TMCnet News
ABCAM Preliminary Results for the Year Ended 30 June 2014 [Global Data Point](Global Data Point Via Acquire Media NewsEdge) HIGHLIGHTS • Catalogue revenue increased by 10.0% on a constant currency basis to £118.0m (2012/13: £111.3.m). On a reported basis the increase was 6.0% • Total revenue increased by 8.6% on a constant currency basis (4.7% on a reported basis) to £128.0m (2012/13: £122.2m) • Underlying gross margin grew slightly but the effect of exchange rates reduced reported margins to 70.6% (2013: 71.0%) • After increased investment to drive future growth, adjusted operating profit* increased slightly to £46.6m (2012/13: £46.5m). Reported operating profit increased to £43.3m (2013: £42.8m) • Adjusted diluted earnings per share (EPS)* increased by 2.8% to 18.06 pence (2012/13: 17.57 pence). Reported EPS increased by 4.2% to 17.02 pence (2012/13: 16.34 pence) • Closing cash and term deposits were £56.9m (30 June 2013: £38.3m) • Excellent progress in implementing our key organic growth initiatives • Dividend increased by 10.1% to 7.75 pence per share (2012/13: 7.04 pence) • Opened a new office in Shanghai, China, providing us greater access to local markets and improving the consumer experience • Excluding £3.3m (2012/13: £3.3m) of acquisition-related intangible amortisation costs and no one-off charges (2012/13: £0.4m) and, in the case of EPS, the related tax effect. Commenting on the preliminary results, Jonathan Milner, Abcam's Chief Executive Officer, said: "Over the last year, Abcam has continued to deliver strong results. Investment in our organic growth strategy is beginning to come through, and we are pleased to report increased revenue, profit and dividend. The growth from our catalogue products of 10.0%, above the growth of the wider market is particularly pleasing, and demonstrates that consumers continue to recognise the quality of our products. The 2014/15 financial year has started well and we are optimistic that our continued investments in new products and capabilities, coupled with increased geographic penetration, will continue to drive sales." POST PERIOD-END EVENTS Abcam has separately announced today that Alan Hirzel will succeed Jonathan Milner as Chief Executive Officer. Alan takes on the role of Chief Executive having spent the last year as Chief Marketing Officer of Abcam and having served on the Board since January 2014. Jonathan Milner will continue to play an active role in the company as Deputy Chairman with responsibility for business development and will remain the company's largest shareholder. Peter Keen, a Board member since 2005, will not be seeking re-election at the AGM, in line with corporate governance best practice for independent directors. CHAIRMAN'S STATEMENT I am pleased to report further progress of the Group during the year. Stripping out the negative effect from the relative strengthening of Sterling, overall revenue growth was 8.6%, and revenues from the sale of products sold through our catalogue, which is the focus of our growth strategy, grew by 10.0%. Allowing for currency fluctuations, the overall reported revenue growth was 4.7%, of which catalogue sales grew by 6.0%. After increased investment in the business to support our growth, adjusted profit before tax was £46.8m, which is marginally higher than last year (2012/13: £46.6m). It has been an exciting year as we have been diligently building around the organic growth strategy that we outlined in September 2013. As part of these activities we have made investments across the business, particularly in people, processes and product development. Significant progress has been made and we are pleased to see the effect of these growth initiatives beginning to come through. Our push into eastern markets has continued in the year with the opening of our new office in Shanghai, China, in February 2014. Having a local presence dramatically improves our delivery lead times, enhances consumer experience, and presents a number of strategic opportunities, which include the building of direct relationships with major companies in the region. Elsewhere in western territories the environment for government-funded research is more challenging, driven by large fiscal deficits. That said, however, we are beginning to see signs of stability in the US as modest funding increases are approved. New product additions for the year were 11,521, taking the total catalogue to over 133,000 products. The level of additions is below that in recent years as we increasingly focus on in-house development to high-value targets. During the year we launched 1,733 new RabMAb® products, making us the largest provider of rabbit monoclonal antibodies globally. Dividends The strong balance sheet and cash generation capability of the Group has allowed us to sustain the progressive improvement in dividends. This year the Board is proposing a final dividend of 5.62 pence per share, which when added to the interim dividend of 2.13 pence represents an increase of 10.1% for the year as a whole. Subject to shareholder approval the final dividend will be paid on 28 November 2014 to shareholders on the register on 7 November 2014. Board changes There have been a number of Board changes since the start of the 2013/14 financial year, which have been made to support the business in its next phase of growth or in compliance with best governance practice. Some of these changes have been announced today and others over the year. They are as follows: • Alan Hirzel has been appointed as CEO with immediate effect, having joined the Board earlier in the year; • At the same time Jonathan Milner moves from CEO to a newly created Deputy Chairman position and will have an active role in the continued development of the company; • Louise Patten joined the Board earlier in the year and is Chairman of the Remuneration Committee. She will