14 May 2009 07:00
Fulcrum Pharma plc
Interim results for the six months ended 28 February 2009
Highlights
Revenue up by 11% to £8.2 million (compared to H1 2008 of £7.4 million)
Gross profit increased by 10% to £3.5 million (compared to H1 2008 of £3.2 million)
Operating profit decreased to £122,000 (compared to H1 2008 of £218,000)
Reduced EBITDA of £310,000 (compared to H1 2008 of £409,000)
Net cash position strong at £2.7 million after repayment of £461,000 loans and deferred consideration
EU & PDC business re-structuring programme implemented to increase operational efficiency in H2 2009
For further information, please contact:
| Fulcrum Pharma plc | |
| Frank Armstrong, Chief Executive | Tel: 07815 191565 |
| Seymour Pierce | |
| Jonathan Wright | Tel: 0207 107 8000 |
Chairmans' report
Introduction
I am pleased to report my first set of interim results as Chairman of Fulcrum Pharma. The trading highlights for the period from 1 September 2008 to 28 February 2009 are:
Revenue up by 11% to £8.2 million (compared to H1 2008 of £7.4 million)
Gross profit increased by 10% to £3.5 million (compared to H1 2008 of £3.2 million)
Operating profit decreased to £122,000 (compared to H1 2008 of £218,000)
Reduced EBITDA of £310,000 (compared to H1 2008 of £409,000)
Net cash position strong at £2.7 million after repayment of £461,000 loans and deferred consideration
EU & PDC business re-structuring programme implemented to increase operational efficiency in H2 2009
Business review
In this reporting period Fulcrum Pharma has continued to pursue the major elements of its business strategy, which are:
Winning bigger drug development projects in the Product Development Consultancy (PDC) business through building long term relationships with a more diverse group of clients, including pharma companies, biotechnology companies, the neglected diseases sector and the investment community; and
Building a bigger regulatory business through organic growth and acquisition of complementary regulatory businesses in the EU and US.
The implementation of this strategy has been impacted by more difficult trading conditions, particularly since the beginning of 2009. There has been a lack of funding available to biotechnology companies for development of their product portfolios and or product acquisition. Pharma and biotechnology companies and investors have also been slower to make budget commitments to new projects or project extensions and, in common with other professional service businesses, there has been some erosion of prices as clients seek to reduce costs. However, there is new and increased interest from pharma companies and the investment community in alternative approaches to drug development, and the trend towards strategic outsourcing continues to grow.
Financial review
Revenue for the Group increased 11% to £8,246,000 (2008: £7,444,000), driven by currency gains. Gross profit increased 10% to £3,498,000 (2008: £3,178,000), whilst operating profit reduced to £122,000 (2008: £218,000). The retained profit was £120,000 (2008: £66,000).
Selling and administrative expenses increased due to investment in the business development and management capabilities of the US business, in accordance with the Group's strategy, and the impact of exchange rate movements compared to the first half of last year.
Earnings before interest, tax, depreciation and amortisation ('EBITDA') were £310,000 (2008: £409,000). Earnings per share were 0.07p (2008: 0.04p).
The balance sheet remains strong with cash and cash equivalents of £2,744,000 (2008: £2,670,000).
The Directors do not propose a dividend (2008: £nil).
Average headcount for the period increased to 148 from 134, reflecting further recruitment in the US and Japan. 152 staff were in post at the period end.
Operating review
Revenue for the Group has increased, despite the more difficult global market conditions. Fulcrum Pharma has been protected to some extent from the full impact of the market downturn by its geographic spread, in particular the proportion of long term contract work in Japan. However, a business re-structuring programme has been implemented in the EU & PDC to increase operational efficiency in H2 2009.
