19th Oct 2005 07:00
Provalis PLC19 October 2005 Provalis plc Preliminary results for the year ended 30 June 2005 Provalis plc (LSE: PRO), the international medical diagnostics andpharmaceuticals group, has today published preliminary results for the yearended 30 June 2005. FY 2005 FY 2004Group Sales £10.4m £12.9mPre-Tax Loss £(5.6)m £(1.8)mLoss per Share (1.5)p (0.6)p In publishing these results, Frank Harding, Chairman of Provalis plc, commented: "The financial year ended 30 June 2005 was challenging, with some real successesbut some disappointments. Although sales by the Medical Diagnostics andPharmaceutical businesses were lower than anticipated, the Medical Diagnosticsbusiness in particular made good progress with operational and strategicdevelopments. "The Board recognises that future success for the Pharmaceuticals business isdependent on obtaining and successfully selling new products and is in activediscussions over a number of exciting prospects. The business has already beengranted exclusive rights to sell ErdotinTM, which is used in the treatment ofrespiratory disease, with launch expected towards the end of the currentfinancial year. "The Medical Diagnostics business' full focus is on the direct selling of in2itTM A1c to the USA, as that is where its ultimate success will be determined. Weare committed to delivering the quality product needed to achieve this." 19 October 2005 Enquiries Provalis plc www.provalis.com Peter Woodford, Chief Executive Today 020 7457 2020 Peter Bream, Finance Director Thereafter 01244 288888 College Hill Adrian Duffield/Corinna Dorward, 020 7457 2815/2803 "Safe Harbor" Statement under the US Private Securities Litigation Reform Act of1995: Statements in this announcement that relate to future plans, expectations,events, performances and the like are forward-looking statements as defined inthe US Private Securities Litigation Reform Act of 1995. Actual results ofevents could differ materially from those described in the forward-lookingstatements due to a variety of factors. Such factors include, among others: theviability of the Group's products, which are at various stages of development;the generation of sufficient operating cash flow by the Group's pharmaceuticaland medical diagnostic businesses to finance the ongoing development of thesebusinesses as well as the Group's research and development activities; thesuccess of the Group's research and development strategy and activities;uncertainties related to future clinical trial results and the associatedregulatory process; the execution and success of collaborative agreements withthird parties; availability and level of reimbursement for the Group's productsfrom government health administration authorities or other third-party payors;the rate of net cash utilisation within the Group and, hence, the Group'spossible need for additional capital in the short, medium and/or long term; theGroup's intellectual property position and the success of patent applicationsfor its products and technologies; the Group's dependence on key personnel;general business and economic conditions; the impact of future laws, regulationsand policies; stock market trends in the Group's sector; and other factorsbeyond the Group's control that may cause the Group's available capitalresources to be used more quickly than expected. These and other factors thatcould affect the Company's future results are more fully described in itsfilings with the US Securities and Exchange Commission, in particular the latest20-F filing, copies of which are available from the Company Secretary at theCompany's registered address. Financial review As indicated in the July trading update, Group sales were £10.4m (2004: £12.9m).Sales by the pharmaceutical businesses fell to £9.1m (2004: £11.4m), with theplanned cessation of the distribution of the Dr Falk products from 31 December2004 accounting for £1.1m of this fall and a further £1.3m coming from thereduction in sales of Diclomax(R) following the introduction of a genericcompetitor. Medical Diagnostics sales were broadly in line with the previousyear at £1.3m (2004: £1.5m), although dominated by the sales of Glycosal(R)cartridges rather than the mix of cartridges and analysers experienced in 2004. Although selling and distribution costs increased as the Group increased its USsales infrastructure for its diagnostics products, administration costs and R&Dcosts were reduced. The Group recognised as exceptional items £0.6m of the final payment receivedfrom the agreed termination of the Dr Falk distribution agreement and £0.1m ofthe final settlement of the arbitration against Dimethaid International Inc. The Group reported a pre-tax loss of £5.6m (2004: loss £1.8m) and a loss pershare of 1.5p (2004: loss 0.6p). Cash outflow from operating activities was £4.3m (2004: £1.5m) with net debt atthe end of the year at £0.7m. In September 2004, the Group