FUL.L Regulatory News (FUL)

26 Nov 2007 07:01

Fulcrum Pharma PLC26 November 2007 26th November 2007 FULCRUM PHARMA PLC ("the Group" or "the Company") Preliminary Results for the Year Ended 31 August 2007 Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcingservices company, today announces its preliminary results for the year ended 31August 2007. Highlights • EBITDA* increased by 88% to £613,000 (2006: £325,000) • Fee sales improved by 38% to £11.5m (2006: £8.3m) • Acquisition of Unicus Regulatory Services Ltd which, after some initial integration issues, is now trading profitably • Operating profit from continuing operations is £408,000 (2006: £77,000) • Profit before tax is £42,000 (2006: £94,000) • Healthy order book which has significantly strengthened since last year * EBITDA is defined as earnings before interest, taxation, depreciation andamortisation Commenting on the results, Chairman Prof. Sir Charles George said: "The underlying performance of the Group and the continued improvement inoperating cash generation are gratifying. We remain committed to growing ourservices business both organically and by acquisition. I would like to thank themanagement and staff for their contribution to the business." For further information, please contact: Fulcrum Pharma PLCJon Court, Chief Executive Tel: 0870 710 7152 Seymour PierceJonathan Wright Tel: 0207 107 8000 Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2007 Chairman's Report Introduction I am pleased to report that over the past year Fulcrum has continued to grow,generate cash and deliver profits. Strategic Review Our strategy to increase the scale of the company both organically and byacquisition has resulted in significant sales growth. The Group's serviceoffering has expanded to include pharmacovigilance, patient informationmanagement and regulatory interim management. In April 2007 Fulcrum completed the acquisition of Unicus Regulatory ServicesLtd ("Unicus"), a UK based business. This acquisition, together with organicgrowth across the Group, enables Fulcrum to offer its clients wide ranging drugdevelopment and regulatory services to meet the ever increasing demand foroutsourced pharmaceutical services. Financial ResultsThe results for the full year have improved in key areas. Fee sales rose by 38%to £11.5m (2006: £8.3m) and earnings before interest, tax and depreciation andamortisation ("EBITDA") increased by 88% to £613,000 (2006: £325,000). Profitbefore tax was £42,000 (2006: £94,000) and amortisation of goodwill was £261,000(2006: £51,000). The retained profit for the year was £32,000 (2006: £82,000) and the basicearnings per share was 0.02p (2006: 0.07p).The Company has adopted FRS20 "Share based payments" in these results. Theadoption of this accounting standard represents a change in accounting policyand the comparative figures have been restated accordingly. The relocation of the UK office to its new premises in Hemel Hempstead, whichwas postponed following the explosion at the Buncefield Oil Depot, took place inMarch 2007. A claim of £390,000 in respect of increased costs of working andbusiness interruption has been registered with the loss adjustor for the oilcompanies. An amount of £177,000 is included in debtors in respect of this claimas at 31 August 2007 (2006: £40,000) as the Directors have obtained professionaladvice that this is the minimum that the Company can expect to receive. The cash position and balance sheet remains strong with a net increase in cashand short term investments to £2.4m (2006: £2.1m). Net funds at 31 August 2007have decreased from £778,000 to £370,000 partially reflecting the bank loan of£1m to fund the acquisition of Unicus. The directors do not propose a dividend (2006: nil). UnicusFulcrum completed the acquisition of Unicus for an initial consideration of£2,500,000. As stated in the Trading Update of 15th August 2007, this initialconsideration was reduced to £2,300,000. Subsequently the vendor has reimbursed£159,000 in cash as a refund of consideration pursuant to the sale and purchaseagreement and the earnout agreement has been varied to include an extension ofthe earnout period to 31st July 2008. This variation is not expected to increasethe overall cost of the acquisition. In the trading update it was also reportedthat Unicus sales had been below forecast since the date of the acquisition.Management has subsequently focused on sales growth and cost control and we arepleased to report that in the quarter ended October 2007 Unicus has returned toprofitability. Operating Review Commercial, Sales and Business DevelopmentOver the past year Fulcrum has scaled up its sales and marketing resources andoperational capacity. This increase in scale has enabled the company to broadenthe range of development and regulatory services it offers the pharmaceuticalindustry. Group sales have continued to improve and, as indicated at theinterims, performance was strengthened in the second half with fee sales of£6.6m compared to £4.9m in the first