assume the Senior Independent Director role following the AGM in November; • After nine years Peter Keen will not be seeking re-election to the Board at the Annual General Meeting (AGM) in November, in line with best practice for independent non-executive directors; and • As announced earlier in the year I, Michael Redmond, will be stepping down from the Board at the AGM and one of our non-executive directors Murray Hennessy will be taking over as Chairman of the Board. I am delighted to welcome both Alan and Louise to the Board and am confident they are already playing a significant role in Abcam's ongoing development. Peter Keen joined the Board in 2005 prior to the Company's flotation on AIM, during which time he has served as Chairman of the Remuneration and Audit Committees and as the Senior Independent Director. As also announced today, in line with best practice, Peter has decided not to seek re-election at the next AGM, at which he will have served nine years. We are most grateful for the huge contribution he has made to the operation of the Board and the development of the business during that time. Lastly, as announced in June 2014, after five years as Chairman I have decided to step down from the Board following the AGM, to be held later this year, and my fellow Board member, Murray Hennessy, will be taking over the role of Chairman. Murray has served as a Non-Executive Director for almost three years and has developed a deep understanding of Abcam. He brings extensive experience in international customer-facing industries and online businesses, and is the ideal candidate to take over and help lead Abcam's next phase of growth. Corporate governance Over the course of the year the Board and its committees have addressed the corporate governance requirements arising from changes to regulations. We have expanded our Strategic Report, making our business model and key strategic priorities more transparent, and increased disclosures on matters affecting audit and remuneration. The composition of the Board is kept under regular review to ensure that its members bring the appropriate skills required to improve its effectiveness and performance. I am pleased to report that the Board has functioned well in all respects during the year, providing knowledgeable and robust challenge and support to the Executive Directors. I am also confident that the changes described above will enable the Board to continue to do so as Abcam's business continues to grow. Awards In October 2013 we were delighted to be named 'Company of the Year' in the 2013 AIM Awards. The award is presented to the company that has best demonstrated it is a responsible, fully accountable, dynamic business with strong growth prospects. Above all, the winner is deemed to be a well-managed business, having attracted public funding to enhance and develop its growth potential to the full. During the year we were also proud to have been voted as Management Today's 'Most Admired Company' in the Healthcare and Household sector. The Britain's Most Admired Companies Awards are an important indicator of the highest performing companies in British business that embed excellence throughout their organisation. CHIEF EXECUTIVE OFFICER'S REVIEW The year ended 30 June 2014 has been an exciting and busy time for Abcam. We have invested in our organic growth strategy and are pleased to see its impact beginning to come through. Sales growth from our catalogue products of 10.0% on a constant currency basis is above the growth of the wider market and demonstrates that consumers continue to recognise the quality of our products. The key to our success in the year and beyond lies in the continued focus and investment around our five strategic goals: • grow our core reagents business faster than the market; • establish new growth platforms; • create a scalable organisation; • sustain attractive economics; and • selectively pursue partnerships and acquisitions Successful execution of our strategy demands that we increasingly focus on listening to our consumers and ensuring that we use the insights gained to shape our business. I am delighted with the progress that we have made on each of these goals during the year and the plans we have in place for the future. Our business model Scientific researchers are at the core of our business model. By understanding our consumer needs, we are able to drive the direction of the business to help advance their research. Life science researchers work in different locations and on different protein targets, but they need the right products to help them achieve their goal of 'discovering the next big scientific breakthrough'. It is essential that the reagents researchers use are of the highest quality, enabling experiments that are conclusive, consistent and repeatable. Researchers need to be able to select the right product based on extensive data from product testing and validation. Recommendations from their peers also help make their choice easier. By ensuring our products meet these needs our consumers will become repeat purchasers and will recommend us to their peers. Our consumer-centric approach, along with our wealth of product data, global manufacturing capabilities, and network of OEM suppliers, make our business model robust and defensible. In turn this enables us to build strong, long-lasting partnerships with the scientific community and provides the flexibility to capture market share in under-penetrated segments. In the future, this approach will move us closer to being the brand most recommended by life science researchers. Our beginnings Adding products, building knowledge, sharing data Our flexible sourcing model enables us to grow our product offering in line with researchers' needs. This is achieved by sourcing products from OEM suppliers, of which there are now more than 400, as well as manufacturing