24th Apr 2008 07:00
Cyprotex PLC24 April 2008 Press Release 24 April 2008 Cyprotex PLC ("Cyprotex" or "the Company" or "the Group") Preliminary results for the year ended 31 December 2007 Cyprotex PLC (LSE:CRX), the drug discovery technology and information company,today reports its preliminary results for the year ended 31 December 2007. HIGHLIGHTS • Revenues for the year ended 31 December 2007 increased by 3.7% to £3.63 million, against £3.50 million for the comparable period in 2006. • Gross profits for the year rose marginally to £3.00 million from £2.97 million in 2006. • Operating losses for the year were cut by 33% to £496,000 from £741,000 in 2006. • Non-recurring costs of around £80,000, used in defending the group from the attempted requisition, sapped the Group's cash resources during the first half-year. • Despite continued investment, cash-in-hand improved slightly from the low point recorded at the half year to 30 June 2007 of £267,000, to just over £300,000 at the year end. Commenting on the results, Nikolas Sofronis, Chairman of Cyprotex PLC, said: "2008 should be the year in which to prove Cyprotex's business plan. The valueof the Group's unique technology is clearly recognised through its expandinginternational customer base. This should bear fruit in the coming months." For further information: Cyprotex PLCRobert Morrisson Atwater, Tel: +44 (0) 1625 505 100Chief Executive OfficerRussell GibbsChief Financial [email protected] www.cyprotex.com Nomura Code Securities LimitedCharles Walker Tel: +44 (0) 20 7776 [email protected] www.nomuracode.com Media enquiries: WMC Communications LimitedSimon Miller Tel: +44 (0) 20 3178 [email protected] www.pelhampr.com CHAIRMAN'S STATEMENT Proving the Business Plan 2008 should be an excellent year in which to prove Cyprotex's business plan. During this period, our international customer base, the global drug discoveryindustry, will confront caution on two fronts: a slowing Western economy, whilstbeing expected to respond to urgent calls for raised efficiencies and heightenedoutput. Just at a time when the science of getting a drug to market has becomealtogether harder, the regulatory screw has been tightened. In order to ensurethe industry's enviable record of producing truly exceptional long-term returnsis not to be broken, a change of culture is now being called for. Cyprotex'svalue-added services are designed to be part of the 'tool kit' that helps thepharmaceutical companies meet such a challenge. Cyprotex occupies a small, but highly significant and rapidly growing, corner ofthe 'pre-clinical' world. But it is at this stage that key 'go' or 'no-go'decisions for a therapeutic molecule, that possibly commit it to seven or moreyears of costly development, are taken. By treating in vitro screening as a corecompetence, Cyprotex's long-term investment has resulted in a truly unique,wholly and highly automated facility, enabling it to offer unrivalled capacity,turnaround, pricing and robustness. In choosing to outsource to Cyprotex, a customer is externalising an otherwisecostly and labour-intensive, generic service. Past reluctance to follow thisroute may be put down to bureaucratic complications, internal prestige orperhaps, more simply, that there were very few independent bodies able to meetthe exacting and scientific demands of today's drug discovery players.Presently, with something in excess of 90% of global in vitro screening beingcarried out in-house, the market opportunity is clear. The fact that Cyprotexboasts over 150 clients, including over half of the world's top tenpharmaceutical giants, demonstrates that it is able to satisfy theirtechnological requirements. The change now anticipated, however, is a move awayfrom simple 'overflow' or one-off 'fee-for-service' work, toward muchlonger-term and collaborative arrangements. With this comes greater forwardvisibility and interdependence, allowing Cyprotex to become part of integraldrug discovery partnerships. Cyprotex's automated facility operated at just over half of its theoreticalcapacity during 2007. With gross margins expected to remain flat and no hike inoperational costs foreseen, increased activity could be largely expected to dropto the bottom line. Cyprotex looks forward to demonstrating its exceptionaloperational gearing in the current year. Financial Highlights • Despite the disruptive effects of two major and exceptional events, Cyprotex reports a year-on-year revenue improvement while having continued the significant expansion of its customer base. • Revenue for the period increased by 3.7% to £3.63 million (2006: £3.50 million). • Operating losses fell by 33% to £495,627. • Cash-in-hand increased slightly from the half-year position to just over £300,000, despite the heavy direct costs of defending your Group from the attempted requisition. 