4 Sep 2012 07:00
AorTech International plc
("the Company" or "the Group")
Preliminary Results for the year ended 31 March 2012
AorTech International plc (AIM: AOR), the biomaterials and medical device development company, today announces its preliminary results for the year ended 31 March 2012.
Financial summary
·; Group revenue increased from US$2.4m to $5.0m
·; Operating profit before exceptional item of US$799k (2011: loss of US$4.1m)
·; Cash reserves decreased from US$2.2m to US$1.9m
Other developments
·; Business relocated successfully from Australia to North America
·; Reacquired rights to polymer heart valve
·; Strategy review of Company
·; Appointment of Piper Jaffray to conduct a sale of business
For further information contact:
AorTech International plc | |
Frank Maguire, Chief Executive | Tel: + 1 801 201 4336 |
AorTech International plc | |
Bill Brown, Chairman | Tel: +44 20 3206 7335 |
finnCap Limited | |
Stuart Andrews | Tel: +44 20 7220 0500 |
A copy of this announcement will be available at aortech.com/investor/announcements. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.
Piper Jaffray (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting exclusively for the Company and for no one else in connection with any possible offer and will not be responsible to anyone other than the Company for providing the protections afforded to Piper Jaffray's clients nor for providing advice in relation to any possible offer or any other matters referred to in this announcement.
About AorTech:
AorTech develops and manufactures biostable, implantable polymers, including Elast-Eon™ and ECSil™ the world's leading long-term implantable co-polymers, as well as proprietary processing methods for various devices, including small part RIM manufacturing. With several million implants and five years of successful clinical use, AorTech polymers are being developed and used in cardiology, orthopaedic and urological applications, including pacing leads, cardiac cannulae, stents and implantable sensor technology. Devices manufactured from AorTech polymers have numerous US FDA PMA approvals, 510k's, CE Marks, Australian TGA and Japanese Ministry of Health approvals.
Elast-Eon™ and ECSil™'s biostability is comparable to silicone while exhibiting excellent mechanical, blood contacting and flex-fatigue properties. Our polymers can be processed using conventional thermoplastic extrusion and molding techniques. AorTech provides a range of materials in a variety of application-specific formulations for use in medical devices and components.
Rule 2.10
In accordance with Rule 2.10 of the Code, AorTech confirms that at the date of this Announcement, there are 4,832,778 AorTech ordinary shares in issue and admitted to trading on AIM. The ISIN of the AorTech shares is GB0033360586.
Dealing disclosure requirements
Under Rule 8.3(a) of the Code, any person who is interested in one per cent. or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of: (i) the offeree company; and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in one per cent. or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of: (i) the offeree company; and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3 of the Code.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4 of the Code).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0) 20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.
CHAIRMAN'S STATEMENT
I am presenting my first report to shareholders since my appointment as Chairman of the Company on 3 July this year. I joined the Board of AorTech in late October last year and over that time have been working closely with my Board colleagues to gain a full understanding of the issues affecting the business and the opportunities to capitalise on the developments within the business for the benefit of our shareholders.
In July, we announced the outcome of a strategy review which has resulted in us appointing advisers to seek a sale of the business and I will update shareholders on the strategy and process later in this report.
Firstly, however, I will discuss the results for the year to 31 March 2012 and the financial position of the Group which as disclosed last year are now presented in US $ terms.
Results
The year to 31 March 2012 was one of considerable change for the Group. During the period we undertook the relocation of our polymer manufacturing facilities from Melbourne, Australia to Rogers, Minneapolis. This move was a significant task and involved the closing of Australian operations, dismantling all of the plant and equipment and having it shipped half way round the world. The setting up of the Rogers facility was also a major undertaking resulting in obtaining work permits for the staff relocated from Australia, recruiting a new team for the US operations, training that team to enable the manufacture of polymer to recommence and obtaining all the necessary approvals. As a result of the relocation of the production facility, we were only producing polymer at normal production rates for seven months during the year.
Group revenue for the year was $5.038 million, up from the $2.44 million reported for the previous year. Of this total revenue $4.34 million was represented by licence fees of which $4.2 million related to the restructured licence agreement announced last year. The final balance of this licence fee was received in March 2012 after meeting all the required conditions. Total polymer sales amounted to $694,000 compared to $1,444,000 for the previous year reflecting the unavailability of the production facilities during the period. We also received grant income of $638,000 over the period ($510,000 in 2011). Total operating expenses were $4,877,000 compared to $6,969,000 in 2011, reflecting the lower operating costs now that the operations have been relocated, resulting in an operating profit before exceptional item for the year of $799,000 (loss of $4,019,000 in 2011).
