Revolutionising eye care - optos.com

Revolutionising eye care
helping save sight and save lives

Optos plc

Annual Report and Accounts 2006

Who we are:
Optos plc is a leading and rapidly growing medical technology
company.

What we do:
Optos designs, develops, manufactures and markets devices that
image the retina, the light-sensitive area at the back of the eye.

Optos’ platform technology is the Panoramic200 Scanning Laser
Ophthalmoscope device – known as the P200. In a quarter of a
second, the P200 device produces a high-resolution image of up
to 200 degrees or approximately 82% of the retina in a single capture.
The image – branded the optomap® Retinal Exam – provides
healthcare practitioners with clinically useful information that
facilitates the early detection of disorders and diseases evidenced
in the retina, such as glaucoma, diabetic retinopathy and age-related
macular degeneration. Retinal imaging can also indicate evidence
of non-eye or systemic diseases such as diabetes, hypertension
and certain cancers. Optos’ technology provides an unequalled
combination of wide-field retinal imaging, speed and convenience
for both practitioner and patient, and can help save sight and save
lives.

Optos estimates that it is targeting a recurring US$2 billion market
opportunity.

Where we operate:
Optos plc is headquartered in Dunfermline, Scotland, with
operations in North America and Europe, currently the United States,
Canada, the UK and Germany.

Contents 01
Highlights 02
The History of Optos 04
A Closer Look at Optos 06
optomap® Retinal Exam 08
Chairman’s Statement 10
Operational and Financial Review 18
Board of Directors 20
Corporate Governance 24
Corporate Social Responsibility 25
Directors’ Remuneration Report 32
Directors’ Report 34
Statement of Directors’ Responsibilities 35
Independent Auditors’ Report 36
Consolidated Income Statement 37
Consolidated Balance Sheet 38
Consolidated Statement of Changes in Equity 39
Consolidated Cash Flow Statement 40
Notes to the Consolidated Financial Statements 64
Independent Auditors’ Report (Company) 65
Company Balance Sheet 66
Notes to the Company Financial Statements 74
Glossary of Terms

Highlights

40%

Year ended Year ended increase in revenue to $67.7 million
30 Sept 2006 30 Sept 2005 Change
$m $m % 46%

Revenue 67.7 48.4 40% increase in operating profit before
Operating profit before share-based payments 6.5 4.5 46% share-based payments
Operating profit after share-based payments 4.3 3.3 32%
Loss before tax (1.1) (2.6) 58%
Profit/(loss) after tax 10.8 (2.2) 59%
Cash flow from operating activities 26.7 16.8 reduction in loss before tax
to $1.1 million for the year
EPS (basic) $0.18 $(0.05)

“O ur operational progress is firmly reflected in our Excellent performance
financial performance and I am very pleased to in North America
report a strong set of results, with revenues up
40% to $67.7 million for the year.” > 41% increase in revenue

Dr John Padfield, Chairman to $64.7 million, up from
$46.0 million in 2005
Revenue $m 48.4 67.7 Solid financial performance
2,593 > 29% increase in installed
06 29.8 3.4m > 40% increase in revenue
05 base of P200 devices to 2,475,
04 to $67.7 million up from 1,925 in 2005
03 14.3
> 58% reduction in loss before > National Accounts Group
Installed base of P200 devices 2,009
tax to $1.1 million for the year established to target corporate
06 optical retail chains, with
05 > $1.5 million profit before tax in encouraging initial success
04 1,368 within LensCrafters Inc., Pearle
03 657 the second half of the year Vision and OptiCare Eye
Health & Vision Centers Inc.
Number of optomap® Retinal Exams > Lower borrowing margin for
European operations
vendor financing agreed performing to plan

Strong operational progress on > 24% increase in revenue
key performance indicators
to $3.0 million, up from
> 29% increase in installed $2.4 million in 2005

base of P200 devices to 2,593, > 40% increase in installed
up from 2,009 in 2005
base of P200 devices to
> 34% increase in retinal exams 118, up from 84 in 2005

to 3.4 million, up from > 15% increase in UK installed
2.5 million in 2005
base to 77, up from 67 in 2005
> 89% contract renewal rate,
> 141% increase in German installed
consistent with 2005 renewal rate
base to 41, up from 17 in 2005

> Strengthened German market

infrastructure with new office and
appointment of Managing Director

06 2.5m
05
04 1.6m
03 0.8m

Optos plc Annual Report & Accounts 2006

The History of Optos
from foundation to flotation

1992 - 2006

Optos was founded by Douglas Anderson
after his then five-year-old son went blind
in one eye when a retinal detachment was
detected too late.

Although his son was having regular eye exams, 2002
routine exams were uncomfortable, especially for
a child, which made it impossible for the doctor to > $5.4 million in revenue
conduct a complete exam and view the entire retina. > 278 – installed base
Anderson set out to commercialise a patient-friendly
retinal exam that encompassed a digital wide-field of P200 devices
image of the retina in a single capture, without the
need for dilation. Leading up to the Company’s initial > 0.3 million optomap®
public offering in February 2006, Optos had raised
approximately $54 million in equity, primarily from Retinal Exams performed
a group of long-standing and highly supportive
Scottish-based investors. Douglas Anderson (right) and son.

1992 2001

> $1.8 million in revenue
> 79 – installed base of P200 devices
> 0.1 million optomap® Retinal Exams performed

1998 2003

> Clinical trials began > Canada – commercial launch
> $14.3 million in revenue
1999 > $15.2 million in

> The Panoramic200 Scanning Laser operating losses

Ophthalmoscope (P200) received > 657 – installed base
FDA 510k clearance to market in
the USA and European CE marking of P200 devices

2000 > 0.8 million optomap®

> USA/UK – commercial launch Retinal Exams performed
> First optomap® Retinal Exam performed
> $0.3 million in revenue > UK Tech Track 100
> 22 – installed base of P200 devices
– Fastest Growing
Optos plc Annual Report & Accounts 2006
Technology Company

2004 The Royal Academy of Engineering

> Germany – commercial launch recipients include Rolls Royce, IBM,
> $29.8 million in revenue BP and CSR. In addition to Optos
> 1,368 – installed base plc, the 2006 finalists also included
Airbus UK, Brinker Technology
of P200 devices Ltd and Davy Process Technology
Limited.
> 1.6 million optomap® Retinal
David Cairns, Chief Technology Officer; “Optos is a worthy winner and
Exams performed Alastair Atkinson, Global Product embodies the true spirit of the
Director; and Douglas Anderson, MacRobert Award. Beginning
2005 Founder, with the MacRobert Award with a brilliant innovatory
that was presented to them by concept, Optos has developed a
> European CE marking for HRH Prince Phillip at Buckingham revolutionary diagnostic device by
Palace in June 2006. dint of eight years determination,
the P200MA device creativity and perseverance in
The MacRobert Award recognises solving the formidable technical
> $48.4 million in revenue the important role of engineers problems they met on the way,”
> $2.0 million in operating profit and engineering in wealth creation, said Dr Robin Paul, Chairman of the
> 2,009 – installed base national prosperity and international judging panel for the MacRobert
prestige. It is awarded annually by Award. “In the years to come, many
of P200 devices The Royal Academy Engineering people will owe their sight to the
for demonstrated excellence timely use of this outstanding
> 2.5 million optomap® Retinal in innovation, contribution to example of clinical engineering.”
community and proven commercial
Exams performed success. Previous MacRobert Award

2006 World Economic Forum

2006 In December 2005, the World “The creative innovations
Economic Forum named Optos as produced by our Technology
> Admission to the Official List one of 10 companies worldwide Pioneers hold the promise of
as a Technology Pioneer for 2006 significantly affecting the way
and to trading on the London in the Biotechnology and Health business and society operate”, said
Stock Exchange Main Market category. A total of 97 companies Peter Torreele, Managing Director
were nominated in the fields of of the World Economic Forum.
> FDA 510k clearance to market Biotechnology and Health, Energy “As a global knowledge hub,
and Information Technology. To we see the Technology Pioneer
for the P200MA device be selected, the World Economic community as key contributors to
Forum states that a company this dialogue and to the mission of
> $67.7 million in revenue must be innovative, its technology the World Economic Forum.”
> $6.5 million in operating profit proven, have the potential for
long-term impact on business
(before share-based payments) and society, show signs of being
a market leader and demonstrate
> $1.5 million EBT positive in H2’06 visionary leadership.
> $26.7 million cash flow

from operations

> Losses before tax reduced by 58%

to $1.1 million for the full year

> 2,593 – installed base of P200 devices
> 3.4 million optomap® Retinal

Exams performed

> World Economic Forum – 2006

Technology Pioneer

> 2006 MacRobert Award for

Innovation in Engineering from
The Royal Academy of Engineering

> Scottish Deals and Dealmakers

2006 Flotation of the Year Award

Optos plc Annual Report & Accounts 2006

A Closer Look at Optos
where we are, what we do and how we do it

Strategy: Optos is focused on four strategic goals.

1 Deepening Penetration in Existing Markets 2 Enter into New Markets

The Company intends to increase market penetration in its Optos intends to expand into new, targeted geographical
markets in which it believes that the fundamentals for
existing markets by winning new customers and increasing growth are most favourable and provide for significant
commercial potential. The Company currently operates in
the number of installed P200 devices within these markets, North America and Europe with operations in the United
States, Canada, the UK and Germany. Pre-market evaluation
and by increasing the use of the P200 devices and the total is under way in France and Spain. Japan has also been
number of optomap® Retinal Exams performed within identified as holding significant potential, and the Company
has prepared a regulatory submission for filing and is
the existing customer base. Optos intends to continue clarifying details on timing and entry to market.

to both attract new customers through highly targeted

marketing campaigns and provide value-added service to

its customers.

Competitive Strengths: Our Markets
Product Differentiation have very different characteristics

“A n optomap® Retinal
Exam can be captured
in a quarter of a second
and does not require
pupil dilation.”

Optos’ P200 device is its proprietary medical North America
technology device, which generates the optomap®
Retinal Exam. Unlike conventional ways of looking at Annual number of eye exams 103m 8m
the retina, the P200 device provides a high-resolution Total numbers of practices 31,000 2,000
ultra wide-field digital image that encompasses Number of addressable practices¹ 20,000 1,300
200 degrees or approximately 82% of the retina in a Market characteristics
single capture. This enables the practitioner to view In the United States there The Canadian market is
a substantial portion of the retina all at once and is an established culture similar to that of the United
facilitate the early detection of disease from the centre of preventative care and States in that there is a strong
to the periphery of the retina. These diseases include patient payment at point of emphasis on and awareness
age-related macular degeneration, diabetes, glaucoma, service. Comprehensive eye of the benefits of preventative
hypertension and certain cancers. An optomap® Retinal examinations are provided care and wellness screening.
Exam can be captured in a quarter of a second and by either an optometrist or Acceptance levels for patient
does not require pupil dilation, whereas conventional ophthalmologist and include payment at point of service
retinal imaging methods take longer, are more an examination of the retina. vary in Canada. As in the
invasive and less patient-friendly. The P200 device has The Company has determined United States, in Canada an
regulatory clearance to market in North America and that the United States holds the eye examination is also carried
in Europe. Optos believes that the optomap® Retinal greatest market potential. out by either an optometrist
Exam offers healthcare practitioners added diagnostic or ophthalmologist.
capabilities, increased medical understanding and
enhanced clinical value. ¹ Addressable market defined as practices with potential of at least 100 optomap® Retinal Exams per month.
² Corresponds to private practices and does not include NHS/public health bodies.
Optos plc Annual Report & Accounts 2006

3.4m $67.7m

optomap® Retinal Exams in 2006 Global revenues in 2006

3 Broaden Product Offering 4 Maintain Customer Satisfaction

Optos continues to invest in research and development in order Optos believes that the strength of its relationships
with practitioners impacts the level of revenue of each
to strengthen and expand upon its existing product range, installed device and increases the likelihood of the
practitioners extending their contracts beyond the initial
and to provide practitioners with more advanced diagnostic three-year term. Increased use of the P200 device will
be driven through improved technology platforms, the
and disease management capabilities in the secondary and introduction of new products and by offering updated
medical care market. The Company’s core product – optomap® training programmes to practitioners and their staff.

Retinal Exam – is used in preventative or primary care and is

generally paid for by the patient at point of service and is not
reimbursable. Optos’ two newer products – optomap® plus
Medical Retinal Exam and optomap® fa Medical Procedure

are aimed at the secondary care and medical markets and are

intended to be reimbursable procedures covered by insurance

or other third-party providers.

Competitive Strengths:
Customer Relationships

“T he Company believes
that its ongoing, service-
driven relationship with
healthcare practitioners
is a key strength to
achieving and growing
higher revenues.”

Europe The Company believes that its ongoing, service-driven
relationship with healthcare practitioners is a key
21m 28m Annual number of eye exams strength to achieving and growing higher revenues.
6,500 The Company enters into long-term agreements
400² 3,500 Total numbers of practices with its customers, who in turn are encouraged to
offer the optomap® Retinal Exam to their patients as
Routine eye examinations in 2,500² Number of addressable practices¹ part of every comprehensive eye examination. The
the UK tend to be carried out in practices benefit from increased revenue through
a retail setting by ophthalmic The Company believes that the Market characteristics selling the optomap® Retinal Exam to patients yet
opticians who tend to focus German market is one of the incur no capital outlay. As part of its aim to increase
more on retail sales and most advanced preventative the number of optomap® Retinal Exams performed,
refraction than preventative healthcare markets in Europe. Optos provides the appropriate clinical, educational
care. Accordingly, the Company The eyecare market consists and marketing resources to the practitioners, as well
estimates that there are a lower entirely of ophthalmologists, as ongoing technical assistance. Optos also uses its
number of practitioners within largely operating in private software facilities to monitor daily usage of the P200
the private sector than in practice. Ophthalmologists device by practitioners to optimise adoption rates in
other countries in which Optos conduct primary and their practices. This software also facilitates the review
operates. secondary level healthcare. of the optomap® Retinal Exam and enables the images
to be permanently recorded and documented, thereby
assisting disease monitoring and patient education.

Optos plc Annual Report & Accounts 2006

optomap® Retinal Exam
a closer look at our products

The Company’s core product is the optomap® Retinal Exam,
which is produced by the P200 device and is used in primary
level eyecare for the screening of eye and non-eye diseases
and disorders. optomap® plus Medical Retinal Exam is also
performed using the P200 and is used in secondary level care,
using additional capabilities in the image capture and review
process to facilitate diagnosis and documentation of previously
detected pathology. optomap® fa Medical Procedure offers
retinal specialists advanced diagnostic, monitoring and treatment
capabilities for particular eye disorders, including diabetic
retinopathy and age-related macular degeneration.

Our USP diseases and optimising treatment
plans through ongoing evaluation.
Examination of the retina forms This enables healthcare practitioners
part of a comprehensive eye to deliver a higher standard of care
examination. In capturing 200 to their patients, improve patient
degrees or approximately 82% of outcomes and ensure that the
the retina in a single capture, Optos patient’s experience of having a
believes that its technology plays a retinal examination is positive and
leading role in assisting with the early educational.
detection and diagnosis of both eye
and non-eye diseases, in tracking
and monitoring the development of

~5% 82%

Conventional Examination Optos’ P200

P200 device and the optomap® Retinal Exam manipulated through a 200-degree
scan angle. Light reflected from the
Technology • wide-field – approximately 82% • unaffected by most cataracts retina is then returned through the
of the patient’s retina is captured – the P200 device employs two scanning system and is converted to
The patented scanning laser system in a single image; independent low-power laser electrical impulses by highly sensitive
developed by Optos generates sources which operate at discrete photo-diodes. These impulses are in
a digital wide-field (200 degree • rapid image capture – image capture wavelengths and are diffracted less turn digitised and formatted to create
internal angle) image of the retina. takes a quarter of a second once the than white light, thereby enabling the image.
Optos’ P200 device uses this unique patient is positioned relative to the more successful imaging through
imaging system to create a ‘virtual device; cataracts than with white light, The scanning laser system is managed
scanning point’ inside the patient’s which tends to scatter when it tries by Optos’ proprietary software
eye, and has the following features • dilation not necessary – the device to penetrate the cataract. application suite. Optos has developed
which are not offered in their entirety is designed to be able to take an ‘‘Capture Software’’ which enables
by conventional methods of retinal image through a 2mm aperture, and The scanning laser system combines the operation of the P200, including
examination: therefore the decision to dilate is one the two low-powered lasers into a the facilitation of patient imaging.
taken by the practitioner as opposed single beam that is then projected
to a necessity mandated by the onto the patient’s retina and
instrument requirements; and

Optos plc Annual Report & Accounts 2006

Image of a healthy eye taken by the P200 device European Service Centre, Dunfermline, Scotland

Additionally, Optos has developed enabling preventative maintenance Our Sales Model Explained a recurring revenue model. The
‘‘Viewing Software’’ which enables to be performed on the device if Company provides each practice
the optomap® Retinal Exam to be necessary. Patient demographic Practitioners typically enter into with ongoing clinical, educational
extensively reviewed, manipulated, data and disease information can be initial minimum three-year term, and marketing resources, as well
measured and annotated in the recorded during every optomap® pay-per-patient agreements with the as technical assistance, to support
presence of the patient, thus Retinal Exam, and is capable of being Company. These agreements enable the practitioner in increasing
enhancing the practitioner’s collated into a useable database. the practitioners to use the P200 patient throughput and maximising
information and the patient’s The Company regularly updates this device in their practices and offer optomap® Retinal Exam adoption.
education. software in order to improve the ease the optomap® Retinal Exam to their As a result, practices benefit from
of use of the device and to increase patients. Optos receives revenues an increase in their revenue whilst
Optos has also developed reporting the quantity and quality of information from the sale of the optomap® incurring no capital outlay and low
software which provides the which the practitioner can obtain Retinal Exam by the practitioner to operating expenses.
practitioner with information on how when reviewing the optomap® the patient, subject to a minimum
well the device is being utilised, as well Retinal Exam image. monthly payment over the life of
as providing Optos with information the agreement, and benefits from

Optos plc Annual Report & Accounts 2006

Chairman’s Statement 2006 was a momentous year A strengthened balance sheet
Dr John M Padfield for Optos plc. There were many provided us with the resources to
highlights. Perhaps most notable invest in growing the business and
“W hile our financial results and was our successful flotation and the confidence to make a number
key performance indicators are trading on the main market of the of commitments. At the time of our
important, they represent only London Stock Exchange in February initial public offering, we said that
part of the story. The other part 2006. Our public offering provided a we would deepen our penetration
is how we are differentiating natural opportunity to reflect on the in our existing markets, broaden
ourselves.” substantial progress we have made our product offering, enter into new
in introducing our revolutionary ultra markets and maintain the highest
wide-field scanning laser technology levels of customer satisfaction. With a
to the market and commercialising the dedicated focus on delivering on our
optomap® Retinal Exam in primary eye plan and making strategic decisions
and health care. It also enabled us to that will build for the future, we have
look forward to new opportunities in delivered on all of these fronts. Our
disease management in the secondary operational progress is firmly reflected
and medical care market, and to in our financial performance and I am
new geographies where we believe very pleased to report a strong set of
that there is significant commercial results for the financial year ended 30
potential. September 2006.

