Optos plc Annual report and accounts 2011
Building the retina company Optos plc Annual report and accounts 2011
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Our vision is to be recognised as a leading provider of retinal devices and solutions to ophthalmic professionals for improved retina care. We are achieving this through a focused strategy that centres on expanding our channels, segments and geographic markets to secure our leading position in retinal diagnostic and treatment devices. Access this report online ar.optos.com/2011
Sections of interest
Operating review: Delivering our strategy Through a range of complementary diagnostic and treatment devices, Optos aims to be the retina company.
Overview
Business review
Governance
During the year we delivered a significant increase in both revenues and profits whilst making important investments in the long-term growth of the business.
We expanded into several new markets whilst building our product portfolio through both acquisition and organic development.
The Board remains committed to ensuring high standards of Corporate Governance are maintained.
02 Our year at a glance 04 About Optos 06 Chairman’s statement
08 Chief Executive’s re view 10 Operating review 10 Our business model and strategy 12 Delivering our strategy 20 Financial review 23 Key performance indicators 24 Principal risks and uncertainties
28 Board of Directors 30 Operating board 32 Corporate governance 38 Directors’ report 42 Directors’ responsibilities 43 Directors’ remuneration report
Turn to pages 10–19
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Overview Business review Governance Financial statements
See and treat Our retinal devices make the early detection, management and treatment of both eye and non‑eye diseases possible. The release of our newest screening device, Daytona, marks a pivotal point in the development of our product range which will enable much wider access to our unique widefield imaging technology.
Financial statements
52 Independent auditors’ report 54 Consolidated income statement 54 Consolidated statement of comprehensive income 55 Group and Company balance sheets 56 Group and Company statements of changes in equity 57 Group and Company cash flow statements 58 Notes to the consolidated financial statements 104 Five year summary
Optos plc Annual report and accounts 2011
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Overview
Our year at a glance
We have made good progress towards achieving our vision... Strong financial performance ahead of expectations • Revenue up 35% to $143.3m • Over 25% underlying revenue growth* • Continued trend towards outright sales, up $29.5m to $37.6m, and finance leases, up $12.1m to $19.8m
Strengthening our offering with the strategic acquisition of the instrumentation division of OPKO Health In October 2011 we acquired OCT and ultrasound products to enhance our diagnostic device range. Find out more Turn to page 15
Increased geographical reach • North America revenue grew 25% to $117.1m and International sales doubled to $26.2m • New markets opened (further EU markets, Japan, Australia and Middle East)
Investment in expansion of product range and complementary technologies • Unveiling of Daytona, next generation desktop retinal device, with launch expected Q1 2012 • Opto Global product sales of $3m and on track for breakeven in first full year of ownership • OPKO Instrumentation integration progressing well enabling entry to OCT market
Accelerated growth in ophthalmology • Specialist six person sales team established to lead sales efforts in North American market • Over 140 200Tx devices installed globally
Continuing to expand our diverse product range with Daytona
Clinical data continues to demonstrate the importance of widefield imaging in the management and treatment of disease
Our latest product, Daytona, the next generation ultra-widefield retinal scanning device is set for launch in Q1 2012.
* Underlying revenue growth is calculated by treating all payments receivable in the period from rental contracts as operating leases, including revenues from outright device sales and service contracts, but excluding revenues from Opto Global and Accutome products.
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Find out more Turn to page 14
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Total revenue ($m)
Gross profit ($m)
Operating profit ($m) before exceptional items
$143.3m +35%
$91.4m +29%
$25.1m +43%
143.3
140
20 70
106.3 97.2
70.9 17.5
60
80
50
15
59.0
40
60
10
30
40
8.5
20 20
Find out more Turn to pages 18–19
0
0 2009
In December 2010 we completed our acquisition of Opto Global, an ophthalmic and optometry device company.
5
10
0
Integration of Opto Global on track
25.1
91.4
80
120 100
25
90
2010
2009
2011
2010
2011
2009
2010
EPS (diluted) (cents)
Operating cash flow ($m)
Net debt ($m)
31.8c +60%
$37.2m -20%
$25.2m -19%
30
31.8
10 45
46.4 0
40
25
35 20
37.4
37.2 (10)
30
19.9
25
15
(20)
21.1 25.2
20
...matched by an accelerated financial performance
10
(30)
15 10
5
(40)
5 0
2.1 2009
46.2 (50)
0 2010
2011
2009
2010
2011
2009
2010
Optos plc Annual report and accounts 2011
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2011
2011
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Overview
About Optos
Revolutionising patient care through our powerful imaging solutions
From widefield retinal imaging...
Through investment, development and acquisitions, we are rapidly positioning Optos at the leading edge of the growing retinal diagnostics market. We continue to leverage our core widefield technology and sales channels and have strengthened our position through the addition of optical coherence tomography (“OCT”) technology.
Revolutionising eye care Our core technology, the optomap®, which provides an ultra-wide 82% view of the retina, has proved to be a powerful tool in the detection, management and treatment of eye and non-eye disorders.
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Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
...to becoming the leading provider of the most powerful tools for retinal disease diagnosis and treatment
Investing in ophthalmology and international expansion
Accelerating growth We have expanded our revenues and product range in the last 12 months through two acquisitions.
Our global footprint has increased dramatically.
Continuing clinical studies Our aim is to provide further evidence of the optomap® as the “gold standard” in clinical eye exams.
Increasing our product range We now offer a diverse range of products including Daytona, P200, 200Dx, 200Tx, plus OCT, ultrasound, treatment lasers and visual acuity devices.
What’s next? We are expanding our business through a clear strategic plan Turn to page 10
Optos plc Annual report and accounts 2011
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Overview
Chairman’s statement In brief
We have established a strong platform from which to build our business “ Advances in our range of products and business models delivered significant increases in both revenues and profits.” Dr Peter Fellner Chairman
06
• Over 4,200 widefield scanning devices installed with optometrists and ophthalmologists • We have expanded our sales force, moving into new territories and new segments • The acquisition of Opto Global was completed in December 2010 and followed by the acquisition of OCT products in October 2011 • We launched the 200Tx to ophthalmology customers and unveiled Daytona on schedule
During this year Optos has successfully achieved substantial growth of its business, whilst investing in a range of additional complementary technologies. The expansion of the widefield retinal scanning business has been driven by both the well-received launch of a new high‑performance device, the 200Tx, and by the introduction of new business models which are assisting optometrists and ophthalmologists to access this technology. These advances have delivered significant increases in both revenues and profits. Our core widefield scanning devices are well established, with over 4,200 devices now installed in optometry and ophthalmology practices in the markets that we serve, a growth of some 8% during the year. Over 32 million widefield retinal digital optomap® examinations have now been performed by eyecare specialists, underlining both the efficacy and utility of our core technology. Throughout the year we have continued to focus upon our customers’ requirements by introducing a much-enhanced range of pricing, rental and purchase options. We have expanded our sales force, moving into new territories in Europe and Australia, and established a new team addressing retinal specialists in North America. The acquisition of Opto Global Pty Holdings Ltd was completed in December 2010 and we have been selling the Opto Global product range throughout 2011, both directly and through the network of distributors we acquired with the business.
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Total shareholder return — Optos plc — FTSE Small Cap Index 225 200 175 150 125 100 75 50 0 25 2009
2010
2011
Our newly launched 200Tx device has performed strongly, attracting customers in our direct markets, and has enabled us to address important export markets such as Japan, one of the largest markets in the world for medical devices. Increasing flows of strong clinical data have demonstrated the importance of widefield fundus imaging in the management and treatment of disease. We believe that widefield auto-fluorescence images provide clinicians with valuable additional information relating to the health of retinal cells, which makes the use of our technology even more compelling for ophthalmologists and optometrists worldwide. We can also now supply treatment laser products, surgical microscopes and corneal cross-linking products to our clinician customers. We believe strongly that Optos’ growing range of products can make an important difference to ophthalmologists, vitreo-retinal specialists and their patients. Within our optometry customer base, the Opto Global visual acuity and perimetry products are competitive with similar products, and give our sales force an expanded offering alongside the core P200 and 200Dx scanning devices. We have further enhanced our product range by offering new software features such as OptosAdvance, which provides optometrists secure, web-based storage of images that can be reviewed remotely. In September 2011, we announced the proposed acquisition of additional diagnostic imaging devices from OPKO Health Inc. including optical coherence tomography (“OCT”) and ultrasound devices, together with a strong development pipeline. This acquisition was completed in October 2011 and the integration of that business into Optos
is moving forward rapidly. We are excited by the potential that these products offer in all of our customer segments. In order to finance this acquisition, we put in place a $30m, three‑year revolving credit facility which will allow the business to be funded on a more conventional and cost-effective basis. As a result of these initiatives, we delivered revenues of $143.3m for the year ended 30 September 2011 compared to $106.3m in the previous year. On a like-for-like basis, ignoring the impacts of the Opto Global acquisition and of finance lease accounting, revenue growth was over 25%, driven by capital sales. The acquisitions of Opto Global and the OPKO Health assets resulted in exceptional expenses of $2.4m in the year. These were offset by a $1.75m credit relating to a reassessment of the likely deferred consideration payable to the former shareholders of Opto Global. Pre-tax profits before exceptional items were $22.7m compared to $12.7m in the previous year, with basic earnings per share after tax and exceptional items increasing to 32.1c compared with 20.0c in the previous year. Looking forward to the next financial year, we believe that our next generation ultra-widefield retinal scanner, Daytona, will enable Optos to achieve a further major transition, assisting the international expansion of the business. Daytona is a desk-top sized high‑specification, high‑resolution device that is modular, robust, reliable and patient friendly. It can deliver images of a quality similar to or better than our P200C device, including auto-fluorescence imaging, which is proving so valuable to eyecare specialists. We promised to unveil the product in October 2011 and were delighted to deliver on that promise.
The scheduled commercial shipment of Daytona products remains on track for the first quarter of 2012. Our expanded sales teams are looking forward to selling Daytona, alongside our new OCT products and existing device range. I would like to thank Patrick Paul, who retired as a Non-executive Director during the year, for his significant contributions to the growth and development of the Company, and to welcome John Goddard and David Wilson to the Optos Board as Non-executive Directors. I would also thank our investors for their support during the past year and our employees for their outstanding efforts which have underpinned the advances achieved within the business. We look forward to the next year with confidence. The impending launch of Daytona and an extended product range, including OCT, will arm our sales and marketing organisation with a range of highly competitive devices, which will further strengthen our position in the retinal healthcare field. Dr Peter Fellner Chairman 21 November 2011
Optos plc Annual report and accounts 2011
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Business review
Chief Executive’s review In brief
Accelerating growth in our core business “ We have expanded into several new markets, whilst building our product portfolio both through acquisition and organic development.” Roy Davis Chief Executive Officer
• We delivered a significant increase in both revenues and profits • We expanded into several new markets • We developed a growing body of clinical evidence that demonstrates the critical importance of retinal diagnostics • We made strong progress towards becoming the leading retinal diagnostics company
Overview The strong growth in our revenues, increasing 35% from $106.3m in 2010 to $143.3m this year, reflects the successful implementation of a number of key strategic changes during the past year. New business models Our customers have responded well to the alternative business models we now offer. Many are still happy to work with our pay-per-patient rental model, but we are seeing an increasing trend towards the new alternatives such as fixed rental contracts, rent-to-own or outright purchases of the devices. We believe this contributed to the low levels of customers choosing to de-install their devices, with only around 5% of our customers returning their products at the end of the contract term compared to 10% the previous year. Improved core products At the beginning of this year, our sales team focused only on selling our core ultra‑widefield imaging devices to a customer base focused largely on optometry. We armed our teams with an improvement to our base P200 device, the 200Dx. Many customers chose to acquire the 200Dx upgrade, which offers improved image quality, either on a new contract, through purchase or upon renewing their existing contracts. Others chose the P200 which was priced more competitively. We also acquired additional products, initially through a distribution deal with Accutome, then through the purchase in December 2010 of the Australian company, Opto Global Pty Holdings Ltd, and further through our in-house development of the image management and archiving product, OptosAdvance. This range of products gave the sales team the opportunity to attract new customers and retain existing contacts. Expanding into ophthalmology Our P200C devices remain popular with clinical optometrists and general ophthalmologists, particularly in the Canadian and German markets. Additionally, Optos chose to focus significant efforts on the ophthalmologist and retinal
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Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
re to nt al
Flexi bl e
Ou
tr ig
ht purcha
se
ves customers Bene i G but benef the ch fits it fr om oice
A
Income visibility plus the upside of variable optomap® charges
ap
Business models
atient r-p
pe y-
per stom op er to s m
Pa
Our sales team is now over 90 strong, with clinical experts supporting and training all representatives to allow them to deliver excellent support to clinicians.
es
In 2011 we gained additional patent protection for our core widefield imaging technology, extending the SLO core patent claims through 2027. The focus in 2012 is to deliver Daytona at volume, add additional imaging modalities to our 200Tx device and deliver the next generation Falcon OCT devices, ensuring full integration of the recently acquired assets and devices.
rice
as le
Expanding our product range In October 2011, we completed the acquisition of the business and assets of OPKO Instrumentation, bringing access to established OCT and ultrasound
Research and development Our R&D activities are driven from Scotland and our team is now some 45 strong, including the software and hardware engineers who joined with OCT business just after the year end. Significant projects delivered this year include Daytona and OptosAdvance.
Allow sc u p
ts en ym a p s x fi erm t
Geographic expansion We took significant steps towards expanding our geographic reach. Sales representatives were recruited in new territories in Europe, including Austria and the Netherlands, and the sales teams strengthened in our other direct markets, being Germany, UK, Switzerland, Sweden, Norway and Spain. Our European presence was further strengthened through the appointment of distributors and dealers in Italy and Poland. Opto Global brought us an extensive international distributor network, including in Europe, Middle East and Africa. It also brought us a direct footprint in Australia, a market for which we see great potential. The 200Tx product also brought us our first sales in the important Japanese market where we appointed a strong distributor.
We were also proud to deliver our leading development project, Daytona, on schedule. This project, conceived two years ago, set out to deliver a desk-top sized version of our widefield SLO scanning device. Our objective was to create a product that would deliver images of a quality as high as the P200C device, would capture the same widefield view of the retina, would be robust, manufacturable in volume, with auto‑fluorescence imaging, run from new, intuitive software and would offer a device that could be used by customers globally regardless of practice size or physical or climatic environment. We unveiled Daytona as planned In October and are set to ship product to customers before the end of the first half of 2012.
Visibility of future income
The clinical information delivered by the images from these devices, including our standard optomap® images derived using red and green lasers, together with fluorescein angiography images using blue laser technology (disclosing information about the vasculature of the retina) and auto-fluorescence (delivering information about the metabolic state of the retinal cells and their health) all in the widefield is attracting significant medical interest. We are pleased to have placed over 140 of the 200Tx devices. The additional Opto Global products used by ophthalmologists, including treatment lasers and surgical microscopes, are helping to establish Optos in the ophthalmology sector.
products together with a product pipeline including a lower-cost OCT product (Falcon) nearing market launch. We are excited by this acquisition, as we believe that Optos’ widefield retinal imaging technology, combined with the specific data that can be derived from OCT images, has the potential to offer eyecare professionals the most powerful tools for disease diagnosis and management.
l and reducin s renta fit g ne ixed patient volume s Be r f gher we hi a lo with
specialist sectors with the launch and promotion of the 200Tx device promoted solely to those customers. A specialist six-person sales team was established to lead the sales efforts into this marketplace in North America, supported by the broader sales team.
o llo sn w an me add s cu e it st lu dm i o n a l o m e r s c h o i c e a n o f vo ch a r g es r eg ar dle ss Improved cash flow B e n ef i t s
and upside from service contracts
Summary and outlook During the last financial year we have delivered a significant increase in both revenues and profits whilst making important investments in the long‑term growth of the business. We have expanded into several new markets, whilst building our product portfolio both through acquisition and organic development. At the same time, we have developed a growing body of clinical evidence that demonstrates the critical importance of retinal diagnostics. Overall, we are pleased with our progress towards becoming the leading retinal diagnostics company and are increasingly confident about Optos’ long-term growth prospects. Roy Davis Chief Executive Officer 21 November 2011 Optos plc Annual report and accounts 2011
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Business review: Operating review
Our business model and strategy
Achieving our vision and exploiting opportunities for continued growth Optos is not seeking to address every aspect of eyecare but does seek to be a leading player in supplying solutions to both optometrists and ophthalmologists for the diagnosis and management of conditions of the retina—our vision is to be the retina company. The marketplace for products in which Optos competes is estimated at $810m in 2011 and forecast to grow to $1,097m by 2016 and our aim is to be a major player, supplying integrated devices and software services to customers in all major markets in this highly regulated space. Our model is to • exploit our existing products; • acquire or develop new and improved products; • manufacture or sub-contract manufacture of products as appropriate; • support our products and customers with compelling clinical evidence; • deliver revenues through rental or sale business models; and • expand our geographic reach both through our direct salesforce and distributors.
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Our vision To be the retina company
Our aim To supply integrated devices and software services to customers in all major markets
Our strategic plan
Expand customer segments
Leverage our sales channel
Grow our global reach
Building the retina company and securing our leading position in retinal diagnostics Find out more across pages 12–19
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Optos plc Annual report and accounts 2011 Optos plc Annual report and accounts 2011
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Business review: Operating review
Delivering our strategy
Optos has a clear vision: to be the retina company We set ourselves some challenging objectives for 2011 and we are pleased to have delivered against most. We set out to increase revenues and profits from our device and customer base and to: • maximise upon the existing sales channel; • expand our sectors; and • expand our geographic reach.
Strategic aims
Expand customer segments
12
For a full breakdown of our key performance indicators Turn to page 23
Total installed base for core imaging device
through keeping a clear focus on the needs of our optometry customers, delivering the products our ophthalmology customers require, and continuing to deliver compelling clinical evidence
Leverage our sales channels by adding additional products and business models, and ensuring our sales force understands the clinical needs of our customers and provides them with the best service and support
Grow our global reach The following pages outline how we are delivering our strategy Turn to pages 14–19
How we measure it
Average number of monthly optomaps® per rental site Revenue by type
Revenue by geographic segment
through actively seeking opportunities to establish distribution and direct channels in other important global markets
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
What happened in 2011
2012 objectives
• Installed base increased by 5% to 4240
• Maximise the benefits of the Opto Global acquisition
• Launched Optos Ophthalmology
• Effectively integrate the OCT and ultrasound business:
• B uilt specialist North America Vit-Ret team • I ncreased ophthalmology customer base to >400
• maintain sales through distributors; • maximise sales in direct markets; • deliver Falcon 1 and 2 before end 2012; and • deliver integrated device allowing OCT scanning in the widefield.
Strategic context
Marketplace and industry overview The importance of eyecare increases daily. Somewhere in the world, someone goes blind every five seconds and a child goes blind every minute. Worldwide it is estimated that 7 million people lose their vision every year and that 180 million people are blind or visually impaired. Rates of vision loss are expected to double by 2020 unless prevention efforts are intensified. Leading causes of vision loss include cataracts, glaucoma and age related macular degeneration (“AMD”). AMD is the leading cause of blindness in people over the age of 55. Diabetic retinopathy is the leading cause of preventable blindness in the world. The economic and social impact of loss of sight is significant, the global cost of vision loss is estimated to be nearly $3tn yearly.
• Average optomaps per rental site up 2 to 112
• Deliver Daytona on schedule and maximise sales:
• Outright device sales increased by $29.5m to $37.6m
• Phase 1 (0–9 months): launch in US, Canada, Germany, UK, Scandinavia, Benelux, Spain, Switzerland, Austria;
• 200Tx and OptosAdvance launched • Opto Global and OPKO acquisitions brought additional products • Significant numbers of clinical studies and papers completed
• Phase 2 (9–18 months): launch in Australia, India, South Africa, Turkey, other EU countries, Middle East; and • Phase 3 (18+ months): launch Japan, China, Korea, Brazil, rest of world.
• International sales increased by 103% to $26.2m
• Continue with the strategy of global expansion by “filling the cube”:
• Distributor network enhanced both directly and through Opto Global and OPKO acquisitions
• exploit existing sales channels and products and expand in core markets;
• Direct sales presence expanded into new territories including Benelux and Australia
• extend our geographic reach.
• further penetrate ophthalmology; and
Optometrists offer primary specialist care for eyes, generally treating healthy patients, checking for eye disease and managing certain diseases. Much of the optometrists’ income is patient pay, although some reimbursement is available for certain disease treatments and through some eyecare insurance products. Ophthalmologists provide secondary and tertiary care for eyes, generally treating patients with disease, with much of their patients gaining insurance or health system reimbursement for the treatments offered. Whilst the economic climate internationally is unstable, within Optos’ markets and sectors eyecare specialists remain attractive customers. Reimbursement rates will always come under pressure and Optos intends to respond by delivering increasingly useful services and improved product pricing where possible.
$810m
$1,097m
current value of the marketplace in which Optos competes
projected growth of marketplace by 2016
Optos plc Annual report and accounts 2011
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Business review: Operating review
Delivering our strategy
Expand our customer segments Our core sales force has been strengthened due to the addition of a small team with specialised knowledge of the work of ophthalmologists and vitreo-retinal specialists. This Vit-Ret team supports those specialists and assists the core team in delivering our new products to general ophthalmologist customers. Optometry
Ophthalmology
Optometry has been the core of our business, particularly in the US market
Ophthalmologists are the providers of secondary eyecare, managing patients who have been diagnosed by their primary healthcare provider as needing specialist treatment
• Optometrists are the primary providers of eyecare and digital retinal screening is becoming an accepted part of the comprehensive eye examinations they conduct. • Our P200 and 200Dx devices are used by most of our optometry customers, although some choose to use our higher-end devices. • We have added further products used by optometrists, such as the visual acuity chart devices and automated perimeters. The optical coherence tomography (OCT) products are also used in wellness screening by optometrists.
• Ophthalmologists require additional functionality for imaging devices to properly assess and treat their patients as do vitreo‑retinal specialists who focus on retinal diseases such as diabetic retinopathies. The 200Tx is directed to this customer group. • The products acquired through our recent acquisitions, such as the photo disruption and photo coagulation lasers, OCT and ultrasound scanners, delivers a fuller offering to this segment.
400+
140+
Ophthalmology customers in Germany, Switzerland, Japan and North America
200Tx devices placed
14
Daytona Designed to globalise our core widefield retinal imagining technology Our next generation ultra-widefield retinal scanner, Daytona, is intended to assist the expansion of the business by appealing to a more global market through its small footprint (easier to ship) and improved ease of use. In North America, it is aimed at the clinical optometry market, and at both optometrists and general ophthalmologists elsewhere. This project, conceived 2 years ago, set out to deliver a desk-top sized version of our widefield SLO scanning device, with the objectives of creating a product that delivered images of a quality as high as the P200C device, capturing the same widefield view of the retina, was robust, manufacturable in volume, with auto-fluorescence imaging, run from new, intuitive software and offering a device that could be used by customers globally regardless of practice size or physical or climatic environment. We unveiled Daytona as planned In October and are set to ship product to customers before the end of the first quarter 2012.
Product benefits • I mproved product performance: Colour and AF imaging modalities
• C heaper to install and maintain; manufacturing cost target achievable
• Smaller desktop size
• Leading edge design
• Improved ease of use
• Colour customisable
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
The spectral OCT market is both growing and diversifying, presenting a unique opportunity for new entrants to quickly gain market share.
Shortly after the year end we completed the acquisition of the instrumentation division of OPKO Health, bringing access to established OCT (optical coherence technology) and ultrasound products together with a product pipeline including a lower-cost OCT product, Falcon, nearing market launch. OCT delivers an image that shows a three-dimensional, cross-sectional view of the retina in any particular area, typically in the central pole area of the retina around
the optic nerve and macula, and is used to detect the presence of and understand the severity of disease, determine treatment approaches and monitor post-treatment effects. We are excited by this acquisition, as we believe that Optos’ widefield retinal imaging technology, combined with the specific data that can be derived from OCT images, has the potential to offer eyecare professionals the most powerful tools for disease diagnosis and management.
Product positioning Optometry market
Ophthalmology market
Disease management
200Tx
Price
Diagnosis
Wellness imaging
P200C
Treatment planning
Daytona
200Dx
P200
Functionality
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Business review: Operating review
Delivering our strategy We are building and improving our sales channels and increasing their efficiency through our expanded product range. Though ultra-widefield retinal imaging remains at the core of our business, we have vastly expanded our offering in the past two years. By providing a wider offering, we are able to meet more of the needs of the practice, and become the overall retina company of choice for professionals worldwide. This increased product range is an important tool for our sales team, allowing them to engage new customers and offer additional products which might appeal to existing customers. We maximise these channels through keeping in place industry based and proven sales management, as well as in-depth salesforce training to ensure our staff are as helpful and knowledgeable as possible.
Retinal imaging products Our widefield retinal imaging technology, combined with the specific data that can be derived from OCT images, offers ophthalmologists and optometrists the most powerful tools for disease diagnosis and management.
Medical/surgical devices Optos has acquired a wide range of medical surgical devices including photocoagulators, photodisruptors, surgical microscopes and corneal cross-linking systems. Designed by a development process focused on longevity, dependability and a high level of precision and performance for optimum clinical outcomes, these products have a reputation for value, reliability and efficiency.
Diagnostic instruments Expanding the company goal to support practitioners in diagnosing, analysing and monitoring ocular pathology, Optos recently added new product lines through the acquisition of Opto Global. The products, including ultrasound technology, visual field devices, ophthalmic lenses and visual acuity systems, are complementary additions to the core imaging technology.
