25th Feb 2010 07:00
SPH.L Sinclair Pharma plc Interim results for the six months ended 31 December 2009 Sinclair Pharma plc (SPH.L), ("Sinclair" or the "Company") the internationalspecialty pharma company, today announces its half yearly results for the sixmonths ended 31 December 2009.
Financial Highlights
* Total revenues of £11.0m (H1 09: £16.2m) * EBITDA loss of £2.4m pre exceptional items (H1 09: profit of £2.2m)
* Operating loss of £3.9m pre exceptional items (H1 09: profit of £0.9m)
* Net exceptional charges of £9.8m (H1 09: credits of £3.2m)
* Operating loss post exceptional items of £13.7m (H1 09: profit of £4.0m)
* Loss per share of 3.4p pre exceptional items (H1 09: earnings per share of 0.4p)
* Cash balance of £8.3m at 31 December (December 2008: £2.4m)
Business Highlights
* Business undergoes fundamental changes towards period end * Chris Spooner appointed as new CEO * Cost reduction program introduced and secures £1.5m of savings on an annualised basis * Successful Placing and Open Offer raises £18.2m and new £12.0m debt facility secured * Acquisition of well known Flammazine and Flammacerium products + Sold in 45 countries with annual revenues in excess of £9 million
* New senior management appointments and restructuring underpins commercial
focus * Business primed for organic and acquisition based growth
* Board is confident of future prospects as profitability trends improve into
H2 and beyond Operating Highlights
* US license with Orapharma inc. for Decapinol terminated
+ Facilitates a new marketing partner and entry into larger OTC market
* New direct sales capability established in France to promote OTC dermatology franchise
* Italian affiliate reported a 62% increase in revenues of our dermatology
franchise
* Sales presence extended in Europe through creation of Sinclair Pharma GmbH
Grahame Cook, Non-executive Chairman commented:
The Company has entered into a new phase of its development with the departureof its founders Michael Flynn and Jerry Randall, to whom we express ourgratitude for bringing the company from its inception to becoming a leadingpresence in the specialty pharmaceuticals sector. Our new CEO, Chris Spooner,has already concluded an in depth review of the business and our strategicpriorities and has begun to execute an energetic plan for change and growth aswell as cutting unproductive parts of the cost base and product portfolio. Thishas been accompanied by a significant acquisition of assets from Solvay, whichwill help give our distribution platform better critical mass. The results ofthese vigorous actions are already bearing fruit and we look forward to theremainder of the financial year with optimism. The Company now has an excellentplatform to deliver superior returns in the coming months and years.
For further information please contact:
Sinclair Pharma plc Tel: +44 (0) 1483 410 600 Chris Spooner, CEO Alan Olby, CFO Singer Capital Markets Ltd Tel: +44 (0)20 3205 7500 Shaun Dobson Claes Sp¥ng
Biddicks, Financial Public Relations Tel: +44 (0)20 7448 1000
Shane Dolan Notes to Editors:
About Sinclair Pharma Plc www.sinclairpharma.com
Sinclair Pharma plc is an international specialty pharmaceutical companyproviding solutions to treat wounds, dermatological and oral diseases throughadvanced surface technology and innovative delivery systems. It has a growingsales and marketing operation that is present in France, Italy, Germany andSpain, and a complementary marketing partner network that spans more than 90countries."Safe Harbor" Statement under the US Private Securities Litigation Reform Actof 1995: Some or all of the statements in this document that relate to futureplans, expectations, events, performances and the like are forward-lookingstatements, as defined in the US Private Securities Litigation Reform Act of1995. Actual results of events could differ materially from those described inthe forward-looking statements due to a variety of factors.
CEO's Overview
The past three months have been perhaps the busiest in the history of the Company, following the recent acquisition of Flammazine and Flammacerium, simultaneous refinancing, and management changes. The new products are established and well-known brands sold in over 45 countries and currently generating over £9 million in annual revenues. Sinclair plans to grow these revenues via increased promotion, product development and new indications.
The new management team has embarked on a much-needed and rapid corporaterestructuring programme. This exercise is still ongoing, but its benefits interms of underlying profitability, transparency and employee productivity arealready being felt. The Company now operates with a much flatter managementstructure. Defined objectives and KPIs together with greater individualresponsibility have accelerated both decision making and management informationsystems. Indeed, I am delighted to report that without licensing income theCompany was marginally EBITDA positive in December despite including just twoweeks of Flammazine and Flammacerium sales and without the full benefit ofrecent cost savings. We are still in the process of assuming full control ofFlammazine and Flammacerium logistics. As this process completes and furthercost savings are enjoyed, we expect the trend of rising profitability tocontinue through this financial year.