Revenue was $67.7 million, up by 40%
over the previous year of $48.4 million.
Operating profit before share-based
payments increased by 46% to $6.5
million, up from $4.5 million last year.
Operating profit after share-based
payments increased by 32% from

Optos plc Annual Report & Accounts 2006

$3.3 million to $4.3 million. Losses We implemented a number of We believe that these initiatives will 40%
before tax were reduced by 58% to initiatives during the year aimed at provide us with an enhanced market
$1.1 million for the full year; however, strengthening our existing business focus and streamlined decision- Increase in revenues.
the second half of the year showed and our platform for future growth, making as we grow our installed $67.7 million compared to
the Group making the transition including: base of devices and integrate our $48.4 million in the previous year.
into profits with a profit before tax technology and products deeper
of $1.5 million. Driving the growth • Offering educational workshops into primary care optometry, and 32%
was an increase in our installed base through our Optos Academy broaden our offering to reach into the
of P200 devices by 584, bringing the programme and our Retinal secondary and medical care markets. Increase in operating profit
total number of the installed base to Exam Annual Protocol (“REAP”) to after share-based payments.
2,593, up from 2,009 at the end of the primary care practitioners to drive Our employees understand that $3.3 million to $4.3 million.
same period last year. 2,475 of these compliance levels in offering the continuous improvement and
devices are located in our core North optomap® Retinal Exam as part innovation and putting the customer requirements and the leadership
American market. During the year, 3.4 of every annual comprehensive first are imperatives and that working required to enable the Company to
million retinal exams were performed patient examination. to drive shareholder value is an maximise its opportunities. The Board
in our existing markets, an increase expectation. On behalf of the Board is highly engaged and vigilant, and
of 34% over the previous financial • Establishing a National Accounts of Directors, I would like to thank all I would like to express my thanks to
year. Contract renewals remain a key Group to focus exclusively on the of our employees for demonstrating each member for their dedication and
revenue driver and continued at a opportunity within the corporate exceptional commitment during contribution.
strong rate for the full year at 89%, optical and eyecare chain and the public offering process and for
which is in line with the rate reported institutional customer segments. their part in successfully managing Diseases at the back of the eye
at our half year. our growth during a year of change. represent a potentially large and
• Introducing a new programme Their knowledge, expertise and growing market. Earlier and better
While our financial results and key called Partner Visit Protocol (“PVP”) commitment are our most valued detection is assuming greater
performance indicators are important, to our existing North American asset and resource. importance in eye and health care.
they represent only part of the customer base to enhance the We believe that our patented scanning
story. The other part is how we are in-practice selling process of the We strengthened the Board during laser technology delivers superior
differentiating ourselves. By offering optomap® Retinal Exam and the financial year by securing the retinal imaging and our operational
our customers enhanced diagnostic, increase revenue per site. services of two experienced new expertise drives product quality.
monitoring and treatment capabilities, Directors. Barry Rose joined the Board This offers healthcare practitioners
we can help them deliver a higher • Strengthening our infrastructure in December 2005. He serves as enhanced diagnostic and clinical
standard of care to their patients. in Germany by opening a new the Company’s senior independent value. Looking ahead, we are building
We do this through sustainable office and recruiting staff with solid Director and chairs the Audit a significantly stronger commercial
initiatives that help healthcare experience and contacts within Committee. Dr David Guyer joined platform and are differentiating
practitioners improve patient the German ophthalmic market, the Board in May 2006 and chairs the ourselves in the medical devices and
outcomes and by working to ensure continuing with our pre-market Medical Advisory Board. The Board healthcare services sectors. We expect
that the patient’s experience of having evaluation in France and Spain, also recognises the contributions our success to continue in 2007, and
a retinal examination is positive and and completing our regulatory of Barry Sealey, Michael Rutterford, beyond.
educational. submission for Japan. Ann Gloag and David Cairns, who
stepped down from the Board before Dr John M Padfield
• Consolidating our European the public offering, and of Stephane Chairman
distribution and service centre Sallmard, who left the Company
by co-locating it with our at the close of the financial year. In
manufacturing capability in a new December 2006 we appointed Tom
facility in Scotland. Butts as our Chief Executive Officer.
Tom comes to Optos with a proven
• Integrating our optomap® plus ability in leading top-performing
Medical Retinal Exam into our teams and driving shareholder value.
existing customer base, which He has both an exceptionally strong
allows the practitioner to clearly grasp and understanding of the global
distinguish between the retinal healthcare marketplace, and extensive
health check and monitoring operating experience across North
known retinal conditions, where America and Europe.
the interpretation, reporting and
documentation of pathology Over the last year, the Board has
is more stringent and leads to paid particular attention to ensuring
reimbursement. the integrity of internal controls
and processes, the effectiveness
• Installing our new P200MA device of compliance with external
in select retinal and medical
specialist locations in the United
States and Germany, and beginning
clinical trials to demonstrate the
clinical efficacy of our optomap® fa
Medical Procedure.

Douglas Anderson, Founder, Stephen Pemberton,
and HRH Prince Phillip, Senior Design Draughtsman
Buckingham Palace, June 2006

Optos plc Annual Report & Accounts 2006

Operational and Financial Review Overview Increased Penetration
Allan Watson, Chief Financial Officer Optos had an extremely good year in Existing Markets
in 2006. The proceeds from our During the year, we deepened our
“North America remains the initial public offering facilitated penetration levels in all of our existing
largest opportunity for the our successful growth strategy. We markets, with particularly strong
Company, and our excellent improved our operational efficiencies returns in the primary care segment
progress continued during the and delivered solid financial results. in North America. We increased the
year with revenues up by 41% Revenue was $67.7 million, up by 40% installed base of P200 devices by 584
to $64.7 million.” over the previous year. Our contract during the year. This brings the total
renewal rate was 89%. Losses before number of the installed base to 2,593,
tax were reduced by 58% to $1.1 up from 2,009 at the end of the same
million for the full year, however, the period last year. 2,475 of these devices
second half of the year showed the are located in our core North American
Group making the transition into profit market. During the year, 3.4 million
before tax of $1.5 million. This success Retinal Exams were performed in our
is down to all of our employees, now existing markets, up from 2.5 million
232 strong. I would like to thank them in the 2005 financial year, an increase
because our accomplishments in 2006 of 34%. We believe that this continued
are a testament to their dedicated uptake demonstrates the confidence
efforts. healthcare practitioners have in our
technology and the optomap® Retinal
Exam, and is aligned directly with their
commitment to delivering state-of-
the-art, efficient and thorough patient
care. Critical in attracting more and
more healthcare practices to enter
into a contract with us and install the
P200 device has been our success at
demonstrating to the practitioner
that the optomap® Retinal Exam is
a very effective and efficient tool for
improving their ability to detect and
diagnose disease at an earlier stage.

41%

Increase in revenues in North America.
$59.3 million generated in the United
States and $5.4 million in Canada.

2,475

Total installed base in North America.
Up by 29% from 1,925 at the end
of our last financial year.

10 Optos plc Annual Report & Accounts 2006

“W hen Ann came to see me, we carried out
a routine eye test and almost everything
appeared to be as it should, and she had no
symptoms that would suggest there were
any problems whatsoever. However, when I
examined her eyes using the optomap® Retinal
Exam, I immediately noticed an irregularity.”

Patrick Round, First Optic Opticians

Case Study 1: Brecon, UK

Early detection of a retinal hole saved Ann’s sight.

Ann Griffiths, a 58 year-old volunteer worker, was due for a regular eye The optomap® Retinal Exam revealed that Ann had a small hole in the retina
test. She arranged to have a standard test at First Optic Opticians on of her right eye, which could potentially lead to a complete loss of vision
Bethel Square with Patrick Round. Her eyes appeared to be in good and therefore required urgent surgery. First Optic immediately referred her
health. However, when she had the optomap® Retinal Exam a previously to the Eye Hospital in Hereford and arranged for an appointment that day in
undetected problem was discovered. order to have her eye investigated.

“When Ann came to see me, we carried out a routine eye test and almost Ann said, “When the problem was discovered I was worried at first but then
everything appeared to be as it should and she had no symptoms that I was just so relieved that it had been picked up before it led to something
would suggest there were any problems whatsoever. However, when I more serious. Patrick showed me the optomap® Retinal Exam scan of my
examined her eyes using the optomap® Retinal Exam, I immediately noticed eye and it was clear that there was a small hole which even I could see and
an irregularity,” said Mr Round. so I was keen to have it treated as soon as possible. I went straight to the
hospital where I had laser treatment and remarkably I was allowed home
the same day.”

Optos plc Annual Report & Accounts 2006 11

“The optomap® Retinal Exam
has helped me build my practice
as well as my confidence as a
practitioner.”

Jacqueline Campisi, O.D., Connnecticut, USA

Case Study 2: Connnecticut, USA

Early detection of central nervous system Lyme disease symptoms.

An asymptomatic 6 year old child presented at Dr Campisi’s office for a manual exam would have been extremely difficult to perform. With the
back-to-school eye exam. In the course of her comprehensive examination, optomap® Retinal Exam, however, ultra wide-field images are quickly and
Dr Campisi compared last year’s optomap® Retinal Exam images to this year non-invasively captured, enabling the patient, patient’s family and the
and noticed swollen optic nerves on the current year’s optomap® Retinal doctor to interactively review the images. Because Dr Campisi recommends
Exam images. Dr Campisi referred the child to a paediatric ophthalmologist an annual optomap® Retinal Exam for every patient, she was able to
and paediatric neurologist at Children’s Hospital for a complete work-up. immediately compare last year’s images to this year by placing them side
A CAT scan and Lumbar puncture were performed and the child was by side in v2 software, which highlighted the swollen nerves.
admitted. The child was diagnosed with papillitis aseptic meningitis due
to Lyme disease which caused the bilateral swelling of the brain and optic Dr Campisi remained in touch with the child’s parents and physicians
nerves. during the recovery period and requested that the child return for another
optomap® Retinal Exam, visual fields test and refraction in 3 to 6 months.
Most patients are light sensitive and reflexively shut their eyes when the Dr Campisi and the child’s parents credit the optomap® Retinal Exam with
practitioner attempts examination with an ophthalmoscope. It is particularly the early detection of Lyme disease symptoms and perhaps more acute
difficult to achieve patient compliance with a young child and a dilated complications from the disease later on.

12 Optos plc Annual Report & Accounts 2006

Operational and Financial Review Our existing customer base in North 24%
continued America is comprised primarily of
independently owned and operated Increase in revenues in Europe.
North America demonstrated to practitioners eyecare practices. This customer group With $2.3 million generated by our UK
North America remains the largest ways of delivering the optimum remains a priority, and the addressable business and $0.7 million in Germany.
opportunity for the Company, and our patient experience during an eye market within this segment continues
excellent progress continued during health examination. These initiatives to hold significant potential. We 118
the year. Revenues in North America were well received at the major have also determined that there are
grew by 41% to $64.7 million, with optometric and ophthalmic meetings commercial opportunities within Total installed base in Europe.
$59.3 million generated in the United and exhibitions during the year, the corporate optical and eyecare Up by 40% from 84 at the same
States and $5.4 million in Canada. including the American Academy chain customer segment. We have time last year.
Primary care optometry remains our of Ophthalmology, the American stepped up our efforts to capture new
core customer target segment in Optometric Association, the South business from within this segment. A when teaching the use of other
North America, where we estimate Eastern Congress of Optometry, Vision National Accounts Group under the methods of examining the retina using
that there are approximately 21,300 Source and Vision Expo East and West. leadership of a Senior Sales Director conventional manual instrumentation.
addressable practices, of which 20,000 At each of these, we secured new has been established, with the This is achieved by first looking at
are located in the United States. An customer contracts and extended the remit to secure additional business the optomap® Retinal Exam and
addressable practice is one that is contract life of many of our existing from within the eye-health focused then directing the student to find
sufficiently clinically focused and large customers. corporate optometric chains, practices the condition using, for example, a
enough to commercially integrate the with multiple locations and military Binocular Indirect Ophthalmoscope.
P200 device and the optomap® Retinal We continued to operate our Optos establishments. This approach – which we have
Exam. During the year, we installed Academy programme, which has named Targeted Ophthalmoscopy
508 new devices in the United States proven popular with practitioners We signed an agreement with – is recommended in all of our private
and closed the year with an installed and practice staff at major exhibition LensCrafters Inc., a leading US-based practice and corporate locations as
base of 2,324 P200 devices. In Canada, events. These educational workshops optical retail chain, where 60 of the well as in the university setting.
our installed base grew by 42 to 151. are designed to provide attendees optometric practices connected with
Our total installed base in North with updates on topics such as the 1,200 retail locations owned by The United States is our largest country
America at the year end stood at 2,475, disease trends in primary eyecare, LensCrafters and its affiliates installed market and we believe offers the most
up by 29% from 1,925 at the end of our reimbursement guidelines and using our P200 device. In the latter part of potential for us to significantly grow
last financial year, and representing our Retinal Exam Annual Protocol the year, a test-marketing television our business. Accordingly, during the
12% of the estimated addressable (“REAP”) to drive compliance levels, advertising campaign was launched year, we put in place a number of
market. and targeted ophthalmoscopy, in the Jacksonville, Florida area by initiatives designed to capitalise on the
which is a programme we launched Pearle Vision, a LensCrafters affiliate. US opportunity. In the latter part of the
During the year, we extended our to explain to practitioners how they This direct consumer campaign financial year, we implemented a new
collaboration with electronic medical can use the optomap® Retinal Exam focused on presenting the Pearle programme known as Partner Visit
records providers and produced as the first step in every annual Vision practitioner as a trusted eye Protocol (“PVP”), which is designed to
digital animations to promote the comprehensive examination. We healthcare provider, and has led increase practice revenue by enabling
optomap® Retinal Exam. We also believe that this type of educational to increased adoption rates of the our Customer Focus Teams to work
worked in partnership with Johnson support, combined with the clinical optomap® Retinal Exam. We believe more closely with our customers to
& Johnson, Marco, Officemate and and financial benefits of having our that the agreement with LensCrafters integrate the optomap® Retinal Exam
Eyemaginations on an exhibit that P200 device installed in the practice, Inc. provides us with a valuable deeper into their practices. Customers
provides practitioners with compelling commercial platform to generate have welcomed this initiative and we
reasons to offer the optomap® Retinal additional business from within are seeing improved revenue per site
Exam to all their patients. LensCrafters and its affiliates. During in those practices where PVP has been
the year, OptiCare Eye Health & Vision fully implemented.
“Revenues in Europe grew by 24% Centers Inc. installed the P200 device
to $3.0 million, with $2.3 million in each of its 18 eyecare practices in
generated by our UK business and the state of Connecticut.
$0.7 million in Germany. ”
Seven of the sixteen schools of
Bruce Doney, Senior Embedded Software/ optometry now use the P200 device
FPGA Engineer; Fiona Macpherson, and include the optomap® Retinal
Principal Engineer; and, Richard Moore, Exam as part of the curriculum and
Senior Development Engineer. educational training programme.
Our aim is to have our P200 device in
every such institution to ensure that
all students entering the profession
have had extensive exposure to our
P200 device and the optomap®
Retinal Exam during their training and
before being admitted to practice.
In the seven existing locations, our
device is being used to facilitate
patient care and to assist students in
the recognition of retinal conditions
and abnormalities. We also advocate
that the schools of optometry use
the optomap® Retinal Exam as a
reliable confirmation of findings