half. Overall fee sales increased by 38%for the full year compared to the previous year. As expected net operating costshave increased, reflecting investment in the scale up of the business,recruitment of staff and associated infrastructure. The US dollar and Japanese yen have weakened considerably compared with the sameperiod last year. Although sales in Japan and the US have increased by 13% and11% respectively at constant currency, currency movements reduce the reportedsales by £439,000 compared to last year. However, currency movements have nosignificant effect on overall Group operating profit, due to the regional spreadof the Group's profits. The Group has concentrated on strengthening the Fulcrum brand through the launchof a new corporate website and a broad participation at major biotechnology andpartnering conferences in the US, Europe and Japan. The Group's approach to feegeneration has been integrated to optimise sales between development andregulatory services. In addition to this year's sales growth, the Group'sforward order book has strengthened significantly compared to the same time lastyear. EuropeWe have strengthened our business development capacity to drive future salesperformance in Europe. This has included placing dedicated sales resource in theUS to sell European services to US based clients. In addition more experiencedoperational staff have been recruited to our offices in Edinburgh, Strasbourgand in the Group's new head office in Hemel Hempstead to deliver rising sales.Europe has continued its excellent track record of developing relationships withinternational Non Governmental Organisations (NGOs) e.g. the Medicines forMalaria Venture (MMV) which has generated fee sales for both development andregulatory services. Fulcrum is proud that, for the second year running, one ofour senior staff received the MMV Project of the Year Award (see http://mmv.org)for work on a project researching a new generation of synthetic peroxides forthe treatment of malaria. The enlargement of the Group through organic growth and the acquisitions ofUnicus in April 2007 and Quadramed Ltd in February 2006 have enabled Fulcrum todeliver complete regulatory solutions to clients. Furthermore, Fulcrum hasentered into a strategic alliance with the Lorenz Life Sciences Group to broadenthe offerings in the expanding areas of e-publishing and submission management. The next step is to integrate the recent acquisitions and simplify theorganisational structure to improve delivery within the Group. USThe recovery of the US business is now well underway with a return toprofitability in the second half of the year. There has been strong sales growthin non-clinical services delivered to domestic US clients and to customers inEurope and Japan. It has been encouraging that a significant proportion of salesgrowth has come from new clients. To help meet increasing demand for preclinical services a new office was openedin November 2007 in Ann Arbor, Michigan. Our next step is to continue buildingup business development capacity plus operational resources in preclinical,technical and regulatory services. JapanDomestic sales in Japan have increased by 13% in local currency with profitbefore tax increasing by over 60% over the last year. This success has stemmed from the positioning of the business as a specialistoncology clinical research organisation where Fulcrum Japan now enjoys a strongreputation. Business development by the Japanese subsidiary also generated £1.3mof fee sales from Japanese clients for Europe and US development and regulatoryservices. Recently our Japanese subsidiary has won a contract to execute a phase IIIclinical oncology development study in Japan on behalf of a major Pharmacompany. The project commenced in September 2007 for four years and has a salesvalue of circa £2.7 million. In conjunction with other contracts already securedthis means that, at current capacity, Japan has a full order book for the nexttwo years. Management IncentivesThe long term incentive plan approved at the EGM held in April 2007 has beenimplemented. The plan aligns senior management with future goals to delivergrowth, profits and shareholder value. Board ChangesWe are actively looking to add skill sets and expertise to the Board to enablethe Group to achieve its aspirations to become a significant player in thepharmaceutical services sector. The Board expects to announce changes in itscomposition in early 2008. Future Strategy and Outlook The Group has a clear strategy to deliver a sustainable and profitable businessand, as stated previously, the steps to achieve this are: 1. Grow the global service business to deliver completedevelopment and regulatory solutions.2. Increase scale through acquisition and organic growth.3. Grow the business and its profitability by: • Integrating and simplifying business in Europe post M&A • Continued improvement of systems and processes • Increasing capacity of the sales teams in Europe, US and Japan • Developing and retaining long