Executive Management Team
We have strengthened our product development capabilities with the appointmentof Simon Youlton as CCSO (Commercial Chief Scientific Officer), reporting to meas a key member of the Executive Management team. The finance function isheaded by CFO Alan Olby and Operations Finance Director, Jean-Louis Lamand©.Both have been instrumental in installing improved management informationsystems which has significantly accelerated monthly performance reporting.Intellectual property management has returned to the corporate office underLegal Director Steve Redman, while our COO Christophe Foucher has now assumedfull responsibility for all operations.A key element of restructuring has been to decrease spending on administrationand overhead and increase and reprioritise spending on development andmarketing. The pre-licensing gross margin of 58% is low and reflects theCompany's complexity and sourcing strategy. A full supply chain review is nowin progress under the management of Vittorio Cavagnera, Head of Manufacturingand Logistics. We expect this will result in increased in-house production atCl©ry and larger but fewer 3rd party manufacturing contracts. Inherent in thisprocess is the need to decrease the number of SKUs. While I am optimistic forsignificant improvement in this area, logistical and contractual mattersprevent overnight results. We expect to see a steady and rising gross margintrend over a three year period.As part of the restructuring process, we have undertaken a strategic review ofthe Group's R&D pipeline, cutting certain projects and reprioritising others.This has resulted in a significant write down to the value of certain assetswhich will now not be developed as they do not match the Group's new strategy.This is a non-cash charge and reflects our best view of the current valuationof various technology programmes predominantly related to the Zinc Taurine andSilver nanotechnology.We are also engaged in strengthening our regulatory affairs expertise toprepare for future growth and ensure that ongoing registrations are achieved inthe shortest timeframes possible to reduce the time to market. The efficientintegration of Flammazine and Flammacerium will be dependent on the swifttransfer of marketing authorisations in the relevant territories, which spanmore than 50 countries. Mauro Capodiferro, Regulatory Affairs Director, whojoined us in July, oversees this strategic goal.In November Sinclair Pharma and Orapharma (Johnson & Johnson's specialistdental division) announced they had mutually terminated the Rx out-licensingventure for anti-gingivitis mouthwash Decapinol in the US. In doing so, we willnot receive the budgeted milestone income which was due on the US Orapharmalaunch. However, at the time we also announced our intentions to sign a newmarketing partner, to target the OTC market, to rely less on milestone paymentsand focus more on longer term profitability. We remain confident of our abilityto fulfil these ambitions, and, while we expect lower one-off income,ultimately we intend to deliver superior value to shareholders and we hope toannounce a US Decapinol deal with a new focus on the OTC opportunity duringthis calendar year.While the Italian business has achieved a remarkable turnaround under PaoloPrioglio, the French business has continued to suffer. While sterling weaknesshas benefitted the bottom-line, we are confident that the long-term decline inthis business is bottoming-out. Following a re-organisation of the French salesforces under recently appointed Patrick Loyer, we have already seen someencouraging signs of improvement, which should be further bolstered by theschedule of new products and line extensions due in the dermatology area thisyear.
Sinclair Pharma's dermatology franchise appears well-suited to emerging market demand. We continue to invest in international operations, and recently announced our intention to move the entire organisation to Paris, increase headcount and focus on emerging market opportunities via multi-product/ multi-country deals wherever possible.
Beyond organic growth and restructuring, we have made clear our intention togrow and drive a step change in growth rate through product and corporateacquisitions and alliances. We continue to believe that asset prices remaindepressed compared with recent years and that this is a favourable environmentfor pursuing such a strategy.In line with our new corporate Values and Conduct statements, I am delighted toannounce that Sinclair employees have adopted a corporate charity. Plans arewell underway for a series of events during the year with employees giving upfree time to help various nominated causes. I would like to take thisopportunity to thank everyone involved.
Operations review
The company is undergoing widespread restructuring. We have identified eightbroad areas for improvement - strategic brand focus, increased and more focusedsales and marketing spend, improved expertise in regulatory affairs, reduced G&A spend, tighter financial control and a rigorous approach to investmentdecisions, supply chain simplification and cost reductions, reporting structuresimplification, focused and higher technology product development.Registrations: There is now a clear focus on accelerating the registration ofour strategic brands in rapidly developing countries. 17 new applications werefiled and five new registrations granted in 4 countries in H1.
Manufacturing: 5.2m units were produced during H1, with the products streamlining programme now starting to deliver a significant improvement on the gross margin. Important SKUs have been transferred in H1 from third party manufacturers to our own manufacturing facility in Cl©ry (France).
Country Operations:
France: A new dedicated sales force has started to sell and promote our OTCdermatology franchise directly to pharmacies since September 2009. We expectpositive results in H2 following the initial warm up phase. Dermachronic, ourline for the co-treatment of atopic dermatitis, has been launched todermatologists, while Sinlice, our anti head-lice product, has been launched topharmacists.Italy: The sales force promoting our dermatology Rx franchise is now completeand we now have a near full coverage of Italy. Thanks to better execution andthe launch of Dermacide Cica, our anti microbial gel, Rx sales revenue is nowback to double digit growth. Our main partner for oral care, Recordati, hassuccessfully launched Aloclair Teething Gel, our new product for thealleviation of the pain associated with teething symptoms.Spain: We now have good coverage of the four main regions in Spain. However,the Spanish economic crisis is still limiting the prescription of our nonreimbursed dermatology Rx franchise. In oral care, Italfarmaco has demonstrateda good uptake of Aloclair Plus, as has been the case in Italy.
Germany: In preparation for the integration of Flammazine, early December saw the creation of Sinclair Pharma GmbH following the appointment of Country Operation Director, Lothar Nau.