products in-house. We also developed our own in-house production capabilities in order to add more high-quality products to our catalogue. We were the first company to add extensive and transparent product characterisation and validation data, which is sourced by our in-house laboratories, our network of collaborators and independent consumer product reviews Abreviews. Innovating to meet the needs of the scientific researcher To keep up with the pace of scientific research, we look at ways that we can add further dimensions to our product ranges and extend our expertise. One of the ways in which have achieved this is through the acquisition of companies that share our values and are leaders in innovating to meet the needs of the scientific research community. These acquisitions have enabled us to develop new products, allowing us to target underserved segments in the marketplace. Our patented RabMAb® technology has provided opportunities to partner with key research organisations so we can provide new product innovations that will enhance researchers' experiments by providing antibodies of the highest quality possible. As a result of these acquisitions and our increased focus on in-house innovation approximately 38.8% of Group revenues are derived from own manufactured products, services and licences. The wealth of data that supports our product offering builds trust with consumers and provides us with insight on where our sourcing and innovation efforts should be focused within life science research. Our future Consumer insight and improved consumer loyalty We are increasingly moving our business model towards a focus on understanding what happens at each consumer touch point. By continually enriching these interaction we will provide a more intelligent and targeted offering. We will better anticipate consumers' needs by building stronger links with the scientific community at conferences and other events, providing expert technical support, through collaborations with research leaders and through the use of web analytics to help us better understand purchasing preferences and habits. We also continue to encourage feedback through regular consumer surveys and focus groups, which help us update product datasheets, provide useful technical resources and improve service levels. Our aim is to improve our listening, our service and our responsiveness to better serve our consumers as we grow. We will also look at opportunities to partner with scientific organisations and make strategic investments which align and enrich our business within the field of life science research. Marketplace and trends The Americas The Americas remain our largest geographic segment and is dominated by the US, which represents over 90% of the region's revenue. We have made good progress there in the year, in particular through investing in our sales and marketing capabilities. An improved marketing effort around our RabMAb® products has helped to increase the number of consumers taking advantage of the benefits of our RabMAb® technology. There are geographic pockets of high levels of research activity within the US and during the year we have restructured our regional account team to ensure we have appropriate representation in all these key regions. We have also seen early signs of an improved environment for centrally funded research budgets. Sequestration worries and budget indecision, which were such a dominant feature of the 2012/13 financial year, showed signs of subsiding in 2013/14, and the National Institutes of Health (NIH) received a budget increase of 3.5% for its fiscal year to September 2014. While this does not entirely reverse the cuts of sequestration, it does alleviate some of the uncertainty and negative sentiment, at least in the short term. Outside the US the changes we put in place to improve consumer service in Canada continue to be well received, and we have also seen good progress in Brazil, where the distributor change made last year is beginning to have a positive impact. Favourable market growth makes Brazil an important part of our Americas strategy, and we continue to review the best way to reduce lead times and improve consumer service. Europe, Middle East and Africa (EMEA) Our largest markets within the EMEA region are UK, Germany and France, which on a combined basis account for 54% of the region's sales. Continuing the recent trend the UK performed very well in the year, while France and Germany performed satisfactorily with each growing at slightly below the wider EMEA rate. The relative performance of the countries in the EMEA region has been broadly consistent with the macro-economic trends of each region. However, in some of the smaller southern European markets performance was mixed. Growth in Italy improved slightly in the years, albeit still below that seen in the wider EMEA region, while funding pressures meant Spain remained broadly flat. Notable strong performance was seen in Switzerland, where we saw the full year effects of changes made to the way in which products are imported. We continue to improve our levels of service wherever possible and have recently introduced a small regional account team to help build closer relationships with potential high-value organisations. Japan Revenues from Japan grew by 11.5% on a constant currency basis, with 14.1% growth in the second half. We continue to see the positive effect of the stimulus package that was announced by the government in 2013 with the goal of investing $11bn into science and technology. The effects of this stimulus are expected to carry over into the beginning of our 2014/15 financial year and it is positive that the government remains supportive of science and technology as a means to stimulate growth. Asia Pacific China has been a big focus for us and featured prominently within our strategy to develop additional