Optos plc Annual Report & Accounts 2006 13

Operational and Financial Review practitioner in maximising patient 15%
continued adoption rates of the optomap®
Retinal Exam. Developing a closer Increase in installed bases in the UK.
The commercial and operational market of approximately 400 practices. working relationship with National A total of 77, up from 67 at the same
teams have been strengthened to The market in Germany is comprised Health Service (“NHS”) bodies time last year.
provide us with an improved market entirely of ophthalmologists operating continues to form part of our
focus, and streamlined decision- in private practice, who carry out approach to the UK market and, 141%
making for growing our installed primary as well as secondary care. We during the year, development work
base and integrating the optomap® estimate that the addressable market was undertaken within the Primary Increase in installed bases in Germany.
Retinal Exam into both our existing in Germany stands at approximately Care Trust (“PCT”) network. Our aim A total of 41, up from 17 at the same
and prospective customer practices. 2,500 practices. Our total installed base is to assist in establishing Primary Eye time last year.
We reorganised the structure of our in Europe at the close of the financial Care Centres for triaging and patient
US organisation into two separate year was 118, up by 40% from 84 at the management. During the year, we designed,
east and west geographic regions. same time last year, representing over commissioned and built our European
These are now led respectively by 3% penetration of the addressable In Germany, we entered our second Service Centre to support our
a Vice-President and supported by market. full year of operation and we made expansion plans in Europe in both our
Regional Sales and Clinical Managers good progress in establishing Optos existing and targeted new markets.
tasked with maximising the sales and In the UK, our focus is on contracting as a known and credible provider This facility provides additional
clinical effectiveness throughout each with and retaining top-tier optician in the eye and health care market. manufacturing and distribution
region. We opened a new Distribution practices, and, during the year, We installed 24 P200 devices during capacity. We now manufacture
and Service Centre (“DSC”) close to our our activities were geared to this the year, bringing the total installed three modules of our P200 device
Marlborough, Massachusetts office defined customer segment. The base to 41, an increase of 141% over and provide distribution facilities to
during the year. This facility provides optomap® Retinal Exam is marketed the previous year. A key operating mainland Europe and the UK. This has
the space, capability and capacity to and recommended to all patients objective during the year was to enabled our manufacturing team to
support the continued expansion of as a health-screening examination strengthen our infrastructure. To make significant progress in improving
our business in North America. requiring patient payment at the this end, we opened an office in the quality of our output. We have
point of service. We improved our Mannheim and recruited staff with brought in-house the manufacture
Europe penetration rate during the year, with established contacts in the German of assemblies, which was previously
Revenues in Europe grew by 24% our installed base growing by 15% to ophthalmic market. We now have in outsourced, resulting in reduced costs
to $3.0 million, with $2.3 million 77, up from 67 at the same time last place a resident Managing Director and improved reliability.
generated by our UK business year. We continued to participate in who is responsible for the day-to-day
and $0.7 million in Germany. The continuing education conferences, operation in Germany, and additional We have also taken the opportunity
European marketplace has very and during the year, developed and sales and service-focused personnel of training the Technical Operations
different characteristics than its North offered a clinical conference series, who have the know-how to deliver team in continuous improvement,
American counterpart. In the UK, the held in four locations throughout the on our aggressive objectives in this workplace organisation and lean
vast majority of eye examinations UK (London, Glasgow, Birmingham market. manufacturing techniques to support
are carried out in a retail setting and Manchester), with a focus on the continuing development of our
by ophthalmic opticians who tend acquiring new customers. In our Our sales and marketing efforts also capabilities. Our expanded materials
to focus heavily on retail sales and existing customer base, we provided grew in quantity and quality during control team have established the
refraction rather than on preventative ongoing clinical, educational and the year. We had an effective presence processes supporting expansion into
care. Accordingly, we have estimated marketing resources, as well as at the three major national exhibitions: Europe. These new processes have
that there is a smaller addressable technical assistance to support the Deutsche Ophthalmologische also driven up inventory accuracy
Gesellschaft (“DOG”), Kongress der and have had a positive effect on
“At the time of our initial public Deutschen Ophthalmochirurgen the quality of our planning and
offering, we identified France, (“DOC”), and Augenärztliche schedule adherence in shipping to
Spain and Japan as holding Akademie Deutschland (“AAD”). We our customers.
favourable fundamentals for also participated in joint Optos-
geographic expansion. ” pharmaceutical marketing events and
initiated a local doctor-led customer
Laser sources for the awareness series, aimed at increasing
P200 MA device awareness of our P200 device and
the benefits of the optomap® Retinal
Exam. Satisfied customers are an
excellent source for referrals and new
customer leads. To ensure we continue
to be responsive to the needs of our
customers, we conducted our first
User Meeting and launched a quarterly
communications programme where
doctors receive a range of materials,
including German patient marketing
collateral, recent clinical research from
our German research site – Ludwig-
Maximilians-Universitätj (“LMU”) – and
a broad range of templates to assist in
their individual efforts to integrate the
optomap® Retinal Exam deeper into
their practice. Penetration in Germany
stood at 2% of the addressable market
at the close of the financial year, up
from less than 1% at the same time
last year.

14 Optos plc Annual Report & Accounts 2006

“H e is very lucky – if the
melanoma had been
discovered six months later,
he would most probably have
lost his eye.”

Dr Reinhold Reimer, Elmshorn, Germany

Case Study 3: Elmshorn, Germany

Early detection of a melanoma with the optomap® Retinal Exam.

In May 2005, a 60 year-old man presented to Dr Reimer in Elmshorn, “The prevalence of melanoma is increasing due to the decrease of the
Germany for a regular eye exam. The patient had no known prior ozone barrier and the increase of UV-lighting,” said Dr Reimer. “They are
complications and had no signs or evidence of decreased visual acuity. difficult to diagnose with traditional methods as they often lie in the middle
After the optomap® Retinal Exam, the situation was very different. and outer periphery. Thus a patient-friendly procedure like the optomap®
Retinal Exam which does not require pupil dilation and which can take a
The optomap® Retinal Exam showed an abnormality which wide-field image of the retina in a single capture is a great tool in detecting
Dr Reimer diagnosed as a melanoma, which was then confirmed by disease earlier.”
fluorescein angiography and sonography. Treatment with transpupil
thermocoagulation was successful. In this patient case the melanoma “The two lasers in the P200 enable me to say whether the lesion lies
was situated in the mid-periphery and therefore would have been exclusively in the retina or the choroid. I can then make a certain
difficult to detect with a routine eye examination. differentiation between a naevus and melanoma and appropriately
determine next steps - this is a great advantage of the procedure,” said
Dr Reimer. “He is very lucky - if the melanoma had been discovered six
months later, he would most probably have lost his eye.”

Optos plc Annual Report & Accounts 2006 15

Operational and Financial Review Our new v2.3 software will offer 40%
continued a number of new features to
enhance the reviewing capabilities Increase in revenues.
New Markets Broadening the Product Offering of patient images. We expect this $67.7 million compared to
At the time of our initial public Our core product is the optomap® new software will help improve $48.4 million in the previous year.
offering, we identified France, Spain Retinal Exam, which is used in patient education and strengthen
and Japan as holding favourable preventative or primary eye and the relationship between the patient $10.8m
fundamentals for geographic healthcare, and is non-reimbursable and the practitioner. The product
expansion. by insurance or other third-party development team also localised our Profit after taxation.
providers. During the year, we software to support our strategy of Compared to a loss in the previous
The markets in France and continued to invest in research and expanding into new geographical year of $2.2 million.
Spain are made up primarily of development in order to strengthen markets. Software has been translated
ophthalmologists. As in Germany, and expand upon our core product into German, French, Spanish, US In addition, we have found, developed
these practitioners operate in private offering and provide practitioners Spanish and Canadian French. and qualified US-based suppliers who
practice and carry out both primary with more advanced diagnostic have the demonstrated capability to
and secondary care. Market evaluation capabilities within the reimbursable, The intellectual property represented service our local needs for the North
to confirm the attractiveness of the secondary eye and health care market. by our technology platform is American installed base. As part of our
fundamentals continued during We have two new products in this comprehensively protected through drive to reduce procurement costs, we
the year. We have test-marketed at area designed to add strengthened a portfolio of patents and know-how. have realised the benefits of a long-
the two largest respective national dimensions to our product line; Recently, we have strengthened and term programme to source optical
exhibitions in these country markets: extended this position through a components through a local long-
Société Française d’Ophtalmologie o optomap® plus Medical Retinal licence agreement with the University term supplier who has operations
(“SFO”) held in Paris, France, in May Exam allows the practitioner to of Rochester (NY) for the use of in China. This programme has been
2006, and at Sociedad Española de clearly distinguish between the adaptive optics in retinal imaging. highly successful in reducing costs and
Oftalmología (“SEO”) in La Coruna, retinal health check offered by Adaptive optics may allow for the improving quality. We are continuing
Spain, in September 2006. A number the optomap® Retinal Exam and direct observation of the impact to develop this sourcing route and
of devices have also been placed in the monitoring of a known retinal and effectiveness of emerging with a wider scope of supply.
ophthalmic practices in both markets condition, where the interpretation, pharmaceutical therapies for the
to test the suitability of our business reporting and documentation of leading causes of blindness and Maintaining Customer Satisfaction
model and patient willingness to pay the pathology is more stringent and certain, major systemic diseases. What we offer assists healthcare
for the optomap® Retinal Exam at leads to reimbursement; and, practitioners in detecting disease,
point of service. We are assessing the As we strengthen our product offering, saves time, enhances the experience
results from our market evaluations o optomap® fa Medical Procedure is our hardware must meet more their patients have while having a
to determine the merits of full generated by the P200MA device, exacting standards of performance comprehensive eye examination
commercial launch. which received European CE and support improved imaging and builds practice revenue. An 89%
marking and US FDA 510k clearance resolution and consistency. The contract renewal rate for the full year
Japan is the second-largest market in to market earlier this year, and components that make up our device confirmed our continued progress on
the world for ophthalmic equipment provides retinal specialists with are manufactured to very demanding this strategic objective.
after the United States. Our market advanced diagnostic, monitoring tolerances. During the year, we
research has continued and a full and treatment capabilities for continued to work closely with our
regulatory filing has been prepared for particular eye disorders, including existing suppliers and identified
submission. We expect to initiate pre- diabetic retinopathy and age- some new suppliers to manufacture
market evaluation in the 2007 financial related macular degeneration. components that meet the standards
year similar to that which has been our new products require. This is a
carried out in the targeted European continuing development project
expansion markets. that requires a precise and careful
approach consistent with meeting
the standards defined by Good
Manufacturing Practice.

“During the year, we continued Ailsa McKelvie,
to work closely with existing Software Engineer
suppliers and also identified some
new suppliers to manufacture
components that meet the
exacting standards of our
products.”

16 Optos plc Annual Report & Accounts 2006

Operational and Financial Review “B y deepening our penetration in our

continued existing markets, moving into new

markets, strengthening our product
offering and always maintaining high
levels of customer satisfaction, we
Financial Review $2.6 million to $1.1 million. At the half- aim to profitably grow revenues and
Revenues year, unaudited results reported a loss generate value for our shareholders.”
Revenues increased by 40% from before tax of $2.6 million, indicating
$48.4 million in 2005 to $67.7 million that the Group generated a profit from $37.1 million to $33.4 million. repayment of the bank overdraft and
in 2006. Growth was seen in all areas before tax of $1.5 million in the second Under IFRS standards, this includes conversion of loan stock instruments
of the business, with the majority half of the year. We recently negotiated the capital costs of new P200 devices at the time of the initial public offering
of the increase generated in North a lower borrowing margin for our installed with customers, as well as in February 2006. Financial liabilities
America, where revenues grew by vendor financing arrangements, the value of major stock and spares arising under finance leases increased
41% to $64.7 million. which is consistent with our ongoing items previously classified under from $76.1 million to $81.2 million.
commitment to reducing costs and UK GAAP as inventory. Net cash Total shareholders’ funds increased
Gross Margins improving operational efficiencies flows from financing activities were from $(21.0) million to $51.3 million.
Gross margins strengthened from across the business. We believe this heavily influenced by the initial public
65.0% to 65.6%, reflecting a modest also reflects an additional level of offering, admission to the Official List Outlook
increase in operating margins. confidence the providers have in our and trading on the London Stock Revenue growth is one of the primary
business model. Exchange in February 2006, and were drivers of shareholder value creation.
Operating Costs and Operating Profits $48.0 million. Other items within this North America will remain our core
The business continued to invest in its Taxation category relate principally to the net market and principal focus. Further
field and administrative infrastructure, The Group recognised a deferred tax cash movements from the Group’s penetration will be driven by new
in both North America and Europe. asset of $11.9 million in the period, vendor financing arrangements, placements within the independently
Average headcount grew by 24% from relating to the value of historical tax which reduced significantly from owned and operated eyecare practice
173 to 214. Investment in field-related losses incurred by its US subsidiary, $10.0 million to $(1.1) million. Net cash sector and within the corporate
expenditures increased by 42% to Optos Inc. This recognition took place increased by $41.3 million during the retail chain network. We expect to
$13.7 million, and in administrative after a review of the prospects for year, with the cash balance at the end realise additional revenue from our
expenses by 37% to $24.2 million. that subsidiary and the judgement of the year finishing at $36.2 million optomap® plus Medical Retinal Exam
Operating profit before share-based of the Board that the historical losses versus a net overdraft of $4.7 million as we fully integrate this product into
payments increased by 46% from that have arisen in that subsidiary for the prior year. our existing and prospective customer
$4.5 million to $6.5 million. Share- now meet the recognition criteria base and from our optomap® fa
based payments increased from as laid out under IAS12. Historical Balance Sheet Medical Procedure. We expect
$1.2 million to $2.2 million, largely losses for the Company and its two The Group balance sheet strengthened continued growth in Canada and in
driven by the initial public offering other overseas subsidiaries were not considerably during the year, primarily our European markets. By deepening
in February which accelerated the deemed to meet the recognition due to the impact of the initial public our penetration in our existing
vesting of certain stock awards criteria of IAS12, and remain offering in February 2006. Total markets, moving into new markets,
and increased the fair value of the unrecognised. Net Assets closed the financial strengthening our product offering
Company’s stock. Operating profit year at $51.3 million compared to and always maintaining high levels
after share-based payments increased Profit/(Loss) for the Financial Year net liabilities of $21.0 million at the of customer satisfaction, we aim to
by 32% from $3.3 million to $4.3 million. The Group recorded a profit for the end of the same period last year. profitably grow revenues and generate
financial year after taxation of $10.8 Non-Current Assets increased from value for our shareholders.
Loss on Ordinary Activities Before Tax million versus a loss in the previous $72.1 million to $97.4 million. This
Finance income increased from year of $2.2 million. This profit increase is due in part to increases Allan Watson
$0.1 million to $1.1 million due to reflected both reduced losses on in property, plant and equipment. In Chief Financial Officer
interest received on the proceeds ordinary activities driven by revenue addition, the Group recognised an
from the initial public offering in growth described previously, as well as increase in the intangible asset value 18 December 2006
February. Finance costs comprised the recognition of historical deferred attributed to product development
mainly interest arising on the tax assets in its US subsidiary. work as specified under IAS38. The
Company’s vendor financing Group created a provision of $11.9
arrangements, although approximately Cash Flow million in respect of deferred tax
half of the increase versus the previous Cash flow from operating activities assets as specified under IAS12. Total
year is due to the IAS32 requirement increased 59% from $16.8 million current assets increased considerably
to impute interest on loan notes repaid to $26.7 million. This was driven by due to the cash raised through the
at the time of the initial public the increased scale and operating initial public offering in February.
offering. Loss on ordinary activities profitability of the business. Cash flow Total liabilities reduced due to the
before tax was reduced by 58% from used in investing activities decreased

Aidan Walsh, New Product
Project Manager

Optos plc Annual Report & Accounts 2006 17

Board of Directors

Dr John Malcolm Padfield (59) Allan Mark Watson (39)
Non-Executive Chairman Executive Director and Chief Financial Officer
John Padfield joined the Company as a non-executive Director in November Allan Watson is Chief Financial Officer and Company Secretary. Mr Watson joined
2005 and was appointed Chairman of the Board in January 2006. Dr Padfield has the Company in December 2003 and is responsible for the overall financial
been an executive Director and non-executive Director of a number of public management and direction of the Company. Between late 2000 and 2003, Mr
and private companies in Europe, the United States and Japan, and is currently Watson was part of the senior management team at uDate.com Inc, a US publicly
Chairman of NextPharma Technologies Holdings Ltd, Cambridge Laboratories listed internet business. Between 1998 and 2000, Mr Watson was a member of
Ltd and The WellChild Trust. From 1999 to 2002, he was Chief Executive Officer the corporate finance team at Williams Holdings plc, working on transactions in
of Amersham Health and a Director of Amersham plc, and from 1994 to 1999 Europe, North America, South America and in Africa. Previously, between 1990
he was Chief Executive Officer of Chiroscience Group plc. His experience and 1998, he was with Reckitt & Colman plc in various financial roles throughout
includes 28 years’ working in the pharmaceutical, biotechnology and diagnostic the UK and in France. Mr Watson is a professionally qualified accountant, member
imaging industries, including Glaxo Manufacturing Services between 1990 and of the Chartered Institute of Management Accountants and also holds an
1994 and Glaxo Group Research between 1979 and 1990. Dr Padfield holds a honours B.Sc. in Pharmacy from the Robert Gordon University in Aberdeen.
Doctor of Philosophy and a Bachelor of Pharmacy degree from the University of
Nottingham. Ian Herbert Stevens (43)
Executive Director and General Manager North America
Douglas Crombie Anderson (55) Ian Stevens joined the Company in 1998 as Chief Financial Officer and Director
Executive Director of Operations, before his appointment as General Manager of Optos Inc. North
Douglas Anderson founded the Company in 1992 and is an executive Director. America, where he has responsibility for the United States and Canada. Mr
Mr Anderson is the Chairman of Crombie Anderson Associates Ltd., a multi- Stevens began his career as an accountant to the Queen’s Flight of Aircraft in the
disciplinary design consulting firm specialising in technology-based product UK. In 1991, Mr Stevens then joined KPMG in the UK before being transferred to
development, and is the former Director of Creos International plc. He has held the Czech Republic in 1995 as a Manager in Corporate Finance. He later returned
previous positions with Fortronic Limited and Aberglen Industrial Design, a to the UK and worked with PricewaterhouseCoopers in Edinburgh in a similar
division of Aberglen Holdings Limited. Mr Anderson holds a Higher National role. Mr Stevens holds a Master’s degree in Economics from the University of
Diploma in Industrial Design (Engineering) from Napier University in Edinburgh Edinburgh and is a professionally qualified accountant.
and is a member of The Association for Research in Vision and Ophthalmology
(ARVO), Bethesda.

