1st Mar 2005 07:01
Provalis PLC01 March 2005 Meeting today: There will be a 10.05 am briefing for analysts at Buchanan Communications, 107Cheapside London. Running simultaneously to the briefing at 10.05 am there willbe a live web cast of the Interim Results briefing. This will be followed by a11.30 am briefing for the press. To connect to the web cast facility please go to the following internet addressapproximately 5 minutes (10.00 am) before the start of the briefing: http://mediaserve.buchanan.uk.com. This presentation will also be available on the Provalis website later today at:www.provalis.com. If you would like to attend any of the meetings please contact Charlie Forsython 020 7466 5000. For Immediate Release 1st March 2005 Provalis plc Interim Results for the six months ended 31 December 2004 Provalis plc (LSE: PRO; NASDAQ: PVLS), the International Medical Diagnostics andPharmaceuticals Group, is pleased to announce its interim results for the sixmonths ended 31 December 2004. Highlights Group • Group sales £6.7m (1H2004: £6.4m) with gross profit £3.5m (1H2004: £3.6m)• Group operating loss of £2.7m (1H2004: £1.8m) principally reflecting additional costs of the US sales operation• Group loss for the period of £1.7m; (1H2004: £2.0m)• Share placing in September raised £2.5m net to support manufacture of in2it(TM)• Closing cash of £1.1m augmented by the scheduled receipt of £2.0m from Dr Falk Pharma in January• £5.0m three year credit facility arranged with Bank of Scotland in February 2005• Completion of payments to Pfizer for Diclomax• Option for vaccine license agreement granted to Aventis Pasteur Medical Diagnostics • US FDA 510K clearance and CLIA waiver of in2it(TM) A1c• US sales management team generating significant demand and orders for in2it(TM) A1c• First shipment of in2it(TM) A1c to the US made in December 2004• Continuing strong demand for in2it(TM) from US market with shipments steadily increasing from February• Major interest in in2it(TM) from international markets with European launch expected by autumn 2005• Project for major increase in cartridge manufacturing capacity for in2it(TM) on course for completion by July 2005• Further tests for the in2it(TM) platform in development Pharmaceuticals • Sales of £6.1m (1H2004: £5.8m) with net profitability of £0.8m (1H2004; 1.0m)• Diclomax(R) continued to sell well (£2.8m) but market remains turbulent following Merck withdrawal of Vioxx in October 2004 and increased generic activity• Sales of Dr Falk products at £2.5m; marketing and distribution of these products ceased in December 2004 and final compensation payment received by Provalis in January• Erdotin(TM) continues to progress through regulatory process towards UK and Irish approvals Phil Gould, Chief Executive Officer of Provalis plc, commented: "The first halfof the year saw Provalis achieve most of the key strategic objectives necessaryto provide the platform for significant sales growth in the next financial year.Most importantly, our US sales team generated strong and continuing demand forin2it(TM) A1c following the grant of regulatory approvals in August. Demand for in2it(TM) A1c continues to exceed our manufacturing capacity for testcartridges. The project to deliver a several fold increase in capacity is welladvanced and should be completed by early in the next financial year. This wouldallow sales of in2it(TM) A1c to accelerate markedly and, despite the challengesfacing our Pharmaceuticals business, rapidly move the Group as a whole towardsprofitability." END Visit Provalis' Revised Website at http://www.provalis.com "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. For further information:-Dr Phil Gould, Chief Executive Officer, Provalis plc Tel: 01244 833463Mr Peter Bream, Finance Director, Provalis plc Tel: 01244 833552Mr Lee Greenbury, Company Secretary, Provalis plc Tel: 01244 833402Lisa Baderoon, Buchanan Communications Tel: 020 7466 5000 Notes to Editors Provalis plc (LSE: PRO; NASDAQ: PVLS) is an international healthcare group withtwo operating businesses:- • Medical Diagnostics - develops medical diagnostic products for chronic disease management for sale to world markets. The business' principal products are in2it(TM) A1c and Glycosal(R), both diabetes diagnostic tests, and Osteosal(R), a diagnostic test for osteoporosis. • Pharmaceuticals - sells and markets its own, and third party, branded, prescription medicines in the UK and Ireland to GPs and hospitals through its regionally managed sales force. The business' principal product is Diclomax(R), a medicine for use in the treatment of musculo-skeletal disorders, and it also sells products in the areas of osteoporosis, migraine and dermatology. Chairman's & Chief Executive Officer's Statement Introduction Provalis started the financial year