P200 device
200Tx device
Advant™ YAG Laser
FastPulse™ Laser
Visual Acuity Chart
AP300 Automated Perimeter
Leverage our sales channels 16
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Overview Business review Governance Financial statements
Spectral OCT SLO™
Daytona
Product categories •U ltra-widefield imaging • OCT imaging
Hyalus™ Green Laser
XLink™ Corneal Cross-Linking System
Product categories • Corneal cross‑linking • Photocoagulators • Photodisruptors • Surgical microscopes
Product categories • Ultrasound • Photodisruptors • Surgical microscopes
8% increase in customer base for core widefield imaging devices
Our products are now also supported by OptosAdvance, a unique image management offering that puts Optos at the ‘heart’ of the practice. Our proprietary image management software, launched during 2011 and free to all rental customers, integrates seamlessly with our technologies to allow cloud archiving and web-based review from any location, enabling more comprehensive patient reviews and improving practice efficiency.
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Business review: Operating review
Delivering our strategy Growth drivers and opportunities Direct markets • Expansion of Optos direct channel • Additional sales staff in existing markets • Opening new direct markets in Australia, Singapore, Benelux, Austria • Via commission agents in France, Denmark, Finland and Poland
Indirect markets • Drive sales in key distributor markets • Optimise the distributor channel • Drive distributor sales of Optos, OPKO and Opto Global products
• Continued focus on asset utilisation
Our global presence
Integration on track to introduce Opto Global products in North America
International revenue North American revenue
$26.2m
£117.1m New distributor appointed in Japan
The integration of Opto Global in 2011 has enabled us to leverage existing distributors in emerging markets including the Far East, Middle East, Africa and South America. Direct Core Distributor Other Distributor
18
Now building a significant direct presence in Australia
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Grow our global reach We are investing in manufacturing and inventory and expanding our global sales force and distribution channels in order to accelerate our penetration of international markets. The acquisition of Opto Global, completed in December 2010, brings additional devices for both optometrist and ophthalmologist practices, (including the visual acuity products SmartChart and the AP100, AP200 & AP300 perimeters and treatment lasers) and has expanded our geographic reach outside our core North American and European markets. We are now building a significant direct presence in Australia and exploiting the distributor network we acquired with Opto Global. We appointed a distributor in Japan to whom we have delivered over 20 200Tx devices. The OPKO transaction brings us further opportunities to expand our international presence.
In addition we are continuing to build inventory of our P200C and 200Tx devices and invest in expanding our sales force. We have placed a number of devices on trial at key opinion leader sites on extended payment terms. In addition, we have improved our manufacturing capability such that we now build P200C and P200MA devices in the US as well as Scotland. This investment will enable lower service and maintenance costs in the future by delivering product from proximal locations and free up capacity in Scotland to handle the new Daytona device, which we expect to be an internationally attractive product.
$3m delivered by the acquisition of Opto Global in revenues from new products as well as synergies from new sales channels
Optos plc Annual report and accounts 2011
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Business review
Financial review In brief
Delivering significant increases in revenues and profits “ Our revenues grew by 35% to $143.3m and include $37.6m from outright sales of devices and $19.8m from sales under finance leases.” Christine Soden Chief Financial Officer
• Revenues grew by 35% to $143.3m. Like-for-like revenue growth was over 25% • North American revenues grew 23% to $117.1m and International revenues grew by 103% to $26.2m • Pre-tax profits grew from $12.7m in FY10 to $22.0m this year • Undiluted earnings per share were 32.1c compared with 20.0c in the prior year
Revenues and customer base As we forecasted last year, an increasing proportion of our revenues for 2011 came from sales of devices both outright and under finance leases, as well as with related service and warranty income. We expect this trend to continue in future years, as we expand internationally, both through direct sales and distributor relationships, and penetrate further into ophthalmology and towards the introduction of our next generation desk-top scanning devices and OCT products. As disclosed at the interim results, we have re-assessed the anticipated useful life of our current product range from an accounting perspective and as a consequence now expect the majority of new and renewed rental contracts to fall to be treated as sales under finance leases rather than operating leases. During the year we secured 415 finance lease contracts compared to 88 in 2010. Our revenues grew by 35% to $143.3m (2010: $106.3m) and include $37.6m from outright sales of devices (2010: $8.1m) and $19.8m from sales under finance leases (2010: $7.7m). Included within these outright sales were $3.0m of revenues from products acquired with Opto Global which were consolidated from January 2011. Revenues from the recurring streams of operating lease rentals and service and warranty revenues fell from $90.5m in 2010 to $85.9m this year. Adjusting revenues in both the current and prior financial year to treat all receipts under rental contracts as if they were operating leases and deducting revenues from the Opto Global products resulted in like-for-like growth in revenues of over 25%. Our core North American markets generated revenues of $117.1m (2010: $93.4m), an increase of 23%, with markets outside North America growing strongly by 103% from $12.9m to $26.2m.
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Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Over 80% of our core imaging devices are placed with customers on a rental basis, giving good visibility of future revenues. The acquisition of Opto Global delivered $3.0m of revenues from new products as well as synergies from new sales channels.
This growth included expansion in our direct markets in Europe, sales through new distributor relationships and first direct sales in Australia and New Zealand. Our customer base for core Optos scanning devices increased from 3,912 to 4,240 during the year, with 811 devices owned outright and 80%, or 3,429, on rental contracts. Of these 487 classify as finance leases. We sold 529 devices in 2011 compared to 115 in 2010, influenced by the broader range of business models and sales through distributors and to ophthalmology customers. Our asset utilisation efforts remained effective, with the average monthly optomaps® for the year being 112 compared to 110 last year. Future minimum revenues receivable under non-cancellable operating lease contracts at the end of 2011 fell from $169.8m to $105.9m, although a further $37.4m is due under non-cancellable contracts accounted for as finance leases of which $25.8m is recognised in the balance sheet. Gross and operating profits and net finance costs Gross profits increased by $20.5m to $91.4m, representing a gross margin of 64% compared to 67% in 2010, a year where the impact of higher margin finance lease contracts skewed the overall picture. Overheads before exceptional items increased from $53.4m in 2010 (50% of revenues) to $66.3m (46% of revenues), reflecting higher selling costs with an expanded sales force and commissions on higher sales, increased volumes of device build and refurbish, increased internationalisation of products and the addition of the Opto Global operations. With the launch of Daytona and the addition of new markets, further products, including OptosAdvance, and the OCT and ultrasound devices, we anticipate further increases in revenues and overheads in the coming year.
Operating margins before exceptional costs increased from 16% to 17.5% this year, delivering operating profits of $25.1m. Average numbers of employees increased from 277 to 364 with 395 actual employees at the year end. Staff costs for the year were $44.4m compared to $30.2m in the previous year, reflecting the higher staff numbers and increased incentive payments arising from improved revenue and profit performance, investment in upgrading certain key positions and in employee development. Interest charges and other finance costs reduced from $5.0m in 2010 to $3.3m, reflecting the continuing reduction in vendor finance debt. Finance revenue of $0.9m (2010: $0.2m) was comprised primarily of the implied discount within finance lease rental contracts. Exceptional items and acquisitions Exceptional items incurred in the year included $2.4m of costs relating to the acquisition of Opto Global completed in December 2010 and the OPKO Health device business completed after the current year end in October 2011. These charges were offset by a $1.75m credit relating to a reassessment of the deferred consideration payable for Opto Global. Opto Global was purchased for $11.75m of which $10.75m was settled in cash and the balance through the issue of 434,487 new shares in Optos plc. The contracts also allowed for payment of deferred consideration of up to $3m depending on sales performance for the twelve months from 1 March 2011. At the time the acquisition was secured, the Board assessed the likely deferred consideration to be $2.5m and a provision of that amount was established. Since that time, whilst overall performance of the Opto Global business has been good, with prospects for product sales
in Australia looking particularly exciting, the requirement for the “base” Opto Global business to achieve a floor of $5m of revenue in the measurement year looks challenging. The contract states no consideration should be paid if this hurdle is not met. Accordingly, the Directors now assess a maximum of $0.75m of deferred consideration is likely to be payable and the reduction in the provision released to the profit and loss. Profit on ordinary activities before tax, taxation and post-tax profits The Group made a profit on ordinary activities before tax of $22.7m and a profit of $22.0m after exceptional items, compared to $12.7m in the prior year. A tax credit of $0.8m arose in the year (2010: $1.3m), comprising a current tax credit of $0.5m on release of provisions made in prior periods and a deferred tax credit of $0.3m, as all recognisable brought forward tax losses were brought in to deferred tax assets. The effective tax charge on the current year profits was largely matched by the recognition of an additional $6.6m of deferred tax asset. With effect from 2012 the Group anticipates recognising a full tax liability on its future profits, although in cash terms would not anticipate paying significant taxes in the UK until 2013 or beyond, although some taxes are likely to be payable in the US where losses will be utilised sooner, and in other territories such as Canada and Germany. The resultant post-tax profit after exceptional items was $22.8m, representing undiluted earnings per share of 32.1c compared with 20.0c in the previous year.
Optos plc Annual report and accounts 2011
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Business review
Financial review continued Cash flow During 2011 we invested significant cash in the business, acquired Opto Global, launched into ophthalmology, entered new geographies and increased research and development spend as well as prepared for both the acquisition of the OPKO Health instrumentation business and the Daytona launch. As a consequence, cash flow from operating activities was $37.2m compared to $46.4m in 2010. Adding back cash receipts from finance lease receivables and interest of $3.4m (disclosed within investing activities) increases adjusted operating cash flows to $40.6m compared with $46.8m. Manufacturing operations in 2010 related largely to P200 and 200Dx devices which were already owned by the business and required little additional investment other than the costs of refurbishing devices and establishing new customer sites. In 2011 we built significant numbers of new devices in addition to refurbishing existing products and also increased inventories as we moved to supply higher volumes of 200Tx devices, the Daytona launch and adding Opto Global products. Debtors were high as a result of high capital sales towards the end of the year. Investing activities used $37.8m (2010: $18.5m), net of finance income and finance lease receipts, with the acquisition of Opto Global for $10.75m, significant expenditure on intangible assets and in building and refurbishing medical devices. The intangible asset expenditure of $6.5m relates largely to the capitalisation of costs of internal R&D projects, with the Daytona project representing the majority of this expenditure. Net cash flows from financing activities resulted in a net cash outflow of $30.7m (2010: $16.7m) with vendor finance repayments of $31.5m and receipts of $3.6m compared with payments of $37.4m and receipts of $24.2m in 2010.
debt at the year end of $25.2m compared to $21.1m at the start of the year. Balance sheet Shareholders’ equity and net assets at the year end were $100.5m, a $25.5m increase, principally reflecting the profit for the year, share issuance proceeds and adjustment for share-based payments. Non-current assets increased from $87.8m to $97.6m with reductions in property, plant and equipment through transfers of devices to inventories offset by increased finance lease receivables and intangible assets arising on R&D projects and the Opto Global acquisition. Current assets increased to $66.5m with an $11.0m increase in trade receivables reflecting high sales towards the year end and inventories up $18.8m, including $10.2m of assets transferred from PPE and increases in other devices, including Opto Global.
As the business expands to cover a range of products and business models, the measures by which performance is managed will move towards overall growth in revenues, operating margins and cash generation together with the maintenance and expansion of the customer base. Measures relating to the pay-per-patient optomap® imaging business, whilst of great importance, will have less relevance to the overall Group results in future periods as the product range expands and are included for information only this year.
Within trade and other payables, the increase of $14.5m included a $7.2m increase in deferred revenue with some $8.7m of future revenue secured (much relating to service and warranty contracts) to be recognised in future years as well as higher accrual levels, reflecting increased business activity. Across the approximately 3,000 devices on operating lease agreements, the carrying value of medical devices was $36.6m at the year end, an average carrying value of approximately $12.5k with the newer P200C and P200MA devices typically carried at a higher value than the P200 and 200Dx devices. Christine Soden Chief Financial Officer 21 November 2011
Cash balances fell by $31.0m in the year to $10.2m, whilst finance lease obligations reduced by $26.9m from $62.3m to $35.4m, giving net
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Optos plc Annual report and accounts 2011
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Overview
Key performance indicators
Business review Governance Financial statements
Financial
Revenue growth
Underlying revenue growth
Revenue growth versus prior year is the total revenue for the year divided by the total revenue for the prior year.
Underlying revenue growth is calculated by treating all payments receivable in the period from rental contracts as operating leases, including revenues from outright device sales and service contracts, but excluding revenues from Opto Global and Accutome products.
40
30 26%
20 20
1.5%
0
(4)%
-10 2009
2010
2011
Growth driven by new products, markets and business models. Business target 20% pa growth over medium-term
16%
30
56.7c
53.8c
30
9%
20
2010
2010
0 2009
2011
$10.2
5
0 2009
2011
$18.0
10
15
0 2009
$27.7
25
66.2c
60 45
4
(4)%
-10
Adjusted operating cash flow per share is the cash flow from operations plus amounts receivable from finance lease contracts in the period divided by the average number of shares in issue for the year as used in calculating the diluted earnings per share.
Free cash flow ($m) Free cash flow is operating cash flow less cash used in investing in tangible and intangible assets and cash receipts from finance lease receivables before the costs of acquisitions.
15 8
9% 0
Adjusted operating cash flow per share (cents)
75 17.5%
16 12
10
10
Operating margin before exceptional items is the gross profit less selling, distribution and administrative expenses, excluding exceptional costs divided by revenues.
20
35%
30
Operating margin (before exceptional items)
2010
2011
2009
2010
2011
Driven by increased capital sales into new segments and markets
Steady improvement towards long-term target of margin of 20%+
Increases in working capital in year as we build and introduce new products
FY11 was a year of significant investment in R&D, new products and new markets
Number of rental customer sites at year end
% of customers de-installing
Average price per optomap® ($)
Average number of monthly optomaps® per rental site
Operational
Total number of devices at customer sites Site numbers refer only to core widefield imaging products.
4,250 4250 4,000 4000 3,750 3750
4,240 3,9123,912 3,7973,797
10
3,500 3500
3,250 3250
3,250 3250
3000 3,000
3000 3,000 2010
2011
In addition we have customers for our other products plus multiple products at some sites
3,625
$19.7 10%
3,429
4
2011
Whilst a declining proportion of our customer base, rental sales remain core to Optos’ business
2011
The range of business models available has helped persuade customers to retain their devices
110
112
2009
2010
2011
40 20
0 2010
105
60
5
2009
100 80
5%
0 2010
$18.1
10
2 2008 2009
$18.5
15
6
3,630
120
20
12%
8
3,750 3750
3,500 3500
2009
12
4,250 4250 4,000 4000
3,983
The percentage of customers de-installing is the number of sites de-installing divided by the average total customer base. The average number of optomap® eye exams sold relates to actual eye exams undertaken by healthcare professionals under rental agreements and billed to patients.
0 2009
2010
2011
Expect continued reduction as we offer more competitive pricing based on lower cost of devices
Target is to increase optomap® usage through demonstrating clinical proof of medical benefits
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Business review
Principal risks and uncertainties There are a number of potential risks and uncertainties that have been identified within the business which could have a material impact on the Company’s long-term performance. These are not all of the risks which the Directors have identified but those that the Directors currently consider likely to be material. Area of risk
The successful launch of the Daytona product is critical to the long-term growth of the Company.
Potential impacts
Mitigating activity
The Company is currently heavily reliant on its P200 and P200C medical devices, which produce the Company’s retinal exam products and are principally targeted at optometry customers. These products, together with related services, accounted for the majority of the Company’s revenues for the year ended 30 September 2011. If any third-party produces a more advanced device with improved functionality to these devices, or a similar device with significantly lower build costs, this could have a material adverse effect on the Company’s business, financial condition and results of operations.
To mitigate this we have created a New Product Introduction team which is specifically responsible for transferring the product from product development through scale‑up into full-scale manufacturing to ensure that the Daytona product can be built to meet the market demand in a cost-effective way. In addition the new design is modular based and therefore is less complex to manufacture than existing products. The Company has taken specialist marketing advice on how best to position the Daytona device to reduce the risk of cannibalisation. Pricing programmes have been established in the marketplace.
The Company has invested significantly in the development of a new desk-top sized, “plug and play” device which is being branded as Daytona. The Daytona product was unveiled in October 2011 and will go on sale in the first calendar quarter of 2012. As with any new product there are risks associated with the ability to build to the cost and the volume required, as well as risks relating to the continued success of the existing product range.
The Company is projecting significant growth in new territories as well as increasing penetration into the ophthalmology sector.
24
The Company currently generates most of its revenue in the optometry sector within North America. The Company seeks to address the risk of over-reliance on one sector and one market through investing significant resources in building sales and distribution resources outside the North American optometry market, building direct and indirect sales channels to address ophthalmology and specialist markets and in additional territories. Furthermore, the Company has invested in demonstrating the clinical efficacy and superiority of its devices and developing the quality and functionality of its products in order to seek to address competitive threats.
The Company is continuing to develop the P200Tx device to include new features and applications that will further meet the customer needs, in particular within the ophthalmology sector. Through the recent acquisitions the Company now has access to an established distributor network upon which to build and so increase market penetration into new regions. This is further supported through clinical studies, the developing P200Tx product and the new Daytona device.
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Area of risk
Potential impacts
Mitigating activity
The growth of the Company’s business, particularly as it enters the ophthalmology sector and new territories, is dependent on it manufacturing its devices in a cost-effective and repeatable way.
The Company’s devices are complex and expensive to build and rely on a number of specialist components and parts.
In order to improve security of supply, the Company is developing the ability to manufacture, repair and refurbish its devices at both its manufacturing sites and will hold supplies of parts at dual locations. Where a product is single sourced, the Company seeks to hold sufficient inventories to manage expected demand. The Company’s development teams run projects to reduce the cost of building devices and, in developing Daytona as discussed opposite, the team is seeking to place more reliance on readily available component and technologies rather than the current reliance on specialist manufacture and supply.
The Company has made two acquisitions in the last year. There is a risk that they are not fully integrated and so the synergies are not achieved.
In October 2011 the Company acquired the assets and business of the instrumentation division of OPKO Health, Inc. The Company is therefore now engaged in the development, manufacture and sale of optical coherence tomography (“OCT”) diagnostic devices and optical ultrasound scanners. The successful integration and launch of the existing OCT products and the development of the new OCT products is a key risk.
To mitigate this risk the Company has an experienced integration team in place to manage the transition. The acquired products are sold through the same channels and to the same customer groups as the existing products. The manufacturing processes are relatively straightforward and within the scope of the Company’s existing manufacturing experience. The sales team has all been given training on the new devices and marketing material produced to support the new products. The new product development programmes are nearing completion and will be integrated within the existing Optos project management systems.
In December 2010 the Company acquired Opto Global Pty Holdings Ltd. The company sources and sells precision optometric and ophthalmic equipment with markets primarily in the Middle and Far East as well as Africa and South America. The acquisition enhances the Optos product range and offers the opportunity to launch the sale of Optos products through key Opto Global distributors. The acquisition also provides a direct selling route for Optos products into Australia. As described opposite, the Company appointed an integration team. There are no manufacturing processes to assimilate as all products are sourced from third parties. Although there were some initial delays, the Opto Global product range is now integrated and the Company is using the Opto Global distributors to sell both Optos and Opto Global products. There has also been success selling Optos products into Australia. Managing the supply chain is a key risk and this has been integrated within the overall Company’s logistics management.
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Business review
Principal risks and uncertainties continued Area of risk
Potential impacts
Mitigating activity
The Company’s operating results and financing capacity could be adversely affected by the current fragile economic position. At the same time the Company is launching new products and expanding into new areas. Although the Company has new financing in place there are covenants attached that need to be monitored and met.
Any significant downturn in economic markets would be likely to impact adversely on disposable incomes, which may in turn result in reduced public demand for the Company’s products and thereby materially and adversely affect the Company’s business and financial position. A reduction in footfall in optometrists’ offices or closure of those offices could adversely impact the Company’s ability to earn revenues from optomap® examinations above the MMP and might cause a reduction in the renewal rate of contracts.
The Company does, however, benefit from good visibility of secured forward revenues through its contracts that typically have a term of around three years, although there can be no guarantee that customers will not default under those contracts. Also the Company is now selling a higher proportion of its products as capital sales and thereby receiving the cash earlier. The Company will closely monitor its covenant compliance and there is flexibility within the facility to draw down additional secured lending if required.
The Company is subject to pricing pressures in common with other consumer-based businesses and relies in part on reimbursement agreements with insurers and government health authorities.
There can be no guarantee that the Company can deliver continued increases in revenue, nor can there be any certainty that the optomap® image or any other procedure will continue to qualify under health reimbursement schemes or that the reimbursement rates will not decrease. The Company may also be subject to healthcare-related taxes imposed by government agencies such as a medical devices tax that is to be introduced by the US Government.
26
In addition, as the Company continues to develop and launch new products, as well as expand into new regions, there will be increased cash requirements, including working capital.
The near-term success of the Company’s business depends on consumers understanding the benefit of regular optomap® examinations at the price offered by the Company and healthcare professionals. The Company seeks to drive adoption and awareness of its product through strong educational programmes and compelling evidence from clinical studies.
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
Area of risk
Potential impacts
Mitigating activity
The Company operates in a highly regulated industry.
The Company’s medical devices are subject to strict US Federal Food and Drug Administration (“FDA”) regulations and the requirements of similar foreign regulatory bodies. Although the Company’s devices are currently FDA cleared to market, if the Company or its third-party manufacturers fail to satisfy regulatory requirements or regulations change, this could result in the imposition of sanctions on the Company or cause the Company to be unable to sell its product in certain markets or face adverse publicity.
The Company operates to relevant ISO guidelines and monitors and anticipates developments in regulatory thinking.
Intellectual property suits that are brought against the Company may significantly harm the business, as could significant litigation.
Technology-based companies are frequently subject to litigation with respect to patent and other intellectual property rights. Any litigation to determine the validity of third‑party infringement claims or defend the Company’s intellectual property could at a minimum be costly. The Company believes the core patent protection around its product is strong and is not aware of any significant actual or pending suits. The Company’s business exposes it to the risk of certain litigation, for example, a patient suffering harm during the image process or the Company’s retinal image system not identifying an underlying medical problem.
The Company does not offer diagnostic or treatment services and its customers are all qualified eyecare clinicians who are fully trained in the use and interpretation of the optomap® product. The Company maintains product liability insurance although there can be no certainty the insurance coverage would be sufficient to meet the cost of any claims.
The Company’s business is international and it operates in several countries and currencies and its results are impacted by changes in currency exchange rates.
Optos reports its results in US dollars, the currency in which the majority of its revenues and costs arise. The Group monitors its non-US dollars foreign currency exposure and, when deemed necessary by the Board, seeks to minimise its transaction exposure by using forward foreign currency contracts to eliminate exposures on any committed significant transactions.
Wherever possible the majority of cash balances are maintained in US dollars to mitigate the impact of currency fluctuations.
Optos plc Annual report and accounts 2011
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Governance
Board of Directors
Chairman’s overview During the accounting period, the Board comprised two Executive Directors: Roy Davis, Chief Executive Officer (“CEO”); and Christine Soden, Chief Financial Officer (“CFO”). The Non-executive Directors comprised Dr Peter Fellner, Dr Peter Kehoe, Barry Rose and Rosalyn Wilton. Patrick Paul resigned from the Board as a Non-executive Director as at 23 February 2011 and John Goddard and David Wilson were appointed to the Board as Non-executive Directors with effect from 1 June 2011. The Company’s Non-executive Directors provide input to the business by contributing to the oversight function of the Board and to the development of the Company’s strategy. The Non-executive Directors met as a group on two occasions during the financial year ended 30 September 2011 without the presence of Executive Directors. The Board met 13 times during the year, including once over a two-day period with senior management to focus on strategy and business planning. The Board delegates to the Company’s Operating Board (which is chaired by the CEO and comprises the Company’s senior management and meets on a monthly basis) certain decisions, including implementing the strategy, operational plans and policies of the Company and the Company’s subsidiary companies as determined by the Board; delivering the operating and financial results against budgets; and managing and controlling the allocation of capital, human and technical resources. Dr Peter Fellner, Chairman
28
Roy Davis Chief Executive Officer Roy Davis joined the Company as Chief Executive Officer with effect from 17 November 2008 with over 25 years of operational line management and strategic consulting experience. Mr Davis was Chief Executive Officer of Gyrus Group plc, a quoted leading medical device company, from June 2007, before it was acquired by the Olympus Corporation of Japan in February 2008. Before becoming CEO he served as Chief Operating Officer of the company from 2003. Mr Davis joined Gyrus as a Non-executive Director at the time of its flotation in 1997. He was previously CEO of NTERA, a nanotechnology company, and before that spent almost ten years with Arthur D Little, the global management consulting company, where he was Vice President and Global Head of its operations management business. Mr Davis has also held senior operational positions for Tricom, Reuters and Molex in the US, Taiwan and Europe. Mr Davis holds a Mechanical Engineering degree and obtained an MBA from the London School of Business.
Christine Soden Chief Financial Officer Christine Soden joined Optos as Chief Financial Officer in September 2009 and was appointed to the Board on 1 December 2009. She joined Optos from BTG plc, the FTSE 250 speciality pharmaceuticals company, where she became Chief Financial Officer in 2005. Following the acquisition of Protherics plc in December 2005, Christine became Chief Operating Officer of BTG and helped integrate the two businesses. Prior to BTG, between 2000 and 2005, Christine was Chief Financial Officer at Oxagen Limited, a privately owned drug discovery company, and from 1996 until 1999 Christine was Finance Director of Chiroscience Group plc before becoming Chief Financial Officer of Celltech Chiroscience plc following the merger of the two companies. Prior to this, Christine spent over four years as Group Financial Controller of Medeva plc. She has a degree in Mathematics from Durham University and is a Chartered Accountant.