2007 - A Challenging Year Cyprotex has rebuilt confidence and regained momentum. It is also clear thatdespite the trials of 2007, the Group's reputation within an industry of 'exceptionally hard taskmasters' did not slip. Indeed, the expansion of itscustomer base continues at a good pace, while further refinement of its in vitrofacilities continued to justify its claim of setting international standards inhigh quality ADMET (Absorption, Distribution, Metabolism, Excretion andToxicity) screening. Early in 2007, two separate and unconnected events were seen to temporarily 'unhinge' Cyprotex. The first was the unexpected loss of an important client.This happened to be the Group's single largest revenue generators during thecomparable period and was solely the result of its surprise withdrawal fromsmall molecule research that, for a major pharmaceutical Group, is a highlyunusual event. Cyprotex does not expect to witness a similar event in the futureand notes that, but for the loss of this business, its full year performancewould have remained in line with management expectations. The loss wassubsequently replaced by other major customers, whose relationships withCyprotex are now expected to deepen still further. The second event, as was explained in detail at both an Extraordinary GeneralMeeting (EGM) and at the Annual General Meeting (AGM), was due to a Group of 'Requisitionists' intent on unseating the present management. The result was ahighly unnecessary and costly diversion for your Group. Total direct costsamounted to almost £80,000. Indirect costs were much higher. Recognising thatCyprotex's relationship with its international clients is necessarily based onhigh levels of trust and confidentiality between the two parties, it came as nosurprise that contract work was either lost or deferred while the attempted 'take-over' was being dismissed. In that respect, the actions of theRequisitionists can only be considered to have comprised a genuine disservice toshareholders. The New Year has started on an upbeat note. Management priority remains oncementing deeper working relationships with its core customers. Success insecuring increasing proportions of their screening requirements will proveCyprotex's business plan. The current dearth of new drug approvals heralds theneed for ever-larger pre-clinical volumes. It also requires exceptional capacityand robustness, rapid turnaround and excellent pricing. Cyprotex's automatedfacilities were created on this premise, the benefits of which I hope will bedemonstrated during the current year. Shareholders will already be aware that the legal and advisory fees involved indefending the Group against the Requisitionists were significant. Nevertheless,improved second half activity, and its policy of extremely tight cashmanagement, meant that cash-in hand at the year end was modestly above that seenat the interim stage. Cyprotex also retains a wholly unused banking facilityplus other opportunities for collateralised fund-raising. Customer Development Exceptional client retention and repeat business are seen to be the hallmarks ofCyprotex's success. Customer numbers continue to grow each month and 'MasterServices Agreements' are now in place with over 150 global drug discoveryentities, ranging from the world's largest pharmaceutical giants to smallindependent laboratories. For each of these, Cyprotex adds something unique. The global market comprises over 20,000 companies to which Cyprotex couldpotentially provide value-added ADMET services. Underlying growth is difficultto assess, although a market research firm, Business Insights, recently notedthat the role of the independent CRO (Contract Research Organisation) ispresently expanding fast and is now expected to grow at an 'annual rate of 14 to16 per cent'. So the message appears to have changed; to trusted partners, whocan apply value-added technology to the process of drug discovery, there is nowan increasing willingness to outsource. 2008 will see Cyprotex continue to build its customer numbers, with a view toinsulating itself from cyclical demand swings of individual players. It willalso tailor its services to attract a closer relationship with our customerswhose priorities are now to simplify their infrastructure and eliminate the moregeneric parts of their operations. Such high integrity collaborations could seeCyprotex assume responsibility for a significant proportion of their in vitrorequirement that, historically, has been carried out internally. Product Development Cyprotex's range of services are offered under the Cloe(R) ('Cyprotex-Lead-Optimisation-Engine') title and include Cloe(R) Screen, Cloe(R)Predict and the recent addition of Cloe(R) Select. The marriage of 'leading-edge' laboratory technologies, a proprietary operatingsystem, an automated decision making and processing package (the CyprotexDiscovery Bus), pharmacokinetic prediction software (Cloe(R) PK), combined witha highly automated screening facility (Cloe(R) Screen) and an ability to performbespoke project work (Cloe(R) Select), offers something unique to theinternational drug development world. During 2007, our Experimental Science division expanded its in vitrocapabilities. Certain projects were customer-led, while others were completed inresponse to draft FDA guidelines; new offerings now include thermodynamicsolubility and P-gp inhibition. Elsewhere, a focus was seen on increasedautomation and customisation of several high-throughput assays, such as P450inhibition and permeability screening, with a view to broadening the service andenhancing capacity without degradation of scientific standards or turnaroundtimes. Benefits of these advances will be seen in the current year. Three major themes dominated the Information Systems division over the past 12months. These were (i) improved flexibility of scientific protocols, (ii)improving resilience against hardware failure and (iii) further development ofthe Cyprotex Discovery Bus infrastructure. Much of this was designed toconsolidate existing services or support customer formats, including restyledchromatograph reporting. 