It is pleasing to be able to report a strong set of results for 2017. In particular, cash generation has once again been very strong, with net cash growing from £2.2m to £7.0m during the year, despite spending £1.4m on capital expenditure and £1.5m on the cancellation of share options.

Operations

We have succeeded in our aim for 2017 of driving the existing business and continuing to reduce cost. Gross margins have improved at a greater rate than the increase in sales.  We have sold around 15,000 analysers and 70 million tests during the year and cemented our place as number one supplier of Beta Hydroxybutyrate (β-HB ) reagent in the USA, and number two worldwide in Hemoglobin point-of-care products.

During the year we completed the restructuring of our manufacturing operations by closing our manufacturing facility in Poland. Production volume was shifted to our factory in Barleben, Germany and customers successfully transitioned away from the older style cuvette previously made in Poland. In Barleben we have invested in modern production equipment including new automated equipment for the manufacture and packaging of the Quo-Test cartridge. At our Elkhart USA facility, where we manufacture a number of wet chemistry products, we have a medium term programme to update the facilities to improve quality and volumes.

Point-of-Care

EKF's point-of-care business model continues to be to sell analysers into the market and then benefit from the ongoing revenue stream generated by sales of the dedicated consumables. Over the last five years we have sold over 80,000 analysers for use worldwide, and each year we supply a growing number of tests for use on these.

Hematology

Sales of Hematology products have increased by 10% to £12.9m (2016: £11.7m). Sales of Hemo Control (sold in the USA as Hemo Point H2) have built on the strong growth in 2016, rising a further 7%, while DiaSpect revenues have risen by a further 23%.

Diabetes

Diabetes revenues are up by 13% at £11.5m (2016: £10.2m). The Saudi tender won in 2015 was completed during the year, and this has lead to an increase in Quo Test and Quo Lab sales of 14%.  There has been further success for Biosen sales which have risen by 10%.

Central Laboratory

Central laboratory sales have grown by 5% to £12.6m, from £12.1m last year, again driven sales of β-HB Liquicolor reagent which are higher by a further 17%, having risen by a very significant percentage in 2016. We have continued to promote our Altair 240 analyser through an increasing portfolio of specialist distributors. Sales of other Central Laboratory products have been stable. We have discontinued a number of the marginal former STI products.

New and updated products

We have concentrated in 2017 on widening the range of regulatory approvals for our existing product ranges. In particular we have conducted a number of clinical trials in the USA in anticipation of submitting applications for FDA approval in the USA for our DiaSpect Tm and Quo-Test products. Quo-Test is also in the lab testing phase of its China FDA registration and we have secured registration for it in Brazil alongside Hemo Control, DiaSpect Tm and Quo-Lab. POC Connect, our connectivity solution for our DiaSpect Tm handheld analyser was launched in November 2017. We will soon be showcasing our new and updated Lactate Scout 4.0 product. As noted above, we are working to secure commercial launch of our sTNFR biomarker (for early detection of end stage renal disease in diabetic patients), alongside a number of partners.

Outlook

We are looking forward to finalising our two FDA applications in the first half of 2018, and to update on progress with our sTNFR project. At the same time, we anticipate receiving completed registrations for Beta Hydroxybutyrate (β-HB) in Mexico, Brazil and Colombia as well as the Indian registration of DiaSpect Tm all in the first half of 2018.  We are continuing to work hard to increase efficiency and reduce costs by investing in automation and streamlining processes. We are confident that we will continue to see growth in the business on a steady and sustainable basis.

Julian Baines

Chief Executive Officer

14 March 2018

Revenue

Revenue for the year was £41.6m (2016: £38.6m), an increase of 8%. 6.6% of the increase was the result of improvements in foreign currency exchange rates, largely because of a further fall in the average value of sterling against the US dollar and Euro especially in the first half of the year. The remainder of the increase comes from organic growth.

Revenue by disease state, which is presented for illustration purposes only, is as follows:

Gross profit

Gross profit increased to £22.9m (2016: £18.3m). The gross margin percentage on sales was 55.0% (2016: 47.5%). The increase was attributable in part to cost reductions arising from the actions taken in previous years, partly through mix and volume effects, and partly as a result of the release of inventory provisions set in prior years.