with a number of clear strategic objectives. The benefit of achieving these would not be apparent until succeeding years, but would position Provalis for considerable future growth. In particular: • The Medical Diagnostics business had to - complete the development of in2it(TM), its new, fully automated, platform for point of care diagnostic testing in a number of disease areas; - obtain regulatory approval for in2it(TM) A1c, the diabetes test that is the first to be used on this platform; - scale up, and ultimately fully automate, the manufacturing process for in2it(TM) A1c; - secure considerable US demand for, and stimulate worldwide interest in, the product; and - continue with the development of further tests for use on the platform;• The Pharmaceuticals business - having agreed that its distribution of the Dr Falk range of products would cease on 31st December 2004 had to develop, acquire, or licence-in, new products to replace these products, which sold £2.5m in this half year; and - had to continue to maximise sales and profits on its remaining product portfolio The Group raised £2.5m in September 2004 in order to pursue these objectives asrapidly as possible. We are pleased to report that, as a consequence of thisfund raising, considerable progress was made towards the achievement of all ofthese objectives in the first half of this financial year and that we areconfident of achieving the remainder by the end of the second half, or shortlythereafter. Overview Most significantly, the Medical Diagnostics business achieved the majormilestones of FDA clearance, launch and first sales of in2it(TM) A1c, its fullyautomated, point of care, diabetes diagnostic, in the US. The new US salesmanagement team has generated high levels of demand for in2it(TM) A1c. Provalishas devoted considerable resources to ensuring that the manufacturing andassociated regulatory processes for the product are robust; this having beenachieved, the project to scale up and automate the manufacturing process is wellunderway and will leave Provalis in a position to meet repeat orders andcapitalise on the continuing strong interest at the best margins to the Group. The Pharmaceuticals business achieved sales of £6.1m, including £2.5m of salesof the Dr Falk products prior to cessation of the agreement to distribute thoseproducts. Provalis' first product with the potential to replace the margin onthe Dr Falk product sales is Erdotin(TM), a product for which market demandappears high and which is expected to be ready for sale in the UK and Ireland inautumn 2005. The market for Provalis Pharmaceuticals' main product, Diclomax(R),was turbulent following significant uncertainty arising from the withdrawal fromsale of certain major pain-relieving drugs. The business is addressing plans toanticipate and manage the positive and negative impacts of this uncertainty overthe coming months. Overall, the Group's unaudited half year sales were £6.7m, 5% ahead of the sameperiod last year. The Group recorded a loss for the period of £1.7m (1H2004:£2.0m). This loss included exceptional income of £0.7m from recognition of theremaining contingent element of the receipts from Dr Falk Pharma (£0.6m) and thefinal compensatory payment from Dimethaid International (£0.1m). The operatingloss for the Group increased to £2.7m (1H2004: £1.8m), principally as a resultof the additional costs of the US sales management team (£0.6m). R&D costs were £0.9m in the period, and are expected to remain around thislevel. During the period, much of this R&D was in support of the secureintroduction of in2it(TM) A1c to the US market. The emphasis has now switched tocontinuing the development of new tests for use on the in2it(TM) platform, withthe intention that at least two new tests enter the market each year. The Group successfully raised £2.5m, net of expenses, through a placing of justunder 10% of the issued share capital of the Company in September 2004 andended the period with £1.1m in cash. This was supplemented by receipt inJanuary of £2.0m from Dr Falk Pharma and £0.1m from Dimethaid International Inc,the latter being in final settlement of its liability to the Group arising fromthe arbitration proceedings. In November 2004 the Group paid Pfizer the lastinstalment for Diclomax(R). The significant cash generated from sales ofDiclomax(R) is now fully available to support Group operations. In addition, abanking facility for £5.0m has been arranged with the Bank of Scotland inFebruary 2005, which replaces the £3.0m facility previously in place and whichwas unused at the period end. Provalis will use these resulting resources tofund the further development of the Group. The Group stopped any significant expenditure on its portfolio of vaccinecandidates in October 2002, and since then has been seeking