Revenue in the EU declined in H1 2009 by 10% compared to H1 2008. This resulted in an operating loss in the EU for the reporting period. The revenue decline was partially due to large one-off projects in H1 2008 not being repeated in H1 2009. More particularly, it was due to the more difficult market conditions, which have resulted in the cancellation of some contracts, retrenchment of biotechnology companies to focus on a limited number of assets and delayed commitment of budget to projects. Fulcrum Pharma Europe, including PDC, is undertaking a substantial re-structuring programme in H2 2009 to reduce the overall cost base by approximately 10% and improve performance for H2 2009 and for Financial Year 2010.
US
Revenue in the first half increased by 38% (9% when adjusted for currency effects) compared to H1 2008. There has continued to be consistent demand for non-clinical and manufacturing consultancy services, although early effects of the negative market conditions have become apparent in business development, the inability of sponsors to conduct awarded projects and cancellation of existing projects. In addition to the core development services, the capability of the US organisation has been augmented through an expansion of regulatory operations in the US office. There was strong interest among potential customers and partners for the regulatory document management and publishing services provided by this group and this interest is expect to increase. To accommodate the regulatory operations services and future growth of the US organization, an expansion of the North Carolina office was completed. In addition, the business development capability and management support has been augmented, compared to the first half of the 2008 financial year.
Japan
Domestic revenue and profit grew strongly in H1 2009, with revenue increasing by 67% compared to H1 2008 (13% when adjusted for currency effects). The Group has benefited from the strong Yen. There continues to be a strong demand for Fulcrum Pharma's services in Japan, based on long-term relationships with Japanese companies and with clinical investigators. This has led to longer term contracts which result in a good order book for the next two years. Fulcrum Pharma is expanding the office accommodation in Japan to allow further recruitment of staff and is examining options to further grow the business. There continues to be substantial work generated from Japanese companies for the Fulcrum Pharma EU and US businesses based on the strong local relationships.
Product Development Consultancy
PDC leads the Group's activities to win big projects, through targeted efforts to build strong relationships with clients based on Fulcrum Pharma's 10 year track record in drug development. Two major projects were won in H1 2009. Fulcrum Pharma is progressing a New Drug Application for a neglected diseases project that has been managed by Fulcrum Pharma throughout the development programme. Since the turn of the year, project conversion has been slower, reflecting the more difficult market conditions.
Future strategy and outlook
The Board and Management of Fulcrum Pharma remain convinced of the opportunity that exists to substantially grow the business through winning bigger PDC projects and building a substantial regulatory business, and these two limbs of the business strategy are progressing satisfactorily. The harsh market conditions, particularly since the beginning of the year, have impacted Fulcrum Pharma in H1 2009, though the Group has increased revenues and maintained a strong cash position. Fulcrum Pharma continues to be very active in business development with clients and has generated a substantial number of new proposals. In addition, the actions being taken to reduce the cost base should lead to an overall stronger Fulcrum Pharma business.
I would like to acknowledge the contributions of my predecessor, Sir Charles George, who ably served as Chairman for 9 years and I would like to thank the employees of Fulcrum Pharma and my fellow Directors for their contributions in H1 2009.
