Chief Executive Officer’s Review
We are pleased with the commercial advancements made in 2016 by most of our businesses in winning new customers, laying foundations for a sustainable recovery and growth. Both divisions achieved signifi cant operational progress as new products and technologies continued to replace legacy products. We were successful in advancing our sales and marketing strategies, with the business units in both divisions achieving milestones in targeting new areas that we had identified as growth markets.
In particular, the Diagnostics unit saw a solid year-on-year increase in revenues as the unit increased the number of machines sold to over 500. Additionally, there is a significant inherent value in the Group with Adaltis valued at $58m post investment by our Chinese partner and a strong IP portfolio with over 40 patents across BATM, granted mostly in the US.
Now to look at each division in more detail.
Sales were fl at year-on-year in US$ terms, but grew on a local currency basis. The unit contributed approximately 68% of the Bio-Medical division revenues. There was an expansion in the relationship with Abbott and, as a result, an increase in Romania in the volume of Abbott products being distributed. We also started to provide maintenance to some Abbott products as well as those of other customers. Abbott is one of the top three vendors in this field in this territory and the distribution of its products carries a higher margin. As a result, the gross margin in 2016 improved to 24% compared with 22% in 2015.
In the first half of the year, we acquired the entire issued and to be issued share capital of Green Lab Hungary Engineering Ltd, a Hungary-based developer and distributor of analytical instruments for environmental and industrial sectors, for a total consideration of $3.8m payable in cash over a three year period. We expect the Distribution unit to benefit from the synergies with the Green Lab operations in Hungary and from Green Lab’s extensive network. Since acquisition, the integration has progressed well, with Green Lab continuing to achieve a good level of sales and profitability.
Facilitated by the Green Lab acquisition, we opened two new diagnostics laboratories in Romania during the year: an analytics lab in Timisoara and a genetic lab in Bucharest. We will use these labs to provide customers’ products and diagnostic tests to end customers, thereby establishing a footprint in the end-customer market and selling services in addition to products. Both laboratories are expected to be operational and fully certified in H1 2017.
Post period, we entered into an agreement to purchase the
entire issued share capital of Zer Laboratories, which is the
largest private diagnostic laboratory in Israel for clinical
tests, mainly providing prenatal screening tests for Down’s
Syndrome, genetic tests and additional tests performed during
IVF and fertility treatments, for a consideration of NIS 2.75m
(c. £580,000) payable in cash (“the acquisition”). We expect the
acquisition to enable us to capture the growth market in noninvasive
prenatal tests (NIPT) in Israel and Europe, enhancing
the activities of, and benefi ting from synergies with, our genetic
lab in Bucharest.
Pathogenic Waste Treatment and Sterilisation
In 2016, there was a $5.6m decrease in revenues to $38.5m as we continued to wind down the legacy products business in this division. Gross profit margin was maintained at 40% and adjusted operating loss for 2016 was $2.2m (2015: $0.1m profit).
Our wholly-owned Telco Systems subsidiary gained over 58 new customers in the period compared with 22 new customers in 2015. This included the successful deployment of a new high capacity Carrier Ethernet network for the Kenya Education Network and the award of a multi-year contract to provide a managed MPLS solution by a major provider of high speed network and ICT services to education and research facilities in Australia.
We continued to invest in Telco Systems’ leading-edge technology and solutions and added 100GE capabilities to the new aggregation and ATCA solutions to meet the ever-increasing demand for bandwidth. During the period, we completed a project extension to a Tier 1 network service provider in Southeast Asia with the deployment of a 10GE solution to expand the customer’s broadband capacity in compliance with latest industry standards. In addition, our CloudMetro (SDN & D-NFV) platform is gaining momentum with Communication Service Providers and dozens of proof-of-concept trials were conducted successfully, including with Tier 1 operators.
Our Cyber unit was awarded a significant contract as the leading supplier for the delivery of an ICT solution combined with several cyber elements to a government defence department, which is the second such contract awarded to BATM by a national government. The delivery of the contract was scheduled to commence in 2016, however, due to a counterparty being late in integrating their services, the delivery and completion of the project has been deferred to 2017. The customer has amended this contract with the total value increasing to $5.2m from $4.5m, over a period of up to three years. The Cyber unit also conducted several proof-of-concept trials with Tier 1 companies and government agencies.
The underlying businesses within BATM are robust with significant commercial development in most units, laying the foundations for a sustainable recovery and growth. Additionally, there is a significant inherent value in the Group with Adaltis valued at $58m post investment by our Chinese partner and a strong IP portfolio with 40 patents across BATM.
Looking ahead, we remain optimistic in our outlook due to the visibility of revenues from contracts already signed as well as growth in the Bio-Medical division. We expect the Diagnostics business to continue to grow as it is well positioned to capture market share in the Chinese diagnostics market and in other markets as well. Additionally, we expect the investments made in the Pathogenic Waste Treatment and Sterilisation unit in 2016 to show positive results this year. We also expect the Cyber unit to grow through the addition of new customers as well as delivery on the contract delayed from last year.
Dr. Zvi Marom
Chief Executive Officer
27 April 2017
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