2008 will see deployment of new software in support of greater protocolflexibility and more complete life-cycle support, while seeking to establish theframeworks underpinning both the experimental and predictive sciences. A uniquesolution for this includes a novel approach to auto-QSAR (automated QuantativeStructure-Activity Relationships) technology, which uses competitive workflowfor predicting properties from chemical structure. This technology haspotentially wide ranging applications within drug discovery. The Scientific Computing division continued to enhance its pharmacokineticprediction capabilities, both by elaboration of in silico prediction models andby increasing reliability of in vitro - in vivo extrapolations. The Group'sreputation in the scientific community has expanded due to its participation inseveral EU-funded projects such as EUMAPP (seeking an acceleration from 'lab toclinic' using human microdosing, improved analytical capabilities and in silicoapproaches), and OSIRIS to address REACH (Registration, Evaluation andAuthorisation of Chemicals) legislation. Research will continue this year, feeding results back into the Cloe(R) line ofassays and predictive methods. Models for prediction of efficacy and toxicityin pharmaceuticals will also be investigated, with a view to elevating Cyprotexcapabilities in integrated lead optimisation. The 'Requisition' On 12 February 2007, Cyprotex received a requisition from founder, Dr. DavidLeahy, and Robert Long ('the Requisitionists'). Being shareholders of yourCompany holding at least 10% of its paid up share capital they possess theright, pursuant to section 368 of the Companies Act 1985, to call anExtraordinary General Meeting. The purpose of this meeting was to propose theremoval of each of Cyprotex's existing executive and non-executive directors andthen, by separate resolution to appoint themselves along with a Michael McGounand Dr. David Cavella as directors with immediate effect. In the event, on 6 March 2007, 76.48% of votes cast opposed the Resolutions. Accordingly, a large majority rejected the Resolutions and no changes to theBoard were made. Governance On 1 April 2008, I was appointed as Cyprotex's non-executive Chairman. The roleof executive Chairman was previously held by Robert Morrisson Atwater, who atthe same time carried out the role of Chief Executive Officer. Robert MorrissonAtwater now continues with the single role of Chief Executive Officer. Nikolas Sofronis Non-executive Chairman 24 April 2008 Note 2007 2006 £ £Continuing operationsRevenue 5 3,626,118 3,504,830Cost of sales (621,717) (533,171)Gross profit 3,004,401 2,971,659 Administrative costs (3,500,028) (3,712,413)Operating loss (495,627) (740,754) Finance income 8,591 27,573Finance cost (56,066) (47,630)Loss before tax (543,102) (760,811) Income tax 64,367 100,641Loss for the year (478,735) (660,170) Loss per share from continuing operations Basic and diluted loss per share 6 (0.35)p (0.48)p 2007 2006 £ £ASSETS NoteNon current assets Property, plant and equipment 8 1,365,661 1,422,026 1,365,661 1,422,026 Current assets Inventories 113,694 85,636Trade receivables 467,105 561,879Other receivables 192,911 196,545Current tax assets 68,986 100,067 Cash and cash equivalents 300,854 455,279 1,143,550 1,399,406 Total assets 2,509,211 2,821,432 LIABILITIES Non current liabilities Long term borrowings 611,500 635,800 Obligations under finance leases 72,399 35,807 683,899 671,607 Current liabilities Trade payables 166,334 128,969 Current portion of long term borrowings 22,500 22,500 Other payables 275,768 258,926 Obligations under finance leases 92,556 56,877 557,158 467,272 Total liabilities 1,241,057 1,138,879 EQUITY Share capital 7 138,648 138,573 Share premium account 9,663,685 9,662,913 Other reserve 128,070 128,070 Share based payment reserve 363,473 299,984 Retained losses (9,025,722) (8,546,987) Shareholders' equity 1,268,154 1,682,553 Total equity and liabilities 2,509,211 2,821,432 Share Share Other Share based Retained Total capital premium reserve payment losses account reserve equity £ £ £ £ £ £Balance at 31 December 2005 138,325 9,660,362 128,070 163,318 (7,886,817) 2,203,258Changes in equity for 2006Loss for the year - - - - (660,170) (660,170)Total recognised income and expense - - - - (660,170) (660,170)for the periodIssue of share capital 248 2,551 - - - 2,799Share based payment charge - - - 136,666 - 136,666Balance at 31 December 2006 138,573 9,662,913 128,070 299,984 (8,546,987) 1,682,553 Balance at 31 December 2006 138,573 9,662,913 128,070 299,984 (8,546,987) 1,682,553Changes in equity for 2007Loss for the year - - - - (478,735) (478,735)Total recognised income and expense - - - - (478,735) (478,735)for the periodIssue of share capital 75 772 - - - 847Share based payment charge - - - 63,489 - 63,489Balance at 31 December 2007 138,648 9,663,685 128,070 363,473 (9,025,722) 1,268,154 The 'other reserve' arose from the acquisition of Cyprotex Discovery Limited bythe Company on 4 January 2002, which was accounted for as a merger. 