Interim Results 2009

30th Jun 2009 07:00



Tuesday 30 June 2009

Pursuit Dynamics plc

('Pursuit Dynamics' or 'the Company')

Interim Results for the six months to 31 March 2009

Pursuit Dynamics plc (AIM: PDX), the developer and exploiter of PDX®, the process improvement platform technology, is pleased to announce that it has continued to make progress in the commercialisation of its PDX technology.

Commercial highlights

Signed contract for the installation of a PDX Ethanol Reactor Tower ("ERT") with Iroquois Bio-Energy Company LLC ("IBEC").

First sale of an AQUASONIC™ water atomizing fire suppression system resulting in the receipt by the Company of its first fire suppression related royalty payment.

Since the period end, first order received for decontamination technology from EADS.

Financial highlights

Turnover (including discontinued operations) decreased to £0.7m (2008 £1.8m) following the move to a licensing operation for food and brewing

Loss for period (including discontinued operations) decreased to £3.3m (2008 £3.8m)

Closing cash balance £4.5m (2008 £1.6m)

Significant cost reduction realising savings of £0.5m in this half compared to H108.

Chief Executive

John Heathcote has given notice of his retirement from the role of Chief Executive Officer and the Board of Directors. A process to select his successor is underway.

Commenting on the results, Andrew Quinn, Chairman of Pursuit Dynamics Plc said:

"The first half of 2009 has been difficult, but we have seen steady progress in the areas of fire suppression and decontamination. Revenues have started to flow in both areas since the end of the financial period and commercial visibility is increasing. Progress in the bio-ethanol market has been slower than we had hoped with the implementation of the ERT at IBEC experiencing delays resulting from the process and integration challenges of taking new technology into an industrial environment, rather than any shortcomings in the core PDX technology. The Board is hopeful that these delays will be resolved quickly. 

Our response to the difficult economic environment has been decisive and effective with over £0.5m of costs removed from the business during the period. This action, combined with the commercial progress that has been made across all our business in the half, ensures that we are well placed to maximise shareholder value in second half of 2009 and beyond." 

For Further Information, please contact:

Pursuit Dynamics

John Heathcote, Chief Executive Tel: +44 (0)1480 422050

Donald Bell, Chief Financial Officer

Financial Dynamics

Ben Foster / Marc Cohen  Tel: +44 (0) 20 7831 3113

Cenkos Securities plc

Ian Soannes/Max Hartley Tel: +44 (0)20 7397 8900

Notes to Editors

- Pursuit Dynamics PLC (AIM: PDX) owns and commercialises the PDX fluid processing reactor whose benefits include significant reductions in energy usage, process acceleration and result enhancement for industries such as Bioethanol production, Food & Drink, Brewing, Fire Suppression and Decontamination. 

- Pursuit Dynamics is headquartered in Huntingdon, UK and has offices in Norwalk, Connecticut, and Fallbrook, California, USA. 

- Further information is available at the Company's website: www.pursuitdynamics.com

- Publication quality photographs are available from Financial Dynamics

CHAIRMAN'S STATEMENT

I am pleased to present the Company's results for the six months ended 31 March, 2009. 

Financial Results

Including discontinued operations, turnover decreased to £0.7m (2008 £1.8m) following the decision to run down and ultimately close the fabrication activities at Pursuit Processing Equipment ("PPE") at Weybridge (announced at the AGM in March) and move to a licensing operation for food and brewing. The closure of PPE will be concluded in early July 2009. 

The decision to exit fabrication activities, along with cost cutting measures realised a saving of £0.5m in the period compared to the first half of 2008. The loss (including the loss from discontinued operations) for the period of £3.3m compared to £3.8m for the six months ended 31 March 08. 

Net cash outflow for the period, including discontinued operations, was £3.0m compared with £3.4m for the six months ended 31 March 2008. 

Operational Review

Our primary focus during the period has been on the commercialisation of our technology in the ethanol industry and in the civilian and military decontamination and disinfection sectors.