Exceptional costs were also incurred over the period of $761,000 (2011 - nil) being costs of transfer of the operations to the USA. Overall, after finance income the Group has reported a profit for the year of $57,000 (loss of $3.9 million for 2011).
Cash at 31 March 2012 amounted to $1,917,000, a decrease of $297,000 from the same date last year. It should be noted that the reduction in the cash position was after expenditure on property, plant and equipment of $671,000 and a reduction in year end trade and other payables of $437,000 from the previous year. Despite the significant improvement in the profitability of the Group over the year, it is clear that the results have been impacted both positively and negatively as a result of the move to the USA; however the major impact has been the $4.2 million received as part of the licence restructuring which facilitated the move.
St Jude Medical has stated publicly that it "has acquired the exclusive intellectual property rights and necessary assets for the manufacture of Optim™ insulation used in CRM leads", we feel it is appropriate to clarify this statement. In fact, St Jude has not acquired the exclusive intellectual property rights to Optim™ but does have an exclusive, perpetual licence to use AorTech's materials in the field of use of implantable leads for implantable cardiac rhythm management systems. AorTech is currently the sole manufacturer and supplier of the material that St Jude calls Optim™. AorTech retains ownership of the intellectual property and know how relating to Optim™. In addition, St Jude purchased the necessary items of plant and equipment from AorTech which are required to manufacture Optim™; these assets are currently located in the Rogers facility which AorTech leases from St Jude. AorTech continues to use these assets to manufacture Elast-Eon™/Optim™.
Strategy
We set out in the interim results a strategy for the creation of shareholder value and began to explore a number of options. We believe that the move to Minneapolis was a very important decision and that it has raised awareness of the value of our technology. I would emphasise, however, that, as a result of the closure of our Australian operation and the time taken to set up our US operation, our polymer sales were adversely affected during the year both in terms of volume and margins achieved.
In addition to these issues and in order to increase margins and profitability we have sought a price increase for polymer supply from the customer which has to date had the greatest impact on our margins but this has been met with significant resistance despite the value that this customer derives from our material. As a very small business we have been unable to leverage other business relationships that a larger business may be able to use as a negotiation strategy or to adopt the ultimate negotiating position that a larger business could implement.
In the interim report we announced that we were reacquiring the rights to our polymer heart valve project. This was an important development as all of our IP and designs were returned together with the exclusive rights over one of our polymer materials from which the valve is manufactured.
The replacement heart valve sector is at a point of significant change. Over the past decade there has been a major switch from mechanical valves to animal tissue valves, as a result of the improvement in the durability of tissue valves together with a much reduced requirement for patients to undertake long term anti coagulation treatment. In addition, there are multiple projects underway to replace heart valves by using minimally invasive surgical techniques by introducing a valve via a catheter rather than by open heart surgery.
The AorTech polymer valve, which has performed well and to expectations through a number of tests, has a number of benefits. We believe that a polymer valve made with Elast-Eon™ leaflets will have similar longevity to mechanical valves, will demonstrate similar "soft failure characteristics" to tissue valves, will not require the use of anti coagulation drugs and will be a disruptive technology from a cost perspective. The current generation of heart valves cost between $800 and $2,000 each to manufacture. We believe that the AorTech valve can be manufactured for under $80 which represents a step change to the current cost of each valve. This is of major importance as all economies are struggling with the expanding costs of health care but is of particular importance to the emerging economies of China and India (particularly given the issues of bovine material) where much health care is self funded. In addition, we have patented our material and leaflet design for the use in trans catheter valve insertion. In addition to the benefits of valve design the polymer valve can be crimped to a much narrower diameter increasing the size of the potential patient population but also reducing the risks of trans-catheter valve surgery.
We have a costed project which we believe would undertake the future development of the valve to the stage of first human use which would take only 24 months and cost $4 million.
The heart valve could be the area of device IP that represents greatest value, however our materials also demonstrate significant benefits. The core current material is Elast-Eon2A™ which is a co-polymer of silicone and polyurethane. This material was developed over many years of fundamental research which was able to achieve a synthesis process of combining these two highly incompatible materials by carefully manipulating the chemical end chains. We hold not only all of the patents for this process but also retain the very detailed and complicated know how on the preparation of the component materials and the reactive process. I have been very impressed with the technical skills of our scientific team and believe that not only are our products protected by patent but the know how required to manufacture our sub components and ultimately manufacture of Elast-Eon™ could take over three years to develop independently.
