Preliminary Results

RNS Number : 2521R

Avacta Group PLC

24 October 2013

 



Avacta Group plc

("Avacta", the "Group" or the "Company")

Preliminary Results

Avacta Group plc (AIM: AVCT), a global provider of proprietary diagnostic tools, consumables and reagents for human and animal healthcare, announces its audited preliminary results for the year ended 31 July 2013.

Operational highlights

·	Significant increase in H2 Optim2 sales with re-engineering completed and ForteBio sales team now trained
·	Development of Sensipod completed and expansion of the menu of tests progressing well
·	Affimer affinity reagent platform progressing well with commercialisation targeted for 2014

Financial highlights

·	Revenue of £2.70m (2012: £3.13m) § Avacta Animal Health revenues of £1.50m (2012: £1.49m) § Avacta Analytical revenues of £1.20m (2012: £1.64m) § Optim related revenues of £0.99m (2012: £1.29m) with 12 units placed (2012: 21 units) § 10 Optim2 units shipped in second half, 2 Optim 1000 units shipped in first half § Consumables revenues up 37% to £0.26m (2012: £0.19m) § Annual consumable usage now c. £7k per unit (2012: £5k)
·	Gross margins up to 56% (2012: 48%) - re-engineered Optim2 cost reductions and improved revenue mix
·	Reported loss before tax of £1.85m (2012: £1.60m loss)
·	Year-end cash at bank of £0.58m (2012: £4.19m)
·	Loss per share of 0.05p (2012: 0.04p loss)

Post-period end highlights

·	Placing to raise £4.70m completed in August 2013
·	Sensipod launched and first units shipped to veterinary practices in the UK
·	Appointment of Matt Johnson, previously head of R&D at Abcam, as Head of R&D at Avacta Life Sciences
·	First licence agreement for Affimers with Blueberry Therapeutics

Commenting on Outlook, Alastair Smith, Chief Executive Officer, said: 

"Our recently re-engineered Optim2, with increased functionality and performance improvements, has been well received by the market which bodes well for the coming financial year. We will also see the first revenues from our Sensipod product as they are sold to veterinary practices in the UK. We have already seen a good level of interest and expect this to accelerate as we expand the menu of diagnostic tests over the coming months and years. Good progress has been made with our Life Sciences business and we remain confident that our Affimer based products will generate revenues in calendar year 2014. I am very excited about the prospects for the business and look forward to reporting on growth in the forthcoming financial year."

Avacta Group plc	www.avacta.com
Alastair Smith, Chief Executive Officer	Tel:  [phone]
Tim Sykes, Chief Financial Officer
Numis Securities Limited	Tel:  [phone]
Michael Meade / Freddie Barnfield (NOMAD)
James Black  (Corporate Broking)
Walbrook PR Limited	Tel: [phone] or [e-mail]
Mike Wort	Mob: [phone]
Paul McManus	Mob: [phone]

Avacta Group plc is a global provider of innovative technologies, consumables and reagents for the life science markets, from drug discovery to diagnostics. Avacta operates through three divisions:

Avacta Analytical www.avactaanalytical.com	High throughput analysis instrument, Optim, to help reduce the cost and risk of drug development.
Avacta Animal Health www.avactaanimalhealth.com	Veterinary diagnostics reference laboratory, diagnostic kits and newly launched in-clinic blood analyser, Sensipod.
Avacta Life Sciences www.avactalifesciences.com	Novel non-antibody affinity reagents called Affimers, with a wide range of Life Science applications in diagnostics, drug and biomarker discover and biotech research and development.

Avacta joined AIM in August 2006 and is based in Wetherby, England.

Chairman's and Chief Executive Officer's Report

Sales Overview

The Group reported reduced revenue of £2.70 million, against £3.13 million in the prior year, primarily as a result of slow Optim sales in the first half of the financial year during the final stages of the re-engineering of the product.

The Avacta Analytical division which is focused on commercialising Optim, a technology aimed at reducing the costs and risks associated with biopharmaceutical drug development, shipped and installed 12 units which, along with consumable cartridge sales, resulted in revenue of £0.99 million (2012: £1.29 million). Total revenues for Avacta Analytical were £1.20 million (2012: £1.64 million).

Within the Avacta Animal Health division, revenue from the Group's veterinary diagnostics service and kits based business grew slightly to £1.50 million (2012: £1.49 million).