commercial partnersfor each of them. During the period the Group completed these partneringactivities by signing an option agreement with Aventis Pasteur for the Group'sstreptococcus pneumoniaie vaccine antigens. This agreement, together with theearlier ones with GlaxoSmithKline and Chiron Vaccines, means that the Group hasnow concluded agreements on all of its vaccine candidates. These agreements havethe potential to deliver significant returns to Provalis in due course, throughmilestone and royalty payments, without Provalis incurring any further costs. As announced in February 2005, Provalis has started a process intended to resultin a suspension of its SEC Reporting Requirements and a de-listing of itsshares from NASDAQ by the end of this financial year. This announcement followeda careful review of the merits of this secondary listing on NASDAQ (whichrepresents approximately 1.5% of Provalis' issued share capital), whichconcluded that the significant costs and management time necessary to complywith the additional requirements introduced by the Sarbanes-Oxley legislationfar outweighed the benefits of the listing. This de-registration and de-listingis expected to save the Group approximately $700,000 by the end of the nextfinancial year and at least $400,000 in each year thereafter. Turning to Board matters, we were delighted to welcome Dr Alan Aikman to theBoard in February. Alan joins the Board with international marketing andcommercial experience in a broad range of healthcare businesses that will enablehim to make a significant contribution to Provalis as it expands the directmarketing and sale of its products in world markets. At the same time, Dr DavidBloxham decided to retire from the Board in May 2005 after five years with theCompany. David's insight has proved invaluable in helping us to focus and thensuccessfully partner the vaccine business and to develop our US sales strategyfor the Medical Diagnostics business that we have now implemented. We wouldlike to take this opportunity of thanking David for his significant contributionto the Group's strategic development and wish him well for the future. Medical Diagnostics Sales by the Medical Diagnostics business in the first half were £0.6m. Theseprincipally arose from the supply of Glycosal(R) test cartridges to existingdistributors. However, the business' main focus was on in2it(TM) A1c; theproduct was granted marketing clearances from the US FDA for use in bothphysicians' offices and at home on prescription, significant demand and orderswere generated by the US based sales management team and the first commercialsales were made to the US. These were each very important stepping stones inestablishing the US based side of the business that will transform the sales andprofitability of the Medical Diagnostics business in the short term. Market Demand The response from physicians, diabetologists, pharmacy chains, pharmaceuticalcompanies and healthcare distributors to in2it(TM) has been very encouraging.Demand from the US has exceeded the Group's original expectations, ratifying itsbelief that the market was clearly in need of a low cost, fully automated 'pointof care' diagnostics platform that could be used for a number of tests,including A1c. This demand has resulted in a considerable order book for the product. The firstcommercial shipment was made in December 2004, with regular shipments startingin January 2005 and steadily increasing from February onwards. Although theseshipments were a few weeks later than originally planned, all orders in handshould be shipped by early in the next financial year. Reports from Provalis' USsales management team indicate that all shipped product is rapidly with the enduser. Although the use of the product is in its infancy, early feedback on the levelof routine use of cartridges has also exceeded Provalis' initial estimates. The US sales management team is reporting that that the automated nature of thein2it(TM) A1c test has led to this high level of routine use. Although we willremain relatively cautious until there is feedback from a larger installed baseof users, this is potentially extremely positive news, as it is the level ofroutine cartridge use that will determine the ultimate success of the product. As previously reported, Provalis deliberately limited the level of initialorders for in2it(TM) A1c that it would accept. This was done because thecurrent manufacturing capacity for the test cartridges is limited, and theinitial roll out of in2it(TM) A1c analysers had to be carefully managed untilfurther test cartridge manufacturing capacity came on stream so as to ensurefollow on cartridge orders from existing customers can be met. We areincreasingly confident that sales of in2it(TM) A1c will now progressivelyincrease during the second half