Immunodiagnostic Systems Holdings plc Trading Update

Immunodiagnostic Systems Holdings plc Trading Update

Immunodiagnostic Systems Holdings plc, a leading producer of specialist diagnostic testing kits and automated systems for the clinical and research markets, provides a trading update following the conclusion of its third quarter trading period.

Financial update
Revenues for the nine months to December 2011 were £39.6 million, compared to £35.4 million for the comparable period in 2010.  As a consequence of the trading pattern now being experienced the Company expects revenue for the full year to March 2012 to be between £52 and £53 million, lower than current market expectations.

Operating costs for the year are expected to be in line with previous estimates but given the reduced revenue expectations pre-tax profit on a pre-exceptional basis is now forecasted to be between £14.5 and £15.3 million.

The Company's operations remain highly cash generative with net cash of £3.6 million at the end of December 2011 compared to net debt of £2.3 million at December 2010.

Manual tests
Market conditions for our non-automated tests, primarily manual Vitamin D sales, are increasingly competitive.  The Company expects the pressure on these revenues to persist as alternative products, both manual and automated, increase competition and reduce unit pricing.  Consequently manual Vitamin D revenue is expected to show continued decline in the medium term.  The Company believes that these factors will be particularly prevalent in the USA and areas served by our distributor network.  The Company is responding to the changed market conditions for its manual products and is supporting both its direct sales operations and its distributors with better pricing and stronger marketing tools.

During Q3 underlying IDS-iSYS system placements and IDS-iSYS test revenue increased on the previous quarter.  Despite increasing competition on prices, the average annualised revenue per reagent rental system was maintained at £90K at the end of the third quarter.

Strategic changes
In response to these changing market conditions the Company has instigated an initiative to streamline the organisation and enhance profitability across the business.  The purpose of this programme will be to more closely align the Company's cost base with current and expected market conditions, whilst continuing to maintain investment in new product development and strengthening the sales and marketing organisation.

The programme has identified approximately £2 million of annualised cost savings (equivalent to approximately 10% of operating overheads excluding depreciation and amortisation) which, following implementation, will give rise to one-off costs of approximately £1.2 million which are expected to be accounted for in the current financial year.

The full benefit of the annualised savings is expected to be seen during the financial year ending March 2013.

Sales and Marketing
The Company is strengthening its sales and marketing organisation.  In addition to the appointment of a new Sales and Marketing director, both sales management and direct sales teams have been expanded in the USA and greater sales effort is being placed on those territories supported by our distributors.  An initiative to gain longer term customer retention for manual products has been implemented and there is increased support for the wider range of IDS-iSYS tests.  A new business unit focussed on sales to the pharmaceutical industry has also been created.

New IDS-iSYS tests
Investment in new product development will increase in the new financial year.  The Company believes that the IDS-iSYS proposition remains strong and fulfils a significant unmet market need particularly for the small and medium sized laboratories.  Increasing the range of tests available for use on the IDS-iSYS platform will continue to enhance the value of the system.

The first ever automated test for 1,25-Dihydroxy Vitamin D is expected to be launched around the end of the current financial year and IDS-iSYS tests for hypertension (Renin and Aldosterone) are expected to be launched in the first quarter of the next financial year.  This will make the IDS-iSYS the first automated system with both these tests.

During the next financial year the Company expects to launch an additional three new tests in the areas of bone, hypertension and diabetes, further expanding the menu and differentiating the platform.  The Company will also continue to pursue additional out-licensing opportunities for the IDS-iSYS technology.

The Board expects overall revenues to show similar year on year growth in the new financial year with the decline in manual test sales being offset by increased IDS-iSYS revenues arising from new placements and additional products becoming available on the IDS-iSYS system.  As a result of the combined impact of the factors and actions outlined above, the Board expects profit growth to resume in the new financial year.

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