Dr Peter Fellner (A•R•N) Non-executive Chairman Dr Fellner joined the Company as Chairman with effect from 1 January 2010. Previously, Dr Fellner served as CEO of Celltech Group Plc from 1990 to 2003 and oversaw its growth from an early-stage R&D company, valued at about £50m, into the UK’s largest biotechnology company, a constituent of the FTSE 100 index and also listed on the NYSE. He then served as its Chairman from 2003 until its acquisition for £1.53 billion in 2004. Dr Fellner joined Celltech from Roche UK, where he served as CEO from 1986 to 1990, having previously been Director of the Roche Research Centre in the UK. Dr Fellner currently serves as Chairman of the medical technology company Consort Medical Plc and of the biotechnology companies Vernalis Plc, Astex Therapeutics Ltd and Biotie Therapies Corp. He is also a Director of the global biopharmaceutical company UCB SA and of the European bioscience company Evotec AG. Recently he also served as Chairman of the biotechnology company Acambis Plc and of Premier Research Group Plc, a CRO, until they were each acquired during 2008.
Optos plc Annual report and accounts 2011
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Overview Business review Governance Financial statements
John Goddard, FCA (A•N) Non-executive Director Mr John Goddard FCA joined the Company as a Non-executive Director in June 2011. Mr Goddard has had a distinguished career in the global pharmaceuticals industry, the majority of which was with AstraZeneca where he was ultimately Head of Group Strategic Planning. He has extensive experience of mergers and acquisitions and had significant involvement in the merger of Astra and Zeneca. Prior to his retirement from AstraZeneca last year, Mr Goddard was responsible for building a 100-strong global team focused upon M&A and licensing, which completed 75 transactions in four years, including several acquisitions, in-licensing and out-licensing of compounds and disposals. Latterly, Mr Goddard became Chairman of the AstraZeneca spin-out, Aptium Oncology, and of the substantial medical device business, Astratech. Mr Goddard is a member of the Board of Directors of Intas Pharmaceuticals Ltd and Renovo Group plc and serves on the Advisory Board of DRI Capital Inc.
David Wilson (R•N) Non-executive Director Mr David Wilson joined the Company as a Non-executive Director in June 2011. Mr Wilson has 26 years of experience in the City and is currently Deputy Chief Executive of the Investment Banking business at Matrix Group. Until February this year he was the Chief Executive of Piper Jaffray Ltd, a position he held from 2005. Mr Wilson helped launch the firm’s investment banking and M&A advisory service in Europe, which became a market-leading healthcare franchise. He was appointed to the Operating Board of Piper Jaffray & Co., the US-based parent company, in 2008 and as Chairman of the firm’s Global Healthcare Group in 2010. He has extensive global fundraising and cross-border M&A experience. Previous positions include Joint Head of UK Investment Banking at ING Barings, Director of Investment Banking at Deutsche Bank and Head of Small Companies Corporate Broking at UBS.
Dr Peter Kehoe (R•N) Non-executive Director Dr Kehoe joined the Company as a Non-executive Director in October 2010. Since 1984, Dr Kehoe has been a principal of Kehoe Eye Care, PC in Galesburg, Illinois, USA. From 1997 to 1998 Dr Kehoe served as President of the Illinois Optometric Association and received their Optometrist of the Year Award in 2001. He served on the Board of Trustees of the American Optometric Association from 1999 to 2010 and as President of the 36,000 member organisation in 2008 to 2009. Dr Kehoe serves as a North American representative on the Governing Board of the World Council of Optometry. In 2010, he was named as a consultant to Transitions Optical serving as a Professional Relations Adviser. Dr Kehoe holds an OD degree and a Doctor of Science from the Illinois College of Optometry, Chicago. He became a Fellow in the American Academy of Optometry in 1999 and is an Active Candidate of the American Board of Optometry.
Barry Rose (A•R•N) Non-executive Director Barry M Rose joined the Company as a Non-executive Director in December 2005 and serves as the Senior Independent Director to the Board and as Chairman of the Audit Committee. Mr Rose was Chief Executive of Scottish Provident UK from 1993 to 2001. He is Chairman of Baillie Gifford Shin Nippon plc. Mr Rose is also a Non-executive Director of Wolfson Microelectronics plc and Dimensional Imaging Ltd. Mr Rose has an Honours degree in Mathematics from Manchester University.
Rosalyn Wilton (A•R•N) Non-executive Director Rosalyn Wilton joined the Company as a Non-executive Director in August 2007 and serves as Chairman of the Remuneration Committee. Mrs Wilton stepped down in October 2009 as Chairman of Ipreo Holdings LLC, the US-based financial data and solutions group which was formed following the merger of i-Deal LLC and Hemscott Group Ltd. Before the merger, Mrs Wilton was Chief Executive Officer of Hemscott plc. Mrs Wilton has previously served as Managing Director of Reuters Information Services and Reuters Transactions Products and was a member of the Reuters Executive Committee. Mrs Wilton has held Non-executive Directorship positions with Scottish Widows and the London International Financial Futures Exchange. Mrs Wilton serves as a Senior Adviser to 3i Investments. Mrs Wilton holds a BSc (Hons) from the University of London.
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Governance
Operating board
Mike Geraghty Executive Vice President, Global Sales Mike Geraghty joined the Company in February 2009. He has over 25 years of sales management experience in the medical/surgical field and an extensive national and international background. Most recently, he served as President of International Sales and before that President of North America Sales at Gyrus ACMI where he helped grow annual sales from $12m to $400m+.
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Alex Warnock Vice President, Global Research and Development Alex Warnock joined the Company in 2008. He has extensive experience in international markets and broad NPI experience with complex electronic products. He has held the positions of Director, Global CAS Technology and Development for DePuy iOrthopaedics (a division of J&J); Divisional VP and Senior GM/VP Engineering at Pace Micro Technology; and European Operations Manager at Motorola. He holds a BSc in Electrical and Electronic Engineering an MSc in Digital Systems Engineering and is a Chartered Engineer (CEng).
Tom Daniells Vice President, Global Corporate Accounts and Business Development Tom Daniells joined the Company in 2003. He has over 25 years of experience in the ophthalmology and optometry business, holding previous positions as Worldwide Business Director – Cataract, and Director of US Sales at Becton Dickinson, Director of Marketing at Summit Autonomous and 16 years in managerial marketing roles at Alcon. He holds a BA in Marketing and an MBA in International Marketing.
Tom Motta Vice President, Global Operations Tom Motta joined the Company in August 2009. He possesses an in-depth knowledge of, and experience in, lean manufacturing methodologies and improved plant performance. He holds an MSc, Total Quality and has over ten years’ global Executive-level management experience in operations/ manufacturing with medical device companies, including Olympus/Gyrus ACMI and Teleflex Medical (Formerly Genzyme Bio-surgery). Most recently, he served as Group Vice President of Operations for the Americas at Olympus/Gyrus ACMI.
Robert Tweedlie Vice President, Global Quality Assurance and Regulatory Affairs Robert Tweedlie joined the Company in 2002. He has spent 17 years in various manufacturing industries including photographic, electronic and plastic injection moulding before specialising in medical devices. He joined Inverness Medical Ltd (now Lifescan Scotland) in 1996. At Inverness Medical he managed the regulatory implications of product launch through to acquisition by Johnson & Johnson. He holds a PhD in Protein X-ray Crystallography.
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Douglas Anderson Vice President, Global Advocacy Douglas Anderson founded the Company in 1992. He is a Fellow of the Royal Society of Edinburgh, a Fellow of the Royal Society of Arts, a Doctor (Hon) of Engineering Herriot Watt University Edinburgh, a Doctor (Hon) of Business Administration – Edinburgh Napier University and a member of the Association for Research in Vision and Ophthalmology. In 2007, he was made an Officer of the British Empire for services to life sciences. He is Chairman of Crombie Anderson Associates Ltd and Non-executive Director of Michelson Diagnostics Ltd.
Jairo Kerr Azevedo Vice-President, Global Field Services Managing Director, Optos Australia Jairo Kerr Azevedo has 15 years of experience in the ophthalmology industry, having held management roles with global ophthalmology equipment manufacturers in the areas of technical support and services, product management and sales. Jairo joined Optos in 2010 through the acquisition of Opto Global, a company that he founded in 2003 and served as Chief Executive Officer. He holds an Electrical Engineering degree from the University of Sao Paulo, Brazil and an MBA from the University of Adelaide, Australia.
Dan Wood Vice President, Strategy and Operations Integration Dan Wood joined the Company in 2011. He has 20 years of international management experience including start-ups and global medical device manufacturers. He joined Optos from Olympus where he was VP of Supply Chain and Integration, overseeing Gyrus’ integration of ACMI and then GyrusACMI’s subsequent integration in to Olympus. He holds an MSc in Engineering and Economics from Lincoln College, Oxford.
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Governance
Corporate governance
The Board remains committed to ensuring that high standards of Corporate Governance are maintained “ We continue to manage the Company’s affairs in accordance with the principles and provisions of the UK Corporate Governance Code.” Dr Peter Fellner, Chairman
Chairman’s Statement Pages 06–07 For a review of the functions of the Board Page 33
Corporate Governance Code The Board of Directors (the “Board”) remains committed to ensuring high standards of Corporate Governance are maintained and continues to manage the Company’s affairs in accordance with the principles and provisions of the UK Corporate Governance Code (the “Code”) (June 2010). Statement of compliance The Board considers that the Company has complied with the principles and provisions set out in the Code throughout the year ended 30 September 2011. Board of Directors The principal duty of the Board is to represent and protect the interests of the Company’s shareholders by ensuring that the Company is well-managed and operated in a way which is in the interests of its shareholders. The Board is responsible for oversight of the formulation and implementation of the strategy of the Company. The Board is also responsible for oversight of the Company’s operations and has an obligation to keep informed of the Company’s activities and appropriate policies and procedures in order to assist management in formulating, developing and implementing plans and serves as a body to review and provide advice to management on the operations of the Company. The Board is committed to reviewing its membership on a regular basis. The Chairman ensures that Board discussions are conducted taking all views into account so that no one individual Director or small group of Directors dominate the proceedings. Chairman and Chief Executive Officer There is a distinct and defined division of responsibilities between the Chairman and the Chief Executive Officer (“CEO”). The Chairman is primarily responsible for the effective working of the Board and the CEO is responsible for the operational management of the business and for the implementation of strategy as agreed by the Board. The division of responsibilities is reviewed annually by the Board.
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Board balance and independence During the accounting period, the Board comprised two Executive Directors: Roy Davis, CEO, and Christine Soden, CFO. The Non-executive Directors comprised Dr Peter Fellner, Dr Peter Kehoe, Barry Rose and Rosalyn Wilton. Patrick Paul resigned from the Board as a Non-executive Director as at 23 February 2011 and John Goddard and David Wilson were appointed to the Board as Non-executive Directors with effect from 1 June 2011. Patrick Paul was presumed not independent within the meaning of the Code because he served on the Board for more than nine years since first elected and held significant interests in the shareholding of the Company. As at 30 September 2011, all of the Non-executive Directors were independent as provided for by the UK Corporate Governance Code. Role of Non-executive Directors The Company’s Non-executive Directors provide input to the business by contributing to the oversight function of the Board and to the development of the Company’s strategy. Non-executive Directors are required to be satisfied that the financial information is accurate and that the internal controls and policies and procedures governing risk management are effective and appropriate. The Company’s Non-executive Directors are available to shareholders. The Non-executive Directors met as a group on 2 occasions during the financial year ended 30 September 2011 without the presence of Executive Directors. Board process and information The Board met 13 times during the year, including once over a two-day period with senior management to focus on strategy and business planning. Dialogue occurs regularly between Directors outside of scheduled meetings. Meeting agendas include review and approval of minutes recorded of the previous meeting, matters arising, items for discussion, special items, items for note
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Board process and information continued and any other business. Board materials are distributed by the Company Secretary normally not less than seven days in advance of meeting dates to allow Directors to adequately prepare for meetings. Minutes of Board and Committee meetings are normally distributed within 14 days following each meeting. The Board receives operational and financial information to assist in monitoring and assessing the ongoing performance of the business on a monthly basis. This includes reports from the CEO, CFO and Company Secretary. The Board also schedules and reviews special items covering business critical areas during the year. The Executive with responsibility for the Special Items submits a written report covering the items, which is included in the Board materials, and attends the Board meeting by invitation for that part of the agenda to discuss the report in detail. No-one other than Directors and the Company Secretary is entitled to be present at Board meetings unless specifically invited to attend. In those instances when a Director has been unable to attend Board or Committee meetings, his or her comments on the papers for that meeting are communicated to the Chairman in advance so that they can be duly considered. Functions of the Board The Board acknowledges and accepts its statutory duties and, in doing so, encourages the long-term success of the Company by exercising independent judgement with respect to: material strategic and operational issues; safeguarding corporate assets by reviewing the financial policies and affairs of the Company and overseeing the Company’s financial reporting process and internal controls; reviewing of the adequacy of the Company’s systems for compliance with all applicable laws and regulations; overseeing the Company’s risk management process and ensuring that the Company has appropriate procedures in place to manage risks; and evaluating the effectiveness of the Board and its Committees at least annually.
The Board delegates to the Company’s Operating Board (which is chaired by the CEO, comprised the Company’s senior management and meets on a monthly basis) certain decisions, including implementing the strategy, operational plans and policies of the Company and the Company’s subsidiary companies as determined by the Board, delivering the operating and financial results against budgets and managing and controlling the allocation of capital, human and technical resources. Senior Independent Director The Code recommends that the Board should appoint one of its independent Non-executive Directors to serve as the Company’s Senior Independent Director (“SID”). Barry Rose is the SID for the Company. Mr Rose is available to shareholders. Employees can contact the SID under the provisions set out in the Group’s “Whistle-Blowing Policy” if they have concerns that have not been resolved through normal channels or for which contact through the normal channels is inappropriate. Accountability and audit All Directors have accepted a duty of care and accountability to act in the interests of the Company. The Audit Committee has a particular role, acting independently from management, to ensure that the interests of shareholders are properly protected relative to financial reporting and internal control. Risk management and internal control The Board confirms that there is an ongoing process for identifying, monitoring, evaluating and managing the Company’s significant risks, that such a process has been in place for the year ended 30 September 2011 and up to the date of approval of the annual report and accounts, that it is regularly reviewed by the Board and that it accords with the internal control guidance for Directors relative to the Code.
Governance structure
Board of Directors
Audit Committee
Remuneration Committee
Nomination Committee
The Audit Committee has responsibility for planning and reviewing the Company’s Interim and preliminary reports and accounts
The Remuneration Committee is responsible for the policy for the remuneration of the Executive Directors, Company Secretary and the Operating Board
The Nomination Committee has responsibility to assist the Board with succession planning and with the selection of a new Director or Chairman
Barry Rose (Chairman)
Rosalyn Wilton (Chairman)
Dr Peter Fellner (Chairman)
Other members Dr Peter Fellner Rosalyn Wilton John Goddard
Other members Dr Peter Fellner Barry Rose Dr Peter Kehoe David Wilson
Other members All Non-executive Directors
Full biographies of the Board Pages 28–31
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Corporate governance continued
Board and Committee meeting attendance Director
Board
Audit
Remuneration
Number of meetings 13 3 Roy Davis 13/13 — Peter Fellner 13/13 3/3 Peter Kehoe1 12/13 — Barry Rose 12/13 3/3 Christine Soden 12/13 — Rosalyn Wilton 12/13 3/3
Nomination
3 1 — — 3/3 1/1 3/3 1/1 3/3 1/1 — — 3/3 1/1
Appointed during year
John Goddard2 5/5 1/1 David Wilson3 5/5 —
— 0/0 1/1 0/0
Resigned during year
Patrick Paul4 1/2 0/0
— 0/0
1 Peter Kehoe was appointed as a member of the Remuneration Committee on 22 March 2011. 2 John Goddard was appointed to the Board as a Non-executive Director on 1 June 2011 and as a member of the Audit Committee on 7 September 2011. 3 David Wilson was appointed to the Board as a Non-executive Director on 1 June 2011 and as a member of the Remuneration Committee on 7 September 2011. 4 Patrick Paul resigned from the Board as a Non-executive Director and all Board Committees as at 23 February 2011.
Risk management and internal control continued The Directors acknowledge that they have overall responsibility for the Company’s system of internal control and for reviewing its effectiveness. The Board continued to apply C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the risks that are considered significant. Its system is designed to manage the risk and can only be a reasonable and not absolute assurance against material misstatement or loss.
Performance evaluation The Board undertakes an evaluation of its own performance and that of its Committees and individual Directors, including an assessment of the effectiveness of the Chairman, Executive and Non-executive Directors and Company Secretary.
A Group risk and control framework has been established and includes a range of controls, including financial, operational and compliance. It is based principally on reviewing reports from management and considering whether significant risks are identified, evaluated, classified and controlled and ensuring that any significant weaknesses are promptly and properly remedied. This includes manuals of policies and procedures applicable to all material aspects of the business, a budgetary control system which includes monitoring actual performance against pre-determined plans and the appointment of suitably qualified and experienced staff to execute on their agreed responsibilities.
Board and Committee meeting attendance The Board and its Committees meet on a regular basis to discuss and agree matters which are specifically reserved to them for review and decision. Contact between Board and Committee meeting dates is carried out by the Directors as and when required to discuss and agree matters arising relative to addressing and advancing the business of the Company.
External audit risk assessment and planning is in place. The Audit Committee considers and determines relevant action in respect of any control issues raised by either the Executive Directors or the external auditors. There is currently no dedicated internal audit function. The Directors review and determine the requirement for a dedicated internal audit function on an annual basis. The Directors have determined, based on the size and complexity of the Group, that a dedicated internal audit function is not currently required. If any specific internal control weakness is either perceived or identified, the Directors will engage an independent third-party to carry out additional tests.
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A meeting to conduct a performance evaluation of the Chairman with the Non-executive Directors under the leadership of the SID took place in the financial year ended 30 September 2011.
Appointments and resignations John Goddard and David Wilson were appointed to the Board as Non-executive Directors on 1 June 2011. Patrick Paul resigned from the Board on 23 February 2011. Board Committees The Board appoints the members of the Audit, Remuneration and Nomination Committees, each of which has the responsibility to assist the Board in its oversight capacity. The Committees meet at regularly scheduled times throughout the year and at any other time that may be necessary to assist the Board in executing its responsibilities. Certain other individuals are invited to attend the Committee meetings when required and relevant to the proceedings. The written Terms of Reference setting out the duties and responsibilities of the Board and its Committees are reviewed and revised as may be necessary on an annual basis. Committee Terms of Reference are available from the Company Secretary or on the Company’s website at www.optos.com.
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Board Committees continued Audit Committee The Audit Committee has responsibility for planning and reviewing the Company’s interim and preliminary reports and accounts and in engaging the Company’s auditors in that process. The ultimate responsibility for reviewing and approving the Company’s Interim and preliminary reports and accounts remains with the Board on the recommendation from the Committee. The Audit Committee is chaired by Barry Rose and its other members during the year included Dr Peter Fellner, John Goddard (from 7 September 2011), Patrick Paul (through 23 February 2011), and Rosalyn Wilton. The Company Secretary serves as secretary to the Audit Committee. John Goddard, Barry Rose and Rosalyn Wilton are independent within the meaning of the Code. Patrick Paul was not independent within the meaning of the Code. The Code states that the test of independence is inappropriate to the Chairman of the Board. The Code provides for the Chairman of a listed company below the FTSE 350 to be a member of, but not chair, the Audit Committee provided that he or she was independent upon appointment. Peter Fellner was independent within the meaning of the Code on his appointment. The Board considered all members of the Audit Committee throughout the year ended 30 September 2011 to be independent in character and judgement and in possession of the relevant business experience and requisite financial expertise. The main activities of the Audit Committee during the financial year ended 30 September 2011 included: completing the review of the Company’s financial results for the year ended 30 September 2010 and reviewing the interim and full-year results for the year ended 30 September 2011 and for receiving the reports of the external auditors on those results; considering the audit work carried out by the external auditors and any significant judgemental and reporting issues identified
in the auditors’ reports; reviewing and discussing the risk register that is prepared and monitored by the Operating Board, which consists of the Company’s senior management, that set out the likelihood and potential impact of the significant risks faced by the Company; reviewing the Group’s controls; reviewing and agreeing the need for an internal audit function; confirming the adequacy of the Company’s whistle-blowing policy; and undertaking a specific review of the Company’s sales contracts procedures and reviewing the collection of revenue. In accordance with the Code, the Company maintains a policy on the engagement of the external auditors with respect to the performance of non-audit related work. The policy also provides that any non-audit work involving a single expenditure of more than $0.2m must be assigned to tender. The amount paid for non-audit work during the year is set out in Note 5 to the Financial Statements on page 75. Remuneration Committee A description of the role, composition and responsibilities of the Remuneration Committee can be found on page 43 in the Directors’ Remuneration Report. Nomination Committee The Nomination Committee has responsibility to assist the Board with succession planning and with the selection process for the appointment of a new Director or Chairman. The Nomination Committee is chaired by the Chairman of the Board and comprises all Non-executive Directors. The Chairman of the Board serves as Secretary to the Committee. Save for Patrick Paul, who resigned as a Non-executive Director on 23 February 2011, all members of the Committee are independent within the meaning of the Code. The Code states that the test of independence is inappropriate to the Chairman of the Board. Peter Fellner fulfilled the independence criteria at the time of his appointment.
The principal responsibilities of the Nomination Committee are as follows: evaluate the balance of skills, knowledge and experience on the Board and, following this evaluation, prepare a description of the role and requisite capabilities required for a particular appointment; assess the time commitment expected on the part of the Chairman of the Company and to require Non-executive Directors to undertake that they will have sufficient time to meet their commitments to the Company; oversee the search process for suitably qualified Non-executive Directors as and when required, using outside advisers as the Nomination Committee may determine as appropriate; and arrange for all members of the Nomination Committee to meet the preferred candidate prior to making a formal recommendation to the Board. The main activities of the Nomination Committee during the financial year ended 30 September 2011 included the appointment of an external search firm culminating in the appointment of John Goddard and David Wilson to the Board as Non-executive Directors and considering the contribution and commitment of the Directors standing for re-election. The number of meetings held during the financial year ended 30 September 2011 and the attendance record at these meetings is set out on page 34. Communication with shareholders The Company believes in having an open and regular dialogue with shareholders to ensure that the goals, objectives and overall business strategy of the Company are communicated and understood. The Board supports the use of the Company’s Annual General Meeting (“AGM”) as a means for communicating with shareholders and encourages their participation. The CEO and CFO make twice yearly presentations following the Company’s interim and preliminary results announcements. Hosting site visits and investor information days provides the investment community and shareholders with the opportunity to improve their understanding of the Company and its strategy.
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Governance
Corporate governance continued
All Directors can be reached by contacting the Company Secretary at: Optos plc Queensferry House Carnegie Business Campus Enterprise Way Dunfermline, Scotland KY11 8GR Company information is available from www.optos.com
Communication with shareholders continued During the year the Company issued interim management statements and pre-close trading statements relating to performance for a specified period of time and disclosed relevant business news through the regulatory news service. In accordance with the DTRs, the Company notifies the market of its total voting rights and issued share capital at the beginning of every month covering the previous month. Health and safety There were no health and safety enforcement actions at any of the Company’s locations during the year ended 30 September 2011. The Company’s policy regards the health, safety and welfare of all employees as a matter of prime importance and serves as the basis for the Company owing a duty of care under law and as a matter of best practice to protect its employees and others from harm arising from work activities. The Company has a written policy on health and safety which comprises the following elements: statement of the Company’s commitment to health and safety and detailing how safety will be managed; details of where responsibilities are allocated and how employees fit into the overall safety management system; and details of how specific activities and functions are managed. The last element includes risk assessments, fire safety, first aid, incident and accident reporting, electrical safety, work equipment, hazardous substances and manual handling. Information, instruction and training on health and safety are provided across the Company. The Company’s global web-based system procured for Quality Management System applications has, over the last year, been expanded to also accommodate the Company’s health and safety policies and procedures. This system allows instant access to the Company’s internal policies and procedures by any employee of the Company. It is the Company’s intention to continue to expand the use of this global web-based system in other areas of health and safety applications.
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The Company is compliant with medical device directive (2007/47/EC) with respect to ISO 13485 and CE marking of its products. This is with particular reference to the requirement relating to risks associated with substances leaking from medical devices. The Company has declared that none of its devices contain di(2-ethylhexyl) phthalate (“DEHP”) at levels equal to or greater than 0.1% by mass and that no raw materials containing or derived from bisphenol A (“BPA”) are in contact with the patient. The Board has acknowledged and accepted its responsibility for health and safety across the Group. The CEO has overall responsibility for ensuring that line management is responsible for the day-to-day management of health and safety. The Board receives monthly updates and on a quarterly basis a detailed report on health and safety, which enables the Directors to closely assess safety and review the effectiveness of the health and policy throughout the financial year. Environment There was no environmental enforcement action at any of the Company’s locations during the financial year ended 30 September 2011. The Company makes available to its customers medical retinal imaging devices that are designed to ensure at a very minimum that they comply with applicable laws, regulations and industry standards in each of the country markets in which it operates. These devices, by design, have a minimal impact on the environment. The Company engages in the continuous development of a range of packing materials that are suitable for multi-trip use. The Company is further rationalising and minimising the number of material movements both internally and externally by developing the US Distribution Service Centre as a manufacturing hub in addition to its repair capabilities. This is part of a six sigma lean strategy which is expected to deliver several benefits, including a positive environmental impact. This strategy will necessarily involve the supply chain.
