ADVANCED MEDICAL SOLUTIONS GROUP PLC — Earnings Release 2015

Mar 16, 2016

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RNS Number : 2151S

Advanced Medical Solutions Grp PLC

16 March 2016

	16 March 2016

Advanced Medical Solutions Group plc

("AMS" or the "Group")

Unaudited preliminary Results for the year ended 31 December 2015

~ Continued delivery of strong growth and innovation ~

Winsford, UK: Advanced Medical Solutions Group plc (AIM: AMS), a leading developer and manufacturer of advanced products for the global surgical and wound care markets, today announces its unaudited preliminary results for the year ended 31 December 2015.

Financial Highlights

	2015	2014	Reported growth	Growth at  constant currency¹
Group revenue (£ million)	68.6	63.0	9%	11%
Adjusted2 operating margin (%)	25.4	24.7	70bps	-
Adjusted² profit before tax (£ million)	17.4	15.6	12%	-
Profit before tax (£ million)	17.0	15.2	12%	-
Adjusted² diluted earnings per share (p)	6.86	6.26	10%	-
Diluted earnings per share (p)	6.68	6.08	10%	-
Net operating cash flow3	22.5	18.4	22%
Net cash (£ million)4	34.2	17.3	98%	-

·      Proposed final dividend of 0.55p per share, making a total dividend for the year of 0.80p (2014: 0.70p), up 14.3%

Business Highlights:

·      Good sales progress across all Business Units on a constant currency basis;

o  Branded Distributed up 37% to £14.6 million (2014: £10.7 million)5, and up 38% at constant currency

o  Branded Direct down 3% to £22.3 million (2014: £23.2 million)5, and up 3% at constant currency

o  OEM up 10% to £27.7 million (2014: £25.3 million), and up 8% at constant currency

o  Bulk Materials up 2% to £3.9 million (2014: £3.9 million), and up 12% at constant currency

·      Strong performance in the US with LiquiBand® tissue adhesive range

o  Revenues up 79% at constant currency to £8.0m (2014: £4.1 million)

o  As at 31 December 2015, market share by volume6 increased to 16.8% (July 2015: 11.1%) in the combined hospital and  non - hospital market

·      ActivHeal® continued to make good progress in the UK NHS, with an 8% increase in revenue

·      Silver alginate revenues increased by 10% at constant currency to £15.5 million (2014: £13.7 million)

·      Hernia mesh fixation device, LiquiBand® Fix8™, delivered £1.0m of sales in the first full year and launched in 20 countries

·      CE approval for antimicrobial foam including Polyhexamethylene Biguanide (PHMB) for Europe received on 27 August 2015 with launches expected in 2016

·      FDA approval for two new product claims for the octyl formulation product, LiquiBand Exceed™, giving it a competitive advantage in the US topical skin adhesive market

·      FDA approval to market suture portfolio in the US in line with strategy post acquisition of Resorba.

Commenting on the results Chris Meredith, Chief Executive Officer of AMS, said:

"We have delivered another strong year of growth and are pleased to report that all of our business units are performing well despite some challenging currency conditions. The growth in the US has been markedly strong for AMS where the performance and range of our LiquiBand® tissue adhesives, in particular, is driving market share gains. We have also been pleased with the number of new product approvals we have achieved this year, demonstrating the continuing success of our innovation and we are confident that, with our strong R&D pipeline, we will continue to deliver growth."

- End -

1    Constant currency removes the effect of currency movements by re-translating the current period's performance at the previous period's exchange rates

2    All items are shown before amortisation of acquired intangible assets which, in 2015, were £0.4 million (2014: £0.4 million) as defined in the financial review

3    Operating cash flow is arrived at by taking the operating profit for the period and adjusting it for depreciation, amortisation, working capital movements and other non cash items

4    Net cash is defined as cash and cash equivalents plus short term investments less financial liabilities and bank loans

5    £0.4m of sutures for the dental market has been reclassified from the Branded Direct to the Branded Distributed segment. The 2014 revenues have been restated to aid comparison

6   data supplied by Global Healthcare Exchange

For further information, please visit our new website www.admedsol.com or contact:

Advanced Medical Solutions Group plc	#### Tel: +44 (0) 1606 545508
Chris Meredith, Chief Executive Officer Mary Tavener, Group Finance Director
Consilium Strategic Communications	Tel: +44 (0) 20 3709 5700
Mary-Jane Elliott / Jonathan Birt / Matthew Neal / Hendrik Thys
Investec Bank PLC (NOMAD & Broker)	Tel: +44 (0) 20 7597 5970
Gary Clarence / Daniel Adams / Patrick Robb

About Advanced Medical Solutions Group plc 

AMS is a world-leading independent developer and manufacturer of innovative and technologically advanced products for the global surgical, wound care and wound closure markets, focused on quality outcomes for patients and value for payors. AMS has a wide range of products that include silver alginates, alginates, foams, tissue adhesives, sutures and haemostats, which it markets under its brands; ActivHeal®, LiquiBand® and RESORBA® as well as supplying under white label.

AMS's products, manufactured out of two sites in the UK, one in the Netherlands, two in Germany and one in the Czech Republic, are sold in more than 70 countries via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, the Czech Republic and Russia.  Established in 1991, the Company has 510 employees.  For more information please see www.admedsol.com.

Chairman's Statement

AMS continues to progress as a leading, international provider of high quality, high value innovative and technologically advanced products for the advanced wound care and wound closure markets and has delivered another year of good growth.

The performance of LiquiBand® in the US was particularly strong. We continue to gain market share and are fast approaching our initial goal of building a 20% market share with our LiquiBand® range in the US. We are also pleased with the success of our LiquiBand® Fix8™ hernia mesh fixation device, our first device using medical adhesive inside the body. It is now being sold in 20 countries and has achieved £1 million of sales in its first full year since launch.