International Operations:
Our international operations team is now dedicating its resources intoestablishing a strong footprint in selected emerging markets, becoming thelicensee of choice for US companies and maximising our product portfolio withthe aim of securing multi-product/country deals with single partners in otherterritories. Sinclair's distribution agreements will now favour a highertransfer price instead of large up-front payments, which will help to improvethe overall gross margin and to generate sustainable revenue going forward.North America: Our treatment for seborrheic dermatitis, Sebclair, was launchedby Promius in July. The last three months have shown a good uptake ofdermatologist prescriptions. We have been actively seeking a strong partner forthe OTC promotion of our anti-gingivitis mouthwash, Decapinol.India: Our Indian partner, Wockhardt, has launched three strategic products forSinclair: Aloclair, Papulex, for acne prone skin and Atopiclair, for atopicdermatitis. We are committed to strengthening and focusing the support given toWockhardt in order to accelerate the uptake of Sinclair products in thiscountry.Turkey and Israel: An agreement has been signed with Biocodex to launchPapulex, Dermacide Cica and Herpclair in Turkey. Launches are expected in H2.Our Israeli partners are performing very well and Atopiclair is now the N°1product prescribed for atopic dermatitis in that market.Asia: We have continued to pursue the registration of our dermatology productsin China. Preparation is underway for the launch of Aloclair Plus in Indonesia,which is expected in H2, while the Flammazine acquisition has enabled Sinclairto establish a presence in the Philippines for the first time.
Flammazine and Flammacerium
The last quarter has seen a strong effort to implement plans for the efficientintegration of Flammazine and Flammacerium into our dermatology/woundcarefranchise. First revenues were received in the last two weeks of December andwe will consolidate the full revenue in H2.
Financial Review
Gross revenues declined by 32% to £11.0m compared with £16.2m in 2008. This isexplained by a £5.1m fall in one-off licence fee income in the period. Theprior year figures were boosted by the non-cash licence agreement with BMG for£3.3m and the disposal of Atopiclair rights in the US for £2.1m.
Revenues are made up as follows:
2009 2008 £m £m Country operations France 4.7 4.7 Italy 2.3 1.5 Spain 0.1 0.1 UK 0.2 0.2 Portugal - 0.2 7.3 6.7 International operations 3.0 3.7 Licence fees 0.7 5.8 11.0 16.2In France we have continued to see a 7% decline in revenues in constantcurrency terms, which have been masked by the depreciation of sterling againstthe euro. However, following the restructuring of our direct selling topharmacy operation, we are confident of an improving performance in the secondhalf.Our Italian affiliate has performed very well, reporting a 62% increase inrevenues of our dermatology franchise. This compares with a weak period in H109 after the sales push prior to June 2008, however the performance followingthe sales force reorganisation has exceeded our expectations. A weakperformance from the dermocosmetic range has held back the overall figures.
Partner sales in Italy were 74% better than H1 09, helped by the launch of Aloclair Plus and the teething gel line extension. Aloclair was our best performing product in the period, reporting growth of 56% at constant exchange rates, compared to H1 09.
International operations revenue includes an initial £0.2m contribution fromthe Flammazine franchise from the last 2 weeks of December following completionof the acquisition. The prior year figure included £0.9m revenue for Atopiclairin the US which is not included this year following the sale of the rights toGraceway in December 2008. On a like for like basis and excluding the impact ofcurrency movements, revenues from international operations is around £0.4mlower than last year.
Gross profit for the period at £6.7m declined from £11.8m achieved in 2008 as a result of the £5.1m decline in licensing income as discussed above. This represents a pre-licensing gross margin of 58%, the same as achieved in the prior year.
Operating expenses, pre exceptional items, were reduced to £10.7m, from £11.0min 2008, despite the negative impact of foreign exchange rates, and an increasein the amortisation charge of £0.3m. This reflects the benefits of theoperational restructuring which commenced last year under the control ofChristophe Foucher and focused on reducing administration expenses, whilecontinuing to invest in sales and marketing. Selling, marketing anddistribution costs were flat compared with 2008, the impact of sterlingweakness against the Euro which pushes up reported costs being offset by theclosure of the UK sales force and restructuring of the Italian sales force tosave costs.Further significant cost savings are anticipated following the recentrestructuring under the new management team. Savings in excess of £1.5m on anannualised basis have been achieved through reduction in management positionsand reduction in corporate costs, enabling us to invest in more productiveareas of the business, principally in international operations.Operating loss, pre exceptional items, is £3.9m, compared with the operatingprofit of £0.9m reported for 2008. Excluding the one-off licence income for BMGand Graceway, 2008's operating loss pre exceptional items was £4.2m.
Exceptional items
Net exceptional charges of £9.8m have been recorded for the period as follows:
* Impairment charges of £7.9m have been made against certain acquired product
rights and technologies acquired through product swaps. The value of the
dermacosmetic portfolio acquired from Syrio in 2007 has been re-assessed
following the disappointing sales performance experienced in recent months.
Also a strategic review of the R&D strategy following the corporate restructuring has deprioritised the Zinc and silver nanotechnology and other assets acquired through predominantly non-cash asset swap deals as
the focus of the R&D function is moved to Delmopinol and other areas. These
are non-cash charges that will not impact our future cash flows.