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Environment continued Additionally, the Company’s newest desk-top retinal imaging device uses less packaging, less power and has simpler installation requirements, which together results in a greener environmental outcome. The Company undertakes to recycle its paper, plastics, metal and personal computers and mobile telephones. Medical devices are no longer excluded from the RoSH directive as from 2014. The redesign of certain electronics to be “lead free” is well underway with suppliers validating these new processes. Under an approved producer compliance scheme, the Company is meeting the Waste Electrical Electronic Equipment (“WEEE”) Regulations. Equal opportunities The Company is an equal opportunities employer. This means that it is Company policy that no individual or group of individuals experiences discrimination, harassment or victimisation on any grounds. The Company upholds a policy of providing equal opportunities to all persons. This underpins and guides all aspects of employment, including recruitment and promotion, and provides encouragement to employees at all levels to act fairly and to prevent discrimination on any ground, including, but not limited to, age, sex, race, marital status, sexual orientation, religion or disability. Company policies for recruitment, training, career development and promotion of employees are open, fair and inclusive in their approach. The Company recognises the need to develop and regularly review employment policies and procedures to ensure that recruitment, training and development, promotion and compensation decisions are made on the basis of competency, performance, ability and potential. The Company seeks to facilitate a culture that enables employees to successfully balance professional and personal requirements and commitments. We believe that this helps recruit and retain skilled and motivated employees.
Corporate giving The Company believes that building and maintaining vibrant, healthy communities is a shared responsibility and is committed to doing its part. Employees are encouraged to engage with and make a difference in the communities where they live and work and the Company supported employees and partnered with customers and organisations in a number of worthy causes and initiatives to give back and make that important difference. Many employees contributed independently of the Company to support their colleagues in their charitable endeavours. The Company continues to maintain an informal giving programme that provides modest financial support to encourage the community spirit of its employees. It is about looking for opportunities to empower and collaborate with employees and the community through charitable work, not-for-profits, professional organisations, schools and others. It is also about being proactive to promote and address issues that matter to stakeholders. The Company does not make donations to political parties or bodies. Going concern The Directors, having reviewed the Group’s budget for the next financial year and other longer-term plans, are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore it is appropriate to continue to adopt the going concern basis in preparing the accounts. BY ORDER OF THE BOARD
John McNeil Company Secretary 21 November 2011
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Governance
Directors’ report
The Directors present their report and the audited Financial Statements for the year ended 30 September 2011 This Directors’ Report contains certain statutory, regulatory and other information and incorporates, by reference, the Chairman’s Statement and Operational, Financial and Risk reviews included earlier in this document.
Our Corporate Governance report Pages 32–37
Principal activities Optos plc is a leading retinal imaging company. The Company’s medical devices produce ultra-widefield, high resolution digital images of approximately 82% of the retina in a single capture. The images provide enhanced clinical information for ophthalmic professionals, facilitating the early detection, management and treatment of both eye and non-eye disorders and diseases that may first exhibit in the retina. The Company is expanding its product range through the development or acquisition of additional devices and software to further assist ophthalmic professionals in their provision of care to patients. Business review The Directors’ Report should be read in conjunction with the Chairman’s Statement on pages 06 and 07 and the Business Review on pages 10 to 27 (which are incorporated into this report by reference). These contain details of the principal activities of the Company, a review of the business during the year and an indication of expected progress, disclosure of the Key Performance Indicators (“KPIs”) for the Company, disclosure of the principal risks and uncertainties affecting the business and disclosure of the Company’s financial risk management policy. In addition to this, Note 27 of the Financial Statements also contains disclosure relating to the Company’s principal financial instruments. Financial results The profit after taxation for the year ended 30 September 2011 was $22.8m compared to $14m for the financial year ended 30 September 2010. Basic earnings per share was 32.1c compared to 20.0c per share for the financial year ended 30 September 2010. Dividend No dividend is payable.
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Share capital and structure The Company has an authorised share capital £1,800,000 comprising 90,000,000 ordinary shares as at this date. Each ordinary share has a nominal value of £0.02 and each carries one vote. No share in the capital of the Company may be allotted at a discount and, save as permitted by the Companies Act 2006 (2006 Act), no share may be allotted except as paid up at least as to one-quarter of its nominal value and the whole of any premium on it. As at 1 October 2010 the Company had 70,557,475 ordinary shares in issue. An additional 706,451 ordinary shares were issued during the year ended 30 September 2011 to employees and former employees; also included were shares issued in connection with the acquisition of Opto Global Holdings Pty Limited. The Company therefore had 71,263,926 ordinary shares in issue as at 30 September 2011 representing 71,263,926 in total voting rights. Voting Subject to the Company’s Articles of Association (“AOA”) and the rights and restrictions thereof and of the 2006 Act, every shareholder present in person at a general meeting of the Company shall, on a show of hands, have one vote and on a poll, every shareholder present in person at a general meeting or by Proxy shall have one vote for every share of which they are the holder. No shareholder shall be entitled to vote in relation to shares held by them unless all monies presently payable by them in respect of those shares have been fully paid. Transfer of shares There is no restriction on the transfer of shares in the Company, other than as contained in the Company’s Articles of Association. The Board may, in its absolute discretion and without giving any reason, refuse to register the transfer of a
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Overview Business review Governance Financial statements
Transfer of shares continued certificated share which is: (i) not a fully paid share, provided that the refusal does not prevent dealings in shares of that class in the Company from taking place on an open and proper basis; (ii) in respect of more than one class of shares; or (iii) not lodged, duly stamped (if stampable), with the Company and (except where the shares are registered in the name of a recognised person as defined in the Articles and no certificate shall have been issued thereof) accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may require. In the case of a transfer of a certificated share by a recognised person, the lodging of a share certificate will only be necessary if and to the extent that a certificate has been issued in respect of the share in question. The Board may, in its absolute discretion and without giving any reason, refuse to register any allotment or transfer of shares which is in favour of a child, bankrupt person, or person of unsound mind or more than four joint allottees or transferees. Notified interest of shareholding As at 30 September 2011, the Company had been notified, in accordance with the Financial Services Authority Disclosure and Transparency Rules, of interests in the Company’s ordinary share Capital (see table right for details). The Company is not aware of any other significant direct or indirect holding of securities in the Company except for Directors’ holdings which are disclosed on page 48 of the Directors’ Remuneration Report. Voting rights Deadlines for exercising voting rights and appointing a proxy or proxies to vote on resolutions to be passed at the AGM on 21 February 2011 will be specified in the Notice of AGM. The voting rights of shareholders are restricted where a notice pursuant to Section 793 of the 2006 Act has been given in respect of shares held by such shareholder and the information required by such notice has not been given to the Company.
There are currently no limitations on the voting rights of shareholders of a given percentage or number of votes and the Company is not aware of any arrangement by which, with the Company’s co-operation, financial rights carried by ordinary shares and held by a person other than the holder of such ordinary shares. The Company is not aware of any agreement between holders of securities which may result in restrictions on the transfer of securities or on voting rights. Directors Details of the Directors are set out on pages 28 to 29. Details of appointments to, and resignations from, the Board during the financial year can be found on page 48 in the Directors’ Remuneration Report. Directors’ interests Details of the Directors’ interests are set out on page 48. Directors’ powers Subject to the provisions of the 2006 Act, the Company’s Articles and to any powers given by Special Resolution of the Company, the business of the Company shall be managed by the Board which may exercise all the powers of the Company whether relating to the management of the business or not. The Company’s Articles detail the specific authorities of the Directors. Copies of the Articles may be obtained from the Company Secretary.
Notified interest of shareholding As at 30 September 2011, the Company had been notified, in accordance with the Financial Services Authority Disclosure and Transparency Rules, of the following interests in the Company’s ordinary share capital: Shareholder
Number of % ordinary issued shares share capital
Amadeus Capital Partners Limited1 10,254,753 Aberforth Partners LLP 8,582,035 Threadneedle Asset Management Ltd 4,155,336 Aviva Investors Global Services Ltd (UK) 3,616,478 ATP Investment Management 3,539,439 Royal London Asset Management 2,499,955
1 The Company disclosed on 8 November 2011 that it had received notification from Amadeus Capital Partners Limited that it had reduced its shareholding in the Company by 3,000,000 shares to 7,254,753, representing 10.18% of the Company’s issued share capital.
Details of the Directors’ interests Page 48
Allotment and issue of shares The Directors are, by shareholder resolution passed at the AGM of the Company on 23 February 2011, generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities up to a maximum nominal amount of £472,990.22, being equal to approximately 33.3% of the Company’s issued share capital as at 18 January 2011.
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14.39 12.04 5.83 5.08 4.97 3.51
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Governance
Directors’ report continued Allotment and issue of shares continued The Directors are also generally empowered to allot equity securities within the meaning of the 2006 Act of the Company for cash on a non pre-emptive basis. This power is limited to: (i) any allotment where equity securities have been offered to holders of equity securities in proportion (as nearly as may be) to their then holdings of such securities; and (ii) any other allotment of equity securities up to an aggregate nominal value of £71,019.55, being equal to approximately 5% of the Company’s issued share capital as at 18 January 2011. Such authorities and powers expire at the Company’s AGM being held on 21 February 2012, unless previously revoked, varied or renewed. It is proposed that these authorities and powers be renewed by shareholder resolution at the Company’s forthcoming AGM pursuant to and within the meaning of the 2006 Act, but without prejudice to the exercise of any such authority prior to the date of the resolution. Redeemable shares and purchase of own shares Subject to the Companies Act 2006, and without prejudice to any rights attaching to any existing shares or class of shares, in such manner as is provided in the Articles, shares may be issued that are to be redeemed or which at the option of the Company or the holder are liable to be redeemed. Subject to the relevant legislation and without prejudice to any relevant special rights attached to any class of shares, the Company may purchase any of its own shares of any class in any way and at any price (whether at par or above or below par). The Company is, by shareholder resolution passed at the Company’s AGM on 23 February 2011, generally and unconditionally authorised to make market purchases of any of its ordinary shares on such terms and in such manner as the Directors of the Company may from time to time determine provided that: (i) the maximum
40
number of ordinary shares authorised to be purchased is up to but not exceeding 10% of the Company’s issued share capital; (ii) the minimum price which may be paid for any such ordinary share is £0.02, exclusive of the expenses of purchase (if any) payable by the Company; (iii) the maximum price, exclusive of the expenses of purchase (if any) payable by the Company, which may be paid for any such ordinary share is an amount equal to 105% of the average of the mid market closing quotations for an ordinary share as derived from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day of purchase. It is proposed that this authority and power be renewed by shareholder resolution at the Company’s forthcoming AGM being held on 21 February 2012 pursuant to and within the meaning of the 2006 Act, but without prejudice to the exercise of any such authority prior to the date of the resolution. Appointment of Directors Directors may be appointed by the Company by an Ordinary Resolution of shareholders. The Board may appoint a Director either to fill a vacancy or as an additional Director and in either case whether or not for a fixed term. Any Director so appointed will hold office only until the next following general meeting and will not be taken into account in determining the Directors who are to retire by rotation at such meeting and shall then be eligible for reappointment. If not reappointed at such meeting, such a Director will vacate office at its conclusion. If any such person is not appointed at such meeting, he or she shall retain office until the meeting appoints someone in his or her place or, if he or she does not do so, until the end of the meeting. A Director is not required to hold shares in the capital of the Company. Directors are provided with documentation on the Company and its activities. An appropriate induction is provided for new Directors and ongoing training is provided as and when may be required.
Retirement of Directors Each director who has been appointed following the last AGM and any director who was not appointed or re-appointed at one of the preceding two AGMs must retire from office and are eligible for re-appointment. Disabled employees Equal opportunity guides all aspects of employment, including recruitment and promotion, and provides encouragement to employees at all levels to act fairly and to prevent discrimination on any ground, including disability. Additional information on the Company’s employment policy can be found on page 37. Employee involvement The Company operates a framework for employee information and consultation and during the year provided employees with information, including information relating to the economic and financial factors affecting the Company, including through presentations from the CEO, a Company-wide newsletter, in which employees are encouraged to present suggestions and views, and through regular inter-departmental and management meetings, all of which are designed to allow for and encourage a free and cross-functional flow of information and ideas. Employees participate directly in the success of the Company through an individual and performance related bonus scheme and through a share award and option scheme.
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Overview Business review Governance Financial statements
Significant agreements There are no agreements which the Company considers significant and to which the Company is a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid. Indemnification The Articles of the Company allow the Directors to be indemnified against all liabilities incurred in the proper conduct of the Company’s business. Research and Development The Company continues to invest in Research and Development, details of which are set out in the Business Review on page 09. Material contracts None of the Directors had any material interest in any material contract with the Company or its subsidiary companies. Creditor payment policy The Company’s policy for all suppliers is to fix the term of payment when agreeing the terms of the credit account, to ensure that the supplier is aware of the terms and to abide by the terms of payment. Trade payables are typically paid twice monthly with terms equivalent to an average of 35 days. Charitable contributions The Company made a small number of charitable donations during the year, principally to local projects and initiatives, in small amounts.
Political donations The Company made no political donations. Financial instruments The Company’s financial risk management objectives and policies are discussed in Note 27 to the Financial Statements on page 98 to 102. Annual General Meeting The AGM will be held on 21 February 2012, for which a Notice will be sent to shareholders, together with a Form of Proxy, separately containing the resolutions being proposed and an accompanying explanatory description of each resolution. Auditors A resolution to reappoint Ernst & Young LLP as auditors will be submitted to shareholders at the AGM on 21 February 2012. 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 34 and, having made enquiries of fellow Directors and of the Company’s auditors, each of these Directors confirms that to the best of their knowledge and belief, there is no information (that is, information needed by the Company’s auditors in connection with preparing their report) of which the Company’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 Company’s auditors are aware of that information.
Post-balance sheet events On 22 September 2011, the Company announced that it had entered into a conditional agreement with OPKO Health Inc., OPKO Instrumentation LLC, Ophthalmic Technologies Inc. and OTI (UK) Limited to acquire the assets and business of the instrumentation division of OPKO Health Inc., subject to the terms and conditions contained in the Acquisition Agreement as defined in the Circular of the Company dated 22 September 2011 and shareholder approval at a General Meeting being held on 10 October 2011. On 10 October 2011, the Company announced that the Resolution set out in the Company’s Notice of General Meeting issued on 22 September 2011 detailing the proposed acquisition was passed by shareholders and that subject to all remaining conditions being satisfied that the completion of the acquisition was expected to take place on or around 11 October 2011. On 11 October 2011, the Company announced that all outstanding conditions had been satisfied and that the acquisition had been completed and that the initial cash consideration of US$17.5m had been paid. BY ORDER OF THE BOARD
John McNeil Company Secretary
Optos plc Registered Number
21 November 2011
SC139953
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Governance
Directors’ responsibilities
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group, enabling them to ensure that the Financial Statements comply with the 2006 Act and Article 4 of the IAS Regulation.
The information presented in this Annual Report and Accounts (“ARA”) has been prepared in accordance with the 2006 Act, the United Kingdom Listing Authority (“UKLA”) Listing Rules, the Disclosure and Transparency Rules (“DTRs”) and the Financial Reporting Council (“FRC”) the UK Corporate Governance Code (the “Code”) (June 2010). The Directors are responsible for preparing the ARA and the Group and Company (together “the Group”) Financial Statements in accordance with applicable UK law and those International Financial Reporting Standards (“IFRS”) as adopted by the European Union. Under company law the Directors must not approve the Group Financial Statements unless they are satisfied that they present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those Financial Statements, the Directors are required to: select suitable accounting policies in accordance with IAS 8 “Accounting Policies: Change 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 IFRS 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 has complied with IFRSs, subject to any material departures disclosed and explained in the Financial Statements; and make judgements and accounting estimates that are reasonable and prudent.
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The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group, enabling them to ensure that the Financial Statements comply with the 2006 Act and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Responsibility statement The Directors together confirm that to the best of their knowledge the Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole and that the Directors’ Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. BY ORDER OF THE BOARD
John McNeil Company Secretary 21 November 2011
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Overview
Directors’ remuneration report
Business review Governance Financial statements
This Directors’ Remuneration Report (the “Report”) has been prepared in accordance with Schedule 8 of the Accounting Regulations under the Companies Act 2006 (“2006 Act”), the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 Schedule 8, Paragraph 4, the UK Corporate Governance Code (June 2010) (the “Code”) and the relevant requirements of the Listing Rules of the Financial Services Authority. As required by the 2006 Act, a resolution to approve the Report will be proposed at the Annual General Meeting (“AGM”) of the Company being held on 21 February 2012. The vote on this resolution is, however, advisory and no aspect of an individual Director’s remuneration is conditional on the vote being passed. The 2006 Act further requires the auditors to report to the Company’s Members on certain parts of the Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the 2006 Act. Certain items in the Report are required to be audited and are identified as such against the relevant heading. The role, composition and responsibilities of the Remuneration Committee (the “Committee”) The Committee has responsibility for the Group’s overall remuneration philosophy, policies and procedures, which are determined with due regard to the interests of shareholders and the Company. The Company has specific responsibility for the policy of the remuneration of the Executive Directors, Company Secretary and the Operating Board (“OB”), which consists of the Company’s senior management. The Remuneration Committee extends consideration to several components in respect of the remuneration of the Executive Directors, Company Secretary and the OB, which together comprise the total remuneration package. The Remuneration Committee is chaired by Rosalyn S Wilton and its other members during the financial year ended 30 September 2011
included Dr Peter J Fellner, Dr Peter H Kehoe (from 22 March 2011), Barry M Rose and David I Wilson (from 7 September 2011). The Company Secretary serves as secretary to the Committee. All members of the Committee are considered independent within the meaning of the Code. The Code states that the test of independence is inappropriate to the Chairman of the Board of Directors. Peter J Fellner was independent within the meaning of the Code on his appointment. The Board considers that the Chairman of the Board should be a member of the Remuneration Committee as it is essential that the Chairman be involved in the decision-making process relative to the remuneration of the Executive Directors. The principal responsibilities of the Remuneration Committee are as follows: determine the remuneration policy for the Group; determine the policy and specific remuneration for the Executive Directors including, where applicable, their service contracts; determine whether the Executive Directors, Company Secretary and members of the Operating Board (“OB”), which comprises the Company’s senior management, should be eligible to receive annual bonuses and any benefits under the Deferred Bonus Plan (“DBP”), Performance Share Plan (“PSP”) or Share Option Plan (“SOP”); determine the performance conditions to be attached to annual bonus payments and any benefits awarded under the DBP, PSP or SOP; determine pensionable remuneration; and determine and recommend to the Board the remuneration of the Chairman. Fees paid to Non-executive Directors are determined and approved by the Board. The remuneration of Non-executive Directors is determined by the Board as a whole. The members of the Remuneration Committee have no personal financial interest, other than as shareholders, in the matters to be decided, no actual or potential conflicts of interest arising from other directorships and no day-to-day operational responsibility within the Company.
Compensation philosophy The Group’s compensation philosophy (the “philosophy”) serves as a high-level tool to help the Board and management align compensation related decisions back to strategy. The philosophy aims to: pay a market-competitive level of compensation; be sufficient to recruit, motivate and retain Executives of the calibre required; be structured such that an appropriate portion of the package links rewards to corporate and individual performance to drive a results-oriented culture; share financial success with all employees through incentive compensation programmes; ensure compensation achieves an appropriate balance between risk and reward; and be aligned to the enhancement of sustained shareholder value. In setting the remuneration of the Executive Directors and senior management, the Committee takes into account the economic environment and financial performance of the Group, together with the pay and employment conditions of employees elsewhere in the Group. Executive Directors’ remuneration During the financial year ended 30 September 2011, the Remuneration Committee consulted with Deloitte LLP on structuring and benchmarking the Executive Directors’ remuneration. Remuneration for the Executive Directors seeks to balance fixed remuneration and performance related awards, with the target of achieving stretch performance. With the adoption of a DBP on 23 February 2011, the remuneration split consists of four elements: fixed (base salary and benefits); short-term variable (annual bonus); deferred bonus and performance based matching awards; and long-term variable (share-based awards). Fixed comprises base salary and benefits in kind. Short-term variable is comprised of a non-deferred bonus amount. There is a mandatory minimum deferred amount. Long-term variable comprises of a matching award under the DBP and awards made under the PSP.
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Governance
Directors’ remuneration report continued Base salary and benefits Base salaries are based upon a combination of individual contribution and overall performance and in the light of competitive positioning as mentioned earlier. Base salaries are reviewed annually. When reviewing the salaries of the Executive Directors, the Committee also has regard to the impact of the cost of pension provision and pay and conditions elsewhere in the Group. In particular, the Committee takes account of the level of salary increases awarded to other employees in the Group when deciding on increases for the Executive Directors. Benefits in kind include private health insurance, life insurance and a contribution of 10% of gross basic annual salary to a defined contribution pension scheme. The Committee has approved an increase in annual base salary of 5% to £320,250 for Roy Davis for the financial year beginning 1 October 2011. The Committee resolved that the annual base salary of the CFO would increase by 2.5% to £205,000 for the financial year beginning 1 October 2011. The Committee determined that the increases for both the CEO and CFO reflect the scope and responsibilities associated with the roles. The increases are within the range of base salary increases for employees in the wider Group. The Committee determined that the annual base salaries for the CEO and CFO are positioned within the market competitive range compared to companies of a similar size and complexity.
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Annual bonus The Company operates an annual bonus plan that is intended to place the total cash earnings of Executives at the median for the market upon the achievement of stretching performance objectives. The factors to be measured for bonus purposes and the corresponding levels of bonus are pre-determined at the beginning of each financial year in the light of the Company’s strategy. Achievement of stretch targets provided for a bonus opportunity equivalent to a maximum 100% of basic annual salary. The annual bonus provides a direct link between annual business performance and reward. The Committee considered and assessed the financial performance of the Company for the year ended 30 September 2011 and resolved to award a bonus to both the CEO and CFO equivalent to 77.75% of their respective base salaries. The bonus award for the year was based on the Group achieving certain financial targets relating to revenue, operating profit and operating cash flow, adjusted to reflect exceptional items and to regularise the impact of accounting treatments for customer rental agreements.
With the implementation of the DBP, there is a 25% mandatory deferral of the bonus amount payable to the Executive Directors. For the financial year ending 30 September 2012, the Executive Directors will have a maximum bonus opportunity equivalent to 100% of basic annual salary dependent upon the achievement of stretching financial performance targets. The Committee has resolved to employ metrics similar to those used in FY11 and has established a minimum, base and stretch targets relative to revenue, operating profit and operating cash flow. Deferred Bonus Plan (“DBP”) and performance based matching awards The DBP was approved by shareholders at the Company’s Annual General Meeting held on 23 February 2011. This plan is designed to encourage share ownership and to further support the delivery of the Group’s business strategy and commitment to generating long-term value for shareholders. For Executive Directors, the DBP provides for the deferral of up to a maximum 50% of annual bonus for three years,
Measure % of bonus
Target range (minimum-maximum)
Revenue Adjusted operating profit Adjusted operating cash flow
$117m–$133m 30.00 $19m–$24.4m 47.75 $42m–$50m Nil
30 50 20
% of bonus achieved
100
77.75
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Overview Business review Governance Financial statements
Deferred Bonus Plan (“DBP”) and performance based matching awards continued to be held in the form of shares in the Company and with an opportunity to earn a matching awards of shares, up to a maximum ratio of 1:1, subject to the achievement of a further performance condition. There will be a mandatory 25% deferral of the annual bonus being paid to the Executive Directors for the year ended 30 September 2011. This deferral will be into shares in the Company which must be held for three years. A further 25% of the annual bonus may be voluntarily deferred. In order to encourage share ownership for the Operating Board, which comprises the Company’s most senior management team, these Executives may be invited to defer up to 30% of their annual bonus into shares for a three-year period. Any bonus deferred on a mandatory basis will be subject to a claw-back provision such that, at the discretion of the Committee, the deferred shares may be forfeited should it subsequently be confirmed that the original results on which the bonus was calculated contained a material misstatement of the Group’s financial results. In order to more closely align remuneration with the longer-term success of the Company and growth in shareholder value, participants will be granted an opportunity to earn a matching award of shares. Matching shares will vest at the end of the three-year deferral period. For the initial grant under the DBP, matching awards will vest subject to a performance target based on relative Total Shareholder Return (“TSR”), compared to the FTSE Small Cap Index (exclusive of investment trusts). The Committee had determined that relative TSR is an appropriate performance condition in order to measure
performance by reference to the external market, therefore strengthening the alignment of executive interests with those of shareholders. Relative TSR against FTSE Small Cap Index Matching share (exclusive of investment trusts) award ratio
Below median — Median 0.3:1 Upper quartile 1:1 Awards will vest on a pro rata basis between 30% and 100% for performance between median and upper quartile and will be subject to the participant continuing to be employed by the Group at the end of the three-year deferral period. Other share-based awards The Company operates two long-term incentive plans offering share-based awards, the PSP and the SOP. Both plans are supervised by the Committee. Executive Directors are eligible to participate in both the PSP and SOP. No awards were made to the Executive Directors under the SOP for the financial year ended 30 September 2011. Both Executive Directors received awards under the PSP for the same period, as detailed below. A minor change to the operation of the PSP is proposed for 2010-11 to enable participants to benefit from UK tax efficiencies under the HM Revenue & Customs approved share schemes legislation. Awards made in 2010-11 will therefore be structured as Approved Performance Share Plan (“APSP”) Awards and comprise an HM Revenue & Customs approved option (in respect of the first £30,000 worth of an award) and a PSP award for amounts that exceed this limit. The number of shares that may be delivered under the PSP award will be adjusted at vesting/exercise to ensure that the total pre-tax value delivered to participants remains unchanged. The Company does not intend to make awards under both the PSP and SOP in the same grant period.