18 Optos plc Annual Report & Accounts 2006

Patrick Robin David Paul (60)
Non-Executive Director
Patrick Paul has served as a Director since 1996, and has over 25 years of
experience in the medical device industry gained in North America and in
Europe. In 1975, Mr Paul co-founded Support Systems International SA, and he
later became the Chairman and Chief Executive Officer of Support Systems
International Inc., which became the holding company of the Support System
group, before its eventual sale to Hillenbrand Industries, Inc. He is Chairman of
the Tissue Science Laboratories plc and of Vertical Asset Management Limited
and a fellow of the Institute of Chartered Accountants in England and Wales.
Mr Paul has a degree in Engineering from the University of Southampton and
is a chartered accountant.

Anne Margaret Glover CBE (52) Barry Michael Rose (61)
Non-Executive Director Non-Executive Director
Anne Glover has been a Director since 1996. Ms Glover is co-founder and Chief Barry Rose joined the Company as a non-executive Director in December 2005,
Executive of Amadeus Capital Partners Limited, a UK-based venture capital and serves as the Senior Independent Director to the Board. Mr Rose was Chief
fund. Her background in venture capital includes positions with Apax Partners & Executive of Scottish Provident UK from 1993 to 2001. Prior to this appointment
Company Ventures and later Calderstone Capital. Previously, she served as Chief he was head of Investments at Scottish Provident Institution, backed up by more
Operating Officer with the Virtuality Group plc, and has worked with Cummins than 27 years’ investment experience. Mr Rose is also a non-executive Director
Engine and Bain & Co in Boston. Ms Glover holds an MA in Metallurgy and of Liverpool Victoria Friendly Society, Wolfson Microelectronics plc and Baillie
Materials Science from Clare College, Cambridge and a Master’s in Public and Gifford Shin Nippon plc. Mr Rose has an Honours degree in Mathematics from
Private Management from Yale School of Management. Manchester University.

David Robert Guyer, M.D. (46) Thomas William Butts (46) not pictured
Non-Executive Director Executive Director and Chief Executive Officer
David Guyer joined the Company as a non-executive Director in May 2006. Thomas Butts joined the Company as Chief Executive Officer and executive
Dr Guyer is a Consultant to management and the board of OSI Pharmaceuticals director in December 2006 and is responsible for the overall management and
(NASDAQ: OSIP), where he provides specialist input in ophthalmology and direction of the Company. He has over twenty years of progressively senior
retinal disease, and is a Venture Partner of SV Life Sciences Advisers LLC (SVLS). international-level experience within the healthcare sector. Most recently he
Previously, he was Executive Vice-President of OSI Pharmaceuticals and Chief was the President and Chief Operating Officer of IDX Systems Corporation, a
Executive Officer of (OSI) Eyetech, the biopharmaceutical business unit of OSI that public healthcare information technology company, which under his leadership
specialised in the development and commercialisation of novel therapeutics to achieved significant growth before being acquired by GE Healthcare in 2006.
treat diseases of the eye, which he co-founded prior to its acquisition by OSI. Prior to joining IDX in 2002 Mr Butts spent 17 years with GE Healthcare, where
Dr Guyer is an internationally recognised authority on macular diseases, he held a number of leadership positions in sales and marketing. Mr Butts
particularly the use of anti-angiogenic drugs for the treatment of AMD and has extensive business development and integration experience and led the
Diabetic Macular Edema (DME). He received his M.D. from the Johns Hopkins acquisition and integration of OEC Medical Systems for GE. As Vice-President
University School of Medicine and his undergraduate degree from Yale College. of OEC Medical Systems, Mr. Butts led the integration and globalisation of the
vascular and surgical businesses of GE Healthcare and OEC. Mr. Butts also held
the position of General Manager X-ray for GE Healthcare Europe Division. Mr Butts
holds a degree in Business Administration from Western New England College

Optos plc Annual Report & Accounts 2006 19

Corporate Governance

The Combined Code Functions of the Board
The principal duty of the board of directors (the “Board”) and management of The principal functions of the Board are:
the Company is to ensure that the Company is well-managed in the interests • review and approval of the financial objectives, major business strategies and
of its shareholders. Following the admission of the Company to the Official List
of the Financial Services Authority (the “Official List”) and to trading on the plans, and major corporate actions;
London Stock Exchange plc’s market for listed securities in February 2006, • review of the adequacy of the Company’s systems for compliance with all
the Company raised its compliance levels in accordance with the Combined
Code on Corporate Governance published in July 2003 (the “Combined Code”). applicable laws and regulations, for safeguarding the Company’s assets and for
The Board is committed to ensuring that high standards of corporate governance managing the major risks it faces;
are maintained and that the Company manages its business and affairs to the • approval and monitoring progress of the annual plan and budget, including
extent they are deemed appropriate, the principles and provisions set out in proposed capital expenditure;
the Combined Code. The Board is also committed to improve and strengthen • raising new capital and confirming major financing;
its corporate governance practices to assure shareholders that the Company • approval of annual and interim accounts;
operates in their best interests. • establishment and operation of share option and long-term incentive schemes;
• selection and evaluation of the Chairman and Chief Executive Officer;
The statement below describes how the directors of the Company (“the Directors”) • determining compensation for the senior management team;
have applied the principles of corporate governance and the extent to which the • periodic review of management succession plans; and,
principles and provisions of the Combined Code have been complied with since • selection and recommendation to shareholders for election of appropriate
the Company’s admission to the Official List in February 2006. candidates for service on the Board.

Statement of Compliance The Board delegates to the senior management team decisions; including:
The Company, since its admission to the Official List, has complied with the • implementation of the strategies and policies of the Company and the
provisions set out in the Combined Code except to the extent set out below,
for which an explanation for non-compliance is provided. subsidiaries (the “Group”) as determined by the Board;
• monitoring the operating and financial results against budgets; and,
The Board • managing and controlling the allocation of capital, human and technical resources.
The Combined Code provides that the board of directors of a UK public company
should include a balance of executive and non-executive directors, with The Board regularly receives detailed financial and operational information in
independent non-executive directors, excluding the Chairman, comprising at order for it to monitor the performance of key areas of the business.
least one half of the board. The Company does not have sufficient independent
non-executive directors within the meaning of the Combined Code, but the Committees of the Board
Combined Code does provide that smaller companies (which would include The Combined Code requires that all the members of the audit committee and
the Company) should have at least two independent non-executive directors, remuneration committee and a majority of the members of the nomination
excluding the Chairman. Accordingly, the Company is compliant within the committee should be independent non-executive directors. Due to its relative
meaning and spirit of this part of the Combined Code. The Board is committed small size, the Company is not compliant with these requirements, as it does not
to reviewing its membership on a regular basis. have sufficient independent non-executive Directors within the meaning of the
Combined Code.
The Board currently comprises the Chairman (who is non-executive), four executive
Directors, two ‘independent’ non-executive Directors (within the meaning of the No-one other than the chairman of the relevant committee and the members of
Combined Code) and two other non-executive Directors. The Board considers all the relevant committee are entitled to be present at meetings of either the audit,
non-executive Directors to be independent in character and judgement. Under the remuneration or nomination committee meetings unless specifically invited to attend.
provisions of the Combined Code, relative to non-executive director independence,
Barry Rose and Dr David Guyer are deemed independent. Patrick Paul and Since the admission to the Official List, the Directors have adopted updated terms
Anne Glover are presumed not independent because they have both served of reference for each of the audit, remuneration and nomination committees.
on the Board for more than nine years since first elected and have, or have had, The written terms of reference for the committees can be accessed and
within the last three years, a material business relationship with the Company either downloaded from the Company’s website and are also available on request.
directly, or as a partner, shareholder, Director or senior employee of a body that has
such a relationship with the Company. Audit Committee
The audit committee is appointed by the Board and has responsibility to assist
The Board considers all Directors bring independent judgement to bear the Board in its oversight responsibilities for the planning and review of the
on matters of strategy, resources, performance and standards of conduct. Group’s annual report and accounts and half-yearly reports, and the involvement
The Chairman ensures that Board discussions are conducted taking all views of the Group’s auditors in that process. The audit committee is chaired by
into account so that no one individual Director or small group of Directors Barry Rose and its other members are Anne Glover, Dr John Padfield and
dominates the proceedings of the Board. Patrick Paul. It will normally meet not less than three times a year. The audit
committee is comprised exclusively of non-executive Directors.
The Board meets on a regular basis to discuss and agree matters which are
specifically reserved to it for review and decision. Frequent contact between The audit committee focuses, in particular, on compliance with legal requirements,
designated Board meeting dates is carried out by the Directors as and when accounting standards and the Listing Rules, and on ensuring that an effective system
required to discuss and agree matters arising relative to furthering the business of internal financial control is maintained. The audit committee also maintains
of the Company. the responsibility for recommending the appointment, terms of reference and
remuneration of the Company’s external auditors, reviewing the independence and
effectiveness of the external auditors and establishing the policy on the use of the
external auditors on non-audit services. The ultimate responsibility for reviewing
and approving the annual report and accounts and the half-yearly reports remains
with the Board after receiving a recommendation from the audit committee.
The Chairman of the audit committee reports the outcome of meetings to the
Board and the Board receives minutes of all audit committee meetings.

20 Optos plc Annual Report & Accounts 2006

Corporate Governance
continued

During the year, the audit committee developed a formal ‘policy on the use of Nomination Committee
external auditors for non-audit services’ which aims to monitor the non-audit The nomination committee is chaired by Dr John Padfield and its other members
services provided to the Group by its external auditors. This policy should ensure are Anne Glover, Dr David Guyer, Patrick Paul and Barry Rose. All members of the
that non-audit work is only undertaken by the external auditors when they are nomination committee are non-executive Directors.
most suited to undertake it. Any non-audit work involving expenditure of more
than $50,000 must be assigned to tender. The amounts paid to the external The nomination committee considers the composition of the Board,
auditors during the year for audit and other services are set out in Note 4 to the retirements and appointments of additional and replacement Directors,
Financial Statements on page 48. The Board has considered the amount of and makes appropriate recommendations having regard to the overall balance
non-audit work carried out by Ernst & Young LLP and is satisfied that this work does and structure of the Board. The nomination committee regularly reviews the
not compromise the independence of Ernst & Young LLP as auditors of the Group. balance and structure of the Board and where appropriate recommends changes
to the Board. It is responsible for nominating candidates for appointment to
In fulfilling its role, the audit committee met on two occasions since admission to the Board having regard to the overall skills and composition of the Board.
the Official List and to trading on the main market of the London Stock Exchange. This procedure was carried out in relation to the appointments referred to under
Other Directors and certain individuals were invited to attend when required and the heading ‘Board Appointments and Resignations’ below. The nomination
when relevant to the audit committee’s proceedings. At appropriate times, committee has used external search consultants to identify suitably qualified
Ernst & Young LLP, the Company’s external auditors, attended the audit committee candidates for the non-executive positions appointed during the year.
meetings, notably to present and discuss the results of the 2005 year-end audit and
the review of the Company’s interim results for the period ended 31 March 2006. In fulfilling its role, the nomination committee met on one occasion since admission
to the Official List and to trading on the main market of the London Stock Exchange.
During the financial year ended 30 September 2006, the business discussed and
considered by the audit committee included: Senior Independent Director
• monitoring the Company’s adoption of International Financial Reporting The Combined Code recommends that the Board should appoint one of its
independent non-executive Directors to be the Senior Independent Director
Standards (“IFRS”); (“SID”). The SID is available to shareholders if they have concerns that have not
• review of the interim review process and findings; been resolved through the normal channels, or for which contact through the
• scope of interim financials reporting; normal channels is inappropriate. In addition, the SID must develop a balanced
• review of financials and Notes to the accounts; understanding of the concerns of shareholders by attending sufficient of the
• review of audit committee terms of reference; regular meetings between management and the major shareholders.
• review of external and internal audit requirements and process;
• asset management; Barry Rose is the SID for the Company. A meeting in the 2006 financial year of
• transfer pricing; the Company’s non-executive Directors under the leadership of the SID without
• research and development; the presence of the Chairman or executive Directors did not take place. The
• materiality; SID determined that changes to strengthen the balance and structure of the
• fees for audit and non-audit purposes; Board leading up to and following the Company’s initial public offering did not
• risk management. provide sufficient time or constitute sufficient basis to conduct a fair and accurate
performance evaluation of the Chairman. Such a meeting will take place in the
Remuneration Committee 2007 financial year.
The remuneration committee is chaired by Dr John Padfield who, as Chairman of
the Board, fulfilled the independence criteria as set out in the Combined Code at Chairman and Chief Executive Officer
the time of his appointment. Given the Company’s size and recent public listing, No one individual has unfettered powers of decision. The offices of Chairman
the Board considers it essential that the Chairman of the Board is instrumental in and Chief Executive Officer are held separately. The Chairman is responsible for
setting remuneration policy. The Board, excluding the Chairman, determines the the leadership of the Board and the Chief Executive Officer has the executive
remuneration of the Chairman and the terms of reference of his appointment. responsibility for the running of the business. There is clear division of
The other members of the remuneration committee are Anne Glover, Patrick Paul responsibility between the Chairman and the Chief Executive Officer which
and Barry Rose. It will normally meet not less than twice a year. The remuneration has been agreed and is regularly reviewed by the Board.
committee is composed, exclusively, of non-executive Directors.

The remuneration committee has responsibility for: making recommendations to Board Appointments and Resignations
the Board on the Company’s policy on the remuneration of executive Directors Dr John Padfield joined the Company as non-executive Director on 17 November
and certain members of the senior management team; the implementation 2005 and was appointed Chairman of the Board on 1 January 2006. The Board is
and operation of share incentive schemes, and, for the determination, within satisfied that Dr Padfield remains free from any relationship with the executive
agreed terms of reference, of specific remuneration packages for each of the management of the Company which could materially interfere with the exercise
executive Directors, including pension rights, contracts of employment and any of his independent judgement. Dr Padfield fulfilled the criteria for independence
compensation payments. as set out in the Combined Code at the time of his appointment as Chairman.

In fulfilling its role, the remuneration committee met on three occasions since The Chairman is highly respected for his wealth of experience working in the
admission to the Official List and to trading on the main market of the healthcare sector and for his impartial and professional approach to his role.
London Stock Exchange. In accordance with the remuneration committee’s Dr Padfield has been an executive Director and non-executive Director of a
terms of reference, the Chief Executive Officer was invited to and participated number of public and private companies in Europe, the United States and Japan,
in some of its discussions. No Director has any part in any discussion about and is currently Chairman of NextPharma Technologies Holdings Ltd, Cambridge
his or her remuneration. Laboratories Ltd and The WellChild Trust.

