Final Results

NMT Group PLC 19 March 2003 19 March 2003 NMT GROUP PLC Preliminary Results for the year ended 31 December 2002 NMT Group, the manufacturer of retractable devices to prevent needlestick injury, announces its preliminary results for the year ended 31 December 2002. Key points - Turnover increased to £2.8 million, more than double the previous period (2001: £1.1 million) - Operating loss, before exceptional items, reduced to £12.4 million, following a change in strategy for US distribution - Global Supply Agreement signed with Roche for supply of 1cc and 3cc retractable safety syringes - 2nd generation syringes - final models nearing completion. Discussions on-going with potential partners - Design of a safety retractable pre-fill syringe initiated - RTI hearing - a trial has been set for November 2003 Commenting on the results, Roy Smith, Chief Executive Officer, said: '2002 was a challenging year, the slow pace in the implementation of the US Needlestick Safety and Prevention Act on hospital procurement policies resulted in our reduced focus within this market segment. However, towards the close of the year we signed a valuable contract with Roche for the supply of our retractable syringes alongside the revolutionary HIV drug Fuzeon(R), which has recently received FDA approval. 'We intend to focus our efforts on providing safe-needle drug delivery solutions to global pharmaceutical companies alongside the development and out-licensing of the 2nd Generation syringe technology. 'We have a strong cash position and look forward to a busy and fruitful 2003.' Enquiries: NMT Group PLC Roy Smith, Chief Executive Officer Tel: 01590 687901 Gerard Cassels, Finance Director Tel: 01506 445004 Financial Dynamics Tel: 0207 831 3113 Melanie Toyne-Sewell / Samantha Robbins CHAIRMAN'S STATEMENT 2002 has proved to be another challenging year for NMT. The year saw the withdrawal of the US direct sales and marketing efforts in the Acute Hospital market and the potential closure of our 1st Generation syringe manufacturing facility in Livingston. During the period, it became increasingly evident that we should seek to out-license our 2nd Generation syringe technology to large medical device organisations, rather than manufacture and market this product in-house. A significant event which caused us to revisit the strategy was the signing, in October, of a Global Supply Agreement with Roche for both 1cc and 3cc 1st Generation safety syringes to be used alongside a revolutionary drug, Fuzeon(R), for the treatment of HIV. This Agreement has provided an opportunity to scale-up the manufacturing in our Livingston facility and has endorsed our credibility as a supplier of high value safe drug delivery solutions to the pharmaceutical industry. This was a key milestone in the evolution of the Group as we see a significant portion of future activities being targeted within the pharmaceutical sector. Turnover for the year increased to £2.8m from £1.1m in 2001. The loss for the year of £13.9m was slightly greater than the £13.3m in 2001, although included in 2002 are £2.5m of exceptional charges. At the year-end the Group had cash balances of £15.4m (2001: £26.7m) and with the Roche contract expects to significantly reduce the rate of cash burn in 2003. 2003 Key Objectives We believe that during 2003 we will demonstrate significant financial improvement over the previous year. However, the quantum of progress is largely dependent upon our ability to scale-up manufacture of our 1st Generation product in Livingston at acceptable cost levels. In parallel to our manufacturing efforts, the Group is actively seeking additional pharmaceutical partners to reduce our reliance on the success of the Roche drug Fuzeon(R). We remain encouraged by the ongoing discussions with several major medical device organisations with regard to the licensing of our 2nd Generation syringe technology. These prospective partners recognise both the commercial potential of our 2nd Generation design and the likely future demand for safety syringes. Furthermore, we believe that our 2nd Generation syringe programme can also provide the base technology to deliver a retractable pre-fill safety syringe. Several pharmaceutical companies have expressed interest in this project and the commercial opportunity merits continued development resource in this exciting growth area. Board At the forthcoming AGM, Mr George McLellan will retire from his role as a Non Executive Director. The Board would like to take the opportunity of thanking George for his significant contribution to the development of the Company since it was listed in 1997. Outlook The Global Supply Agreement with Roche was concluded towards the close of 2002. This Agreement, initially for two years, has created a commercial platform on which to demonstrate financial improvement of the Group. However, we are mindful that if we are to meet our financial goals, we must carefully manage the manufacturing scale-up and deliver efficiencies as we increase