We have also received a number of product and market approvals in the year, demonstrating our continued success in innovation, with launches planned in 2016, supporting the sales growth in the Group.

Financially, we are pleased to report a 9% increase in revenue to £68.6 million (2014: £63.0 million), representing growth of 11% on a constant currency basis and an increase in adjusted1 profit before tax of 12% to £17.4 million (2014: £15.6 million).

The strong cash flow generation of the Group was again evident and we ended the year with net cash of £34.2 million (2014: £17.3 million). AMS continues to be in robust financial health and is well positioned to invest in internal and external opportunities in line with the Group's strategy. 

Dividend 

The Board is proposing a final dividend of 0.55p per share, making a total dividend for the year of 0.80p per share, a 14.3% increase on 2014. If approved at the Annual General Meeting on 2 June 2016, this will be paid on 10 June 2016 to shareholders on the register at the close of business on 20 May 2016.

People

On behalf of the Board, I would like to thank all of our employees, customers, suppliers, business partners and shareholders for their support over the past year in helping AMS achieve its goals.

Peter Allen

Chairman

1 All items are shown before amortisation of acquired intangible assets which, in 2015, were £0.4 million (2014: £0.4 million) as defined in the financial review

Chief Executive's Statement

I am pleased to report another strong set of results across the Group.

Branded Distributed

The Branded Distributed Business Unit reports the sales of our brands through third party distributors. 

Branded Distributed revenue was 37% higher at £14.6 million (2014: £10.6 million)5 and 38% higher at constant currency. The main contributor to this growth was LiquiBand® sales in the US, which accounted for 55% of the business unit's total sales.

LiquiBand® in the US

Sales of LiquiBand® in the US increased by 93% to £8.0 million (2014: £4.1 million) at reported  currency and by 79% at constant currency. The latest data2 for December 2015 shows our volume market share in the US hospital sector increasing to 16.0%, up from 9% at July 2015, while our volume market share in the US non-hospital, or alternate site, market is now estimated2 at 22.2%, increased from 21.5% at June 2015, making an overall market share of 16.8% (11.1% at July 2015). 

The launch of our 2-octyl cyanoacrylate formulation, LiquiBand® Exceed™,  has extended our portfolio of products and has contributed to the momentum of growth. We now have a number of formulations of cyanoacrylate within our marketed LiquiBand® product range, including very fast setting formulations with applicators allowing for quick, precision closure; film-forming formulations that are designed to close and provide a protective barrier layer over wounds as well as formulations that have properties in between. Our LiquiBand® products are now able to accommodate the full spectrum of wound closing needs, each in innovatively designed applicators favoured by surgeons.

On 3 November 2015, the FDA approved two new product claims for LiquiBand Exceed™ giving it a competitive advantage in the topical skin adhesive market. These claims allow AMS and its distribution partners to differentiate LiquiBand Exceed™ from the market leader on wound coverage, volume of useable glue and ability to re-use during the same operational procedure, saving both time and cost. The two new claims include the use of a single device to cover wounds of up to 30cm in length, as well as a single device being suitable for intra-operative reuse for up to 90 minutes on a single patient. Both claims are unique for the US Topical Skin Adhesive Market and will help us to continue to provide a superior product for clinicians and a versatile solution for healthcare providers in this key market, helping AMS to further grow its market share.

LiquiBand® in the EU and Rest Of the World

Elsewhere, within the EU and ROW, LiquiBand® sales through our distributors continued to show good growth. France and Italy remain our largest markets outside the US, UK and Germany. Overall sales increased by 12% to £1.7 million (2014: £1.5 million) at reported currency and constant currency.

The regulatory approval process for LiquiBand® in China has continued to be challenging. Given the difficulties that have been experienced due to changes in the regulatory pathway, we have withdrawn our original file and re-started the submission process with our most recent formulations and designs of LiquiBand® Exceed™ and LiquiBand® Flowcontrol™ and are not expecting approval in the current year.

Hernia Mesh Fixation device - LiquiBand® Fix8™

We have been delighted with the response we have received from surgeons following the launch of LiquiBand® Fix8™. Feedback has been extremely positive about the ease of use of this device and the benefit it brings to patients regarding the reduced risk of post operative pain. A number of surgeons have been keen to endorse the product and we are also receiving valuable feedback about other possible applications suitable for this type of device on which we are currently working.

AMS received approval to market this highly innovative product, LiquiBand® Fix 8™, in Europe in May 2014. This was the Group's first application using medical cyanoacrylate technology inside the body. Through the accurate delivery of individual drops of cyanoacrylate adhesive, LiquiBand® Fix8™ is used to hold hernia meshes in place within the body instead of traditional tacks and staples. This accurate laparoscopic application of adhesive is expected to reduce surgical complications, in particular the potential pain associated with the use of tacks and staples, thereby improving the patient experience

2data supplied by Global Healthcare Exchange

and reducing healthcare costs overall.

We were able to expand the indications of LiquiBand® Fix 8™ in May 2015 and the device is now able to be used for the laparoscopic surgical mesh fixation for all types of abdominal hernia as well as for the closure of the membrane lining the abdominal wall (peritoneum). This was the first extension of the claims of LiquiBand® Fix 8™ and we expect to develop further opportunities for this kind of application, broadening the market for the use of adhesives internally.

In the first full reporting year, £1.0 million  of LiquiBand® Fix 8™ sales have been achieved across the Group, with £0.7 million (2014: £0.1 million) resulting from sales to distributors. The product is now launched in 20 countries.  

RESORBA® 

Sales of RESORBA® products to all export markets (excluding Russia) declined by 7% at reported currency to £3.1 million (2014: £3.3 million)3, but increased by 4% at constant currency. France and Italy remain our largest markets for export and good growth was seen in both territorities, offset by a weak performance in China where sales declined 19%. Sales in Russia decreased by 10% at constant currency, but decreased 40% to £0.8 million (2014: £1.3 million) at reported currency, reflecting both the weak economic conditions within Russia and the impact of the weak Rouble. 

