Home   Log Out   Upgrade   Our Services   My Account   Contact   Help



8 September 2008 

Concateno Plc ('Concateno' or 'the Group')

Interim results for the six months ended 30 June 2008

Concateno Plc, Europe's leading drug and alcohol testing company, is pleased to announce its interim results for the six months ended 30 June 2008. 

Financial highlights

Corporate Highlights

Keith Tozzi, Chairman said:

'I am delighted to bring you these excellent results, which reflect the significant progress made during the period, with the integration of the Concateno businesses completed, to form the largest drugs of abuse testing company in Europe. We are particularly pleased to announce that we have achieved our target to realise £3.3m of operational synergies by the end of 2008 ahead of plan.

'We remain confident as to the strong growth characteristics of the drugs of abuse testing market, and our focus will be to develop and leverage our market-leading position in the UK and to roll-out internationally the Concateno model of a comprehensive service offering.

- Ends -

For further information, please contact:

Chairman's Statement

The first six months of 2008 has seen Concateno (the 'Group') complete the integration of the seven companies that it acquired during 2006 and 2007 to form the largest drugs of abuse testing company in Europe.  

The integration process has encompassed the restructuring of the various sales, marketing and customer support functions in order to service specific market sectors. Through extensive in-house training of our staff we are now able to tailor our comprehensive product and service range to meet the exact needs of our diverse client portfolio.

The integration process has also concentrated on realising £3m of operational synergies which we said at the time of the acquisition of Cozart plc in October 2007 would be delivered by the end of 2008. I am delighted to announce that the annualised synergies have been realised earlier than anticipated and we should see the full benefit of these synergies feed through to our results during the second half of 2008. I have provided further details of the integration programme below.

We have also been developing new products and services, most notably through our collaboration with Philips, to develop the next generation of handheld drugs of abuse testing devices. Our commitment to innovation was exemplified by the award to our Cardiff operation of the Queen's Award for Enterprise in Innovation.  

Trading Review

Sales for the first six months of 2008 were £23.3m (2007: £9.4m) which generated a pre-tax profit of £0.7m (2007: loss of £0.9m). On a pro forma basis, sales increased by 14% from £20.5m in the first half of 2007 and pro forma pre-tax loss of £1.2m was transformed into a profit of £0.7m.

Earnings before share-based payments, non-recurring items, interest, tax, depreciation and amortisation ('EBITDA') increased from £3.7m in the first half of 2007 (on a pro forma basis) to £6.0m in the first half of 2008 reflecting a 60% year-on-year increase with margins increasing from 18.1% in the first half of 2007 to 25.6% in the first half of 2008.

Basic earnings per share increased to 0.49p in the first half of 2008 (2007: loss of 0.76p).

The business generated £3.7m in cash from operating activities in the first half of 2008 (2007: £0.0m), invested £1.2m in capital equipment and research and development projects, and repaid £1.7m of the term loan facility together with £1.2m in interest.

As at 30 June 2008 net debt was £25.5m (excluding convertible loan), a reduction of £1.8m on £27.2m as at 31 December 2007.  

Restructuring

The Group has been structured into three divisions:  

The 'Laboratory services' division includes drugs of abuse testing services whereby samples are collected for testing, often through our unique global collections network, and then returned to one of our accredited laboratories. These services often include a requirement for a full 'chain of custody' so that any results are legally defensible.

'Point-of-care testing' encompasses testing services where the results are given immediately at the point of collection. These services range from simple 'dip-and-read' devices to state-of-the-art devices such as the Cozart® DDS. We offer training and support to our clients.

The 'Laboratory products' division encompasses the development and production of specialist diagnostic reagents and laboratory equipment for the wider healthcare, clinical and forensic markets.

Performance

Laboratory services

Laboratory services accounted for £12.0m of sales in the first half of 2008 compared with pro forma revenues of £10.4m in the first half of 2007 representing a year-on-year increase of 15.0%. This reflects particularly strong growth in the medico-legal sector but a weaker healthcare market where drug rehabilitation budgets have been capped.

The proportion of pro forma Group revenues generated by laboratory services increased from 50.8% to 51.3% between the two six month periods.

Pro forma gross margins decreased slightly from 61.3% to 61.0% between the two periods.

Point-of-care testing

Point-of-care testing revenues accounted for £6.3m of sales in the first half of 2008 compared with pro forma revenues of £5.8m in 2007. This year-on-year increase of 9.7% which was driven in particular by sales growth in the Scandinavian and Australian markets, however also reflects slower growth in the Criminal Justice sector with the delay in the DIP contract renewal (awarded in July 2008, detailed below) and capped budgets in the voluntary testing sector of the Prisons Service.

Pro forma gross margins remained constant at 61.0% in the two periods.

Laboratory products

Laboratory product revenues accounted for £5.0m of sales in the first half of 2008 compared with pro forma revenues of £4.3m in the first six months of 2007. This represents year-on-year growth of 15.7% and is underpinned by sales from the Group's Spanish and Italian operations.

Pro forma gross margins decreased from 48.3% to 47.2% between the two periods primarily as a result of the depreciation of the US dollar against the euro increasing input costs.