production volumes. We have confidence that our 2nd Generation syringe provides a good opportunity for license fee income and royalty streams in the years ahead. Furthermore our product development and process design skills will continue to play key roles in our future as we increase our focus as a provider of safe drug delivery solutions to the pharmaceutical industry. R H Gilmour Chairman OPERATING AND FINANCIAL REVIEW OPERATING REVIEW 2002 was a significant year for NMT. At the beginning of the year, the fundamental manufacturing problems had been resolved, a sales and marketing infrastructure was in place and the Board believed that all appropriate resources were available to generate significant sales growth in the US acute care hospital market. During the first seven months of the year the Group worked on ensuring our safety syringes were evaluated by potential customers in the US hospital market. The continued delay in the impact of the US Needlestick Safety and Prevention Act on hospital procurement practices has meant that sales did not grow at the levels originally anticipated. There was also no clear time horizon on when change would come. As a direct result, NMT significantly reduced its sales and marketing efforts in traditional healthcare markets. At the same time, the Group targeted global pharmaceutical companies as potential customers. A first contract with Roche to supply syringes for use with Fuzeon(R), a revolutionary drug for the treatment of HIV, was signed in October 2002. This is expected to utilise a substantial proportion of manufacturing capacity. Sales and Marketing The strength of the NMT safety syringe is particularly evident in environments where patients have blood-borne pathogens and are using syringes in public places, eg. vaccine programmes, outside acute and alternate care facilities, where immediate disposal of the syringe is difficult. In addition to the accreditation of Roche as a pharmaceutical customer and the increased exposure to pharmaceutical professionals as Fuzeon(R) sales volumes grow, NMT has increased its commercial and product development focus within the pharmaceutical sector. Discussions are continuing with a number of companies, but none are currently close to contractual agreement; they are still at an early stage. The sales teams are split to cover, initially, Europe and the United States, with appropriate administration and logistics resources in the US to support the existing traditional healthcare customer base through the current distributor sales network. Product Development NMT has designed, and is in the process of completing final models (from commercial quality hard tools), of a range of 2nd Generation safety syringe products, which provide both significantly lower manufacturing costs and greater flexibility for the user, including the ability to switch needle sizes. With the Group's experience of selling in the US and the dominance of 'global safety companies' in medical device distribution, NMT has decided that seeking licensing partners offers the best value for the 2nd Generation syringe technology. Discussions are continuing with multinational companies who are evaluating the development of the medical safety market, the functionality and cost structure of the design and assessing the strength of the NMT patents that protect the 2nd Generation syringes. As a result of the increased focus on the pharmaceutical sector, development work has been initiated on the design of a safety retractable pre-fill syringe reflecting demand from pharmaceutical companies. This project is being approached on a collaborative basis and it is anticipated that appropriate partners can be secured to take the design forward to commercial development. Litigation In June 2002, Retractable Technologies Inc (RTI), a US competitor to NMT, filed a lawsuit against the Group, alleging that the NMT 1st Generation syringe infringes various patents held by RTI. A trial of the lawsuit has been set for November 2003. No new facts have emerged during the process of discovery to cause the Group's directors to change their views on the prospects of a successful defence. The action by RTI has had an adverse impact on 1st Generation distribution discussions, incurred expense and has absorbed management resources. NMT is of the opinion that, irrespective of the outcome of the RTI claim, the issues raised have no impact on the validity of the 2nd Generation syringe patents. FINANCIAL REVIEW Operating Results Turnover of £2.8m, over double last year's £1.1 m, and nearly triple the previous year's figure, reflected the increased sales resource and portfolio at the beginning of the year (offset by reduced resource at the end of the year). Approximately £1.9m (2001: £0.3m) of the total were sales to Roche, the majority of which was invoiced in the second half of the year. The operating loss before exceptional items of £12.4m, was a £1.3m improvement on the £13.7m loss incurred in the previous year. The decision to cut back the US sales