We received approval from the FDA on 4 November 2015 that we had clearance to market the majority of our suture product portfolio, successfully adding to our first US suture approval from early 2015. With only one more suture type still awaiting US market approval, we are now well positioned to launch a comprehensive range of sutures into the US in mid-2016 through a combination of our branded and unbranded routes to market. The US surgical suture market is estimated to be in excess of $1billion in size and is dominated by a few major brands. Gaining US approval for the RESORBA® product range has been a strategic aim for the Group since we acquired the business in late 2011, providing a significant opportunity for AMS in the medium term.

In R&D our focus is on continuing to improve the formulations of the base monomers that are used in our adhesives as well as extending the applications of tissue adhesives for other internal uses.

Branded Direct

The Branded Direct Business Unit reports sales of our branded products through our own sales forces in the UK, Germany and Czech Republic. Reported revenue declined 3% to £22.3 million (2014: £23.2 million)3 but grew by 3% at constant currency.

2015 was a year of investment in this Business Unit with a number of senior management hires and in particular, a new Business Unit Director was hired in June. As a consequence of these investments, a number of new initiatives have been put in place to drive the business forward in 2016.

ActivHeal®

ActivHeal®, which delivers a high quality range of woundcare dressings that offer significant cost savings without compromising on clinical outcomes or patient care, continues to be a compelling proposition for the  NHS. Sales of our ActivHeal® range increased by 8% to £6.4 million (2014: £6.0 million). We  continue to broaden our product range to the NHS, including our recently approved anti-microbial and atraumatic foam dressings within our offering.   

LiquiBand®

Sales of LiquiBand® into the Accident and Emergency Room ('A&E') in the UK fell 13% to £2.3 million (2014: £2.6 million). We expect the initiatives we have taken to restore growth in 2016. Sales into the OR increased 17% to £0.7 million (2014: £0.6 million).

Sales of LiquiBand® in Germany increased 27% at constant currency to £1.6 million and by 13% at reported currency. Within this, sales of LiquiBand® Fix8™ contributed £0.3 million (2014: nil).

RESORBA®

Sales of RESORBA® branded products in Germany and the Czech Republic were 10% lower at £11.3

million (2014: £12.5 million)3 at reported level but flat at constant currency with some pricing pressure being seen.  Within this sales of haemostats increased by 1% at constant currency to £3.3 million (2014: £3.6 million) and sales of sutures and collagens into the dental market increased 5% at constant curency to £3.1 million, whilst sales of sutures into hospitals fell 2%.  

We believe our ability to supply a comprehensive range of high quality sutures that provide cost savings to hospitals is compelling, and we are targetting smaller accounts where conversion will not be seen as such a difficult challenge. This strategy looks to be proving successful with a number of hospitals already agreeing to convert their suture ranges in the A&E departments in 2016.

In R&D, our focus is on extending the attributes of our collagens to meet the needs of dental practitioners and oral surgeons as well as including new antibiotics in our haemostats.

OEM

The OEM Business Unit reports the sales of products that are sold under third parties' brands.

OEM revenue increased by 10% at reported currency to £27.7 million (2014: £25.3 million) and by 8% at constant currency.

Our silver alginate ranges of dressings continued to perform well, with sales increasing by 13% at reported currency and by 10% at constant currency to £15.5 million (2014: £13.7 million). Our partners continued to do well with the range of silver fibre dressings we provide, gaining market share as well as accessing new geographical markets. We continue to support them with regulatory approvals and marketing data.

On 1 September 2015 we received CE approval in Europe for a new non-adhesive antimicrobial foam dressing containing Polyhexamethylene Biguanide (PHMB).

PHMB has been shown to be effective against several bacteria including, amongst others, Staphylococcus Aureus including the methicillin resistant type, (MRSA) and Escherichia Coli (E-Coli). This antimicrobial foam wound dressing may be used throughout the healing process on moderate to heavily exuding chronic and acute wounds that are infected or are at risk of infection and may be used on pressure ulcers, leg and foot ulcers, diabetic ulcers and surgical wounds. 

In addition, we also now have approval for an atraumatic wound dressing containing silicone which can be removed from a wound without damaging the skin. Contracts have been agreed to launch both the PHMB foam and the atraumatic foam with our OEM partners and are expected to launch in 2016. We expect that the launch of our antibiotic foam dressings may result in some initial substitution of our silver alginate dressings. 

Sales of our existing foam-based dressings were flat at £1.8 million. With the expansion of our product portfolio, growth is expected in 2016.

Our other woundcare and skin protectant products delivered good growth and grew 6% to £9.7 million at constant currency (2014: £9.0 million), and 7% at reported currency.

We continue to work on extending our advanced woundcare ranges by looking to add other antimicrobial products to the range, improving the absorbancy of the dressings as well as combining a number of materials to enhance the performance of our dressings.

Bulk Materials

The Bulk Business Unit reports sales of bulk materials to third party convertors.

Bulk Materials revenue increased by 2% at reported currency to £3.9 million (2014: £3.9 million) and by 12% at constant currency.

3 £0.4m of sutures for the dental market has been reclassified from the Branded Direct to the Branded Distributed segment. The 2014 revenues have been restated to aid comparison.

Rollstock foam contributed around 86% of Bulk revenue and good growth was seen by one signficant customer that had destocked in 2014. Sales by some newer and smaller partners are also now starting to gain traction and are expected to bring benefits in 2016.

In R&D, the  focus is on developing new foam formulations with antimicrobials, working in conjunction with the OEM Business Unit.