Performance Share Plan (“PSP”) Any Group employee, including the Executive Directors, is eligible to participate in the PSP, upon invitation and at the discretion of the Committee. An employee may not normally receive Awards in a financial year over shares having a market value in excess of 100% of his or her annual base salary in that financial year. Awards will normally vest on the third anniversary of the date of grant, to the extent that any performance conditions that may be attached to the award have been satisfied and provided that the participant is employed by the Company at the date of vesting. Awards granted under the PSP are always subject to performance conditions. The Committee may grant awards under the PSP as conditional shares, a nil (or nominal) cost option with a short exercise period or as forfeitable shares. The Committee may also decide to grant cash-based awards of an equivalent value to share-based awards or to satisfy share-based awards in cash. Details of awards and associated performance conditions are detailed below: Financial year ended 30 September 2009 Roy Davis received an award of 490,000 on 10 March 2009. The market price on the date of grant was £0.4125. The award shall vest and be exercisable on 9 March 2012 to the extent that the following EPS targets are met. Performance measure
Fully diluted EPS
% award vesting 0%
<$0.0745
0%–100%
100%
$0.0745–$0.133
>$0.133
The number of shares which vest upon achieving a result between the minimum and maximum targets for each measure will be determined on a straight-line basis. The Committee, having confirmed that the performance conditions have been satisfied, determined that 100% of the above-noted award shall vest on 9 March 2012.
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Governance
Directors’ remuneration report continued Performance Share Plan continued Financial year ended 30 September 2010 Roy Davis and Christine Soden respectively received an award of 250,000 and 150,000 on 15 December 2009. The market price on this date of grant was £0.9275. Christine Soden received an award of 40,000 on 20 May 2010. The market price on this date of grant was £1.30. 50% of the awards are subject to meeting a cumulative EPS target and 50% is subject to meeting a cumulative cash flow target for the three-year financial period ending 30 September 2012. To ensure that the performance criteria used to measure the awards is assessed on a fair and consistent basis between accounting periods, the Committee has determined that adjusted EPS will be defined as attributable profit before tax (adjusted to account for customer leases as operating rather than finance leases and exclude amortisation/ impairment of acquired intangibles or goodwill, any notional interest on deferred consideration and any other acquisition-related costs or credits). Adjusted cash flow will be defined as net cash flow from operations less amounts invested in building new medical devices plus receipts from finance lease receivables and excluding any notional interest on deferred consideration and any other acquisition-related costs or credits.
Financial year ended 30 September 2011 Roy Davis received an award of 290,476 and Christine Soden received an award of 190,476 on 24 November 2010. The market price on the date of grant was £1.2350. 100% of the awards is subject to meeting cumulative operating cash flow figures for the three-year financial period ending 30 September 2013. To ensure that the performance criteria used to measure the awards is assessed on a fair and consistent basis between accounting periods, the Committee has determined that adjusted cash flow will be defined as net cash flow from operations less amounts invested in building new medical devices plus receipts from finance lease receivables and excluding any notional interest on deferred consideration and any other acquisition-related costs or credits. The awards shall vest and be exercisable on 23 November 2013 to the extent that the cumulative operating cash flow for the three financial years ending 30 September 2013 reaches a specified figure, as set out above. The number of shares that shall vest upon achieving cumulative adjusted operating cash flow between $74.0m–$111.0m will be determined on a straight-line basis.
The awards shall vest and be exercisable respectively on 14 December 2012 and 19 May 2013 to the extent that the following performance conditions are met.
Performance measure
Cumulative adjusted cash flow from operations
% award vesting 0% 25% 50% 100%
<$74.0m
$74.0m
$92.6m
$111.0m
In addition, the ultimate vesting of awards is subject to the Company delivering a level of EPS in each of the financial years that the Committee determines to be satisfactory, taking into account expectations for the performance of the Company known at the time when the Award was granted. Financial year ending 30 September 2012 Roy Davis received an award of 156,220 and Christine Soden received an award of 60,000 on 22 November 2011. 50% of the awards is subject to meeting cumulative EPS and cash flow targets for the three financial years ending 30 September 2014. EPS is defined as attributable profit before tax (adjusted to account for customer leases as operating rather than finance leases and to exclude amortisation/impairment of acquired intangibles or goodwill, any notional interest on deferred consideration and any other acquisition-related costs or credits). Adjusted cash flow from operations will be defined as net cash flow from operations plus receipts from finance lease receivables and excluding any notional interest on deferred consideration and any other acquisition-related costs or credits.
% award vesting
Performance measure
Adjusted EPS Cumulative adjusted cash flow from operations
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The number of shares which vest upon achieving a result between the minimum and maximum targets for each measure will be determined on a straight-line basis.
0%
0%–100%
100%
<$0.40
$0.48
>$0.57
<$62.6m
$78.2m
>$93.8m
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Overview Business review Governance Financial statements
Performance Share Plan continued Financial year ending 30 September 2012 continued The awards shall vest and be exercisable on 21 November 2014 to the extent that the cumulative operating cash flow for the three financial years ending 30 September 2014 reaches a specified figure, as set out below. The number of shares which vest upon achieving a result between the minimum and maximum targets for each measure will be determined on a straight-line basis.
The SOP comprises two parts: a plan approved by HM Revenue & Customs that provides for the Award of UK tax qualified options and an unapproved plan. This structure enables the Company to utilise certain UK tax benefits and retain the flexibility to provide, where necessary, options in excess of the limits imposed by UK tax legislation. It is also intended that the SOP will be able to provide US based employees with incentive stock options (“ISO”) so as to achieve certain tax efficiencies in the United States.
% award vesting
Performance measure
25%
100%
Adjusted EPS
$0.90
$1.20
Cumulative adjusted cash flow from operations
$75m
$100m
Other share incentive schemes The Company has operated discretionary share option arrangements and other vesting arrangements which were put in place prior to the Company’s admission to the London Stock Exchange in 2006. Some of these arrangements were subject to performance conditions as summarised in Note 25 to the Financial Statements.
An employee may not normally receive options under the SOP in any financial year over shares having a market value in excess of 50% of annual base salary in that financial year. The Committee, when granting options, will set the time or times at which options will become exercisable as well as any performance conditions to which the options are subject.
Share Option Plan (“SOP”) Any Group employee is eligible to participate in the SOP at the discretion of the Committee. Executive Directors and employees who participate in the PSP will not participate in the SOP at any same granting period. Awards may not be granted under the SOP more than ten years after shareholder approval of the SOP was obtained.
The Committee normally intends that options under the SOP where the underlying shares have a market value at grant of less than £10,000 will not be subject to performance targets, however, the Committee retains the discretion to request performance conditions be attached to awards under the plan. Awards not subject to performance conditions will normally vest on the third anniversary of grant.
This vesting schedule may be altered to reflect stock market conditions and practice in different jurisdictions. Options where the underlying shares have a market value in excess of £10,000, or in the discretion of the Committee such Awards with a market value of less than £10,000 on the date of grant will be subject to performance conditions which will normally based on the same targets as those applying to Awards made under the PSP in the same financial year. Save-As-You-Earn (“SAYE”) The Company has a shareholder approved SAYE scheme in place for UK-based employees. The first date of grant was 24 December 2010, with a contract saving start date of 1 February 2011. It is a three year subscription. The Committee resolved that the option price for this grant was £1.03, which represented the maximum allowable 20% discount under the plan rules. Eligible employees will have the opportunity to participate in this scheme in the financial year ending 30 September 2012. The Committee once again resolved to offer participants the maximum allowable discount. Employee Stock Purchase Plan (“ESPP”) The Committee resolved at its meeting held on 7 September 2011 to seek shareholder approval to implement an ESPP for US-based employees at the Company’s Annual General Meeting to be held on 21 February 2012. This incentive scheme mirrors the type and efficiencies of the SAYE scheme currently in place in the UK. Details of the proposed ESPP will be available in the Notice of Annual General Meeting.
Optos plc Annual report and accounts 2011
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Governance
Directors’ remuneration continued Service agreements The Company has entered into service agreements with its Executive Directors, none of which are for a fixed term. It is the Committee’s policy to offer service agreements for an indefinite term subject to termination, normally on a maximum of six months’ notice or an equivalent severance payment. The Company has the right, in its absolute discretion, to terminate the service agreements at any time by making a payment in lieu of the notice period comprising basic salary, bonuses (based upon the bonus paid during the previous financial year), benefits and pension contributions. There are no other provisions for early termination of the service agreements. The Company entered into a service agreement with Roy Davis dated 17 November 2008 which provided that he received a basic annual salary of £275,000 (which is reviewed annually), a contribution of 10% of basic salary into a pension scheme of his choice and eligibility for a non-pensionable annual bonus target of up to 60% of his basic annualised salary, which can rise to a maximum potential bonus of 100% value of the annualised salary dependent upon certain performance related stretch conditions being met. The agreement and hence Roy Davis’ employment may be terminated by either party by giving not less than six months’ written notice and in the event of a change in control of the Company, he is entitled to receive a further six months’ notice from the Company. Roy Davis’ service agreement provides that, immediately preceding a change in control, all then-outstanding but unvested portions of the equity compensation in the form of awards for ordinary shares shall immediately become fully vested, subject to achievement of the targets set out in the service agreement and, at all times, the discretion of the Committee. The Company entered into a service agreement with Christine Soden dated 1 December 2009 which provided that she receive a basic annual salary of £200,000 (which is reviewed annually), a contribution of 10% of basic salary into a
48
pension scheme of her choice and eligibility for a non-pensionable annual bonus target of up to 50% of her basic annualised salary, which can rise to a maximum potential bonus of 100% value of the annualised salary dependent upon certain performance related stretch conditions being met. The agreement and hence Christine Soden’s employment may be terminated by either party by giving not less than six months’ written notice and, in the event of a change in control of the Company, she is entitled to receive a further six months’ notice from the Company. Christine Soden’s service agreement provides that immediately preceding a change in control, all then-outstanding but unvested portions of the equity compensation in the form of awards for ordinary shares shall immediately become fully vested, subject to achievement of the targets set out in the service agreement and, at all times, the discretion of the Committee. Non-executive Directors The Company’s policy is to establish and maintain a body of Non-executive Directors with a breadth of skills and experience that is appropriate to the Company’s size and business. In this context, it is the Board’s policy for the Non-executive Directors to be paid a level of fee that reflects market conditions and is sufficient to attract individuals with appropriate knowledge and experience. The Board seeks to pay the market rate to reflect the time taken to carry out the role of a Non-executive Director. The Company has entered into a letter of appointment with each of its Non-executive Directors. Each letter of appointment is for a fixed three-year renewable term and includes a provision that either party may terminate the appointment at any time during the term of appointment by giving three months’ notice of termination. The appointment may also be terminated any time in accordance with the Articles of Association or as may be required under the law.
The dates of the letters of appointment and their respective expiration dates for the Non-executive Directors who served during the year ended 30 September 2010 are as follows: Date of letter Non-executive Director of appointment
Expiry date
Peter Fellner 01-01-2010 31-12-2012 Peter Kehoe 01-10-2010 30-09-2013 Barry Rose 27-01-2009 26-01-2012 Rosalyn Wilton 01-08-2010 31-07-2013 Appointed during year
John Goddard1 01-06-2011 31-05-2014 David Wilson2 01-06-2011 31-05-2014 Date of letter Resigned during year of appointment
Expiry date
Patrick Paul3 27-01-2009 26-01-2012 1 John Goddard was appointed to the Board as a Non-executive Director on 1 June 2011. 2 David Wilson was appointed to the Board as a Non-executive Director on 1 June 2011. 3 Patrick Paul resigned from the Board as a Non-executive Director on 23 February 2011.
30 September 2011
01 October 2010
Director
Ordinary Share Ordinary Share shares options shares options
Roy Davis Peter Fellner John Goddard Peter Kehoe Barry Rose Christine Soden David Wilson Rosalyn Wilton
25,000 1,030,476 25,000 740,000 — — — — — — — — — — — — 35,000 — 35,000 — 25,000 380,476 25,000 190,000 — — — — 12,500 — 12,500 —
Director (resigned during year ended 30 September 2010)
Patrick Paul1
5,112,410
—
— 5,112,410
1 4,732,867 shares are held in the name of Patrick Paul and 379,543 are held in the name of Chester Investments Limited of which Patrick Paul controls 100% of the issued share capital. Patrick Paul resigned from the Board as Non-executive Director on 23 February 2011.
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Overview Business review Governance Financial statements
Directors’ interests The beneficial and non-beneficial interests in the ordinary shares of the Company of each person who served as a Director during the financial year ended 30 September 2011 are shown on the previous page. The interests of the Directors to subscribe for or acquire ordinary shares have not changed since the financial year ended 30 September 2011.
Directors’ remuneration (audited) The remuneration in respect of qualifying services of each person who served as a Director during the financial year ended 30 September 2011 is shown below. No Director took part in discussions or decisions relating to his or her own remuneration. All amounts are audited and expressed in US dollars, which is the Company’s functional reporting currency. All Directors were paid in Sterling. The average exchange rate used during the year ended 30 September 2011 was $1.61 to £1.00 (2010: $1.56 to £1.00).
Year to Year to 30 September 30 September Year to Year to 2011 2010 30 September 30 September Pension Pension Directors Salary/fees Bonus Benefits 2011 2010 contribution contribution (at 30 September 2011) $’000 $’000 $’000 $’000 $’000 $’000 $’000 Executive Salary
Roy Davis 495 243 Christine Soden 322 176
— 738 665 49 43 1 499 400 32 26
Salary subtotal
1
Non-executive
817
419
1,237
1,065
81 69
Fees
Peter Fellner 137 — — 137 98 — — John Goddard1 19 — — 19 — — — Peter Kehoe 52 — — 52 — — — Barry Rose 78 — — 78 55 — — David Wilson2 19 — — 19 — — — Rosalyn Wilton 70 — — 70 52 — — Retirees Patrick Paul3 19 — — 19 44 — — Fee subtotal 394 — — 394 249 — — TOTALS 1,211 419 1 1,631 1,314
81 69
1 Represents fees paid to John Goddard from 1 June 2011 to 30 September 2011. 2 Represents fees paid to David Wilson from 1 June 2011 to 30 September 2011. 3 Represents fees paid to Patrick Paul from 1 October 2010 to 23 February 2011, the date on which Patrick Paul resigned from the Board as a Non-executive Director.
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Governance
Directors’ remuneration continued Non-executive Directors’ remuneration The Chairman received £85,000 as a basic annual fee. Non-executive Directors received a basic fee of £35,000 per annum. Committee Chairmen receive an additional fee supplement of £7,500 per annum and the Senior Independent Director receives an additional fee supplement of £5,000 to the basic annual fee. Under the Articles of Association, the remuneration of the Non-executive Directors is limited to an aggregate of £350,000 per annum (or such other amount as may from time to time be determined by an Ordinary Resolution of the Company). The aggregated amount of fees paid to Non-executive Directors during the year ended 30 September 2011 was $394,000 (£247,000) and for the year ended 30 September 2010 the amount was $326,000 (£207,750).
Share awards and options granted to directors (audited) Details of share awards and options for each person who served as a Director during the financial year ended 30 September 2011 are set out in the table below. Aggregate gains made by Directors on the exercise of share options amounted to $nil (2010: $nil). The market price of the Company’s shares as at 30 September 2011 was £1.4675. The highest market price during the financial year to 30 September 2011 was £207.75. The lowest market price during the financial year to 30 September 2011 was £0.9650.
Granted Exercised Lapsed Year during during during beginning year ended year ended year ended Year ended Earliest 1 October 30 September 30 September 30 September 30 September Exercise Date of date of Expiry Director 2010 2011 2011 2011 2011 price grant exercise date
Roy Davis 490,000 — — — 490,000 250,000 — — — 250,000 — 290,476 — — 290,476
£0.02 10-03-2009 10-03-2012 £0.02 15-12-2009 14-12-2012 £0.02 24-11-2010 23-11-2013
TOTAL 740,000 290,476 — — 1,030,476 — — — Christine Soden 150,000 — — — 150,000 40,000 — — — 40,000 — 190,476 — — 190,476
£0.02 15-12-2009 14-12-2012 £0.02 20-05-2010 19-05-2013 £0.02 24-11-2010 23-11-2013
TOTAL 190,000 190,476 — — 380,476 — — —
50
09-03-2019 14-12-2019 23-11-2020 — 14-12-2019 19-05-2019 23-11-2020 —
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Overview Business review Governance Financial statements
Performance graph The following graph shows the Company’s performance measured by the TSR, compared with the performance of the FTSE Small Cap and the FTSE All Share and Healthcare Equipment and Services (rebased) indices. The Board believes these comparisons are the most relevant.
BY ORDER OF THE BOARD
John McNeil Company Secretary 21 November 2011
Optos plc Annual report and accounts 2011
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Financial statements
Independent auditors’ report to the members of Optos plc
We have audited the Financial Statements of Optos plc for the year ended 30 September 2011 which comprise Consolidated Income Statement, the Group and Company Balance Sheets, the Consolidated Statement of Comprehensive Income, the Group and Company Statements of Changes in Equity, the Group and Company Cash Flow Statements and the related notes 1 to 28. 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 auditor’s 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 Directors’ Responsibilities Statement set out on page 42, 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 Accounts to identify material inconsistencies with the audited Financial Statements. 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: • t he Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 September 2011 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; • t he 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 • t he Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.
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Overview Business review Governance Financial statements
Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; • the information given in the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and • t he information given in the Corporate Governance Statement set out on pages 33 to 34 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures 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: Under the Companies Act 2006 we are required to report to you if, in our opinion: • a dequate 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 • t he Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited 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; or • a Corporate Governance Statement has not been prepared by the Company. Under the Listing Rules we are required to review: • the Directors’ statement, set out on page 37, in relation to going concern; • t he part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board on Directors’ remuneration.
Mark Harvey (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditors Glasgow 21 November 2011
Optos plc Annual report and accounts 2011
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Financial statements
Consolidated income statement for the year ended 30 September 2011
2011 2011 Before Exceptional exceptional items items (Note 4) Notes $m $m
Notes 2011 2010 $m $m
Revenue 5 Cost of sales
143.3 (51.9)
— 143.3 106.3 — (51.9) (35.4)
Gross profit Selling and distribution costs 5 Administrative and other expenses 5
91.4 (28.4) (37.9)
— — (0.7)
91.4 70.9 (28.4) (24.5) (38.6) (28.9)
Operating profit Finance revenue 6 Finance costs 6
25.1 0.9 (3.3)
(0.7) — —
24.4 17.5 0.9 0.2 (3.3) (5.0)
Profit from continuing operations before taxation 5 Income tax credit 8 Net profit for the year attributable to equity holders of the parent
22.7 0.5
(0.7) 0.3
22.0 12.7 0.8 1.3
23.2
(0.4)
22.8 14.0
Profit before taxation per ordinary share Basic Diluted
9 9
31.9c 31.7c
— —
31.0c 18.1c 30.7c 18.1c
Profit after taxation per ordinary share Basic Diluted
9 9
32.6c 32.4c
— —
32.1c 20.0c 31.8c 19.9c
Consolidated statement of comprehensive income for the year ended 30 September 2011
2011 $m
Profit for the year
22.8
Other comprehensive income: Exchange differences on foreign operations Deferred tax associated with share-based payment transactions
(0.2) 0.5
Other comprehensive income for the year after tax
14.0 0.4 —
0.3 0.4
Total comprehensive income for the year 23.1
54
2010 $m
14.4
Optos plc Annual report and accounts 2011
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Overview
Group and Company balance sheets
Business review Governance
as at 30 September 2011
Financial statements
Group Company 2011 Notes $m
Assets Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Finance lease receivables Deferred tax asset
10 11 12 13 8
2010 $m
2011 2010 $m $m
41.3 63.4 7.3 27.1 8.1 11.0 — — 15.7 19.2 5.3 1.6 10.0 11.0 6.8
8.1 8.0 1.4 0.2 5.5
Total non-current assets 97.6
87.8
42.4
23.2
Current assets Inventories Finance lease receivables Trade and other receivables Cash and cash equivalents
5.8 2.0 14.1 41.2
9.8 0.6 79.9 3.6
4.3 0.1 46.3 33.2
4 13 15 16
24.6 6.6 25.1 10.2
Total current assets 66.5
63.1
93.9
83.9
Total assets 164.1
150.9
136.3
107.1
Equity and liabilities Equity Issued capital Share premium Retained deficit Foreign exchange reserve
2.5 118.2 (45.5) (0.2)
2.5 2.5 119.7 118.2 (8.7) (25.8) — —
2.5 119.7 (21.3) (0.4)
Total equity 100.5
75.0
113.5
94.9
Non-current liabilities Financial liabilities Provisions Government grants
14.2 0.2 0.1
36.4 0.1 0.3
0.1 0.2 0.1
— 0.1 0.3
Total non-current liabilities 14.5
36.8
0.4
0.4
Current liabilities Trade and other payables Provisions Financial liabilities Government grants Income tax payable
12.2 — 25.9 0.2 0.8
17 18 19
20 18 17 19 8
26.7 0.2 22.0 0.2 —
Total current liabilities 49.1
39.1
Notes
21.3 11.6 0.1 — 0.8 — 0.2 0.2 — — 22.4
11.8
Total liabilities 63.6 75.9 22.8 12.2 Total equity and liabilities 164.1 150.9 136.3
107.1
Approved by the Board of Directors on 21 November 2011 and signed on its behalf by: Christine Soden Director
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Financial statements
Group and Company statements of changes in equity for the year ended 30 September 2011
Group Notes
Share capital $m
Share premium $m
At 1 October 2009 Exchange differences on foreign operations Profit for the year
2.5 — —
116.7 — —
Total comprehensive income for year
—
Issue of ordinary share capital Share-based payments
— —
At 30 September 2010 Other comprehensive income Profit for the year
2.5 — —
118.2 — —
Total comprehensive income for year
—
Issue of ordinary share capital Share-based payments
— —
At 30 September 2011
2.5
119.7
Company Notes
Share capital $m
Share premium $m
Retained earnings $m
Foreign exchange $m
Total $m
At 1 October 2009 Profit for the year
2.5 —
116.7 —
(34.1) 7.8
— —
85.1 7.8
Total comprehensive income for year
—
—
7.8
—
7.8
Issue of ordinary share capital Share-based payments
— —
1.5 —
— 0.5
— —
1.5 0.5
At 30 September 2010 Other comprehensive income Profit for the year
2.5 — —
118.2 — —
(25.8) 0.4 15.8
— — —
94.9 0.4 15.8
Total comprehensive income for year
—
—
16.2
—
16.2
Issue of ordinary share capital Share-based payments
— —
1.5 —
— 0.9
— —
1.5 0.9
2.5
119.7
(8.7)
—
113.5
24 25
24 25
24 25
24 25
At 30 September 2011
Retained earnings $m
Foreign exchange $m
Total $m
(60.0) — 14.0
(0.6) 0.4 —
58.6 0.4 14.0
—
14.0
0.4
14.4
1.5 —
— 0.5
— —
1.5 0.5
(45.5) 0.5 22.8
(0.2) (0.2) —
75.0 0.3 22.8
—
23.3
(0.2)
23.1
1.5 —
— 0.9
— —
1.5 0.9
(21.3)
(0.4)
100.5
Notes
Share premium Share premium comprises the cumulative difference between the net proceeds and nominal value of the Company’s issued equity share capital. Foreign exchange reserve This reserve includes all cumulative differences on the translation of the Group’s net investment in foreign operations. Optos elected to deem the cumulative differences on the retranslation into US dollars of the Group’s net investment in foreign operations to be $nil as at 1 October 2004. As a result, in the event of any future disposal of a foreign operation, any gain or loss on disposal will include cumulative translation differences arising only on or after 1 October 2004. 56
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Overview
Group and Company cash flow statements
Business review Governance
for the year ended 30 September 2011
Financial statements
Group Company 2011 Note $m
2010 $m
2011 2010 $m $m
Operating activities Profit for the year Adjustments to reconcile profit for the year to net cash inflow from operating activities: Income tax credit Finance costs net of finance revenue Depreciation, amortisation and impairment of non-current assets Contingent consideration Property, plant and equipment scrapped Medical devices held in PPE disposed of Share-based payments Revenue recognised from device sales under finance leases (Increase)/decrease in trade and other receivables Amortisation of government grants Increase/(decrease) in inventories Increase in trade and other payables Increase in provisions
22.8
14.0
15.8 7.8
(0.8) 3.2 28.0 (1.7) 0.5 12.2 0.9 (19.8) (11.5) (0.2) (8.0) 11.7 0.3
(1.3) 4.8 31.6 — 0.3 3.2 0.5 (7.7) (4.6) (0.3) 2.6 3.3 —
(0.9) (0.8) — (0.1) 6.2 5.6 (1.7) — 0.1 0.6 1.3 0.4 0.7 0.3 (2.1) (0.4) (33.3) 3.5 (0.2) (0.2) (4.3) (0.2) 9.8 4.7 0.2 —
Cash flow from operating activities Tax on continuing operations
37.6 (0.4)
46.4 —
(8.4) 21.2 — —
46.4
(8.4) 21.2
0.1 0.8 (24.0) (10.8) (6.5) 2.6
0.1 0.1 (17.5) — (1.6) 0.4
— 0.1 — — (4.8) (1.7) (10.8) — (6.4) (1.6) 0.3 0.1
Net cash flow from investing activities (37.8)
(18.5)
(21.7) (3.1)
Cash flow from financing activities Proceeds from finance leases Repayment of finance leases Proceeds from share issues Interest paid
3.6 (31.5) 0.5 (3.3)
24.2 (37.4) 1.5 (5.0)
Net cash flow from financing activities (30.7)
(16.7)
0.5 1.5
11.2 (0.1) 30.1
(29.6) 19.6 — — 33.2 13.6
Net cash flow from operating activities 37.2 Cash flow from investing activities Bank interest receivable Finance lease interest receivable Purchases of property, plant and equipment Acquisition of subsidiary net of cash acquired Expenditure on intangible assets Cash receipts from finance lease receivables
Net increase in cash and cash equivalents Effect of foreign exchange on cash and cash equivalents Cash and cash equivalents at beginning of year
(31.3) 0.3 41.2
Cash and cash equivalents at end of year 16 10.2
41.2
Notes
— — — — 0.5 1.5 — —
3.6 33.2 Optos plc Annual report and accounts 2011
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Financial statements
Notes to the consolidated financial statements for the year ended 30 September 2011
1 Authorisation of financial statements and statements of compliance The consolidated Financial Statements of Optos plc for the year ended 30 September 2011 were approved and authorised for issue by the Directors on 21 November 2011. Optos plc is a limited company incorporated in Scotland and is listed on the London Stock Exchange. The consolidated Financial Statements of Optos plc have been prepared in accordance with IFRS as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. 2 Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. i) Basis of preparation and accounting policies a) Basis of preparation The Financial Statements have been prepared in accordance with the accounting policies based on IFRS and IFRIC interpretations endorsed by the European Union (“EU”) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated Financial Statements are presented in US dollars as this is the Group and Company’s functional currency, and all values are rounded to the nearest one hundred thousand ($0.0m) except when otherwise indicated. Having considered uncertainties under the current economic environment, and after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. This conclusion has been reached having considered the effect of liquidity risk on the Group’s ability to operate effectively. Currently, liquidity risk is not considered a significant business risk to the Group given its level of cash, available debt facilities and cash flow projections. The key liquidity risks faced by the Group are considered to be the failure of banks where funds are deposited and the inability to secure additional debt finance in order to facilitate the expansion of the Group’s business or to introduce new or improved products. As part of this review the Directors considered the current levels of available debt facilities, the structure of the debt finance being multiple asset-backed arrangements that are non-recourse on the Company, and the availability of other sources of debt capital including the $30m revolving credit facility. The Directors also considered the levels of future cash flows guaranteed under its rental customer agreements and the pattern of future debt repayments associated with current finance obligations. Share-based payments previously shown in the income statement are now included within Administrative and other expenses as they are no longer considered to be exceptional. The amounts are disclosed in Note 5. No Company profit and loss account is presented for Optos plc, as permitted by Section 408 of the Companies Act 2006.