and marketing efforts in traditional healthcare markets in September 2002 will result in significant cash savings in 2003. The Group incurred £2.5m of exceptional charge in the year. Following the decision to reduce resources for direct sales in the US hospital market, NMT incurred an exceptional write-down of £1.3m (2001: £nil) for slow moving and obsolete stock, which had been available for the expected 2002 increased sales volumes. Looking at the installed manufacturing capacity available and the anticipated demand from Roche and other prospective opportunities, Sortimat 1 will not be used in the foreseeable future due to its low capacity and poor production efficiency. It has therefore been decided to write-down the carrying value of the first of the Group's prototype manufacturing lines (Sortimat 1) to £nil, resulting in an exceptional charge of £1.2m (2001: £nil). Net interest receivable of £0.7m (2001: £0.4m) resulted in a loss after tax of £13.9m (2001: £13.3m). The tax credit of £0.3m in 2002 was related to Research and Development allowances for both 2002 and prior years. The loss per share of 1.6p reduced from 5.2p per share in 2001, primarily due to the increase in weighted average number of shares to 871 million shares from 255 million. This follows the issue of 637 million shares on 20 December 2001. Financial Position and Cash Flow The Group's net cash at the end of the financial year was £15.4m, a decrease of £11.3 million for the period. Cash outflow from operating activities was £10.6m (2001: £14.2m). The major impact on the reduction in cash spend was the £1.9m decrease in stock in the year, primarily due to the exceptional write-down of £1.2m, compared to a £1.7m stock build in 2001. Capital expenditure of £0.8m (2001: £3.1m) included £0.3m related to tooling for 2nd Generation development work. It is not envisaged that significant further capital expenditure is required in the next two years and the annual total should remain below the depreciation charge. Taxation The tax credit of £0.3m for the period relates to research and development allowances arising in the current and prior periods (2001: nil). CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2002 2002 2002 2002 2001 Note Before Exceptional exceptional items items (Note 3) Total Total £'000 £'000 £'000 £'000 _______ _______ _______ _______ Turnover 2 2,758 - 2,758 1,136 Cost of sales (7,729) (2,524) (10,253) (7,880) _______ _______ _______ _______ Gross loss (4,971) (2,524) (7,495) (6,744) Distribution costs (2,453) - (2,453) (3,046) Administrative expenses (4,987) - (4,987) (4,100) Other operating income - - - 200 _______ _______ _______ _______ Group operating loss (12,411) (2,524) (14,935) (13,690) Interest receivable and similar income 789 552 Interest payable and similar charges (102) (168) _______ _______ Loss on ordinary activities before taxation (14,248) (13,306) Taxation on loss on ordinary activities 316 - _______ _______ Loss for the financial year (13,932) (13,306) _______ _______ Loss per ordinary share Basic and diluted 4 (1.6)p (5.2)p Loss per share before exceptional items (1.3)p (5.2)p The above results relate to continuing operations. There is no difference between the loss on ordinary activities before taxation and the loss for the period stated above and their historical cost equivalents. BALANCE SHEETS At 31 December 2002 Group Company 2002 2001 2002 2001 £'000 £'000 £'000 £'000 _______ _______ _______ _______ Fixed assets Tangible assets 9,385 11,532 9,370 11,521 _______ _______ _______ _______ Current assets Stock 701 2,621 632 1,679 Debtors 1,446 640 10,259 8,643 Cash at bank and in hand 15,406 26,740 15,034 26,561 _______ _______ _______ _______ 17,553 30,001 25,925 36,883 Creditors: amounts falling due within one year (1,747) (2,720) (1,684) (2,573) _______ _______ _______ _______ Net current assets 15,806 27,281 24,241 34,310 _______ _______ _______ _______ Total assets less current liabilities 25,191 38,813 33,611 45,831 Creditors: amounts falling due after more than one year (457) (1,088) (457) (1,088) _______ _______ _______ _______ Net assets 24,734 37,725 33,154 44,743 _______ _______ _______ _______ Capital and reserves Called up share capital 37,187 37,187 37,187 37,187 Share premium account 38,639 38,639 38,639 38,639 Profit and loss account (51,092) (38,101) (42,672) (31,083) _______ _______ _______ _______ Total shareholders' equity funds 24,734 37,725 33,154 44,743 _______ _______ _______ _______ STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2002 Group Group 2002 2001 £'000 £'000 _______ _______ Loss for the financial year (13,932) (13,306) Exchange adjustment on translation of net assets of subsidiary 874 (100) _______ _______ Total recognised losses for the year (13,058) (13,406) _______ _______ RECONCILIATION OF SHAREHOLDERS' FUNDS For the year ended 31 December 2002 Group Group Company Company 2002 2001 2002 2001 £'000 £'000 £'000 £'000 _______ _______ _______ _______ Loss for the financial year (13,932) (13,306) (11,656) (11,032) Other