Our R&D programmes continue both to advance our existing core applications and to throw up new and exciting applications for the PDX technology, the most advanced of which are in the field of renewable fuels.

Ethanol

Whilst the US ethanol industry has been under extreme economic pressure during the past year or so, there are signs that it has passed its low point. Rising gasoline prices, production utilisation at around 25% below capacity and continuing political support to reduce reliance on imported liquid fuels in the US are all helping maintain the industry at close to break-even. In this context, the benefits of the ERT could be of major significance to the entire industry: a typical 50 million gallon per year ethanol plant would see a gross benefit of $8.7million per annum based on 10% yield uplift from the PDX ERT - a continuous performance enhancement we believe to be well within the capabilities of the ERT system. 

We have made commercial and technical advances with our ethanol technology during, and subsequent to, the period under review. Of particular importance were the results generated during the commercial validation trials at Pacific Ethanol's Boardman, Oregon, facility. During several weeks of running, the PDX ERT produced third-party validated increases in ethanol yield that averaged 7.1% over 40 fermentor runs, thus demonstrating the potential for the commercial future of the ERT system. A number of individual results in the reported average were in excess of 10%, a figure approaching those achieved by us in both internal and external trials. We have recently been asked by Pacific Ethanol to discuss the possibility of returning an ERT system to Boardman and recommencing production at the plant.

In March, 2009 we commenced operations at the Iroquois Bioenergy Company's 45 million gallons per year ethanol facility in Indiana. This plant is of a different design to Boardman and, unfortunately, we ran into a number of issues that caused delays during our early operations. Most of the problems centred on the control system of the ERT and we are currently addressing this and other issues relating to optimal running of the system while we work towards a re-start date at the plant. In addition, we have a number of alternative venues becoming available to us and, as we gain visibility of the timeframes associated with these opportunities, we will report back to our shareholders.

Whilst we have seen some delays in the implementation of the ERT at IBEC, they have been due to the process and integration challenges of taking a new piece of technology into an industrial environment, rather than any shortcomings in the core PDX technology. While these delays are frustrating, they are not unusual in the implementation of any new technology. 

As demonstrated at Boardman, the PDX technology in the ERT has consistently performed well when the required inputs have allowed it to do so, and we believe that we have identified and will shortly overcome the process and integration challenges that we have encountered. 

Decontamination and Disinfection

Along with EADS, our European licensee, we have generated considerable commercial interest in our decontamination technology over recent months and have successfully trialled and demonstrated our systems in a number of countries. 

In addition to our European initiative with EADS we have integrated the technology, which has been extensively proved both in military and civilian testing, into a compact, easily transportable product, the MPB-A. The MPB-A is a Pursuit Dynamics designed and built system that is aimed at the US and other non-European markets. It uses water as a carrier to deliver disinfectant or decontaminant material in tiny droplet form and it has an unparalleled ability to defeat non-line-of-sight surfaces and airborne chemical and biological threat material. The system is self-contained, robust, readily deployable by most transport methods and far faster and more effective in operation than any existing technologies. 

We believe the MPB-A has direct applications in public transport, shipping, livestock disinfection, aircraft disinfection, schools, hospitals and anywhere else that rapid, large scale chemical applications are required in response to the threat of disease or chemical or biological agent release.

Our business model is to license the MPB-A and its successors and we aim to develop as wide a global network of distributors and maintenance contractors as possible over the coming months. To this end, we are currently in discussion with a number of additional potential licensees.

In addition to the civilian applications of the technology detailed above, we have continued with our objective of working alongside partners in programmes funded by the US Department of Defense and we currently have a number of initiatives in progress.

I am pleased to announce that we have just received our first order for a single MPB-A system and we look forward to advising our shareholders as we receive further orders. 

Fire

Progress has been made with the commercialisation of ANSUL® AQUASONIC™ water atomizing fire suppression system.

ANSUL, a subsidiary of Tyco Fire and Building Products, launched the PDX FireMist® technology as part of an integrated fire protection system in June 2008 under the brand name 'AQUASONIC'. The first sale of an Aquasonic system has now been made by ANSUL, resulting in the receipt by the Company of its first fire suppression related royalty payment.