growth platforms. We opened our new Shanghai office in February 2014 and after a period of transition earlier in the year we are pleased to see the impact of having a greater local presence coming through in Q4. Overall growth in China on a constant currency basis was 15.5%. Having the new office means that we have greatly improved our capacity and flexibility to hold inventory in mainland China, dramatically reducing our lead times and improving the consumer's experience. Outside of China growth was good overall, as strong performances in South Korea and Singapore were offset by a small decline in Taiwan, where the funding environment has been more difficult. Non-product revenue Non-product revenue represents revenues derived from sales outside of the Abcam online catalogue and on a combined basis were £10.0m in the year (2012/13: £10.9m), representing 7.8% of overall revenues in the year. Our capability to offer custom services will continue to be an important component in our strategy for building relationships with key researchers, enabling us to provide innovative products for our catalogue. However, as previously announced, the size of this area of our business needs to be appropriate for our overall strategy and, consequently, revenue from custom services has declined in the year. We have restructured our custom services cost base accordingly to be consistent with expected future levels of activity. Revenue from royalties and licences derives from legacy agreements which were put in place prior to the acquisition of Epitomics. Under these agreements several life science companies were granted access to parts of the RabMAb® technology for the development of their own rabbit monoclonal antibodies, in return for which they pay royalties and licence fees. Such agreements are not aligned with our strategy and therefore such revenues are anticipated to decline over time. Consequently revenue growth in the year was flat. Our in-vitro diagnostics immunohistochemistry (IVD IHC) business performed well in the year albeit from a small base. This area of our business sells antibodies developed using our RabMAb® technology to anatomical pathologists. A handful of large instrumentation manufacturers dominate this market, several of which are now customers. Our success in this marketplace is reliant on gaining an effective route to market and we are delighted to have signed a global strategic marketing agreement with Cell Marque after the year end. Market trends and funding environment outlook Funding A large percentage of Abcam's revenues are derived from consumers who are publicly funded through research grants. The nature of the market means that it is very difficult to give a precise measure but it is thought to be somewhere around 80% of our revenues. Our remaining consumers are spread across the pharmaceutical, biotechnology and in-vitro diagnostics markets. Over the last few years the austerity measures in the US and European markets have meant that real-term government funding increases into life science research have been small or in some circumstance funding has actually declined. During that time Abcam's revenues have continued to grow by taking market share, which is testimony to the strength of our business. However, the global government research funding environment is relevant when considering Abcam's growth potential, in terms of its impact on market growth. More recent data suggests tentative signs of improvement, with the NIH being granted a 3.5% increase in funding in the year to September 2014. Despite this we retain our cautious outlook on the US and European funding environments. Slower funding increases in the West, combined with strong investment in life science research by China, has resulted in a shift of spending towards the East. It is estimated that China's research funding increased by 33% per annum between 2007 and 2012, while the US total share of global research funding shrank from 51% to just 45% over the same period. The research reagents that Abcam sells are fundamental to the work life scientists across the world are performing every day. We therefore feel that, when compared to larger capital intensive spending, our products are more resilient to changes in short-term funding. Quality As the market matures and funding remains under pressure we are increasingly seeing consumers seeking higher quality products. Consumers are unwilling to waste their funds or, moreover, their biological samples on products that do not work. Suppliers who are able to provide higher quality products are likely to see a greater share of market growth. Therefore the continued introduction of high-quality products, such as those developed using our RabMAb® technology, is a key part of our strategy. Efficiency We have seen a strong performance from our kits and assays business during the year. Just as consumers are seeking high-quality products, they are increasingly looking for kits containing products that have been validated to work together. These kits offer consumers greater productivity through improved repeatability and a higher level of certainty that the product will work. Board Changes As announced today Alan Hirzel has been appointed as Chief Executive Officer. I have worked closely with Alan over the last year and he has been inspirational in the evolution of our strategy. Alan brings a rich and deep background in both life sciences and management, with an impressive knowledge of our markets. He has my full confidence and I believe there is no one better to take the company forward on the next phase of our journey. I look forward to continuing to work closely with him and the strong leadership team at Abcam in my new role as Deputy Chairman, helping to seek out new technologies and opportunities which will further strengthen the company. Other Board changes are set out in more