Operations

Efficiency and gross margins

We continue to make operational improvements by reducing set up times, eliminating non-value added activities and increasing outputs. These incremental efficiencies are helping to improve gross margins acoss the Group and have helped to generate an improvement of  approximately 100 basis points in 2015. We have invested in improving both our converting and packing capability in Winsford. This equipment has provided increased operational flexibility, improved efficiency and provided additional capacity.

Capacity and resource

The capacity of our collagen plant in Germany has been increased with a new freeze drier and ancillary services. The total cost of this investment is £0.8 million, of which £0.2 million was incurred in 2015. This plant is now fully running, following commissioning in February 2016 and has increased our collagen manufacturing capacity by 50%.

We continue to invest in improving our ERP (Enterprise Resource Planning) management and reporting systems and having already successfully completed the implementation  in Winsford, Plymouth and Etten Leur facilities, are now working on improvements to our systems in Germany.

Regulatory and quality assurance

With the regulatory framework becoming increasingly  complex, we have continued to invest in both Regulatory and Quality functions and systems to ensure that we are able to support our partners with winning  approvals in new markets as well as obtaining approval for our own  products. We have started work on scoping the process to gain approval to market LiquiBand® Fix 8™ in the US which will involve a full Pre Market Approval (PMA) and is likely to take at least three years. We are also working on identifying the regulatory pathway to include antibiotics in collagens.  

Summary and Outlook

We have delivered a reported revenue growth of 9%, 11% at constant currency, and improved profitability and cash generation during the year.

All Business Units have delivered growth at constant currency with the US sales, in particular, delivering a very strong performance. We have been very pleased with the successful launch of our LiquiBand® Fix8™ hernia mesh fixation device. Sales in the first year have given us confidence that this product will drive growth and support our strategy of accessing the OR.

We have also received a number of approvals in the year demonstrating our continued success with new products and underlines our commitment to investing in R&D. We expect to make further advancements in these activities and to launch new products as a result of our innovation.   

We are confident that the Group is well placed to drive growth and remain excited by the prospects for our future.

Financial Review

Summary

Group revenue increased by 9% to £68.6 million (2014: £63.0 million). At constant currency, revenue growth would have been 11%.

Comparisons with 2014 are made on a pre-amortisation of acquired intangible asset cost basis, as we believe that this provides a more relevant representation of the Group's trading performance. Amortisation of acquired intangible assets was £0.4 million in the period (2014: £0.4 million).

To aid comparison, the Group's adjusted income statement is summarised in Table 1 below.

Table 1	Year ended 31 Dec 2015	Year ended 31 Dec 2014
Adjusted Income Statement	£'000	£'000	% Change
Revenue	68,596	63,010	9%
Gross profit	39,908	35,843	11%
Distribution costs	(951)	(853)
Administration expenses3	(22,138)	(19,681)
Other income	589	250
Adjusted operating profit	17,408	15,559	12%
Net finance (costs) / income/	(45)	48
Adjusted profit before tax	17,363	15,607	11%
Amortisation of acquired intangibles	(367)	(389)
Profit before taxation	16,996	15,218	12%
Taxation	(2,877)	(2,354)
Profit for the period	14,119	12,864	10%
Adjusted earnings per share - basic4	6.95p	6.39p	9%
Earnings per share - basic4	6.78p	6.20p	9%
Adjusted earnings per share - diluted4	6.86p	6.26p	10%
Earnings per share - diluted4	6.68p	6.08p	10%

3    Administration expenses exclude amortisation of acquired intangible assets

4    See Note 7 Earnings per share for details of calculation

Revenues were negatively impacted by approximately £1.5 million due to the effects of currency movements in the year. This also had an impact on Group gross margins which were reduced by 30 bps as a result. Gross margins were positively impacted by sales mix effect by 60bps, as well as the 100bps improvement made from operational eficiences.

Adjusted operating profit increased by 12% to £17.4 million (2014: £15.6 million) and the adjusted operating margin increased by 70 bps to 25.4% (2014: 24.7%). Administration costs increased by 12% to £22.1m (2014: £19.7 million) as investments were made in selling and marketing, particularly to support the Branded Direct business unit. Within this, the Group expensed to the income statement £1.8 million on R&D (2014: £2.1 million). Spend as a percentage of sales reduced to 2.6% (2014: 3.3%).

Profit before tax for the year was 12% higher at £17.0 million (2014: £15.2 million).

The Group's effective rate of tax for the year was 16.9 % (2014: 15.5%). This is reflective of the utilisation of previously unrecognised brought-forward tax losses in the UK, together with Patent Box and R&D relief. It also reflects the impact of blending profits and losses from different countries and the different tax rates associated with these countries. The effective tax rate of the Group is expected to increase as the Group is no longer classified as a Small Medium Enterprise (SME) and will no longer be able to gain R&D relief at the SME rate from 2017.

A reconciliation between the standard rate of taxation in the UK and the Group's effective rate is summarised in Table 2 below.

Table 2

Taxation	%
Standard taxation rate	20.25
Loss utilisation and recognition	(1.58)
Impact of differential between UK and overseas tax rate	2.09
Patent box relief	(2.58)
R&D relief	(1.91)
Expenses not deductible, prior year adjustments, depreciation & share based payments	0.65
Effective taxation rate	16.9

Earnings (excluding amortisation of acquired intangible assets) increased by 9% to £14.5 million (2014: £13.3 million), resulting in a 9% increase in adjusted basic earnings per share to 6.95p (2014: 6.39p) and a 10% increase in diluted adjusted earnings per share to 6.86p (2014: 6.26p).

Profit after tax increased by 9% to £14.1 million (2014: £12.9 million), resulting in a 9% increase in basic earnings per share to 6.78p (2014: 6.20p) and a 10% increase in diluted earnings per share to 6.68p (2014: 6.08p).