recognised gains/(losses) for the year 874 (100) - - _______ _______ _______ _______ Total recognised losses for the year (13,058) (13,406) (11,656) (11,032) Placing and Open Offer - shares issued - 24,169 - 24,169 Share options - notional cost of share options granted 67 392 67 392 _______ _______ _______ _______ Total movements during the year (12,991) 11,155 (11,589) 13,529 Shareholders' funds at 1 January 37,725 26,570 44,743 31,214 _______ _______ _______ _______ Shareholders' funds at 31 December 24,734 37,725 33,154 44,743 _______ _______ _______ _______ CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2002 2002 2001 £'000 £'000 _______ _______ Net cash outflow from operating activities (10,609) (14,171) _______ _______ Returns on investments and servicing of finance Interest received 672 618 Interest paid (102) (168) _______ _______ Net cash inflow from returns on investments and servicing of finance 570 450 _______ _______ Taxation 94 - Capital expenditure and financial investment Purchase of tangible fixed assets (791) (3,096) _______ _______ Cash outflow before management of liquid resources and financing (10,736) (16,817) Management of liquid resources Cash returned from/(placed on) term deposit 9,369 (5,566) _______ _______ Financing Finance lease - repayment of principal (598) (542) Proceeds on issue of shares - 25,479 Expenses of share issue - (1,310) _______ _______ Net cash (outflow)/inflow from financing (598) 23,627 _______ _______ (Decrease)/increase in cash in the year (1,965) 1,244 _______ _______ NOTES TO THE FINANCIAL STATEMENTS 1 Basis of preparation The financial information included within this Preliminary Statement has been prepared on the basis of accounting policies consistent with those set out in the Directors' Report and Accounts for the year ended 31 December 2001, with the exception of the adoption of FRS19 'Deferred Tax', however, this has not had any impact on the results of the Group. The financial information on pages 4 to 9 was approved by the Board on 18 March 2003. The information shown for the years ended 31 December 2002 and 31 December 2001 does not constitute statutory Accounts within the meaning of Section 240 of the Companies Act 1985 and has been extracted from the full Accounts for the years ended 31 December 2002 and 31 December 2001 respectively. The reports of the auditors on those Accounts were unqualified and did not contain a Statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The Accounts for the year ended 31 December 2001 have been filed with the Registrar of Companies. The Accounts for the year ended 31 December 2002 will be delivered to the Registrar of Companies in due course. 2 Segmental analysis Turnover 2002 2001 £'000 £'000 _______ _______ By origin Europe 1,083 305 United States 1,675 831 _______ _______ 2,758 1,136 _______ _______ 2002 2001 £'000 £'000 _______ _______ Customer location Europe 969 214 United States 1,789 922 _______ _______ 2,758 1,136 _______ _______ Loss on ordinary activities before taxation 2002 2001 £'000 £'000 _______ _______ Geographical segment Europe (12,644) (11,417) United States (2,291) (2,273) Operating loss (14,935) (13,690) Interest receivable 789 552 Interest payable (102) (168) _______ _______ Loss on ordinary activities before taxation (14,248) (13,306) _______ _______ Net assets 2002 2001 £'000 £'000 _______ _______ Geographical segment Europe 23,944 36,451 United States 790 1,274 _______ _______ 24,734 37,725 _______ _______ 3 Exceptional items Due to the slower than expected sales to acute care customers and the decision to focus on the global pharmaceutical market, the Group has considered it appropriate to write down the carrying value of specific raw material and finished syringe stock items and, accordingly, an exceptional charge of £1.3m has been incurred in the period. In addition, to optimise production capacity utilisation of 3cc syringes, Sortimat 1 will not be used for the foreseeable future and, under FRS 11 Impairment of Fixed Assets and Goodwill the net book value of the machine has been written off resulting in an exceptional charge of £1.2m. 2002 2001 £'000 £'000 ______ ______ Write down of stock 1,320 - Impairment of tangible assets 1,204 - ______ ______ 2,524 - ______ ______ 4 Loss per ordinary share Loss per ordinary share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of shares in issue. 2002 2001 £'000 £'000 _______ _______ Loss attributable to members of NMT Group PLC 13,932 13,306 Exceptional items (note 3) (2,524) - _______ _______ Loss before exceptional item 11,408 13,306 _______ _______ 2002 2001 _______ _______ Weighted average number of ordinary shares in issue 871,131,500 255,043,162 As a result of losses incurred in 2002, the exercise of share options would not have been dilutive and, accordingly, the basic and diluted loss per share are the same. This information is provided by RNS The company news service from the London Stock Exchange

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