Avacta Analytical

Avacta Analytical provides high-end analytical instrumentation, consumables and services to the biopharmaceutical sector.  During the period, 12 Optim units were shipped and the Group now has units installed in major pharmaceutical customers across all of the principal global markets with some customers having bought multiple units. Consumables usage now stands at approximately £7,000 per unit per annum (2012: £5,000) and there has been a significant increase in the number of publications and references from users during the period which is having a strong positive effect on sales pipeline. Revenue from Optim was £0.99 million (2012: £1.29 million), which includes consumables revenue of £0.26m, up 37% on £0.19m of revenue recorded in the previous year. Optim unit revenue in the first half of the financial year was lower due to the impact of re-engineering Optim2 and the need to train a new sales team at ForteBio, who distribute the product.  Only two units of the predecessor unit, Optim 1000, were despatched in the first half of the year.  This improved sharply in the second half of the financial year following the launch of Optim2 on 1 February 2013, with ten Optim2 units shipped, and the Directors are pleased with current progress.

Avacta Animal Health

Avacta Animal Health provides diagnostic products, reagents and services for the US$1.5 billion global veterinary diagnostics market. Its aim is to equip veterinary professionals with high quality animal health and well-being information, through test kits and reference laboratory testing services and now, through an in-clinic blood testing system - Sensipod.

The Group has previously reported delays in the commercial launch of Sensipod but product development was completed during the reporting period and, since the period end, the first Sensipod units have been shipped into a number of veterinary practices in the UK. The acceleration of the roll out is expected to be driven strongly by growth of the test menu which is progressing well. The Group expects to launch several more tests on to the Sensipod platform during the coming financial year in allergy and secondary infection, inflammation, immunology, cancer and other disease areas.

New reference laboratory tests and diagnostic test kits are being realised as a spin-off from the Sensipod test menu development programme and there are substantial opportunities for the Group to grow Avacta Animal Health through commercialisation of these other diagnostics products as well as Sensipod. The Group expects to launch several such new diagnostic tests during the coming financial year.

Revenue from diagnostic testing services has grown slightly to £1.50 million (2012: £1.49 million).

Avacta Life Sciences

Avacta Life Sciences has been established to commercialise Affimers, an engineered alternative to antibodies, as reagents for life sciences research and in the form of microarrays for drug and biomarker discovery.

The initial focus during the reporting period has been on establishing the operational facilities and teams to deliver in these two areas and good progress has been made. The Group is now routinely producing around 1,000 new Affimers per week to populate the microarrays and has developed printing techniques to achieve high quality, high density protein microarrays. These printing procedures are currently being transferred to the Group's volume manufacturing partner. Over the coming year prototype arrays will be validated both internally and with external partners with the aim of achieving commercialisation of the first microarray products later in calendar year 2014. Optimisation of the high throughput screening facilities that will allow the Group to rapidly generate new Affimer affinity reagents for research purposes is ongoing. When optimisation is complete these reagents will be commercialised through custom reagent services and through the generation of a catalogue of reagents which will be sold through partners and directly on line.

Post period end, the Group announced the first licence deal for Affimers with Blueberry Therapeutics ("Blueberry"), a private UK biotechnology company.  The Group will provide proprietary Affimers that Blueberry will use in the development of new therapies for the treatment of drug resistant bacterial infection. As part of the deal, the Group has already supplied the first lead Affimer to Blueberry.  In addition, the Group recently announced the recruitment of Matt Johnson, previously Head of R&D at Abcam, one of the global leaders in research antibodies, to the post of Head of R&D of Avacta Life Sciences. At this critical point in the Group's development and commercialisation of Affimers, the Directors believe that he brings an in-depth understanding of the antibody market, emerging technologies and customer needs as well as a strong technical and operational track record.

Financial Overview

Revenue fell to £2.70 million (2012: £3.13 million).  The fall in revenue was largely due to slow sales in the first half of the financial year within Avacta Analytical due to the re-engineering of the upgraded product, Optim2, and its launch on 1 February 2013, along with the requirement to train a new sales team at ForteBio, the newly acquired instrumentation sales arm of Avacta's principal distributor, Pall Life Sciences.  Revenue for the year included £1.20 million from Avacta Analytical (2012: £1.64 million) assisted by the contribution of the 12 Optim installations and associated consumables and £1.50 million (2012: £1.49 million) from Avacta Animal Health.  The reduced revenues in Avacta Analytical were offset by margin improvements with the result that the Group generated £1.51 million (2012: £1.51 million) of gross profit.  Underlying overheads increased by £0.19 million resulting in the Group reporting an adjusted operating loss of £1.74 million (2012: £1.55 million).  The reported operating loss increased to £1.87 million (2012: £1.64 million).

The Group recognised £0.33 million (2012: £0.49 million) of R&D tax credits during the year which reduced the loss retained to £1.52 million (2012: £1.11 million) leaving loss per share at 0.05 pence (2012: 0.04 pence).