The Board is proposing a final dividend of 0.55p per share, to be paid on 10 June 2016 to shareholders on the register at the close of business on 20 May 2016. This follows the interim dividend of 0.25p per share that was paid on 30 October 2015 and would make a total dividend for the year of 0.80p per share (2014: 0.70p), a 14.3% increase on 2014.

The operational performance of the Business Units is shown in Table 3 below. The adjusted profit from operations and the adjusted margin are shown after excluding amortisation of acquired intangibles. To aid comparison and in determining the operational margins of the individual Business Units, the revenue of the Bulk Materials Business Unit sales made to other Business Units of £0.8 million (2014: £0.7 milllion) is included. 

Table 3

Operating Result by Business Unit
Year ended 31 December 2015	Branded Direct	Branded Distributed	OEM	Bulk Materials
	£'000	£'000	£'000	£'000
Revenue6	22,344	14,631	27,674	4,772
Profit from operations	5,235	4,366	7,139	814
Amortisation of acquired intangibles	214	127	25	-
Adjusted profit from operations5	5,449	4,493	7,164	814
Adjusted operating margin5	24.4%	30.7%	25.9%	17.1%
Year ended 31 December 2014
Revenue	23,194	10,663	25,275	4,580
Profit from operations	6,012	2,999	6,225	485
Amortisation of acquired intangibles	227	135	27	-
Adjusted profit from operations5	6,239	3,134	6,252	485
Adjusted operating margin5	26.9%	29.4%	24.7%	10.6%

5 excludes amortisation of intangible assets

6 £0.4m of sutures for the dental market has been reclassified from the Branded Direct to the Branded Distributed segment. The 2014 revenues have been restated to aid comparison.

Branded Direct

The adjusted operating margin of this Business Unit reduced to 24.4% (2014: 26.9%) and lower than the position at H1 2015 (26.7%). Operating margin was reduced partly as a result of some pricing pressure in Germany as well as the investment we have made in our direct sales teams which we highlighted at the half year. We expect the benefit of this investment to start coming through in 2016.

Branded Distributed

The adjusted operating margin of this Business Unit increased to 30.7% (2014: 29.4%), reflecting the improved profitability from the increase in sales in this Business Unit and, in particular, from sales to the US. The growth in sales to the US mitigated the impact in the reduction in margin from sales made into Russia and continued the improvement in margin seen at H1 2015 (26.5%).  

OEM

The adjusted operating margin of this Business Unit was at a higher level to the prior year at 25.9% (2014: 24.7%), and lower than the margin reported at H1 2015 (26.8%) due to the mix of business.

Bulk Materials

The adjusted operating margin of this Business Unit increased to 17.1% (2015: 10.6%), and improved from the position in H1 2015 (12.6%). Margins were affected by the higher volumes of production and sales.

Geographic breakdown of revenues

The geographic breakdown of Group revenues in 2015 is shown in Table 4 below:

Table 4

Geographic Breakdown of Group Revenues
£ millions	2015	% of total	2014	% of total
Europe (excluding UK & Germany)	19.1	27.8%	18.7	29.7
Germany	13.4	19.5%	14.0	22.3
UK	16.7	24.3%	15.3	24.3
USA	17.8	25.9%	13.8	21.9
Rest of World	1.6	2.3%	1.1	1.8

47% of the Group's sales are in Europe (excluding the UK), however, only around 30% of sales are denominated in Euros. Approximately 85% of all sales to the US are denominated in US Dollars. The Group hedges significant transactional exposure by using forward contracts and options, and aims to have 70% of its estimated transactional exposure for the next twelve months hedged.

The Group estimates that a 10% movement in £:US$ or £: Euro exchange rate will impact Sterling revenues by approximately 2.3% and 3.0% respectively and in the absence of any cash flow hedging this would have an impact on profit of 1.3% and 0.1%.  

Cash Flow

Table 5 summarises the Group's cash flows.

Table 5

Group Cash Flows
Year ended 31 December	2015	2014
	£'000	£'000
Adjusted operating profit (Table 1)	17,408	15,559
Non-cash items	3,153	2,993
EBITDA	20,561	18,552
Working capital movement	1,983	(104)
Net operating cashflow	22,544	18,448
Capital expenditure and capitalised R&D	(2,675)	(2,406)
Net interest (paid)/received	(47)	45
Tax paid	(1,253)	(1,876)
Free cash flow	18,569	14,211
Dividends paid	(1,521)	(1,307)
Proceeds from share issues	494	65
Net increase in cash and cash equivalents	17,542	12,969

Note: EBITDA is earnings before interest, tax, depreciation, intangible asset amortisation and share based payments

EBITDA increased by 11% to £20.6 million (2014: £18.6 million).

Working capital decreased in the year mainly due to the effects of translating overseas working capital balances held in Euros into Sterling. Inventory across the group slightly increased to 4.4 months of supply (2014: 4.2 months of supply). Trade debtor days were slightly lower than the prior year at 41 days (2014: 42 days) while trade payable days decreased slightly to 34 days (2014: 36 days).

The Group generated net cash from operating activities of £22.5 million (2014: £18.4 million) (see Table 5) and had net cash of £34.2 million (2014: £17.3 million) at the end of the year.

We invested £2.7 million in capital equipment, software and capitalised R&D in the year (2014: £2.4 million). We have invested in equipment around the Group that improves converting and packaging in Winsford as well increasing capacity in Germany.

The Group generated a free cash flow of £18.6 million in the year (2014: £14.2 million). The conversion of adjusted operating profit into free cash flow was 107% (2014: 91%).

The Group paid its final dividend for the year ended 31 December 2014 of £0.94 million (2014: for the year ending 2013, £0.85 million) on 29 May 2015, and its interim dividend for the six months ended 30 June 2015 of £0.59 million (2014: £0.46 million) on 30 October 2015.