detail in the Chairman's statement and I am delighted to welcome Louise Patten and look forward to working with Murray Hennessy in his role as Chairman after the next AGM. At that meeting Peter Keen and Mike Redmond who have been on the Board for nine and five years respectively will be standing down. I would like to pass on my personal thanks to both for their guidance and wisdom which has helped Abcam become the company it is today. Summing up We have a clear strategy and a strong business model, and during the year began to see the benefits of investment made to fuel organic growth. The 2014/15 financial year has started well and with a strong team in place we look forward to driving growth in the business. STRATEGY Grow our core reagent business faster than the market Significant medium and longer-term opportunities exist for revenue growth from our existing consumer base, as well as by attracting new consumers to our products. We aim to drive this growth by: • being more consumer-centric; • focusing our marketing and product development launches on targets and research areas with the greatest scientific value to our consumers; • using our flexible sourcing to find the best quality products; • increasing focus on faster growing product lines where we have the greatest competitive advantage, such as RabMAb® primaries; • continuing to build relationships with key opinion leaders and scientists 'at the bench' to guide our product development pipeline to meet current research needs; and • improving our information-rich product datasheets by adding helpful and relevant scientific data to enable scientists to make informed product decisions. Progress in the year We have made substantial process on this initiative. During the year we: • solidified our position as market leader in rabbit monoclonal antibodies through our RabMAb® technology and increased the conversion of consumers to its benefits. The resulting growth from RabMAb® products was 17.1% in the year on a constant currency basis, easily outstripping the broader primary antibody market growth; • introduced over 1,730 RabMAb® products; • launched a new marketing and innovation initiative to focus on high-value protein targets; • added 11,521 new products in the year with a growing percentage focused on the research areas where we are building strength; • introduced a new selection of Alexa Fluor® conjugated secondary antibodies to our existing range. Alexa Fluor® dyes guarantee bright staining and low background. The new colour variants were selected to provide an increased selection for multi-colour staining; • hosted 17 scientific events and 15 webinars during the year, allowing us to connect to over 3,300 consumers. These conferences provide us the opportunity to increase awareness of our products and ensure we remain abreast of the work our consumers are undertaking; and • added several new features to the website to improve consumers experience and engagement. Focus for 2014/15 Focus on developing high-quality products to high-value targets, particularly where we can leverage our proprietary RabMAb® technology. Continue to grow the catalogue around research areas which we believe offer the greatest market potential. Establish linkages across our product categories to increase the purchase of non-primary antibody products. Establish new growth platforms There are opportunities to drive our growth by adding new product ranges or services which are attractive to our consumer base, either in the same or adjacent segments in which we operate, and by extending our geographic penetration. Abcam has established a market-leading position within the primary antibody research market; however, there are segments of this market where we see lower penetration. As such there is greater opportunity for growth from understanding the consumer's needs within each segment of the market and tailoring our product offering accordingly. Furthermore, there are several product segments adjacent to the research primary antibody market in which we are under penetrated. There is an opportunity to increase our market share in these areas by utilising our product sourcing capability to develop and launch high quality, innovative new products for our consumer base. Progress in the year In 2013/14 sales from our kits and assays grew by 42.3% on a constant currency basis over the prior year, with over 770 high-quality products added to this line including innovations such as SimpleStep ELISE™. We launched a new range of SimpleStep ELISA™ kits in September 2013. These kits have a greatly simplified protocol when compared with standard multi-step ELISAs, providing significant time savings and ease of use. The kits require no specialised training or instrumentation and, in contrast to standard ELISA, achieve increased accuracy by reducing the number of sample handling steps. In addition, a more efficient in-solution binding process provides superior sensitivity and specificity. We added 150 of these kits to our catalogue during the year. Following the conclusion of a large consumer intelligence gathering exercise, involving over 14,000 life science researchers, we have segmented our consumers into several distinct groupings, within each of which we assess that we have varying levels of market share. Each segment has different product and service needs, and during the year we have begun to differentiate our product offering and marketing messages to meet the needs of these segments. To support our focus on increasing geographic reach and improving distribution channels to rapidly growing markets, we opened a new office in Shanghai, China, in February 2014. The office houses consumer and technical support functions provided by native Mandarin speakers, as well as a full logistics operation offering both control and speed advantages over our previous bonded warehouse arrangement. This