Final Results

RNS Number : 6312Y

Evocutis PLC

28 January 2014

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

Press Release

28 January 2014

Evocutis plc

("Evocutis" or "the Company")

Final Results

Evocutis plc (AIM: EVO), the company focused on advanced laboratory and clinical evaluations of skincare products for the health and cosmetic markets, today announces its audited final results for the year ended 31 July 2013.

Financial highlights:

·           Revenues achieved of £395,000 (2012: £457,000)

·           Adjusted EBITDA* loss of £967,000 (2012: £910,000)

·           Reduced loss for the year of £1,007,000 (2012: £1,519,000)

·           Cash balance of £665,000 (2012: £1,479,000)

·           Loss per share reduced to 0.58p (2012: 0.88p)

* Earnings before finance income, tax, depreciation and amortisation, impairment losses and share-based payment charges.

Strategic highlights:

·           LabSkin^TM launched as a 'consumable product for research use' in September 2012

·           Outcome of strategic review in December 2012 to seek a strategic partner or an acquisition

·           Formal sales process initiated - discussions held with around 100 companies across UK, Europe and USA

Post year end events:

·           Formal sales process terminated October 2013 - limited discussions continue

·           Decision taken to change focus of the Company to that of managing its intellectual property

·           Discussions ongoing regarding potential sale or licence of the Group's intellectual property assets

- Ends -

For further information, please contact:

Evocutis plc
Tom Bannatyne, Chairman	[phone]
Dr Gwyn Humphreys, Interim Chief Executive Officer	www.evocutis.com
Zeus Capital Limited
Andrew Jones	[phone]
Nick Cowles	www.zeuscapital.com
XCAP Securities plc
Guy Peters	[phone]
	www.xcapgroup.com

Chairman's and Interim Chief Executive Officer's Report

Introduction

The past year has been a difficult one for Evocutis.  Whilst the Group has achieved sales revenues of £395,000 and a reduced overall loss for the year of £1,007,000, the board agreed that the unpredictability and magnitude of revenue generating contracts was a significant problem.  During August 2012, we decided that launching our LabSkin^TM tissue culture reagent as a separate consumable product might generate sufficient sales revenues to supplement the income from contract services work, in order to sustain the Group whilst other diversification opportunities could be sought.

In September 2012, we launched LabSkin^TM as a product and have generated initial sales of £38,000 over the remainder of the financial year.  At the same time, considerable effort was made in generating increased contract research work and we announced on 17 January 2013 that we had secured a number of new contracts from major companies worldwide, amounting to over £280,000.  However, the slow ramp-up in sales, coupled with significant ongoing cash requirements has made it increasingly difficult to establish a secure independent future for the Group. 

Strategic review

In our 2012 Annual Report, we announced that we were reviewing and evaluating a number of strategic options for the Group.  On 3 December 2012, we announced that we had appointed Growth Innovators Group ("GIG") and Zeus Capital Limited (the company's Nominated Advisor) to help and advise on the identification, review and evaluation of strategic options for the Group to optimise shareholder value.

Between December 2012 and September 2013, initial discussions were held with around 100 companies across the UK, Europe and the USA to assess their levels of interest in acquiring the company, its technologies or to establish strategic partnerships.  Advanced discussions were held with a small number of these companies over a number of months, but by the end of September 2013 it was clear that we had not identified a company which was prepared to make a formal offer for the whole company, either as an outright acquisition or as a merger and therefore we announced on 2 October 2013 that we were terminating the formal sale process.

Financial position and going concern

At 31 July 2013, the Group had cash balances of £665,000 and net assets of £955,000. 

On 3 December 2013 we announced that all employees had been issued with notices of redundancy, other than those holding board positions. 

We also announced that discussions were ongoing with a small private company regarding potential acquisition of that company.  Since December 2013, those discussions have evolved and the directors are now negotiating the potential sale or licence of the Group's intellectual property assets to a quoted company with connections to that company, rather than the acquisition as originally proposed.

The board considers that the value within the Group vests in the LabSkin^TM technology and the Group's other intellectual property assets.  The directors have changed the focus of the Group's activity from that of providing contract research services ourselves utilising our intellectual property, to that of managing the intellectual property portfolio to generate an income stream from royalties from third parties.

Operating costs have been significantly reduced and the board is currently negotiating an exit from its property lease in order to further reduce ongoing costs.

As set out above the directors are in discussions with one company in respect of the Group's intellectual property. The directors are negotiating the sale or licensing of certain assets along with a royalty element to generate future revenue streams for the Group.