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Overview Business review Governance Financial statements
2 Accounting policies continued i) Basis of preparation and accounting policies continued b) Basis of consolidation Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability criterion, are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition-date fair value can be measured reliably. If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit and loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and not be larger than an operating segment before aggregation. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Subsidiary undertakings are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiary undertakings are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. The financial statements of the subsidiary undertakings are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Optos plc Annual report and accounts 2011
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued i) Basis of preparation and accounting policies continued c) IFRS 8 “Operating Segments” The Group has adopted IFRS 8 “Operating Segments”. The Group has two reportable segments, being North America and Rest of World markets. In assessing performance and making resource allocation decisions, the Operating Board (which is the Group’s chief operating decision-making body) and the Board review revenues and gross profits by segment. The Group derives all its revenues from rental agreements, service contracts, sales of devices under finance leases and outright sales of medical devices. The business is managed on an integrated basis, with functions managed globally and decisions reached through cross-functional committees. In particular, Research and Development is actively targeted at new products and at enhancing the existing products for all markets. Manufacturing, marketing, sales, regulatory and support functions are managed and operate on a global basis and are not specific to individual markets or products. d) Investments Investments in subsidiaries are held at historical cost less any applicable provision for impairment. e) Exceptional items Material items of income and expense which, because of the nature and infrequency of the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the Group’s financial performance for the prior year, are presented as exceptional items on the face of the income statement to facilitate comparisons with the current period and assessment of trends in financial performance. f) Foreign currency translation The consolidated Financial Statements are presented in US dollars, which is the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currency of the foreign operations Optos Canada Inc., Optos GmbH and Optos Australia is the Canadian dollar, Euro and Australian dollar respectively. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of Optos plc (the US dollar) at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. The Company’s share capital and share premium account are denominated in Sterling and are translated at the historical rates of exchange. Optos has elected to deem the cumulative differences on the retranslation into US dollars of the Group’s net investment in foreign operations to be $nil as at 1 October 2004. As a result, in the event of a future disposal of a foreign operation, any gain or loss on disposal will only include cumulative translation differences arising on or after 1 October 2004.
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Overview Business review Governance Financial statements
2 Accounting policies continued i) Basis of preparation and accounting policies continued g) Property, plant and equipment Property, plant and equipment is stated at cost of acquisition or manufacture, less accumulated depreciation and accumulated impairment in value. In the case of medical devices, certain of the costs of manufacture relate to the capitalisation of directly attributable internal labour costs. The employee costs and appropriate overheads associated with upgrading and installing the devices at the relevant customer site under operating leases are also capitalised. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual values based on prices prevailing at the balance sheet date of each asset evenly over its expected useful life as follows: Medical devices
three to five years
Leasehold improvements
lesser of ten years or period of the lease
Other plant and equipment
three to ten years
Medical devices refer to retinal examination equipment being used or expected to be used under operating lease rental agreements. Medical devices are depreciated from the point of activation at the relevant customer site. In the case of a device that is removed from one customer site, upgraded and relocated to a new customer site, depreciation is recalculated to write off the remaining net book value of that device together with the additional capitalised costs relating to the upgrade and installation over the remaining useful life of the asset. Medical devices expected to be sold (outright or by way of finance lease) are held as inventory. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. When an item of property, plant and equipment is sold after the end of its rental term, sale proceeds are recorded as revenue with the remaining net book value of the device or inventory carrying value recorded as cost of goods. The assetsâ&#x20AC;&#x2122; residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. The Company launched its new 200Tx device in March 2011 and determined that these devices would have an expected useful life of four years if held as a fixed asset for use by the business or rental under operating lease contracts.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued i) Basis of preparation and accounting policies continued h) Leases Group as a lessor Arrangements between Optos and its customers are assessed on a case by case basis, taking into account the terms of the contract, the fair value and the estimated residual life of the underlying device. Finance leases Arrangements between Optos and the customer where substantially all of the risks and rewards incidental to ownership of the asset have been transferred to the customer are classified as finance leases. The Group makes this assessment at the inception of the lease or at the date of contract extension, on the basis of one or more of the following factors: • the lease transfers ownership of the equipment to the customer by the end of the lease term; • t he customer has a right to buy the equipment either during the term of the lease or at the end of the lease at an advantageous price, and it is reasonable certain at the inception of the lease that this option will be exercised; • the lease term covers the major part of the estimated useful life of the asset; or • the present value of the minimum lease payments amounts to substantially all of the fair value of the asset. An amount equal to the fair value of the asset, or if lower, the present value of the minimum lease payments is recognised as revenue in the income statement and as an asset in the statement of financial position. The fair value of service and maintenance is released to the income statement on a straight line basis over the lease term. Finance income is recognised on the basis of a constant monthly rate of return on the net investment in the finance lease which is equivalent to the incremental borrowing rate charged to the Group. The transaction is treated as a disposal and the carrying value of the device (either in plant property and equipment or inventories) recorded as a cost in the income statement in accordance with the policy for outright sales. Operating leases Arrangements between Optos and the customer where substantially all of the risks and rewards incidental to ownership of the asset have not been transferred to the customer are classified as operating leases. The Group makes this assessment based on the following factors: • o wnership of the asset does not transfer to the customer at the end of the lease term and there is no advantageous acquisition option for the customer at the end of the lease; • the estimated useful life of the asset is considered to be five years which is significantly in excess of the lease term; and/or • at the inception of the lease the present value of the minimum lease payments is significantly less than the fair value of the asset. The majority of the Group’s contracts commit the customer to pay a fixed monthly sum (the “MMP”) plus a variable monthly sum should the usage of the device exceed the minimum agreed level (variable rental). These fixed rental payments from operating leases are recognised monthly in the income statement on a straight line basis over the lease term. Variable rentals are recognised monthly in line with actual usage of the device.
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Overview Business review Governance Financial statements
2 Accounting policies continued i) Basis of preparation and accounting policies continued h) Leases continued Group as a lessee Finance leases Assets held by the Group under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the item or, if lower, at the present value of the minimum future lease payments. Upon placement of medical devices at a customer site and where the customer enters into a fixed term contract to pay the Group fixed and variable amounts of revenue, the Group selectively enters into a financing agreement with third-party providers of debt finance. The debt finance provider advances the Group funds in return for taking the right to receive the fixed revenue streams and legal title to the device over the term of the finance arrangement. In such cases there is a transfer of legal title of the relevant device to the debt provider with legal title being transferred back to the Group at the end of the term of the debt. As the significant risks and rewards of ownership are retained by the Group, the finance received from the debt providers is recorded as fixed-rate obligations which are repayable by instalments and are secured over the related medical device. In such cases the medical devices are recorded as property, plant and equipment and the debt finance as finance leases payable. Lease payments payable under the medical device finance arrangements are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability with the finance charges being charged directly against income over the lease term. Leased assets are depreciated over the estimated useful life of the asset or where there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, over the lease term if shorter. Operating leases Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are recognised in the income statement on a straight line basis over the lease term. i) Intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. With the exception of certain development costs internally generated intangible assets are not capitalised, and expenditure is charged against profits in the year in which the expenditure is incurred. Purchased intangible assets are capitalised at cost and amortised over the expected useful life of the asset. Intangible assets acquired as a result of a business combination are initially recognised at their fair value in accordance with IFRS 3 “Business combinations”. If an intangible asset is considered to have suffered impairment in value it is written down to its estimated recoverable amount in accordance with the Group’s policy on impairment. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is capitalised when the Group can demonstrate the technical feasibility of completing the project so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliability the expenditure following development. Following the initial recognition of the development expenditure, the cost model is applied, requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the benefits which are anticipated to accrue from the estimated commercial life of the asset from the point of full commercial launch, usually five years. The carrying value of intangible assets is reviewed for impairment annually when the relevant asset is not yet in use or more frequently when an indication of impairment arises during the reporting year. Computer software Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset whether acquired or developed internally. Amortisation is provided on a straight line basis so as to charge the cost of the software to the income statement over its expected useful life, which is in the range of three to five years.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued i) Basis of preparation and accounting policies continued j) Impairment of assets The Group assesses at each reporting date whether there is an indication that the value of an asset may be impaired. If any such indication of impairment exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount of an asset or cash-generating unit is the higher of its 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 or cash-generating units. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have diminished. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. k) Inventories Inventories primarily comprise finished goods, work-in-progress and spares and components all related to medical devices. Inventories are valued at the lower of cost and net realisable value, using the first-in, first-out or weighted average cost basis. Cost of raw materials, consumables and work in progress includes the cost of direct materials and, where applicable, direct labour and those overheads that have been incurred in bringing the inventories to their present location and condition. Inventory is written down on a case by case basis if the anticipated net realisable value declines below the carrying amount of the inventories. Net realisable value is the estimated selling price less estimated cost to completion and selling expenses. When the reasons for a write down of the inventory have ceased to exist, the write down is reversed. l) Trade and other receivables Trade receivables, which generally have payment terms of 30–90 days, are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. Provision is made against the receivable when there is objective evidence that the Group will not be able to collect the debts. Balances are written off when the probability of recovery is assessed as being remote. m) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less. n) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
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Overview Business review Governance Financial statements
2 Accounting policies continued i) Basis of preparation and accounting policies continued o) Taxation Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements, with the following exceptions: • w here the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • i n respect of taxable temporary differences associated with investments in subsidiaries, 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. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Otherwise, income tax is recognised in the income statement. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes are related to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax or equivalent, except: • w here the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • in the balance sheet where receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authorities is included as part of receivables or payables in the balance sheet.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued i) Basis of preparation and accounting policies continued p) Share-based payment transactions Certain employees (including senior Executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and 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. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. The cost of equity-settled transactions is recognised, together with a corresponding movement in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. 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 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. The Group took advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards and applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested on 1 January 2005. Where share options lapse as a result of the Company terminating the employment of an individual it is accounted for as a forfeiture of the option. q) Revenue and lease income recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received excluding discounts, rebates, VAT and other sales tax or duties. The following specific recognition criteria must also be met before revenue is recognised: Rental income under operating leases Revenue from the provision of retinal examinations using the Group’s medical devices is recognised according to the classification of the rental agreement as an operating lease. Such examinations are undertaken by customers who generally enter into agreements under which they pay a fixed monthly rental plus a variable monthly sum should the usage of the device exceed the minimum agreed level. These fixed monthly rental payments from agreements which have been classified as operating leases are recognised monthly on a straight line basis to the income statement over the lease term. The variable rentals are recognised monthly in line with actual usage of the device.
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2 Accounting policies continued i) Basis of preparation and accounting policies continued q) Revenue and lease income recognition continued Device sales under finance leases Revenue from the sale of devices which have been classified as finance leases is recognised as an amount equal to the fair value of the asset, or if lower, the present value of the minimum leased payments. Variable rentals are recognised to revenue each month to the extent that they cannot be reliably estimated. Device sales â&#x20AC;&#x201C; outright Revenue from the sale of devices is recognised in the income statement when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch or installation at the customerâ&#x20AC;&#x2122;s site, or where relevant, at the end of any validation period. Service warranty and maintenance contracts Revenue from the sale of service and maintenance contracts is recognised on straight line basis over the term of the contract. Finance income Finance income is recognised on the basis of a constant monthly rate of return on the net investment in the relevant finance lease. Interest income Revenue is recognised as interest accrues on cash deposits or loan arrangements. r) Borrowing costs Borrowing costs are recognised as an expense when incurred. s) Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant assets. t) Post-employment benefits Post-employment benefits comprise pension healthcare benefits provided to employees throughout the world. The Group operates a number of defined contribution pension schemes. The assets of the schemes are invested and managed independently of the finances of the relevant company. The contributions are recognised in the income statement in the period in which they become payable. u) Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued i) Basis of preparation and accounting policies continued v) Significant judgements made In the process of applying the Group’s accounting policies, the Board and management have made the following judgements, apart from those involving estimations which have the most significant effect on the amounts recognised in the Financial Statements: Medical device financing arrangements Upon placement of medical devices at a customer site, where the customer enters into a fixed-term contract to pay the Group fixed and variable amounts of revenue, the Group frequently enters into a financing agreement with third-party providers of debt finance. The Group considers the arrangement between the vendor finance provider and Optos to be a finance lease (as opposed to an operating lease) as defined in IAS 17 because ownership of the asset reverts to Optos at the end of the finance arrangement for nil consideration. The debt finance provider advances the Group funds in return for taking the right to receive the fixed revenue streams and legal title to the device over the term of the finance arrangement. As the significant risks and rewards of ownership are retained by the Group, the proceeds received from the third-party providers of debt finance are recorded as fixed-rate obligations which are repayable by instalments. In such cases the medical devices are recorded as property, plant and equipment and the debt finance as finance leases. Group as a lessor and rental income Revenue from the provision of retinal examinations using the Group’s medical devices is recognised according to the classification of the rental agreement as either an operating or finance lease. The Group considers the arrangements between Optos and its customers on a case by case basis, taking into account the terms of the contract, the fair value and the estimated residual life of the underlying device set out in Note 2(h) above on leasing. Revenue from rental agreements which have been classified as finance leases is recognised as an amount equal to the fair value of the asset, or if lower, the present value of the minimum leased payments. Variable rentals are recognised to revenue each month to the extent that they have not been previously reliably estimated and recognised. These rental payments from agreements which have been classified as operating leases is recognised monthly in the income statement on a straight line basis to the income statement over the lease term. Development costs The Group amortises its capitalised development costs over the anticipated benefits expected to accrue in the first five years of operations of the device or technology. Management assesses the appropriateness of the period taking into account latest market expectations. Further details are included in Note 11. Impairment of assets The Group assesses at each reporting date whether there is an indication that the value of an asset may be impaired. If any such indication of impairment exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The recoverable amount of an asset or cash-generating unit is the higher of its 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 or cash-generating units. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have diminished. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
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2 Accounting policies continued i) Basis of preparation and accounting policies continued w) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below: Useful lives of medical devices The Group depreciates medical devices over their estimated useful lives. The Board and management annually assess the appropriateness of the current estimate of useful life. Share-based payments The assumptions underlying the calculation of the share-based payments expenses are based on independent advice. Certain awards under the Group’s long-term incentive plans are subject to the satisfaction of non-market related performance conditions. These conditions are based on future business performance and the Group makes estimates of the likelihood of these conditions being met. Changes in these assumptions could have a material impact on the measurement of the Group’s share-based payment charge. Further details are included in Note 23. Deferred tax The Group has gross unused tax losses. These losses are recognised under IAS 12 as deferred tax assets. The Group makes judgements as to the likelihood of these losses being recoverable, and changes in these assumptions could have a material impact on the Group’s reported tax charge. Further details are included in Note 8. x) New standards and interpretations The IASB and IFRIC have issued the following standards and interpretations with an effective date for periods after the date of these Financial Statements: Effective date for International Accounting Standards (IFRS/IAS) periods commencing
IFRIC 14 (amendment) IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 24 IAS 27 IAS 28 IFRS 7 (amendment) IAS 12 (amendment) IFRS 1 (amendment) IAS 1 (amendment) IAS 19 (amendment)
Prepayments for a Minimum Funding Requirement Financial Instruments: Recognition and measurement* Consolidated Financial Statements* Joint Arrangements* Disclosures of Interests in Other Entities* Fair Value Measurement* Related Party Disclosures (revised) Separate Financial Statements* Investments in Associates and Joint Ventures* Financial Instruments: Disclosures* Recovery of Underlying Assets* Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters* Presentation of Other Comprehensive Income* Employee Benefits* Improvements to IFRSs (issued May 2010)
1 1 1 1 1 1 1 1 1
January 2011 January 2013 January 2013 January 2013 January 2013 January 2013 January 2011 January 2013 January 2013 1 July 2011 1 January 2012 1 July 2011 1 July 2012 1 January 2013 various
* Not yet adopted for use in the European Union.
The above standards and interpretations will be adopted in accordance with their effective dates. 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.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
2 Accounting policies continued ii) Changes in estimates In light of the developments outlined in the Business Review, relating to the launch of the next generation Daytona device in March 2011, the Directors revised their estimate of the expected useful economic lives of the P200, 200Dx and P200C medical devices, to end no later than 30 September 2014. This has had the following consequences: (i) As typical lease terms will be for the major part of the remaining useful economic life of the asset, even if title is not ultimately transferred, the vast majority of new and renewed lease arrangements with customers will fall to be classified as finance leases under IAS 17 (the reporting standard for leases), and accounted for accordingly. This will accelerate the reduction in the proportion of future revenues expected to be derived from operating leases. (ii) The expectation that these devices will now be sold (either outright or by way of finance lease) rather than used by the Group under operating leases required their reclassification in the balance sheet from property, plant and equipment to inventory. Accordingly a transfer has been made of $10.2m being the lower of the previous carrying amount of the devices and related modules and their net realisable value. The impact of these changes was a reduction in the depreciation charge of $0.8m for the year ended 30 September 2011. In addition revenue increased by $11.2m and cost of sales by $4.2m in the year as a result of devices falling to be classified as finance leases that would previously have fallen to be classified as operating leases had the estimate not changed. Looking forward, it is difficult to reliably estimate the impact on future accounting periods, since the impact is governed by the actual volumes and terms of new rental agreements, renewal agreements and the product mix, none of which are known. However, the expectation will be for increased revenues, cost of sales and gross profits from finance lease transactions, an increase in revenues from service contracts and a reduction in revenues from operating leases. There will be a consequential increase in finance lease receivables and a reduction in the future amounts receivable under operating lease. There will also be an increase in cash flows in building inventory and a reduction in the investment in plant, property and equipment. 3 Segmental analysis The Group has two reportable segments, being North America and Rest of World markets. In assessing performance and making resource allocation decisions, the Operating Board (which is the Group’s chief operating decision-making body) and the Board review revenues and gross profits by segment. Optos sells a range of diagnostic and treatment devices to healthcare professionals globally, either directly or through arrangements with distributors. Cash flow is generated through the rental or sale of devices and related software and support services. The business is managed on an integrated basis, with functions managed globally and decisions reached through cross-functional committees. In particular, Research and Development is actively targeted at new products and at enhancing the existing product for all markets. Manufacturing, marketing, sales, regulatory and support functions are managed and operate on a global basis and are not specific to individual markets or products. Transfer prices between segments are set in accordance with the Group’s transfer pricing policy. Segment revenue, segment expense and segment result include transfers between geographical segments. Those transfers are eliminated on consolidation.
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Overview Business review Governance Financial statements
3 Segmental analysis continued An analysis by operating segment is given below for the year ended 30 September 2011: North America Rest of World Eliminations Total 2011 2011 2011 2011 $m $m $m $m
Revenue Operating lease and variable revenue from rental of devices 70.2 11.0 — 81.2 Device sales under finance leases 14.6 5.2 — 19.8 Device sales – outright 27.8 9.8 — 37.6 Service and warranty contracts 4.5 0.2 — 4.7 Inter-segment sales — 30.9 (30.9) — Segment revenue 117.1 57.1 (30.9) 143.3 Operating lease costs (21.1) (5.0) — (26.1) Cost of goods of device sales under finance leases (4.0) (2.2) — (6.2) Cost of goods of outright device sales (12.3) (7.3) — (19.6) Inter-segment costs (30.9) — 30.9 — Segment gross profit 48.8 42.6 — 91.4 Selling and distribution costs (28.4) Administrative and other expenses (38.6) Operating profit 24.4 Net finance costs (2.4) Profit from continuing operations before taxation 22.0 Taxation 0.8 Net profit for the year 22.8 Assets and liabilities Segment assets 94.2 139.8 (90.1) 143.9 Unallocated assets 20.2 Total assets 164.1 Segment liabilities 76.3 42.2 (90.1) 28.4 Unallocated liabilities 35.2 Total liabilities 63.6 Other segment information Property, plant and equipment additions 15.4 8.7 Intangible fixed asset additions 3.6 19.4 Depreciation 18.5 5.5 Amortisation — 4.0 Property, plant and equipment scrapped 0.4 0.1 Exceptional items — 0.7
— 24.1 — 23.0 — 24.0 — 4.0 — 0.5 — 0.7
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
3 Segmental analysis continued Unallocated assets primarily comprise cash and short-term deposits and deferred tax assets. Unallocated net liabilities comprise financial liabilities and taxation. Revenue includes $10.9m attributable to the UK. Non-current assets, excluding deferred tax assets and investments, include $36.1m attributable to the UK. An analysis by operating segment is given below for the year ended 30 September 2010: North America Rest of World Eliminations Total 2010 2010 2010 2010 $m $m $m $m
Revenue Operating lease and variable revenue from rental of devices 78.9 10.1 — 89.0 Device sales under finance leases 7.1 0.6 — 7.7 Device sales – outright 5.9 2.2 — 8.1 Service and warranty contracts 1.5 — — 1.5 Inter-segment sales — 23.5 (23.5) — Segment revenue 93.4 36.4 (23.5) 106.3 Operating lease costs (27.5) (4.7) — (32.2) Cost of goods of device sales under finance leases (1.1) (0.5) — (1.6) Cost of goods of outright device sales (1.3) (0.3) — (1.6) Inter-segment costs (23.5) — 23.5 — Segment gross profit 40.0 30.9 — 70.9 Selling and distribution costs (24.5) Administrative and other expenses (28.9) Operating profit 17.5 Net finance costs (4.8) Profit from continuing operations before taxation 12.7 Taxation 1.3 Net profit for the year 14.0 Assets and liabilities Segment assets 72.9 77.9 (52.1) 98.7 Unallocated assets 52.2 Total assets 150.9 Segment liabilities 45.5 19.4 (52.1) 12.8 Unallocated liabilities 63.1 Total liabilities 75.9
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3 Segmental analysis continued North America Rest of World Eliminations Total 2010 2010 2010 2010 $m $m $m $m
Other segment information Capital expenditure: Property, plant and equipment 8.3 9.2 — 17.5 Intangible fixed assets — 1.6 — 1.6 Depreciation 23.6 5.5 — 29.1 Amortisation — 2.5 — 2.5 Loss on disposal of non-current assets — 0.3 — 0.3 Unallocated assets primarily comprise cash and short-term deposits and deferred tax assets. Unallocated net liabilities comprise financial liabilities and taxation. Revenue includes $2.5m attributable to the UK. Non-current assets, excluding deferred tax assets, include $15.1m attributable to the UK. 4 Exceptional items 2011 $m
2010 $m
Opto Global contingent consideration fair value adjustment 1.7 — Acquisition costs (2.4) — Total exceptional charges recognised in the year (0.7) — The Group acquired 100% of the share capital of Opto Global Holdings Pty Ltd on 13 December for $14.3m. The purchase consideration included an estimated $2.5m relating to the fair value of contingent consideration. The expectation is that the conditions relating to the contingent consideration will no longer be met in full. This is due to lower than expected sales primarily the result of delays in the integration of the products/distributors, as well as the time taken to obtain regulatory approval. As a consequence the fair value of contingent consideration has been reassessed as $0.8m, compared to $2.5m at the acquisition date. The Group incurred acquisition costs of $1.1m for OptoGlobal which included $0.5m of one-off retention payments, the balance being professional fees. In addition the Group has incurred to date $1.3m of professional fees in relation to the acquisition of the assets and business of the instrumentation division of OPKO Health, Inc. which completed in October 2011.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011 5 Revenue and expenses
2011 $m
2010 $m
Revenue Operating lease and variable revenue from rental of devices 81.2 89.0 Device sales under finance leases 19.8 7.7 Device sales – outright 37.6 8.1 Service and warranty contracts 4.7 1.5 Revenue 143.3 106.3 Finance revenue 0.9 0.2 Total revenue 144.2 106.5 No revenue was derived from exchanges of goods or services. Operating lease and variable revenue from rental of devices includes $81.2m (2010: $89.0m) from rental contracts with customers where substantially all the risks and rewards of ownership remain with Optos, being $65.9m (2010: $69.4m) from fixed monthly minimum payments to which customers have contracted plus $15.3m (2010: $19.6m) from the variable per Optomap® revenue for tests performed over the monthly minimum levels. Revenue from the sales of devices classified as finance leases is the lower of an amount equal to the fair value of the asset or the present value of the minimum leased payments from rental contracts where the rental agreement has been assessed as a finance lease. Service and warranty contracts relates to revenues from contracts to maintain and service the Company’s devices. The Company treats certain of the contractual arrangements with the customers as operating lease arrangements. Future minimum rentals receivable under non-cancellable operating leases with customers are as follows: 2011 $m
2010 $m
Not later than one year 52.5 65.4 After one year but not more than five years 51.8 102.6 After five years 1.6 1.8 105.9 169.8
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Overview Business review Governance Financial statements
5 Revenue and expenses continued 2011 Note $m
2010 $m
The profit from continuing operations before taxation is stated after charging/(crediting): Depreciation charge for the period 10 24.0 29.1 R&D expenditure1 6.0 5.7 Amortisation of software2 11 0.3 0.4 Amortisation of acquired intangibles 0.6 — Operating leases 1.1 1.0 Share-based payments 1.2 0.6 Foreign exchange differences (0.9) (0.5) 1 Includes $3.1m (2010: $2.1m) in respect of the amortisation of intangible assets which is recognised in administrative and other expenses through the income statement. In addition, $6.4m (2010: $1.3m) of R&D expenditure was incurred which has not been charged in arriving at the pre-tax profit for the period as it has been capitalised as an intangible asset. Further information is included in Note 11 to the Group Financial Statements. 2 Amortisation of software and acquired intangibles is recognised in administrative and other expenses through the income statement.