of this financial year before increasing severalfold following the introduction of automated test cartridge manufacture, whichis planned for early in the next financial year. Manufacturing Capacity The manufacturing capacity limitations relate solely to Provalis' ability tosupply sufficient test cartridges from its plant in Deeside. The manufacturerof the in2it(TM) analysers is able to supply as many as are required. Provalis first became aware of the potentially high demand for the productfollowing its introduction to the US market in August 2004. The plans tointroduce both full automation, and higher capacity machines, into the testcartridge manufacturing facility were immediately brought forward. In order toimplement these plans, Provalis successfully raised £2.5m (net of expenses) inSeptember 2004. Provalis is making every effort to complete these expansion plans as quickly aspossible. We are pleased to report that the plans are well on track andanticipate that the necessary machinery will be in place by the summer to give aseveral fold increase in test cartridge manufacturing capacity. Provalis isconfident that it will rapidly realise the benefits of this investment byselling significantly increased numbers of in2itTM A1c in the next financialyear. in2it(TM) outside the US The US market gives Provalis one of the highest expected margins on sales ofin2it(TM) A1c. US demand is such that it is likely to take all of Provalis'manufacturing capacity for the product until the summer of 2005. Plans have,however, already been made for the product's launch elsewhere. in2it(TM) A1c was exhibited at Medica, Europe's leading exhibition of medicaldiagnostic equipment, in November 2004. The response from attendees waspositive and discussions, together with field trials, have already commencedwith selected pan European and national distributors. It is expected that theproduct will be launched in Europe by autumn 2005. In addition to the European launch programme, Provalis has now submitted itsregistration package to the Japanese authorities. Japan is the world's secondlargest diabetes market, and discussions have started with several potentialdistributors for that market, with launch of the product there anticipated earlyin 2006. Other in2it(TM) tests The programme to develop additional tests for use on the in2it(TM) platform hascontinued. Now that the R&D team has ensured a successful introduction of theproduct, it will devote the majority of its efforts to the development of theseadditional tests, with the intention that two new tests be introduced each year,the first planned to be for high sensitivity C reactive protein (hsCRP). Glycosal(R) Glycosal(R) continues to be supplied to existing distribution partners, withsales of £0.5m in the period. These sales were largely of test cartridges, withover 270,000 sold in the period. The first sales of cartridges and instrumentswere made to some emerging markets and a steady volume of the product isexpected to be directed to these markets in the years ahead. Pharmaceuticals The Pharmaceuticals business delivered a good performance in the period with sales of £6.1m, a 6% advance over the same period last year and 9% ahead of the second half. Overall, despite the levels of prescriptions written being reasonably consistentthroughout the period, ex factory sales to wholesalers were more erratic thanat any time in the recent past. This was due to a combination of factors suchas uncertainty caused by the wind down of the 1999 Pharmaceutical PricingRegulatory Scheme (PPRS) in December 2004 and the introduction of the new schemefrom January, pharmacists' and wholesalers' caution over inventory levels and amore aggressive stance by wholesalers, in particular, with regard to discounts. Diclomax(R) Diclomax(R) continued to dominate the sales mix with sales of £2.8m, the same asin the second half of 2004. The product had come under increasing pressureover the past two years due to the advance of the prescribing of the newer COX2inhibitor drugs, and although promotional efforts did result in Diclomax(R)increasing its share of the non-steroidal market, there was a small decline insales. However, Merck's withdrawal of Vioxx, the leading COX2 inhibitor, from themarket in October 2004 gave an unexpected boost to Diclomax(R) and othersimilar products. This resulted in sales volumes being enhanced, but coincidedwith sales values and margins being eroded due to the introduction of genericproducts at lower prices. Overall therefore, sales were largely at the levelexpected for the period. Provalis will continue to promote Diclomax(R)strongly, using both its sales force and industry wide advertising, as well aspursuing various new initiatives to exploit the continuing uncertainties withCOX2 inhibitors. Calceos