means that consumers now benefit from improved delivery times and service levels. The proximity of the office also means we can support consumers with more specific needs through our extensive range of products and services. Since its opening we have reached a headcount of 13 staff by the year end. Focus for 2014/15 Continue to use our data and consumer insight to prioritise which kits and assays to provide and incorporate our RabMAb® technology into new product development where appropriate. Make market share gains in activity assays, proteins and peptides, immunoassays, and research biochemicals. Continue penetration into market segments where Abcam has a lower share of consumer spend. Use our office in Shanghai to drive the growth of revenues from China. Scale organisation capabilities Our people are one of our major assets and are instrumental in creating an efficient and scalable organisation. We aim to attract and retain the best people, empower them to succeed and build the capabilities necessary to deliver our strategy. We believe that staff engagement is important to the success of our business. We invest in our employees by hiring a mix of graduates and industry experts, developing them and providing a supportive culture to maximise their capability and potential. We also strive to maintain a lean and efficient organisation by streamlining and investing in our processes to ensure we meet consumers' needs in terms of breadth, quality and availability of products. By ensuring we leverage our operational efficiency and cost-effectiveness, we aim to deliver consistent profitable growth. Progress in the year We have undertaken a significant internal re-organisation in 2013/14, the result of which is that the Group now has a single global management structure. By providing clearer accountability, closer working relationships and tight alignment to our strategic objectives, we believe that the new structure will make a significant contribution to our future success. To support our organic growth initiatives we have also invested in the quality of our senior management by recruiting high-calibre and experienced talent to head up each of our major product categories. This talent recruitment drive extended across the organisation to ensure we had the right people in place to support our continued organic growth plans. In addition, we implemented a common set of cultural behaviours to help ensure we retain our dynamic and positive culture as we grow. We have also invested further in our core IT systems to ensure they support the delivery of our next stage of growth. Focus for 2014/15 Implement a common set of performance targets and merit-based incentives across the Group to reward success. Invest in our consumer relationship management software, to support our increased focus on consumers, and our accounting software, to ensure the continued provision of timely and accurate financial data as we grow. Implement a multi-year review of our IT platform to ensure that it supports our objectives and provides the necessary flexibility and speed of delivery as our business develops. Began work on relocating our manufacturing facility in Hangzhou to improve our capabilities and enable more targeted production in line with our strategy. Conclude planning for a new site in the UK as we look to combine our current three offices/laboratories in Cambridge into one consolidated headquarters. Sustain attractive economics By ensuring that we leverage our operational efficiency and cost-effectiveness, we will be able to deliver sustainable, profitable growth. We aim over the longer term to grow our revenues in excess of our cost base and invest only in high-return projects. Progress in the year During the year we restructured our cost base to maximise cost-effectiveness. Catalogue revenues grew by 10.0% on a constant currency basis, which outpaced the growth seen in the broader markets. For example, funding for life science research in the US declined 5.0% in US fiscal year 2013 and increased by 3.2% in US fiscal year 2014; however, our US revenues grew by 4.5% on a constant currency basis in the year to June 2013 and 8.6% for the year to June 2014. Adjusted operating profit margins in 2013/14 reduced to 36.4% from 38.1%, reflecting the additional selective investment made to support the organic growth initiatives. We attained a return on capital employed (ROCE) of 24.5%. Gross margins were broadly flat as the positive impact from product mix, pricing and inventory management was more than offset by the negative impact from foreign exchange rates. We remain highly cash generative, with £51.2m of cash flow from operations in the year. Closing balance sheet cash was £56.9m without any debt. Our strong balance sheet provides us with the flexibility to execute on investment and acquisition opportunities should they arise. Focus for 2014/15 We remain focused on generating strong revenue growth above that of our markets. We will continue to make investments that we feel will drive medium to long-term revenue growth. Shareholder return is important as is ensuring a healthy return on capital employed. Selectively pursue partnerships and acquisitions To supplement the other components of our strategy we will increasingly seek to work with partners that offer complementary products in the life science market. These partnerships may take a wide range of forms from licensing and co-developments through to equity investments and acquisitions. We seek to work with partners who share our mission of enabling researchers to discover more, as well as working directly with collaborators to enable their research. Progress in the year Within the year we worked with over 20 research collaborations across a host of activities such as product co-development, product validation and research sponsorship. Negotiations with Cell