Annual Report and Accounts 2006 - Optos

Operational and Financial Review
continued
Financial Review
Revenues
Revenues increased by 40% from
$48.4 million in 2005 to $67.7 million
in 2006. Growth was seen in all areas
of the business, with the majority
of the increase generated in North
America, where revenues grew by
41% to $64.7 million.
Gross Margins
Gross margins strengthened from
65.0% to 65.6%, reflecting a modest
increase in operating margins.
Operating Costs and Operating Profits
The business continued to invest in its
field and administrative infrastructure,
in both North America and Europe.
Average headcount grew by 24% from
173 to 214. Investment in field-related
expenditures increased by 42% to
$13.7 million, and in administrative
expenses by 37% to $24.2 million.
Operating profit before share-based
payments increased by 46% from
$4.5 million to $6.5 million. Sharebased
payments increased from
$1.2 million to $2.2 million, largely
driven by the initial public offering
in February which accelerated the
vesting of certain stock awards
and increased the fair value of the
Company’s stock. Operating profit
after share-based payments increased
by 32% from $3.3 million to $4.3 million.
Loss on Ordinary Activities Before Tax
Finance income increased from
$0.1 million to $1.1 million due to
interest received on the proceeds
from the initial public offering in
February. Finance costs comprised
mainly interest arising on the
Company’s vendor financing
arrangements, although approximately
half of the increase versus the previous
year is due to the IAS32 requirement
to impute interest on loan notes repaid
at the time of the initial public
offering. Loss on ordinary activities
before tax was reduced by 58% from
$2.6 million to $1.1 million. At the halfyear,
unaudited results reported a loss
before tax of $2.6 million, indicating
that the Group generated a profit
before tax of $1.5 million in the second
half of the year. We recently negotiated
a lower borrowing margin for our
vendor financing arrangements,
which is consistent with our ongoing
commitment to reducing costs and
improving operational efficiencies
across the business. We believe this
also reflects an additional level of
confidence the providers have in our
business model.
Taxation
The Group recognised a deferred tax
asset of $11.9 million in the period,
relating to the value of historical tax
losses incurred by its US subsidiary,
Optos Inc. This recognition took place
after a review of the prospects for
that subsidiary and the judgement
of the Board that the historical losses
that have arisen in that subsidiary
now meet the recognition criteria
as laid out under IAS12. Historical
losses for the Company and its two
other overseas subsidiaries were not
deemed to meet the recognition
criteria of IAS12, and remain
unrecognised.
Profit/(Loss) for the Financial Year
The Group recorded a profit for the
financial year after taxation of $10.8
million versus a loss in the previous
year of $2.2 million. This profit
reflected both reduced losses on
ordinary activities driven by revenue
growth described previously, as well as
the recognition of historical deferred
tax assets in its US subsidiary.
Cash Flow
Cash flow from operating activities
increased 59% from $16.8 million
to $26.7 million. This was driven by
the increased scale and operating
profitability of the business. Cash flow
used in investing activities decreased
Aidan Walsh, New Product
Project Manager
“By deepening our penetration in our
existing markets, moving into new
markets, strengthening our product
offering and always maintaining high
levels of customer satisfaction, we
aim to profitably grow revenues and
generate value for our shareholders.”
from $37.1 million to $33.4 million.
Under IFRS standards, this includes
the capital costs of new P200 devices
installed with customers, as well as
the value of major stock and spares
items previously classified under
UK GAAP as inventory. Net cash
flows from financing activities were
heavily influenced by the initial public
offering, admission to the Official List
and trading on the London Stock
Exchange in February 2006, and were
$48.0 million. Other items within this
category relate principally to the net
cash movements from the Group’s
vendor financing arrangements,
which reduced significantly from
$10.0 million to $(1.1) million. Net cash
increased by $41.3 million during the
year, with the cash balance at the end
of the year finishing at $36.2 million
versus a net overdraft of $4.7 million
for the prior year.
Balance Sheet
The Group balance sheet strengthened
considerably during the year, primarily
due to the impact of the initial public
offering in February 2006. Total
Net Assets closed the financial
year at $51.3 million compared to
net liabilities of $21.0 million at the
end of the same period last year.
Non-Current Assets increased from
$72.1 million to $97.4 million. This
increase is due in part to increases
in property, plant and equipment. In
addition, the Group recognised an
increase in the intangible asset value
attributed to product development
work as specified under IAS38. The
Group created a provision of $11.9
million in respect of deferred tax
assets as specified under IAS12. Total
current assets increased considerably
due to the cash raised through the
initial public offering in February.
Total liabilities reduced due to the
repayment of the bank overdraft and
conversion of loan stock instruments
at the time of the initial public offering
in February 2006. Financial liabilities
arising under finance leases increased
from $76.1 million to $81.2 million.
Total shareholders’ funds increased
from $(21.0) million to $51.3 million.
Outlook
Revenue growth is one of the primary
drivers of shareholder value creation.
North America will remain our core
market and principal focus. Further
penetration will be driven by new
placements within the independently
owned and operated eyecare practice
sector and within the corporate
retail chain network. We expect to
realise additional revenue from our
optomap® plus Medical Retinal Exam
as we fully integrate this product into
our existing and prospective customer
base and from our optomap® fa
Medical Procedure. We expect
continued growth in Canada and in
our European markets. By deepening
our penetration in our existing
markets, moving into new markets,
strengthening our product offering
and always maintaining high levels
of customer satisfaction, we aim to
profitably grow revenues and generate
value for our shareholders.
Allan Watson
Chief Financial Officer
18 December 2006
Optos plc Annual Report & Accounts 2006 17