* Restructuring charges of £2.6m have been expensed in respect of the
severance packages paid to former Directors, senior management and other
employees who have left Sinclair following the appointment of the new
management team. The charge also includes a £0.5m non-cash charge for share
based payments that vested as a result of the restructuring.
* Foreign exchange gains of £1.0m (2008: £4.4m) on the translation of the
intra-group loan balance with France, as a result of Sterling's continued
weakening against the Euro. This is a non cash item.
Finance costs of £0.8m were reduced from £1.0m in 2008 due to a £0.4m lowerforeign exchange loss on financing. The current year cost includes interest onthe convertible loan notes issued in September and the new debt facilitysecured in October 2009.
A deferred tax asset of £1.2m arises in relation to impairment charges and losses recorded in certain territories during the period which results in a credit to the income statement under taxation. We anticipate that part of this deferred tax asset will be utilised in the second half.
Cash and net debt
Following the completion of the placing and open offer and acquisition ofproducts from Solvay, the Group had cash of £8.3m at 31 December 2009, comparedwith £0.1m at 30 June 2009. Borrowings increased to £20.6m at 31 December 2009,including the £12.0m new debt facility announced in October and the convertibleloan notes of £2.3m issued in September. Net debt at 31 December 2009 was £12.3m, compared to £8.2m at 30 June 2009.
Principal risks and uncertainties
There are a number of risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected results. The principal risks remain those set out on page 21 of the Group's Annual Report for 2009, a copy of which is available on the Group's website www.sinclairpharma.com.
CSO Report
As `Commercial' CSO, Simon Youlton's responsibilities include streamlining theR&D efforts that were stretched too thinly across the organisation in differentSinclair regional operations and to focus more resource on the key IP assetswhere there is clear commercial opportunity.A priority is to advance the patented delmopinol molecule which, althoughalready launched in several territories as the Decapinol® brand, has many newapplications where biofilms play an important part. Decapinol® (granted medicaldevice market authorisation in US and Europe) was a first in class productdesigned for healthy plaque management without the need for aggressiveantiseptics. We believe these attributes can be extended to the cosmetic andrestorative orthodontics market which is both growing through the rise insingle crown replacement operations and suffering from a rise inimplant-related complications due to infections, termed peri-implantitis. Theobjective of new studies will be to use our comprehensive formulation knowledgeand existing clinical data to obtain new market authorisations for use in suchsurgery and to coat the dental implant materials (abutments) at source as aprotective layer that will combat that initial infection danger period when theimplants are exposed to the oral microflora during initial implantationsurgery.The other main aspect of the new CSO role is to assess and deliver product andtechnology opportunities through in-licensing. The strategy required for thiswill be to become more of a traditional Rx company, building on the Company'sestablished springboard in dermatology, woundcare and oral health. Targetproducts and companies could include further penetration of the palliativecancer and diabetic after-care market, infectious diseases and pain management.
Systems are also being put in place for knowledge management across the organisation and for more effective and efficient scientific support to be made available for existing Sinclair product lines.
Management Changes
The first half was noteworthy for the departure of several senior managers. CEOMichael Flynn retired and was replaced by Chris Spooner, and CFO Jerry Randallleft to pursue new opportunities. We wish them well in their new lives, as wedo Marco Mastrodonato (Head of Sinclair Pharma Srl) and Paul Phull (Head ofinternational Operations).
Unaudited Consolidated Income Statement
For the six months ended 31 December 2009
Unaudited Unaudited Six months ended 31 December 2009 Six
months ended 31 December 2008
Notes Pre-exceptional Exceptional Total
Pre-exceptional Exceptional Total
items items items items (note 5) (note 5) £'000 £'000 £'000 £'000 £'000 £'000 Revenue 4 11,017 - 11,017 16,245 - 16,245 Cost of sales (4,273) - (4,273) (4,413) - (4,413) Gross profit 6,744 6,744 11,832 - 11,832 Selling, marketing and (5,058) - (5,058) (5,075) - (5,075)distribution costs Administrative (5,629) (9,805) (15,434) (5,886) 3,179 (2,707)expenses Operating (loss)/ (3,943) (9,805) (13,748) 871 3,179 4,050profit Finance income 6 9 - 9 79 - 79 Finance costs 6 (751) - (751) (960) - (960) (Loss)/ profit before (4,685) (9,805) (14,490) (10) 3,179 3,169taxation Taxation 1,162 - 1,162 395 - 395 (Loss)/ profit for the (3,523) (9,805) (13,328) 385 3,179 3,564period (Loss)/earnings per 7 (3.4)p (9.5)p (12.9)p 0.4p 3.6p 4.0pshare (basic) (Loss)/earnings per 7 (3.4)p (9.5)p (12.9)p 0.4p 3.4p 3.8pshare (diluted)
Unaudited Statement of Comprehensive Income
For the six months ended 31 December 2009
Unaudited Unaudited Six months ended 31 December 2009 Six
months ended 31 December 2008
Notes Pre-exceptional Exceptional Total
Pre-exceptional Exceptional Total
items items items items (note 5) (note 5) £'000 £'000 £'000 £'000 £'000 £'000 (Loss)/ profit for (3,523) (9,805) (13,328) 385 3,179 3,564the period Other comprehensive income Currency translation 1,078 - 1,078 5,648 - 5,648differences Total comprehensive (2,445) (9,805) (12,250) 6,033 3,179 9,212income for the period
The notes on pages 14 to 20 form an integral part of this condensed consolidated half-yearly financial information.