Marque during the year resulted in the signing of a global strategic marketing agreement with them after the year end. Under this agreement Abcam gains access to Cell Marque's extensive distribution channel and sales force into the IVD market to sell our IVD grade products derived from our RabMAb® technology. We are delighted at the opportunity to work so closely with one of the world's largest IVD distributors. Focus for 2014/15 Actively seek out new partnerships and investment opportunities that support our strategy and leverage our competitive advantage. Continue to work with collaborators on the co-development of innovative products which enable our consumers to discover more. KEY PERFORMANCE INDICATORS As part of Abcam's growth strategy, the executive management has refocused its attention on a narrower set of KPIs which best support the growth initiatives discussed earlier. This is the first time these new KPIs have been implemented and, as such, no previous targets were established; however, looking forward we have outlined targets for the coming year. Success against these KPIs forms a component of the Board and senior management's bonus packages. All growth numbers are on a constant currency basis RabMAb® primaries revenue growth During the year we saw a continued increase in demand from consumers for RabMAb® primaries. While the market still remains heavily based on traditional polyclonal and mouse monoclonal antibodies, we are seeing more consumers switching to RabMAb® primaries for the greater specificity and lot-to-lot consistency benefits they offer. Within 2013/14 RabMAb® primaries contributed to 15.2% of Group product revenue and grew at 17.1% on a constant currency basis (2013: 33.5%). The reduction of revenue growth during the year was partly attributable to the impact of the distributor transitions in China, higher levels of promotional activity and some reclassification of products used for diagnostics purposes into the IVD area of our business. Going forward we see RabMAb® primaries as a large part of Abcam's growth strategy and an increasing contributor to the Group's revenue. We are targeting a growth rate of 15-20% for 2014/15 against a market growth of primary antibodies of around 3-5%. Non-primaries revenue growth Abcam grew the proportion of Group product revenues derived from products other than primary antibodies ('non-primaries') to 16.6% in 2013/14. This represented growth of 34.3% on a constant currency basis and continues a trend of high growth in recent years coming from this range of products. Going forward non-primaries revenue growth will be a key component of our success as we seek to attain similar levels of market penetration to that we enjoy in the primary antibody market. As we move into 2014/15 we will continue to invest in new products and new platforms that are complementary to our consumer base and it is expected that a high portion of the impact from these initiatives will be felt within our non-primaries revenue. We are targeting a growth rate of 25-30% for 2014/15. Net Promoter Score (NPS) Abcam's vision is to be the brand most recommended by life science researchers. As such it is increasingly important that we focus on our consumers and listen to their feedback. At several points within the year we conduct formal consumer surveys to determine their likelihood of recommending Abcam's products and services to a colleague. The balance of detractors and promoters is then computed into an NPS using standard industry methods. As we seek to measure success against our vision our NPS will be an important metric. In 2013/14 our NPS for primary antibodies was 18% (2012/13: 19%). To meet our targets for NPS next year Abcam will need to achieve a score of 20-22%. FINANCIAL REVIEW While reported revenues for the year were up by 4.7% to £128.0m, stripping out the negative effect from the relative strengthening of Sterling during the year shows a much stronger underlying performance, with revenue growth from sales of products in our catalogue of 10.0%, or 8.6% overall. After increased investment in the business, adjusted profit before tax was £46.8m, which is marginally higher than last year (£46.6m). As outlined in last year's report, the 2013/14 financial year has been one of investment in support of our growth strategy, the success of which demands that we listen to our consumers and ensure that we use the insights gained to shape our business. In practical terms this has meant increased headcount, particularly at the senior level, new product development activities and investment in operational assets such as the website and the new office in Shanghai. At the same time we have been careful not to lose our focus on tight cost and cash control. As indicated at the time of our interims the Directors are recommending that the annual dividend for the current year should increase by 10.1%, which at 43.0% is above that of our recent policy of distributing 40% of adjusted post-tax profit. The Directors feel that this dividend is justified given the profit impact of the increased investment this year in organic growth initiatives aimed at delivering future profits, as well as the underlying financial strength and the continued cash-generative nature of the business. Revenue The relative strengthening of sterling during the year against the other currencies in which the Group trades has partly offset the underlying growth in revenues, particularly in the second half of the year. Consequently, while on a constant currency basis (in which we assume exchange rates had remained unchanged from 2012/13) product revenues grew by 10.0% and overall revenues by 8.6%, the reported revenue for the year of £128.0m represents 4.7% growth on the prior year. Gross margins Gross margins decreased slightly to 70.6% in 2013/14 from 71.0% in the prior year as the positive impact on margins