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Third quarter january – september 2013

POC (Point-of-Care) project stopped – sales, profit and cash flow in the core business increased during the third quarte

Third quarter, July - September 2013

  • Net sales totaled SEK 69.9 million (63.8), up 9.6 percent. Changes in the USD and EUR exchange rates had a negative impact of SEK 0.2 million on net sales.
  • The POC project was stopped, resulting in a one-time non-cash impairment charge of SEK 95.5 million (0.0).
  • The operating result was a loss of SEK 91.7 million (profit: 1.5). Excluding impairment charges of SEK 95.5 million, the operating result was profit of SEK 3.8 million (1.5).
  • The net result was a loss of SEK 72.4 million (profit: 0.9). Net profit before impairment charges was SEK 4.5 million (0.9).
  • The result per share was a loss of SEK 15.38 (profit: 0.19). Earnings per share before impairment charges amounted to SEK 0.96 (0.19). 

Interim period January - September 2013

  • Net sales totaled SEK 204.6 million (199.0), up 2.8 percent. Changes in the USD and EUR exchange rates had a negative impact of SEK 3.3 million on net sales.
  • The POC project was discontinued, resulting in a one-time non-cash impairment charge of SEK 95.5 million (0.0).
  • The operating result was a loss of SEK 85.6 million (profit: 14.3). Excluding impairment charges of SEK 95.5 million, the operating result was profit of SEK 9.9 million (14.3).
  • The net result was a loss of SEK 68.2 million (profit 7.7). Net profit before impairment charges was SEK 8.7 million (7.7).
  • The result per share was a loss of SEK 14.49 (profit: 1.63). Earnings per share before impairment charges amounted to SEK 1.85 (1.6).
     

Key events during the third quarter

POC project discontinued

Resolution of the previously reported issues involving the robustness of the POC project was deemed impossible without substantial additional investment. In order to free up resources, Boule has decided to stop any further investment in the project and, instead, focus increased energy on the company’s expansive core operations. Since contacts have been initiated with various industrial players regarding the POC project, the company is prepared for negotiations about the future of the project.

Given the applicable accounting rules, the company has decided to write down the entire carrying amount of SEK 95 million for the POC project in the accounts as of September 30. Following this impairment charge, the company reported a continued high equity/assets ratio of 57 percent. The company’s liquidity was unaffected by the impairment. 

Agreement with CVS Group

During the quarter, Boule Diagnostics signed an agreement with CVS Group, one of UK’s largest companies in veterinary medicine and diagnostics.

The agreement spans a seven-year period and includes delivery of instruments and consumables at an estimated value of at least SEK 25 million.
CVS Group owns a number of veterinary diagnostic labs as well as nearly 250 veterinary clinics in the UK. Deliveries to the CVS Group will start during the current year.


Key events after the reporting period

New premises in Sweden

After the end of the reporting period, a lease was signed with FastPartner for new premises to house Boule’s entire Swedish operations with the exception of reagent production, which moved in to new premises in 2012. The lease is for 3,800 square meters and means that all existing operations in Västberga, south of Stockholm, will move to Lunda, north of Stockholm in 2014. The premises are located in close to the new reagents production facility. 

Comments from the CEO

The POC project

Unfortunately, despite substantial efforts, our Point-of-Care development project – the POC project – has not achieved the level of robustness we deem necessary to launch and market the product. We have therefore decided to stop any further investment in the project. This decision enables us to free up resources and focus increased energy on the company’s expansive core operations. During the year, contact has been established with various industrial players and the company is prepared for negotiations about the project’s future.

Since substantial uncertainty exists in the assessment of future expenses and revenue from the project, and given the prevailing accounting rules, we have decided to write down the entire value of the POC project. Accordingly, the accounts at September 30 have been charged with an impairment loss for accounting purposes of SEK 95 million. The impairment loss lowers the company’s equity/assets ratio from 66 percent to 57 percent, which is still well above our financial objective of 30-50 percent. The company’s liquidity was unaffected by the impairment. A significant portion of the knowledge generated by the project will be utilized in our core operations. 

Core operations

Sales in the third quarter increased 10 percent year-on-year. The increase was attributable to sales of consumables for the Group’s proprietary systems. However, instrument sales in the human market were not at the same level as a year earlier. During the quarter, we experienced somewhat subdued demand but our assessment is that this is only temporary.

Sales of veterinary instrument continue to be robust and it is positive that markets outside the US posted significantly increased sales, even though the US market continues to be the largest and most important veterinary market.

Total sales in Eastern Europe in the quarter increased 29 percent year-on-year. Sales in Latin America also developed well and growth of 36 percent was posted. The sales company established in Mexico at the end of 2012 contributed strongly to the above. Our assessment is that the region will continue to generate consistently high growth.

In Asia and Africa, the sales trend was essentially unchanged, while sales in the Middle East declined slightly. In general, the strong SEK had a dampening effect on business, particularly on instrument sales to countries with weak currencies, such as India and Turkey.

Our investment in the OEM business (reagents and controls) continues and our expectations of significantly increased sales stand firm, even if sales in the January to September 2013 period were slightly weaker year-on-year. Our assessment is that we will continue to achieve strong growth in the OEM business with healthy profitability.

In summary, sales in the third quarter strengthened compared with the first two quarters of the year. 

It was gratifying that operating profit for the quarter, before the one-time non-cash impairment charge increased year-over-year from SEK 1.5 million to SEK 3.8 million.

It is also positive that our efforts to improve cash flow are generating results. Cash flow from operating activities more than doubled in the third quarter compared with the year-earlier period, from SEK 7 million to SEK 15 million.

Ernst Westman, President and CEO
Boule Diagnostics AB