Development expenditure capitalised during the year increased to £1.76 million (2012: £1.36 million) through the full year effect of the accelerated development of the menu of diagnostic tests and the Affimer affinity reagent platform. This acceleration commenced during January 2012. In addition, the Group purchased further intellectual property related to the development of its animal health diagnostic test menu and recognised £0.82 million in respect of its value.  These factors resulted in net intangible assets increasing to £14.58 million (2012: £12.10 million) after amortisation of £0.09 million (2012: £0.10 million).

The Group reported cash balances of £0.58 million at 31 July 2013 (2012: £4.19 million). On 5 August 2013, the Group completed a fund raise of £4.70 million at a price of 0.55 pence per share.

Outlook

Optim sales picked up sharply in the second half of the financial year. The additional functionality and improvements in the Optim2 product have been well received by the market and the Directors expect to see a good performance from this business unit in the coming financial year.

The Directors are naturally very pleased to see the shipping of the first Sensipod units to veterinary practices in the UK and recognise that the expansion of the menu of diagnostic tests over the coming months and years is critical to the growth of the installed base.  This is a key area of focus for the Group. The animal health business unit now has three revenue streams from reference laboratory testing, diagnostic kit sales and Sensipod in-clinic testing and the Directors are confident that the pipeline of new products in each of these three areas will drive growth. 

Progress in the two focus areas for Affimers, commercialisation as reagents for life sciences research and microarrays for drug and biomarker discovery, is good and the Group remains on target to generate first revenues in calendar 2014.

Gwyn Humphreys Chairman 24 October 2013

Alastair Smith Chief Executive Officer 24 October 2013

Consolidated Income Statement

for the year ended 31 July 2013

			2013	2012
			£000	£000
	Revenue		2,700	3,130
	Cost of goods sold		(1,187)	(1,619)
			-------------	-------------
	Gross profit		1,513	1,511
	Administrative expenses		(3,386)	(3,153)
			-------------	-------------
	Operating loss before non-recurring items, amortisation and share-based payment charges		(1,738)	(1,550)
	Release of contingent consideration provision		68	150
	Amortisation of customer related intangibles and development costs		(87)	(97)
	Share-based payment charges		(116)	(145)
			-------------	-------------
	Operating loss		(1,873)	(1,642)
	Finance income		21	39
			-------------	-------------
	Loss before taxation		(1,852)	(1,603)
	Taxation		331	497
			-------------	-------------
	Amount attributable to equity holders of the Company		(1,521)	(1,106)
			-------------	-------------
	Loss per ordinary share:
	-  Basic and diluted		(0.05p)	(0.04p)
			------------	------------

Consolidated Balance Sheet

as at 31 July 2013

		2013	2012
		£000	£000
Non-current assets
Intangible assets		14,583	12,095
Property, plant & equipment		835	636
		-------------	-------------
		15,418	12,731
		-------------	-------------
Current assets
Inventories		380	462
Trade and other receivables		985	619
Income taxes		290	485
Cash and cash equivalents		582	4,191
		-------------	-------------
		2,237	5,757
		-------------	-------------
Total assets		17,655	18,488
		-------------	-------------
Current liabilities
Trade and other payables		(1,249)	(1,432)
Contingent consideration		(380)	(100)
		-------------	-------------
		(1,629)	(1,532)
		-------------	-------------
Non-current liabilities
Contingent consideration		(474)	-
Deferred tax liabilities		-	-
		-------------	-------------
		(474)	-
		-------------	-------------
Total liabilities		(2,103)	(1,532)
		-------------	-------------
Net assets		15,552	16,956
		-------------	-------------
Equity attributable to equity holders of the Company
Called up share capital		3,234	3,234
Share premium account		22,990	22,989
Capital reserve		2,669	2,669
Other reserve		(1,729)	(1,729)
Reserve for own shares		(1,590)	(1,590)
Retained earnings		(10,022)	(8,617)
		-------------	-------------
Total equity		15,552	16,956
		-------------	-------------