Grahame Cook
Chairman
14 May 2009
Consolidated income statement
For the period ended 28 February 2009
| Period ended | Period ended | Year ended | ||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||
| Unaudited | Unaudited | Audited | ||
| Note | £'000 | £'000 | £'000 | |
| Revenue | 3 | 8,246 | 7,444 | 14,826 |
| Cost of sales | (4,748) | (4,266) | (7,966) | |
| Gross profit | 3,498 | 3,178 | 6,860 | |
| Selling expenses | (544) | (359) | (757) | |
| Administrative expenses | (2,832) | (2,621) | (5,437) | |
| Other operating income | - | 20 | - | |
| Operating profit | 122 | 218 | 666 | |
| Finance income | 4 | 27 | 31 | 69 |
| Finance costs | 4 | (27) | (155) | (281) |
| Profit on ordinary activities before taxation | 122 | 94 | 454 | |
| Income tax expense | 5 | (2) | (28) | (130) |
| Profit for the period | 120 | 66 | 324 | |
| Earnings per share (pence) | ||||
| Basic | 7 | 0.07p | 0.04p | 0.19p |
| Diluted | 7 | 0.07p | 0.04p | 0.18p |
Consolidated statement of recognised income and expense
For the period ended 28 February 2009
| Period ended | Period ended | Year ended | ||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||
| Unaudited | Unaudited | Audited | ||
| Note | £'000 | £'000 | £'000 | |
| Fair value (losses) / gains net of tax: - Available-for-sale financial assets | 9 | (46) | (29) | 1 |
| Net (loss) / gain recognised directly in equity | (46) | (29) | 1 | |
| Profit for the period | 120 | 66 | 324 | |
| Total recognised income for the period | 74 | 37 | 325 | |
| Currency translation differences | 9 | 106 | - | 53 |
| Total recognised gains attributable to the shareholders | 180 | 37 | 378 | |
Consolidated balance sheet
As at 28 February 2009
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||
| Unaudited | Unaudited and restated | Audited | ||
| Note | £'000 | £'000 | £'000 | |
| Assets Non current assets Intangible assets Property, plant and equipment Available-for-sale financial assets Deferred tax assets | 3,932 740 332 219 | 3,548 670 446 - | 3,973 627 378 57 | |
| 5,223 | 4,664 | 5,035 | ||
| Current assets Trade and other receivables Cash and cash equivalents | 5,718 2,744 | 5,036 2,670 | 5,704 2,903 | |
| 8,462 | 7,706 | 8,607 | ||
| Liabilities Current liabilities Trade and other payables Current tax liabilities Bank and other borrowings Convertible loan notes Deferred cash consideration | 8 8 | (5,404) (161) (457) (295) (122) | (5,186) (4) (329) (136) (114) | (5,520) (102) (337) (148) (372) |
| (6,439) | (5,769) | (6,479) | ||
| Net current assets | 2,023 | 1,937 | 2,128 | |
| Non current liabilities Bank loans and other borrowings Convertible loan notes Deferred tax liabilities | 8 8 | (693) (148) (73) | (772) - - | (599) (295) (73) |
| (914) | (772) | (967) | ||
| Net assets | 6,332 | 5,829 | 6,196 | |
| Equity Share capital Share premium account Merger reserve Retained earnings | 9 9 9 9 | 1,779 6,082 (454) (1,075) | 1,779 6,082 (454) (1,578) | 1,779 6,082 (454) (1,211) |
| Total equity | 6,332 | 5,829 | 6,196 |
Consolidated cash flow statement
For the period ended 28 February 2008
| Period ended | Period ended | Year ended | |
| 28 February 2009 | 29 February 2008 | 31 August 2008 | |
| Unaudited | Unaudited | Audited | |
| £'000 | £'000 | £'000 | |
| Continuing operations Profit before tax Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share based payments Loss on disposal of fixed assets Net finance costs Changes in working capital: Decrease in trade and other receivables (Decrease)/increase in payables | 122 146 42 36 1 - 529 (695) | 94 138 53 30 - 124 631 5 | 454 283 191 38 - 212 335 (20) |
| Cash generated by operations | 181 | 1,075 | 1,493 |