term client relationships • Focusing on broadening Fulcrum's most profitable services The Group remains committed to growing its global pharmaceutical development andregulatory services. In addition to organic growth the Group is planning furtherM&A activity to meet its aspirations and build a business with sufficient scaleto deliver sustainable profits. ConclusionThe operating profit from continuing operations of £408,000 (2006: £77,000) isin line with expectations and Unicus, having now recovered from some initialintegration issues, is trading profitably. The Board is further encouraged bythe strengthened order book since the year end. Finally, I would like to thankthe management and staff for their contribution to the business. Consolidated Profit & Loss Account for the year ended 31 August 2007 Year Ended Year Ended Year Year Ended Ended 31 August 31 August 31 August 31 August 2007 2007 2007 2006 Unaudited Unaudited Unaudited Audited--------------------- ----- --------- -------- --------- (Restated) -------- Continuing Acquisitions Total Total operations Note £'000 £'000 £'000 £'000--------------------- ----- --------- -------- --------- -------- Turnover 2 18,118 1,119 19,237 15,451Cost of sales (13,454) (1,056) (14,510) (11,438)--------------------- ----- --------- -------- --------- --------Gross profit 4,664 63 4,727 4,013Selling expenses (452) (52) (504) (563)Administrativeexpenses (3,899) (342) (4,241) (3,438)Other operatingincome 95 - 95 65--------------------- ----- --------- -------- --------- --------Operatingprofit/(loss) 408 (331) 77 77Interest receivableand similar income 42 - 42 59Interest payable andsimilar charges (73) (4) (77) (42)--------------------- ----- --------- -------- --------- --------Profit/(loss) onordinary activitiesbefore taxation 377 (335) 42 94Tax on profit/(loss)on ordinaryactivities 3 (36) 26 (10) (12)--------------------- ----- --------- -------- --------- --------Profit/(loss) forthe financial year 341 (309) 32 82--------------------- ----- --------- -------- --------- -------- Earnings per share(pence) 4Basic 0.02p 0.07pDiluted 0.02p 0.07p Statement of Total Group Recognised Gains and Losses for the year ended 31August 2007 2007 2006 Unaudited Audited (Restated) £'000 £'000Profit on ordinary activities after taxation 32 82Exchange adjustments offset in reserves 6 (27)------------------------------- --------- --------Total recognised gains and losses for theyear 38 55 --------Prior year adjustment (128)------------------------------- ---------Total recognised gains & losses since lastannual report (90)------------------------------- --------- -------- Consolidated Balance Sheet as at 31 August 2007 2007 2006 Unaudited Audited (Restated) Note £'000 £'000 Fixed assetsIntangible assets 3,441 1,216Tangible assets 715 552Investments 469 469------------------------------ -------- -------- ------- 4,625 2,237 Current assetsDebtors 5,923 3,657Short term investments 500 524Cash at bank and in hand 1,934 1,571------------------------------ -------- -------- ------- 8,357 5,752Creditors: amounts falling due withinone (6,498) (3,874)year -------- -------- -------------------------------------Net current assets 1,859 1,878------------------------------ -------- -------- -------Total assets less current liabilities 6,484 4,115Creditors: amounts falling due aftermore (803) (545)than one year -------- -------- -------------------------------------Net assets 5,681 3,570------------------------------ -------- -------- ------- Capital and reservesCalled up share capital 1,779 1,285Share premium account 6,082 4,547Merger reserve (454) (454)Profit and loss account (1,726) (1,808)------------------------------ -------- -------- -------Equity shareholders' funds 5 5,681 3,570------------------------------ -------- -------- ------- Consolidated Cash Flow Statement for the year ended 31 August 2007 ------------------------------ -------- -------- Note 2007 2006 Unaudited Audited £'000 £'000 ------------------------------ -------- -------- --------Net cash inflow from operating activities 6 922 795------------------------------ -------- -------- --------Returns on investment and servicing of financeInterest received 39 59Interest paid (44) (42)------------------------------ -------- -------- --------Net cash (outflow)/inflow from returns oninvestments and servicing of finance (5) 17------------------------------ -------- -------- --------TaxationCorporation tax paid (78) (72)------------------------------ -------- -------- --------Capital expenditure and financial investmentPurchase of tangible fixed assets (450) (310)Purchase of own shares for employee share optionsand awards (20) (114)Purchase of equity investments - (297)------------------------------ -------- -------- --------Net cash outflow from capital expenditure andfinancial investment (470) (721)------------------------------ -------- -------- --------Acquisitions & disposalsPurchase of subsidiary undertakings (includingcosts) (2,398) (123)Net (overdraft)/cash acquired