2007 2006Cash flows from operating activities £ £Loss after taxation (478,735) (660,170)Adjustments for:Depreciation 264,225 351,529Share based payment charge 63,489 136,666Investment income (8,591) (27,573)Interest paid 56,066 47,630Taxation income recognised in income statement (64,367) (100,641)Decrease/(increase) in trade and other receivables 98,408 (46,836)(Increase)/decrease in inventories (28,058) 5,591Increase in trade and other payables 54,207 85,485Cash consumed by operations (43,356) (208,319)Interest paid (56,066) (47,630)Income tax received 95,448 146,812Net cash outflow from operating activities (3,974) (109,137) Cash flows from investing activities Purchase of property, plant and equipment (33,338) (77,602)Interest received 8,591 27,573Net cash used in investing activities (24,747) (50,029) Cash flows from financing activitiesProceeds from issue of share capital 847 2,799Repayment of long-term borrowings (24,300) (25,700)Payment of finance lease liabilities (102,251) (52,756)Net cash used in financing activities (125,704) (75,657) Net decrease in cash and cash equivalents (154,425) (234,823) Cash and cash equivalents at beginning of period 455,279 690,102Cash and cash equivalents at end of period 300,854 455,279 1. Nature of operations and general information Cyprotex PLC and its subsidiaries' ('the Group') principal activity is theprovision of in vitro and in silico ADMET/PK (Absorption, Distribution,Metabolism, Excretion, Toxicity/Pharmacokinetic) information to thepharmaceutical industry. Cyprotex PLC is the Group's ultimate parent company. It is incorporated anddomiciled in England and Wales. The address of the registered office of CyprotexPLC is 100 Barbirolli Square, Manchester, M2 3AB. It trades through a whollyowned subsidiary, Cyprotex Discovery Limited whose place of business is 15 BeechLane, Macclesfield, Cheshire, SK10 2DR. Cyprotex PLC's shares are listed on theAlternative Investment Market of the London Stock Exchange. The consolidated financial information of Cyprotex PLC set out in thisannouncement are presented in Pounds Sterling (£), which is also functionalcurrency of the parent. The consolidated financial information has been approvedfor issue by the Board of Directors on 24 April 2008. The financial information set out in the preliminary report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985 of thegroup for the year ended 31 December 2007. The auditors' report on thosefinancial statements was unqualified and did not contain a statement underSection 237(2) of the Companies Act 1985. The statutory accounts for the yearended 31 December 2007 will be delivered to the registrar of Companies followingthe Company's Annual General Meeting. The Group's statutory financial statements for the year ended 31 December 2006,prepared under UK GAAP, have been filed with the Registrar of Companies. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement in itself does not contain sufficient information tocomply with IFRS. The Group recorded a loss after taxation of £478,735 in the year ended 31December 2007 and cash and deposits fell by £154,425 to £300,854. However, theDirectors have reviewed the budget, financial forecast including cash flowforecasts and other relevant information and believe that the Group has adequateresources to continue in operation for the foreseeable future. Accordingly, thefinancial information is prepared on a going concern basis. This assumption isunderpinned by the readiness of key shareholders to support the Group. TheDirectors, having reviewed operational requirements and forecasts for this yearand beyond, consider that Cyprotex PLC will have sufficient cash resources tocontinue to operate. In the event of unforeseen circumstances, including anymajor failure by the Group to meet performance expectations, managementunderstands that such resources could rapidly deplete, thereby requiring someexternal means of fund-raising in order to remain a going concern. Being apublicly quoted company, Cyprotex has the option of appealing to registeredshareholders or external investors by the offering of a pre-emptive rightsissue, or an open or a restricted offer of new shares. Other options forshort-term fund-raising include a sale-and-leaseback of its Macclesfield headoffice. The financial information does not include any adjustments that wouldresult if the group were unable to continue as a going concern. 2. Basis of preparation The consolidated financial information is for the year ended 31 December 2007and extracted from the Group's Annual Report & Accounts for that year. They havebeen prepared in accordance with the requirements of IFRS 1 "First-time Adoptionof International Financial Reporting Standards" relevant to preliminary reports,because it is part of the period covered by the Group's first IFRS financialstatements. The consolidated financial information have been prepared in accordance with theaccounting policies set out below which are based on the recognition andmeasurement principles of IFRS in issue as adopted by the European union (EU)and effective at 31 December 2007 our first annual reporting date at which wewere required to uses IFRS Accounting Standards adopted by the EU. Cyprotex PLC's consolidated financial statements were prepared in accordancewith United Kingdom Accounting Standards (United Kingdom Generally AcceptedAccounting Practice) until 31 December 2006. The date of transition to IFRS was1 January 2006. The comparative figures in respect of 2006 have been restated toreflect changes in accounting policies as a result of adoption of IFRS. TheGroup has taken advantage of exemptions under IFRS and no restatement has beenmade to the accounting treatment of previous business combinations, includingthe acquisition of Cyprotex Discovery Limited by Cyprotex PLC on 4 January 2002. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of this consolidated financial information. 3. Explanation of transition to IFRS As stated in the Basis of Preparation, this financial information is extractedfrom the Group's annual consolidated financial statements prepared in accordancewith IFRS. An explanation of how the transition from UK GAAP to IFRS has effected theGroup's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Thesefinancial statements have been prepared on the basis of taking the followingexemptions: - Cumulative translation differences on foreign operations are deemed to be nilat 1 January 2006. Any gains or losses recognised in the consolidated incomestatement on subsequent disposal of foreign operations will exclude translationdifferences arising prior to the transition date. - Only share based payment arrangements granted after 7 November 2002 that hadnot vested prior to 1 January 2006 are recognised in the financial statements. - Business combinations prior to 1 January 2007, the Group's date of transitionto IFRS have not been restated to comply with IFRS 3 "Business Combinations". Accordingly there has been no adjustment to the accounting treatment adopted bythe Group on the acquisition of Cyprotex Discovery Limited by Cyprotex PLC on 4January 2002 that was accounted for at that date as a merger under UK GAAP. Explanation of material adjustments to the cash flow statement Application of IFRS has resulted in reclassification of certain items in thecash flow statement as follows: 1) Under UK GAAP, payments to acquire property, plant and equipment wereclassified as part of 'Capital expenditure and financial investment'. UnderIFRS, payments to acquire property, plant and equipment have been classified aspart of 'Investing activities'. 2) Income taxes received by the Group in respect of Research and Development taxcredits are now classified as an operating cash flow under IFRS; however, thesewere included in a separate category of tax cash flows under UK GAAP. Explanation of reconciliation from UK GAAP to IFRS for the balance sheet andincome statement The adoption of IFRS by the Group has resulted in some reordering of thepresentation of certain balances within both the income statement and balancesheet. However there has been no impact on previously reported equity,liabilities or assets at 31 December 2006, or comparative amounts disclosed inthe income statement for the year ended 31 December 2006. 4. Summary of significant accounting policies Basis of consolidation The Group financial statements consolidate those of the company and itssubsidiary undertakings drawn up to the balance sheet date. Subsidiaries areentities over which the Group has the power to control the financial andoperating policies so as to obtain benefits from its activities. The Groupobtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiaries have been adjusted where necessary toensure consistency with the accounting policies adopted by the Group. Property, plant and equipment Property (including property subject to lease terms in excess of 800 years),plant and equipment are stated at cost, net of depreciation and any provisionfor impairment. No depreciation is charged during the period of construction or commissioning. Depreciation Depreciation is calculated to write down the cost, less any estimated residualvalue, of all property plant and equipment by equal annual instalments over theestimated useful economic lives as follows: Long leasehold land and buildings Over 50 years Office equipment Over 10 years Computer equipment Over 3 years Laboratory equipment Over 5 years Material residual value estimates are updated at least annually. Impairment testing of property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Individual assets or cash-generating units are tested for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash-generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable. Revenue is reduced for any rebates and other similar allowances. Revenue on the outright sale of services and software, where no supplierobligations remain, is recognised on delivery to the customer. Revenue from a contract to provide services is recognised by reference to thestage of completion of the contract. Interest income is accrued on a time basis by reference to the principaloutstanding and at the effective interest rates applicable. Inventories Inventories are stated at the lower of cost and net realisable value on afirst-in-first-out basis, after making allowance for obsolete and slow movingitems. Net realisable value is based on estimated selling price less furthercosts expected to be incurred to completion. Research and development Expenditure on research (or the research phase of an internal project) isrecognised as an expense in the period in which it is incurred. Development costs incurred are capitalised during the development phase when allthe following conditions are satisfied: - completion of the intangible asset is technically feasible so that it will be