At the date of approval of these financial statements, the transaction is still being negotiated.  Further announcements will be made to shareholders in due course regarding these discussions and shareholder approval will be sought as required in the event that a deal can be successfully negotiated.

As set out in note 2(e), in the event that sufficient income cannot be generated from the sale of licensing of intellectual property or if the Group cannot agree a satisfactory exit from its property lease, then the Group may not be able to continue as a going concern.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

After careful consideration of the uncertainties described above and after considering the assumptions within the cash flow forecasts, the directors are confident that the Group will have sufficient resources to enable it to continue in operation, as a going concern, for at least the next 12 months from the date of these financial statements.  As described above the Group's trading activity has changed from the provision of contract research services to that of maintaining its portfolio of intellectual property.  The determination of the Group's going concern position is not dependent upon the successful conclusion of the transaction currently being negotiated in respect of the intellectual property.

Outlook

The directors believe that the ongoing discussions regarding the sale of the Group's technology and assets will be concluded within the next three months.  The board expects to be able to make further announcements regarding this to shareholders in due course.

Tom Bannatyne	Dr Gwyn Humphreys
Chairman	Interim Chief Executive Officer
28 January 2014

Consolidated statement of comprehensive income

for the year ended 31 July 2013

		2013	2012
	Note	£000	£000
Revenue	3	395	457
Cost of sales		(176)	(222)
Gross profit		219	235
Research and development		(443)	(509)
General and administration		(902)	(1,433)
Analysis of operating loss:
Operating loss before share-based payment charges, depreciation, amortisation and impairment losses		(967)	(910)
Share-based payment charges		(10)	(36)
Impairment of goodwill		-	(489)
Impairment of other intangible assets		-	(144)
Impairment of property, plant and equipment		(67)	-
Depreciation and amortisation		(82)	(128)
Operating loss		(1,126)	(1,707)
Finance income		8	26
Loss before taxation		(1,118)	(1,681)
Taxation		111	162
Loss after taxation for the year and total comprehensive loss attributable to equity shareholders		(1,007)	(1,519)
Loss per ordinary share
Basic and diluted (pence)	4	(0.58p)	(0.88p)

Consolidated statement of financial position 

as at 31 July 2013

	2013	2012
	£000	£000
Non-current assets
Property, plant and equipment	49	166
Other intangible assets	215	242
Total non-current assets	264	408
Current assets
Current tax recoverable	95	110
Trade and other receivables	154	129
Cash and cash equivalents	665	1,479
Total current assets	914	1,718
Total assets	1,178	2,126
Current liabilities
Trade and other payables	(115)	(117)
Total current liabilities	(115)	(117)
Non-current liabilities
Deferred tax liabilities	(58)	(74)
Provisions	(50)	-
Total non-current liabilities	(108)	(74)
Total liabilities	(223)	(191)
Net assets	955	1,935
Equity attributable to equity holders of the company
Called up share capital	1,747	1,732
Share premium reserve	7,634	7,632
Share based payments reserve	138	211
Merger reserve	979	979
Retained earnings	(9,543)	(8,619)
Total equity	955	1,935

Consolidated statement of changes in equity 

for the year ended 31 July 2013

			Share
		Share	based
	Share	premium	payments	Merger	Retained
	capital	reserve	reserve	reserve	earnings	Total
	£000	£000	£000	£000	£000	£000
At 1 August 2011	1,732	7,632	279	979	(7,204)	3,418
Loss for the year and total comprehensive loss	-	-	-	-	(1,519)	(1,519)
Transactions with owners:
Share-based payment charge	-	-	36	-	-	36
Share options lapsed	-	-	(104)	-	104	-
At 31 July 2012	1,732	7,632	211	979	(8,619)	1,935
At 1 August 2012	1,732	7,632	211	979	(8,619)	1,935
Loss for the year and total comprehensive loss	-	-	-	-	(1,007)	(1,007)
Transactions with owners:
Issue of new ordinary shares	15	2	-	-	-	17
Share-based payment charge	-	-	10	-	-	10
Share options lapsed	-	-	(83)	-	83	-
At 31 July 2013	1,747	7,634	138	979	(9,543)	955

