (2013: £Nil) nor any political donations (2013: £Nil). Auditors The auditors, Ernst & Young LLP, have indicated their willingness to continue in ofﬁce and a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting. Directors’ statement as to disclosure of information to auditors The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 20. Having made enquiries of fellow Directors and of the Company’s auditors, each of these Directors conﬁrms that: – to the best of each Director’s knowledge and belief, there is no information (that is, information needed by the Group’s auditors in connection with preparing their report) of which the Group’s auditors are unaware; and – each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Group’s auditors are aware of that information. By order of the Board Kieron Harbinson Company Secretary 20 June 2014 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 27 Directors’ Remuneration Report As an AIM-quoted company, the Group is not required to produce a remuneration report that satisﬁes all the requirements of the Companies Act. However, the Directors are committed to providing information on an open basis and present their Remuneration Report as follows: Remuneration Committee The Remuneration Committee is comprised of David Evans and William Rhodes. The committee meets as and when required to determine and agree with the Board the policy for the remuneration of the Group’s Chief Executive, Chairman and Executive Directors. The objective of this policy shall be to ensure that members of the executive management of the Group are provided with appropriate incentives to encourage enhanced performance and are, in a fair and reasonable manner, rewarded for their individual contributions to the success of the Group. No Director or manager shall be involved in any decisions as to their own remuneration. Remuneration policy The Group’s policy is that the remuneration arrangements, including pensions, for subsequent ﬁnancial years should be sufﬁciently competitive to attract, retain and motivate high quality executives capable of achieving the Group’s objectives, thereby enhancing shareholder value. Incentive schemes/share option schemes During the year, Andrew Shepherd was issued with an option over 800,000 ordinary shares of the Group, Kieron Harbinson was issued with an option over 640,000 ordinary shares of the Group and Jag Grewal was issued with an option over 610,000 ordinary shares of the Group. All of the options were granted on 25 February 2014 and were under the Company’s EMI Share Option Scheme. William Rhodes was issued with an option over 2,130,406 ordinary shares of the Group. The option was granted under the Company’s third Unapproved Option Scheme. Directors’ service contracts Andrew Shepherd entered into a service contract with the Group on 23 August 2006, under which he was appointed as Chief Executive on an annual salary of £85,000. His salary was increased to £131,250 per annum from 1 April 2009 and then further increased to £145,000 per annum from 1 April 2011. The agreement will continue until terminated by either party giving to the other not less than twelve months’ notice in writing. Kieron Harbinson entered into a service contract with the Group on 23 August 2006, under which he was appointed as Finance Director and Company Secretary on an annual salary of £72,500. His salary was increased to £94,500 per annum from 1 April 2009 and then further increased to £115,000 per annum from 1 April 2011. The agreement will continue until terminated by either party giving to the other not less than three months’ notice in writing. G o v e r n a n c e David Evans was appointed a Non-executive Director of the Group on 19 September 2006 and was entitled to an annual fee of £25,000 from 1 April 2008. The agreement will continue until terminated by either party giving to the other not less than one month’s notice in writing. Michael Gurner was appointed a Non-executive Director of the Group on 19 September 2006 and he was entitled to an annual fee of £15,000. This fee was increased to £20,000 per annum from 1 January 2009. Michael Gurner resigned on 8 July 2013. Jag Grewal entered into a service contract with the Group on 30 June 2011, under which he was appointed as an Executive Director on an annual salary of £110,000. The agreement will continue until terminated by either party giving to the other not less than three months’ notice in writing. William Rhodes was appointed a Non-executive Director of the Group on 1 May 2013 and is entitled to an annual fee of £40,000. The agreement will continue until terminated by either party giving to the other not less than one month’s notice in writing. Directors’ emoluments Consolidated Executive Andrew Shepherd Kieron Harbinson Jag Grewal Non-executive David Evans William Rhodes Michael Gurner Fees/basic salary £ Bonuses £ 145,000 115,000 110,000 25,000 36,667 10,000 — — — — — — Beneﬁts in kind £ — 1,561 — — — — Total 2014 £ 145,000 116,561 110,000 25,000 36,667 10,000 Total 2013 £ 145,000 116,506 110,000 25,000 — 20,000 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 28 Directors’ Remuneration Report continued The amounts paid in the year towards Directors’ pension contributions were as follows: Directors’ pension contributions Andrew Shepherd Kieron Harbinson Jag Grewal Directors’ interests in the 4 pence ordinary shares of Omega Diagnostics Group PLC: David Evans Michael Gurner Kieron Harbinson Andrew Shepherd Jag Grewal William Rhodes 2014 £ 7,250 5,750 5,500 2013 £ 7,250 5,750 5,500 31 March 2014 31 March 2013 2,870,134 418,730 363,562 2,677,206 68,604 — 2,870,134 271,671 294,150 2,618,030 — — The Directors have no interest in the shares of subsidiary companies. Directors’ share options David Evans William Rhodes Andrew Shepherd Kieron Harbinson Jag Grewal At 1 April 2013 Granted during the year Lapsed during the year Exercised during the year At 31 March 2014 Option price pence Date of grant Earliest exercise date Expiry date 390,822 — — 2,130,406 703,480 600,000 — — — 800,000 468,987 300,000 — — — 640,000 100,000 200,000 — — — 610,000 — — — — — — — — — — — — 390,822 19.0p 10/12/08 10/12/09 10/12/18 — 2,130,406 15.25p 04/07/13 04/07/16 04/07/23 — 703,480 — 600,000 — 800,000 — 468,987 — 300,000 — 640,000 — 100,000 — 200,000 — 610,000 19.0p 14.5p 30.5p 19.0p 14.5p 30.5p 13.25p 14.5p 30.5p 10/12/08 05/07/12 25/02/14 10/12/08 05/07/12 25/02/14 12/08/11 05/07/12 25/02/14 10/12/09 05/07/15 25/02/17 10/12/09 05/07/15 25/02/17 12/08/12 05/07/15 25/02/17 10/12/18 05/07/22 25/02/24 10/12/18 05/07/22 25/02/24 12/08/21 05/07/22 25/02/24 During the year Andrew Shepherd, Kieron Harbinson and Jag Grewal were issued with options under the Company’s EMI Option Scheme and William Rhodes was issued with options under the Company’s third Unapproved Option Scheme. The share price at 31 March 2014 was 27.62 pence. The highest and lowest share price during the year was 31.62 pence and 13.12 pence respectively. Approved by the Board David Evans Non-executive Director 20 June 2014 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 29 Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the Group and Company ﬁnancial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Directors are required to prepare Group and Company ﬁnancial statements for each ﬁnancial year end. Under company law, the Directors must not approve the ﬁnancial statements unless they are satisﬁed that they present fairly the ﬁnancial position of the Group and Company, ﬁnancial performance of the Group and cash ﬂows of the Group and Company for that period. In preparing the Group and Company ﬁnancial statements, the Directors are required to: – select suitable accounting policies in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; – present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; – provide additional disclosures when compliance with the speciﬁc requirements in IFRSs is insufﬁcient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s ﬁnancial position and ﬁnancial performance; – state that the Group and Company has complied with IFRSs, subject to any material departures disclosed and explained in the ﬁnancial statements; and – make judgements and estimates that are reasonable. The Directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the Group’s and Company’s transactions and disclose, with reasonable accuracy at any time, the ﬁnancial position of the Group and Company and enable them to ensure that the Group and Company ﬁnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. G o v e r n a n c e Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 30 Independent Auditors’ Report to the members of Omega Diagnostics Group PLC We have audited the ﬁnancial statements of Omega Diagnostics Group PLC for the year ended 31 March 2014 which comprise the consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash ﬂow statement, Company balance sheet, Company statement of changes in equity, Company cash ﬂow statement and the related Notes 1 to 22. The ﬁnancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent Company ﬁnancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ Responsibilities on page 29, the Directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁnancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the ﬁnancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant accounting estimates made by the Directors; and the overall presentation of the ﬁnancial statements. In addition we read all the ﬁnancial and non-ﬁnancial information in the Annual Report and Group Financial Statements to identify material inconsistencies with the audited ﬁnancial statements and to identify any information that is apparently material based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on ﬁnancial statements In our opinion: − 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 March 2014 and of the Group’s proﬁt for the year then ended; − the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; − the parent Company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and − the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: − 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 − the parent Company ﬁnancial statements are not in agreement with the accounting records and returns; or − certain disclosures of Directors’ remuneration speciﬁed by law are not made; or − we have not received all the information and explanations we require for our audit. James Nisbet (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Glasgow 20 June 2014 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 31 Consolidated Statement of Comprehensive Income for the year ended 31 March 2014 Continuing operations Revenue Cost of sales Gross proﬁt Administration costs Selling and marketing costs Operating proﬁt Finance costs Finance income – interest receivable Proﬁt before taxation Tax credit Proﬁt for the year Other comprehensive income to be reclassiﬁed to proﬁt and loss in subsequent periods Exchange differences on translation of foreign operations Tax credit/(charge) Other comprehensive income that will not be reclassiﬁed to proﬁt and loss in subsequent periods Actuarial gain/(loss) on deﬁned beneﬁt pensions Tax (charge)/credit Other comprehensive income for the year Total comprehensive income for the year Earnings per share (EPS) Basic and diluted EPS on proﬁt for the year Adjusted Proﬁt Before Taxation for the year ended 31 March 2014 Proﬁt before taxation IFRS-related discount charges (included within Finance costs) Fair value adjustments to ﬁnancial derivatives (included within Finance costs) Amortisation of intangible assets (included within Administration costs) Share-based payment charges (included within Administration costs) Adjusted proﬁt before taxation Earnings per share (EPS) Adjusted EPS on proﬁt for the year