Calceos, Provalis' osteoporosis product, made excellent progress in the periodwith sales of £0.4m, 42% ahead of the same period last year. Once again theproduct was supported strongly with in field activities, industry wideadvertising and competitive pricing. Dr Falk Products Sales of the Dr Falk range of products were £2.5m in the period. As firstannounced in February 2003, Provalis varied the agreement under which it soldthese products such that Provalis received compensation of £5.0m in return forthe agreement terminating on 31st December 2004. The final instalment of thiscompensatory payment (£2.0m) was received in January, but obviously Provalis hasnow stopped selling these products and this will impact on sales and profits inthe second half of this year. Provalis has already been granted rights to sellErdotin(TM) and is continuing its search for other new products. Erdotin(TM) Erdotin, the important new product destined to replace the profit on sales ofthe Dr Falk range, continued to progress through the Mutual RecognitionProcedure (MRP). This process is being managed by Provalis' licensor, EdmondPharma, and although taking longer than originally anticipated, UK and Irishmarketing authorisations are still expected by this autumn, with launch of theproduct in both countries as soon as these are granted. In preparation for the product's launch, work has begun with a series ofhospital consultants and opinion leaders in the respiratory field. The producthas been well received, with the merits of its anti-oxidative as well asmucolytic properties being particularly noted. Erdotin(TM) remains a veryexciting product opportunity, as it clearly meets an area of significant unmetmedical need; the feedback already received strongly suggests that Erdotin(TM)will be a significant product for the Group. Outlook and Prospects The Medical Diagnostics business has achieved a great deal in the first half ofthe year, with the completion of the development of the in2it(TM)platform andthe granting of the important US regulatory approvals for in2it(TM) A1c. We areincreasingly confident of completing the project to deliver a several foldincrease in cartridge manufacturing capacity by the summer and, provided theearly, considerable US demand for the product is maintained, which certainlyseems to be the case, this would place the Medical Diagnostics business in aposition to accelerate sales markedly. This would move this business, and theGroup as a whole, rapidly towards profitability. The pharmaceutical market as a whole is proving turbulent at present, withsignificantly reduced levels of sales across the industry in January andFebruary 2005. With this as the background, and taking account of both thespecific uncertainties affecting Diclomax(R) and the reduced revenues resultingfrom Provalis no longer selling the Dr Falk products, we are cautious aboutforecasting the revenues and margins of the Pharmaceuticals business for theremainder of the year. This being the case, Provalis is concentrating onmanaging the margins and costs of the business, particularly in the short term,whilst continuing to pursue new initiatives to enhance and increase itspharmaceutical product range and so resume growth. In particular, Provalis ispoised to introduce Erdotin(TM) to the UK and Irish markets as soon as themarketing authorisations are granted, which is expected to be by the autumn. In conclusion, Provalis identified several key strategic objectives, theachievement of which would strengthen the Group, increase the product portfolioof both businesses and considerably enhance future prospects. During the firsthalf of this financial year Provalis has made significant progress towards theachievement of these objectives and is confident of achieving the remainder bythe end of the financial year, or shortly thereafter. Importantly, this wouldthen provide the platform for significant sales growth in 2006 and future years. Consolidated Profit & Loss AccountFor the six months ended 31 December 2004 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) Notes £'m £'m £'m---------------------------- ----- --------- --------- ----------Turnover- Continuing activities 1 6.7 6.4 12.9---------------------------- ----- --------- --------- ---------- 6.7 6.4 12.9Cost of sales (3.2) (2.8) (5.6)---------------------------- ----- --------- --------- ----------Gross profit 3.5 3.6 7.3Selling and distribution (2.6) (1.9) (4.0)expensesAdministration expenses --------- --------- ----------Amortisation of intangible 5 (0.8) (0.7) (1.4)assetsAdministration costs (1.9) (1.8) (3.5)Research and development (0.9) (1.0) (1.7)costs --------- --------- ---------- (3.6) (3.5) (6.6)---------------------------- ----- --------- --------- ----------Operating loss- Continuing activities (2.7) (1.8) (3.3) Profit on