Commercial activity in this area is accelerating and we are very encouraged by the support that we have received from ANSUL. Ongoing improvements are being made to the systems to improve their effectiveness in specific applications and markets.

We have received the following memo from Tyco, which they have authorised us to release to our shareholders. We are providing it in its entirety to give shareholders a detailed insight into our progress with Tyco.

"AQUASONIC Opportunities

A number of applications and potential projects have been identified including:

Negotiations with 2 turbine OEMs. These are contingent upon obtaining of regional approvals for the system and equipment. TFS is investigating the timing and commercial impact of these approvals prior to further negotiations with the OEMs. The down market is also affecting these opportunities, as one turbine manufacture has put any further discussion on hold until the market improves.

Protection of machinery spaces in the Chinese MRT system. This has historically been an inert gas market that is now considering watermist. TFS&BP is well positioned in this market and the AQUASONIC™ product with its current FM approvals should suit it well.

Protection of generator enclosures in a wireless switchgear application. This is in direct competition with Marioff and other manufactures and should give us further indication of where the market stands on this type of application.

Chances of successful closure of these opportunities will be greatly enhanced by the introduction of the improvements to the 260 systems, as well as the completion of the 1040 test protocol.

260 System Improvements

As previously reported, a project was begun in late 2008 to address some of the limitations related to the original FM approval of the system. Specifically, these included:

Improved atomizer spacing and coverage, 

Improved obstruction criteria, 

A stainless steel water tank, 

Selector valves for the protection of multiple hazards. 

Very favourable results were obtained on all items with negligible cost impact to the finished product. Notice of FM approval of these improvements was received on 6-17-2009.

Introduction of the Improved 260 System

As planned, the AQUASONIC™ system was prominently displayed as part of Tyco's FireXChange™ mobile educational program at the NFPA Safety Conference and Exposition in Chicago in June. Sales and Business Development personnel were on hand to discuss the system features and improvements, pending the FM approval referred to above, with interested fire protection professional and end users. With the FM approval now in hand, both internal and external training can begin to educate the field sales force, authorized distribution, and end user customers about the system improvements. Over 30 authorized Ansul Engineered Systems Distributors in the Americas now have the AQUASONIC™ product line as part of their portfolio, and each will be given updated training to leverage these new enhancements. The project to commercialize the AQUASONIC™ system in the Europe, Middle East and Africa (EMEA) region incorporating the improvements described above is proceeding in parallel.

Next Phase Testing and Approvals

In-house testing to evaluate the suitability of AQUASONIC™ to protect enclosures of up to 1040 cubic meters is now complete. Protracted discussion with FM has taken place regarding the test protocol to be used to best utilize the unique scalability of the system as demonstrated in our experimental testing. FM's reluctance and ultimate inflexibility on this issue has been disappointing. FM approval testing will now proceed under the narrow guidelines of the existing FM protocol. This testing should be complete by late summer. The final hardware requirements and configuration can then be determined, and a product launch package created."

Food and Brewing

In response to the deteriorating business environment for food processing capital equipment sales, we moved towards a licensing model for our Food and Brewing products during the period. This decision was made in light of the deteriorating economic environment in these industries and the increasing squeeze on our margins in this sector. This has entailed the trade-out of our Pursuit Processing Equipment business, based in Weybridge, and closure of the facility is scheduled for early July.

R&D

Our R&D team has been primarily focused on our renewable fuels programmes, in particular both the conversion of cellulosic material to ethanol and the production of biodiesel from algal material. Algae represent one of the most readily available and abundant feedstocks for the production of liquid fuels and the initial trials that we have run with this material show a great deal of promise. 

The extraction of microalgal TAG lipids (oil) suitable for the production of high grade biodiesel is at present a three stage process consisting of a pre-treatment step where the harvested algae is mechanically weakened by thermal or enzymic treatment, followed by drying, and finally cold pressing to squeeze the oil from the biomass. At present the efficiencies of extraction in this process can be as low as 30% creating a major constraint on the economic viability of algal oils as a liquid fuel feedstock. 