Unaudited Consolidated Balance Sheet
As at 31 December 2009 31 31 30 June December December 2009 2009 2008 Notes £'000 £'000 £'000 Non-current assets Goodwill 8 52,632 55,394 51,062 Intangible assets 9 28,069 22,729 19,708 Property, plant and equipment 1,342 2,052 1,643 Investments 165 - 165 Deferred tax assets 2,470 1,000 1,304 Other non-current assets 97 374 89 84,775 81,549 73,971 Current assets Inventories 4,467 4,266 3,807 Trade and other receivables 10 7,944 13,218 9,764 Current tax receivables 40 57 48 Cash and cash equivalents 8,346 2,400 88 20,797 19,941 13,707 Total assets 105,572 101,490 87,678 Current liabilities Financial liabilities - borrowings 12 (6,748) (4,009) (3,733) Trade and other payables 11 (10,126) (13,730) (9,865) Deferred income (158) (440) (713) Current tax liabilities - (131) (163) Provisions (467) - (382) (17,499) (18,310) (14,856) Non-current liabilities Financial liabilities - borrowings 12 (13,891) (5,187) (4,602) Deferred income (222) (357) (280) Other non-current liabilities (273) - (239) Provisions (796) - (343) (15,182) (5,544) (5,464) Total liabilities (32,681) (23,854) (20,320) Net assets 72,891 77,636 67,358 Equity Share capital 1,611 1,033 1,033 Share premium account 39,530 23,131 23,131 Merger reserve 50,474 50,474 50,474 Other reserves 7,606 9,847 6,528 Retained deficit (26,330) (6,849) (13,808) Total equity 72,891 77,636 67,358
The notes on pages 14 to 20 form an integral part of this condensed consolidated half-yearly financial information.
Unaudited Consolidated Statement of Changes in Shareholders' Equity
For the six months ended 31 December 2009
Share Share Merger Other Retained
Attributable Minority Total
capital premium reserve deficit to equity interest Reserves holders of equity the parent £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 July 935 21,472 50,474 4,198 (10,760) 66,319 12 66,3312008 Exchange differences - - - 5,648 - 5,648 - 5,648arising on translation of overseas subsidiaries Profit for the period - - - - 3,564 3,564 - 3,564 Total recognised - - - 5,648 3,564 9,212 - 9,212income for the period Share based payments - - - - 347 347 - 347 Issue of share 98 1,722 - - - 1,820 - 1,820capital Share issue expenses - (63) - - - (63) - (63) Purchase of minority - - - - - - (12) (12)interest Balance at 31 1,033 23,131 50,474 9,846 (6,849) 77,635 - 77,635December 2008 (unaudited) Exchange differences - - - (3,318) - (3,318) - (3,318)arising on translation of overseas subsidiaries Loss for the period - - - (7,185) (7,185) - (7,185) Total recognised - - - (3,318) (7,185) (10,503) - (10,503)income/(expense) for the period Share based payments - - - - 226 226 - 226 Balance at 30 June 1,033 23,131 50,474 6,528 (13,808) 67,358 - 67,3582009 (audited) Exchange differences - - - 1,078 - 1,078 - 1,078arising on translation of overseas subsidiaries Loss for the period - - - - (13,328) (13,328) - (13,328) Total recognised - - - 1,078 (13,328) (12,250) - (12,250)income for the period Share based payments - - - - 806 806 - 806 Issue of share 578 17,900 - - 18,478 - 18,478capital Share issue expenses - (1,501) - - (1,501) - (1,501) Balance at 31 1,611 39,530 50,474 7,606 (26,330) 72,891 - 72,891December 2009 (unaudited)
The notes on pages 14 to 20 form an integral part of this condensed consolidated half-yearly financial information.
Unaudited Consolidated Statement of Cash Flows
For the six months ended 31 December 2009
Six months Six months ended ended 31 31 December December Notes 2009 2008 £'000 £'000
Net cash (outflow)/inflow from operations 13 (3,006)
14 Interest paid (609) (413)
Interest paid on finance leases (18)
(33) Taxation (paid)/recovered (108) 1,978 Net cash generated (used in)/from operating (3,741) 1,546activities Investing activities Interest received - 382 Purchases of property, plant and equipment (43) (464) Purchase of intangible assets (17,179) (1,824) Payment of contingent consideration regarding - (237)Groupe CS Dermatologie Purchase of minority interest - (317) Net cash used in investing activities (17,222) (2,460) Financing activities Repayments of obligations under finance leases (34) (108) Proceeds from borrowings 15,440 1,284 Repayments of borrowings (3,197) (811) Proceeds from issue of share capital 18,478 1,383 Share issue costs (1,257) (63) Net cash generated from financing activities 29,430
1,685
Net increase in cash, cash equivalents and bank 8,467
771overdrafts Cash, cash equivalents and bank overdrafts at 1 (1,597) (354)July
Exchange (losses)/gains on cash and bank (54)
42overdrafts
Cash, cash equivalents and bank overdrafts at end 6,816
459of period
Cash, cash equivalents and bank overdrafts
includes: Cash and cash equivalents 8,346 2,400 Bank overdrafts (1,530) (1,941)
Cash, cash equivalents and bank overdrafts 6,816
459
The notes on pages 14 to 20 form an integral part of this condensed consolidated half-yearly financial information.