In December 2014 the Group entered into a new, five-year, £30 million, multi-currency revolving credit facility with an accordion option under which AMS can request up to an additional £20 million on the same terms. The previous facility for £4 million was due to expire in 2015.  The Group chose to take advantage of favourable credit conditions to put in place a more suitable facility to support its  growth ambitions. The new facility is provided jointly by the Group's existing bankers, HSBC, as well as The Royal Bank of Scotland. It is unsecured and has not been drawn down. This facility carries an annual interest rate of LIBOR or EURIBOR plus a margin that varies between 0.65% and 1.75% depending on the Group's net debt to EBITDA ratio.

At the end of the period, the Group had net cash of £34.2 million (2014: £17.3 million). The movement in net cash from the start of the year to net cash at the end of the year is reconciled in Table 6 below:

Table 6

Movement in net cash	£'000
Net cash as at 1 January 2015	17,280
Exchange rate impacts	(621)
Free cash flow	18,569
Dividends paid	(1,521)
Proceeds from share issues	494
Net cash as at 31 December 2015	34,201

The Group's going concern position is fully described in note 2.

CONSOLIDATED INCOME STATEMENT

			(Unaudited)		(Audited)
Year ended 31 December			2015		2014
			Total		Total
		Note	£'000		£'000
Revenue from continuing operations		4	68,596		63,010
Cost of sales			(28,688)		(27,167)
Gross profit			39,908		35,843
Distribution costs			(951)		(853)
Administration costs			(22,505)		(20,070)
Other income			589		250
Profit from operations		4,5	17,041		15,170
Finance income			73		49
Finance costs			(118)		(1)
Profit before taxation			16,996		15,218
Income tax		6	(2,877)		(2,354)
Profit attributable to equity holders of the parent			14,119		12,864
Earnings per share
Basic		7	6.78p		6.20p
Diluted		7	6.68p		6.08p
Adjusted diluted		7	6.86p		6.26p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	(Unaudited)	(Audited)
Year ended 31 December	2015	2014
	£'000	£'000
Profit for the year	14,119	12,864
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations	(3,348)	(4,200)
Loss arising on cash flow hedges	(3)	(1,173)
Other comprehensive expense for the year	(3,351)	(5,373)
Total comprehensive income for the year attributable to equity holders of the parent	10,768	7,491

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	(Unaudited)	(Audited)
At 31 December	2015	2014
	£'000	£'000
Assets
Non-current assets
Acquired intellectual property rights	8,359	9,238
Software intangibles	2,009	1,835
Development costs	1,803	1,850
Goodwill	34,579	36,696
Property, plant and equipment	15,795	16,003
Deferred tax assets	135	1,108
Trade and other receivables	13	22
	62,693	66,752
Current assets
Inventories	8,843	7,532
Trade and other receivables	10,817	12,969
Current tax assets	9	-
Cash and cash equivalents	34,201	17,280
	53,870	37,781
Total assets	116,563	104,533
Liabilities
Current liabilities
Trade and other payables	9,139	7,649
Current tax liabilities	806	584
Other taxes payable	234	259
Obligations under finance leases	1	2
	10,180	8,494
Non-current liabilities
Trade and other payables	415	472
Deferred tax liabilities	2,311	2,513
Obligations under finance leases	-	1
	2,726	2,986
Total liabilities	12,906	11,480
Net assets	103,657	93,053
Equity
Share capital	10,451	10,393
Share premium	33,196	32,742
Share-based payments reserve	2,253	1,563
Investment in own shares	(152)	(148)
Share-based payments deferred tax reserve	437	278
Other reserve	1,531	1,531
Hedging reserve	(525)	(522)
Translation reserve	(8,215)	(4,867)
Retained earnings	64,681	52,083
Equity attributable to equity holders of the parent	103,657	93,053

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Group

			Share	Investment	Share based
	Share	Share	based	in own	payments	Other	Hedging	Translation	Retained
	capital	premium	payments	shares	deferred tax	reserve	reserve	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2014 (audited)	10,343	32,364	1,326	(144)	158	1,531	651	(667)	40,526	86,088
Consolidated profit for the year to 31 Dec 2014	-	-	-	-	-	-	-	-	12,864	12,864
Other comprehensive income	-	-	-	-	-	-	(1,173)	(4,200)	-	(5,373)
Total comprehensive income	-	-	-	-	-	-	(1,173)	(4,200)	12,864	7,491
Share based payments	-	-	592	-	120	-	-	-	-	712
Share options exercised	50	378	(355)	-	-	-	-	-	-	73
Shares purchased by EBT	-	-	-	(190)	-	-	-	-	-	(190)
Shares sold by EBT	-	-	-	186	-	-	-	-	-	186
Dividends paid	-	-	-	-	-	-	-	-	(1,307)	(1,307)
At 31 December 2014 (audited)	10,393	32,742	1,563	(148)	278	1,531	(522)	(4,867)	52,083	93,053
Consolidated profit for the year to 31 Dec 2015	-	-	-	-	-	-	-	-	14,119	14,119
Other comprehensive income	-	-	-	-	-	-	(3)	(3,348)	-	(3,351)
Total comprehensive income (unaudited)	-	-	-	-	-	-	(3)	(3,348)	14,119	10,768
Share based payments	-	-	709	-	159	-	-	-	-	868
Share options exercised	58	454	(19)	-	-	-	-	-	-	493
Shares purchased by EBT	-	-	-	(262)	-	-	-	-	-	(262)
Shares sold by EBT	-	-	-	258	-	-	-	-	-	258
Dividends paid	-	-	-	-	-	-	-	-	(1,521)	(1,521)
At 31 December 2015 (unaudited)	10,451	33,196	2,253	(152)	437	1,531	(525)	(8,215)	64,681	103,657