Pursuit Dynamics is pursuing a single stage process for the extraction of oil from live microalgal biomass. In this continuous process algal material passes through PDX reactors, where the cell walls of the algal cells are disrupted releasing the cell contents, including the oil, into the water phase. 

Initial trials with a pond grown algal culture of a microalgae (Chlorophyecae), which is of interest for its oil content, have shown that total disruption of the algal cell walls was achieved by passing through a PDX reactor. Free oil in the form of micro-droplets could be seen in the water phase of the processed material. From this very encouraging result a more detailed series of trials is being carried out to explore the conditions required to disrupt micro-algae, and other oil bearing microbes, which by their small size and mechanically tough cell wall structures, present a challenge to disruption. 

Board Changes

John Heathcote has given notice of his retirement from the role of Chief Executive Officer and the Board of Directors of the Company. The Company is carrying out a thorough process to search for his replacement and he will remain at the Company until the earlier of 1 November 2009 or a successor being appointed.

Outlook

We now have increasing visibility of three main revenue streams: ethanol, fire suppression and decontamination. The pace of marketing of our fire suppression technology is in the hands of our global licensee Ansul (part of Tyco) and we are seeing progress accelerating in this area. The receipt of our maiden royalty payment from the sale of the first fire suppression system (reported in March this year) was a small, but very significant milestone for Pursuit Dynamics and we anticipate further progress from Ansul over the balance of the year. We have also made commercial progress with our decontamination technology and we look forward to announcing further progress shortly.

Our re-structuring and cost-cutting programmes, which we started in August 2008, have enabled us to reduce our average monthly burn rate from £610k per month a year ago to an anticipated £350k in August 2009, when the benefits of closing our Weybridge operation will become fully apparent. This approach has enabled us to conserve cash during a tough economic period.

Over the next few months we will remain focussed on generating maximum value from the three royalty streams that we see coming on line, whilst retaining the momentum we have created in our R&D programmes. We look forward to reporting progress on a regular basis during what will certainly be an exciting period.

  

CONSOLIDATED INCOME STATEMENT
for the six months ended 31 March 2009
		Six months ended	Year ended	Six months ended
		31 March 2009	30 September 2008	31 March 2008
		Unaudited	Restated	Restated
	Note	£	£	£
Continuing operations:
Revenue		7,286	455,493	225,005
Operating expenses	5	(3,163,083)	(7,912,142)	(3,931,404)
Operating loss		(3,155,797)	(7,456,649)	(3,706,399)
Finance income		71,752	398,585	164,221
Finance costs		(2,015)	(8,959)	(5,317)
Loss before taxation		(3,086,060)	(7,067,023)	(3,547,495)
Income tax credit		85,000	171,196	61,000
Loss from continuing operations		(3,001,060)	(6,895,827)	(3,486,495)
Discontinued operations:
Loss from discontinued operations		(312,930)	(563,725)	(293,568)
Loss for the period		(3,313,990)	(7,459,552)	(3,780,063)
Loss per share for loss attributable to the equity holders of the company
Loss per 1p share
- Basic and fully diluted	3	5.54 p	12.47 p	6.48 p
Discontinued operations:	2
Revenue		727,801	2,814,378	1,537,157
Operating expenses		(958,316)	(3,378,103)	(1,830,725)
Fair value adjustments		(82,415)	-	-
Loss from discontinued operations		(312,930)	(563,725)	(293,568)

  