Cross-selling and margin improvement

There has been a reported decline in gross margins between the first half of 2007 and 2008 from 60.9% to 58.0%. This decline is largely a result of the change in the product mix following the acquisition of Cozart, but also in part due to some pricing pressures resulting from the increase in fuel costs and depreciation of the dollar against the euro. In the six months to 30^th June 2008 the average exchange rates reported were, respectively, 1.292 euros and 1.975 dollars to the pound. The Group is largely internally hedged with regards exposure to movements in the dollar and euro exchange rates.

We are undertaking an ongoing product and service margin review which is enabling us to rationalise our offering and increase margins. On 23^rd July 2008 we announced that we had renewed and enhanced the Drugs Intervention Program contract with the Home Office with the roll-out of the Cozart® DDS detection device, replacing the Cozart® Rapiscan. This renewed contract is anticipated to realise revenues of approximately £2.25 million per annum and runs until mid 2010, with the option of a one-year extension by the Home Office.

The integration of the Concateno businesses has also realised a number of successes in being able to cross-sell the benefits and expertise of the Group. In 2008, Concateno won the re-tenders for Rolls-Royce and Scottish Power on the back of our extensive collection network and diverse product offering. New client wins have included Calor Gas and Portsmouth County Council where we were able to convert leads generated from referrals from other Group companies. Our TrichoTech operation has been able to service clients such as CoFidis and the Royal Navy due to their specialist expertise, and through their extensive service offering, TrichoTech have considerably developed the medico-legal business acquired through CPL (a Concateno business) in the North West of England.

We are also continuing the successful roll-out of complementary services to our customers including benzene testing in the maritime sector and EtG testing, for chronic alcohol abuse, in the medico-legal sector. We are undertaking hair sampling in the UK's first drug and alcohol court, a model that may be rolled out throughout the UK, if successful.

Integration

At the time of the acquisition of Cozart in October 2007 we stated that we would seek to achieve annualised operational synergies of £3m by the end of 2008. I am pleased to confirm that these integration synergies have been achieved ahead of plan.

The table below summarises the key integration project areas and the annualised synergies that have been achieved.

The site rationalisation projects included:

• the migration of the Warrington oral fluid testing lab to Abingdon (completed May),

• the closure of the CPL International site in Liverpool with the migration of the workflow to Cardiff and Canary Wharf (completed June),

• the closure of the Paddington office with the migration of the workflow to Canary Wharf (completed July),

• the closure of the Gothenberg office in Sweden with the migration of the workflow to Canary Wharf (completed July).

In the six months to 30 June 2008 approximately £0.8m of integration synergies had been realised which increase the EBITDA margin from 22.3% (pre integration synergies) to the 25.6% reported. By the fourth quarter of 2008 the annualised synergies are scheduled to be being realised in full.

With the integration phase now effectively complete our emphasis turns to leveraging operational synergies, by servicing existing and new clients through our core sites. We will invest in our key business systems, namely Customer Relationship Management, Laboratory Information Management and finance systems to ensure the highest levels of customer service and operational efficiencies.

New Product and Service Developments

The Philips collaboration on the next generation of handheld point-of-care drugs of abuse testing devices is progressing well. The Cozart-Philips device will have the potential to test for up to eight drug groups in less than 90 seconds. The concept has been successfully trialled with European police forces and beta trials are to follow before the planned commercial launch in mid-2009. 

We are looking to roll-out our extensive product and service offering to new markets. In the first half of the year our Spanish operation, Spinreact, signed a deal with Tokyo Boeki ('TB') to sell its analysers, and for Spinreact to supply reagents for use on TBs analysers. We are looking at opportunities in the wider healthcare market to provide products and back-to-lab services and we are working with a number of third parties to develop new drug testing and clinical marker technologies, including an early stage oral fluid diabetes test, with a view to commercial exploitation.

Outlook

On the 8th July 2008, following press speculation, we confirmed that we had received a number of expressions of interest in Concateno and that we had appointed UBS as financial adviser to help the Board consider a range of options for enhancing shareholder value, including a possible sale of the Group. This review is ongoing and we will make a further announcement as appropriate.

We continue to view the drugs of abuse testing market as having strong growth characteristics with market growth trends of approximately 15% per annum. In particular, the UK medico-legal and workplace markets show strong growth, as do the international markets which we continue to develop. Across the Group divisions, Concateno continues to benefit from low customer churn and good visibility over contracted and repeat business.

Our focus over the coming months is to develop and leverage our market-leading position in the UK and to roll-out internationally the Concateno model of a comprehensive service offering. This focus will be on the Scandinavian, southern European and Australian markets and, where favourable, we will consider making infill acquisitions.

I would like to thank all the staff in Concateno for their continued diligence and professionalism in ensuring the continued high standards and reputation of the Group and excellent levels of customer service.

Keith Tozzi

Chairman

8 September 2008

Consolidated Income Statement

For the six months ended 30 June 2008

(1) Restated to ensure treatment of overhead allocation within cost of sales is consistent between periods. See note 1(d) for details

Consolidated Statement of Recognised Income and Expense 

For the six months ended 30 June 2008

Consolidated Balance Sheet

As at 30 June 2008

(2) Restated to include impact of changes to the provisional fair value of net assets acquired during 2007. See note 1(d) for details.