Note 2014 £ 2013 £ 7 7 5 7 6 11,593,870 (4,223,000) 11,262,898 (4,209,905) 7,370,870 (4,741,186) (2,102,359) 7,052,993 (4,448,646) (2,297,702) 527,325 (28,975) 44,691 543,041 149,810 306,645 (32,914) 2,493 276,224 306,042 692,851 582,266 (126,514) 13,488 26,970 (4,922) 51,941 (12,071) (50,439) 12,900 (73,156) (15,491) 619,695 566,775 21 0.7p 0.7p 2014 £ 543,041 12,575 — 414,308 125,987 2013 £ 276,224 25,046 (454) 406,553 71,193 1,095,911 778,562 1.2p 1.3p Adjusted proﬁt before taxation is derived by taking statutory proﬁt before taxation and adding back IFRS-related discount charges, amortisation of intangible assets, share-based payment charges, acquisition costs and fair value adjustments to ﬁnancial derivatives. This is not a primary statement. i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 32 Consolidated Balance Sheet as at 31 March 2014 ASSETS Non-current assets Intangibles Property, plant and equipment Deferred taxation Retirement beneﬁt surplus Total non-current assets Current assets Inventories Trade and other receivables Income tax receivable Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Issued capital Retained earnings Total equity Liabilities Non-current liabilities Long-term borrowings Deferred taxation Total non-current liabilities Current liabilities Short-term borrowings Trade and other payables Deferred income Other ﬁnancial liabilities Total current liabilities Total liabilities Total equity and liabilities David Evans Non-executive Chairman 20 June 2014 Kieron Harbinson Finance Director 20 June 2014 Omega Diagnostics Group PLC Registered number: 5017761 Note 2014 £ 2013 £ 8 9 14 18 10 11 12 14 12 13 13 19 11,259,215 2,283,911 1,138,404 84,370 10,347,876 2,116,286 553,647 31,886 14,765,900 13,049,695 1,692,941 2,415,917 — 3,116,013 1,833,887 2,556,762 7,106 160,693 7,224,871 4,558,448 21,990,771 17,608,143 16,727,516 1,731,053 12,977,107 985,371 18,458,569 13,962,478 319,044 1,042,925 484,472 609,395 1,361,969 1,093,867 427,823 1,386,358 356,052 — 367,649 1,684,149 — 500,000 2,170,233 2,551,798 3,532,202 3,645,665 21,990,771 17,608,143 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 33 Consolidated Statement of Changes in Equity for the year ended 31 March 2014 Share capital £ Share premium £ Retained earnings £ Total £ Balance at 31 March 2012 4,145,580 8,831,527 347,403 13,324,510 Proﬁt for the year ended 31 March 2013 Other comprehensive income – net exchange adjustments Other comprehensive income – actuarial loss on deﬁned beneﬁt pensions Other comprehensive income – tax credit Total comprehensive income for the year Share-based payments Balance at 31 March 2013 Issue of share capital for cash consideration Expenses in connection with share issue Proﬁt for the year ended 31 March 2014 Other comprehensive income – net exchange adjustments Other comprehensive income – actuarial gain on deﬁned beneﬁt pensions Other comprehensive income – tax credit Total comprehensive income for the year Share-based payments Balance at 31 March 2014 — — — — — — — — — — — — 582,266 26,970 (50,439) 7,978 566,775 71,193 582,266 26,970 (50,439) 7,978 566,775 71,193 4,145,580 8,831,527 985,371 13,962,478 941,176 — — — — — — — 3,058,824 (249,591) — — — — — — — — 692,851 (126,514) 51,941 1,417 619,695 125,987 4,000,000 (249,591) 692,851 (126,514) 51,941 1,417 619,695 125,987 5,086,756 11,640,760 1,731,053 18,458,569 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 34 Consolidated Cash Flow Statement for the year ended 31 March 2014 Cash ﬂows generated from operations Proﬁt for the year Adjustments for: Taxation Finance costs Finance income Operating proﬁt before working capital movement Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories (Decrease)/increase in trade and other payables (Gain)/loss on sale of property, plant and equipment Depreciation Amortisation of intangible assets Movement in grants Share-based payments Taxation received Cash ﬂow from operating activities Investing activities Finance income Purchase of property, plant and equipment Purchase of intangible assets Sale of property, plant and equipment Net cash used in investing activities Financing activities Finance costs Proceeds from issue of share capital Expenses of share issue New ﬁnance leases Loan repayments Finance lease repayments Net cash from/(used in) ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Effects of exchange rate movements Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2014 £ 2013 £ 692,851 582,266 9 8 9 (149,810) 28,975 (44,691) 527,325 140,845 140,946 (297,791) (11,224) 265,553 414,308 356,052 125,987 7,106 (306,042) 32,914 (2,493) 306,645 (139,262) (144,338) 231,132 1,010 268,699 406,553 — 71,193 13,321 1,669,107 1,014,953 44,691 (478,968) (1,880,845) 32,500 2,493 (308,876) (1,185,133) — (2,282,622) (1,491,516) (13,057) 4,000,000 (249,591) 282,365 (360,000) (43,538) (6,107) — — — (497,377) (18,759) 3,616,179 (522,243) 3,002,664 (998,806) (47,344) 160,693 367 1,159,132 3,116,013 160,693 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 Company Balance Sheet as at 31 March 2014 ASSETS Non-current assets Investments Intangible assets Deferred taxation Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Issued capital Retained earnings Total equity Liabilities Non-current liabilities Long-term borrowings Total non-current liabilities Current liabilities Short-term borrowings Trade and other payables Other ﬁnancial liabilities Bank overdraft Total current liabilities Total liabilities Total equity and liabilities David Evans Non-executive Chairman 20 June 2014 Kieron Harbinson Finance Director 20 June 2014 Omega Diagnostics Group PLC Registered number: 5017761 35 Note 2014 £ 2013 £ 20 8 11 11,170,267 1,531,786 125,613 10,928,927 1,506,765 — 12,827,666 12,435,692 4,107,038 1,987,153 4,127,911 — 6,094,191 4,127,911 18,921,857 16,563,603 17,717,191 555,181 13,966,782 364,028 18,272,372 14,330,810 12 111,526 455,608 111,526 455,608 12 13 19 360,000 177,959 — — 360,000 660,865 500,000 256,320 537,959 1,777,185 649,485 2,232,793 18,921,857 16,563,603 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 36 Company Statement of Changes in Equity for the year ended 31 March 2014 Balance at 31 March 2012 Proﬁt for the year ended 31 March 2013 Total comprehensive income for the year Share-based payments Balance at 31 March 2013 Issue of share capital for cash consideration Expenses in connection with share issue Proﬁt for the year ended 31 March 2014 Total comprehensive income for the year Share-based payments Share capital £ Share premium £ Retained earnings £ Total £ 4,517,862 9,448,920 232,939 14,199,721 — — — — — — 59,896 59,896 71,193 59,896 59,896 71,193 4,517,862 9,448,920 364,028 14,330,810 941,176 — — 3,058,824 (249,591) — — — — — — — 65,166 65,166 125,987 4,000,000 (249,591) 65,166 65,166 125,987 Balance at 31 March 2014 5,459,038 12,258,153 555,181 18,272,372 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 Company Cash Flow Statement for the year ended 31 March 2014 Cash ﬂows generated from operations Proﬁt for the year Adjustments for: Taxation Finance costs Finance income Operating (loss)/proﬁt before working capital movement Decrease in trade and other receivables (Decrease)/increase in trade and other payables Taxation received Share-based payments Net cash ﬂow from operating activities Investing activities Finance income Purchase of intangible assets Investment in subsidiaries Net cash used in investing activities Financing activities Finance costs Proceeds from issue of share capital Expenses of share issue Loan repayments Net cash ﬂow from/(used in) ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash/(overdraft) and cash equivalents at end of year 37 2014 £ 2013 £ 65,166 59,896 (125,613) 15,918 (113,984) (158,513) 20,873 (482,906) — 125,987 (13,322) 27,830 (74,026) 378 216,922 153,483 13,321 71,193 (494,559) 455,297 113,983 (525,021) (241,339) 74,026 (152,102) (154,009) (652,377) (232,085) — 4,000,000 (249,591) (360,000) (1,024) — — (497,377) 3,390,409 (498,401) 2,243,473 (256,320) (275,189) 18,869 1,987,153 (256,320) i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 38 Notes to the Financial Statements for the year ended 31 March 2014 1 Authorisation of ﬁnancial statements The ﬁnancial statements of Omega Diagnostics Group PLC for the year ended 31 March 2014 were authorised for issue by the Board of Directors on 20 June 2014, and the balance sheets were signed on the Board’s behalf by David Evans and Kieron Harbinson. Omega Diagnostics Group PLC is a public limited company incorporated in England. The Company’s ordinary shares are traded on AIM. 2 Accounting policies Basis of preparation The accounting policies which follow set out those policies which have been applied consistently to all periods presented in these ﬁnancial statements. These ﬁnancial statements are presented in sterling and have been prepared in accordance with IFRS as adopted by the EU and applied in accordance with the provisions of the Companies Act 2006. In relation to IFRS 8 – Operating Segments, the Group has identiﬁed the Executive Board as the chief operating decision maker with responsibility for decisions over the allocation of resources to operating segments and for the monitoring of their performance. The Group reports performance of the following three segments: − Allergy and autoimmune − Food intolerance − Infectious disease and Other Basis of consolidation The Group ﬁnancial statements consolidate the ﬁnancial statements of Omega Diagnostics Group PLC and the entities it controls (its subsidiaries). Control comprises the power to govern the ﬁnancial and operating policies of the investee so as to obtain beneﬁt from its activities and is achieved through direct or indirect ownership of voting rights. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The ﬁnancial statements of the subsidiaries used in the preparation of the consolidated ﬁnancial statements are based on consistent accounting policies. All intercompany balances and transactions, including unrealised proﬁts arising from them, are eliminated. Intangible assets Goodwill Business combinations are accounted for under IFRS 3 using the acquisition method. Goodwill represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the identiﬁable assets, liabilities and contingent liabilities. Goodwill is not amortised but is subject to an annual impairment review and whenever events or changes in circumstances indicate that the carrying value may be impaired a charge is made to the income statement. After initial recognition, goodwill is stated at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the related cash-generating units monitored by management, usually at business segment level or statutory Company level as the case may be. Where the recoverable amount of the cash-generating unit is less than its carrying amount, including goodwill, an impairment loss is recognised in the income statement. Other intangible assets Intangible assets acquired as part of a business combination are recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Following initial recognition at fair value at the acquisition date, the historic cost model is applied, with intangible assets being carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with a ﬁnite life have no residual value and are amortised on a straight line basis over the expected useful lives, with charges included in administration costs, as follows: Technology assets – 5–20 years Customer relationships – 5–10 years Supply agreements – 5 years Licenses/software – 5 – 20 years The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Research and development costs Expenditure on research and initial feasibility work is written off through the income statement as incurred. Thereafter, expenditure on product development which meets certain criteria is capitalised and amortised over its useful life. The stage at when it is probable that the product will generate future economic beneﬁts is when the following criteria have been met: technical feasibility; intention and ability to sell the product; availability of resources to complete the development of the product; and the ability to measure the expenditure attributable to the product. The useful life of the intangible asset is determined on a product-by-product basis, taking into consideration a number of factors. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 39 2 Accounting policies continued Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual values over their estimated useful lives, on a straight line basis as follows: Land and property – 33 years, straight line with no residual value Leasehold improvements – 10 years, straight line with no residual value Plant and machinery – 3 to 10 years, straight line with no residual value Motor vehicles – 5 years, straight line with no residual value The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives are reviewed annually and, where adjustments are required, these are made prospectively. Impairment of assets The Group and Company assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Group and Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inﬂows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash ﬂows are discounted to their net present value, using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to that asset. Impairment losses on continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is deﬁned as standard cost or purchase price and includes all direct costs incurred in bringing each product to its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be incurred prior to completion and disposal. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at the lower of original invoice amount and recoverable amount. A provision for doubtful amounts is made when there is objective evidence that collection of the full amount is no longer probable. Signiﬁcant ﬁnancial difﬁculty or signiﬁcantly extended settlement periods are considered to be indicators of impairment. Normal average payment terms vary from payment in advance to 90 days. Balances are written off when the probability of recovery is assessed as remote. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less. Financial instruments Under IAS 39, ﬁnancial assets, liabilities and equity instruments are classiﬁed according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial assets are classiﬁed as either: − ﬁnancial assets at fair value through proﬁt or loss; or − loans and receivables. Financial assets at fair value through proﬁt or loss The Group uses derivative ﬁnancial instruments to reduce its exposure to ﬂuctuations in interest rates, both in sterling and US dollars. The Group does not hold or issue derivatives for speculative or trading purposes. Derivative ﬁnancial instruments with positive fair values are recognised as assets measured at their fair values at the balance sheet date. The fair value of interest rate contracts is determined by reference to market values for similar instruments that have similar maturities. Changes in fair value are recognised in the income statement included in ﬁnance costs, due to the fact that hedge accounting has not been applied. Loans and receivables Trade receivables that do not carry any interest and have ﬁxed or determinable payment amounts that are not quoted in an active market are classiﬁed as loans and receivables. Loans and receivables with a maturity of less than twelve months are included in current assets and are measured at amortised cost using the effective interest method as reduced by appropriate allowances for estimated irrecoverable amounts. Financial liabilities are classiﬁed as either: − ﬁnancial liabilities at fair value through proﬁt or loss; or − other liabilities. i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 40 Notes to the Financial Statements continued for the year ended 31 March 2014 2 Accounting policies continued Financial instruments continued Financial liabilities at fair value through proﬁt or loss The Group uses derivative ﬁnancial instruments to reduce its exposure to ﬂuctuations in interest rates, both in sterling and US dollars. The Group does not hold or issue derivatives for speculative or trading purposes. Derivative ﬁnancial instruments with negative fair values are recognised as liabilities measured at their fair values at the balance sheet date. The fair value of interest rate contracts is determined by reference to market values for similar instruments that have similar maturities. Changes in fair value are recognised in the income statement included in ﬁnance costs, due to the fact that hedge accounting has not been applied. Other ﬁnancial liabilities, whether used as part of the consideration for acquisitions which include deferred consideration or not, are designated by the Group as ﬁnancial liabilities at fair value through proﬁt and loss. They are measured at the present value of the consideration expected to be payable by discounting the expected future cash ﬂows at prevailing interest rates. At initial recognition, the quantum of liability to be recognised will depend upon management’s expectation, at that date, of the amount that would ultimately be payable. Where there is a change in the expectation of future cash ﬂows or interest rates, the change is reﬂected through the income statement. Other liabilities Trade payables are not interest bearing and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Bank borrowings are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. For long-term bank borrowings stated at amortised cost, transaction costs that are directly attributable to the borrowing instrument are recognised as an interest expense over the life of the instrument. A ﬁnancial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires. Where an existing ﬁnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modiﬁed, such an exchange or modiﬁcation is treated as a derecognition of the original liability and recognition of the new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognised. Financial assets and liabilities that are held for trading and other assets and liabilities designated as such on inception are included at fair value through proﬁt and loss. Financial assets and liabilities are classiﬁed as held for trading if they are acquired for sale in the short term. Derivatives are also classiﬁed as held for trading unless they are designated as hedge instruments. Assets are carried in the balance sheet at fair value with gains or losses recognised in the income statement. Company’s investments in subsidiaries The Company recognises its investments in subsidiaries at cost. The carrying value of investments is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Presentation currency The ﬁnancial statements are presented in UK pounds sterling. Transactions in currencies other than sterling are recorded at the prevailing rate of exchange at the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Foreign currencies Non-monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the transaction. Gains and losses arising on retranslation are included in the net proﬁt or loss for the year. The trading results of the overseas subsidiaries are translated at the average exchange rate ruling during the year, with the exchange difference between the average rates and the rates ruling at the balance sheet date being taken to reserves. Any difference arising on the translation of the opening net investment, in the overseas subsidiaries, and of applicable foreign currency loans are dealt with as adjustments to reserves. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and net of discounts and sales-related taxes. Sales of goods are recognised when the signiﬁcant risks and rewards of ownership are transferred to the customer. This will be when goods have been dispatched and the collection of the related receivable is reasonably assured. Revenue relates to the sale of medical diagnostic kits. Government grants Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Government grants in respect of capital expenditure are credited to a deferred income account and are released to the income statement over the expected useful lives of the relevant assets by equal annual instalments. Leasing and hire purchase commitments Assets held under ﬁnance leases and hire purchase contracts are capitalised in the balance sheet and are depreciated over the shorter of their lease period and useful life. The corresponding lease or hire purchase obligation is capitalised in the balance sheet as a liability. The interest element of the rental obligation is charged to the income statement over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding. Rentals applicable to operating leases, where substantially all the beneﬁts and risks remain with the lessor, are charged against proﬁts on a straight line basis over the period of the lease. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 41 2 Accounting policies continued Share-based payments Equity-settled transactions For equity-settled transactions, the Group measures the award by reference to the fair value at the date at which they are granted and it is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any service and performance (vesting conditions), other than conditions linked to the price of the shares of the Company (market conditions). Any other conditions which are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting conditions. Like market performance conditions, non-vesting conditions are taken into account in determining grant date fair value. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisﬁed, provided that all other performance conditions are satisﬁed. At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of vesting conditions and of the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market or non-vesting condition, be treated as vesting as described above. This includes any award where non-vesting conditions within the control of the Group or the employee are not met. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. Where the terms of an equity-settled award are modiﬁed or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modiﬁcation, based on the difference between the fair value of the original award and the fair value of the modiﬁed award, both as measured on the date of the modiﬁcation. No reduction is recognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement. Pension contributions Contributions to personal pension plans of employees on a deﬁned contribution basis are charged to the income statement in the year in which they are payable. The Group also operates two deﬁned beneﬁt plans in Germany, which are closed to new members. Obligations under deﬁned beneﬁt plans are measured at discounted present values by actuaries, while plan assets are recorded at fair value. The operating and ﬁnancing costs of pensions are charged to the income statement in the period in which they arise and are recognised separately. The difference between actual and expected returns on assets during the year, including changes in actuarial assumptions, are recognised in the statement of comprehensive income. Income taxes Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the ﬁnancial statements, with the following exceptions: − where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable proﬁt or loss; − in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and − deferred income tax assets are recognised only to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. i F n a n c a i Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or the liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Income tax and deferred tax is charged or credited in other comprehensive income or directly to equity if it relates to items that are credited or charged in other comprehensive income or directly to equity. Otherwise, income tax and deferred tax are recognised in proﬁt or loss. l S t a t e m e n t s Use of estimates and judgements The preparation of these ﬁnancial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 42 Notes to the Financial Statements continued for the year ended 31 March 2014 2 Accounting policies continued Use of estimates and judgements continued The signiﬁcant areas of estimation and uncertainty and critical judgements in applying the accounting policies that have the most signiﬁcant effect on the amounts recognised in the ﬁnancial information are discussed overleaf. Further judgements, assumptions and estimates are set out in the Group ﬁnancial statements. Valuation of intangible assets Management judgement is required to estimate the useful lives of intangible assets, having reference to future economic beneﬁts expected to be derived from use of the asset. Economic beneﬁts are based on the fair values of estimated future cash ﬂows. Impairment of goodwill Goodwill is tested annually for impairment. The test considers future cash ﬂow projections of cash-generating units that give rise to the goodwill. Where the discounted cash ﬂows are less than the carrying value of goodwill, an impairment charge is recognised for the difference. Further analysis of the estimates and judgements is disclosed in Note 8. Deferred tax assets Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable proﬁts together with an assessment of the effect of future tax planning strategies. The carrying value of the deferred tax asset at 31 March 2014 is £1,138,404 (2013: £553,647). Further details are contained in Note 14. New standards and interpretations not applied IASB and IFRIC have issued the following standards and interpretations, which are considered relevant to the Group, with an effective date after the date of these ﬁnancial statements. International Accounting Standards (IAS/IFRSs) IAS 36 (Amendment) IFRS 9 IFRS 10 IFRS 11 IFRS 12 Impairment of assets Financial Instruments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Annual Improvements to IFRSs 2010–2012 Cycle Annual Improvements to IFRSs 2011–2013 Cycle Effective date (annual periods beginning on or after) 1 January 2014 1 January 2018 1 January 2014 1 January 2014 1 January 2014 1 July 2014 1 July 2014 The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in these ﬁnancial statements. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s ﬁnancial statements in the period of initial application. 3 Adoption of new international ﬁnancial reporting standards The accounting policies adopted are consistent with those of the previous ﬁnancial year. The following standards were adopted with no material impact – IAS 1 (Amendment), IAS 19 (Revised) and IFRS 13. 4 Segment information For management purposes the Group is organised into three operating divisions: Allergy and autoimmune, Food intolerance, and Infectious disease and Other. The Allergy and autoimmune division specialises in the research, development, production and marketing of in-vitro allergy and autoimmune tests used by doctors to diagnose patients with allergies and autoimmune diseases. The Food intolerance division specialises in the research, development and production of kits to aid the detection of immune reactions to food. It also provides clinical analysis to the general public, clinics and health professionals as well as supplying the consumer Food Detective® test. The Infectious disease division specialises in the research, development and production and marketing of kits to aid the diagnosis of infectious diseases. Corporate consists of centralised corporate costs which are not allocated across the three business divisions. Inter-segment transfers or transactions are entered into under the normal commercial conditions that would be available to unrelated third parties. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 43 4 Segment information continued Business segment information 2014 Statutory presentation Revenue Inter-segment revenue Total revenue Operating costs Operating (loss)/proﬁt Net ﬁnance (costs)/income (Loss)/proﬁt before taxation Adjusted proﬁt before taxation (Loss)/proﬁt before taxation IFRS-related discount charges Amortisation of intangible assets Share-based payment charges Allergy and Autoimmune £ Food Intolerance £ Infectious Disease/ other £ Corporate £ Group £ 4,086,060 (119,442) 3,966,618 (4,033,421) 6,307,793 (1,130,298) 5,177,495 (3,618,695) 2,616,700 (166,943) 2,449,757 (2,558,105) — 13,010,553 — (1,416,683) — 11,593,870 (11,066,545) (856,324) (66,803) (69,812) 1,558,800 323 (108,348) (12,859) (856,324) 98,064 527,325 15,716 (136,615) 1,559,123 (121,207) (758,260) 543,041 (136,615) — 288,989 — 1,559,123 — 98,885 — (121,207) — 26,434 — (758,260) 12,575 — 125,987 543,041 12,575 414,308 125,987 Adjusted proﬁt/(loss) before taxation 152,374 1,658,008 (94,773) (619,698) 1,095,911 2013 Statutory presentation Revenue Inter-segment revenue Total revenue Operating costs Operating (loss)/proﬁt Net ﬁnance (costs)/income Allergy and Autoimmune £ Food Intolerance £ Infectious Disease/ other £ Corporate £ Group £ 4,254,313 (93,304) 4,161,009 (4,391,981) 5,222,919 (833,232) 4,389,687 (3,258,964) 2,869,053 (156,851) 2,712,202 (2,559,475) — 12,346,285 — (1,083,387) — 11,262,898 (10,956,253) (745,833) (230,972) (72,362) 1,130,723 513 152,727 (4,868) (745,833) 46,296 306,645 (30,421) (Loss)/proﬁt before taxation (303,334) 1,131,236 147,859 (699,537) 276,224 Adjusted proﬁt before taxation (Loss)/proﬁt before taxation IFRS-related discount charges Fair value adjustments to ﬁnancial derivatives Amortisation of intangible assets Share-based payment charges (303,334) — — 282,412 — 1,131,236 — — 98,866 — 147,859 — — 25,275 — (699,537) 25,046 (454) — 71,193 276,224 25,046 (454) 406,553 71,193 Adjusted (loss)/proﬁt before taxation (20,922) 1,230,102 173,134 (603,752) 778,562 The segment assets and liabilities are as follows: 2014 Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Allergy and Autoimmune £ 8,942,934 — Food Intolerance £ Infectious Disease/ other £ Corporate £ Group £ 6,062,066 — 2,730,161 — 1,193 — 17,736,354 4,254,417 8,942,934 6,062,066 2,730,161 1,193 21,990,771 195,440 — 396,536 — 994,550 — 155,884 — 1,742,410 1,789,792 195,440 396,536 994,550 155,884 3,532,202 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 44 Notes to the Financial Statements continued for the year ended 31 March 2014 4 Segment information continued Business segment information continued 2013 Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Allergy and Autoimmune £ 9,019,799 — Food Intolerance £ 5,551,814 — Infectious Disease/ other £ 2,298,462 — Corporate £ Group £ 16,622 — 16,886,697 721,446 9,019,799 5,551,814 2,298,462 16,622 17,608,143 337,982 — 355,997 — 849,050 — 141,121 — 1,684,150 1,961,515 337,982 355,997 849,050 141,121 3,645,665 Unallocated assets comprise cash, income tax receivable, deferred taxation and derivative ﬁnancial instruments. Unallocated liabilities comprise interest-bearing loans, borrowings, other ﬁnancial liabilities, derivative ﬁnancial instruments, deferred taxation and income tax payable. Information about major customers No single customer accounts for 10% or more of Group revenues. Geographical information The Group’s geographical information is based on the location of its markets and customers. Sales to external customers disclosed in the geographical information are based on the geographical location of its customers. The analysis of segment assets and capital expenditure is based on the geographical location of the assets. Revenues UK Germany Rest of Europe North America South/Central America India Asia and Far East Africa and Middle East 2014 Assets UK Germany India Unallocated assets Total assets 2013 Assets UK Germany India Unallocated assets Total assets 2014 £ 2013 £ 841,880 3,503,074 3,084,683 393,761 714,672 450,805 1,094,649 1,510,346 991,513 3,654,701 2,752,442 348,984 511,968 399,775 1,041,788 1,561,727 11,593,870 11,262,898 Intangibles £ Property, plant and equipment £ Retirement beneﬁt surplus £ Inventories £ Trade and other receivables £ Total £ 8,608,729 2,646,298 4,188 — 1,313,607 951,920 18,384 — — 84,370 — — 862,706 762,079 68,156 — 2,008,074 283,135 124,708 — 12,793,116 4,727,802 215,436 4,254,417 11,259,215 2,283,911 84,370 1,692,941 2,415,917 21,990,771 Intangibles £ Property, plant and equipment £ Retirement beneﬁt surplus £ 7,443,646 2,900,341 3,889 — 995,942 1,090,479 29,865 — — 31,886 — — Inventories £ 899,494 849,865 84,528 — Trade and other receivables £ Total £ 2,073,849 381,648 101,265 — 11,412,931 5,254,219 219,547 721,446 10,347,876 2,116,286 31,886 1,833,887 2,556,762 17,608,143 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 4 Segment information continued Geographical information continued Liabilities UK Germany India Unallocated liabilities Total liabilities Capital expenditure UK Germany India Total capital expenditure 5 Finance costs Consolidated Interest payable on loans and bank overdrafts Exchange difference on loans Unwinding of discounts Fair value adjustment to ﬁnancial derivatives Finance leases 6 Taxation Consolidated (a) Tax credited in the income statement Current tax – current year Current tax – prior year adjustment Deferred tax – current year Deferred tax – prior year adjustment (b) Tax relating to items charged or credited to other comprehensive income Deferred tax on actuarial (gain)/loss on retirement beneﬁt obligations Deferred tax on net exchange adjustments Total tax credit Consolidated (c) Reconciliation of total tax credit Factors affecting the tax charge for the year: Proﬁt before tax Effective rate of taxation Proﬁt before tax multiplied by the effective rate of tax Effects of: Expenses not deductible for tax purposes and permanent differences Other timing differences Research and development and deferred tax credits Tax under/(over)-provided in prior years Adjustment due to different overseas tax rate Impact of UK rate change on deferred tax Tax credit for the year 45 2014 £ 2013 £ 1,546,872 139,128 56,410 1,789,792 1,365,434 256,346 62,370 1,961,515 3,532,202 3,645,665 457,306 20,392 1,270 256,568 42,318 9,990 478,968 308,876 2014 £ 6,872 — 13,118 — 8,985 28,975 2013 £ 6,471 927 21,732 (454) 4,238 32,914 2014 £ 2013 £ — — 316,525 (166,715) — 16,373 163,462 126,207 149,810 306,042 (12,071) 13,488 1,417 12,900 (4,922) 7,978 2014 £ 2013 £ 543,041 276,224 23% 24% 124,899 66,294 4,191 28,977 (444,853) 166,715 (9,512) (20,227) 4,337 17,086 (227,422) (142,580) (9,372) (14,385) (149,810) (306,042) i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 46 Notes to the Financial Statements continued for the year ended 31 March 2014 6 Taxation continued The UK government has announced that the main UK corporation tax rate will be reduced from the current rate of 23%, which has applied from 1 April 2013, to 20% via a 2% reduction at 1 April 2014 and a 1% reduction at 1 April 2015. The reductions in the corporation tax rates to 21% and 20% were included within the 2013 Finance Act that was enacted on 17 July 2013. At 31 March 2014 the changes in the corporation tax rate from 23% to 21% on 1 April 2014 and 21% to 20% on 1 April 2015 had been substantively enacted and therefore the deferred tax assets and liabilities included within these results have been calculated based on the reduced current UK corporation tax rate of 20% on the basis that this is the rate at which the majority of the deferred tax assets and liabilities are expected to reverse. 