variation ofdistribution agreement- continuing activities 2 0.6 - 1.0Compensation arising fromDimethaid arbitration ---------------------------- ----- --------- --------- ----------- continuing activities 2 0.1 - 0.4---------------------------- ----- --------- --------- ----------Loss on ordinary activities (2.0) (1.8) (1.9)before interestInterest receivable - 0.1 0.1---------------------------- ----- --------- --------- ----------Loss on ordinary activities 1 (2.0) (1.7) (1.8)before taxationTaxation 3 0.3 (0.3) (0.3)---------------------------- ----- --------- --------- ----------Loss for the period (1.7) (2.0) (2.1)---------------------------- ----- --------- --------- ----------Loss per ordinary share - 4 (0.5)p (0.6)p (0.6)pbasic and diluted ---------------------------- ----- --------- --------- ---------- The accompanying notes are an integral part of this Consolidated Profit and LossAccount. Statement of Total Recognised Gains and LossesFor the six months ended 31 December 2004 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) £'m £'m £'m----------------------------------- ---------- ---------- ---------Loss for the period (1.7) (2.0) (2.1)Currency translation differences onforeign currency net investments 0.1 - ------------------------------------ ---------- ---------- ---------Total recognised gains and lossesrelating to the period (1.6) (2.0) (2.1)----------------------------------- ---------- ---------- --------- Consolidated Balance SheetFor the six months ended 31 December 2004 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) Notes £'m £'m £'m---------------------------- ------ ---------- ---------- ---------Fixed assetsIntangible assets 5 10.3 11.8 11.1Tangible assets 2.1 1.8 1.8---------------------------- ------ ---------- ---------- --------- 12.4 13.6 12.9---------------------------- ------ ---------- ---------- ---------Current assetsStocks 2.1 2.4 2.1Debtors 4.5 4.1 3.7Cash at bank and in hand 1.1 3.2 1.8---------------------------- ------ ---------- ---------- --------- 7.7 9.7 7.6Creditors: Amounts falling due within one year (4.1) (8.2) (5.4)---------------------------- ------ ---------- ---------- ---------Net current assets 3.6 1.5 2.2---------------------------- ------ ---------- ---------- ---------Total assets less current liabilities 16.0 15.1 15.1Creditors: Amounts fallingdue after more than one year (0.1) - (0.1)---------------------------- ------ ---------- ---------- ---------Net assets 1 15.9 15.1 15.0---------------------------- ------ ---------- ---------- --------- Capital and reservesCalled-up share capital 6 3.6 3.3 3.3Share premium account 6 26.3 24.1 24.1Merger reserve 6 96.3 96.3 96.3Profit and loss account 6 (110.3) (108.6) (108.7)---------------------------- ------ ---------- ---------- ---------Equity shareholders' funds 15.9 15.1 15.0---------------------------- ------ ---------- ---------- --------- The accompanying notes are an integral part of this Consolidated Balance Sheet. The interim financial statements were approved by the Board of Provalis plc on28 February 2005. Reconciliation of Movements in Shareholders' FundsFor the six months ended 31 December 2004 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) £'m £'m £'m--------------------------------------- ---------- ---------- ---------Shareholders' funds at the start of the period 15.0 17.1 17.1Share capital issued 2.6 - -Share issue costs (0.1) - -Loss for the period (1.7) (2.0) (2.1)Currency translation differences onforeign currency net investments 0.1 - ---------------------------------------- ---------- ---------- ---------Shareholders' funds at the end of the period 15.9 15.1 15.0--------------------------------------- ---------- ---------- --------- The accompanying notes are an integral part of this Reconciliation of Movementsin Shareholders' Funds. Consolidated Cash Flow StatementFor the six months ended 31 December 2004 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 Notes (Unaudited) (Unaudited) (Audited) £'m £'m £'mReconciliation of operatingloss to net cash outflow from operating activities ---------------------------- ----- ---------- ---------- ---------Operating loss (2.7) (1.8) (3.3)Depreciation of tangible fixed assets 0.3 0.3 0.6Amortisation of intangible fixed assets 0.8 0.7 1.4(Increase) in stocks - (0.5) (0.2)Increase in creditors 0.9 0.6 0.1(Increase) in debtors (0.2) (0.1) (0.1)---------------------------- ----- ---------- ---------- ---------Net cash outflow from operating activities (0.9) (0.8) (1.5)---------------------------- ----- ---------- ---------- ---------Cash Flow StatementNet cash outflow from operating activities (0.9) (0.8) (1.5)---------------------------- ----- ---------- ---------- ---------Returns on investments and servicing of financeInterest received - 0.1 