successfully raised£2.5m, net of expenses, through a placing of new shares amounting to just under10% of its share capital. In February 2005 a borrowing facility of up to £5m wasarranged with the Bank of Scotland, and this was extended by a further £3mduring October 2005. It is intended that this will be repaid or will be replacedby more permanent funding during the year. Review of Operations Medical Diagnostics The Medical Diagnostics business' lead product, in2it(TM) A1c, was granted USAregistration, CLIA waiver and NGSP certification. These are all theauthorisations needed to allow in2it(TM) A1c, which is a fully automated "point ofcare" diagnostic test, to be marketed in the USA for use in the management ofdiabetes in doctors' offices, diabetes clinics, hospitals, pharmacies andsimilar facilities. The first shipments of in2it(TM) A1c were made to the USA in December 2004. As iscommon with such complex products, teething troubles emerged over the next fewmonths. As a result, the Group stopped shipments until the enhancementsimmediately required had been made, with shipments recommencing in July 2005. Asusual, there is a continuing process of improving and enhancing in2it(TM) A1cwhich is designed to deliver a product that will fully satisfy all of thedemands of the market. Sales of in2it(TM) A1c to the US are managed by Provalis' US sales managementteam. This gives the Group access to the market place and facilitates anefficient supply chain, the close monitoring of sales, direct access to customerreaction and, compared to sales through third party distributors, highermargins. The team has developed excellent relationships with potentialcustomers, operates closely with both regional and local distributors andprovides technical sales support. Provalis' strategy is to appoint regional or local distributors for in2it(TM) A1cthroughout the rest of the world. Distribution partners for the key markets inEurope have been identified and discussions with each are at an advanced stage. The analyser is manufactured in China but released to the market from Provalis'Deeside facility. The Group's supply partner already has the capacity to coverany significant increase in demand for the product. The components for the test cartridge are manufactured by a supplier in Europe.The cartridges are then assembled, filled, packed and released to the marketfrom Provalis' Deeside facility. In the first few months after the initiallaunch of in2it(TM) A1c, cartridge manufacturing capacity was limited. However,the planned expansion of Provalis' manufacturing capacity has been completed onschedule, and capacity is now available to meet increases in demand through therest of this year and well into 2006, with plans in place for further expansionthereafter when necessary. Sales of Glycosal(R), the Group's first generation diabetes diagnostic test,continue, albeit at slightly lower levels than in 2004. As expected, demand fromthe USA has lessened, but interest has remained steady elsewhere, with theproduct now being sold through our two distributors into markets such as Indiaand China. Pharmaceuticals Sales in the Pharmaceuticals business were, as expected, lower than the previousyear, as Provalis ceased to distribute the Dr Falk range of products in December2004. Additionally, and in common with the rest of the industry, thePharmaceuticals business had to decrease its UK selling prices for the remainderof its products for the second half of the year by an average of 7%. This was asa result of the implementation by the Department of Health of the revised UKPharmaceutical Pricing Regulation Scheme (PPRS). The rate of decline in sales of Diclomax(R), a pain-relieving NSAID that is themost significant product marketed and sold by the Pharmaceuticals business, wasgreater than anticipated. Sales were first affected by general concern about allNSAIDs following Merck's well publicised withdrawal of Vioxx from the market inSeptember 2004, despite Diclomax(R) having been in use without any questions asto its safety for over ten years and it not being a Cox 2 inhibitor such asVioxx. This effect was compounded by the introduction onto the UK market of anew generic competitor product. Taken together, this had the effect of creatingturbulent market conditions for Diclomax(R) and similar products. However, theBoard now believes that sales of Diclomax(R) have stabilised, albeit at a lowerlevel than in previous years. Sales of Calceos(R), a product to prevent or treat osteoarthritis and the secondlargest of the business' products by sales, grew 19% to £0.7m. Sales of theother products sold by this division were in line with the previous year. As a result of the difficulties encountered during the year, the number of salesrepresentatives in the business' sales force was allowed to reduce throughnatural wastage. Vaccines Whilst the Group has negligible exposure to any costs associated