Administration costs and research and development costs

Administration expenses have again fallen, to £18.2m (2016: £18.7m). R&D costs included in administration expenses were £2.2m, with a further £0.7m being capitalised as an intangible cost. Gross R&D expenses have therefore increased to £2.9m from £2.7m in 2016.

The charge for depreciation of fixed assets and amortisation of intangible assets is £4.6m (2016: £5.0m). The charge includes an impairment in the year related to the carrying value of our Polish operations which were closed during the year, as well as the reassessment of the carrying value of certain non-core development projects.

Exceptional items relate to provisions made and costs incurred in the closure of the Polish manufacturing site, the increase in the fair value of the warranty claim associated with the acquisition of EKF-Diagnostic GmbH, which is attributable to the increase in the Company's share price during the year, and to the benefit at fair value of the shares released to EKF from an escrow account associated with the acquisition of Selah Genomics, Inc.

Operating profit and adjusted earnings before interest tax and depreciation

The Group made an operating profit of £4.7m, having made a small loss of £0.3m in 2016. This reflects the considerable efforts made in the last two years to reduce costs and improve efficiency. We continue to consider that adjusted earnings before interest, tax, depreciation and amortisation, share-based payments and exceptional items (adjusted EBITDA) is a better measure of progress because the Board believes it gives clearer comparability of operating performance between periods. In 2017 we achieved adjusted EBITDA of £9.3m (2016: £6.1m). The calculation of this non-GAAP measure is shown on the face of the income statement. It excludes the effect of share-based payment charges of £1.5m (2016: £1.0m), which increased largely because of the acceleration of charges as a result of the programme of share option cancellations, and exceptional profits of £1.6m (2016: losses of £0.5m). Of the increase in adjusted EBITDA of £3.2m, £0.6m is attributable to the effect of more favourable exchange rates, with the remainder being attributable to improved underlying performance.

Finance costs

Finance costs have continued to fall, to £0.5m in 2017 (2016: £0.7m). This is largely as a result of lower interest costs associated with the reduction of debt during the year, offset by higher charges relating to the discounting of deferred consideration.

Tax

There is an income tax charge of £1.4m (2016: credit of £1.2m). This is because of a tax adjustment in the USA caused by timing differences on the carry back of losses in previous years, while in 2016 there was a large credit relating to 2015. In future years the Group anticipates a positive impact on its tax charge as a result of the tax policy changes recently made by the US Government.

Balance sheet

Property, plant and equipment

Additions to fixed assets were £1.4m (2016: £1.3m). This reflected investment in production equipment in both Germany and in the USA, including automated pouching equipment in Barleben and the replacement of obsolete plant in Elkhart.

Intangible assets

The value of intangible assets has fallen from £46.5m to £43.6m year-on-year. This is partially attributable to the annual amortisation charge, plus the offsetting effect of additions and impairments.

Deferred consideration

The remaining deferred consideration relates to the share-based payment to the former owner of EKF-Diagnostic GmbH. Finalisation of the contracts to conclude the position is now expected to take place in 2018.

Cash and working capital

Net cash has increased from £2.2m to £7.0m during the year. Gross cash has increased to £8.2m (2016: £7.9m), and borrowings have reduced from £5.7m to £1.2m. All borrowings in the UK and the USA have been paid off. The remaining borrowings are being reduced over the loan period to 2023 and were used to fund the new building in Barleben. £1.5m was used to buy employees out of share option agreements and £0.2m was used to acquire ordinary shares for cancellation.

Inventory has reduced from £6.0m to £5.6m in 2017 as our programme to reduce inventory levels continued. While results so far have been encouraging, and we have seen inventory levels reduce by over 30% since December 2015, despite higher revenue, our ambition remains to reduce our holdings further, while ensuring production and sales run efficiently.

Trade receivables have reduced, partly because of the completion of payments relating to business in Saudi Arabia which required extended payment terms. The increase in payables, reflects increased activity during the year and the liability recognised in respect of cash settled share-based payments.

Richard Evans

Finance Director and Chief Operating Officer

14 March 2018 

Consolidated Income Statement

FOR THE YEAR ENDED 31 DECEMBER 2017