The result of synthesising both silicone and polyurethane is to create a material that demonstrates the biostability of silicone with the mechanical properties of polyurethane. In the field of use of cardiac leads, Elast-Eon™ demonstrates improved lubricity over both silicone and Pellathane 55D (another polyurethane used in pacing leads), displayed similar flexibility to silicone and is considerably less stiff than 55D polyurethane, similar lead to lead abrasion resistance to 55D and a major improvement to silicone. The Elast-Eon™ material is proven to be highly biostable with strong performance in both oxidation and hydrolysis. We have considerable internal data on the performance of the material as well as a wealth of independent research and our material scientists have a full understanding of how the material reacts in different environments which is key to assisting licensees in the design of their products. An example of this in depth understanding of the material is the understanding of why accelerated hydrolytic testing is not an appropriate model for evaluating Elast-Eon™ due to changes in the material that occur at the high temperatures at which accelerated testing is undertaken.
Our next generation polymer, ECSil™, demonstrates not only the class leading biostability of Elast-Eon™ but also exhibits superior physical properties. ECSil™ can be made to be much softer than Elast-Eon™ and can be viewed as a "super silicone rubber".
Much has been achieved by AorTech over the past decade with the development of both next generation materials and device designs and patents. We have also had some success in attracting medical companies to adopt our material for incorporation into their devices, the success that St Jude are enjoying with our material being a case in point. Many of these devices take a long time to come to market and it is difficult therefore to predict when the larger milestone payments, royalty payments and growth in material supply volume will start to have a significant impact on revenues. It is also an issue that a company looking to incorporate our materials into their devices may have concerns over being entirely reliant on a small company for a key area of component supply.
Having carefully considered the areas of true advantage that AorTech holds, we have concluded that the value of the business rests with the IP in both our materials and designs. Based on this conclusion, we believe that the Company as a whole or individual parts of the business would be much more successful by being part of a larger business with a combination of both the resources, critical mass and additional sales and distribution skills required to not only maximise the value of existing contracts but to expand the use of our materials into other areas.
We also believe that the best way to generate value for our shareholders and capitalise on the various IP is through a sales process. It is for this reason that we appointed Piper Jaffray to conduct a sale of the Company on behalf of shareholders.
Sale Process
We announced the start of our sale process in July 2012. As a public company, we have to work within the constraints of the Takeover Code which can restrict the number of parties that can be approached and may require the disclosure of parties that are in negotiation. We felt that the restrictions that would have been applicable to a confidential process would limit the value potential for shareholders and as a result we decided to announce the process to the market. The benefits of that are that we are able to approach a much larger target market and keep each participant in the process confidential. The down side to the announcement has been that we have been limited in our ability to interact with our shareholders, the press and the market as a whole. We updated the market on our sale process on 13 August and stated that a broad range of potential acquirors have been contacted including medical technology companies, biomaterials and coatings companies, contract manufacturing organisations and other strategic consolidators, as well as private equity investors. Your Board will provide further updates to you and the market when it is deemed appropriate to do so.
Timetable and Financial Position
We stated as part of the Strategic update in July that we would require to raise further funds or complete a corporate deal by the end of October 2012. Shareholders should note that whilst your Board is working to secure a recommended offer by the end of October 2012, there is no guarantee that any such offer will be forthcoming or even proposed in the timeframe required, or as to the level of any proposal or offer that may be made.
Your Board therefore intends to implement a fundraising in the short term to raise sufficient finance to enable the Company to continue to trade for the foreseeable future. This decision has been taken in the interests of shareholders to ensure that the best outcome can be obtained through our sale process.
Conclusion
Much has been achieved over the past year including the factory move and reacquiring our heart valve technology together with the other implications of that deal. The disappointment has been that the renegotiated licence deal and the price achieved on polymer supply do not provide the Company with sufficient resources to see the Company through to the point where cash is being generated from other contracts. Although that was a factor in our decision to seek a corporate transaction, the key driver in the decision was a recognition that the value of our IP should be greater than what we alone can derive from material supply and the creation of shareholder value is best served by the sale process we have undertaken.