from good inventory management and product mix was more than offset by the impact of exchange rates, mainly those of the US Dollar to Sterling. The majority of our cost of sales is denominated in US dollars (approximately 74.7%, versus 55.6% of sales in the year) and there has been a rapid and sustained weakening of the Dollar over the year. Given that there is often a delay between the timing of the purchasing or manufacturing stock and its subsequent sale, such movements have resulted in an adverse mismatch between the exchange rate used to translate Dollar denominated sales and that used to translate the associated cost of units sold. Operating profit and expenses Administration and management expenses As foreshadowed last year, in order to further support the new activities being undertaken to drive medium and long-term organic growth, investment has been made in 2013/14 which has increased the cost base. The table below identifies these costs and shows that after adjusting for them, non-recurring items in 2012/13, restatements to allow for exchange rate movements and the gains arising on forward selling currency contracts (as described in note 21), the base cost of the business in 2012/13 increased by 6.4% in 2013/14, which is below the growth in revenues. Research and development expenditure Research and development (R%7ED) expenditure relates to the development of new products, as well as costs incurred in searching for and developing production process improvements. These costs do not meet the requirements to be capitalised as an intangible asset and are therefore expensed through the income statement as incurred. Total R%7ED expenditure increased to £10.1m in the year from £7.9m in 2012/13, or to £8.3m from £6.2m excluding the amortisation of acquisition-related intangibles. This reflects increased investment in new product development as part of our organic growth strategy, particularly around products utilising RabMAb® technology, expanding the range of directly conjugated antibodies and in-house development of immunoassays. Many of these products are against high-value targets which present additional manufacturing challenges. Earnings and tax The adjusted profit before tax was £46.8m on which the effective tax rate was 22.8%, which was lower than the 24.6% reported last year due to a reduction in the UK corporation tax rate and the full year effect of the Group re-organisation that took place in 2012/13. After taking into account the deferred tax impact of acquisition-related intangible amortisation, the reported effective tax rate was 21.8% (2012/13: 23.9%). Balance sheet and cash flow Goodwill and other intangibles Goodwill at the year end was £73.5m versus £82.0m in the prior year. The decrease is due to exchange rate movements arising because the functional currency of the acquired companies to which the goodwill relates is predominately US dollars. The decision was taken in 2012/13, following the changes made post acquisition to how MitoSciences, Ascent Scientific and Epitomics were structured and integrated within the Group, that it was appropriate to reallocate the goodwill arising from those acquisitions to a single cash-generating unit (CGU), which would reflect the re-organised business structure. Goodwill is not amortised under IFRS but is subject to impairment review at least on an annual basis. Consequently, during the year, the Directors performed a review which involved making various assumptions regarding the future performance of the business. After considering various scenarios that could reasonably occur, the Directors concluded that no impairment was required. For more details, please see note 12 to the financial statements. Other intangible assets at 30 June 2014 were £30.2m compared with £33.1m at 30 June 2013. This movement primarily reflects the amortisation of the intangible assets offset by the additions to capitalised software costs from the investment in our core IT systems and the impact of exchange rates on non-sterling denominates assets, which was partly described in more detail above. Following a review of software costs previously capitalised an impairment charge of £0.5m was taken in the year to reflect those elements which as our strategy has developed now relate to work which will no longer recover its carrying value. Other intangible assets are amortised over their estimated useful lives, and the amortisation of acquisition-related intangible assets has been added back in arriving at adjusted profit, as outlined above. Capital expenditure Additions of property, plant and equipment and intangible assets totalled £7.4m (2012/13: £7.3m). This reflects continued investment in support of our organic growth strategy. The major items include: • continuation of the core IT investment that began in 2011/12 to support the next stage of Abcam's growth. A total of £3.5m was capitalised in the year, including £0.8m of internal salary cost; • development of new hybridomas using our RabMAb® technology of £1.5m, with a further £0.3m expenditure on hybridomas under construction; • office equipment expenditure of £0.8m. This is an increase of £0.4m over the prior year, mainly due to the opening of our Shanghai office in February 2014; and • investment in laboratory equipment of £0.7m. Cash flow Our track record of strong cash generation continued in the year and we finished the period with net cash and term deposits of £56.9m (2012/13: £38.3m) and no bank debt (2012/13: £nil). Cash generated by operations was £51.2m, or 39.9% of Group revenue (2012/13: £51.8m, 42.4% of revenue), as working capital again contributed positively to cash flow, albeit the positive inflow was £0.9m lower than last year. The overall net movement in cash and term deposits in 2013/14 was £18.6m (2012/13: £20.8m). (c) 2014 GlobalData Provided by SyndiGate Media Inc. (Syndigate.info). |