Optos plc Annual Report & Accounts 2006 21

Corporate Governance
continued

Barry Rose joined the Company as non-executive Director on 21 December 2005. Executive Directors are in regular contact with one another and participate in
Dr David Guyer joined the Company as non-executive Director on 5 May 2006. meetings as part of the Company’s senior management team in addition to any
Board meetings. The non-executive Directors met as a group on two occasions
Michael Rutterford and Ann Gloag resigned as non-executive Directors on during the year without the presence of any of the executive Directors. They did
21 December 2005. David Cairns resigned as an executive Director on not meet during the year without the Chairman.
21 December 2005. Mr Cairns retains his position as Chief Technology Officer
of the Company. Barry Sealey resigned as non-executive Chairman on The Board receives a regular flow of information to enable it to discharge its
31 December 2005 and as a non-executive Director on 27 January 2006. duties effectively, including monthly management accounts detailing current
Stephane Sallmard resigned as an executive Director on 30 September 2006. and forecast trading results and treasury position. It also receives an analysis
Mr Sallmard concurrently resigned his position as Chief Executive Officer. of the shareholder register on a monthly basis. Board papers are generally
distributed not less than seven days in advance to allow the Directors to
Thomas Butts joined the Company and the Board as Chief Executive Officer prepare fully for meetings. Minutes of Board meetings are distributed as soon as
on 18 December 2006. Mr Butts comes to Optos with a proven ability in practically possible following the meeting. Minutes of committee meetings are
leading top-performing teams and driving shareholder value. He has both circulated to all Directors. The Board is kept informed of developments within
an exceptionally strong grasp and understanding of the global healthcare the Company through regular updates and presentations by the members of the
marketplace, and extensive operating experience across North America senior management team covering their respective departments.
and Europe.
In those instances when a Director has been unable to attend Board or committee
Role of Non-Executive Directors meetings, his or her comments on the papers to be considered at that meeting
Each of the Company’s non-executive Directors has a significant input into the have been relayed in advance to the relevant Chairman.
business. Each contributes to and constructively challenges the development of the
Company’s strategy, scrutinises the performance of management, is required to be Performance Evaluation
satisfied that the financial information is accurate and that the policies and procedures The Combined Code provides that the Board should undertake a formal and
governing risk management are robust and effective. The non-executive Directors rigorous annual evaluation of its own performance and that of its committees
have the responsibility of ensuring that the actions proposed by the executive and individual Directors. Individual evaluation should aim to show whether each
Directors are critically probed and examined, and discussed in detail. Director continues to contribute effectively and to demonstrate commitment to
the role, including commitment of time for Board and committee meetings and
The Company’s non-executive Directors have exposure to and are available to any other duties.
major shareholders. The independent contributions that the non-executive
Directors bring to the Board are considered by the Company to be a major strength. The Chairman is aware that it is his responsibility to select an effective process
The Board considers that all of the non-executive Directors are independent of to assess the performance of the Board, its committees and individual members
management and, with the exception of two of the four non-executive Directors and to report and act on its outcome. The Board did not carry out a performance
excluding the Chairman, free from any business or other relationship which evaluation at the end of the 2006 financial year. The Chairman considered that the
could materially interfere with the exercise of independent judgement within changes to strengthen the balance and structure of the Board leading up to and
the meaning of the Combined Code. following the Company’s initial public offering did not provide sufficient time or
constitute sufficient basis to conduct a fair and accurate performance evaluation
Attendance at Meetings of the full Board, its committees or individual members.
Below is a table showing the number of Board and committee meetings held
from 15 February 2006, which represents the date of admission to the Official List The Chairman will initiate a performance evaluation process for the 2007
and to trading on the main market of the London Stock Exchange, to the financial financial year, which will be used constructively as a mechanism to improve the
year ended 30 September 2006. effectiveness of the Board and the committees. The performance evaluation will
aim to maximise strengths and tackle apparent weaknesses. The results of the full
Full Audit Remuneration Nomination evaluation of the Board and the committees will be shared with the Board as a
Members Board Committee Committee Committee whole, but the results of individual assessments will remain confidential between
the Chairman and the Director concerned.
Meetings 4 2 3 1
Accountability and Audit
– While all Directors have a duty to act in the interests of the Company, the audit
1 committee has a particular role, acting independently from the executive, to
Douglas Anderson 4 – – 1 ensure that the interests of shareholders are properly protected in relation to
1 financial reporting and internal control.
Anne Glover 4 2 3 1
1 Internal Control
Dr David Guyer (3) 3 – – – The Board is responsible for the Company’s system of internal control and
– for reviewing its effectiveness. Its system is designed to manage rather than
Dr John Padfield (1) 4 2 3 eliminate the risk of failure relative to achieving business objectives and can only
provide reasonable and not absolute assurance against material misstatement
Patrick Paul 4 2 3 or loss. Monitoring of internal control has been delegated by the Board to the
Chief Executive Officer. The audit committee determined that, due to the current
Barry Rose (2) 4 2 3 size of the Group, an internal audit function was not required for the year ended
30 September 2006. This will be reviewed annually by the audit committee.
Ian Stevens 4 – –
The audit committee’s role in this area is confined to a high-level review of the
Allan Watson 4 – – arrangements for internal financial and overall business risk management control.
The Board’s agenda includes a regular item for consideration of risk and control.
Stephane Sallmard (4) 4 – – – The Board receives regular reports thereon from the senior management team
and the audit committee.
(1) Joined the Board on 17 November 2005 and appointed Chairman with effect
from 1 January 2006.

(2) Joined the Board on 21 December 2005.
(3) Joined the Board on 5 May 2006.
(4) Resigned from the Board on 30 September 2006.

22 Optos plc Annual Report & Accounts 2006

Corporate Governance
continued

Control Communication with Shareholders
An established and appropriate control environment has been established by The Company has historically maintained an open and regular policy of
the Board through the following systems and procedures: dialogue with shareholders to ensure that the objectives of the Company
• manuals of policies and procedures applicable to all material aspects of the are communicated and understood. Following the initial public offering,
the Chief Executive Officer and Chief Financial Officer at a minimum make
business and organisation twice yearly presentations to shareholders following the Company’s interim
• budgetary control system which includes monitoring actual performance and preliminary results announcements. This is followed by road-show
presentations in one-on-one investor and shareholder meetings where issues
against predetermined plans; and, of concern and business progress and performance can be addressed and
• appointment of suitably qualified and experienced staff to fulfil their allotted discussed. During the last financial year, the Chief Executive Officer and Chief
Financial Officer and other members of the senior management team held a
responsibilities. number of additional one-on-one and group investor and shareholder meetings
and presented at a number of investor conferences. After these meetings the
The Board confirms that it has reviewed and satisfied itself with the effectiveness views of the investors and shareholders are reported to and discussed by the rest
of the systems and procedures of material controls for the period under review. of the Board. During the year the Company issued trading updates in advance of
its interim and preliminary results announcements. The Company is aware of the
Risk Management provisions set out in the proposed EU Transparency Directive and will meet these
The above procedures are designed to serve as ongoing processes for financial reporting requirements as set out in the new legislation. The Board
identifying, evaluating and managing the significant risks faced by the Company. receives regular reports on the investor and shareholder meetings including all
A Group Risk and Control Framework is prepared, taking into account the relevant feedback. The Chairman is available to shareholders throughout the year.
significant risks identified by the individual units together with other Group-wide The Company also has named its director of communications as investor and
risks. The Group Risk and Control Framework has been considered and adopted shareholder contact who is available to shareholders throughout the year. The
by the Board, which holds ultimate responsibility for the management of risk. Company enables shareholders and the general public to access press releases
and general information on the Company on its http://www.optos.com web site.
The members of the senior management team assess the effectiveness of the
internal control environment and procedures within their respective units and Going Concern
report to the Chief Executive Officer. They are responsible for the operation The Directors’, having reviewed the Group’s and the Company’s budgets for the
of key internal controls. The process covers the areas of most significant risk to next financial year and other longer-term plans, are satisfied that the Group and
the Company. External audit risk assessment and planning is in place. The audit the Company have adequate resources to continue in operational existence for
committee considers and determines relevant action in respect of any control the foreseeable future and therefore it is appropriate to continue to adopt the
issues raised by either the Chief Executive Officer or the external auditors. going concern basis in preparing the accounts.

The Board has monitored the effectiveness of the Group’s system of internal
control during the year. In particular, the Board has reviewed and regularly
monitored progress against the Company’s Risk and Control Framework.

The Board considers it has reviewed and satisfied itself of the efficacy of the
Group’s internal controls, which the Board has determined as being suitable
and satisfactory for a Company of its size. The Board can therefore confirm
that there is an ongoing process for identifying, evaluating and managing the
Group’s significant risks, that such process has been in place for the year ended
30 September 2006 and up to the date of the approval of the Annual Report and
Accounts, that it is regularly reviewed by the Board and that it accords with the
internal control guidance for Directors relative to the Combined Code.

Optos plc Annual Report & Accounts 2006 23

Corporate Social Responsibility

Optos aims to operate to high standards in all its activities, employ skilled and
responsible people and strive to build trusted relationships within the markets
where it does business. The safety and reliability of the Company’s scanning laser
technology and the efficacy and quality of the images the P200 device produces
are of benefit in health and eye care, providing practitioners with added clinical
value in the earlier detection of both eye and systemic disease, and improving
patient education and management.
Optos is committed to being a socially responsible company and accepts that
its responsibilities in this context extend to all stakeholders, including, but not
limited to, its shareholders, employees, customers, suppliers, financers and the
environment in which it operates. Particular attention and adherence is paid to
the legislative and regulatory requirements within each county in which Optos
operates. Optos has a clear policy on health and safety, and is committed to
delivering excellent performance in these areas through measurement of its
operations in safety management and protection of health, both internally and
externally. Optos is proud of its culture in which staff feel responsible and assume
responsibility for making a difference in delivering high standards within the
organisation and to customers.
The Company also partners with its customers to offer the optomap® Retinal
Exam during national diabetes month and at selected health fairs. The Company
also participates in careers days at local schools, and supports summer student
placements. Optos also works with the Special Olympics, providing the
optomap® Retinal Exam for the Special Olympics Opening Eyes programme,
which is a joint effort between the Special Olympics and Lions Club International.

24 Optos plc Annual Report & Accounts 2006

Directors’ Remuneration Report

INTRODUCTION
All matters relating to executive remuneration are determined by the remuneration committee, a committee of the Board.

A resolution to approve the report will be proposed at the annual general meeting of the Company at which the financial statements for the year ended
30 September 2006 will be approved. Certain items in the remuneration report are required to be audited and are identified as such against the relevant heading.

REMUNERATION COMMITTEE
The Board considers that the Chairman of the Board should be a member of the remuneration committee as it is essential that the Chairman be involved in the work
of the remuneration committee and, in particular, the setting of the executive Directors’ remuneration. Since January 2006, the remuneration committee has consisted
of the following non-executive directors – Dr John Padfield, Barry Rose, Anne Glover and Patrick Paul. The remuneration committee is required to meet at least twice a
year and at such other times as the Chairman of the remuneration committee shall require.

The remuneration committee is responsible for determining the remuneration of the executive Directors and the senior management team together with their terms
and conditions of employment. It is also responsible for considering management recommendations for remuneration and employment terms of the Company’s staff,
including, for example, incentive arrangements for bonus payments and grant of share options.

No members of the remuneration committee have any personal financial interest (other than as shareholders), conflicts of interest arising from cross-directorships or
day-to-day involvement in running the business. The remuneration committee makes recommendations to the Board, and other Directors attend meetings when
invited by the remuneration committee. No Director plays a part in any discussion about his or her own remuneration.

REMUNERATION POLICY
The remuneration committee has established a policy on the remuneration of executive Directors and the Board has established a policy for non-executive Directors
for the current and subsequent years. The remuneration committee’s decisions are made on the basis of rewarding individuals for the nature of the jobs they undertake
and their performance according to defined objectives to deliver the Company’s strategy. Proper regard is given to the need to attract and retain high-quality,
well-motivated staff at all levels, and to the remuneration being paid by similar companies.

The remuneration policy is reviewed annually by the remuneration committee.

POLICY FOR EXECUTIVE DIRECTORS’ REMUNERATION
During the financial year ended 30 September 2006, the remuneration committee appointed New Bridge Street Consultants LLP to provide further advice on
structuring executive Directors’ remuneration packages, together with a report on the proposals for a Long-Term Incentive Plan (“LTIP”).

For the next financial year, the executive Directors will receive a combination of basic salary, management incentive scheme (as described below), pension and benefits
in kind. The basic salary is the only pensionable part of the remuneration package.

The remuneration committee gives consideration to several components In respect of the executive Directors’ remuneration, which together comprise the total
remuneration package. These consist of the following:
• Basic salary is determined by the remuneration committee at the beginning of each year and when an individual changes position or responsibility. In deciding

appropriate levels, the remuneration committee considers the position in the Company, personal and Company performance, and relies on objective research
which gives up-to-date information on a comparable group of companies. Basic salaries were reviewed in September 2005, with increases taking effect from
1 October 2005 and further increases on 15 February 2006. The basic salaries were last reviewed in September 2006, with increases taking effect from 1 October
2006. The next review will take place in September 2007.
• Quarterly Performance Incentives are paid, provided that objectives established by the remuneration committee are met for each financial year. For 2006,
the objectives put emphasis on net installs, revenue per site of existing customers and control of expenditure.
• Benefits in Kind, which comprise Company car allowance, private health insurance, life insurance and Company sick pay. Where a Director is on international
assignment, the additional benefits provided are housing allowance, school fees and specified family travel.
• Pension Contribution. The Company operates a contracted-out defined contribution scheme for executive Directors whereby the Company contributes 10% of a
Director’s gross salary. Prior to February 2006, the Company contribution was 7%.

The Company has operated discretionary share option arrangements. The discretionary options have been granted pursuant to four different types of option
agreement. Most terms of those option agreements are identical. However, the terms on which options vest differ between the types of agreement. The four types of
vesting are as follows:
• Time-based vesting over the three years commencing on the date on which the option was granted. One third of the options vest on grant and the remaining

two-thirds vest over the following 36 months on a monthly basis.
• Time-based vesting over three years as described above but with full acceleration of vesting on the admission of the Company’s shares to trading on certain stock

exchanges, including the London Stock Exchange.
• Time-based vesting by reference to the flotation of the Company. Under this form of option agreement, one third of the shares under option vest on the admission

of the Company’s shares to trading on certain stock exchanges, including the London Stock Exchange. The remaining two-thirds then vest in two tranches – on the
date six months after admission and on the date 12 months after admission.
• Vesting as to one third immediately, with the remaining two-thirds vesting subject to satisfaction of performance targets. Such targets are based on the Company
achieving two successive quarters of positive operating profit and two successive quarters of positive earnings over the period from grant to 31 March 2006 and
31 March 2007 respectively. These performance periods were accelerated by 12 months due to the IPO and the conditions have been achieved.

In addition to the above, two further vesting arrangements have been utilised in respect of two separate grants. The first grant is subject to time-based vesting with
one third of the option vesting on the first, second and third anniversaries of the date of grant. The second grant is subject to performance-based vesting, with the
option vesting over four quarters dependent on the North American business attaining certain performance levels.

Optos plc Annual Report & Accounts 2006 25

Directors’ Remuneration Report
continued

All option agreements contain provisions for the full acceleration of the option on a change in the control of the Company. Option holders who cease to be employees
of the Group are entitled to exercise their vested options in full for a period of either one month or six months following cessation of employment, depending on the
reasons for that cessation. All agreements contain provisions enabling the adjustment of the number of shares subject to option and the exercise price in the event of
capitalisation issue, sub-division or consolidation of ordinary shares. All options are to be settled by way of equity with a maximum term of 10 years.

In addition, the Company operated a share save scheme under which options were granted in 2002 and mature in 2007.

Shareholder approval for a new share-based LTIP and a discretionary share option scheme will be sought at the annual general meeting to be held on 31 January 2007
(summaries of the principal features of the LTIP and the discretionary share option scheme will be outlined in the appendix to the notice of annual general meeting).

Thomas Butts’ Share Award
In order to facilitate the recruitment and retention of Mr Butts, the new CEO, the Company has entered into a one-off arrangement with Mr Butts under which he has
been granted on 18 December 2006 a share award to acquire up to 2,200,000 ordinary shares in the capital of the Company at an exercise price of 200p per ordinary
share, the mid-market closing price on the date of grant. The Company has agreed with Mr Butts to submit for approval at the Annual General Meeting to be held on
31 January 2007 a proposal to replace this award with an award to acquire up to 1,350,000 ordinary shares in the capital of the Company at an exercise price of 2p per
ordinary share, and with certain curtailments of the exercise period.

The remuneration committee of the Company considers the recruitment of a new CEO to constitute unusual and exceptional circumstances. The selection and
appropriate incentivisation of a new CEO is critical to the development of the Company and to the delivery of shareholder value.

Set out below is a summary of the arrangement in connection with Mr Butts’ award. Only Mr Butts participates in this arrangement and no part of the benefit from this
award is pensionable.

Exercise of Award
The exercise of this award by Mr Butts is dependent on meeting certain performance targets.

The award will vest and become exercisable in three tranches following the end of the calendar years 2007, 2008 and 2009. The vesting of each tranche is subject
to the Company achieving significant year on year increases to key performance indicators, namely increasing revenues, operating profit and net cash in-flows.
These indicators are considered by the remuneration committee to be critical to the Company’s future success. The Board or the remuneration committee, at the
relevant times, will determine, by reference to available financial information, whether or not those targets are achieved. In addition, the ability to exercise the award is
weighted towards the 2009 calendar year, such that in excess of 50% of the award is subject to the requirement that Mr Butts be employed as of 1 January 2010 (absent
the conditions described below).

Normally, Mr Butts will only be able to exercise the award whilst he is employed by the Company. If he ceases employment with the Group as a result of certain
specified reasons, including death, disability, termination of Mr Butts’ employment by the Company without cause or Mr Butts resigning in certain circumstances,
such as where his salary or bonuses are reduced (other than where there is an across-the-board reduction applicable to all of the Company’s senior executives),
Mr Butts is relocated a significant distance away from the Company’s current US headquarters, or, if there is a material adverse change to Mr Butts’ position or a
material diminution of his duties and responsibilities, the award will be exercisable (to the extent vested) for a period of three months (extended to one year for death
or disability) following termination of employment. To the extent the award is not exercised by the expiry of that period, or if Mr Butts leaves employment with the
Company for any other reason, the award will lapse. If Mr Butts left part-way through a year for a specified reason, then the remuneration committee may determine,
taking into account progress towards the targets and prorated to reflect time served, that a further part of the award shall vest.

To the extent the award has not lapsed or been exercised, the award will lapse 10 years after its grant.

Change of Control
The award may be exercised to the extent vested in the event of a change of control of the Company. The remuneration committee may decide that the whole or such
further part of the award as they determine shall vest in these circumstances.

Adjustments
The award may be adjusted following a capitalisation, rights issue, open offer sub-division, consolidation or reduction in the capital of the Company, or any other
variation of ordinary share capital, or if the Company is the subject of a demerger.

Amendments
The Company and Mr Butts may amend the terms of this award but will not alter, to Mr Butts’ advantage, terms relating to Mr Butts’ maximum entitlement or the
adjustment of the award on a variation of share capital unless such amendments are approved by shareholders or are minor amendments to benefit administration
of the arrangement, to take into account a change in legislation or to obtain or maintain favourable tax treatment for Mr Butts, the Company or any Group company.

