CEO’s Report

Dear Shareholders,

The Directors of Azure Healthcare Limited are pleased to report the financial and operating results for the financial year ended 30 June 2015. We have taken measures, including increased investment in Research & Development that will allow us to advance our goals of evolving into a clinical workflow management software business. Our ability to evolve and adapt to a rapidly changing healthcare industry will be the key to the long-term growth and success of Azure.

Board composition

The Board has undergone some significant changes recently including the appointments of Mr Graeme Billings as Independent Non-Executive Chairman and Mr Brett Burns as Independent Non-Executive Director.

Research & Development

Expenditure

The Company’s expenditure on Research and development (R&D) increased from $2.8 million in the 2014 financial year to $5.1 million in the 2015 financial year. Whilst the Company spent $2.9 million in R&D at its existing Melbourne facility to assist and deliver improvements to our existing third generation Tacera Nurse call platform, the Company also spent $2.2 million at a second R&D facility in the USA to facilitate new software related products which will expand the Company’s healthcare and clinical workflow solutions. In line with the Company’s existing policy the Company expensed these costs in the 2015 financial accounts and anticipates similar R&D expenditure for the 2016 financial year.

Strategy

The strategic decision to open a second R&D facility in the USA was for the following reasons:

  • Technology trends originate in the USA and are gradually adopted internationally; USA based R&D gives Azure exposure to the most sophisticated healthcare market in the world.
  • Access to a larger pool of talented software engineers will improve innovation and reduce time to market.
  • There is a broader range of clinical, facility management & wireless telephony suppliers based in the USA. With USA based engineers, we can build the strategic partnerships needed to expedite development of certified interfaces to these 3rd party systems.
  • Nurse Call vendors operating in the USA are required to adhere to the most stringent regulations and certifications in the world, including FDA 510(k), MDDS & UL1069. Employing engineers who have experience with these regulations and certifications are critical for compliance.

Focus

Our Research & Development efforts are currently focused on our 4th generation Tacera platform, a comprehensive communication and information system that has the ability to receive and display patient, staff, and emergency events. The value proposition offered by our new software platform includes improvements in operational efficiencies and patient satisfaction by collecting data that can help caregivers deliver high quality care.

Innovation

The 4th generation Tacera platform will interface with complementary technologies such as Real Time Locating Systems (RTLS), Patient Care Devices and Wireless Telephony to support our customers’ operational objectives. New tools will directly link the patient to their care provider and bridge the gap between patient needs and staff resources available.

Product Release

Our initial platform release will be Tacera Pulse which will be launched later this year. Tacera Pulse is part of a suite of software applications for personal computers and mobile devices that delivers business intelligence information to an interactive dashboard, allowing healthcare providers to make data driven decisions. Key performance indicators provide healthcare organisations with actionable data needed to increase patient satisfaction, improve staff performance and optimize workflow.

Production

The Directors have made the conscious decision to begin a transition of manufacturing its products to the USA where access to high quality human resources in a flexible work place environment with manageable cost structures is available. As our USA revenues grow it becomes more important for us to be located closer to those customers as it increases service levels and reduces logistics costs. The transition to the USA is also a direct result of increased world awareness for FDA compliant products. The Directors are of the view that this trend will continue; in particular as healthcare products expand into clinical workflow and software solutions. The USA is the leader in the healthcare innovation field with the remainder of the world tending to adopt USA practices. Moreover the Company is engaging the fastest growing market in the United States where a strong presence is required.

Provisions

The Australian arm of the Azure Group delivered strong underlying revenue and margin growth across its Nursecall product range however the Company has made provisions for warranty and other associated costs of $0.64 million relating to non-Nursecall product. This issue relates only to the Australian business and is a non-core product. A further write-down of $0.35 million has been made for inventory items which have been identified as products which the Company will discontinue in the near future as a part of a new rationalisation of existing products. This rationalisation of product inventories has been identified as a part of the transition to USA based manufacturing where a smaller number of products will be manufactured but in greater volume for greater efficiencies.

Financials

Revenue from ordinary activities increased by 11.6% in the 2015 financial year to $34.95 million whilst Gross margins were 51.3% (2014: 56.4%) reflecting higher overall costs of manufacturing in two facilities.

Net profit after tax (NPAT) was $1.093 million representing a 71.7% decrease from the 2014 financial year.

Net earnings before interest, tax, depreciation and amortisation, (EBITDA) were $0.689 million, whilst earnings before interest and tax (EBIT) were $0.200 million.

EBIT

performance-summary

Revenue: Consolidated revenues from ordinary activities increased by 11.6% to $34.95 million compared to the previous corresponding period of $31.31 million.

Earnings before Interest and Tax (EBIT): Net earnings before interest, tax, depreciation and amortisation, (EBITDA) were $0.689 million, whilst earnings before interest and tax (EBIT) were $0.200 million.

Net Profit After Tax (NPAT): Net profit after tax (NPAT) was $1.093 million representing a 71.7% decrease from the previous corresponding period. The Azure Group produced earnings of 0.58 cents per share compared to 2.04 cents in the previous corresponding period.

Net Tangible Assets (NTA): Net Tangible assets have increased from 5.76 cents to 6.50 cents per share, an increase of 12.8%.

Final Dividend: The directors have not declared a final dividend as the Company will continue to focus on short term working capital requirements for production expansion, R&D investment, strategic acquisition opportunities and Group debt reduction.

Operating expenses: Operating expenses have increased by 24.9% over the prior corresponding period largely due to the increase in expenditures in research & development and warranty provisions explained above. Our Research & Development investment expenditure increased by $2.4 million to $5.1 million in the 2015 financial year. Increased staffing for research and development adversely impacted the Employee benefits expense line item by $1.9 million and increased insurance expense line item by $0.144 million whilst impairment write downs and warranty expense increased to $0.988 million.

Cashflow: During the year the Company generated positive operating cashflow of $1.87 million and finished the year with cash at bank of $3.157 million. The Company is executing a series of initiatives to maximise operating cashflow and does not anticipate raising working capital during the 2016 financial year. During the year increased working capital for the North American operations included inventory increases of $2.1 million.

Taxation: During the year the Company increased its R&D expenditure, which in turn created an additional deferred tax asset currently available in Australia or ‘negative’ tax as classified in the consolidated statement of profit and loss.

Discontinued operations overview:

The liquidation of the Australian contracting division TSV Australia Pty Ltd was finalised on 26 June 2014 and a final distribution of $0.011 million was received during the 2015 financial year. The Company does not anticipate receiving any further distributions.

The future

In 2016 we will focus on the following key initiatives to improve our business and maximise returns for our shareholders:

  • Develop industry leading clinical software solutions that help improve patient outcomes
  • Establish a recurring revenue stream based on a subscription based pricing model
  • Build strategic partnerships with market-leading healthcare technology companies
  • Continue to streamline operational and manufacturing efficiencies

On behalf of the Board of Directors and Executive Management team, we would like to thank our hard- working and passionate staff who are committed to delivering exciting products and fantastic customer service.

Finally, the Directors would like to thank you, our shareholders, for your continued support as we build for the future.

Yours faithfully,

38276547

 

 

 

Clayton Astles 

Chief Executive Officer