| Operating activities Interest received Interest paid - bank and other loans Taxation paid | 12 (31) (52) | 34 (72) (49) | 72 (108) (64) |
| Net cash absorbed by operating activities | (71) | (87) | (100) |
| Investing activities Purchase of property, plant and equipment Acquisition of a subsidiary | (218) (250) | (90) 155 | (180) 135 |
| Net cash used in investing activities | (468) | 65 | (45) |
| Financing activities Increase in bank borrowings Repayment of bank loans Repayment of obligations under finance leases Loan note repayments (Purchase)/sale of shares for Employee Share Option Plan Trust | 369 (211) (3) - (44) | 52 (168) (6) (450) (17) | 43 (282) (10) (450) 1 |
| Net cash generated from/(used by) financing activities | 111 | (589) | (698) |
| Effect of foreign exchange rate changes on cash and cash equivalents | 88 | (11) | 36 |
| Net (decrease)/increase in cash and cash equivalents | (159) | 453 | 686 |
| Cash and cash equivalents at the beginning of the period | 2,903 | 2,217 | 2,217 |
| Cash and cash equivalents at the end of the period | 2,744 | 2,670 | 2,903 |
Notes to the financial statements
For the year ended 28 February 2009
1. GENERAL INFORMATION
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
3. SEGMENTAL REPORTING
Revenue analysis
| | Revenue by origin | Revenue by destination | ||||
| | Period ended | Period ended | Year ended | Period ended | Period ended | Year ended |
| | 28 February 2009 | 29 February 2008 | 31 August 2008 | 28 February 2009 | 29 February 2008 | 31 August 2008 |
| | Unaudited | Unaudited | Audited | Unaudited | Unaudited | Audited |
| | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| United Kingdom | 4,677 | 5,045 | 9,831 | 1,859 | 2,589 | 4,779 |
| Europe | — | — | — | 1,682 | 1,343 | 2,656 |
| North America | 1,525 | 1,198 | 2,431 | 1,419 | 1,672 | 2,787 |
| Japan | 2,044 | 1,201 | 2,564 | 2,978 | 1,837 | 3,999 |
| Other countries | — | — | — | 308 | 3 | 605 |
| | 8,246 | 7,444 | 14,826 | 8,246 | 7,444 | 14,826 |
Total assets by asset location
| | Segment assets | Capital expenditure | ||||
| | As at | As at | As at | Period ended | Period ended | Year ended |
| | 28 February 2009 | 29 February 2008 | 31 August 2008 | 28 February 2009 | 29 February 2008 | 31 August 2008 |
| | Unaudited | Unaudited | Audited | Unaudited | Unaudited | Audited |
| | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| United Kingdom and Europe | 9,465 | 9,598 | 10,239 | 91 | 78 | 164 |
| North America | 2,195 | 1,513 | 1,968 | 97 | 12 | 16 |
| Japan | 2,025 | 1,221 | 1,435 | 29 | — | — |
| | 13,685 | 12,332 | 13,642 | 218 | 90 | 180 |
4. FINANCE INCOME AND COSTS
Group
| Period ended | Period ended | Year ended | ||||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| £'000 | £'000 | £'000 | ||||
| Interest income: | ||||||
| - Bank interest | 27 | 31 | 69 | |||
| Finance income | 27 | 31 | 69 | |||
| Interest expense: | ||||||
| - On bank loans and overdrafts | (26) | (47) | (74) | |||
| - On convertible loan stock | - | (8) | (8) | |||
| - In respect of finance leases | (1) | (1) | (2) | |||
| Fair value losses on financial instruments | ||||||
| - Impairment of available-for-sale financial assets | - | (99) | (197) | |||
| Finance costs | (27) | (155) | (281) | |||
| Net finance income/(costs) | - | (124) | (212) |
5. INCOME TAX EXPENSE
Group
| Period ended | Period ended | Year ended | ||||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| £'000 | £'000 | £'000 | ||||
| Current taxation | 160 | 28 | 111 | |||
| Adjustments in respect of prior periods | (1) | - | (3) | |||
| Total current taxation | 159 | 28 | 108 | |||
| Deferred taxation | (157) | - | 22 | |||
| Taxation charge | 2 | 28 | 130 |
6. DIVIDENDS
The Directors do not propose to pay an interim dividend (2008: £Nil per share).