26 Optos plc Annual Report & Accounts 2006

Directors’ Remuneration Report
continued

SERVICE CONTRACTS
The Company has entered into service contracts with each of its executive Directors, none of which is for a fixed term. It is the remuneration committee’s policy to
offer service contracts for an indefinite term subject to termination on a maximum of one year’s notice or an equivalent severance payment. Save for Mr Butts who
has a US-style service agreement, each of the executive Directors’ service contracts can be terminated by the Director giving not less than six months’ written notice
of termination or by the Company giving the Director not less than 12 months’ written notice of termination. The dates of the executed contracts for each executive
Director are as follows:

Allan Watson 9 February 2006

Douglas Anderson 9 February 2006

Ian Stevens 6 October 2006

Thomas Butts 15 December 2006

Save in relation to Mr Butts, the Company has the right, in its absolute discretion, to terminate each of the service contracts at any time by making a payment in lieu of
the notice period comprising basic salary, car allowance (if applicable), bonuses (based upon the bonus paid during the previous financial year), benefits and pension
contributions.

Mr Butts is a US citizen and the Company has agreed to provide him with a service contract which is consistent with market practice in the United States and is
governed by the laws of the Commonwealth of Massachusetts. The Company has the right, in its absolute discretion, to terminate Mr Butts’ service contract at any time
without “Cause” by giving him two months’ written notice or making a payment in lieu of notice equal to his salary for the notice period. In addition and in exchange
for the execution by Mr Butts of a release of claims against the Company, Mr Butts is entitled to a severance package comprised of one year of salary,
bonus (based on the bonus paid during the previous financial year) and medical benefits. The severance package will be reduced by the amount of any payments
Mr Butts receives in lieu of his notice period. If Mr Butts resigns in certain circumstances, he is also entitled to receive the severance package referred to above.

Mr Stevens’ international assignment to the United States ended on 30 September 2006. The Company has agreed that it will endeavour to find Mr Stevens a new role
working for the Company in the United Kingdom which is similar to the position he held in the United Kingdom prior to his international assignment and acceptable
to Mr Stevens. In the event that the Company fail to find such a position by 30 June 2007 (or, if earlier, three months after the date on which the Company appoints
a permanent chief executive officer), then either party will be entitled to terminate Mr Stevens’ service contract. In such an event, Mr Stevens will be entitled to a
severance payment which will comprise: (a) a pro rata bonus for the current financial year (in proportion to those pro rata performance targets which have been
met as at the termination date); (b) 12 months’ basic salary, car allowance and pension contributions; (c) a bonus of 50% of his basic salary (but, in the event that the
pro rata performance targets were not met as at the termination date, then such bonus will be reduced proportionately); and (d) £3,500 in lieu of 12 months’
contractual benefits. Mr Stevens will also be entitled to exercise his share options for a period of two years following the termination date.

There are no other provisions for early termination of the service contracts.

NON-EXECUTIVE DIRECTORS
The Company’s policy is to establish and maintain a body of non-executive Directors with a breadth of skills and experience that is relevant to the Company’s business.
In this context, it is the Board’s policy for the non-executive Directors to be paid a level of fee that reflects market conditions and is sufficient to attract individuals with
appropriate knowledge and experience. The Board seeks to pay the market rate to reflect the time taken to carry out the role of non-executive Director and reviews
the rates annually.

The Company has entered into a letter of appointment with each of the current non-executive Directors. Each letter of appointment is for a fixed three-year term,
provided that either party may terminate the appointment at any time during the term of appointment by giving three months’ notice of termination and the
appointment may be terminated any time in accordance with the articles of association of the Company or the Companies Act 1985. The dates of the letters of
appointment and the expiry dates are:

Non-executive Director Date of Letter of Appointment Expiry Date

Dr John Padfield 11 January 2006 30 December 2008

Anne Glover 27 January 2006 26 January 2009

Patrick Paul 27 January 2006 26 January 2009

Barry Rose 27 January 2006 26 January 2009

Dr David Guyer 5 May 2006 26 January 2009

Optos plc Annual Report & Accounts 2006 27

Directors’ Remuneration Report
continued

DIRECTORS’ INTERESTS
The beneficial and non-beneficial interests of the Directors in the ordinary shares of £0.02 each in the capital of the Company (“Ordinary Shares”) are set out below:

At 30 Sep 2006 At 1 Oct 2005

or at date of appointment

Number of Number of

Ordinary Share Ordinary Share

Shares Options Shares (7) Options (8)

Dr John Padfield 175,000 – 175,000 –

Allan Watson – 401,000 – 301,000

Douglas Anderson (1) 2,095,939 126,000 2,452,089 202,000

Ian Stevens (2) 21,500 595,000 19,500 551,000

Anne Glover (3) 13,381,929 – 8,743,448 –

Patrick Paul (4) 5,037,410 – 4,489,867 168,000

Barry Rose 15,000 – 5,000 –

Dr David Guyer – – – –



(1) of these ordinary shares: 157,750 are held in the name of Mr Anderson and 1,938,189 (being an amount proportional to Mr Anderson’s holding of 55.25% of the share

capital of such company) are held in the name of Crombie Anderson Associates Limited.

(2) of these ordinary shares: 18,200 are held in the name of Mr Stevens; and 3,300 are held in the name of Alison Stevens, Mr Stevens’ wife, in her own name.

(3) of these ordinary shares: 127,176 are held in the name of Ms Glover; and 13,254,753 are held in the names of seven Amadeus funds (as further detailed in (5) below)

of which Ms Glover is a director and/or limited partner.

(4) of these ordinary shares: 4,657,867 are held in the name of Mr Paul and 379,543 are held in the name of Chester Investments Limited (a company in which Mr Paul

holds 100% of the share capital).

(5) The interests of Amadeus are held amongst the following funds:

Amadeus I: 2,897,727 ordinary shares

Amadeus I Affiliates Fund LP: 152,512 ordinary shares

Amadeus II A: 4,592,031 ordinary shares

Amadeus II B: 3,061,354 ordinary shares

Amadeus II C: 2,142,948 ordinary shares

Amadeus II Affiliates LP: 102,045 ordinary shares

Amadeus II D GmbH & Co. KG: 306,136 ordinary shares

(6) Mr Anderson, a Director of the Company, is a director and majority shareholder in Crombie Anderson Associates Limited, and Ms Glover and Mr Paul, Directors of

the Company, both hold minority shareholder interests in Crombie Anderson Associates Limited.

(7) The number of ordinary shares have been calculated after the consolidation which took place on 27 January 2006, where two ordinary shares of £0.01 each were

consolidated into one ordinary share of £0.02 each.

(8) The number of share options have been calculated after the consolidation which took place on 27 January 2006, where two ordinary shares of £0.01 each were

consolidated into one ordinary share of £0.02 each.

As at 7 December 2006, there have been no changes in the above shareholdings since 30 September 2006.

DIRECTORS’ REMUNERATION (AUDITED)
The remuneration in respect of qualifying services of each person who served as a Director during the year ended 30 September 2006 was as shown below.
Note that these amounts are expressed in US dollars, the Group’s reporting currency, though all Directors were paid in pounds sterling, except for Ian Stevens.
The average exchange rate used in the year ended 30 September 2006 was $1.80 to £1 (2005: $1.85 to £1).

Year to 2006 Year to 2005
Pension
Compensation Year to Year to Pension
Contributions
Salary and Fees Bonus Benefits for Loss of Office Sep 06 Sep 05 Contributions $’000
$’000 $’000 $’000 $’000 $’000 $’000 $’000
–


Chairman

Dr John Padfield (9) 80 – – – 80 – –

Non-Executive Directors

Anne Glover (3) 38 – – – 38 22 – –
–
Patrick Paul 29 – – – 29 – – –
–
Barry Rose (4) 36 – – – 36 – – –
–
Dr David Guyer (5) 38 – – 38 – – –

Barry Sealey (6) – – – – – – –

Michael Rutterford (7) – – – – – – –

Ann Gloag (8) – – – – – – –

28 Optos plc Annual Report & Accounts 2006

Directors’ Remuneration Report
continued

Year to 2006 Year to 2005
Pension
Compensation Year to Year to Pension
Contributions
Salary and Fees Bonus Benefits for Loss of Office Sep 06 Sep 05 Contributions $’000
$’000 $’000 $’000 $’000 $’000 $’000 $’000
39
11
15
Executive directors 7
11
Stephane Sallmard (1) 340 234 27 643 1,244 393 25

Allan Watson 220 180 12 – 412 191 20

Ian Stevens 233 104 104 – 441 378 20

Douglas Anderson 212 52 2 – 266 238 11

David Cairns (2) 38 – 2 – 40 170 2

Total 1,264 570 147 643 2,624 1,392 78 83

Notes to the table:
(1) Stephane Sallmard resigned on 30 September 2006.
(2) David Cairns resigned on 21 December 2005.
(3) Anne Glover’s fees are paid to Amadeus Capital Partners .
(4) Barry Rose was appointed on 21 December 2005.
(5) David Guyer was appointed on 5 May 2006.
(6) Barry Sealey resigned as Chairman of the Board on 31 December 2005 and from the Board on 27 January 2006.
(7) Michael Rutterford resigned on 21 December 2005.
(8) Ann Gloag resigned on 21 December 2005.
(9) Dr John Padfield was appointed to the Board on the 17 November 2005.

Barry Sealey, Michael Rutterford and Ann Gloag did not receive any fees as non-executive Directors.

FUTURE NON-EXECUTIVE DIRECTORS’ REMUNERATION
The current non-executive Directors will receive £25,000 per annum for carrying out their duties. Dr David Guyer will receive an additional £25,000 as Chairman of the
Medical Advisory Board.

Dr Padfield, as Chairman of the Company, will receive £50,000 per annum for acting as Chairman and being a Director.

Long-Term Incentive Plans
The Group believes there is benefit to be gained from aligning executive Directors’ interests (and other employee interests) with those of shareholders by means of
share-based, long-term incentives.

Shareholder approval for a new share-based LTIP and a discretionary share option scheme will be sought at the annual general meeting to be held on 31 January 2007
(summaries of the principal features of the LTIP and the discretionary share option scheme will be outlined in the appendix to the notice of annual general meeting).

SHARE OPTIONS GRANTED TO DIRECTORS (AUDITED)
Details of share options of those Directors who served during the financial year ended 30 September 2006 are set out in the table below. No amounts were payable for
the award of the share options.

At 30 Sep 06 Earliest Date
from which
At 1 Oct Granted Lapsed Exercised or Date Ceased Exercise Date Exercisable

2005 (6) During Year (6) During Year During Year to be a Director Price of Grant Expiry Date

Stephane Sallmard (1) 500,000 – – – 500,000 £0.80 01 Oct 2001 01 Oct 2001 14 May 2007
125,000 – – – 14 May 2007
1,000 – – – 125,000 £1.00 01 Oct 2002 01 Oct 2002 14 May 2007
625,000 – – – 14 May 2007
1,251,000 1,000 £1.00 22 Mar 2001 01 Oct 2004

625,000 £1.00 21 Sep 2005 21 Sep 2005

1,251,000

Allan Watson 150,000 – – – 150,000 £1.00 01 Dec 2003 01 Dec 2003 30 Nov 2013
1,000 – – – 1,000 £1.00 01 Oct 2004 01 Oct 2004 30 Sep 2014
– – – £1.00 21 Sep 2005 21 Sep 2005 20 Sep 2015
150,000 100,000 – – 150,000 £1.00 09 Dec 2005 09 Dec 2006 08 Dec 2015
– 100,000 100,000
401,000
301,000

Optos plc Annual Report & Accounts 2006 29

Directors’ Remuneration Report
continued

At 30 Sep 06 Earliest Date
from which
At 1 Oct Granted Lapsed Exercised or Date Ceased Exercise Date Exercisable

2005 (6) During Year (6) During Year During Year to be a Director Price of Grant Expiry Date

Douglas Anderson 176,000 – – 176,000 – £0.046 15 Apr 1996 15 Apr 1999 14 Apr 2006
1,000 – – – 30 Sep 2014
– – – 1,000 £1.00 01 Oct 2004 01 Oct 2004 20 Sep 2015
25,000 100,000 – – 08 Dec 2015
– 100,000 176,000 25,000 £1.00 21 Sep 2005 21 Sep 2005

202,000 100,000 £1.00 09 Dec 2005 09 Dec 2006

126,000

Ian Stevens 50,000 – – – 50,000 £1.00 03 Mar 1999 03 Mar 1999 02 Mar 2009
50,000 – 28 Feb 2010
100,000 – – – 50,000 £1.30 01 Mar 2000 01 Mar 2000 31 Aug 2010
50,000 – 30 Sep 2011
50,000 – – – 100,000 £1.45 01 Sep 2000 01 Sep 2000 30 Sep 2012
100,000 – 30 Jun 2013
– – – 50,000 £0.80 01 Oct 2001 01 Oct 2001 30 Sep 2014
1,000 – 20 Sep 2015
100,000 – – – 50,000 £1.00 01 Oct 2002 01 Oct 2002 20 Sep 2015
50,000 50,000 08 Dec 2015
50,000 – – 100,000 £1.00 01 Jul 2003 01 Jul 2003
–
551,000 – – 1,000 £1.00 01 Oct 2004 01 Oct 2004

– – 100,000 £1.00 21 Sep 2005 21 Sep 2005

6,000 – 44000 £1.00 21 Sep 2005 21 Sep 2005

– – 50,000 £1.00 09 Dec 2005 09 Dec 2006

6,000 595,000

David Cairns (2) 100,000 – – – 100,000 £0.42 17 Nov 1997 17 Nov 1997 16 Nov 2007
40,000 – – – 28 Feb 2010
50,000 – – – 40,000 £1.30 1 Mar 2000 1 Mar 2000 30 Sep 2011
37,500 – – – 30 Sep 2012
50,000 £0.80 1 Oct 2001 1 Oct 2001 30 Sep 2014
1,000 – – – 20 Sep 2015
25,000 – – – 37,500 £1.00 1 Oct 2002 1 Oct 2002
253,500
1,000 £1.00 1 Oct 2004 1 Oct 2004

25,000 £1.00 21 Sep 2005 21 Sep 2005

253,500

Patrick Paul 100,000 – – 100,000 – £0.409 10 Mar 1997 10 Mar 1997 15 Nov 2006
16,000 – – 15 Nov 2006
12,000 – – 16,000 – £1.00 28 Sep 1998 28 Sep 1998 15 Nov 2006
16,000 – – 15 Nov 2006
16,000 – – 12,000 – £1.30 1 Mar 2000 1 Mar 2000 15 Nov 2006
8,000 – – 15 Nov 2006
16,000 – £0.80 31 Jan 2002 31 Jan 2002
168,000
16,000 – £1.00 18 Feb 2004 18 Feb 2004

8,000 – £1.00 21 Sep 2005 21 Sep 2005

168,000

Barry Sealey (3) 100,000 – – – 100,000 £0.41 10 Mar 1997 10 Mar 1997 15 Nov 2006
24,000 – – – 15 Nov 2006
18,000 – – – 24,000 £1.00 28 Sep 1998 28 Sep 1998 15 Nov 2006
24,000 – – – 15 Nov 2006
24,000 – – – 18,000 £1.30 1 Mar 2000 1 Mar 2000 15 Nov 2006
12,000 – – – 15 Nov 2006
24,000 £0.80 31 Jan 2002 31 Jan 2002
202,000
24,000 £1.00 18 Feb 2004 18 Feb 2004

12,000 £1.00 21 Sep 2005 21 Sep 2005

202,000

Michael Rutterford (4) 100,000 – – – 100,000 £0.41 10 Mar 1997 10 Mar 1997 15 Nov 2006
16,000 – – – 15 Nov 2006
12,000 – – – 16,000 £1.00 28 Sep 1998 28 Sep 1998 15 Nov 2006
16,000 – – – 15 Nov 2006
16,000 – – – 12,000 £1.30 1 Mar 2000 1 Mar 2000 15 Nov 2006
8,000 – – – 15 Nov 2006
16,000 £0.80 31 Jan 2002 31 Jan 2002
168,000
16,000 £1.00 18 Feb 2004 18 Feb 2004

8,000 £1.00 21 Sep 2005 21 Sep 2005

168,000

Ann Gloag (5) 8,000 – – – 8,000 £0.80 31 Jan 2002 31 Jan 2002 15 Nov 2006

16,000 – – – 16,000 £1.00 18 Feb 2004 18 Feb 2004 15 Nov 2006

8,000 – – – 8,000 £1.00 21 Sep 2005 21 Sep 2005 15 Nov 2006

32,000 32,000



(1) ceased to be a Director on 30 September 2006

(2) ceased to be a Director on 21 December 2005

(3) ceased to be a Director on 27 January 2006

(4) ceased to be a Director on 21 December 2005

(5) ceased to be a Director on 21 December 2005

(6) The number of share options has been calculated after the consolidation which took place on 27 January 2006, where two ordinary shares of £0.01 each were

consolidated into one ordinary share of £0.02 each.

30 Optos plc Annual Report & Accounts 2006

Directors’ Remuneration Report
continued

Awards granted to five executives on 21 September 2005 contained performance conditions. The awards stipulated vesting as to one third immediately with the
remaining two-thirds vesting subject to satisfaction of performance targets. Such targets are based on the Company achieving two successive quarters of positive
operating profit and two successive quarters of positive earnings over the period from grant to 31 March 2006 and 31 March 2007 respectively. These performance
periods were accelerated by 12 months due to the IPO and the conditions have been achieved.

An award of 50,000 options granted to Ian Stevens on 21 September 2005 contained performance conditions. The award stipulated vesting over four quarters
dependent on the North American business attaining certain performance levels. Such targets are based on the Company budget for the year ended 30 September
2006 and relate to targets for net installs, overhead expenditure and revenue per site. The conditions have been achieved.