CONSOLIDATED STATEMENT OF CASH FLOWS

	(Unaudited)	(Audited)
Year ended 31 December	2015	2014
	£'000	£'000
Cash flows from operating activities
Profit from operations	17,041	15,170
Adjustments for:
Depreciation	1,745	1,750
Amortisation  -   intellectual property rights	367	389
-   development costs	410	331
-   software intangibles	289	228
Impairment of development costs	-	92
(Increase) / decrease in inventories	(1,501)	221
Decrease / (increase) in trade and other receivables	2,148	(1,623)
Increase in trade and other payables	1,336	1,298
Share based payments expense	709	592
Taxation	(1,253)	(1,876)
Net cash inflow from operating activities	21,291	16,572
Cash flows from investing activities
Purchase of software	(472)	(408)
Capitalised research and development	(373)	(581)
Purchases of property, plant and equipment	(1,907)	(1,478)
Disposal of property, plant and equipment	77	61
Interest received	73	50
Net cash used in investing activities	(2,602)	(2,356)
Cash flows from financing activities
Dividends paid	(1,521)	(1,307)
Finance lease	(2)	(4)
Issue of equity shares	498	69
Shares purchased by EBT	(262)	(190)
Shares sold by EBT	258	186
Interest paid	(118)	(1)
Net cash used in financing activities	(1,147)	(1,247)
Net increase in cash and cash equivalents	17,542	12,969
Cash and cash equivalents at the beginning of the year	17,280	5,257
Effect of foreign exchange rate changes	(621)	(946)
Cash and cash equivalents at the end of the year	34,201	17,280

Notes Forming Part of the Condensed Consolidated Financial Statements

1.      Reporting entity

Advanced Medical Solutions Group plc ("the Company") is a public limited company incorporated and domiciled in England and Wales (registration number 2867684). The Company's registered address is Premier Park, 33 Road One, Winsford Industrial Estate, Cheshire, CW7 3RT.

The Company's ordinary shares are traded on the AIM market of the London Stock Exchange plc. The consolidated financial statements of the Company for the twelve months ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group is primarily involved in the design, development and manufacture of novel high performance polymers (both natural and synthetic) for use in advanced woundcare dressings and materials, and medical adhesives and sutures for closing and sealing tissue, for sale into the global medical device market and dental market.

2.      Basis of preparation

These condensed unaudited consolidated financial statements have been prepared in accordance with the accounting policies set out in the annual report for the year ended 31 December 2014.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), as adopted for use in the EU, this announcement does not itself contain sufficient information to comply with IFRSs. The Group expects to publish full financial statements that comply with IFRSs in April 2016.

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 December 2015 or 31 December 2014. The financial information for the year ended 31 December 2014 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The auditor reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498 (2) or (3) Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2015 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Group's annual general meeting.

The financial statements have been prepared on the historical cost basis of accounting except as disclosed in the accounting policies set out in the annual report for the year ended 31 December 2014.

With regards to the Group's financial position, it had cash and cash equivalents at the year end of £34.2 million. The Group also has in place a five-year, unsecured, new multi-currency, credit facility for £30 million  which was undrawn in 2015.

While the current economic environment is uncertain, the Group operates in markets whose demographics are favourable, underpinned by an increasing need for products to treat chronic and acute wounds. Consequently, market growth is predicted. The Group has a number of long-term contracts with customers across different geographic regions and also with substantial financial resources, ranging from government agencies through to global healthcare companies.

Having taken the above into consideration the Directors have reached a conclusion that the Group is well placed to manage its business risks in the current economic environment. Accordingly, they continue to adopt the going concern basis in preparing the preliminary announcement.

In the current year, the group has adopted the following new standards and interpretations: IFRS10 Consilidated Financial Statements, IFRS 11 Joint arrangements, IFRS12 Disclosue of Interests in Other Entities, Amendments to IAS27 Separate Financial Statements, IAS28 Investments in Associates and Joint Ventures, Amendments to IAS 32 and IFRS7 for Offsetting Financial Assets and Liabilities. The adoption of the new standard and amendments have had no significant impact in the financial statements of the Group.

At the date of authorisation the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective: IAS19 Defined Benefit Plans: Employee Contributions, IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS16 Leases, Amendments to IAS 36 and Amendments to IAS39. The Directors anticipate that the adoption of these standards and interpretations will have no material impact on the financial statements of the Group.

3.      Accounting policies

The same accounting policies, presentations and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements. The annual financial statements of Advanced Medical Solutions Group plc are prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

4.      Segment information

As referred to in the Chief Executive's Report, the Group is organised into four business units: Branded Direct, Branded Distributed, OEM (original equipment manufacturer) and Bulk Materials. These business units are the basis on which the Group reports its segment information.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments, and related revenue, corporate assets, head office expenses and income tax assets. These are the measures reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance.

Business segments

Segment information about these businesses is presented below.

Year ended 31 December 2015	Branded Direct	Branded Distributed	OEM	Bulk Materials	Eliminations	Consolidated
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External sales	22,344	14,631	27,675	3,946	-	68,596
Inter segment sales				826	(826)	-
Total revenue	22,344	14,631	27,675	4,772	(826)	68,596

Result
Segment result	5,235	4,366	7,139	814	-	17,554
Unallocated expenses						(513)
Profit from operations						17,041
Finance income						73
Finance costs						(118)
Profit before tax						16,996
Tax						(2,877)
Profit for the year						14,119

At 31 December 2015	Branded Direct	Branded Distributed	OEM	Bulk Materials	Consolidated
Other Information	£'000	£'000	£'000	£'000	£'000
Capital additions:
Software intangibles	111	15	333	13	472
Research & development	102	67	200	4	373
Property, plant and equipment	730	332	663	182	1,907
Depreciation and amortisation	(855)	(431)	(1,309)	(217)	(2,812)
Balance sheet
Assets
Segment assets	57,317	20,948	32,774	5,359	116,398
Unallocated  assets					165
Consolidated total assets					116,563
Liabilities
Segment liabilities	5,353	2,888	3,930	735	12,906
Consolidated total liabilities					12,906