available for use or sale; - the group intends to complete the intangible asset and use or sell it; -the group has the ability to use or sell the intangible asset; - the intangible asset will generate probable future economic benefits. Amongst other things, this requires that there is a market for the output from the intangible asset or the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; - there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and - the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting these criteria for capitalisation are expensed asincurred. Amortisation commences upon completion of the asset and is in line with expectedfuture related sales. Careful judgement by the directors is applied when deciding whether therecognition requirements for development costs have been met. This is necessaryas the economic success of any product development is uncertain and may besubject to future technical problems at the time of recognition. Judgements arebased on the information available at each balance sheet date. In addition, allinternal activities related to the research and development of new softwareproducts are continuously monitored by the directors. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. Leased assets In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. The interest element of leasing payments is charged to the Income Statement inconstant proportion to the capital balance outstanding over the period of thelease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight-line basis over the leaseterm. Lease incentives are spread over the term of the lease. Pensions The Group operates a defined contribution scheme. Pension costs charged againstprofits are the contributions payable to the scheme in respect of the accountingperiod. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Non-monetary items that are measured at historical cost in a foreigncurrency are translated at the exchange rate at the date of the transaction.Non-monetary items that are measured at fair value in a foreign currency aretranslated using the exchange rates at the date when the fair value wasdetermined. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the income statement in the period in whichthey arise. Exchange differences on non-monetary items are recognised in thestatement of recognised income and expenses to the extent that they relate to again or loss on that non-monetary item taken to the statement of recognisedincome and expenses, otherwise such gains and losses are recognised in theincome statement. The assets and liabilities in the financial statements of foreign subsidiariesand related goodwill are translated at the rate of exchange ruling at thebalance sheet date. Income and expenses are translated at the actual rate. The exchange differencesarising from the retranslation of the opening net investment in subsidiaries aretaken directly to the "Foreign currency reserve" in equity. On disposal of aforeign operation the cumulative translation differences (including, ifapplicable, gains and losses on related hedges) are transferred to the incomestatement as part of the gain or loss on disposal. The Group has taken advantage of the exemption in IFRS 1 and has deemedcumulative translation differences for all foreign operations to be nil at thedate of transition to IFRS. The gain or loss on disposal of these operationsexcludes translation differences that arose before the date of transition toIFRS and includes later translation differences. Taxation and deferred tax Current tax is the tax currently payable or receivable based on taxable profitor loss for the period. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. In addition, taxlosses available to be carried forward as well as other income tax credits tothe Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Government and other grants Government grants in respect of capital expenditure are credited to a deferredincome account and are released to the income statement by equal annualinstalments over the expected useful lives of the relevant assets. Government grants of a revenue nature are credited to the income statement inthe same period as the related expenditure. Share based payments In accordance with IFRS 2 the fair value of equity-settled share based paymentsto employees is determined at the date of grant and is expensed on astraight-line basis over the vesting period based on the Group's estimate ofwhen share options will eventually vest. In the case of options granted, fairvalue is measured by a Black-Scholes pricing model. All share based payment arrangements granted after 7 November 2002 that had notvested prior to 1 January 2006 are recognised in the financial statements inaccordance with IFRS 1. All equity-settled share based payments are ultimately recognised as an expensein the income statement with a corresponding credit to the share based paymentreserve. If vesting periods or other non-market vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate or thenumber of share options expected to vest. Estimates are revised subsequently ifthere is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options that have vested are not exercised. Upon exercise of share options, the proceeds received net of attributabletransaction cost are credited to share capital, and where appropriate sharepremium. Financial assets All financial assets are recognised when the group becomes a party to thecontractual provisions of the instrument. Financial assets other than thosecategorised as at fair value through profit or loss are recognised at fair valueplus transaction costs. Financial assets categorised as at fair value throughprofit or loss are recognised initially at fair value with transaction costsexpensed through the income statement. Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and a fixed date of maturity where it is the intention ofthe directors to hold them until maturity. Held-to-maturity investments aremeasured subsequent to initial recognition at amortised cost using the effectiveinterest method. If there is objective evidence that the investment has beenimpaired, the financial asset is measured at the present value of estimated cashflows. Any changes to the carrying amount of the investment are recognised inthe income statement. Financial assets at fair value through profit or loss include financial assetsthat are either classified as held for trading or are designated by the entityas at fair value through profit or loss upon initial recognition. Subsequent toinitial recognition, the financial assets included in this category are measuredat fair value with changes in fair value recognised in the income statement.Financial assets originally designated, as financial assets at fair valuethrough profit or loss may not be reclassified subsequently. Financial assets are designated as at fair value through profit or loss wherethey eliminate or significantly reduce a measurement (or recognition) mismatch. Loans receivable are measured subsequent to initial recognition at amortisedcost using the effective interest method, less provision for impairment. Anychange in their value through impairment or reversal of impairment is recognisedin the income statement. Provision against trade receivables is made when there is objective evidencethat the Group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. An assessment for impairment is undertaken on each financial asset at least ateach balance sheet date. Regular purchases and sales are accounted for on trade date. Where an entityuses settlement date accounting for an asset that is subsequently measured atcost or amortised cost, the asset is recognised initially at its fair value onthe trade date. A financial asset is derecognised only where the contractual rights to the cashflows from the asset expire or the financial asset is transferred and thattransfer qualifies for derecognition. A financial asset is transferred if thecontractual rights to receive the cash flows of the asset have been transferredor the group retains the contractual rights to receive the cash flows of theasset but assumes a contractual obligation to pay the cash flows to one or morerecipients. A financial asset that is transferred qualifies for derecognition ifthe Group transfers substantially all the risks and rewards of ownership of theasset, or if the Group neither retains nor transfers substantially all the risksand rewards of ownership but does transfer control of that asset. Financial liabilities Financial liabilities categorised as at fair value through profit or loss areremeasured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. Financial liabilities are categorised as at fair value through profit or losswhere they are classified as held-for-trading or designated as at fair valuethrough profit or loss on initial recognition. A financial liability is derecognised only when the obligation is extinguished,that is, when the obligation is discharged or cancelled or expires. Equity Equity comprises the following: _ "Share Capital" represents the nominal value of equity shares. _ "Share Premium" represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue. _ "Other Reserve" represents the balance arising on merger when Cyprotex Discovery Limited was acquired by the Company on 4 January 2002, as previously reported under UK GAAP. _ "Share based payment reserve" represents equity settled share-based employee remuneration until such share options are exercised. _ "Retained earnings/ (losses)" represents retained profits and losses. Critical accounting and judgements and key sources of estimation uncertainty Estimates and accounting judgements are continually evaluated and are based onhistorical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances. The preparation offinancial statements under IFRS requires management to make assumptions andestimates about future events. The resulting accounting estimates will, bydefinition, differ from actual results. The assumptions and estimates that havea significant risk of causing a material adjustment within the next financialyear are: Share option charges Expected life of share options, volatility of shares, risk free yield rate tomaturity and expected dividend yield. Recognition of revenue and profit on contracts to provide services Revenue and profit are recognised by reference to the estimated stage ofcompletion of the contract to the extent of contract costs incurred that it isprobable will be recoverable. Research and development Careful judgement is applied when deciding whether the recognition requirements,set out in full above, for development costs have been met. Adoption of new and revised standards Standards and Interpretations