Consolidated Statement of Changes in Equity

for the year ended 31 July 2013

	Share capital	Share premium	Other reserve	Capital reserve	Reserve for own shares	Retained earnings
	£000	£000	£000	£000	£000	£000
At 1 August 2011	1,744	16,408	(1,729)	2,669	-	(7,656)
Transactions with owners of the Company recognised directly in equity
Shares issued for cash	1,260	5,221	-	-	-	-
Purchase of own shares	-	-	-	-	(1,590)	-
Shares issued during the year as consideration for business combinations	230	1,360	-	-	-	-
Share based payment charges	-	-	-	-	-	145
Total comprehensive income for the period
Result for the period	-	-	-	-	-	(1,106)
	-------------	-------------	-------------	-------------	-------------	-------------
At 31 July 2012	3,234	22,989	(1,729)	2,669	(1,590)	(8,617)
Transactions with owners of the Company recognised directly in equity
Shares issued for cash	-	1	-	-	-	-
Share based payment charges	-	-	-	-	-	116
Total comprehensive income for the period
Result for the period	-	-	-	-	-	(1,521)
	-------------	-------------	-------------	-------------	-------------	-------------
At 31 July 2013	3,234	22,990	(1,729)	2,669	(1,590)	(10,022)
	-------------	-------------	-------------	-------------	-------------	-------------

Consolidated Statement of Cash Flows for the year ended 31 July 2013

		2013	2012
		£000	£000
Operating activities
Loss for the year		(1,521)	(1,106)
Amortisation and impairment losses		89	97
Depreciation		278	141
Loss on disposal of property, plant and equipment		1	-
Share based payment charges to employees		116	145
Net finance income		(21)	(39)
Income tax credit		(331)	(497)
		------------	-------------
Operating cash outflow before changes in working capital		(1,389)	(1,259)
Movement in inventories		82	(125)
Movement in trade and other receivables		(366)	-
Movement in trade and other payables		(251)	634
		------------	-------------
Operating cash outflow from operations		(1,924)	(750)
Finance income received		21	39
Income tax received		526	-
		------------	-------------
Net cash flow from operating activities		(1,377)	(711)
		------------	-------------
Investing activities
Purchase of plant and equipment		(478)	(432)
Development expenditure capitalised		(1,755)	(1,355)
Acquisition of subsidiaries		-	28
		------------	-------------
Net cash flow from investing activities		(2,233)	(1,759)
		------------	-------------
Financing activities
Proceeds from issue of shares		1	4,891
Capital repayment on finance leases		-	(4)
		------------	-------------
Net cash flow from financing activities		1	4,887
		------------	-------------
Net increase in cash and cash equivalents		(3,609)	2,417
Cash and cash equivalents at the beginning of the year		4,191	1,774
		------------	-------------
Cash and cash equivalents at the end of the year		582	4,191
		------------	-------------

Notes

1.   These preliminary results have been prepared on the basis of the accounting policies which are to be set out in Avacta Group plc's annual report and financial statements for the year ended 31 July 2013.

The consolidated financial statements of the Group for the year ended 31 July 2013 were prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ("adopted IFRSs") and applicable law.

The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 July 2013 or 2012 but is derived from those financial statements.  Statutory financial statements for 2012 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2013 will be respectively delivered and distributed on or before 31 December 2013.  The auditors have reported on those financial statements and their reports were:

(i) unqualified;

(ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

(iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the financial statements for 2012 or 2013.

2.   Basis of preparation

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The Group's activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's and Chief Executive Officer's Report.  The financial position of the Group, its financial performance and its cash flows and liquidity position are described there also and within the financial statements presented.

The financial statements have been prepared on a going concern basis. The current economic conditions create uncertainty particularly over the level of demand for the Group's products and over the availability of finance which the directors are mindful of.  In addition, the Group has incurred significant losses over the last few years of which a substantial element is in cash.

The Financial Reporting Council issued "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" in 2009, and the Directors have considered this when preparing these financial statements.  This has been prepared on a going concern basis, notwithstanding the loss for the period ended 31 July 2013.  The Directors have taken steps to ensure that they believe the going concern basis of preparation remains appropriate, and that the carrying value of intangibles remains supported by future cash flows.  The key conclusions are summarised below:

-       The Group is at a critical point in its development as it seeks to ramp up sales of its Optim product and launch the Sensipod product.  These are expected to generate significant revenue for the Group over the coming years, aiding both profitability and cash flows.

-       The Group has taken a significant amount of annualised costs out of the business and will continue to take all appropriate steps to manage its cost base in light of any deviations from the forecast sales levels.

-       The Group raised £4.70 million (gross of issue costs) through a placing of its shares on 5 August 2013.

-       The Directors have prepared sensitised cash flow forecasts extending to the end of the financial year ended 31 July 2015.  These show that the Group has sufficient funds available to meet its obligations as they fall due over that period.  

-       The Group's year-to-date financial performance is materially in line with this budget cumulatively.

-       The Directors are not aware of any evidence to suggest that the budgeted improvement in the level of performance over the short term future will not be realised although the Directors recognise that it is possible that a worsening of performance could become evident, at which point they would act accordingly to mitigate the impact of such a worsening.  The action may include further cost reduction strategies, curtailed capital expenditure programs or equity issues.