with its formervaccines programmes, it does have potential income from those partners with whomit has entered into licensing agreements. During the year, Chiron renewed itsoption to a licence of Provalis' Group B streptococcus vaccine candidate andAventis Pasteur signed an option agreement for a licence to Provalis' vaccinecandidates to prevent streptococcus pneumoniae infection. IFRS The Board has conducted an initial assessment of the potential impact of IFRS onProvalis' reporting. In addition to presentational changes, it is expected thatthe main impact will be on accounting for development expenditure and accountingfor share based payments. NASDAQ listing During the year it was decided to terminate the Group's ADR programme in the USAand to de-list from NASDAQ, thus reducing compliance costs significantly,freeing management time and avoiding unnecessary and onerous commitments. Thisprocess remains on track for completion during this calendar year. Outlook Following Peter Woodford's appointment as Interim Chief Executive Officer, theBoard is undertaking a comprehensive strategic review of the Group's activities.This will encompass optimising the commercialisation of all of the Group'sproducts and achieving the repayment or replacement of the bank funding, whichmay include realising value from the sale of assets. Provalis expects toannounce the outcome of this review by the end of this calendar year. The Board recognises that future success for the Pharmaceuticals business isdependent on obtaining and successfully selling new products. In an increasinglycompetitive environment, it is becoming more difficult to identify new productsand secure rights to them. However, the business continues to pursue allopportunities that arise and is in active discussions over a number of excitingprospects. Provalis has already been granted exclusive rights to sell ErdotinTM, a secondgeneration oral mucolytic to be used in the treatment of respiratory disease.ErdotinTM is now in the late stages of regulatory review and it is expected thatlaunch will take place during the current financial year. Respiratory diseasescost the NHS more than any other disease area, and as there is alreadyconsiderable medical support for this product, the Board expects it to be asignificant addition to the product portfolio. The prospects for the Medical Diagnostics business remain encouraging. Shipmentto the USA only recommenced in July 2005, and despite positive feedback fromearly users of these products, it is too early to predict how successful theproduct will be in the year ahead. The in2it(TM) analyser as a platform can be used to run a number of tests. TheGroup is evaluating further tests and development of the first, for highsensitivity c-reactive protein, is progressing. The Medical Diagnostics business' full focus is on the direct selling ofin2it(TM) A1c to the USA, as that is where its ultimate success will bedetermined. The Group remains committed to delivering the quality product neededto achieve this. Before Exceptional Before Exceptional exceptional items exceptional items items note 3 Total items note 3 Total 2005 2005 2005 2004 2004 2004 Notes £'m £'m £'m £'m £'m £'mTurnover - continuing activities 2 10.4 - 10.4 12.9 - 12.9Cost of sales (5.6) - (5.6) (5.6) - (5.6)Gross profit 4.8 - 4.8 7.3 - 7.3 Selling and distribution (4.6) - (4.6) (4.0) - (4.0)expensesAdministration expensesAmortisation of (1.5) - (1.5) (1.4) - (1.4)intangible assetsAdministration costs (3.4) - (3.4) (3.5) - (3.5)Research and development (1.6) - (1.6) (1.7) - (1.7)costs (6.5) - (6.5) (6.6) - (6.6)Operating loss - continuing activities (6.3) - (6.3) (3.3) - (3.3)Profit on variation ofdistribution agreement- continuing activities 3 - 0.6 0.6 - 1.0 1.0Compensation arisingfrom Dimethaidarbitration - continuing 3 - 0.1 0.1 - 0.4 0.4activities(Loss) on ordinaryactivitiesbefore interest (6.3) 0.7 (5.6) (3.3) 1.4 (1.9)Interest receivable and - - - 0.1 - 0.1similar income(Loss) on ordinaryactivitiesbefore taxation (6.3) 0.7 (5.6) (3.2) 1.4 (1.8)Tax on loss on ordinary 0.3 - 0.3 (0.3) - (0.3)activities(Loss) for the financial (6.0) 0.7 (5.3) (3.5) 1.4 (2.1)yearLoss) per share - basic 4 (1.7)p 0.2p (1.5)p (1.1)p 0.5p (0.6)pand diluted 2005 2004 Notes £'m £'mFixed assets Intangible assets 9.6 11.1Tangible assets 2.2 1.8 11.8 12.9Current assetsStocks 1.9 2.1Debtors 1.7 3.7Cash and deposits 0.6 1.8 4.2 7.6Creditors: Amounts falling due within one year (3.7) (5.4)Net current assets 0.5 2.2Total assets less current liabilities 12.3 15.1Creditors: Amounts falling due after more than one year (0.1) (0.1) Net assets 2 12.2 15.0 Capital and reservesCalled-up share capital 3.6 3.3Share premium account 26.3 24.1Merger reserve 96.3 96.3Profit and loss account (114.0) (108.7)Equity shareholders' funds 12.2 15.0 Reconciliation of operating loss to net cash outflow from operating activities 2005 2004 Notes £'m £'mOperating loss (6.3) (3.3)Depreciation of tangible fixed assets 0.6 0.6Amortisation of intangible fixed assets 1.5 1.4Decrease (Increase) in stocks 0.2 (0.2)(Decrease) Increase in creditors (0.8) 0.1Decrease (Increase) in debtors 0.5 (0.1)Net cash outflow from operating activities (4.3) (1.5) Cash Flow Statement Net cash outflow from operating activities (4.3) (1.5) Returns on investments and servicing of finance Interest received - 0.1Net cash inflow from returns on investments and servicing of finance - 0.1 Taxation Research and development tax credit repaid (0.1) -Net cash outflow from taxation (0.1) - Capital expenditure and financial investment Purchase of intangible fixed assets (1.8) (4.6)Purchase of tangible fixed assets (1.0) (0.8)Compensation arising from Dimethaid arbitration 3 0.2 0.3Proceeds on variation of distribution agreement 3 2.0 1.5Deferred income - Welsh Assembly Grant - 0.2Net cash outflow from capital expenditure and financial investment (0.6) (3.4) Net cash outflow before management of liquid resources and financing (5.0) (4.8) Management of liquid resources Decrease in short term deposits 0.1 4.9Net cash inflow from management of liquid resources 0.1 4.9 Financing Issue of ordinary shares 2.5 -Receipts from short term borrowings 1.3 -Net cash inflow from financing 3.8 - (Decrease) increase in cash (1.1) 0.1 Reconciliation of net cash flow to movement in net funds (debt) 2005 2004 £'m £'m(Decrease) increase in cash in the year (1.1) 0.1Cash inflow resulting from increase in debt financing (1.3) -Decrease in short term deposits (0.1) (4.9)Movement in net funds in the year (2.5) (4.8)Net funds at start of year 1.8 6.6Net funds (debt) at end of year (0.7) 1.8 Analysis of changes in net funds (debt) As at As at 1 July 30 June 2004 Cash flow 2005 £'m £'m £'mCash 1.7 (1.1) 0.6Bank revolving credit facility due within one year - (1.3) (1.3)Short term deposits 0.1 (0.1) -Net funds (debt) 1.8 (2.5) (0.7) Short term deposits have a maturity of more than 24 hours but less than twelvemonths. Cash includes cash in hand and deposits repayable on demand. 2005 2004 £'m £'m(Loss) for the financial year (5.3) (2.1)Total recognised gains and losses relating to the year (5.3) (2.1) Reconciliation of Movements in Shareholders' FundsFor the year ended 30 June 2005 2005 2004 £'m £'mShareholders' funds at the beginning of the year 15.0 17.1Share issue 2.6 -Share issue costs (0.1) -(Loss) for the financial year (5.3) (2.1)Shareholders' funds at the end of the year 12.2 15.0 1. Accounting policies and basis of preparation The financial information set out in this announcement does not constitute thecompany's statutory accounts for the years ended 30 June 2004 or 2005 but isderived from those accounts. Statutory accounts for the year ended 30 June 2004 have been delivered to theregistrar of companies. The auditors have reported on those accounts; theirreport was unqualified and did not contain statements under section 237(2) or(3) of the Companies Act 1985. Statutory accounts for the year ended 30 June 2005 will be delivered to theregistrar of companies in due course. The auditors have issued a report onthose accounts which was (i) unqualified, (ii) included a reference to theuncertainty over going concern to which the auditors drew attention by way ofemphasis without qualifying their report and (iii) did not contain statementsunder section 237(2) or (3) of the Companies Act 1985. A copy of these accountswill be available from the company's registered office at Newtech Square,Deeside Industrial Park, Deeside, Flintshire, CH5 2NT. The preliminary financial information has been prepared using accountingpolicies consistent with those adopted in the previous statutory accounts (to 30June 2004). Going Concern Company law requires the directors to prepare accounts for each financial yearwhich give a true and fair view of the state of affairs of the Company and Groupand of the profit or loss of the Group for that period. After making enquiries, the directors have a reasonable expectation that theCompany and the Group have adequate resources to continue in operationalexistence for the foreseeable future. For this reason, they continue to adoptthe going concern basis in preparing the accounts. The following paragraphs summarise the issues and basis on which the directorshave reached their conclusion. The directors are reassessing the Group's strategy, in particular to determinehow the Group can ensure a successful commercialisation of in2it, and therebyincrease shareholder value. The directors also reviewed in detail the Group'sbudget for the current financial year and its projections for the subsequentfinancial year, including cash flows and funding requirements, and concludedthat additional funding would be required and that as part of its strategy theGroup may need to realise value from the sale of assets. At 30 June 2005 the Group had debt