Consolidated statement of cash flows 

for the year ended 31 July 2013

	2013	2012
	£000	£000
Cash flow from operating activities
Loss after tax	(1,007)	(1,519)
Tax on losses	(111)	(162)
Finance income net of finance costs	(8)	(26)
Depreciation	54	70
Amortisation of intangible assets	27	58
Impairment losses	67	633
Share-based remuneration	17	-
Share-based payment charges	10	36
Changes in working capital:
(Increase)/decrease in trade receivables	(49)	92
Decrease/(increase) in other receivables	24	(2)
Increase/(decrease) in trade payables	1	(51)
(Decrease)/increase in other payables	(3)	(8)
Increase in provisions	50	-
Cash outflow from operations	(928)	(879)
Taxation received	110	93
Net cash outflow from operating activities	(818)	(786)
Cash flow from investing activities
Purchase of property, plant and equipment	(4)	(59)
Finance income	8	8
Net cash inflow/(outflow) from investing activities	4	(51)
Net decrease in cash and cash equivalents	(814)	(837)
Cash and cash equivalents at the beginning of the year	1,479	2,316
Cash and cash equivalents at the end of the year	665	1,479

Notes to the Final Results

1             Financial information

The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 July 2013 or 31 July 2012 within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.  Statutory accounts for the year ended 31 July 2012 have been delivered to the Registrar of Companies and those for the year ended 31 July 2013 will be delivered following the Company's Annual General Meeting.  The reports of the auditors for the years ended 31 July 2012 and 31 July 2013 did not contain statements under s498(2) or (3) of the Companies Act 2006.  Their report for the year ended 31 July 2013 includes reference to the material uncertainty in respect of the Group's ability to generate sufficient income from the sale and licensing of its intellectual property and in respect of the Group's ability to agree a satisfactory exit from its property lease, which the auditors drew attention to by way of emphasis of matter without qualifying their report.

2             Basis of preparation

(a)           Statement of compliance

The financial statements have been prepared in accordance with the Companies Act 2006, International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations, as adopted by the European Union. 

(b)           Accounting convention

The financial statements have been prepared using the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies.

(c)           Functional and presentational currency

The financial statements are drawn up in Sterling, the functional currency of Evocutis plc and in accordance with IFRS presentation.  The level of rounding for financial information is the nearest thousand pounds.

(d)           Use of estimates and judgements

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

(e)           Going concern

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 the financial statements.  The financial statements have been prepared on a going concern basis, notwithstanding the loss for the year ended 31 July 2013.  This basis assumes that the company will have sufficient funding to enable it to continue to operate for the foreseeable future and the Directors have taken steps to ensure that they believe that the going concern basis of preparation remains appropriate.

The Group made a loss for the year of £1,007,000 after taxation.  The Group had net assets of £955,000 and cash balances of £665,000 at 31 July 2013.  The Directors have prepared financial forecasts which cover a period of at least 12 months from date that these financial statements are approved.  These forecasts show that the Group expects to have sufficient financial resources to continue to operate as a going concern.

As stated in the Report of the Chairman and Chief Executive Officer, the Group has ceased to provide contract research services and products itself and is now focussed on the management of its portfolio of intellectual property and the proprietary technology which has been developed by the Group over a number of years.  The board is taking steps to sell or licence our intellectual property to provide a future revenue stream for the Group.

Subsequent to the year end, all of the Group's operational and administrative staff have been put on notice of redundancy.  Additionally, the directors are negotiating an exit from the Group's property lease.  Consequently, the directors expect that the ongoing operational costs of the Group will be significantly lower for the next 12 months.  The financial forecasts assume a level of cash inflows from the sale or licensing of the Group's technologies and intellectual property and from the realisation of other assets during the forecast period.  Additionally, assumptions have been made in respect of the remainder of the Group's operating lease commitments in respect of its premises, which it is expecting to vacate within the next six months.

The board anticipates that if it can successfully secure revenue streams, through royalties, from its intellectual property, the focus of the Group will be the management of the asset portfolio.

In the event that sufficient income cannot be generated from the sale and licensing of intellectual property or if the Group cannot agree a satisfactory exit from its property lease, then the Group may not be able to continue as a going concern.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.  The financial statements do not include the adjustments that would be necessary if the Group was unable to continue as a going concern.

Consequently, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future and that it remains appropriate for the financial statements to be prepared on a going concern basis.

3             Segment information

The Group's revenue and loss was derived from its principal activity which is the provision of contract microbiology research services and clinical evaluation studies using its proprietary advanced living skin equivalent model, LabSkin^TM and a small level of sales of LabSkin^TM as a consumable product.

Operating segment information is reported in accordance with IFRS 8 'Operating Segments' based on the financial information provided to the Board of Directors, which is regarded as the 'Chief Operating Decision Maker' (CODM) as all key strategic and operating decisions are made by the Board.