Notes to the unaudited condensed consolidated half-yearly financial information
1. General Information
The Company is a public limited company, incorporated and domiciled in the United Kingdom. The address of the registered office is: Unit 4, Godalming Business Centre, Woolsack Way, Godalming, Surrey GU7 1XW. The Company has its primary listing on the London Stock Exchange and a secondary listing on Euronext, Paris.
This condensed consolidated interim financial information does not constitutestatutory accounts within the meaning of Section 434 of the Companies Act 2006.Statutory accounts for the year ended 30 June 2009 were approved by the boardof directors on 30 October 2009 and delivered to the Registrar of Companies.The report of the auditors on those accounts was unqualified, and did notcontain any statement under Section 498 of the Companies Act 2006.
This condensed consolidated half-yearly financial information was approved for issue on 24 February 2010.
2. Basis of preparationThis condensed consolidated half-yearly financial information for the half-yearended 31 December 2009 has been prepared in accordance with the Disclosures andTransparency Rules of the Financial Services Authority and with IAS 34,`Interim financial reporting' as adopted by the European Union. The half-yearlycondensed consolidated financial report should be read in conjunction with theannual financial statements for the year ended 30 June 2009, which have beenprepared in accordance with IFRSs as adopted by the European Union.
3. Accounting policies
Except as described below, the accounting policies adopted are consistent withthose of the annual financial statements for the year ended 30 June 2009, asdescribed in those annual financial statements.The following new standards and amendments to standards are mandatory for thefirst time for the financial year ending 30 June 2010 and have been applied bythe Group.
* IAS 1 (revised), `Presentation of financial statements'. The revised
standard prohibits the presentation of items of income and expenses (that
is `non-owner changes in equity') in the statement of changes in equity,
requiring `non-owner' changes in equity' to be presented separately from
owner changes in equity. All `non-owner changes in equity' are required to
be shown in a performance statement.
The Group has elected to present two statements: an income statement and a
statement of comprehensive income. The interim financial statements have been
prepared under the revised disclosure requirements.
* IFRS 8, `Operating segments'. IFRS 8 replaces IAS14, `Segment reporting'.
It requires a `management approach' under which segment information is
presented on the same basis as that used for internal reporting purposes.
* IFRS 3 (revised), `Business combinations' and consequential amendments to
IAS 27 `Consolidated and separate financial statements', IAS28,
`Investments in associates' and IAS 31 `Investments in joint ventures',
effective prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting date beginning on or after 1 July 2009. The revised standard applies to the acquisition method to business
combinations, with some significant changes. For example, all payments to
purchase a business are recorded at fair value at the acquisition date, the
contingent payments classified as debt subsequently re-measured through the
statement of comprehensive income. All acquisition- related costs should be
expensed.
The following new standards, amendments to standards and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2009 but are not relevant to the Group's operations:
IFRIC 17, `Distributions of non-cash assets to owners'.
IFRIC 18, `Transfer of assets from customers', effective for transfers of assets received on or after 1 July 2009.
4. Segment information
The chief operating decision maker has been identified as the executive management team. This team reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
The executive management team considers the business as being organised intotwo distinct operating segments; International operations and Countryoperations. Research and development, technology licensing income and costs,intellectual property and corporate costs are included under the `other'heading.
The executive management team assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
Six months ended 31 December 2009 Six months ended 31 December 2008 Business International Country Other Total International Country Other TotalSegments operations operations operations operations £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 3,712 7,305 - 11,017 6,083
6,829 3,333 16,245
Cost of (1,288) (2,985) - (4,273) (2,183) (2,230) - (4,413)goods sold
Gross profit 2,424 4,320 - 6,744 3,900 4,599 3,333 11,832
EBITDA pre 1,402 (1,526) (2,251) (2,375) 2,790 (786) 215 2,219exceptional items Total 15,234 66,338 24,000 105,572 22,736 78,754 - 101,490segment assets
During the period there were £134,000 (2008: £344,000) of sales at arms length between segments. The revenue analysis above is stated net of inter-company sales.