Services provided by the Group’s auditors and network firms During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below: 2011 $m
2010 $m
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts (including estimated expenses) 0.2 0.2 All other services 0.2 0.1 0.4 0.3 Profit attributable to the Company The profit for the year ended 30 September 2011 attributable to Optos plc is $15.8m (2010: $7.8m).
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011 6 Financing
2011 $m
2010 $m
Finance costs Finance lease interest payable 3.3 5.0 3.3 5.0 Finance revenue Finance lease interest receivable 0.8 0.1 Bank interest receivable 0.1 0.1 0.9 0.2 7 Directors and employees 2011 $m
2010 $m
Staff costs for the Group during the year: Wages and salaries 39.6 26.8 Social security costs 3.4 2.3 Defined contribution pension costs 0.5 0.6 Share-based payments 0.9 0.5 44.4 30.2 Share-based schemes and outstanding options are set out in Note 23. The average monthly number of persons employed during the year was as follows: 2011 Number
2010 Number
Executive Directors 2 2 Field (sales and support) 176 137 Manufacturing and refurbishment 97 57 Product development 33 29 Central 48 46 Marketing 8 6 364 277 The above tabulation excludes the Non-executive Directors. Details of the fees, emoluments, pension contributions and gains on exercise of share options attributable to each Director during the year are given in the section headed “Directors’ remuneration” in the Directors’ Remuneration Report on pages 43 to 51.
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Overview Business review Governance Financial statements
8 Taxation 2011 Analysis of tax (credit)/charge in the year $m
2010 $m
Tax on profit on ordinary activities: Corporation tax at 27% (2010: 28%) Current year tax charge — — Adjustment in respect of prior periods — (0.2) Overseas taxes – prior year (0.9) (0.1) Overseas taxes – current year 0.4 0.3 Current year tax charge (0.5) — Deferred tax Origination and reversal of timing differences (0.9) (1.6) Impact of tax rate change 0.6 0.3 Total deferred tax credit (0.3) (1.3) Total income tax credit (0.8) (1.3) The credit to tax for the year was $0.8m (2010: $1.3m), comprising a current tax credit of $0.5m (2010: $nil) and a deferred tax credit of $0.3m (2010: $1.3m). The current tax charge relates primarily to overseas tax liabilities offset by adjustments in respect of prior periods. The tax credit to the income statement includes a credit of $0.3m (2010: $nil) in relation to exceptional acquisition costs. 2011 $m
Corporation tax reconciliation Group profit on ordinary activities before taxation
2010 $m
22.0 12.7
Group profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 27% (2010: 28%) 5.9 3.6 Effects of: Permanent adjustments (0.5) (1.2) Change in unrecognised deferred tax assets (6.6) (4.6) Effect of overseas tax rates 0.8 0.5 Adjustment in respect of prior periods (1.0) 0.1 Effect of tax rate and law changes 0.6 0.3 Total tax credit for the year (0.8) (1.3)
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
8 Taxation continued Deferred income tax at 30 September 2011 and 30 September 2010, recognised in the balance sheet, related to the following: Group Company 2011 2010 2011 2010 $m $m $m $m
Deferred tax liabilities/(assets): Accelerated capital allowances 2.7 1.5 (0.5) (0.3) Development costs 0.8 1.8 0.8 1.8 Deferred revenue (1.4) (1.0) — — Share-based payments (1.0) (0.4) (0.6) (0.3) Other temporary differences (1.7) (1.1) (0.1) — Losses (9.4) (11.8) (6.4) (6.7) Net deferred income tax asset (10.0) (11.0) (6.8) (5.5) Group The deferred tax movement results from the annual review of deferred tax asset recognition, the conclusion of which is that it is appropriate, based on projected future profitability in each of the relevant territories, to recognise all deferred tax assets with the exception of tax losses incurred in Australia by the Opto Global business. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits. The movement in the net deferred tax asset between 2010 and 2011 comprises the recognition of a $1.8m deferred tax liability in relation to intellectual property acquired with Opto Global as well as the $0.3m credit to the income statement and $0.5m credit to other comprehensive income. Company All deferred tax assets at 30 September 2011 have been recognised based on projected future profitability. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits. Deferred tax assets totalling $4.9m were not recognised at 30 September 2010 due to uncertainty regarding future recoverability. Deferred income tax at 30 September 2011 and 30 September 2010, recognised in the income statement, related to the following: Group Company 2011 2010 2011 2010 $m $m $m $m
Deferred tax (credits)/charges: Accelerated capital allowances (0.6) (0.5) (0.2) (0.2) Development costs (1.0) (0.6) (1.0) (0.6) Deferred revenue (0.4) (0.2) — — Share-based payments (0.1) (0.3) 0.1 (0.3) Other temporary differences (0.6) — (0.1) 0.3 Losses 2.4 0.3 0.3 0.3 Net deferred income tax credit (0.3) (1.3) (0.9) (0.5)
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Overview Business review Governance Financial statements
8 Taxation continued Tax losses Deferred tax assets have been recognised in 2011 in respect of historic tax losses incurred in the UK, US, Canada and Germany as there is sufficient evidence in the form of projected future profitability to conclude that these losses will be recoverable in the foreseeable future. A deferred tax asset of $1.8m (2010: $nil), relating to unused tax losses in Australia, has not been recognised as there is insufficient certainty in relation to the recoverability of the asset. Impact of future tax rate changes The Chancellor has announced that the main UK corporation tax rate will be reduced from the current rate of 26%, which has applied from 1 April 2011, to 23%, via a series of 1% annual reductions. The reduction in the corporation tax rate to 25% from 1 April 2012 was enacted on 19 July 2011. As this rate was enacted at the balance sheet date, and reduces the tax rate expected to apply when temporary differences reverse, it had the effect of reducing the UK deferred tax asset by $0.6m. The further rate reductions are to be incorporated within future legislative acts and so will not be substantively enacted until later periods. It is expected that the deferred tax balance should not be materially impacted by these proposed reductions in the corporation tax rate. 9 Profit per ordinary share Basic earnings per share amounts are calculated by dividing the profit/(loss) before taxation and the profit after taxation for the financial year by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the profit before taxation and the profit/(loss) after taxation for the financial year by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options). In the case of a loss, no impact for further dilution is reflected as this would not have the effect of increasing the loss per share and is therefore not dilutive. The profit per ordinary share is calculated as follows: 2011 2010
Weighted average number of ordinary shares in issue 71,057,274 69,979,015 Effect of dilution: share options 593,191 90,218 Adjusted weighted average number of ordinary shares for diluted earnings per share 71,650,465 70,069,233 Profit before exceptional items and taxation ($m) Basic profit before exceptional items and taxation per share (cents) Diluted profit before exceptional items and taxation per share (cents) Profit before exceptional items after taxation ($m) Basic profit before exceptional items after taxation per share (cents) Diluted profit before exceptional items after taxation per share (cents)
22.7 12.7 31.9c 18.1c 31.7c 18.1c 23.2 14.0 32.6c 20.0c 32.4c 19.9c
Profit before taxation ($m) 22.0 12.7 Basic profit before taxation per share (cents) 31.0c 18.1c Diluted profit before taxation per share (cents) 30.7c 18.1c Profit after taxation ($m) 22.8 14.0 Basic profit after taxation per share (cents) 32.1c 20.0c Diluted profit after taxation per share (cents) 31.8c 19.9c
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011 10 Property, plant and equipment
Leasehold Medical Plant and improvements devices equipment Total Group $m $m $m $m
Cost At 1 October 2010 1.6 209.8 8.9 220.3 Additions 0.5 20.8 2.8 24.1 Transfer to inventory — (44.6) — (44.6) Disposals — (54.5) (0.1) (54.6) Exchange adjustment — 1.9 — 1.9 At 30 September 2011 2.1 133.4 11.6 147.1 Depreciation At 1 October 2010 1.0 149.2 6.7 156.9 Charge for year 0.2 22.7 1.1 24.0 Transfer to inventory — (34.4) — (34.4) Disposals — (41.9) — (41.9) Exchange adjustment — 1.2 — 1.2 At 30 September 2011 1.2 96.8
7.8 105.8
Net book value at 30 September 2011 0.9 36.6 3.8 41.3 Cost At 1 October 2009 1.5 207.4 8.2 217.1 Additions 0.1 16.0 1.4 17.5 Disposals — (12.6) (0.7) (13.3) Exchange adjustment — (1.0) — (1.0) At 30 September 2010 1.6 209.8 8.9 220.3 Depreciation At 1 October 2009 0.9 131.0 5.8 137.7 Charge for year 0.1 27.7 1.3 29.1 Disposals — (9.4) (0.4) (9.8) Exchange adjustment — (0.1) — (0.1) At 30 September 2010 1.0 149.2 6.7 156.9 Net book value at 30 September 2010 0.6 60.6 2.2 63.4
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Overview Business review Governance Financial statements
10 Property, plant and equipment continued Leasehold Medical Plant and improvements devices equipment Total Company $m $m $m $m
Cost At 1 October 2010 1.2 13.9 5.8 20.9 Additions — 3.7 1.2 4.9 Transfer to inventory — (1.7) — (1.7) Disposals — (4.0) — (4.0) At 30 September 2011 1.2 11.9 7.0 20.1 Depreciation At 1 October 2010 0.8 7.2 4.8 12.8 Charge for year 0.1 2.2 0.5 2.8 Transfer to inventory — (0.3) — (0.3) Disposals — (2.5) — (2.5) At 30 September 2011 0.9 6.6 5.3 12.8 Net book value at 30 September 2011 0.3 5.3 1.7 7.3 Cost At 1 October 2009 1.2 14.3 5.8 21.3 Additions — 1.1 0.6 1.7 Disposals — (1.5) (0.6) (2.1) At 30 September 2010 1.2 13.9 5.8 20.9 Depreciation At 1 October 2009 0.7 5.4 4.5 10.6 Charge for year 0.1 2.3 0.7 3.1 Disposals — (0.5) (0.4) (0.9) At 30 September 2010 0.8 7.2 4.8 12.8 Net book value at 30 September 2010 0.4 6.7 1.0 8.1 Medical devices refer to retinal examination equipment being used or expected to be used under operating lease agreements. Medical devices are depreciated from the point of activation at the relevant customer site. In the case of a device that is removed from one customer site, upgraded and relocated to a new customer site, depreciation is recalculated to write off the remaining net book value of that device together with the additional capitalised costs relating to the upgrade and installation over the remaining useful economic life of the asset. The Group has reviewed the economic useful lives of all assets and has determined that certain elements of medical devices (for example installation costs, computer and other peripherals) have a useful economic life of between three and five years depending on the specific circumstances of the assets, including the period over which the medical device is expected to be maintained at a particular customer site.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
10 Property, plant and equipment continued These peripheral components do not have a cost that is significant in relation to the total cost of the device and the medical device itself is still considered to have a useful economic life of between three and five years. The carrying value of plant and equipment and medical devices held subject to finance leases at 30 September 2011 was $13.7m (2010: $23.9m) for the Group and $nil (2010: $nil) for the Company. Legal title to the leased assets transfers to the debt provider as security for the term of the agreement. 11 Intangible assets Licences and Development Software relationship Goodwill costs costs costs costs Total Group $m $m $m $m $m
Cost At 1 October 2010 14.7 3.2 — — 17.9 Additions – internal development 6.4 — — — 6.4 Additions – purchased externally — 0.1 6.0 10.5 16.6 Disposals — — — — — At 30 September 2011 21.1 3.3 6.0 10.5 40.9 Accumulated amortisation At 1 October 2010 7.2 2.6 — — 9.8 Amortisation in year 3.1 0.3 0.6 — 4.0 Disposals — — — — — At 30 September 2011 10.3 2.9 0.6 — 13.8 Net carrying amount at 30 September 2011 10.8 0.4 5.4 10.5 27.1 Cost At 1 October 2009 13.4 2.9 0.3 Additions – internal development 1.3 — — Additions – purchased externally — 0.3 — Disposals — — (0.3)
— 16.6 — 1.3 — 0.3 — (0.3)
At 30 September 2010 14.7 3.2
— 17.9
—
Accumulated amortisation At 1 October 2009 5.1 2.2 0.3 — 7.6 Amortisation in year 2.1 0.4 — — 2.5 Impairment loss — — (0.3) — (0.3) At 30 September 2010 7.2 2.6 — — 9.8 Net carrying amount at 30 September 2010 7.5 0.6 — — 8.1 The additions of $6.0m related to Licenses and relationship costs, and $10.5m related to goodwill, were acquired as part of the business combination.
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11 Intangible assets continued Licences, relationship and Development Software intellectual Goodwill costs costs property costs costs Total Company $m $m $m $m $m
Cost At 1 October 2010 14.7 3.1 — — 17.8 Additions – internal development 6.4 — — — 6.4 Additions – purchased externally — — — — — Disposals — — — — — At 30 September 2011 21.1 3.1 — — 24.2 Accumulated amortisation At 1 October 2010 7.2 2.6 — — 9.8 Amortisation in year 3.1 0.3 — — 3.4 Disposals — — — — — At 30 September 2011 10.3 2.9 — — 13.2 Net carrying amount at 30 September 2011 10.8 0.2 — — 11.0 Cost At 1 October 2009 13.4 2.9 0.3 Additions – internal development 1.3 — — Additions – purchased externally — 0.3 — Disposals — — (0.3)
— 16.6 — 1.3 — 0.3 — (0.3)
At 30 September 2010 14.7 3.2
— 17.9
—
Accumulated amortisation At 1 October 2009 5.1 2.2 0.3 Amortisation in year 2.1 0.4 — Impairment loss — — (0.3) At 30 September 2010 7.2 2.6 —
— 7.6 — 2.5 — (0.3) — 9.8
Net carrying amount at 30 September 2010 7.5 0.6 — — 8.1 On 13 December 2010, the Group acquired 100% of the share capital of Opto Global Holdings Pty Limited for $14.3m. At that date, the fair value of the net assets and liabilities in Opto Global equaled $3.8m and consequently there is goodwill of $10.5m. The Group therefore has goodwill on its balance sheet at the reporting date for first time and so is required to test that goodwill for impairment. The goodwill, acquired through business combination, has been allocated to the groups of cash-generating units that are expected to benefit from the synergies of the acquisition. Optos has defined two cash-generating units which are equivalent to the two operating segments, North America and the Rest of the World. The goodwill has been allocated $3m to North America and $7.5m to the Rest of the World based on the expected benefits that will arise from the acquisition.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
11 Intangible assets continued For the purpose of impairment testing, goodwill is reviewed at the operating segment level. In assessing whether goodwill has been impaired, the carrying value of the operating segment (including goodwill) is compared with the recoverable amount of the operating segment. The recoverable amount is based on value in use using discounted risk-adjusted projections of the Group’s pre-tax cash flows based on the future projections in line with the overall strategy. The projection is based on forward plans for the next five years with a perpetual 1% increase for future years on the basis the business expects to continue to trade. These projections are approved by senior management. For each operating segment we use an appropriate discount rate reflecting those risks and tax effects. In arriving at the appropriate discount rate for each group of cash flows, we adjust the Group’s post-tax weighted average cost of capital of 8% to reflect the impact of relevant risks, the time value of money and tax effects. The weighted average pre-tax discount rate used was between 11% and 12%. As a further check, we compare our market capitalisation to the book value of our net assets and this indicates significant surplus at 30 September 2011. No goodwill impairment was identified. The Group has also performed sensitivity analysis calculations on the projections. The Directors have concluded that, given the significant headroom that exists and the results of the sensitivity analysis performed, there is no significant risk that reasonable changes in any key assumptions would cause the carrying value of goodwill to exceed its value in use. 12 Investments in subsidiaries Long-term Shares in loan(s) subsidiary to subsidiary undertakings undertakings Total Company $m $m $m
Cost At 1 October 2009
—
1.4
1.4
At 30 September 2010
—
1.4
1.4
At 30 September 2011 14.3 1.4 15.7 During the year to 30 September 2011, the Company acquired the shares of Opto Global Holdings Pty Ltd for $14.3m. Details of the investments in which the Group and the Company holds and the percentage of ownership of the nominal value of any class of share capital are as follows: Country of Name of company registration Proportion
Optos Optos Optos Optos Optos
84
Inc. USA 100% Canada Inc. Canada 100% GmbH Germany 100% Australia (formerly Opto Global Holdings Pty Limited) Australia 100% KK Japan 100%
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13 Finance lease receivables Group Company 2011 2010 2011 2010 $m $m $m $m
Amounts receivable: Within one year 7.8 2.1 0.7 0.1 Later than one year and not later than five years 20.5 6.0 1.8 0.3 Later than five years 0.5 0.4 — — 28.8 8.5 2.5 0.4 Less: finance income allocated to future periods (3.0) (1.2) (0.3) (0.1) Present value of minimum lease payments
25.8 7.3 2.2 0.3
Within one year 6.6 2.0 0.6 0.1 Later than one year and not later than five years 18.8 5.0 1.6 0.2 Later than five years 0.4 0.3 — — 25.8 7.3 2.2 0.3 Included within: Non-current assets 19.2 5.3 1.6 0.2 Current assets 6.6 2.0 0.6 0.1 25.8 7.3 2.2 0.3 During the year the Group recognised finance lease agreements with customers totalling $19.8m. Variable rentals from finance leases amounted to $0.8m. The average effective interest rate in relation to finance leases is 5.9% (Company: 7%). All finance lease receivables are considered to be recoverable and therefore no provision for impairment is required. The fair value of finance lease receivables is considered not to be materially different to the carrying value in the balance sheet. 14 Inventories Group Company 2011 2010 2011 2010 $m $m $m $m
Raw materials, spares and consumables 16.9 4.7 6.7 3.2 Work in progress 1.2 1.1 1.2 1.1 Medical devices for sale 6.5 — 1.9 — 24.6 5.8 9.8 4.3 Inventory valued at $1.8m (2010: $0.5m) has been written off in the normal course of business as it was not deemed to be economical to repair or became obsolete.
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Notes to the consolidated financial statements continued
for the year ended 30 September 2011 15 Trade and other receivables
Group Company 2011 2010 2011 2010 $m $m $m $m
Trade debtors 19.8 10.3 2.4 1.6 Allowance for doubtful debts (0.8) (0.6) (0.1) — 19.0 9.7 2.3 1.6 Amounts due from Group undertakings — — 76.1 44.0 Income tax 0.1 — 0.1 0.1 Value—added tax recoverable — 0.3 — 0.2 Prepayments 5.8 3.6 1.4 0.4 Other receivables 0.2 0.5 — — 25.1 14.1 79.9 46.3 Trade receivables generally have payment terms of 30–90 days. Group Company 2011 2010 2011 2010 Analysis of trade receivables $m $m $m $m
Neither impaired nor past due 16.0 8.7 1.6 1.0 Past due not impaired 3.0 1.0 0.7 0.6 Impaired 0.8 0.6 0.1 — 19.8 10.3 2.4 1.6 The Group is exposed to credit risk over a large number of customers and there is no significant concentration of risk. Credit worthiness checks are undertaken before entering into contracts with new customers. Group Company 2011 2010 2011 2010 Ageing of past due but not impaired trade receivables $m $m $m $m
Up to one month Between one and two months More than two months
1.9 0.8 0.4 0.6 0.4 0.1 0.1 — 0.7 0.1 0.2 —
3.0 1.0 0.7 0.6
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15 Trade and other receivables continued Group Company 2011 2010 2011 2010 Movement in the allowance for doubtful debts $m $m $m $m
Balance at beginning of year Impairment losses recognised on receivables Amounts written off as uncollectible Amounts recovered during the year
(0.6) (1.0) — (0.1) (1.0) (0.1) (0.1) — 0.5 0.2 — — 0.3 0.3 — 0.1
Balance at end of year
(0.8) (0.6) (0.1) —
16 Cash and cash equivalents Group Company 2011 2010 2011 2010 $m $m $m $m
Cash at bank and in hand 9.3 10.2 3.6 6.8 Short—term deposits 0.9 31.0 — 26.4 10.2 41.2 3.6 33.2 Cash at bank earns interest at floating rates based on daily bank deposit rates. 17 Financial liabilities Group Company 2011 2010 2011 2010 $m $m $m $m
Contingent consideration Current 0.8 — 0.8 — Non-current — — — — 0.8 — 0.8
—
Finance lease obligations Current 21.2 25.9 — — Non-current 14.2 36.4 0.1 — 35.4 62.3 0.1 —
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Notes to the consolidated financial statements continued
for the year ended 30 September 2011 17 Financial liabilities continued
Group Company 2011 2010 2011 2010 $m $m $m $m
Amounts payable: Within one year 23.7 32.5 0.8 — Between one and two years 11.1 22.4 0.1 — Between two and five years 3.6 12.6 — — 38.4 67.5 0.9 — Less: finance charges allocated to future periods (2.2) (5.2) — — 36.2 62.3 0.9 — As at 30 September 2011, 36% (2010: 26%) of the finance lease rental agreements were collateralised against debt finance and 39% (2010: 52%) of the operating leases rental agreements were collateralised against debt finance. The weighted average outstanding lease term is 15.8 months (2010: 23.4 months). The weighted average effective borrowing rate for 2011 was 6.2% (2010: 6.7%). All leases are on a fixed repayment term and no arrangements have been entered into for contingent rental payments. 18 Provisions Group Company 2011 2010 2011 2010 $m $m $m $m
At 1 October 0.1 0.1 0.1 0.1 Provided in the year 0.3 — 0.2 — At 30 September 0.4 0.1 0.3 0.1 Current 0.2 — 0.1 — Non-current 0.2 0.1 0.2 0.1 Social security contributions on share options included in provisions Social security contributions on share options are considered to fall within the scope of IFRS 2 and are measured as though a cash-settled option under IFRS 2. The provision is calculated based on the options outstanding at the balance sheet date that are expected to be exercised and relate to the expired portion of the vesting period and using the fair value of the options at the balance sheet date. It is expected that the costs will be incurred during the exercise period to May 2020.