with subsidiary (58) 445------------------------------ -------- -------- --------Net cash (outflow)/inflow from acquisitions anddisposals (2,456) 322------------------------------ -------- -------- --------Net cash (outflow)/inflow before management ofliquid resources and financing (2,087) 341------------------------------ -------- -------- --------Management of liquid resourcesDecrease in short term investments 24 669------------------------------ -------- -------- --------FinancingProceeds of ordinary shares issued 2,029 -Increase in borrowings 1,043 -Capital element of finance lease payments (17) (30)Bank loan repayments (104) (87)Loan note repayments (740) ------------------------------- -------- -------- --------Net cash inflow/(outflow) from financing 2,211 (117)------------------------------ -------- -------- --------Increase in cash 148 893------------------------------ -------- -------- -------- Reconciliation of net cash flow to movement in net funds ------------------------------ -------- -------- 2007 2006 Unaudited Audited £'000 £'000 ------------------------------ -------- --------Increase in cash 363 893Increase in overdrafts (34) -(Increase)/decrease in bank loans (939) 87Bank loans and overdrafts acquired with subsidiary (181) (11)Decrease/(increase) in loan notes 504 (1,090)Decrease in short term investments (24) (669)Decrease in finance leases 17 30------------------------------ -------- --------Change in net funds from cash flows (294) (760)Net funds at 1 September 778 1,538------------------------------ -------- --------Net funds at 31 August (484) 778------------------------------ -------- -------- 1 Financial Information The results for the year ended 31 August 2007 are unaudited and do notconstitute statutory accounts within the meaning of section 240 of the CompaniesAct 1985. They have been drawn up using accounting policies and principlesconsistent with those applied in the preparation of the audited accounts for theyear ended 31 August 2006, other than as explained below. The comparativeinformation contained in the report for the year ended 31 August 2006 does notconstitute the statutory accounts for the financial period. Those accounts havebeen reported on by the Company's Auditors, PricewaterhouseCoopers LLP, anddelivered to the Registrar of Companies. The report of the Auditors wasunqualified and did not contain a statement under section 237(2) or (3) of theCompanies Act. The 2007 financial year is the first year in which the Company has adopted FRS20 - "Share-based payments". In accordance with this standard, the cost of shareoptions awarded to employees under the Group's share option schemes is measuredby reference to their fair value at the date of grant. This cost is recognisedover the vesting period of the options based on the number of options which, inthe opinion of the Directors, will ultimately vest. The impact in the year ended31 August 2007 is a charge of £64,000 (2006: £60,000). The aggregate charge forprior periods up to 31 August 2007 is £192,000. The prior period financialstatements have been restated to reflect this the adaption of this new standard. 2 Turnover Turnover represents sales to third parties including fee income and pass throughcosts. Geographical analysis by origin 2007 2006 Unaudited Audited £'000 £'000 Europe 8,081 5,162USA 1,464 1,349Japan 1,958 1,831------------------------------------ -------- --------Total fee sales 11,503 8,342Pass through costs 7,734 7,109------------------------------------ -------- --------Turnover 19,237 15,451------------------------------------ -------- -------- Geographical analysis by destination 2007 2006 Unaudited Unaudited £'000 £'000 United Kingdom 4,214 2,184Rest of Europe 4,674 4,669North America 5,506 4,136Japan 3,680 4,044Rest of the World 1,163 418------------------------------------ -------- --------Turnover 19,237 15,451------------------------------------ -------- -------- 3 Tax on profit on ordinary activities 2007 2006 Unaudited Audited (Restated) £'000 £'000 UK taxationUK corporation tax at 30% (26) 10------------------------------------ -------- --------Overseas taxation 36 2Corporation taxes------------------------------------ -------- --------Total current taxation 10 12------------------------------------ -------- -------- ------------------------------------ -------- --------Tax on profit on ordinary activities 10 12------------------------------------ -------- -------- The tax charge for the period differs from the standard rate of corporation taxin the UK of 30% (2006: 30%). The differences are explained below: 2007 2006 Unaudited Audited (Restated) £'000 £'000 ---------------------------------- --------- ---------Profit on ordinary activities before tax 42 94---------------------------------- --------- ---------Profit on ordinary activities before tax multiplied bythestandard rate of corporation tax in the UK of 30% (2006:30%) 13 28Effects of:Capital allowances in excess of depreciation (1) (7)Expenses not deductible for tax purposes 