in issue not yet adopted At the date of the authorisation of this financial information, the followingstandards and interpretations, which have not been applied in this financialinformation, were in issue but not yet effective. The directors anticipate theadoption of these standards and interpretations will have no material impact onthe Group's financial statements, with the exception if IAS 1, which will effectthe presentation of changes in equity and introduces a statement ofcomprehensive income. This amendment will not affect the financial position orresults of the Group but will give rise to additional or changed disclosure. Thedirectors anticipate that the Group will adopt these standards andinterpretations on their effective dates. - IAS 1 Presentation of financial statements (revised 2007) (effective 1 January 2009); - IAS 23 Borrowing costs (revised 2007) (effective 1 January 2009); - IAS 27 Consolidation and separate Financial Statements (revised 2008) (effective 1 July 2009); - Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009); - IFRS 2 Amendments to IFRS Share-based Payment. Vesting conditions and cancellations.) (effective 1 January 2009); - IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009); - IFRS 8 Operating segments (effective 1 January 2009); - IFRIC 11 IFRS 2 Group and treasury share transactions (effective 1 March 2007); - IFRIC 12 Service concession arrangements (effective 1 July 2008); - IFRIC 13 Customer loyalty programmes (effective 1 July 2008); and - IFRIC 14 and IAS19 The limit on defined benefit asset, minimum funding requirements and their interaction (effective 1 January 2008). 5. Revenue and segmental analysis The Group's principal activity (and its primary business segment) is theprovision of in vitro and in silico ADMET/PK (Absorption, Distribution,Metabolism, Excretion, Toxicity/ Pharmacokinetic) information to thepharmaceutical industry. As such its primary segmental information is the incomestatement. 2007 2006Geographical analysis of revenue by destination £ £United Kingdom 753,468 481,656Rest of Europe 1,072,586 1,642,940USA and Canada 1,730,468 1,354,998Rest of the World 69,596 25,236 3,626,118 3,504,830 6. Loss per share The calculation of the basic loss per share is based on the loss attributable toordinary shareholders divided by the weighted average number of shares in issueduring the year. The share options in issue are anti-dilutive in respect of the basic loss pershare calculation and have therefore not been included. 2007 2006Attributable loss (£) (478,735) (660,170)Average number of ordinary shares in issue for basic 138,604,307 138,420,822 and diluted earnings per shareBasic and diluted loss per share (pence) (0.35)p (0.48)p 7. Share issues During the year ended 31 December 2007, 74,972 shares were issued to satisfyshare options previously granted under Cyprotex PLC's employee share optionscheme. Shares issued for the year ended 31 December 2007 may be summarised asfollows: Number £Year to 31 December 2006 At 1 January 2006 138,325,315 138,325Issue of shares 247,701 248At 31 December 2006 138,573,016 138,573Year to 31 December 2007At 1 January 2007 138,573,016 138,573Issue of shares 74,972 75At 31 December 2007 138,647,988 138,648 The shares issued in the year ended 31 December 2007 yielded £847 (2006: £2,799)in cash and increased equity by £847 (2006: £2,799). The weighted average share price at the date of exercise in the year ended 31December 2007 was 5.17 pence (2006: 6.63 pence). 8. Additions and disposals of property, plant and equipment Long Office Computer Laboratory Total leasehold and equipment equipment equipment buildings £ £ £ £ £Carrying amount at 1 844,754 26,685 35,514 788,999 1,695,952January 2006 Additions 7,498 1,717 59,206 9,182 77,603Depreciation (17,261) (4,374) (27,501) (302,393) (351,529)Carrying amount at 31 834,991 24,028 67,219 495,788 1,422,026December 2006 £ £ £ £ £ Carrying amount at 1 834,991 24,028 67,219 495,788 1,422,026January 2007 Additions - 1,945 19,876 186,039 207,860Depreciation (17,385) (4,630) (34,603) (207,607) (264,225)Carrying amount at 31 817,606 21,343 52,492 474,220 1,365,661December 2007 At 31 December 2007 £ £ £ £ £ Cost or valuation 869,309 46,685 354,143 1,859,465 3,129,602Accumulated depreciation (51,703) (25,342) (301,651) (1,385,245) (1,763,941)Carrying amount at 31 817,606 21,343 52,492 474,220 1,365,661December 2007 9. Taxation Income tax represents amounts recoverable in respect of Research and Developmenttax credits. At 31 December 2007, the group has tax losses of approximately £6.1 million(2006: £6.0 million) that are available for offset against future profitsarising from the same trade. No provision has been made for deferred tax onlosses carried forward in the Group. These losses will only be available foroffset when the Group makes taxable profits. 10. The Annual Report The 2007 Annual Report & Accounts of the Group will be posted to shareholders onthe 9 June 2008. Further copies will be available on request from the CompanySecretary, Cyprotex PLC, 15 Beech Lane, Macclesfield, Cheshire, SK10 2DR. 11. Annual General Meeting The Annual General meeting will be held at 10:00am on Monday, 14 July 2008 atthe National Liberal Club, Whitehall Place, London SW1A 2HE. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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