7 Revenue and expenses Consolidated Revenue Revenue – sales of goods Finance income Total revenue Consolidated Operating proﬁt is stated after charging/crediting: Material costs Depreciation Amortisation of intangibles Net foreign exchange losses/(gains) Research and development costs Operating lease rentals Share-based payments Auditors’ remuneration Fees payable to the Company’s auditors for the audit of the annual accounts: Local statutory audit of subsidiaries Local statutory audit of the parent Company Fees payable to the Company’s auditors for other services: Taxation compliance Taxation advisory 2014 £ 2013 £ 11,593,870 44,691 11,262,898 2,493 11,638,561 11,265,391 2014 £ 2013 £ 3,077,807 265,553 414,308 73,596 245,873 252,904 125,987 20,000 50,000 5,000 12,500 2,000 3,053,462 268,699 406,553 (4,863) 140,810 254,476 71,193 20,000 50,000 5,000 12,500 2,000 All research and development costs noted above were charged directly to administration costs in the income statement. Staff costs The average monthly number of employees (including Directors) was: Consolidated Operations Management and administration Employee numbers Their aggregate remuneration comprised: Wages and salaries Social security costs Pension costs Share-based payments 2014 number 2013 number 81 54 135 2014 £ 74 52 126 2013 £ 4,010,042 484,770 189,353 125,987 3,967,856 490,079 225,344 71,193 4,810,152 4,754,472 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 47 7 Revenue and expenses continued Equity-settled share-based payments Consolidated and Company The share-based payment plans are described below. EMI Option Scheme and Unapproved Option Scheme The plans are equity-settled plans and the fair value is measured at the grant date. Under the above plans, share options are granted to Directors and employees of the Company. The exercise price of the option is equal to the market price of the shares on the date of grant. The options vest one year after the date of grant and do not require to be the subject of any performance criteria. The scheme rules allow for performance criteria to be applied in appropriate cases. The fair value of the options is estimated at the grant date using the Black-Scholes pricing model, taking into account the terms and conditions upon which the instruments were granted. The contractual life of each option granted is ten years and there is no cash settlement alternative. Second Unapproved Option Scheme (SUOS) The plan is an equity-settled plan and the fair value is measured at the grant date. Under the above plan, share options may be granted to third parties for provision of services to the Company. The exercise price of the option is equal to the market price of the shares on the date of grant. The options vest three years after the date of grant and are not subject to any performance criteria. The fair value of the options is estimated at the grant date using the Black-Scholes pricing model, taking into account the terms and conditions upon which the instruments were granted. The contractual life of each option granted is ten years and there is no cash settlement alternative. Third Unapproved Option Scheme (TUOS) The plan is an equity-settled plan and the fair value is measured at the grant date. Under the above plan, share options may be granted to Directors of the Company. The exercise price of the option is equal to the market price of the shares on the date of grant. The options vest three years after the date of grant and are subject to performance criteria. The fair value of the options is estimated at the grant date using the Black-Scholes pricing model, taking into account the terms and conditions upon which the instruments were granted. The contractual life of each option granted is ten years and there is no cash settlement alternative. Under the EMI Option Scheme 70,000 options lapsed during the year and a further 3,320,000 were granted. Under the third Unapproved Option Scheme (TUOS) during the year 2,130,406 options were granted. The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year: Outstanding 1 April Granted during the year under the EMI Option Scheme Granted during the year under the TUOS Exercised during the year Lapsed during the year under the EMI Option Scheme Outstanding at 31 March 2014 Exercisable at 31 March 2014 2014 number 3,598,289 3,320,000 2,130,406 — (70,000) 8,978,695 2,498,289 2014 WAEP 17.9p 29.26p 15.25p — — — — 2013 number 2,283,289 1,450,000 — — (135,000) 3,598,289 2,148,289 2013 WAEP 19.0p 14.5p — — — — — The following table lists the inputs to the model used for the years ended 31 March 2014 and 31 March 2013: Dividend yield Expected volatility Risk-free interest rate Weighted average remaining contractual life Weighted average share price Exercise price Model used EMI Option Scheme and Unapproved Option Schemes 2014 2013 0% 41% 5% 7.7 23.8p 23.8p Black-Scholes 0% 47% 5% 7.4 14.5p 14.5p Black-Scholes The expected life of the options is based on management’s assumption of the options’ life due to the lack of any historical data on the exercise period of these options. The assumption takes into account the experience of employees and Directors and is not necessarily indicative of exercise patterns that may occur. The expected volatility reﬂects the assumption that historical volatility over a period similar to the life of the option is indicative of future trends, which may not necessarily be the actual outcome. i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 48 Notes to the Financial Statements continued for the year ended 31 March 2014 7 Revenue and expenses continued Directors’ remuneration Consolidated Fees Emoluments Contributions to personal pension Members of a deﬁned contribution pension scheme at the year end 2014 £ 71,667 371,561 2013 £ 45,000 371,506 443,228 416,506 18,500 18,500 461,728 435,006 3 3 Information in respect of individual Directors’ emoluments is provided in the Directors’ Remuneration Report on pages 27 and 28. 8 Intangibles Cost At 31 March 2012 Additions Additions internally generated Currency translation Goodwill £ Licences/ software Supply arrangements Technology assets Customer relationships Development costs £ £ £ £ £ Total £ 4,672,941 — — 11,837 1,136,416 570,582 — 1,925 521,914 — — 4,669 2,146,805 — — 1,538 1,219,940 — — 10,018 298,806 — 1,026,464 4,480 9,996,822 570,582 1,026,464 34,467 At 31 March 2013 4,684,778 1,708,923 526,583 2,148,343 1,229,958 1,329,750 11,628,335 Additions Additions internally generated Currency translation — — (27,256) 11,478 — (3,999) — — (10,752) — — (3,539) — — (23,072) — 1,369,367 (5,924) 11,478 1,369,367 (74,542) At 31 March 2014 4,657,522 1,716,402 515,831 2,144,804 1,206,886 2,693,193 12,934,638 Accumulated amortisation At 31 March 2012 Amortisation charge in the year Currency translation At 31 March 2013 Amortisation charge in the year Currency translation At 31 March 2014 Net book value 31 March 2014 31 March 2013 31 March 2012 — — — — — — — 45,947 44,948 1,824 130,479 101,739 4,745 493,592 130,710 1,490 190,732 129,156 5,097 92,719 236,963 625,792 324,985 44,243 (2,726) 105,283 (6,955) 131,823 (2,185) 132,959 (7,478) 134,236 335,291 755,430 450,466 — — — — — — — 860,750 406,553 13,156 1,280,459 414,308 (19,344) 1,675,423 4,657,522 1,582,166 180,540 1,389,374 756,420 2,693,193 11,259,215 4,684,778 1,616,204 289,620 1,522,551 904,973 1,329,750 10,347,876 4,672,941 1,090,469 391,435 1,653,213 1,029,208 298,806 9,136,072 Of the Development costs balance above of £2,693,193, costs of £629,021 relate to the Visitect® CD4 project and costs of £2,064,172 relate to the Allergy iSYS project. Of the licences/software balance above, £1,531,786 (2013: £1,506,765) is held on the balance sheet of the Company and relates to the IDS and CD4 licences. Additional costs of £25,021 were capitalised in the year in relation to these licences. Impairment testing of goodwill The Group tests goodwill annually for impairment or more frequently if there are indicators of impairment. The carrying amount of goodwill is indicated in the table above. The net book value of goodwill above for Genesis-CNS amounts to £3,016,892 (2013: £3,016,892), Co-Tek £332,986 (2013: £332,986) and Omega GmbH £1,307,644 (2013: £1,334,900). The recoverable amount of Genesis-CNS, Co-Tek and Omega GmbH has been determined based on a value in use calculation using cash ﬂow projections based on the actual results for the year ended 31 March 2014 and the ﬁnancial budget approved by the Board covering the period to 31 March 2015, with projected cash ﬂows thereafter through to March 2018 based on a growth rate of 3% per annum. The key assumptions used in the budget for Genesis-CNS are the sales projections which are predicated on the continued success of Genarrayt® and Food Detective®. The key assumption used in the budget for Co-Tek is the growth in sales of the Company’s Micropath™ range of products where increased volumes are dependent upon having accessed a lower manufacturing cost through the acquisition of Co-Tek itself. The budget for Omega GmbH assumes continued sales in the German market at the levels achieved in previous years as well as achieving a small increase in export sales through the existing Omega international distribution network. The Omega GmbH forecast also includes revenues in years two to ﬁve from the IDS-iSYS platform which will allow more rapid processing of higher volume tests. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 49 8 Intangibles continued Impairment testing of goodwill continued In all three cases, the Company also makes assumptions in regard to having sufﬁcient production personnel to cope with increased volumes. The discount rate applied to cash ﬂows is 12.5% for the Group which takes account of other risks speciﬁc to each segment such as currency risk, geography and price risk. The discount rate is the weighted average cost of pre-tax cost of debt ﬁnancing and the pre-tax cost of equity ﬁnancing. Cash ﬂows beyond the budget period are extrapolated for Genesis-CNS, Co-Tek and Omega GmbH over the next four years using a growth rate of 3%, which equates to the current growth rate in the IVD industry. Thereafter, a nil growth rate has been assumed for prudence. As a result, there has been no impairment to the carrying value of goodwill. Sensitivity analysis Base forecasts show headroom of £6.6 million above carrying value for Genesis-CNS, headroom of £0.7 million above carrying value for Co-Tek and headroom of £0.6 million for Omega GmbH. Sensitivity analysis has been undertaken to assess the impact of any reasonably possible change in key assumptions. If the growth rate were to drop from 3% to 1% this would have the effect of reducing the headroom in Genesis-CNS by £227,000 over ﬁve years, in Co-Tek by £40,000 over ﬁve years and in Omega GmbH by £33,000 over ﬁve years. For Genesis-CNS, the discount rate would have to increase to 63% or the growth rate would have to be a decline of 132% for the headroom to reduce to £Nil. For Co-Tek, the discount rate would have to increase to 82% or the growth rate would have to be a decline of 59% for the headroom to reduce to £Nil. For Omega GmbH, the discount rate would have to increase to 20% or the growth rate would have to be a decline of 42% for the headroom to reduce to £Nil. 9 Property, plant and equipment Consolidated Cost At 31 March 2012 Additions Disposals Currency translation At 31 March 2013 Additions Disposals Currency translation At 31 March 2014 Accumulated depreciation At 31 March 2012 Charge in the year Disposals Currency translation At 31 March 2013 Charge in the year Disposals Currency translation At 31 March 2014 Net book value 31 March 2014 31 March 2013 31 March 2012 Land and property £ Leasehold improvements £ Plant and machinery £ 687,813 — — 6,152 221,882 19,958 — 85 2,505,305 288,918 (4,907) 8,394 Motor vehicles £ 49,209 — — 441 Total £ 3,464,209 308,876 (4,907) 15,072 693,965 241,925 2,797,710 49,650 3,783,250 — — (14,170) 17,077 — (1,430) 461,891 (108,635) (18,756) — — (1,014) 478,968 (108,635) (35,370) 679,795 257,572 3,132,210 48,636 4,118,213 23,450 18,348 — 853 42,651 18,984 — (1,253) 118,729 27,605 — 282 1,237,687 212,818 (3,897) 4,837 15,834 9,928 — 490 1,395,700 268,699 (3,897) 6,462 146,616 1,451,445 26,252 1,666,964 20,562 — (840) 215,733 (87,359) (8,020) 10,274 — (743) 265,553 (87,359) (10,856) 60,382 166,338 1,571,799 35,783 1,834,302 i F n a n c a i 619,413 91,234 1,560,411 12,853 2,283,911 651,314 95,309 1,346,265 23,398 2,116,286 664,363 103,153 1,267,618 33,375 2,068,509 l S t a t e m e n t s The net book value of plant and machinery held under ﬁnance leases at 31 March 2014 is £323,675 (2013: £24,636). Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 50 Notes to the Financial Statements continued for the year ended 31 March 2014 10 Inventories Raw materials Work in progress Finished goods and goods for resale 11 Trade and other receivables Consolidated Trade receivables Less provision for impairment of receivables Trade receivables – net Prepayments and other receivables 2014 £ 1,121,638 112,482 458,821 2013 £ 993,354 121,667 718,866 1,692,941 1,833,887 2014 £ 2013 £ 2,206,136 (14,117) 2,309,765 (14,117) 2,192,019 223,898 2,295,648 261,114 2,415,917 2,556,762 The Directors consider that the carrying amount of trade receivables and other receivables approximates their fair value. Company Prepayments and other receivables Due from subsidiary companies Analysis of trade receivables Consolidated Neither impaired nor past due Past due but not impaired Company Neither impaired nor past due Ageing of past due but not impaired trade receivables Up to three months Between three and six months More than six months 2014 £ 2013 £ 1,193 4,105,845 16,622 4,111,289 4,107,038 4,127,911 2014 £ 2013 £ 2,034,515 157,504 1,857,402 438,246 2014 £ 2013 £ 4,105,845 4,111,289 2014 £ 150,972 25 6,507 2013 £ 295,148 32,329 110,769 The Directors consider that the carrying amount of trade receivables and other receivables approximates their fair value. The credit quality of trade receivables that are neither past due nor impaired is assessed internally with reference to historical information relating to counterparty default rates. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable and no collateral is held as security. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 12 Interest-bearing loans and borrowings and ﬁnancial instruments Consolidated Current Other loans Obligations under ﬁnance leases Non-current Obligations under ﬁnance leases Other loans 51 2014 £ 2013 £ 360,000 67,823 360,000 7,649 427,823 367,649 207,518 111,526 28,864 455,608 319,044 484,472 The Directors consider that the carrying amount of other loans and ﬁnance obligations approximates their fair values. The Group uses ﬁnance leases and hire purchase contracts to acquire plant and machinery. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the lessee. Future minimum payments under ﬁnance leases and hire purchase contracts are as follows: Future minimum payments due: Not later than one year After one year but not more than ﬁve years Less ﬁnance charges allocated to future periods Present value of minimum lease payments The present value of minimum lease payments is analysed as follows: Not later than one year After one year but not more than ﬁve years Consolidated Other loans comprise the following: Vendor loan – 2014 (base rate) Company Current Other loans Non-current Other loans Company Other loans comprise the following: Vendor loan – 2014 (base rate) 2014 £ 2013 £ 80,258 224,146 304,404 29,062 275,342 67,824 207,518 275,342 10,007 32,524 42,531 6,018 36,513 7,649 28,864 36,513 2014 £ 2013 £ 471,526 815,608 471,526 815,608 2014 £ 2013 £ 360,000 360,000 111,526 455,608 2014 £ 2013 £ 471,526 815,608 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 52 Notes to the Financial Statements continued for the year ended 31 March 2014 13 Trade and other payables Consolidated Trade payables Social security costs Accruals and other payables 2014 £ 821,793 128,510 436,055 2013 £ 1,231,405 135,292 317,452 1,386,358 1,684,149 UNITAID and Scottish Enterprise grant funding as detailed in the Financial review totalling £356,052 is included as deferred income on the Consolidated Balance Sheet. Trade payables and other payables comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates their fair value. Company Trade payables Accruals and other payables Due to subsidiary companies 2014 £ 1,920 153,963 22,076 2013 £ 42,527 98,594 519,744 177,959 660,865 Trade payables and other payables comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates their fair value. 14 Deferred taxation The deferred tax asset is made up as follows: Consolidated Decelerated capital allowances Temporary differences Tax losses carried forward 2014 £ 2,665 134,026 1,001,713 2013 £ 2,676 46,261 504,710 1,138,404 553,647 A deferred tax asset has been recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable proﬁts will be available against which the unused tax losses can be utilised. The deferred tax liability is made up as follows: Consolidated Fair value adjustments on acquisition Accelerated capital allowances Other timing differences Retirement beneﬁt obligations 15 Share capital Company Authorised share capital Ordinary shares of 4.0 pence each Deferred shares of 0.9 pence each Issued and fully paid ordinary share capital At the beginning of the year Issued during the year At the end of the year 2014 £ 360,992 121,521 560,412 — 2013 £ 400,163 49,684 151,056 8,492 1,042,925 609,395 2014 number 2013 number 184,769,736 123,245,615 184,769,736 123,245,615 85,216,257 23,529,412 85,216,257 — 108,745,669 85,216,257 During the year to 31 March 2014, the Company granted options over 5,450,406 ordinary shares at an average exercise price of 23.8 pence per share. The options will expire if not exercised within ten years of the date of grant. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 16 Commitments and contingencies Operating lease commitments Future minimum rentals payable under non-cancellable operating leases are as follows: Consolidated Land and buildings: Within one year Within two to ﬁve years After ﬁve years Other: Within one year Within two to ﬁve years After ﬁve years 53 2014 £ 2013 £ 221,636 693,137 250,689 33,702 98,700 1,480 221,636 793,477 371,985 35,357 92,709 19,240 Land and buildings leases in force for Omega Diagnostics Limited premises extend to 30 June 2021. The land and buildings leases in force for the premises of Genesis Diagnostics Limited and Cambridge Nutritional Sciences extend to March 2017. Other leases are in force for ofﬁce equipment items and extend to time periods ranging from April 2014 to June 2021. The leases may be extended at the expiry of their term. Performance bonds The Group has performance bonds and guarantees in place amounting to £35,372 at 31 March 2014 (2013: £34,610). 17 Related party transactions Remuneration of key personnel The remuneration of the key management personnel of Omega Diagnostics Group PLC is set out below in aggregate for each of the categories speciﬁed in IAS 24 – Related Party Disclosures: Short-term employee beneﬁts Share-based payments Post-employment beneﬁts 2014 £ 943,292 104,925 40,375 2013 £ 912,875 45,934 40,375 1,088,592 999,184 Included within short-term employee beneﬁts are amounts paid to MBA Consultancy of £25,000 (2013: £25,000), a company controlled by David Evans, £10,000 (2013: £20,000) to Holdmer Associates Limited, a company controlled by Michael Gurner, and £36,667 (2013: £Nil) paid to Third Day Advisors, a company controlled by William Rhodes. Other related party transactions During the year there have been transactions between the parent Company, Omega Diagnostics Limited (ODL), Genesis Diagnostics Limited (Genesis), Cambridge Nutritional Sciences (CNS), Co-Tek (South West) Limited (Co-Tek), Omega GmbH (GmbH) and Omega Dx (Asia) largely relating to payment of fees. The amounts outstanding at the year end are as follows: At 31 March 2014 Omega Diagnostics Group PLC Omega Diagnostics Limited Genesis Diagnostics Limited Cambridge Nutritional Sciences Limited Co-Tek (South West) Limited Omega GmbH Omega Dx (Asia) At 31 March 2013 Omega Diagnostics Group PLC Omega Diagnostics Limited Genesis Diagnostics Limited Cambridge Nutritional Sciences Limited Co-Tek (South West) Limited Omega GmbH Omega Dx (Asia) ODG £ ODL £ — (1,578,718) — (742,615) 1,578,718 33,634 (22,076) — 2,493,492 — (393,710) (7,121) — 48,183 ODG £ ODL £ — (1,362,530) — (131,508) 1,362,530 (194,167) (325,577) — 2,748,759 — (240,498) (15,424) — 59,727 Genesis £ (33,634) 742,615 — 161,729 41,608 — 48,193 Genesis £ 194,167 131,508 — 183,891 20,391 — 69,778 CNS £ Co-Tek £ GmbH £ 22,076 393,710 (161,729) — 20,000 — 6,837 CNS £ 325,577 240,498 (183,891) — — — 6,054 — (2,493,492) 7,121 (41,608) (20,000) — — — Co-Tek £ — 15,424 (20,391) — — — — — — — — — — GmbH £ (2,748,759) — — — — — 18,132 Dx (Asia) £ — (48,183) (48,193) (6,837) — — — Dx (Asia) £ — (59,727) (69,778) (6,054) — (18,132) — i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 54 Notes to the Financial Statements continued for the year ended 31 March 2014 17 Related party transactions continued Other related party transactions continued During the year there were transactions between the Company and its subsidiaries as follows: Balance at 1 April Charges to subsidiary companies Transfers of cash from subsidiary companies Balance at 31 March 2014 2014 £ 2013 £ 3,591,545 757,002 (264,779) 3,960,974 722,300 (1,091,729) 4,083,768 3,591,545 18 Retirement beneﬁt obligations The Group operates pension schemes for the beneﬁt of its UK and overseas employees. Details of the deﬁned contribution schemes for the Group’s employees are given below in Note (a). Details of the deﬁned beneﬁt schemes for the Group’s German employees and details relating to these schemes are given below in Note (b). During the year Group accounted for these pension schemes under IAS 19 – Employee Beneﬁts. a) Deﬁned contribution schemes The Group makes contributions to personal plans of employees on a deﬁned contribution basis. The Group does not have ownership of the schemes, with individual plans being arrangements between the employee and pension provider. For new hires in Germany, post 1 January 2011, the support fund (LV 1871 Unterstutzungskasse e.V) is the deﬁned contribution scheme used. The total Group contributions for the year amounted to £59,165 (2013: £62,775). b) Deﬁned beneﬁt schemes The Deutscher Pensionsfonds AG and the LV 1871 Unterstutzungskasse e.V schemes give the rights to deﬁned future beneﬁts. Of these beneﬁts the past service component is based on years of service and salary as of 1 January 2011 and are provided by the Deutscher Pensionsfonds AG. The remaining beneﬁts based on years of service after 1 January 2011 as well as salary increases are provided by the LV 1871 Unterstutzungskasse e.V scheme. These are mainly dependent on the number of earning years and salary level at pension age. The commitments are covered through an insurance company and are compliant with the requirements of German insurance laws. Pension costs relating to each scheme operating in Germany are charged in accordance with IAS 19 – Employee Beneﬁts. Formal valuations of each scheme have been carried out by Towers Watson (Reutlingen) GmbH, who are independent, professionally qualiﬁed actuaries, on 5 May 2014 using the following assumptions: Discount rate Future salary increases Future pension increases Price inﬂation (i) The amounts recognised in the balance sheet are as follows: Deﬁned beneﬁt obligation Fair value of plan assets Net asset (ii) The amounts charged/(credited) to operating proﬁt: Current service costs Interest cost on the deﬁned beneﬁt obligation Interest income on plan assets Total included in employee beneﬁts expense The current service costs for the year, £122,532 (2013: £166,649), have been included in administration costs. 