of £1.3m drawn down on the £3m revolvingcredit facility, available from the Bank of Scotland with the £2m asset financefacility available from the same bank unutilised. These facilities are securedby fixed and floating charges against the Group's assets in favour of the Bankof Scotland. In October 2005 the Group arranged an additional £3m overdraft facility with theBank of Scotland to give greater flexibility to the Group's financing. Theterms and conditions of the overdraft are such that it is repayable on demandand is available until February 2006 at which time this additional facility maybe renegotiated or repaid. The directors' view is that the successfulimplementation of the Group's strategy, including any sale of assets, will allowthis amended financing to be repaid or renegotiated during the year ending June2006. As a consequence of this review, the directors have formed a judgement that, atthe time of approval of the accounts, the Group has strategies in place thatwould, if successfully implemented, generate sufficient resources to continueoperating for the foreseeable future. Although there can be no certainty as tothe outcome, for these reasons the directors continue to prepare the financialstatements on a going concern basis. 2. Segmental analysis (a) Analysis by geographical segment The analysis by geographical segment of the Group's turnover, profit on ordinaryactivities before taxation and net assets is set out below: Turnover By destination By origin 2005 2004 2005 2004 £'m £'m £'m £'mUK 8.8 10.9 10.4 12.9Europe 0.4 0.7 - -US 1.0 1.3 - -Rest of World 0.2 - - - 10.4 12.9 10.4 12.9 (Loss) on ordinary activities before taxation 2005 2004 £'m £'mUK (4.7) (1.9)US (0.9) -(Loss) on ordinary activities before interest (5.6) (1.9)Net interest receivable - 0.1 (5.6) (1.8) Net assets 2005 2004 £'m £'mNet assets - all located in the UK 12.2 15.0 2. Segmental analysis (continued) (b) Analysis by class of business The analysis by class of business segment of the Group's turnover, profit (loss)on ordinary activities before taxation and net assets is set out below: Turnover 2005 2004 £'m £'mContinuing activities- Medical Diagnostics 1.3 1.5- Pharmaceuticals 9.1 11.4 10.4 12.9 (Loss) profit on ordinary activities before taxation 2005 2004 Ordinary Exceptional Ordinary Exceptional activities items Total activities items Total £'m £'m £'m £'m £'m £'mContinuing activities- Medical Diagnostics(1) (4.5) - (4.5) (3.1) - (3.1)- Pharmaceuticals (0.1) - (0.1) 1.8 - 1.8- Common costs (1.7) - (1.7) (2.0) - (2.0)- Compensation arising from - 0.1 0.1 - 0.4 0.4Dimethaid arbitration- Net interest receivable - - - 0.1 - 0.1Profit on variation of - 0.6 0.6 - 1.0 1.0distribution agreement (6.3) 0.7 (5.6) (3.2) 1.4 (1.8) Notes (1) Medical Diagnostics' loss is stated inclusive of R&D spend of £1.6m (2004:£1.7m). Net assets 2005 2004 £'m £'m- Medical Diagnostics 2.8 1.7- Pharmaceuticals 10.8 10.9Net operating assets 13.6 12.6Unallocated assets including cash and deposits (1.4) 2.4Net assets 12.2 15.0 3. Exceptional items 2005 2004 £'m £'mProfit on variation of distribution agreement - continuing activities(1) 0.6 1.0Dimethaid arbitration - continuing activities(2) 0.1 0.4 Notes (1) The profit on variation of distribution agreement of £0.6m (£1.0m in the year ended June 2004) relates to profit recognised on payments arising from the variation of the distribution agreement with Dr Falk Pharma. The final payment of £2.0m was received in January 2005. (2) In December 2003 the Group announced that the arbitration against Dimethaid International Inc (DII) following Dimethaid's termination of the Pennsaid(R) distribution agreement had been decided in Provalis' favour. The Group was awarded a total of £1.6m although, because of continued uncertainty in the receipt of these monies, the award was only recognised by the Group in its accounts to the extent that its recovery was considered to be sufficiently certain. In the accounts for the year ended June 2004 the Group recognised receipts of £0.7m offset by £0.3m of costs with £0.9m outstanding. In January 2005, the directors of DII advised that the company was insolvent and Provalis subsequently accepted a payment of £0.1m in full and final settlement of the outstanding amount. (3) There are no taxation consequences of the above exceptional items due to the availability of tax losses. 4. Earnings per share 2005 2004 £'m p £'m pEarnings per share are based on:(Loss) after exceptional items attributable to (5.3) (1.5) (2.1) (0.6)ordinary shareholdersExceptional items (0.7) (0.2) (1.4) (0.5)Loss before exceptional items attributable to ordinary (6.0) (1.7) (3.5) (1.1)shareholders 2005 2004 Number NumberWeighted average number of shares 356,297,655 330,644,450 There are no share options that have a dilutive effect on the earnings per sharecalculations. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Proservice Bldg