Year ended 31 December 2014	Branded Direct		Branded Distributed	OEM		Bulk Materials	Eliminations	Consolidated
	£'000		£'000	£'000		£'000	£'000	£'000
Revenue
External sales7	23,194		10,663	25,275		3,878	-	63,010
Inter-segment sales						702	(702)	-
Total revenue	23,194	10,663			25,275	4,580	(702)	63,010

Result
Segment result	6,012	2,999	6,225	485	-	15,721
Unallocated expenses						(551)
Profit from operations						15,170
Finance income						49
Finance costs						(1)
Profit before tax						15,218
Tax						(2,354)
Profit for the year						12,864

70.4m of sutures for the dental market has been reclassified from the Branded Direct to the Branded Distributed segment

As at 31 December 2014	Branded Direct	Branded Distributed	OEM	Bulk Materials	Consolidated
Other Information	£'000	£'000	£'000	£'000	£'000
Capital additions:
Software intangibles	88	11	272	37	408
Research & development	200	113	262	6	581
Property, plant and equipment	586	179	617	96	1,478
Depreciation and amortisation	(903)	(356)	(1,188)	(251)	(2,698)
Balance sheet
Assets
Segment assets	54,442	19,755	26,024	4,104	104,325
Unallocated  assets					208
Consolidated total assets					104,553
Liabilities
Segment liabilities	5,257	2,159	3,531	533	11,480
Consolidated total liabilities					11,480

Geographic segments

The Group operates mainly in the UK, the Netherlands, Germany, the Czech Republic and Russia, with a sales office located in the USA. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services, based upon location of the Group's customers:

Year ended 31 December	2015	2014
	£'000	£'000
United Kingdom	16,657	15,308
Germany	13,371	14,042
Europe excluding United Kingdom and Germany	19,223	18,747
United States of America	17,766	13,786
Rest of World	1,579	1,127
	68,596	63,010

The following table provides an analysis of the Group's total assets by geographical location.

As at 31 December	2015	2014
	£'000	£'000
United Kingdom	62,785	46,049
Germany	50,592	52,887
Europe excluding United Kingdom and Germany	3,060	5,506
United States of America	126	91
	116,563	104,533

5.      Profit from operations

Year ended 31 December	2015	2014
	£'000	£'000
Profit from operations is arrived at after charging / (crediting):
Depreciation of property, plant and equipment	1,754	1,750
Amortisation of:
-  acquired intellectual property rights	367	389
-  software intangibles	289	228
-  development costs	393	331
Operating lease rentals - plant and machinery	250	228
- land and buildings	896	912
Research and development costs expensed to the income statement	1,817	2,120
Cost of inventories recognised as expense	27,836	26,286
Staff costs	20,500	19,342
Net foreign exchange loss / (gain)	391	(1,029)

6.      Taxation

Year ended 31 December	2015	2014
	£'000	£'000
a) Analysis of charge for the year
Current tax:
Tax on ordinary activities - current year	1,743	1,482
Tax on ordinary activities - prior year	58	194
	1,802	1,676
Deferred tax:
Tax on ordinary activities - current year	1,055	678
Effect of reduction in UK corporation tax rates	20	-
	1,075	678
Tax charge for the year	2,877	2,354

The tax assessed for the year is lower (2014: lower) than the standard rate of corporation tax in the UK (20.25%) as explained below:

Year ended 31 December	2015	2014
	£'000	£'000
b) Factors affecting tax charge for the year
Profit before taxation	16,996	15,218
Profit multiplied by the standard rate of corporation tax in the UK of 20.25% (2014: 21.5%)	3,442	3,272
Effects of:
Overseas tax rate versus UK corporate tax rate	356	259
Net expenses  / (income) not deductible /  (taxable) for tax purposes and other timing differences	43	(26)
Depreciation for year less than capital allowances	(1)	(9)
Patent box relief	(438)	(545)
Utilisation and recognition of trading losses	(269)	(550)
Research and development relief	(324)	(287)
Share-based payments	10	46
Adjustments in respect of prior year - current tax	58	194
Taxation	2,877	2,354

Legislation to reduce the main rate of UK corporation tax to 19% and 18% was passed by parliament on 26 October 2015 to take effect from 1 April 2017 and 1 April 2020 respectively. The reduction in the main rate to 18% had been substantively enacted at the balance sheet date and, therefore, the deferred tax assets and liabilities are calculated in these financial statements at this rate.

In addition to the amount charged to the income statement the Group has recognised directly in equity:

·      excess tax deductions related to share-based payments on exercised options, together with

·      changes in excess deferred tax deductions related to share-based payments, totalling £159,000 deficit (2014: deficit £121,000).

7.      Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

Year ended 31 December	2015	2014
	£'000	£'000
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	14,119	12,864

Number of shares	'000	'000
Weighted average number of ordinary shares for the purposes of basic earnings per share	208,376	207,528
Effect of dilutive potential ordinary shares:
- share options, deferred share bonus, LTIPs	2,902	3,991
Weighted average number of ordinary shares for the purposes of diluted earnings per share	211,278	211,520

	£'000	£'000
Profit for the year attributable to equity holders of the parent	14,119	12,864
Amortisation of acquired intangible assets	367	389
Adjusted profit for the year attributable to equity holders of the parent	14,486	13,253

Earnings per share	pence	pence
Basic	6.78p	6.20p
Diluted	6.68p	6.08p
Adjusted basic	6.95p	6.39p
Adjusted diluted	6.86p	6.26p

This information is provided by RNS

The company news service from the London Stock Exchange

END

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