2014 3.82% 2.50% 1.75% 1.75% 2013 3.82% 2.50% 1.75% 2.00% 2014 £ 2013 £ 1,695,381 1,779,751 1,664,439 1,696,325 84,370 31,886 2014 £ 123,726 62,283 (63,477) 2013 £ 162,569 68,530 (64,450) 122,532 166,649 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 18 Retirement beneﬁt obligations continued b) Deﬁned beneﬁt schemes continued (iii) The amounts recognised in the consolidated statement of comprehensive income: Actuarial gain/(loss) arising during the period Return on plan assets Total actuarial gain/(loss) on pensions (iv) Changes in the deﬁned obligation during the year: Opening deﬁned beneﬁt obligation Current service cost Interest cost Actuarial (gain)/loss on plan liabilities Exchange differences on foreign plans Beneﬁts paid Closing deﬁned beneﬁt obligation The weighted average duration of the deﬁned beneﬁt obligation is 18 years. (v) Changes in plan assets during the year: Opening fair value of plan assets Interest income Return on plan assets Contributions by employer Exchange differences on foreign plans Beneﬁts paid Closing fair value of plan assets Fair value of plan assets: Equities Bonds/debt instruments Cash/other Total value of plan assets 55 2014 £ 101,447 (49,506) 2013 £ (64,211) 13,772 51,941 (50,439) 2014 £ 2013 £ 1,664,439 123,726 62,283 (101,447) (33,985) (19,635) 1,358,452 162,569 68,530 64,211 10,677 — 1,695,381 1,664,439 2014 £ 2013 £ 1,696,325 63,477 (49,506) 123,726 (34,636) (19,635) 1,444,091 64,450 13,772 162,569 11,443 — 1,779,751 1,696,325 Quoted £ 355,950 723,633 302,558 Unquoted £ — 397,610 — Total £ 355,950 1,121,243 302,558 1,382,141 397,610 1,779,751 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 56 Notes to the Financial Statements continued for the year ended 31 March 2014 18 Retirement beneﬁt obligations continued b) Deﬁned beneﬁt schemes continued (vi) The major categories of plan assets as a percentage of total plan assets: Equities Bonds/debt instruments Cash/other 2014 20% 63% 17% 2013 15% 68% 17% The asset ﬁgures above are now weighted with the underlying assets. The Group expects to contribute £125,000 to its deﬁned beneﬁt pension plans in the year ending 31 March 2015. (vii) Mortality assumptions Assumptions regarding future mortality experience are set based on advice in accordance with published statistics and experience in Germany. In the calculations, the mortality rate used is in accordance with Heubeck Richttafeln’s basis of calculation for group pension insurance, 2005G. Other assumptions have been set in accordance with Heubeck Richttafeln’s basis of calculation for group pension insurance, as set out in schedule 2005G. (viii) Sensitivity analysis Changes in assumptions compared with March 2014 actuarial assumptions: Discount rate Increase by 1% Decrease by 1% Inﬂation rate Increase by 0.5% Decrease by 0.5% 19 Other ﬁnancial liabilities Consolidated and Company As at 1 April 2013 Payment in year to IDS As at 31 March 2014 Effect on deﬁned beneﬁt obligation 2014 £ (264,585) 342,208 149,277 (132,930) 2014 £ 500,000 (500,000) — At 31 March 2013 the liability related to a ﬁnal payment due to IDS under the licence agreement and was paid on 28 March 2014. 20 Investments Company The Company’s investments in subsidiaries, which are all 100% owned, are comprised of the following: Investment in Omega Diagnostics Limited Investment in Genesis Diagnostics Limited Investment in Cambridge Nutritional Sciences Limited Investment in Co-Tek (South West) Limited Investment in Bealaw (692) Limited Investment in Bealaw (693) Limited Investment in Omega GmbH Investment in Omega Dx (Asia) Country of incorporation 2014 £ 2013 £ UK UK UK UK UK UK Germany India 1,752,884 1,845,066 4,034,110 480,978 1 1 2,542,321 514,906 1,752,884 1,845,066 4,034,110 480,978 1 1 2,542,321 273,566 11,170,267 10,928,927 The further investment in the year relates to continued funding of Omega Dx (Asia). Bealaw (692) Limited and Bealaw (693) Limited are both dormant companies that have never traded. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 57 21 Earnings per share Basic earnings per share is calculated by dividing net proﬁt for the year attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the net proﬁt attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. Diluting events are excluded from the calculation when the average market price of ordinary shares is lower than the exercise price. Proﬁt attributable to equity holders of the Group Basic average number of shares Share options Diluted weighted average number of shares 2014 £ 2013 £ 692,851 582,266 2014 number 2013 number 104,052,644 1,043,840 85,216,257 52,703 105,096,484 85,268,960 Adjusted earnings per share on proﬁt for the year The Group presents adjusted earnings per share, which is calculated by taking adjusted proﬁt before taxation and adding the tax credit or deducting the tax charge in order to allow shareholders to understand better the elements of ﬁnancial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in ﬁnancial performance. Adjusted proﬁt before taxation Tax credit Adjusted proﬁt attributable to equity holders of the Group 2014 £ 2013 £ 1,095,911 149,810 778,562 306,042 1,245,721 1,084,604 22 Financial instruments The Group’s principal ﬁnancial instruments comprise loans, ﬁnance leases, ﬁnancial derivatives and cash. The main purpose of these ﬁnancial instruments is to manage the Group’s funding and liquidity requirements. The Group has other ﬁnancial instruments, such as trade receivables and trade payables, which arise directly from its operations. The categories of ﬁnancial instruments are summarised in the following tables: Assets as per the consolidated balance sheet 2014 Trade receivables Cash and cash equivalents Assets as per the consolidated balance sheet 2013 Trade receivables Cash and cash equivalents Loans and receivables £ Total £ 2,192,019 3,116,013 2,192,019 3,116,013 5,308,032 5,308,032 Loans and receivables £ Total £ 2,295,648 160,693 2,295,648 160,693 2,456,341 2,456,341 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 58 Notes to the Financial Statements continued for the year ended 31 March 2014 22 Financial instruments continued Assets as per the Company balance sheet 2014 Due from subsidiary companies Cash and cash equivalents Assets as per the Company balance sheet 2013 Due from subsidiary companies Cash and cash equivalents Liabilities as per the consolidated balance sheet 2014 Trade payables Obligations under ﬁnance leases Other loans (designated on initial recognition) Other ﬁnancial liabilities Liabilities as per the consolidated balance sheet 2013 Trade payables Obligations under ﬁnance leases Other loans (designated on initial recognition) Other ﬁnancial liabilities Loans and receivables £ Total £ 4,105,845 1,987,153 4,105,845 1,987,153 6,092,998 6,092,998 Loans and receivables £ Total £ 4,111,289 — 4,111,289 — 4,111,289 4,111,289 Liabilities at fair value through proﬁt and loss £ — — 471,526 — Amortised cost £ 821,793 275,342 — — Total £ 821,793 275,342 471,526 — 471,526 1,097,135 1,568,661 Liabilities at fair value through proﬁt and loss £ Amortised cost £ Total £ — — 815,608 — 1,231,405 36,513 — 500,000 1,231,405 36,513 815,608 500,000 815,608 1,767,918 2,583,526 Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 59 22 Financial instruments continued Liabilities as per the Company balance sheet 2014 Trade payables and amounts due to subsidiary companies Other loans (designated upon initial recognition) Other ﬁnancial liabilities Liabilities as per the Company balance sheet 2013 Trade payables and amounts due to subsidiary companies Other loans (designated upon initial recognition) Other ﬁnancial liabilities Liabilities at fair value through proﬁt and loss £ — 471,526 — Amortised cost £ 23,996 — — Total £ 23,996 471,526 — 471,526 23,996 495,522 Liabilities at fair value through proﬁt and loss £ — 815,608 — Amortised cost £ 562,271 — 500,000 Total £ 562,271 815,608 500,000 815,608 1,062,271 1,877,879 Within other loans designated at fair value through proﬁt and loss is the vendor loan note of £1.1 million, which was issued in September 2007. It carries a coupon of base rate only and is repayable in three equal instalments of £360,000 in September 2012, 2013 and 2014 and a ﬁnal capital payment of £20,000 in September 2015. The interest is rolled up and repayable with the ﬁnal capital payment. The fair value is calculated as the future cash ﬂows expected to result based on current estimates of interest rates. There has been no change in the year to the fair value of the loan due to changes in credit risk. The movement in the year of £344,082 (2013: £338,781) is due to the second instalment being paid in September 2013 (£360,000) offset by the effect of unwinding discount factors (£15,918), which is included within ﬁnance charges in the income statement. Financial risk management The principal ﬁnancial risks to which the Group is exposed are those relating to foreign currency, credit, liquidity and interest rate. These risks are managed in accordance with Board-approved policies. Foreign currency risk The Group operates in more than one currency jurisdiction and is therefore exposed to currency risk on the retranslation of the income statement and the balance sheet of its overseas subsidiaries from euros and rupees into its functional currency of pounds sterling. The Company funds its subsidiaries by a mixture of equity and intercompany loan ﬁnancing and these balances are subject to exchange rate movements that can give rise to movements in equity. The Group also buys and sells goods and services in currencies other than the functional currency, principally in euros and US dollars. The Group has US dollar and euro-denominated bank accounts and, where possible, the Group will offset currency exposure where purchases and sales of goods and services can be made in these currencies. The Group’s non-sterling revenues, proﬁts, assets, liabilities and cash ﬂows can be affected by movements in exchange rates. It is currently Group policy not to engage in any speculative transaction of any kind but this will be monitored by the Board to determine whether it is appropriate to use additional currency management procedures to manage risk. At 31 March 2014 (and 31 March 2013) the Group has not entered into any hedge transactions. i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 60 Notes to the Financial Statements continued for the year ended 31 March 2014 22 Financial instruments continued Financial risk management continued Foreign currency risk continued The following table demonstrates the sensitivity to a possible change in currency rates on the Group’s proﬁt before tax and equity through the impact of sterling weakening against the US dollar, the euro and the Canadian dollar. 2014 Trade and other receivables Trade and other payables Cash and cash equivalents Net investment in overseas subsidiary 2013 Trade and other receivables Trade and other payables Cash and cash equivalents Net investment in overseas subsidiary Decrease in currency rate 5% 5% 5% 5% 5% 5% 5% 5% Effect on proﬁt before tax £ 56,671 (18,332) 31,295 — 61,271 (28,400) 13,002 — Effect on equity £ — — — 18,590 — — — 75,310 An increase in currency rate of 5% would have a similar but opposite effect. The sensitivity around bank loans above represents the entire impact on the Company’s proﬁt before tax and equity. Credit risk The Group’s credit risk is primarily attributable to its trade receivables. The Group conducts its operations in many countries, so there is no concentration of risk in any one area. In most cases, the Group grants credit without security to its customers. Creditworthiness checks are undertaken before entering into contracts with new customers, and credit limits are set as appropriate. The Group conducts most of its operations through distributors and is therefore able to maintain a fairly close relationship with its immediate customers. As such, the Group monitors payment proﬁles of customers on a regular basis and is able to spot deteriorations in payment times. An allowance for impairment is made that represents the potential loss in respect of individual receivables where there is an identiﬁable loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash ﬂows. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An analysis of trade receivables from various regions is analysed in the following table: UK/Europe North America South/Central America Asia and Far East Africa and Middle East 2014 Trade receivables £ 1,293,732 9,502 162,970 365,664 360,151 2013 Trade receivables £ 1,368,012 94,783 110,354 302,678 419,821 2,192,019 2,295,648 Capital management The Group funds its operations with a mixture of short and long-term borrowings or equity as appropriate with a view to maximising returns for shareholders and maintaining investor, creditor and market conﬁdence. The Board reviews and approves an annual budget to help ensure it has adequate facilities to meet all its operational needs and to support future growth in the business. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 61 22 Financial instruments continued Financial risk management continued Liquidity risk The Group’s objective is to maintain sufﬁcient headroom to meet its foreseeable ﬁnancing and working capital requirements. The Group has in place drawn loan facilities and, in the case of bank loans, regularly monitors performance to ensure compliance with all covenants. The Group also maintains a surplus balance of cash and cash equivalents to ensure ﬂexible liquidity to meet ﬁnancial liabilities as they fall due. The table below summarises the maturity proﬁle of the Group’s ﬁnancial liabilities at 31 March 2014 based on the undiscounted cash ﬂows of liabilities which include both future interest and principal amounts outstanding based on the earliest date on which the Group can be required to pay. The amounts of future interest are not included in the carrying value of ﬁnancial liabilities on the balance sheet. Consolidated 2014 Trade payables Obligations under ﬁnance leases Vendor loan 2013 Trade payables Obligations under ﬁnance leases Vendor loan Less than 3 months £ 821,793 9,734 — 3 to 12 months £ — 58,090 360,000 1 to 5 years £ Total £ — 207,518 111,526 821,793 275,342 471,526 831,527 418,090 319,044 1,568,661 1,231,405 2,502 — — 7,505 360,000 — 32,524 480,318 1,231,405 42,531 840,318 1,233,907 367,505 512,842 2,114,254 The table below summarises the maturity proﬁle of the Company’s ﬁnancial liabilities at 31 March 2014 based on the undiscounted cash ﬂows of liabilities based on the earliest date on which the Company can be required to pay. Company 2014 Trade payables and amounts due to subsidiary companies Vendor loan 2013 Trade payables and amounts due to subsidiary companies Vendor loan Less than 3 months £ 3 to 12 months £ 1 to 5 years £ Total £ 23,996 — — 360,000 — 111,526 23,996 471,526 23,996 360,000 111,526 495,522 562,271 — — 360,000 — 480,318 562,271 840,318 562,271 360,000 480,318 1,402,589 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 62 Notes to the Financial Statements continued for the year ended 31 March 2014 22 Financial instruments continued Financial risk management continued Interest rate risk All of the Group’s borrowings are at variable rates of interest. The following table demonstrates the sensitivity to a possible change in interest rates on the Group’s proﬁt before tax through the impact on ﬂoating rate borrowings and cash balances. Consolidated 2014 Cash and cash equivalents Vendor loan 2013 Cash and cash equivalents Vendor loan Effect on proﬁt before tax and equity £ Increase in basis points 25 25 25 25 4,096 (1,400) 1,650 (2,300) The following table demonstrates the sensitivity to a possible change in interest rates on the Company’s proﬁt before tax through the impact on ﬂoating rate borrowings and cash balances. Company 2014 Cash and cash equivalents Vendor loan 2013 Cash and cash equivalents Vendor loan Effect on proﬁt before tax and equity £ Increase in basis points 25 25 25 25 2,164 (1,400) (297) (2,300) Fair values The carrying amount for all categories of ﬁnancial assets and liabilities disclosed on the balance sheet and in the related notes to the accounts is equal to the fair value of such assets and liabilities as at both 31 March 2014 and 31 March 2013. The monetary value attributable to these ﬁnancial assets and liabilities is the same value that has been disclosed in the related notes to the accounts. The valuation methods used to fair value the ﬁnancial assets and liabilities have been disclosed in Note 2 to the ﬁnancial statements under the heading of Financial instruments. The carrying amount recorded in the balance sheet of each ﬁnancial asset as at 31 March 2014 and 31 March 2013 represents the Group’s maximum exposure to credit risk. Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 63 Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of the Company will be held at Omega House, Hillfoots Business Village, Clackmannanshire FK12 5DQ on 28 August 2014 at 11am for the following purposes: 1. To receive and adopt the reports of the Directors and the auditors and the audited accounts for the year ended 31 March 2014. 2. To reappoint Ernst & Young LLP as auditors of the Company to hold ofﬁce until the conclusion of the next general meeting at which accounts are laid before the Company and that their remuneration be ﬁxed by the Directors. 3. To re-elect Mr Jagdeep Grewal as a Director of the Company. 4. That, in accordance with section 551 of the Companies Act 2006, the Directors be generally and unconditionally authorised to allot shares in the Company or grant rights to subscribe for or convert any security into shares in the Company (“Rights”) up to an aggregate nominal amount of £1,449,942.24 ordinary shares of 4 pence each (“Ordinary Shares”), provided that this authority shall, unless, renewed, varied or revoked by the Company, expire on the conclusion of the next annual general meeting of the Company or, if earlier, on 31 October 2015 save that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or Rights to be granted and the Directors may allot shares or grant Rights in pursuance of any such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This authority is in substitution for all previous authorities conferred on the Directors in accordance with section 551 of the Companies Act 2006, but without prejudice to any allotment already made or to be made pursuant to such authority. Resolution 5 is proposed as a special resolution. 5. That, conditional upon the passing of resolution 4 above, and in accordance with section 570 of the Companies Act, the Directors be generally empowered to allot equity securities (as deﬁned in section 560 of the Companies Act 2006) pursuant to the authority conferred by resolution 4 as if section 561(1) of the Companies Act 2006 did not apply to any such allotment, provided that this power shall be limited to: 5.1. the allotment of equity securities in connection with an issue in favour of the holders of Ordinary Shares where the equity securities respectively attributable to the interests of all holders of Ordinary Shares are proportionate (as nearly as may be) to the respective number of Ordinary Shares held by them but subject to such exclusions or arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements arising or any legal or practical problems under the laws of any overseas territory or the requirements of any regulatory body or stock exchange; and 5.2. the allotment of Ordinary Shares otherwise than pursuant to sub paragraph 5.1 above up to an aggregate nominal amount of £217,491.32, and provided that this power shall, unless renewed, varied or revoked by the Company, expire on the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 October 2015, save that the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such expiry 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. By order of the Board Kieron Harbinson Company Secretary 20 June 2014 Registered in England and Wales number 5017761 www.omegadiagnostics.com Omega Diagnostics Group PLC Omega House Hillfoots Business Village Alva FK12 5DQ Scotland United Kingdom Tel: +44 (0)1259 763030 Fax: +44 (0)1259 761853 i F n a n c a i l S t a t e m e n t s Omega Diagnostics Group PLC Annual Report and Group Financial Statements 2014 64 Notes to the Notice of Annual General Meeting Entitlement to attend and vote 1. Pursuant to Regulation 41 of the Uncertiﬁcated Securities Regulations 2001, the Company speciﬁes that only those members registered on the Company’s register of members at 11am on 28 August 2014 shall be entitled to attend and vote at the Meeting. Appointment of proxies 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 Meeting and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 3. 4. 5. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the Chairman of the 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 Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 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 registrars of the Company, Share Registrars Limited, on 01252 821 390. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks ﬁt in relation to any other matter which is put before the Meeting. 6. The notes to the proxy form explain how to (a) direct your proxy to vote on each resolution or withhold their vote; (b) appoint proxies; (c) change proxy instructions; and (d) terminate proxy appointments. Corporate representing 7. Corporate members are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives – www.icsa.org.uk – for further details of this procedure. Issued shares and total voting rights 8. As at the date of this Annual Report the Company’s issued voting share capital comprised 108,745,669 ordinary shares of 4 pence 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 is as at the date of this Annual Report. Communications with the Company 9. Except as provided above, members who have general queries about the Meeting should telephone Kieron Harbinson on +44(0)1259 763 030 (no other methods of communication will be accepted). You may not use any electronic address provided either in this notice of annual general meeting, or any related documents (including the proxy form), to communicate with the Company for any purposes other than those expressly stated. Voting through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with CRESTCo Limited’s speciﬁcations and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it relates to the appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (7RA36) by the latest time(s) for receipt of proxy appointments speciﬁed above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of CREST by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertiﬁcated Securities Regulations 2001. Printed by Park Communications on FSC® certiﬁed paper. Park is EMAS certiﬁed; its Environmental Management System is certiﬁed to ISO 14001 and it is a CarbonNeutral® company. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled. This document is printed on Core silk, a paper containing 100% Environmental Chlorine Free (ECF) virgin ﬁbre sourced from well-managed, responsible, FSC® certiﬁed forests. Omega Diagnostics Group PLC Omega House Hillfoots Business Village Alva FK12 5DQ Scotland United Kingdom www.omegadiagnostics.com Tel: +44 (0)1259 763030 Fax: +44 (0)1259 761853

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