The outstanding options to a number of non-executive Directors expired nine months after admission to the Official List and trading on the main market of the
London Stock Exchange.

The options numbers listed above exclude options reserved under the share save scheme which commenced in April 2002. Stephane Sallmard has a potential 20,688
options priced at £1.00 and exercisable between April 2007 and September 2007. Ian Stevens has a potential 12,413 options priced at £1.00 and exercisable between
April 2007 and September 2007.

Aggregate gains made by Directors on the exercise of share options amounted to $979,837 (2005: $nil).

The market price of the shares at 30 September 2006 was £1.85 and the highest and lowest market prices from flotation to 30 September 2006 were £2.84 to £1.62.

PERFORMANCE GRAPH
The following graph shows the Company’s performance measured by the total shareholder return, compared with the performance of the FTSE Small Cap and the
FTSE All Share and Healthcare Equipment and Services (rebased) indices. The Board believes these comparisons are the most relevant for a Company of Optos’ size.

110

100
90
80
70

60 Mar Apr May Jun Jul Aug Sep

Optos PLC
FTSE Small Cap – Price index
Health FTSE All Share H/C EQ & SVS £ – Price Index

Source: Datastream

Dr John Padfield
Chairman of the Remuneration Committee
Signed and approved for and on behalf of the Board

18 December 2006

Optos plc Annual Report & Accounts 2006 31

Directors’ Report

The Directors present their report and the audited financial statements for the year ended 30 September 2006.

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The Group is principally engaged in the design, development, manufacture and marketing of retinal imaging devices. The Directors’ Report should be read in
conjunction with the Chairman’s Statement and the Operational and Financial Review, which together contain details of the principal activities of the Group, a review
of the business during the year and an indication of expected progress.

A description of the principal risks and uncertainties facing the Group can be found in Note 22 of the financial statements.

FINANCIAL RESULTS AND DIVIDEND
The Group’s consolidated net profit for the year after taxation was $10.8 million (2005: loss of $2.2 million). The Directors do not recommend the payment of a dividend
for the current year. The profit for the year has been transferred to the reserves.

RESEARCH AND DEVELOPMENT
The Group continues to invest in research and development. Details of activities on research and development are set out in the Operating and Financial Review.

SHARE CAPITAL
Following the annual general meeting of the Company held on 27 January 2006, the members voted to consolidate each ordinary share of £0.01 in the Company on
a 2:1 basis, consolidating two ordinary shares of £0.01 each into one ordinary share of £0.02. The members then voted to increase the share capital of the Company by
£600,000 to £1,800,000 by the creation of an additional 30 million ordinary shares.

As at 1 October 2005, the Company had 46.1 million ordinary shares of £0.02 outstanding. On 15 February 2006, the Company issued 19.2 million ordinary shares of
£0.02 in respect of new capital raised during the IPO, loan stock conversion and through the exercise of various options and warrants. In addition to this, during the
year ended 30 September 2006, 0.7 million ordinary shares were issued to staff exercising options and 0.2 million ordinary shares were issued to third parties. As at
30 September 2006, the Company had 66,178,338 ordinary shares in issue.

Details of the options outstanding under each of the Company’s share option schemes at the end of the year are set out in Note 20 to the Group financial statements

SUBSTANTIAL INTERESTS
As at 7 December 2006, the Company had been notified, in accordance with Sections 198 to 208 of the Companies Act 1985, of the following interests in the
Company’s ordinary share capital:

Shares Number of Ordinary Shares Percentage of Issued Ordinary Shares

Fidelity Investments 1,877,300 2.8%
The Goldman Sachs Group Inc 2,976,522 4.5%
MPC Investors Ltd 2,175,400 3.3%

DIRECTORS
Details of the current Directors are set out on pages 18 and 19.

Details of Board appointments and resignations are set out on pages 21 and 22.

DIRECTORS’ INTERESTS
Details of Directors’ interests are set out on pages 28 to 31.

MATERIAL CONTRACTS
None of the Directors had any material interest in any contract of significance with the Company and its subsidiaries other than their service contracts.

NEW INCENTIVE SCHEMES
Shareholder approval for a new share-based LTIP and a discretionary share option scheme will be sought at the annual general meeting to be held on 31 January 2007
(summaries of the principal features of the LTIP and the discretionary share option scheme will be outlined in the appendix to the notice of annual general meeting).

CREDITOR PAYMENT POLICY
Optos’ policy for all suppliers is to fix terms of payment when agreeing the terms of the credit account, to ensure that the supplier is aware of the terms, and to abide
by the agreed terms of payment. Trade payables are paid on the 20th of the month following the month of invoice, equivalent to an average of 35 days.

Other payables are non-interest bearing and have an average term of between 30 and 60 days.

QUALIFYING THIRD-PARTY INDEMNITY
Since 27 January 2006, a qualifying third-party indemnity provision has been in force pursuant to the Company’s current articles of association.

32 Optos plc Annual Report & Accounts 2006

Directors’ Report
continued

FINANCIAL INSTRUMENTS
The Group’s financial risk management objectives and policies are discussed in Note 22.
DIRECTORS’ STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
In accordance with the Companies (Audit, Investigations and Community Enterprise) Act 2004, the Directors declare that they are not aware of any relevant audit
information of which the Company’s auditors are unaware. The Directors have taken all steps that they ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 31 January 2007.
AUDITORS
A resolution to reappoint Ernst & Young LLP as auditors will be put to the forthcoming Annual General Meeting.
By order of the Board
Allan Watson
Director
18 December 2006

Optos plc Annual Report & Accounts 2006 33

Statement of Directors’ Responsibilities

In respect of the consolidated financial statements, the Directors are responsible for:
• ensuring the maintenance of proper accounting records which disclose with reasonable accuracy the financial position of the Group at any time and from which

financial statements can be prepared to comply with the Companies Act 1985 and Article 4 of the IAS Regulation;
• preparing financial statements for each financial period, which give a true and fair view, in accordance with IFRS as adopted for use in the European Union, of the

state of affairs of the Group as at the end of the financial period and of the profit or loss for that period;
• ensuring the operation of systems of internal control and for taking reasonable steps to safeguard the assets of the Group and for preventing and detecting fraud

and other irregularities.
In respect of the Company financial statements, the Directors are:
• responsible for ensuring the maintenance of proper accounting records which disclose with reasonable accuracy the financial position of the Company at any time

and from which financial statements can be prepared to comply with the Companies Act 1985;
• required by law to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company as at the end of the

financial period and of the profit or loss for that period;
• responsible also for ensuring the operation of systems of internal control and for taking reasonable steps to safeguard the assets of the Company and for preventing

and detecting fraud and other irregularities.
The Directors have elected to prepare the parent financial statements in accordance with applicable United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
The financial statements for the year ended 30 September 2006 are included in the annual report for 2006, which is published in hard-copy printed form and made
available on the website. The Directors are responsible for the maintenance and integrity of the annual report on the website, in accordance with UK legislation governing
the preparation and dissemination of financial statements. Access to the website is available from outside the UK, where comparable legislation may be different.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and the Corporate
Governance Statement that comply with that law and those regulations.

34 Optos plc Annual Report & Accounts 2006

Independent Auditors’ Report
to the members of Optos plc

We have audited the Group financial statements of Optos plc for the year ended 30 September 2006, which comprise the Consolidated Income Statement, the
Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement and the related Notes 1 to 23. These Group
financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements of Optos plc for the year ended 30 September 2006 and on the information in the Directors’
Remuneration Report, that is described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so
that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors
The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom law and International
Financial Reporting Standards (IFRS) as adopted by the European Union as set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the Group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing
(UK and Ireland).

We report to you our opinion as to whether the Group financial statements give a true and fair view, the Group financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the IAS Regulations. We also report to you whether the information given in the Directors’ report is consistent
with the financial statements. The information given in the Directors’ report includes that specific information presented in the Operational and Financial Review that is
cross-referred from the Business Review section of the Directors’ Report.

In addition, we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law
regarding Directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for
our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider whether it is consistent with the audited Group financial statements. The other information
comprises only the Highlights, the History of Optos, A Closer Look at Optos, optomap® Retinal Exam, the Chairman’s Statement, the Operational and Financial Review,
Board of Directors, Corporate Governance, Corporate Social Responsibility, the unaudited part of the Directors’ Remuneration Report and the Directors’ Report. We
consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group financial statements. Our
responsibilities do not extend to any other information.

Basis of Audit Opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financial statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the Group financial statements, and of whether the accounting policies are appropriate to the
Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the Group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the Group financial statements.

Opinion
In our opinion :
• the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at

30 September 2006 and of its profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and
• the information given in the Directors’ Report is consistent with the Group financial statements.

Ernst & Young LLP
Registered Auditor
Glasgow

18 December 2006

Optos plc Annual Report & Accounts 2006 35

Consolidated Income Statement
For the year ended 30 September 2006



2006 2005
$’000
Notes $’000
48,399
Revenue 4 67,720 (16,956)
(23,304)
Cost of sales 31,443
321
Gross profit 44,416
– (9,689)
Other income (17,622)
(13,714)
Selling and distribution costs (24,216) 4,453

Administrative expenses (1,170)

Operating profit before share-based payments 6,486 3,283

Share-based payments 20 (2,163) 78
(5,954)
Operating profit after share-based payments 4,323
(2,593)
Finance revenue 5 1,118 396
Finance costs 5 (6,541)
(2,197)
Loss from continuing operations before taxation 4 (1,100)
Income tax credit 7 11,907 (4.8)c
(4.8)c
Net profit/(loss) for the year 10,807
attributable to equity holders of the parent

Profit/(loss) per ordinary share 8 18.5c
Basic 8 17.6c
Diluted

36 Optos plc Annual Report & Accounts 2006

Consolidated Balance Sheet
As at 30 September 2006



2006 2005
$’000
Notes $’000
66,355
Non-current assets 9 77,643 5,735
Property, plant and equipment 10 7,844 –
Intangible assets 7 11,907
Deferred tax asset 72,090

Total non-current assets 97,394 2,708
4,887
Current assets 11 3,693 2,163
Inventories 12 7,362
Trade and other receivables 13 36,152 9,758
Cash and cash equivalents
(7,806)
Total current assets 47,207 (38,440)

Current liabilities 14 (10,252) (281)
Trade and other payables 15 (40,940)
Financial liabilities 17 (46,527)
Provisions (114)
35,321
Total current liabilities (51,306)
(55,073)
Total assets less current liabilities 93,295 (562)
(714)
Non-current liabilities 15 (40,220)
Financial liabilities 17 (1,025) (56,349)
Provisions 18 (714)
Government grants (21,028)

Total non-current liabilities (41,959) 1,665
52,472
Net assets/(liabilities) 51,336 (75,136)

Equity attributable to equity holders of the parent (29)

Issued capital 2,361 (21,028)
111,375
Share premium (62,271)

Retained earnings (129)

Other reserves

Total equity 51,336

Approved by the Board of Directors on 18 December 2006 and signed on its behalf by:

Allan Watson
Director

Optos plc Annual Report & Accounts 2006 37

Consolidated Statement of Changes in Equity
For the year ended 30 September 2006

Share Share Equity Retained Other Total
Capital Premium Reserve Earnings $’000 $’000

$’000 $’000 $’000 $’000 686 (19,744)

At 1 October 2004 1,663 52,417 – (74,510) (29) (29)
– (2,197)
Exchange differences on foreign operations – – – –
Loss for the year – – – (2,197) (29) (2,226)

Total income and expenses for year – – – (2,197) 657 (21,970)

1,663 52,417 – (76,707) (686) –
– 57
Reserve transfer – – – 686 – 885
Issue of ordinary share capital 2 55 – –
Share-based payments – – – (29) (21,028)
885 – 1,439
At 30 September 2005 1,665 52,472 –
Implementation of IAS32/39 – – 2,744 (75,136) (29) (19,589)
(1,305)
At 1 October 2005 1,665 52,472 2,744 (100) (100)
(76,441) – 10,807
Exchange differences on foreign operations – – –
Profit for the year – – – – (100) 10,707
10,807
Total income and expenses for year – – – (129) (8,882)
10,807
1,665 52,472 2,744 – 9,229
(65,634)
Conversion of loan 217 10,213 (2,744) – 54,774
1,543 – (5,605)
Issue of ordinary share capital 479 54,295 – – 1,820
Cost of issue of ordinary share capital – (5,605) – –
Share-based payments – – – (129) 51,336
– 1,820
At 30 September 2006 2,361 –
111,375 (62,271)

Share Premium
Share premium comprises the difference between the net proceeds and nominal value on issue of the Company’s equity share capital.

Other Reserves
Other reserves comprise:

Special Reserve
This reserve was used to record a reduction in capital during the year ended 30 September 1997. The special reserve was created following the cancellation of the
share premium account as at 30 September 1997 of £1,112,000, against which was applied the debit balance on the profit and loss account at that time of £733,000.
As no debts or claims against Optos at 30 September 1997 remain, the balance on special reserves of $686,000 has been reclassified to the profit and loss account.

Foreign Exchange Reserve
This reserve includes all cumulative differences on the translation of the Group’s net investment in foreign operations. Optos has elected to deem the cumulative
differences on the retranslation into sterling of the Group’s net investment in foreign operations to be $nil as at 1 October 2004. As a result, in the event of the
subsequent disposal of a foreign operation, any gain or loss on disposal will include cumulative translation differences arising only on or after 1 October 2004.

38 Optos plc Annual Report & Accounts 2006

Consolidated Cash Flow Statement
For the year ended 30 September 2006



2006 2005
$’000
Notes $’000
3,283
Cash flows from operating activities 4,323
Operating profit after share-based payments 14,689
Adjustments for: 21,273 –
Depreciation and amortisation 756
Loss on disposal 1,170
Share-based payments 1,820 (1,063)
Increase in trade and other receivables (2,475)
Increase in inventories (447)
Increase/(decrease) in trade payables (985) (1,837)
Government grant receipt 1,651
Increase in provisions 316
Research and development tax credit – 285
296 396

– 16,792

Net cash inflows from operating activities 26,659 78
(34,448)
Cash flows used in investing activities 1,118
Interest received (32,015) (2,777)
(2,463)
Purchases of property, plant and equipment (PPE) (37,147)

Expenditure on intangible assets 40,771
(25,385)
Net cash flows used in investing activities (33,360)
57
Cash flows from financing activities 45,240 (5,390)
Proceeds from finance leases (40,163)
Payment of finance leases 49,169 10,053
Proceeds from share issues (6,287)
Interest paid (10,302)
(497)
Net cash flows from financing activities 47,959 6,109

Net increase/(decrease) in cash and cash equivalents 41,258 (4,690)
Effect of exchange on cash & cash equivalents (416)
Cash and cash equivalents at beginning of period
(4,690)

Cash and cash equivalents at end of period 13 36,152

Optos plc Annual Report & Accounts 2006 39

Notes to the Consolidated Financial Statements
For the year ended 30 September 2006

1 AUTHORISATION OF FINANCIAL STATEMENTS & STATEMENTS OF COMPLIANCE
The consolidated financial statements of Optos plc for the year ended 30 September 2006 were approved and authorised for issue by the Directors on 18 December
2006. Optos plc is a limited company incorporated in Scotland and is listed on the London Stock Exchange.

The consolidated financial statements of Optos plc have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the
European Union and applied in accordance with the provisions of the Companies Act 1985. These are the first annual financial statements of the Group prepared in
accordance with IFRS, and IFRS 1 has been applied.

2 ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to the years
presented, unless otherwise stated.

a) Basis of Preparation
In June 2002, the European Union (“EU”) adopted Regulations which require that the consolidated accounts of listed companies in the EU should, from 2005,
be presented in accordance with EU-adopted International Financial Reporting Standards and International Accounting Standards (“IAS”).

For the year ended 30 September 2006, Optos plc (“the Group”) has adopted IFRS for the first time.

The financial statements have been prepared in accordance with the accounting policies based on International Financial Reporting Standards (“IFRS”) and IFRIC
interpretations endorsed by the European Union (“EU”) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial
statements have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments. The 2005 comparative
information has, as permitted by the exemption in IFRS 1, not been prepared in accordance with IAS 32, ‘Financial Instruments: Disclosure and Presentation’, and IAS 39,
‘Financial Instruments: Recognition and Measurement’. Instead, IAS 32 and IAS 39 have been implemented with effect from 1 October 2005.

The Group’s consolidated financial statements were prepared in accordance with UK GAAP until 30 September 2005. UK GAAP differs in some areas from IFRS.
In preparing the Group’s 2006 consolidated financial statements, management has amended certain accounting, valuation and consolidation methods applied in
the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2005 have been restated to reflect these adjustments.

Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS are provided in Note 23.

The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand ($’000), except when otherwise indicated.

b) Basis of consolidation
The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

c) Foreign currency translation
The consolidated financial statements are presented in US dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines
its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign
currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss, with the exception of differences
on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net
investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with
in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of the foreign operations Optos Canada Inc. and Optos Gmbh, is the Canadian dollar and Euro respectively. As at the reporting date, the assets
and liabilities of these subsidiaries are translated into the presentation currency of Optos plc (the US dollar) at the rate of exchange ruling at the balance sheet date and,
their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to
a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is
recognised in the income statement. The Company’s share capital and share premium account are denominated in £ sterling and are translated at the historical rates of
exchange.

Optos has elected to deem the cumulative differences on the retranslation into sterling of the Group’s net investment in foreign operations to be $nil as at 1 October
2004. As a result, in the event of the subsequent disposal of a foreign operation, any gain or loss on disposal will only include cumulative translation differences arising
on or after 1 October 2004.