Operating segments are determined based on the internal reporting information and management structure within the Group.  The CODM considers that the Group operates as a single operating segment and internal management information is presented on that basis.  Due to the small size and low complexity of the business, profitability is not analysed in further detail beyond the operating segment level and is not allocated by revenue stream.

An analysis of revenue streams is presented to the CODM on a monthly basis and as such, this information has been provided below.

	2013	2012
Revenue	£000	£000
LabSkinTM and microbiology services	356	353
LabSkinTM product sales	38	-
Clinical evaluation services	1	104
Total revenue	395	457

Geographical information

The UK is the Group's country of domicile.

	2013	2012
Revenue by location of customer	£000	£000
UK	126	168
Belgium	17	75
Denmark	3	-
France	126	77
Germany	-	69
Italy	4	-
Spain	13	-
Sweden	1	11
USA	105	57
Total revenue	395	457

	2013	2012
Revenue by location of group entity	£000	£000
UK	395	457

Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items

Information regarding the results of the reportable segment is included below.  Performance is based on segment operating profit or loss before share-based payment charges, depreciation, amortisation and acquisition costs, as reported in the internal management reports that are reviewed by the CODM.  The segment operating profit or loss is used to measure performance.  Revenues disclosed below represent revenues to external customers

	2013	2012
	£000	£000
Revenues
Total revenue for reportable segments	395	457
Consolidated revenue	395	457
Loss
Total loss for reportable segments	(967)	(910)
Loss before share-based payment charges, depreciation, amortisation, impairment losses and acquisition costs	(967)	(910)

	2013	2012
	£000	£000
Assets
Total assets for reportable segments	1,178	2,126
Consolidated total assets	1,178	2,126
Liabilities
Total liabilities for reportable segments	165	117
Unallocated liabilities:
Deferred tax	58	74
Consolidated total liabilities	223	191

Major customers

Transactions with the Group's three largest customers represent 32%, 17% and 17% of the Group's total revenues respectively (2012: 18%, 16% and 16%).

4             Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. 

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all potentially dilutive ordinary shares. 

The Group has one class of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.  However, due to losses incurred in the year there is no dilutive effect from the potential exercise of these share options.

	Loss for	Weighted	Loss per
	the year	average number	share
Basic and diluted loss per share	£000	of shares	(pence)
Year ended 31 July 2013	(1,007)	174,448,752	(0.58p)
Year ended 31 July 2012	(1,519)	173,179,690	(0.88p)

5             Share capital

				Share
		Ordinary shares of 1p each		premium
		Number	£000	£000
Share capital issued and fully paid
At 1 August 2011 and 31 July 2012		173,179,690	1,732	7,632
Issue of new ordinary shares		1,496,138	15	2
At 31 July 2013		174,675,828	1,747	7,634

Share capital represents the nominal value of the amount subscribed for shares.  Share premium represents the amount subscribed for shares in excess of their nominal value.  Ordinary shares carry the rights to one vote per share at general meetings of the Company and the rights to share in any distributions of profits or returns of capital and to share in any residual assets available for distribution in the event of a winding up.

On 1 August 2012, the company issued 595,238 ordinary shares of 1 pence each at a price of 1.12 pence each to Dr GO Humphreys in settlement of share-based remuneration for the period from 1 June 2012 to 31 July 2012.  On 1 November 2012, the company issued a further 900,900 ordinary shares of 1 pence each at a price of 1.11 pence each to Dr Humphreys in respect of share based pay for the period from 1 August 2012 to 31 October 2012. 

6             Post balance sheet events

As set out in the Chairman's and Chief Executive Officer's report, subsequent to the year end the directors have changed the focus of the Group's activities.  All employees (other than board directors) have been placed on notice of redundancy in order to reduce ongoing operating costs.  The redundancy programme is expected to be completed by mid May 2014 and is expected to cost the Group approximately £30,000.  The directors are focused on the management of the Group's intellectual property portfolio and are seeking to secure the sale or licensing of these assets.  The board has reviewed all asset values in the light of this decision.  As a consequence of this review, an impairment provision was made to the carrying value of property, plant and equipment.   Additionally, the Group is currently negotiating an exit from its lease commitment in respect of its operating premises.

7             Annual Report and Annual General Meeting

The Company anticipates dispatching a copy of its annual report and accounts to all shareholders on or around 30 January 2013.  A copy will also be available on the Company's website www.evocutis.com and by request from the Company Secretary at the Company's registered office.

The date for the next Annual General Meeting of the Company has not yet been determined.  Shareholders will be sent a notice of the Annual General Meeting separately in due course.

 

END

 

 

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