114 52Tax losses for the period not relieved 63 51Tax losses for the period carried forward (35) -Adjustment regarding foreign taxes 9 -Research and development tax credits (153) (112)---------------------------------- --------- ---------Current tax charge for the year 10 12---------------------------------- --------- --------- 4 Earnings per share 2007 2006 Unaudited Audited (Restated) £'000 £'000 --------------------------------- --------- ---------Profit on ordinary activities aftertaxation for basic earnings per share 32 82--------------------------------- --------- --------- Number Number Weighted average number of shares 147,499,808 125,478,759Weighted average number of shares held by the ESOPTrust (4,093,963) (2,013,839)--------------------------------- --------- ---------Weighted average number of sharesfor basic earnings per share 143,405,845 123,464,920Number of dilutive shares under option 2,888,501 1,640,253--------------------------------- --------- ---------Weighted average number of shares for dilutedearnings per share 146,294,346 125,105,173--------------------------------- --------- --------- pence pence Basic earnings per share 0.02 0.07--------------------------------- --------- ---------Diluted earnings per share 0.02 0.7--------------------------------- --------- --------- The basic earnings per ordinary share is based on the Group's profit for theyear of £32,000 (2006: £82,000) divided by the weighted average number ofordinary shares in issue, excluding those shares held by the Employee ShareOwnership Trust ("ESOT"). 5 Movement in shareholders' funds 2007 2006 Unaudited Audited (Restated) £'000 £'000 Profit for the period 32 82FRS 20 Share option charge 64 60Issue of ordinary shares 2,029 243Purchase of own shares for ESOT (20) (114)Unrealised exchange profit/(loss) on consolidation 6 (27)--------------------------------- --------- ---------Net increase in shareholders' funds for the period 2,111 244Opening shareholders' funds 3,570 3,326--------------------------------- --------- ---------Closing shareholders' funds 5,681 3,570--------------------------------- --------- --------- 6 Notes to the consolidated cash flow statement Reconciliation of the operating profit to net cash inflow from operatingactivities: 2007 2006 Unaudited Audited (Restated) £'000 £'000 -Operating profit 77 77Amortisation of intangible fixed assets 261 51Depreciation of tangible fixed assets 275 197FRS 20 Share option charge 64 60Loss on disposal of fixed assets 48 15Exchange profit/ (loss) 11 (13)Increase in debtors (1,293) (216)Decrease in creditors 1,479 624----------------------------------- -------- --------Net cash inflow from operating activities 922 795----------------------------------- -------- -------- Analysis of net funds As at As at 1 September 31 August 2006 Cash flow Non Cash Changes 2007 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited --------------------- --------- --------- -------- --------Cash at bank and in 1,571 363 - 1,934handBank overdraft - (215) (215) --------- --------- -------- -------- 148Bank loans (194) (939) - (1,133)Loan notes (1,090) 740 (236) (586)Short term investments 524 (24) - 500Finance lease (33) 17 - (16)--------------------- --------- --------- -------- -------- 778 - (236) 484 --------------------- --------- --------- -------- -------- 7 Acquisition On 19 March 2007, the Company acquired the entire issued share capital of Unicusfor an initial consideration of £2.3million in cash, of which £159,000 wasrefunded by the vendor pursuant to the sale and purchase agreement, and furtherconsideration of £200,000 which was paid in employee benefits. Deferredconsideration of up to £2.3million, based on the turnover of Unicus during theyear ended 31 July 2008, and estimated to be £250,000, will be payable in cashand loan notes by 30 October 2008. The loan notes are repayable in three equalinstalments within the period 1 May 2009 to 1 May 2010. Book value and provisional fair valueof net assets acquired £'000 Fixed assets 41Debtors 805Bank overdraft (58)Creditors - amounts falling due within one year (504)------------------------------------ ------- ---------Net assets 284------------------------------------ ------- ---------Consideration------------------------------------ ------- ---------Initial Cash consideration 2,300Other consideration - employee benefits 200Estimated deferred consideration in cash 114Estimated deferred consideration in convertible loan notes 136Refund of Consideration (159)Acquisition costs 81------------------------------------ ------- ---------Total estimated consideration 2,672------------------------------------ ------- --------- Capitalised goodwill 2,388------------------------------------ ------- --------- 8 Copies of Annual Report Copies of the Annual Report will be sent to shareholders and will also beavailable at the registered office of Fulcrum Pharma plc, Hemel One, BoundaryWay, Hemel Hempstead, Hertfordshire, HP2 7YU. 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