A reconciliation of total adjusted EBITDA to total profit before income tax isprovided as follows: Six months Six months ended ended 31 December 31 December 2009 2008 £'000 £'000 EBITDA for reportable segments (2,375) 2,219 Depreciation (189) (254) Amortisation (1,379) (1,094) Exceptional items (9,805) 3,179 Operating (loss)/profit before tax (13,748)
4,050
Revenue analysis
An analysis of revenue by category is set out in the table below:
Six months Six months ended ended 31 December 31 December 2009 2008 £'000 £'000 Product revenue 9,910 9,873 Royalties 371 560 Licence fees and milestones 736 5,812 11,017 16,2455. Exceptional ItemsExceptional items represent significant items of income and expense which dueto their nature, size or the expected infrequency of the events giving rise tothem, are presented separately on the face of the income statement to give abetter understanding to shareholders of the elements of financial performancein the period, so as to facilitate comparison with prior periods and to betterasses trends in financial performance. Six months Six months ended ended 31 December 31 December 2009 2008 £'000 £'000 Impairment charges (7,938) - Foreign exchange gains 984 4,413 Restructuring costs (2,635) (744) Inventory provision (216) - Aborted acquisition costs - (490) (9,805) 3,179Impairment charges of £7,938,000 have been made against certain product andtechnology rights. Disappointing sales of the dermacosmetic products acquiredfrom Syrio in 2008 and a re-assessment of the market potential of thetechnologies acquired though certain non-cash asset swap arrangements togetherwith a review of the Group's R&D strategy has led to the decision not tocontinue development of the underlying products, in particular the zinc andsilver nanotechnology. This is a non-cash charge.
Foreign exchange gains of £984,000 (2008: £4,413,000) represents the gain on the translation of an intra-group loan balance. This is a non cash item.
Restructuring costs of £2,635,000 (2008: £744,000) include severance packagespaid to former directors, senior management and other employees as part of therestructuring. Costs include £503,000 in respect of share based payments thatvested on the restructuring.The inventory provision of £216,000 relates to goods owned by the Group butwhich have been impounded by customs authorities. This is a non-cash accountingcharge.Prior year aborted acquisition related costs were incurred in relation to astrategic acquisition opportunity during the summer of 2008. These discussionswere put on hold as a result of the market volatility in the autumn of 2008.Costs of £490,000 were incurred to that point.6. Finance income and costs Six months Six months ended ended 31 December 31 December 2009 2008 £'000 £'000 Finance costs Interest on bank loans and overdrafts (230) (319) Interest on other borrowings (140) - Interest due on finance leases (17)
(33)
Net foreign exchange losses on financing activities (100) (492)
Share based payments - warrants linked to new debt (140)
-facility Other finance charges (124) (116) Finance costs (751) (960) Finance income Bank interest receivable - 1 Other interest income 9 78 Finance income 9 79 Net finance expense (742) (881)
7. (Loss)/earnings per share
The basic (loss)/earnings per share has been calculated by dividing the (loss)/profit for the period, by the weighted average number of shares in existencefor the period.Shares held by the Employee's Share Trust, including shares over which optionshave been granted to Directors and staff, have been excluded from the weightedaverage number of shares for the purposes of calculation of the basic (loss)/earnings per share.Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. Potential ordinary shares of the Company are shareoptions, warrants and awards. A calculation has been undertaken to determinethe number of shares that could have been acquired at fair value (determined asthe average annual market price of the company's shares) based on the monetaryvalue of the subscription rights attached to outstanding options, warrants
andawards. Six months Six months Ended ended 31 December 31 December 2009 2008 Basic and diluted EPS (Loss)/profit attributable to equity shareholders (£ (13,328) 3,564000) Weighted average number of shares 103,494,274
88,978,838
Adjustment for share options, warrants and awards -
3,915,407
Diluted weighted average number of shares 103,494,274
92,894,245
Basic (loss)/earnings per share (12.9)p
4.0p
Diluted (loss)/earnings per share (12.9)p 3.8p8. Goodwill 31 31 30 June December December 2009 2009 2008 £'000 £'000 £'000 Cost At 1 July 53,941 50,989 50,989
Additions through business combinations - 381
355 Exchange adjustments 1,570 6,903 2,597 At period end 55,511 58,273 53,941
Accumulated amortisation and impairment
At 1 July and period end 2,879 2,879 2,879 Net book value at period end 52,632 55,394 51,0629. Intangible Assets 31 31 30 June December December 2009 2009 2008 £'000 £'000 £'000 Cost At 1 July 25,793 17,779 17,779 Additions 16,856 5,704 6,743 Disposals (25) - (108) Exchange adjustments 823 3,666 1,379 At period end 43,447 27,149 25,793 Amortisation and impairment At 1 July 6,085 2,968 2,968 Charge for the period/year 1,379 1,094 2,084 Disposals (25) - (6) Impairment charge (note 5) 7,736 - 898 Exchange adjustments 203 358 141 At period end 15,378 4,420 6,085 Net book value at period end 28,069 22,729 19,708
Additions in the current period relate to the acquisition of Flammazine and Flammacerium from Solvay Pharmaceuticals for €17.5million plus expenses (£ 16,816,000), completed in December 2009.