-       The Group does not have external borrowings or any covenants based on financial performance.

-       The Directors have considered the position of the individual trading companies in the group to ensure that these companies are also in a position to continue to meet their obligations as they fall due. 

-       The markets in which the business operates are not considered to be at significant risk due to the ongoing global economic recession.  

-       There are not believed to be any contingent liabilities which could result in a significant impact on the business if they were to crystallise.

Following this assessment, the Directors have reasonable expectation that the Group has adequate resources to continue for the foreseeable future and that carrying values of intangible assets are supported.  Thus, they continue to adopt the going concern basis of accounting in preparing these financial statements.

3.   Segmental reporting

Operating segment analysis 2013

	Analytical		Animal  Health	Life Sciences	Total
	£000		£000	£000	£000
Revenue	1,200		1,500	-	2,700
Cost of goods sold	(651)		(536)	-	(1,187)
	-------------		-------------	-------------	-------------
Gross profit	549		964	-	1,513
Depreciation	(70)		(64)	(98)	(232)
Other operating expenses	(1,214)		(1,622)	(674)	(3,510)
	-------------		-------------	-------------	-------------
Operating loss before non-recurring expenses, amortisation and share-based payment charges	(735)		(722)	(772)	(2,229)
Share-based payment charges	(30)		(31)	(1)	(62)
	-------------		-------------	-------------	-------------
Segment operating loss	(765)		(753)	(773)	(2,291)
Corporate and other unallocated items	-------------		-------------	-------------	(1,250)
IFRS translation related items:
-      Capitalisation of development costs					1,755
-      Amortisation of development costs and customer related intangible assets					(87)
					-------------
Operating loss					(1,873)
Finance income					21
Finance expenses					-
					-------------
Loss before taxation					(1,852)
Taxation					331
					-------------
Amount attributable to equity holders of the Company					(1,521)
					-------------
Segment intangible assets	6,780		5,498	2,305	14,583
Segment tangible assets	1,157		581	654	2,392
	-------------		-------------	-------------	-------------
Segment assets	7,937		6,079	2,959	16,975
Corporate and other unallocated items		-------------	-------------	-------------	680
					-------------
Total assets					17,655
					-------------
Segment liabilities	(368)		(1,139)	(307)	(1,814)
Corporate and other unallocated items		-------------	-------------	-------------	(289)
					-------------
Total liabilities					(2,103)
					-------------

Operating segment analysis 2012

	Analytical		Animal  Health	Life Sciences	Total
	£000		£000	£000	£000
Revenue	1,642		1,488	-	3,130
Cost of goods sold	(1,201)		(418)	-	(1,619)
	-------------		-------------	-------------	-------------
Gross profit	441		1,070	-	1,511
Depreciation	(82)		(21)	(10)	(113)
Other operating expenses	(1,097)		(1,649)	(359)	(3,105)
	-------------		-------------	-------------	-------------
Operating loss before non-recurring expenses, amortisation and share-based payment charges	(738)		(600)	(369)	(1,707)
Share-based payment charges	(19)		(15)	-	(34)
	-------------		-------------	-------------	-------------
Segment operating loss	(757)		(615)	(369)	(1,741)
Corporate and other unallocated items	-------------		-------------	-------------	(1,159)
IFRS translation related items
-      Capitalised development costs					1,355
-      Amortisation of development costs and customer related intangible assets					(97)
					-------------
Operating loss					(1,642)
Finance income					39
					-------------
Loss before taxation					(1,603)
Taxation					497
					-------------
Amount attributable to equity holders of the Company					(1,106)
					-------------
Segment intangible assets		6,403	3,955	1,737	12,095
Segment tangible assets		959	482	338	1,779
		-------------	-------------	-------------	-------------
Segment assets		7,362	4,437	2,075	13,874
Corporate and other unallocated items		-------------	-------------	-------------	4,614
					-------------
Total assets					18,488
					-------------
Segment liabilities		(646)	(420)	(177)	(1,243)
Corporate and other unallocated items		-------------	-------------	-------------	(289)
					-------------
Total liabilities					(1,532)
					-------------

4.   Basic and diluted loss per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period and the weighted average number of equity voting shares in issue.  The earnings per ordinary share is the same as the diluted earnings per ordinary share because the earnings per share is negative.

	2013	2012
Loss (£000)	(1,521)	(1,106)
	-------------	-------------
Weighted average number of shares (number '000)	3,157,074	2,499,616
	-------------	-------------
Basic and diluted loss per ordinary share (pence)	(0.05p)	(0.04p)
	-------------	-------------

- Ends -

 

END

 

 

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