0.1---------------------------- ----- ---------- ---------- ---------Net cash inflow from returnson investments and servicing of finance - 0.1 0.1---------------------------- ----- ---------- ---------- ---------TaxationR&D tax credit received - 0.1 ----------------------------- ----- ---------- ---------- ---------Net cash inflow from taxation - 0.1 ----------------------------- ----- ---------- ---------- ---------Capital expenditure andfinancial investmentPurchase of intangible fixed assets (1.8) (2.3) (4.6)Purchase of tangible fixed assets (0.6) (0.5) (0.8)Compensation arising from Dimethaid arbitration 0.1 - 0.3Proceeds on variation of distribution agreement - - 1.5Deferred income - Welsh Assembly Grant - - 0.2---------------------------- ----- ---------- ---------- ---------Net cash outflow from capitalexpenditure and financial investment (2.3) (2.8) (3.4)---------------------------- ----- ---------- ---------- ---------Net cash outflow beforemanagement of liquid resources and financing (3.2) (3.4) (4.8)---------------------------- ----- ---------- ---------- ---------Management of liquidresourcesDecrease in short term deposits - 4.8 4.9---------------------------- ----- ---------- ---------- ---------Net cash inflow from management of liquid resources - 4.8 4.9---------------------------- ----- ---------- ---------- ---------FinancingIssue of ordinary shares 2.6 - -Share issue costs (0.1) - ----------------------------- ----- ---------- ---------- ---------Net cash inflow from financing 2.5 - ----------------------------- ----- ---------- ---------- ---------(Decrease) increase in cash 7 (0.7) 1.4 0.1---------------------------- ----- ---------- ---------- --------- The accompanying notes are an integral part of this Consolidated Cash FlowStatement. Notes to AccountsFor the six months ended 31 December 2004 1. Segmental analysis by class of business The analysis by class of business of the Group's turnover, loss on ordinaryactivities before taxation and net assets is set out below: 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) £'m £'m £'m--------------------------------------- ---------- ---------- ---------TurnoverContinuing activities- Medical Diagnostics 0.6 0.6 1.5- Pharmaceuticals 6.1 5.8 11.4--------------------------------------- ---------- ---------- --------- 6.7 6.4 12.9--------------------------------------- ---------- ---------- ---------Profit (loss) on ordinary activitiesbefore taxationContinuing activities operatingprofit (loss)- Medical Diagnostics (2.4) (1.7) (3.1)- Pharmaceuticals 0.8 1.0 1.8- Common costs (1.1) (1.1) (2.0)Compensation arising from Dimethaid arbitration 0.1 - 0.4Profit on variation of distribution agreement 0.6 - 1.0Net interest receivable - 0.1 0.1--------------------------------------- ---------- ---------- --------- (2.0) (1.7) (1.8)--------------------------------------- ---------- ---------- --------- 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) £'m £'m £'m--------------------------------------- ---------- ---------- ---------Net assets- Medical Diagnostics 2.1 1.6 1.6- Pharmaceuticals 11.2 8.9 10.9--------------------------------------- ---------- ---------- ---------Net operating assets 13.3 10.5 12.5Unallocated common assets including cash and deposits 2.6 4.6 2.5--------------------------------------- ---------- ---------- ---------Net assets 15.9 15.1 15.0--------------------------------------- ---------- ---------- --------- 2. Exceptional items In December 2003 the Group announced that the arbitration it commenced againstDimethaid International Inc. (DII) following DII's termination of the Pennsaid(R)distribution agreement had been decided in Provalis' favour, and that as aresult Provalis had been awarded the compensatory sum of £1.2m, together withcosts and interest of £0.4m. As at 31 December 2004 Provalis had received £0.7m offset by £0.3m of costsincurred in connection with the arbitration. The balance receivable had not beenrecognised in the Group accounts due to uncertainty in its recoverability. InJanuary 2005, the directors of DII advised that the company was insolvent.Provalis has subsequently accepted a payment of £0.1m in full and finalsettlement of the amount outstanding from DII. The profit on variation of distribution agreement of £0.6m (£1.0m in the yearended June 2004) relates to profit recognised on payments arising from thevariation of the distribution agreement with Dr Falk Pharma. The final paymentof £2.0m was received in January 2005. 3. Taxation In December 2003 the Inland Revenue rejected a claim for R&D tax credits in theMedical Diagnostics business for the year ended 30 June 2002 and a provision of£0.3m was included in the tax charge for the year ended 30 June 2004. The Grouphas now reached agreement with the Inland Revenue and the provision has beenreleased in the tax charge for the period ended 31 December 2004. 