7. EARNINGS PER SHARE
| Period ended | Period ended | Year ended | ||||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| Basic earnings per share | 0.07p | 0.04p | 0.19p | |||
| Diluted earnings per share | 0.07p | 0.04p | 0.18p | |||
| As at | As at | As at | ||||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||||
| Unaudited | Unaudited | Audited | ||||
| Number | Number | Number | ||||
| Weighted average number of shares | 177,940,743 | 177,940,743 | 177,940,745 | |||
| Weighted average number of shares held by the ESOP Trust | (5,068,172) | (4,588,929) | (4,264,364) | |||
| Weighted average number of shares for basic earnings per share | 172,872,571 | 173,351,814 | 173,676,381 | |||
| Number of dilutive shares under option | 1,903,153 | 2,888,501 | 2,107,702 | |||
| Weighted average number of shares for diluted earnings per share | 174,775,724 | 176,240,315 | 175,784,083 | |||
The basic earnings per ordinary share is based on the Group's profit for the period of £120,000 (2008: £66,000) divided by the weighted average number of ordinary shares in issue, excluding those shares held by the ESOP Trust.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the effects of potentially dilutive potential ordinary shares.
8. BORROWINGS
| As at | As at | As at | ||
| 28 February 2009 | 29 February 2008 | 31 August 2008 | ||
| Unaudited | Unaudited | Audited | ||
| £'000 | £'000 | £'000 | ||
| Current: | ||||
| Bank loans | 455 | 318 | 332 | |
| Finance lease obligation | 2 | 11 | 5 | |
| Convertible loan notes | 295 | 136 | 148 | |
| 752 | 465 | 485 | ||
| Non-Current: | ||||
| Bank loans | 693 | 772 | 598 | |
| Finance lease obligation | - | - | 1 | |
| Convertible loan notes | 148 | - | 295 | |
| 841 | 772 | 894 | ||
| 1,593 | 1,237 | 1,379 |
Bank loans and overdrafts are unsecured. There is no difference between the fair value and carrying value of borrowings.
9. STATEMENT OF CHANGES IN EQUITY
Group
| Retained earnings | |||||||
| Share | |||||||
| Called up | premium | Merger | Available-for- | Retained | |||
| share capital | account | reserve | sale assets | Translation | earnings | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 September 2007 | 1,779 | 6,082 | (454) | 104 | 12 | (1,744) | 5,779 |
| Retained profit for year | - | - | - | - | - | 66 | 66 |
| Fair value gains/(losses) on available for sale assets | - | - | - | (29) | - | - | (29) |
| IFRS 2 charge | - | - | - | - | - | 30 | 30 |
| Sale/(purchase) of shares for ESOP Trust | - | - | - | - | - | (17) | (17) |
| Unrealised exchange profit/(loss) on consolidation | - | - | - | - | - | - | - |
| At 28 February 2008 | 1,779 | 6,082 | (454) | 75 | 12 | (1,665) | 5,829 |
| Retained profit for year | - | - | - | - | - | 258 | 258 |
| Fair value gains/(losses) on available for sale assets | - | - | - | 30 | - | - | 30 |
| IFRS 2 charge | - | - | - | - | - | 8 | 8 |
| Sale/(purchase) of shares for ESOP Trust | - | - | - | - | - | 18 | 18 |
| Unrealised exchange profit/(loss) on consolidation | - | - | - | - | 53 | - | 53 |
| At 31 August 2008 | 1,779 | 6,082 | (454) | 105 | 65 | (1,381) | 6,196 |
| Retained profit for year | - | - | - | - | - | 120 | 120 |
| Fair value gains/(losses) on available for sale assets | - | - | - | (46) | - | - | (46) |
| IFRS 2 charge | - | - | - | - | - | - | - |
| Sale/(purchase) of shares for ESOP Trust | - | - | - | - | - | (44) | (44) |
| Unrealised exchange profit/(loss) on consolidation | - | - | - | - | 106 | - | 106 |
| At 28 February 2009 | 1,779 | 6,082 | (454) | 59 | 171 | (1,305) | 6,332 |
10. RESTATEMENT OF THE OPENING BALANCE SHEET
No changes have been made to the comparative income statement