Consolidated Cash Flow Statement

For the six months ended 30 June 2008

Notes to the Consolidated Financial Statements

For the six months ended 30 June 2008

1 Accounting policies

Concateno plc ('the Company') is a company domiciled in the United Kingdom. The consolidated interim financial statements of the Company for the six months ended 30 June 2008 comprise the Company and its subsidiaries (together referred to as the 'Group' or 'Concateno').

The Group's interim financial statements for the six months ended 30 June 2008 were authorised for issue by the Board of Directors on 8 September 2008.  

The comparative financial information for the year ended 31 December 2007 has been extracted from the published audited financial statements of Concateno. The comparative financial information for the six months ended 30 June 2007 has been extracted from the unaudited interim financial statements of Concateno.

The consolidated interim financial information does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. These interim results are unaudited but have been reviewed by the Group's auditors. The statutory accounts for the period ended 31 December 2007 have been reported on by the Group's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain the statements under section 237(2) or (3) of the Companies Act 1985.

(a) Statement of compliance

The Group's interim financial statements have been prepared and approved by the Directors in accordance with the AIM Rules and International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'). The recognition and measurement requirements of adopted IFRSs have been applied; however, the voluntary compliance with IAS34 has not been adopted. 

(b) Basis of preparation

These interim statements have been prepared on a consistent basis to that used for the financial statements for the year ended 31 December 2007.

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except that derivative financial instruments are stated at fair value.

(d) Restated results

Results for the six months to 30 June 2007 have been restated for the impact of a change in classification of overheads within cost of sales during 2007. This group policy was aligned across all new companies within the group in the results presented for the full year ended 31 December 2007 and remains consistent with their treatment as presented in the results for the six months to 30 June 2008.

Results for the year to 31 December 2007 have been restated to include the impact of changes to the provisional fair value of net assets acquired in relation to certain acquisitions carried out during 2007. These changes are reflected in the goodwill and other balance sheet values as presented for the six months ended 30 June 2008.

(e) Functional and presentational currency

The consolidated financial statements are presented in sterling, which is the Company's functional currency. All financial information presented in sterling has been rounded to the nearest one thousand. 

2 Segmental information

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The primary format, business segments, is based on the Group's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis.

Business segments

The group comprises the following main business segments:

• Laboratory services
• Point-of-care testing products
• Laboratory products

Other revenues include training and consultancy work performed for workplace customers. These revenues have been allocated to 'Point-of-care' and 'Laboratory services' in proportion to other work performed for these particular customers.

Results, split by business segment, are presented below.

3 Non-recurring items

The Group is undertaking a number of initiatives to restructure the business to realise operational synergies.  The restructuring costs above have been incurred as a result of the rationalisation of the group's laboratories and operational sites throughout Europe. The non-recurring legal and advisory costs relate to non-routine professional costs incurred during the period.

4 Taxation

The tax charge for the period has been based on the estimated effective tax rate for the full year. Deferred tax has been provided at 28% which is the rate at which the timing difference is expected to reverse.  

5 Earnings per share

Earnings per share is calculated by dividing the profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares held during the year.

An adjusted earnings per share figure is also presented below in order to aid users' understanding of underlying business performance. This is calculated by adjusting the profit/(loss) for the year for the post-tax effect of certain items which, the Directors believe, will allow shareholders to better understand the elements of financial performance in the period, so as to facilitate comparison with prior periods.

6 Loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings.

Debt costs arising on arranging the debt facilities are being amortised over the life of the loans to which they relate. As at 30 June 2008, the unamortised element amounted to £378,000 (31 December 2007: £492,000). The balances disclosed above are net of these unamortised debt costs.

In addition to the amounts disclosed above, the derivative element of a convertible financial loan instrument was valued at £417,102 at the date of issue. This derivative element does not fully meet the definition of a component of equity and is therefore held as a current liability on the Balance Sheet. The carrying value of the loan to which it relates is held at £8,436,000 as at the period-end. Movement in fair value of £93,000 has been recognised in the income statement.

7 Capital and reserves

Responsibility statement of the directors in respect of the interim financial report 

We confirm that to the best of our knowledge: 

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and 

• the Chairman's report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

Keith Tozzi

Chairman 

8 September 2008 

Independent Review Report 

For the six months ended 30 June 2008

Independent review report to Concateno plc

Introduction

We have been instructed by the company to review the financial information for the six months ended 30 June 2008 which comprises the Consolidated Income statement, Consolidated Statement of Recognised Income and Expense, the Consolidated Balance Sheet and related explanatory notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU and the AIM Rules.

KPMG Audit Plc

Chartered Accountants 

Arlington Business Park

Reading

RG7 4SD

8 September 2008

| Register |  Our Services |  About MoneyAM |  Terms and Conditions |  Privacy Policy |  Investment Warning |  Content Standards |  Corporate Solutions |  Advertise With Us |

2006 MoneyAM©