CONSOLIDATED BALANCE SHEET
as at 31 March 2009
		Six months ended	Year ended	Six months ended
		31 March 2009	30 September 2008	31 March 2008
		Unaudited
	Note	£	£	£
Non-current assets
Property, plant and equipment		463,621	591,257	638,044
Intangible fixed assets		1,100,038	1,448,951	1,742,686
		1,563,659	2,040,208	2,380,730
Current assets
Inventories		552,860	103,609	55,114
Receivables	6	498,486	1,453,542	2,069,034
Corporation tax receivable		344,426	259,426	265,026
Short term investments		-	-	3,000,000
Cash and cash equivalents		4,479,915	8,202,128	1,649,982
Assets held for sale		516,369	-	-
		6,392,056	10,018,705	7,039,156
Current liabilities		(1,042,516)	(2,160,956)	(2,189,443)
Liabilites directly associated with non current assets classified as held for sale		(396,338)	-	-
Net current assets		4,953,202	7,857,749	4,849,713
Non-current liabilities	7	-	-	(11,470)
Net assets		6,516,861	9,897,957	7,218,973
Capital and reserves attributed to equity holders of the Company
Called up share capital		613,398	613,398	589,472
Share premium account		31,342,483	31,342,483	25,011,175
Merger reserve		4,061,185	4,061,185	4,061,185
Foreign exchange reserve		(216,251)	(50,452)	(480)
Profit and loss account	9	(29,283,954)	(26,068,657)	(22,427,482)
		6,516,861	9,897,957	7,233,870
Minority Interest in equity		-	-	(14,897)
Total equity		6,516,861	9,897,957	7,218,973

  

CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 March 2009
		Six months ended	Year ended	Six months ended
		31 March 2009	30 September 2008	31 March 2008
		Unaudited	Restated	Restated
		£	£	£
Cash flows from operating activities (see note 8)	8
Cash used in operations		(3,643,082)	(6,307,150)	(3,324,088)
Interest element of finance lease payments		(2,015)	(8,959)	(5,317)
Taxation received		-	115,796	-
Cash used in discontinued operations		(10,131)	(253,857)	(222,650)
Net cash used in operating activities		(3,655,228)	(6,454,170)	(3,552,055)
Cash flows from investing activities
Purchase of property, plant and equipment		(37,019)	(78,592)	(14,517)
Purchase of intangible assets		-	(39,323)	(42,668)
Proceeds from sale of fixed assets		7,500	-	-
Acquisition of minority interest		-	(20)	-
Decrease/(increase) in short term deposits with banks		-	5,000,000	2,000,000
Finance income		71,752	398,585	164,221
Net cash inflow/(outflow) from investing activities		42,233	5,280,650	2,107,036
Cash flows from financing activities
Proceeds of ordinary share issue		-	6,501,000	-
Issuance cost of shares		-	(325,050)	-
Proceeds of options exercised		-	772,285	593,001
Capital element of finance lease payments		(20,280)	(35,532)	(16,928)
Repayment of loan		-	(55,983)	-
Net cash (outflow)/ inflow from financing activities		(20,280)	6,856,720	576,073
Net (decrease)/increase in cash and cash equivalents.		(3,633,275)	5,683,200	(868,946)
Cash and cash equivalents at beginning of period		8,202,128	2,518,928	2,518,928
Cash and cash equivalents at end of period		4,568,853	8,202,128	1,649,982
Reconciliation of cash and cash equivalents at end of period to position stated in the balance sheet
Cash and cash equivalents at end of period		4,568,853	8,202,128	1,649,982
Cash and cash equivalents included in Assets held for sale		(88,938)	-	-
Cash and cash equivalents stated in the balance sheet		4,479,915	8,202,128	1,649,982

NOTES TO THE INTERIM FINANCIAL STATEMENTS

for the six months ended 31 March 2009

1 Basis of accounting

The interim financial statements for the period to 31 March 2009 have not been audited or reviewed and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Company's statutory accounts for the year ended 30 September 2008, prepared under IFRS GAAP have been delivered to the Registrar of Companies. The report of the Auditors included in these statutory accounts was not qualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Discontinued operations

The trade and assets of PPE Ltd have been disclosed as discontinued operations in the Consolidated Income statement. The assets and liabilities of the company are disclosed separately in the Consolidated Balance sheet.