40 Optos plc Annual Report & Accounts 2006

Notes to the Consolidated Financial Statements
continued

d) Property, plant and equipment
Property, plant and equipment is stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and accumulated impairment in value.
Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual values based on prices prevailing at the
balance sheet date of each asset evenly over its expected useful, life as follows:

Leasehold improvements 10 years
P200 equipment 5 years
Other plant & equipment 3 to 10 years

P200 equipment refers to retinal examination equipment located at healthcare professional sites and being used on a pay-per-examination basis, and significant
component parts and major spares. P200 equipment is depreciated upon activation at the relevant healthcare professional site.

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be
recoverable.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income
statement in the year the asset is derecognised.

The assets’ residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.

e) Leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the
lease at the fair value or, if lower, at the present value of the minimum lease payments or, in respect of P200 equipment, at the cost of manufacture. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group
will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

Upon placement of P200 equipment at a healthcare professional site, the Group enters into a financing agreement with third-party providers of vendor finance
involving the sale of P200 equipment, with legal title being transferred back at the end of the period. As the significant risks and rewards of ownership are retained by
the Group, the proceeds received from the third-party providers of vendor finance are recorded as fixed-rate obligations which are repayable by instalments and are
secured over the related P200 assets.

f) Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment loss. Internally generated intangible assets, excluding capitalised
development costs, are not capitalised, and expenditure is charged against profits in the year in which the expenditure is incurred.

Research and development costs
Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably
be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied, requiring the asset to be carried at cost less any
accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future revenues from the
related project.

The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indication of impairment
arises during the reporting year.

Computer software
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Amortisation is provided on a
straight-line basis so as to charge the cost of the software to the income statement over its expected useful life, which is in the range three to five years.

g) Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication of impairment exists, or when annual
impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s,
or cash-generating unit’s, fair value less costs to sell, and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that
are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are
recognised in the income statement in those expense categories consistent with the function of the impaired asset.

Optos plc Annual Report & Accounts 2006 41

Notes to the Consolidated Financial Statements
continued

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in
the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset
is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After such a reversal, the depreciation charge is adjusted in
future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

h) Inventories
Inventories primarily comprise spares components related to P200 equipment. Inventories are valued at the lower of cost and net realisable value. Costs incurred in
bringing each product to its present location and condition are accounted for as follows:
• Raw materials spares & consumables – purchase cost on a first-in, first-out basis;
• Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

i) Trade and other receivables
Trade receivables, which generally have 30-90 days’ terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.
Provision is made when there is objective evidence that the Group will not be able to collect the debts. Balances are written off when the probability of recovery is
assessed as being remote.

j) Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

k) Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition,
interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

l) Income taxes
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred income tax is recognised for all taxable temporary differences, except:
• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and,

at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be

controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
• Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is

probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses
can be utilised.

The carrying amount of deferred income tax assets will be reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Otherwise, income tax is recognised in the income
statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred
taxes are related to the same taxable entity and the same taxation authority.

Revenues, expenses and assets are recognised net of the amount of sales tax, except:
• where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of

the cost of acquisition of the asset or as part of the expense item as applicable; and
• receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

42 Optos plc Annual Report & Accounts 2006

Notes to the Consolidated Financial Statements
continued

m) Share-based payment transactions
Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as
consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. In valuing equity-settled transactions,
no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service
conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense
recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s
best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in
cumulative expense recognised as at the beginning and end of that period.

Where the terms of an equity-settled award are modified, or a new award is designated as replacing a cancelled or settled award, the cost based on the original
award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for
the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award,
both as measured on the date of modification. No reduction is recognised if this difference is negative.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for
the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any
excess over fair value being treated as an expense in the income statement.

The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards, and has applied IFRS 2 only to equity-settled awards granted
after 7 November 2002 that had not vested on 1 January 2005.

n) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is
measured at the fair value of the consideration received excluding discounts, rebates, VAT and other sales tax or duties. The following specific recognition criteria must
also be met before revenue is recognised:

Sale of goods
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch.

Rendering of services
Revenue from the provision of retinal examinations to the healthcare sector is recognised once the service has been provided. Such examinations are undertaken by
healthcare professionals who generally enter into “pay-per-patient” agreements.

Revenue is recognised on a pay-per-examination basis, usually with a minimum monthly usage level being agreed with the local healthcare professional.

Interest income
Revenue is recognised as interest accrues on cash deposits.

o) Borrowing costs
Borrowing costs are recognised as an expense when incurred.

p) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.
When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is
intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement
over the expected useful life of the relevant assets.

q) Post-employment benefits
Post employment benefits comprise pension benefits provided to employees throughout the world.

The Company operates a defined contribution pension scheme. The assets of the scheme are invested and managed independently of the finances of the Company.
The contributions payable are recognised in the income statement in the period in which they become payable.

r) Exceptional items
The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and
expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance
in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

Optos plc Annual Report & Accounts 2006 43

Notes to the Consolidated Financial Statements
continued

s) Financial instruments
Prospective adoption of IAS32 and IAS39
As permitted by IFRS1, the Group has elected to apply IAS32 “Financial Instruments: Disclosure and Presentation” and IAS39 “Financial Instruments: Recognition and
Measurement” prospectively from 1 October 2005. As a result, the relevant comparative information for the year ended 30 September 2005 and as at 30 September
2005 does not reflect the impact of these standards and is accounted for in accordance with UK GAAP.

Derivative financial instruments
Optos has used derivative financial instruments, principally forward currency contracts, to reduce its exposure to exchange rate movements. Under UK GAAP,
such derivative contracts are not recognised as assets and liabilities on the balance sheet, and gains or losses arising on them are not recognised until the hedged
item has itself been recognised in the financial statements.

From 1 October 2005, derivative financial instruments are recognised as assets and liabilities measured at their fair value at the balance sheet date. Changes in fair
values will be recognised in the income statement and this is likely to cause volatility in situations where the carrying value of the hedged item is either not adjusted
to reflect fair value changes arising from the hedged risk, or is so adjusted but that adjustment is not recognised in the income statement. However, under certain
conditions specified within IAS39, hedge accounting may be used to mitigate income statement volatility. The Group had no outstanding contracts at 30 September
2005 and had no contracts during the year to 30 September 2006.

Compound financial instruments
Optos had in issue secured loan notes 2006 and unsecured loan notes 2007, both of which were convertible at the holder’s option into ordinary shares of
1p each. Under UK GAAP, convertible bonds are treated as debt, with the finance cost being measured on the assumption that the debt will not be converted.
Under IAS 32, from 1 October 2005 convertible bonds are split into a liability and a conversion option. On issue, the fair value of the liability component is determined
using a market rate for an equivalent non-convertible bond and recognised in non-current liabilities as part of borrowings on an amortised cost basis until
extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option. If the conversion option meets the definition of
an equity instrument, no subsequent changes in the value are recognised in the financial statements. However, where settlement is in a currency other than the
functional currency of Optos, the remainder of the proceeds are recognised as a financial liability, with the change in value of the conversion option in subsequent
accounting periods being recognised in the income statement. At the date of issue, the compound financial instruments were denominated in the functional currency
of Optos and, accordingly, the remainder of the proceeds were treated as an equity instrument.

At 1 October 2005, the carrying value of the secured loan stock 2006 and unsecured loan stock 2007 was reduced by $1,439,000, of which $2,744,000 reflects the
removal of the original value of the conversion options (which is taken to equity) and the balance of $1,305,000 represents the imputed interest calculated on an
amortised costs basis from date of issue to 1 October 2005 (which is taken to retained earnings). The impact on 2006, up to the point of conversion, has been to
increase finance costs by $253,000 for imputed interest and a decrease in administrative expenses of $162,000 related to foreign exchange movements.

Share warrants
Optos had in issue a number of share warrants entitling the holders to subscribe for ordinary shares of 1p each at set prices under certain conditions. UK GAAP requires
the net proceeds of an issue to be credited direct to shareholders’ funds. Thereafter, the accounting depends on whether the warrant is exercised or is allowed to lapse.
If it is exercised, the proceeds on the original issue of the warrant are included in the net proceeds of the shares issued; if it lapses, they are included instead in the
statement of total recognised gains and losses.

Under IFRS, a non-derivative contract involving the delivery of a fixed number of own equity instruments, in exchange or a fixed amount of cash, is classified as an
equity instrument. Any consideration received, such as a premium on issues, is added directly to equity. Subsequent changes in the fair value of the instrument are not
recognised in the financial statements. However, where settlement is in a currency other than the functional currency of Optos, the net proceeds are recognised as a
financial liability, with the change in value of the conversion option in subsequent accounting periods being recognised in the income statement. At the date of issue,
the warrants were denominated in the functional currency of Optos and, accordingly, have been treated as an equity instrument.

t) Derecognition of financial assets & liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where the rights to receive cash flows from
the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a
third party under a ‘pass-through’ arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together with any
costs or fees incurred are recognised in profit or loss.

44 Optos plc Annual Report & Accounts 2006

Notes to the Consolidated Financial Statements
continued

u) Significant judgements made
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the
most significant effect on the amounts recognised in the financial statements:

P200 financing arrangements
Upon placement of P200 equipment at the healthcare professional site, the Group enters into a three-year financing arrangement with third-party providers of vendor
finance involving the sale of the P200 equipment, with legal title being transferred back at the end of the arrangement period. The third-party providers of vendor finance
enter into a three-year lease agreement with the healthcare professional. As the significant risks and rewards of ownership are retained by the Group, the proceeds received
from the third-party providers of vendor finance are recorded as fixed-rate obligations which are repayable by instalments and are secured over the related P200 assets.

v) Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Useful lives of P200 equipment
The Group depreciates P200 equipment over its estimated useful life. The P200 equipment is still relatively new to market and management annually assesses the
appropriateness of the current estimate of useful life.

w) New standards and interpretations
The IASB and IFRIC have issued the following standards and interpretations with an effective date for periods after the date of these financial statements:

Effective Date for
International Accounting Standards (IFRS/IAS) Periods Commencing

IFRS 1 Amendment relating to IFRS 6 1/1/06
IFRS 4 Amendment to IAS 39 and IFRS 4 – Financial Guarantee Contracts 1/1/06
IFRS 6 Exploration for and Evaluation of Mineral Assets 1/1/06
IFRS 6 Amendment relating to IFRS 6 1/1/06
IFRS 7 Financial Instruments: Disclosures 1/1/07
IFRS 8 Operating Segments 1/1/09*
IAS 1 Amendments to IAS 1 – Presentation of Financial Statements: Capital Disclosures 1/1/07
IAS 19 Amendment to IAS 19: Actuarial Gains and Losses, Group Plans and Disclosures 1/1/06
IAS 21 Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation 1/1/06
IAS 39 Amendment to IAS 39 The Fair Value Option 1/1/06
IAS 39 Amendment to IAS 39 Cash Flow Hedge Accounting 1/1/06
IAS 39 Amendments to IAS 39 and IFRS 4 – Financial Guarantee Contracts 1/1/06

International Financial Reporting Interpretations Committee (IFRIC)

IFRIC 4 Determining whether an Arrangement contains a Lease 1/1/06
IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 1/1/06
IFRIC 7 Applying IAS 29 Financial Reporting in Hyperinflationary Economies for the First Time 1/3/06
IFRIC 8 Scope of IFRS 2 1/5/06
IFRIC 9 Reassessment of Embedded Derivatives 1/6/06
IFRIC10 Interim Financial Reporting and Impairment 1/11/06
IFRIC 11 IFRS2 Group and Treasury Share Transactions 1/3/07*
IFRIC 12 Service Concession Arrangements 1/1/08*

* not yet adopted for use in the European Union

The above standards and interpretations will be adopted in accordance with their effective dates. The Directors do not anticipate that the adoption of these standards
and interpretations will have a material impact on the Group’s financial statements in the period of initial application. Upon adoption of IFRS 7, the Group will have to
disclose additional information about its financial instruments, their significance and the nature and extent of risks that they give rise to. More specifically, the Group
will need to disclose the fair value of its financial instruments and its risk exposure in greater detail. There will be no effect on reported income or net assets.

Optos plc Annual Report & Accounts 2006 45

Notes to the Consolidated Financial Statements
continued

3 SEGMENTAL ANALYSIS
The primary segment reporting format is determined to be geographic segments as the Group’s risks and rates of return are affected predominantly by differences in
the geographic locations of the markets served. The Group’s principal area of activity is the design, development, manufacture and marketing of retinal examination
equipment (P200s) at healthcare professional sites. These sites are fully supported by the Group’s employees. Revenue is generated on a pay-per-examination basis,
usually with a minimum monthly usage level being agreed. For the year ended 30 September 2006, “pay-per-patient” agreements accounted for approximately 96%
of sales (2005: 99%).

Incidental to the above activity, the Group occasionally sells retinal examination equipment, in which case revenue is recognised when the significant risks and
rewards, of ownership of the goods have passed to the buyer. These sales are not material to the Group turnover or results. Accordingly, the Directors have determined
that the Group only has one class of business.

The operating businesses are organised and managed separately according to the geographic location of the operations, with each segment representing a strategic
business unit that offers the same products to different markets. The Group’s geographical segments are based on the location of the Group’s customers. Sales to
external customers disclosed in geographical segments are based on the geographical location of its customers.

Transfer prices between segments are set at cost. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers
are eliminated on consolidation.

An analysis by geographical market is given below for the year ended 30 September 2006:

North America Europe Eliminations Total
2006 2006 2006 2006
$’000 $’000 $’000 $’000

Revenue 64,733 2,987 – 67,720
Sales to external customers – 23,959 (23,959) –
Inter-segment sales

Segment revenue 64,733 26,946 (23,959) 67,720

Result 9,783 (3,297) 6,486
Segment result before share-based payments (480) (1,683) (2,163)
Share-based payments

Operating profit after share-based payments 9,303 (4,980) 4,323
(5,423)
Net interest

Loss from continuing operations before taxation (1,100)
Taxation 11,907

Net profit for the year 10,807

Assets and liabilities

Segment assets 77,571 50,706 (31,735) 96,542
48,059
Unallocated assets

Total assets 144,601

Segment liabilities 36,227 7,613 (31,735) 12,105
81,160
Unallocated liabilities

Total liabilities 93,265

Other segment information 27,300 5,398 32,698
Capital expenditure: – 2,463 2,463
Property, plant and equipment 2,624 20,919
Intangible fixed assets 18,295
Depreciation 45 309 354
Amortisation 756 – 756
Loss on disposal

Unallocated net liabilities comprise net debt and taxation.

46 Optos plc Annual Report & Accounts 2006

Notes to the Consolidated Financial Statements
continued

An analysis by geographical market is given below for the year ended 30 September 2005:

North America Europe Eliminations Total
2005 2005 2005 2005
$’000 $’000 $’000 $’000

Revenue 45,987 2,412 – 48,399
Sales to external customers – 26,287 (26,287) –
Inter-segment sales

Segment revenue 45,987 28,699 (26,287) 48,399

Result 6,437 (1,984) 4,453
Segment result before share-based payments (227) (943) (1,170)
Share-based payments

Operating profit after share-based payments 6,210 (2,927) 3,283
(5,876)
Net interest

Loss from continuing operations before taxation (2,593)
Taxation 396

Net loss for year (2,197)



Assets and liabilities

Segment assets 65,730 41,466 (27,510) 79,686

Unallocated assets 2,162

Total assets 81,848

Segment liabilities 30,818 6,055 (27,510) 9,363
93,513
Unallocated liabilities

Total liabilities 102,876

37,775
2,777
Capital expenditure: 14,397

Property, plant and equipment 35,309 2,466 292

Intangible fixed assets – 2,777

Depreciation 13,036 1,361

Amortisation 12 280

Unallocated net liabilities comprise cash, finance leases and taxation.

Optos plc Annual Report & Accounts 2006 47

Notes to the Consolidated Financial Statements
continued

4 REVENUE AND EXPENSES 2006 Revenue
$’000 2005
$’000




Sales of goods 3,059 626
Rendering of services 64,661 47,773

Group revenue 67,720 48,399
Finance revenue 1,118 78

Total revenue 68,838 48,477

No revenue was derived from exchanges of goods or services.

Expenses

2006 2005
$’000 $’000

The loss from continuing operations is stated after charging: 20,919 14,397
Depreciation charge for the period 51 88
Research and development expenditure (1) 292
Amortisation of software (Note 10) 354 310
Cost of inventories recognised as an expense 781 421
Operating leases 601
Foreign exchange differences (117) (627)

(1) In addition, $2,169,000 (2005: $2,635,000) was incurred in respect of research and development, which has not been charged in arriving at the pre-tax loss for the
period as it has been capitalised as an intangible asset. Further information is included in Note 10 to the Group accounts.

Services provided by the Group’s auditor and network firms
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:

2006 2005
$’000 $’000



Audit of the financial statements 128 72

Other fees to auditors:

Other regulatory services 46 –

Taxation services 384 197

Corporate finance services 670 –



The Group incurred $670k for reporting accountants’ and due diligence services from its auditors related to the IPO. This amount has not been charged in arriving at

the pre-tax loss for the period as it has been charged to the share premium account.

5 FINANCING 2006 2005
$’000 $’000



Finance costs 316 564
Bank overdraft 254 –
Convertible loans 5,971
Lease finance 5,390

6,541 5,954

Finance income

Bank interest receivable 1,118 78

Finance costs – net 5,423 5,876

48 Optos plc Annual Report & Accounts 2006