Bill Brown
Chairman
Consolidated income statement
Year ended 31 March 2012 | Year ended 31 March 2011 | ||||
US$000 | US$000 | ||||
Revenue | 5,038 | 2,440 | |||
Other income - grants received | 638 | 510 | |||
Cost of sales | (701) | (555) | |||
Administrative expenses | (3,130) | (3,399) | |||
Other expenses - development expenditure | (798) | (2,072) | |||
Other expenses - impairment of property, plant and equipment | - | (707) | |||
Other expenses - amortisation of intangible assets | (248) | (236) | |||
Operating profit / (loss) before exceptional item | 799 | (4,019) | |||
Exceptional item - cost of transfer of operations to USA | (761) | - | |||
Operating profit / (loss) | 38 | (4,019) | |||
Finance income | 19 | 132 | |||
Profit / (loss) before taxation | 57 | (3,887) | |||
Taxation | - | - | |||
Profit / (loss) attributable to equity holders of the parent company | 57 | (3,887) | |||
Earnings / (loss) per share | |||||
Basic and diluted - (US cents per share) | 1.18 | (80.42) | |||
Consolidated statement of comprehensive income
Year ended 31 March 2012 | Year ended 31 March 2011 | |||
US$000 | US$000 | |||
Profit / (loss) for the year | 57 | (3,887) | ||
Other comprehensive income: | ||||
Exchange differences on translating foreign operations | 26 | 734 | ||
Income tax relating to other comprehensive income | - | - | ||
Other comprehensive income for the year, net of tax | 26 | 734 | ||
Total comprehensive income for the year, attributable to equity holders of the parent company | 83 | (3,153) | ||
Consolidated balance sheet
| |||||||
31 March 2012 | 31 March 2011 | 31 March 2010 | |||||
US$000 | US$000 | US$000 | |||||
Assets | |||||||
Non current assets | |||||||
Intangible assets | 2,012 | 2,188 | 2,146 | ||||
Property, plant and equipment | 621 | 346 | 1,082 | ||||
Total non current assets | 2,633 | 2,534 |
3,228 | ||||
Current assets | |||||||
Inventories | 203 | 234 | 226 | ||||
Trade and other receivables | 956 | 1,081 | 1,295 | ||||
Cash and cash equivalents | 1,917 | 2,214 | 4,348 | ||||
Total current assets | 3,076 | 3,529 |
5,869 | ||||
Total assets | 5,709 | 6,063 |
9,097 | ||||
Liabilities | |||||||
Current liabilities | |||||||
Trade and other payables | (439) | (1,058) | (939) | ||||
Total current liabilities | (439) | (1,058) |
(939) | ||||
Non current liabilities | |||||||
Trade and other payables | (182) | - |
- | ||||
Total liabilities | (621) | (1,058) |
(939) | ||||
Net assets | 5,088 | 5,005 | 8,158 | ||||
Equity | |||||||
Issued capital | 19,319 | 19,370 | 18,210 | ||||
Share premium | 3,742 | 3,751 | 3,527 | ||||
Other reserve | (3,203) | (3,211) | (3,019) | ||||
Foreign exchange reserve | 4,819 | 4,741 | 5,199 | ||||
Profit and loss account | (19,589) | (19,646) | (15,759) | ||||
Total equity attributable to equity holders of the parent | 5,088 | 5,005 |
8,158 | ||||
Consolidated cash flow statement
| ||||
Year ended 31 March 2012 | Year ended 31 March 2011 | |||
US$000 | US$000 | |||
Cash flows from operating activities | ||||
Group profit / (loss) after tax | 57 | (3,887) | ||
Adjustments for: | ||||
Depreciation of property, plant and equipment | 53 | 351 | ||
Impairment of property, plant and equipment | - | 707 | ||
Loss on disposal of property, plant and equipment | 23 | - | ||
Amortisation of intangible assets | 248 | 236 | ||
Interest income | (19) | (132) | ||
Decrease in trade and other receivables | 125 | 288 | ||
Decrease in inventories | 31 | 12 | ||
(Decrease) / increase in trade and other payables | (437) | 57 | ||
Net cash flow from operating activities | 81 | (2,368) | ||
Cash flows from investing activities | ||||
Purchase of property, plant and equipment | (671) | (205) | ||
Proceeds from disposal of property, plant and equipment | 320 | - | ||
Purchases of intangible assets | (49) | - | ||
Interest received | 19 | 132 | ||
Net cash flow from investing activities | (381) | (73) | ||
Net decrease in cash and cash equivalents | (300) | (2,441) | ||
Foreign exchange movements on cash held in foreign currencies | 3 | 307 | ||
Cash and cash equivalents at beginning of year | 2,214 | 4,348 | ||
Cash and cash equivalents at end of year | 1,917 | 2,214 | ||
Consolidated statement of changes in equity | |||||||||||||||
Share capital | Share premium account | Other reserve | Foreign exchange reserve | Profit and loss account | Total equity | ||||||||||
US$000 | US$000 | US$000 | US$000 | US$000 | US$000 | ||||||||||
Balance at 31 March 2010 | 18,210 | 3,527 | (3,019) | 5,199 | (15,759) | 8,158 | |||||||||
Transactions with owners | - | - | - | - | - | - | |||||||||
Loss for the year | - | - | - | - | (3,887) | (3,887) | |||||||||
Other comprehensive income | |||||||||||||||