3. Loss per share

The calculation of basic and diluted loss per share is based on a loss on ordinary activities after tax of £3,313,990 (year ended 30 September 2008 restated: £7,459,552 and six months ended 31 March 2008 restated: £3,780,063) and a weighted average number of shares of 59,816,347 (30 September 2008: 59,816,347 and 31 March 2008: 58,337,571)

4. Dividend

The directors do not intend to recommend the payment of any dividends until they consider it prudent to do so, having regard to the need to retain sufficient funds to finance the development of the Group's activities.

5	Operating expenses
			Six months ended	Year ended	Six months ended
			31 March 2009	30 September 2008	31 March 2008
			Unaudited	Restated	Restated
			£	£	£
	Cost of goods sold		154,970	492,792	322,281
	Research and Development		1,366,250	3,164,856	1,535,452
	Sales and Marketing		473,898	1,657,549	695,864
	Administration		1,167,965	2,596,945	1,377,807
			3,163,083	7,912,142	3,931,404
	The following are items included in operating loss
	Depreciation of property, plant and equipment
	- owned		83,889	157,511	66,504
	- held under finance leases		15,353	30,705	15,753
	Amortisation of intangible fixed assets		294,401	577,215	286,822
	Share based compensation charge		98,693	239,444	241,914
	(Profit)/loss on disposal of fixed assets		(7,500)	-	-
	Foreign exchange losses		(165,798)	(49,516)	(480)
	Write off of loan payable		-	(13,996)	-
	Operating leases - land & buildings		147,867	270,498	136,595
	- plant & machinery		26,576	56,084	20,183
6	Trade and other receivables
			Six months ended	Year ended	Six months ended
			31 March 2009	30 September 2008	31 March 2008
			Unaudited
			£	£	£
	Trade receivables		13,621	876,245	922,481
	Other receivables		218,113	286,645	556,657
	Prepayments and accrued income		266,752	290,652	589,896
			498,486	1,453,542	2,069,034

7	Trade and other payables
			Six months ended	Year ended	Six months ended
			31 March 2009	30 September 2008	31 March 2008
			Unaudited
			£	£	£
	Trade payables		639,554	1,002,726	1,039,270
	Other payables		34,669	6,555	135,693
	Other taxation and social security		87,274	111,866	316,129
	Accruals and deferred income		281,019	1,008,061	628,371
	Loan due to related undertakings		-	31,748	69,980
			1,042,516	2,160,956	2,189,443

8	Cash used in operations
	for the six months ended 31 March 2008
			Six months ended	Year ended	Six months ended
			31 March 2009	30 September 2008	31 March 2008
			Unaudited	Restated	Restated
			£	£	£
	Loss before taxation		(3,086,060)	(7,067,023)	(3,547,495)
	Adjustments for:
	- Depreciation of property, plant and equipment		99,242	188,216	81,857
	- Amortisation of intangible fixed assets		294,401	577,215	286,822
	- Impairment of goodwill		-	14,917	-
	- (Profit)/loss on disposal of fixed assets		(7,500)	-	-
	- Share Option Compensation Charge		98,693	280,225	241,914
	- Currency exchange differences		(165,798)	(49,516)	(480)
	- Write off of loan payable		-	(13,996)	-
	- Finance expense		2,015	8,959	5,317
	- Finance income		(71,752)	(398,585)	(164,221)
	Changes in working capital:
	- Inventories		(497,522)	(15,455)	(231)
	- Trade and other receivables		(49,172)	71,013	(275,302)
	- Trade and other payables		(259,629)	96,880	47,731
	Cash outflow from operations		(3,643,082)	(6,307,150)	(3,324,088)

9	Statement of changes in equity
			31 March 2009	30 September 2008	31 March 2008
			Unaudited
			£	£	£
	Proceeds on Ordinary share issue		-	6,501,000	-
	Proceeds on Ordinary shares issued on exercise of options		-	772,285	593,001
	Issuance costs of shares		-	(325,050)	-
	Currency exchange differences		(165,799)	(50,452)	(480)

10	Copies of report
	Copies of the interim report will be sent to shareholders. Further copies will be available from the Company Secretary.

ENDIR FLMFTMMTTBIL

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