4. Loss per share The loss per share is based on the loss for the period of £1.7m (6 months ended31 December 2003: loss £2.0m; full year 2004: loss £2.1m) and the weightedaverage number of ordinary shares in issue during the period of 348,828,313 (6months ended 31 December 2003: 330,603,722; full year 2004: 330,644,450). 5. Intangible assets The intangible assets represent the cost of acquisition of Diclomax(R) on 3December 2001, for £14.9m. The asset is being amortised over a period of tenyears and the Consolidated Profit and Loss Account for the six months ended 31December 2004 contains an amortisation charge of £0.8m (six months ended 31December 2003: £0.7m). The cash outflow associated with the acquisition of Diclomax(R) was £1.8m in thesix months ended 31 December 2004 (six months ended 31 December 2003: £2.3m)with the final payment made in November 2004. The security offered by Provalishas now lapsed. 6. Movements in equity shareholders' funds Called-up Share Profit share premium Merger and loss capital account reserve account Total £'m £'m £'m £'m £'m----------------------------- -------- -------- -------- -------- --------Balance at 1 July 2004 3.3 24.1 96.3 (108.7) 15.0Issue of share capital 0.3 2.3 - - 2.6Share issue costs - (0.1) - - (0.1)Loss for the period - - - (1.7) (1.7)Currency translationdifferences on foreign currency net investments - - - 0.1 0.1 ----------------------------- -------- -------- -------- -------- --------Balance at 31 December 2004 3.6 26.3 96.3 (110.3) 15.9----------------------------- -------- -------- -------- -------- -------- The Company placed 33,066,000 new ordinary shares of £0.01 each withpredominantly institutional investors at a placing price of 8.0p on 23 September2004. 7. Cash flow information (a) Reconciliation of net cash flow to movements in net funds 6 months 6 months Year ended ended ended 31 December 31 December 30 June 2004 2003 2004 (Unaudited) (Unaudited) (Audited) £'m £'m £'m------------------------------------- ---------- ---------- --------(Decrease) increase in cash in the period (0.7) 1.4 0.1Decrease in short term deposits - (4.8) (4.9)------------------------------------- ---------- ---------- --------Movement in net funds in the period (0.7) (3.4) (4.8)Net funds at start of period 1.8 6.6 6.6------------------------------------- ---------- ---------- --------Net funds at end of period 1.1 3.2 1.8------------------------------------- ---------- ---------- -------- (b) Analysis of changes in net funds As at As at 1 July Cash 31 December 2004 Flow 2004 (Audited) (Unaudited) (Unaudited)---------------------------- --------- --------- ---------- £'m £'m £'m---------------------------- --------- --------- ----------Cash 1.7 (0.7) 1.0Short term deposits 0.1 - 0.1---------------------------- --------- --------- ----------Net funds 1.8 (0.7) 1.1---------------------------- --------- --------- ---------- Short term deposits have a maturity of more than 24 hours but less than 12months. They are repayable on demand subject, in some instances, to therepayment of certain expenses. Cash includes cash in hand and deposits repayableon demand. 8. Nature of financial information The interim figures for the six months ended 31 December 2004 have beenindependently reviewed by the auditors, but they, and those for the six monthsended 31 December 2003, are unaudited. The financial information set out herein does not comprise full accounts withinthe meaning of section 240 of the Companies Act 1985. The comparative figuresfor the year ended 30 June 2004 are extracted from the audited accounts for thatyear, which have been filed with the Registrar of Companies. The auditors'report on those audited accounts was unqualified and did not contain anystatement under sections 237(2) or (3) of the Companies Act 1985. The Interim Report has been prepared on the basis of the accounting policies setout in the most recent set of annual financial statements. Introduction We have been engaged by the Company to review the financial information set outon pages 9 to 14 and we have read the other information contained in the InterimReport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin this 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 forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the Interim Report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual accounts except where they are to be changed in the next annualaccounts in which case any changes, and the reasons for them, are to bedisclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2004. KPMG Audit PlcChartered Accountants8 Princes ParadeLiverpoolL3 1QH28 February 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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