88
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19 Government grants Group Company 2011 2010 2011 2010 $m $m $m $m
At 1 October 0.5 0.8 0.5 0.8 Released to the income statement (0.2) (0.3) (0.2) (0.3) At 30 September 0.3 0.5 0.3 0.5 Current 0.2 0.2 0.2 0.2 Non-current 0.1 0.3 0.1 0.3 0.3 0.5 0.3 0.5 The Company received a Surplus Grant from the Scottish Executive in 2005 to develop an advanced retinal medical device for ophthalmologists. The grant is being amortised over the benefits anticipated to accrue from the first five years of operation of the common technology platform. The grant will be fully amortised by 30 September 2012. In 2005 the Company was awarded a Regional Selective Assistance Grant from the Scottish Executive and received the final instalment in 2007. The grant was to enable the Company to lease additional premises, create additional jobs and safeguard existing jobs. This grant is being amortised over the remaining term of the property lease and will be fully amortised by 30 September 2014. 20 Trade and other payables Group Company 2011 2010 2011 2010 $m $m $m $m
Trade payables 6.7 2.6 5.0 2.3 Amounts due to Group undertakings — — 12.0 6.5 Other taxes and social security costs 1.0 0.8 — 0.3 Other payables — 0.1 — 0.1 Deferred income 8.7 1.5 0.2 — Accruals 10.3 7.2 4.1 2.4 26.7 12.2 21.3 11.6 Optos’ policy for the year ended 30 September 2011, for all suppliers, was to fix terms of payment when agreeing the terms of the credit account, to ensure that the supplier was aware of the terms, and to abide by the agreed terms of payment. Trade payables are typically paid twice monthly with terms equivalent to an average of 35 days. Other payables are non-interest bearing and have an average term of between 30 and 60 days. Deferred income represents prepaid service contracts and other items where delivery of the underlying product or service has yet to be delivered.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
21 Operating lease commitments – minimum lease payments At 30 September 2011, the Group had commitments under non-cancellable operating leases as follows: Group Company 2011 2010 2011 2010 Land and buildings $m $m $m $m
Within one year 1.0 0.8 0.2 0.2 In the second to the fifth year 3.2 2.7 0.8 0.9 After the fifth year 1.1 1.6 0.4 0.6 5.3 5.1 1.4 1.7 The Group entered into five commercial leases on property commencing August 1999, December 2005, May 2006, October 2007 and June 2010. The lease entered into on 12 August 1999 is for a period of twenty years, the December 2005 lease for ten years, the May 2006 lease for five years, the October 2007 lease for ten years and the June 2010 lease for three years. There are no renewal options or escalation costs included within the contracts. There are no restrictions placed upon the lessee by entering into these leases. The May 2006 lease has been renewed until May 2014. 22 Business combinations On 13 December 2010, the Group acquired 100% of the share capital of Opto Global Holdings Pty Limited for $14.3m. At that date, the fair value of the net assets and liabilities in Opto Global equalled $3.8m and consequently there is goodwill of $10.5m. Opto Global Holdings Pty Limited has headquarters in Australia. The company sources and sells precision optometric and ophthalmic equipment with markets primarily in the Middle and Far East as well as Africa and South America. The acquisition enhances the Optos product range as well as offering the opportunity to launch the sale of Optos products through key Opto Global distributors. The acquired business contributed revenues of $3.8m and a net loss before taxation of $1.7m to the Group for the period from 13 December 2010 to 30 September 2011. This included one off retention payments to Opto Global employees of $0.5m and a charge of $0.6m for amortisation of the intangible assets acquired with the business. If the acquisition had occurred on 1 October 2010, Group revenue would have been $144.0m and profit before taxation would have been $20.6m. This includes additional foreign exchange losses of $0.5m and amounts written off in relation to trademarks of $0.5m and inventory of $0.3m prior to acquisition but after 1 October 2010. These amounts have been calculated using the Group’s accounting policies. Costs of $1.1m directly attributable to the acquisition have been expensed in the income statement and included within exceptional items. Details of net assets acquired and goodwill are as follows: Purchase consideration: $m
Cash paid 10.8 Fair value of shares issued (434,487 shares at $2.22) 1.0 Fair value of contingent cash 2.5 Total purchase consideration 14.3 The goodwill is attributable to the acquired customer base, synergies and economies expected from the acquisition of Opto Global Holdings Pty Limited.
90
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22 Business combinations continued As part of the sales and purchase agreement, a contingent consideration up to a maximum of $3m is due to the previous owners of Opto Global in the event that the business generates sales of at least $5m over the twelve-month period to 28 February 2012 from underlying operations and having met that hurdle, the business generates revenues of up to $9m from synergies. The expectation is that the conditions relating to the contingent consideration will no longer be met in full. This is due to lower than expected sales, primarily the result of delays in the integration of the products/distributors, as well as the time taken to obtain regulatory approval. As a consequence the fair value of contingent consideration has been reassessed as $0.8m, compared to $2.5m at the acquisition date. The fair value of the shares issued was based on the published share price on 13 December 2010. The assets and liabilities as of 13 December 2010 arising from the acquisition are as follows: Book value Fair value $m $m
Supplier relationships — 4.0 Distributor relationships — 1.4 Licences — 0.6 Cash and cash equivalents 0.1 0.1 Inventories 0.5 0.5 Trade and other receivables 0.6 0.6 Trade and other payables (1.6) (1.6) Deferred tax liability — (1.8) Net assets (0.4) 3.8 Goodwill arising on acquisition 10.5 Purchase consideration 14.3 Purchase consideration settled in cash 10.8 Cash and cash equivalents in subsidiary acquired (0.1) Cash outflow on acquisition 10.7 There were no acquisitions in the year ended 30 September 2010.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
23 Capital commitments In the normal course of business of agreeing contractual relationships with customers, the Group is committed to incurring around $1.3m of costs in the year to 30 September 2011 (2010: $1.2m). These costs will enhance the value of the device and will be capitalised into property, plant and equipment when incurred. 24 Called up share capital 2011 2010 Number Number Equity share capital (million) (million)
Authorised share capital Ordinary shares of 2p each 90 90 The Company has one class of ordinary share which carries no rights to fixed income. 2011 2010
At 1 October, ordinary shares of 2p each Issued on acquisition of subsidiary Exercise of employee share options
70,557,475 69,539,975 434,487 — 271,964 1,017,500
At 30 September, ordinary shares of 2p each
71,263,926 70,557,475
Share capital 2011 Consideration received on issue of shares $m
Share Share Share premium capital premium 2011 2010 2010 $m $m $m
Issue of ordinary share capital for acquisition Exercise of employee share options
— —
1.0 — — 0.5 — 1.5
Total —
1.5 — 1.5
Consideration received —
0.5 — 1.5
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25 Share-based payments The Company has operated discretionary share option arrangements both pre and post its admission to the main market of the London Stock Exchange in February 2006 (“IPO”). Option movements during year The charge recognised from equity-settled, share-based payment transactions for employee services received during the year ended 30 September 2011 is $0.9m (2010: $0.5m) with an additional charge of $0.3m (2010: $0.1m) in respect of National Insurance. Option terms Pre-IPO discretionary options that remain outstanding vested over the three years commencing on the date on which the option was granted. One third of the options vested on grant and the remaining two-thirds vested over the following 36 months on a monthly basis. A further vesting arrangement was utilised in respect of two separate grants. The first grant is subject to time-based vesting with one-third of the option vesting on the first, second and third anniversaries of the date of grant. All pre-IPO option agreements contain provisions for the full acceleration of the option on a change in the control of the Company. Option holders who cease to be employees of the Group are entitled to exercise their vested options in full for a period of either one month or six months following cessation of employment, depending on the reasons for that cessation. All option agreements contain provisions enabling the adjustment of the number of shares subject to option and the exercise price in the event of capitalisation issue, subdivision or consolidation of ordinary shares. All options are to be settled by way of equity with a maximum term of ten years from the date of grant. Post-IPO, three new share plans were introduced. Details of these plans are as follows: The Optos Performance Share Plan 2007 A performance share plan supervised by the Remuneration Committee, which grants awards of conditional shares, a nil (or nominal) cost option with a short exercise period or as forfeitable shares. Awards will normally vest on the third anniversary of grant (other than in exceptional circumstances) to the extent that applicable performance conditions have been met. All awards are subject to performance conditions set by the Committee and measured over a single three-year period. Awards are required to be exercised with six months of vesting. All awards normally lapse upon leaving employment, however under certain circumstances such as death, disability, illness, or the sale or transfer of a participant’s employing company, then the award will normally vest, subject to satisfaction of performance conditions and a pro rata basis for time between the grant and end of three-year period, as determined by the Remuneration Committee. In the event of a takeover or scheme of arrangement of winding up of the Company, all awards will vest early to the extent that the performance conditions have, or would have, in the opinion of the Remuneration Committee, been satisfied. Awards will then be subject to pro rata for time between the grant and three-year period, as determined by the Remuneration Committee unless it decides it is inappropriate to do so in the circumstances.
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Notes to the consolidated financial statements continued
for the year ended 30 September 2011
25 Share-based payments continued Option terms continued The Optos Share Option Plan 2007 An option plan supervised by the Remuneration Committee, structured to comprise elements approved by HM Revenue and Customs, so as to provide UK tax qualified options, as well as elements not so approved. The plan also provides US employees with incentive stock options so as to achieve tax efficiencies in the US. Grants awards are made at an exercise price which is not less than the market value of the Company’s ordinary shares on or around the time of grant. Awards will normally vest of the third anniversary of grant (other than in exceptional circumstances) to the extent that applicable performance conditions have been met. Any award can be subject to performance conditions set by the Committee and measured over a single three-year period. Awards are required to be exercised within ten years of grant. All awards normally lapse upon leaving employment, however under certain circumstances such as death, disability, illness, or the sale or transfer of a participant’s employing company, then the award will normally vest, subject to satisfaction of performance conditions where appropriate and a pro rata basis for time between the grant and end of three-year period, as determined by the Remuneration Committee. In the event of a takeover or scheme of arrangement of winding up of the Company, all awards will vest early to the extent that the performance conditions where appropriate have, or would have, in the opinion of the Remuneration Committee been satisfied. Awards will then be subject to pro rata for time between the grant and three year period, as determined by the Remuneration Committee unless it decides it is inappropriate to do so in the circumstances. The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year ended 30 September 2011: 2011 2011 2010 2010 Number WAEP Number WAEP
Outstanding at the beginning of the year1 3,663,271 £0.61 3,720,400 Granted during the year 1,492,826 £0.43 1,264,000 Forfeited during the year (654,259) £1.16 (303,629) Exercised during the year (271,964) £0.95 (1,017,500)
£0.86 £0.30 £1.17 £0.98
Outstanding at the end of the year1 4,229,874 £0.66 3,663,271
£0.61
Exercisable at the end of the year
£1.27
664,899 £1.23 1,006,900
1 Included within this balance are options over 68,350 (2010: 145,050) 2p shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2. The weighted average share price during the year was £1.63 (2010: £1.03).
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25 Share-based payments continued Option terms continued The Optos Share Option Plan 2007 continued Share options outstanding at the end of the period have the following exercise prices: Price 2011 2010 Expiry dates per share Number Number
Options issued pre-flotation October 2011 £0.80 16,250 51,750 June 2012 – November 2012 £1.00 29,750 29,750 January 2013 – December 2013 £1.00 13,500 114,000 February 2014 – December 2014 £1.00 53,288 61,788 January 2015 – December 2015 £1.00 263,875 407,375 January 2016 £1.00 3,000 6,000 June 2016 £2.07 32,500 32,500 Performance Share Plan 2007 January 2018 £1.24 12,765 66,148 March 2019 £0.02 765,000 765,000 December 2019 £0.02 580,000 580,000 May 2020 £1.29 55,000 55,000 November 2020 £0.02 893,028 — Share Option Plan 2007 May 2017 £2.48 48,741 240,186 January 2018 £1.24 168,879 401,724 January 2019 £0.76 140,000 164,500 December 2019 £0.02 582,500 624,000 November 2020 £1.05 320,000 — SAYE 2014 £1.03 251,798 — Outstanding at the end of the year
4,229,874 3,663,271
1 5,000 options were issued and forfeited during the year ended 30 September 2010. 2 28,000 options were issued and forfeited during the year ended 30 September 2011.
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Notes to the consolidated financial statements continued
for the year ended 30 September 2011
25 Share-based payments continued The fair value of equity-settled, share options granted is estimated as at the date of grant using the Black-Scholes formula, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended 30 September 2011 and 30 September 2010: Option terms continued The Optos Share Option Plan 2007 continued
2011 2010
Dividend yield (%) Expected volatility (%) Historical volatility (%) Risk-free interest rate (%) Expected life of option (years) Weighted average share price Weighted average fair value of options granted Exercise price
Nov 2010 Nov 2010 May 2010 Nov 2010 Performance Share Performance Sharesave Share Option Share Plan Plan Plan Plan
May 2010 Dec 2009 Dec 2009 Share Performance Share Option Share Option Plan Plan Plan
— — — — 54% 54% 46% 50% 54% 54% 46% 50% 1.36% 1.30% 2.10% 1.50% 3 3 5 3 £1.27 £1.27 £1.24 £1.27 £0.68 £1.22 £0.59 £1.25 £1.03 £0.02 £1.05 £0.02
— — — 46% 50% 46% 46% 50% 46% 2.40% 1.80% 2.70% 5 3 5 £1.27 £0.95 £0.95 £0.54 £0.93 £0.42 £1.29 £0.02 £0.92
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. As the Company has only a limited history of quoted share price volatility, the expected volatility has been based on the historical volatility of comparative companies. No other features of options granted were incorporated into the measurement of fair value.
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26 Related party transactions Group During the year ended 30 September 2011, revenue totalling $46,000 (2010: $nil) at normal market prices was received by Group companies from Kehoe Eye Care PC, of which Peter Kehoe is a Director and controlling shareholder. There was $4,000 outstanding at 30 September 2011, but within terms of trade (2010: $nil). No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Compensation of key management personnel
2011 2010 $m $m
Short-term employee benefits 3.3 2.6 Post-employment benefits 0.2 0.1 Share-based payments 0.7 0.3 4.2 3.0 There were eleven (2010: nine) key management personnel in 2011. Company Transactions with subsidiary companies
2011 2010 Note $m $m
Sales to subsidiary companies 16.0 5.5 Purchases from subsidiary companies 13.9 5.4 Amounts due from subsidiary companies 76.1 44.0 Amounts due to subsidiary companies 12.2 6.5 Long-term loans to subsidiary companies 5 1.4 1.4 No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Compensation of key management personnel
2011 2010 $m $m
Short-term employee benefits 2.1 1.4 Post-employment benefits 0.1 0.1 Share-based payments 0.6 0.2 2.8 1.7 There were six (2010: six) key management personnel in 2011.
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
27 Financial instruments: disclosures The Group’s principal financial instruments comprise cash and finance leases. 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 principal financial risks to which the Group is exposed are those relating to foreign currency, credit, liquidity and interest rate. Foreign currency risk The Group has invested in overseas operations and also buys and sells goods and services in currencies other than in the functional currency of its relevant operations. As a result, the Group’s non-US dollar revenues, profits, assets, liabilities and cash flows can be affected by movements in exchange rates. The following table demonstrates the sensitivity to a reasonably possible change in the Sterling against the US dollar and the Euro against the US dollar exchange rates with all other variables held constant of the Group’s profit before tax due to fair value of monetary assets and liabilities. An increase in currency rate is defined as a strengthening of Sterling and Euro versus the US dollar.
Group and Company
Effect Effect Increase in on profit Decrease in on profit currency rate $m currency rate $m
2011 Sterling versus US dollar Euro versus US dollar
+10% +10%
(4.3) 0.2
–10% –10%
4.3 (0.2)
2010 Sterling versus US dollar Euro versus US dollar
+10% +10%
(2.4) —
–10% –10%
2.4 —
The Group monitors its non-US dollar foreign currency exposure and, when deemed necessary by the Board, seeks to minimise its transaction exposure by using forward foreign currency contracts to eliminate exposures on any committed significant transactions. The Board has determined that it was not necessary to use forward foreign currency contracts in 2011. It is Group policy not to engage in any speculative forward exchange transactions of any kind. The Group does not currently hedge currency exposure in its net investment on overseas operations. Credit risk The credit risk on liquid funds is limited because the funds are deposited over a number of counterparties who are banks with a mix of high quality balance sheets, high credit ratings assigned by international credit rating agencies or strong governmental support. The Group’s credit risk is primarily attributable to its trade receivables. The Group is exposed to risk over a large number of customers and there is no significant concentration of risk. Creditworthiness checks are undertaken before entering into contracts with new customers. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An allowance for impairment is made where there is an identifiable loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows.
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27 Financial instruments: disclosures continued Credit risk continued Trade receivables are denominated in the following currencies: Group Company 2011 2010 2011 2010 $m $m $m $m
US dollar 14.7 7.6 0.7 0.5 Sterling 0.8 0.8 0.8 0.6 Canadian dollar 1.9 1.0 — — Euro 1.5 0.6 0.6 0.2 Other currencies 0.9 0.3 0.3 0.3 19.8 10.3 2.4 1.6 Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments: Carrying Fair Carrying amount value amount 2011 2011 2010 Group $m $m $m
Financial assets Cash 10.2 Finance lease receivables 25.8 Financial liabilities Obligations under finance leases
(35.4)
10.2 41.2 41.2 22.6 7.3 7.3 (35.4) (62.3) (60.3)
Carrying Fair Carrying amount value amount 2011 2011 2010 Company $m $m $m
Financial assets Cash 3.6 Finance lease receivables 2.2 Financial liabilities Obligations under finance leases
(0.1)
Fair value 2010 $m
Fair value 2010 $m
3.6 33.2 33.2 1.9 0.3 0.3 (0.1) — —
The fair value of items has been calculated by discounting the expected future cash flows at prevailing interest rates. The carrying amounts of all other financial instruments of the Group, i.e. short-term trade receivables and payables that are not included in the above table, are a reasonable approximation of fair value. The carrying amount recorded in the balance sheet of each financial asset represents the Group’s maximum exposure to credit risk. The average length remaining on the finance lease obligations has reduced to 16 months. It has therefore been deemed that the carrying value is in line with the fair value. The weighted average effective interest rate on cash balances for 2011 was 0.1% (2010: 0.1%).
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
27 Financial instruments: disclosures continued Interest rate risk Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. All of the Group’s borrowings are at fixed rates of interest. Excess cash is placed on short-term interest-bearing deposit accounts. Based on current levels of net debt, interest rate risk is not considered to be material. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate deposits). There is no impact on the Group’s equity. Increase/ Effect on decrease profit in basis before tax Group points $m
2011 US dollar +50 — 2010 US dollar +50 0.2 Increase/ Effect on decrease profit in basis before tax Company points $m
2011 US dollar +50 — 2010 US dollar +50 0.1 Liquidity risk The Group aims to mitigate its liquidity risk by managing its cash resources and improving its credit rating to facilitate effective fund raising. The Group’s funding objective is to maintain continuity of funding and flexibility through the use of internally generated funds and finance leases, which it uses to fund the expansion of its business operations. During the year ended 30 September 2011, the Group continued to have access to sufficient funds to meet its business expansion needs. Excess cash is placed on short-term interest-bearing deposit accounts.
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Overview Business review Governance Financial statements
27 Financial instruments: disclosures continued Liquidity risk continued The table below summarises the maturity profile of the Group’s financial liabilities at 30 September 2011 based on contractual undiscounted payments: Within 1–2 2–5 1 year years years Group $m $m $m
Total $m
2011 Fixed rate Obligations under finance leases
(22.9) (11.1) (3.6) (37.6)
Floating rate Trade and other payables (excluding other taxes and social security costs)
(25.7)
—
— (25.7)
Within 1–2 2–5 1 year years years Total Group $m $m $m $m
2010 Fixed rate Obligations under finance leases
(32.5)
Floating rate Trade and other payables (excluding other taxes and social security costs)
(11.4)
(22.4)
(12.6)
—
—
Within 1–2 2–5 1 year years years Company $m $m $m
2011 Fixed rate Obligations under finance leases Floating rate Trade and other payables (excluding other taxes and social security costs)
(67.5) (11.4) Total $m
— (0.1) — (0.1) (9.3) —
— (9.3)
Within 1–2 2–5 1 year years years Total Company $m $m $m $
2010 Fixed rate Obligations under finance leases — — — — Floating rate Trade and other payables (excluding other taxes and social security costs)
(11.3)
—
—
(11.3)
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Financial statements
Notes to the consolidated financial statements continued
for the year ended 30 September 2011
27 Financial instruments: disclosures continued Capital management The primary objective of the Group’s capital management is to ensure that it maintains access to sufficient capital to continue to grow its business. The Group’s capital comprises equity attributable to equity holders, vendor financing and bank short-term deposits. The Group’s principal business model, of placing medical devices with customers on a rental basis, requires it to access capital to fund purchases of new medical devices which are included as property, plant and equipment on the Group’s balance sheet. The Group has, however, also increased the proportion of direct capital sales made to customers. In addition to debt finance, the Group maintains cash at bank and on short-term deposits, where it seeks to optimise the rates of interest received. Cash deposits are managed in parallel with levels of debt financing in order to provide sufficient levels of liquidity to settle its ongoing requirements for creditor payments. The Group tracks and manages its levels of net debt. No changes were made in the objectives, policies or processes during the years ended 30 September 2010 and 30 September 2011. 2011 2010 $m $m
Net debt: Cash 10.2 41.2 Obligations under finance leases (35.4) (62.3) Net debt (25.2) (21.1) The Group entered into a facility agreement with Lloyds Bank Corporate Markets in respect of the provision of bilateral multi-currency revolving credit facilities of up to US$30 million. This facility is to be used to fund the acquisition of OPKO instrumentation division and for general working capital purposes. As at the year end this facility had not been enacted.
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Overview Business review Governance Financial statements
28 Post-balance sheet event On 11 October 2011 the Group announced that following the approval of the transaction by its shareholders and satisfaction of all outstanding conditions, the acquisition of the assets and business of the instrumentation division of OPKO Health, Inc. completed. OPKO Instrumentation is engaged in the development, manufacture and sale of optical coherence tomography (“OCT”) diagnostic devices and optical ultrasound scanners, each used by the ophthalmic profession in the diagnosis and management of eye disease and conditions. Optos’ widefield retinal imaging technology, combined with the specific data that can be derived from OCT images, has the potential to offer ophthalmologists and optometrists the most powerful tools for disease diagnosis and management and strengthens Optos’ offering into optometry. The acquisition brings access to established OCT and ultrasound products together with a product pipeline including a lower-cost OCT product. Significant opportunities exist to accelerate sales through Optos’ direct sales force and to derive selling, marketing and operational synergies from combining Optos’ business with OPKO Instrumentation. The consideration for the purchase included an initial cash consideration of US$17.5 million together with payment of royalties, at a rate of 2.5% or 5% on sales of certain products from the second anniversary of the date of completion. The maximum payment of royalties is set at an aggregate amount of US$22.5 million. The Group has entered into an agreement with Lloyds Bank Corporate Markets in respect of the provision of bilateral multi-currency revolving credit facilities of up to US$30 million. The Company has funded the acquisition and associated expenses from cash reserves and amounts drawn down under the above agreement. Due to the proximity of the transaction to the reporting date additional disclosure information such as the valuation of intangibles and fair value adjustments cannot be given at this time as the purchase price allocation exercise is still underway and will not be completed by the reporting date.
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Financial statements
Five year summary 2011 2010 2009 2008 2007 $m $m $m $m $m
Revenue 143.3 106.3 97.2 100.8 86.8 Gross profit 91.4 70.9 59.0 64.2 56.5 Operating expenses (66.3) (53.4) (50.5) (52.5) (50.0) Exceptional items 0.1 — (6.3) — — Operating profit 25.2 17.5 2.2 11.7 6.5 Profit/(loss) before taxation
22.8 12.7 (3.8) 5.9 1.6
Profit/(loss) after taxation
24.1 14.0 (4.3) 4.6 (0.2)
Diluted profit/(loss) before taxation per ordinary share 30.7c 18.1c (5.5)c 8.4c 2.3c Diluted profit/(loss) after taxation per ordinary share 31.8c 19.9c (6.1)c 6.6c (0.3)c Cash flow from operating activities 36.5 46.4 37.4 39.5 31.5 Free cash flow (1.4) 27.7 18.0 3.3 (10.8) Net debt (25.2) (21.1) (46.2) (58.4) (57.0)
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Optos plc’s commitment to environmental issues is reflected in this Annual report and accounts which has been printed on Satimatt Green 75% recycled fibre and 25% FSC® certified fibre, Cocoon offset comprising 100% recycled fibre and Symbol Freelife, certified by the FSC® and produced at mills with ISO 14001 environmental management systems. This report was printed by Pureprint Group using their environmental print technology which minimises the impact of printing on the environment. Vegetable based inks have been used and 99% of dry waste is diverted from landfill. The printer is a CarbonNeutral® company.
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North America Optos Inc. 67 Forest Street Marlborough, MA 01752 United States
+44 (0) 1383 843 300
Outside of the US: +1 (508) 787 1400
Toll-free: +1 800 854 3039
Australia Optos Australia Adelaide University Research Park 38 Winwood Street Thebarton, Adelaide South Australia, 5031
Optos plc Annual report and accounts 2011
Europe Optos plc Queensferry House Carnegie Business Campus Enterprise Way Dunfermline Scotland KY11 8GR United Kingdom
+61 8 8443 4533
Optos GmbH Gebäude 5137C Werner-von-Siemens-Str. 2–6 D–76646 Bruchsal +49 (0) 7251 9294-0/ +49 (0) 800 18 22 643 Switzerland Optos Switzerland Zweigniederlassung Egg Gewerbestrasse 9 8132 Egg +41 (0) 43 277 07 37
www.optos.com
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