Exchange difference on translating foreign operations | 1,160 | 224 | (192) | (458) | - | 734 | |||||||||
Income tax relating to components of other comprehensive income | - | - | - | - | - | - | |||||||||
Total comprehensive income for the year | 1,160 | 224 | (192) | (458) | (3,887) | (3,153) | |||||||||
Balance at 31 March 2011 | 19,370 | 3,751 | (3,211) | 4,741 | (19,646) | 5,005 | |||||||||
Transactions with owners | - | - | - | - | - | - | |||||
Profit for the year | - | - | - | - | 57 | 57 | |||||
Other comprehensive income | |||||||||||
Exchange difference on translating foreign operations | (51) | (9) | 8 | 78 | - | 26 | |||||
Income tax relating to components of other comprehensive income | - | - | - | - | - | - | |||||
Total comprehensive income for the year | (51) | (9) | 8 | 78 | 57 | 83 | |||||
Balance at 31 March 2012 | 19,319 | 3,742 | (3,203) | 4,819 | (19,589) | 5,088 |
Basis of preparation
The Group financial statements are for the year ended 31 March 2012. They have been prepared in compliance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union as at 31 March 2012.
The Group financial statements have been prepared under the historical cost convention.
The accounting policies remain unchanged from the previous year, other than the change in presentational currency, as disclosed below.
Going concern
The Board intends to implement a fundraising in the short term to raise sufficient finance to enable the Company to continue to trade for the foreseeable future. This decision has been taken in the interests of shareholders to ensure that the best outcome can be obtained through our sale process.
Whilst the Directors are confident that the fundraising will be successful, until it has been completed this represents a material uncertainty regarding the Group's ability to continue as a going concern.
Nevertheless, after considering the year end cash position, making appropriate enquiries and reviewing budgets and profit and cash flow forecasts for a period of at least twelve months from the date of signing these financial statements, and in particular taking account of achieving a successful fundraising as detailed above and in our Chairman's statement, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Group has sufficient resources to continue in operational existence for the foreseeable future. For this reason the Directors consider the adoption of the going concern basis in preparing the Group financial statements is appropriate.
Presentational currency
The Group's revenues, profits and cash flows are primarily generated in US dollars, and are expected to remain principally denominated in US dollars in the future. During the year, the Group changed the currency in which it presents its consolidated financial statements from pounds sterling to US dollars, in order to better reflect the underlying performance of the Group.
Earnings per share
The basic earnings per Ordinary share of 1.18 US cents (2011: loss of 80.42 US cents) is calculated on the profit of the Group of US$57,000 (2011: loss of US$3,887,000) and on 4,832,778 (2011: 4,832,778) equity shares, being the number of shares in issue during the year. The diluted earnings per share is not materially different from the basic earnings per share. The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.
Preliminary announcement
The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 31 March 2012, the summarised consolidated income statement, the summarised consolidated statement of comprehensive income, the summarised consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 March 2012 upon which the auditor's opinion is unqualified, includes an emphasis of matter in respect of going concern and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit reports for the year ended 31 March 2011 did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2011 have been delivered to the Registrar of Companies. The 31 March 2012 accounts were approved by the Directors on 3 September 2012, but have not yet been delivered to the Registrar of Companies.
Notice of Annual General Meeting
Notice is hereby given that the fifteenth Annual General Meeting of AorTech International Plc will be held in the Tower Suite of the Institute of Directors, New Broad Street House, 35 New Broad Street, London, EC2M 1NH on Friday, 28 September 2012 at 11:00am.
Posting and availability of accounts
The annual report and accounts for the year ended 31 March 2012 will be sent by post to all registered shareholders on 5 September 2012. Additional copies will be available for a month thereafter from the Company's Weybridge office. Alternatively, the document may be viewed on, or downloaded from, the Company's website: www.aortech.com.