10. Trade and other receivables
31 31 30 June December December 2009 2009 2008 £'000 £'000 £'000 Trade receivables 7,071 10,596 8,911 Less provision for impairment of trade (1,391) (178) (1,389)receivables Trade receivables-net 5,680 10,418 7,522 Other receivables 1,353 2,195 1,243
Prepayments and accrued income 911 605
999 7,944 13,218 9,764
11. Trade and other payables
31 31 30 June December December 2009 2009 2008 £'000 £'000 £'000 Trade payables 4,851 7,073 5,471
Other tax and social security 712 894
788 Other payables 1,415 1,556 1,029 Accruals 3,148 4,207 2,577 10,126 13,730 9,86512. Borrowings 31 31 30 June December December 2009 2009 2008 £'000 £'000 £'000 Non-current Bank loans 3,392 5,097 4,050 Other borrowings 10,452 - 492 Finance lease liabilities 47 90 60 13,891 5,187 4,602 Current Bank overdrafts 1,530 1,941 1,685 Bank loans 1,294 1,555 1,629 Convertible loan notes 2,300 - - Other borrowings 1,574 349 353 Finance lease liabilities 50 164 66 6,748 4,009 3,733 Total borrowings 20,639 9,196 8,335
Borrowings included above are repayable as
follows: On demand or within one year 6,748 4,009
3,733
Over one and under two years 4,116 2,801
2,291
Over two and under five years 9,775 2,386 2,311 Total borrowings 20,639 9,196 8,335
The £12.0m new debt facility secured during the period is classified underother borrowings. This is secured on the Group's assets and is repayable overfive years in monthly instalments. Part of the facility was used to refinancean existing bank loan in the UK. Interest is charged at 5.5% and 6.5% overLIBOR on different tranches of the facility. On £7.0m of the facility, norepayments are due within the first year from drawdown. Expenses of £403,000have been offset against the gross liability and are being amortised throughfinance costs over the life of the facility.The one year unsecured convertible loan notes were issued in September 2009 andbear interest at 8%. The loan notes can be converted into ordinary 1p shares inthe Company at a price of 27.5p per share, at the option of the holder on 31March 2010, 30 June 2010 and 3 September 2010, the redemption date. There is nofair value attached to the equity element.
During the period an additional €1.5m loan was obtained from one of the Group's French banks and other borrowings of £0.6m from certain Directors and Mr C Spooner were converted into equity as described in note 14.
13. Cash flow from operating activities
Six months Six months ended ended 31 December 31 December 2009 2008 £'000 £'000 (Loss)/profit before tax (14,490) 3,169 Adjustments for: Finance income (9) (79) Finance costs 751 960 Share based payments 666 347 Depreciation 189 254 Amortisation of intangible assets 1,379
1,094
Non-cash purchase of intangible assets - (4,381) Impairment charge 7,938 - (Decrease)/increase in provision for doubtful debts (26) 65 Increase in provisions 924 - Exchange gains (1,112) (6,014) (3,790) (4,585)
Changes in working capital (excluding effects of
acquisitions) Increase in inventories (503) (259) Decrease in receivables 2,135 4,041 (Decrease)/increase in payables (233) 943 Decrease in deferred income (615) (126) Net cash (outflow)/inflow from operations (3,006)
14
14. Related party transactions
On 10 December 2009, the following Directors and related parties subscribed for shares under the Placing and Open Offer at 32p per share:
Mr G Cook subscribed for 100,000 shares.
Mr JAP Randall subscribed for 704,614 shares which included full settlement of
the £36,000 loan and accrued interest that was owed to him.
Mr J-C Tschudin subscribed for 189,997 shares in full settlement of the €62,500
loan and accrued interest that was owed to him.
Mr C Spooner subscribed for 2,568,140 shares which included full settlement of
the £500,000 loan and accrued interest, and £300,000 fees payable under a
consultancy agreement.
Mr C Spooner also received a fee of £192,000, paid in cash, arising under his consultancy agreement, on completion of the Placing and Open Offer.
At 31 December 2009, £200,000 remains outstanding to Mrs S Flynn, wife of Dr MJ Flynn a former Director of the Company.
Statement of directors' responsibilities
The directors' confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8, namely:
* An indication of important events that have occurred during the first six
months and their impact on the condensed consolidated interim financial
information, and a description of the principal risks and uncertainties for
the remaining six months of the financial year; and
* Material related-party transactions in the first six months and any
material changes in the related-party transactions described in the last
annual report.
The directors of Sinclair Pharma Plc in the period were:
Mr G Cook Non-Executive Chairman
Dr MJ Flynn (resigned 22 December 2009)
Mr JAP Randall (resigned 10 December 2009)
Ms PA Freer Senior Independent DirectorMr J-C Tschudin Non-Executive Director
Mr C Spooner (appointed 22 December 2009) Chief Executive Officer
Mr C Foucher (appointed 22 December 2009) Chief Operating Officer
A list of current Directors in maintained on the Company's website www.sinclairpharma.com.By order of the BoardC SpoonerChief Executive OfficerG CookChairman24 February 2010
Independent review report to Sinclair Pharma Plc
Introduction
We have been engaged by the company to review the consolidated financialinformation in the half-yearly financial report for the six months ended 31December 2009, which comprises the unaudited consolidated income statement,unaudited consolidated statement of comprehensive income, unauditedconsolidated statement of changes in shareholders' equity, unauditedconsolidated balance sheet, unaudited consolidated statement of cash flows andrelated notes. We have read the other information contained in the half-yearlyfinancial report and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the condensed set offinancial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 31 December 2009 is not prepared, inall material respects, in accordance with International Accounting Standard 34as adopted by the European Union and the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority.PricewaterhouseCoopers LLPChartered AccountantsCambridge25 February 2010Notes:
(a) The maintenance and integrity of the Sinclair Pharma Plc website is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the financialstatements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Sinclair Pharma