Final Results

NMT Group PLC 04 March 2004 4 March 2004 NMT GROUP PLC Preliminary Results for the year ended 31 December 2003 NMT Group PLC NMT Group PLC ('NMT') announces its Preliminary Results for the year ended 31 December 2003. • Turnover in 2003 £12.3m (2002: £2.8m) • Operating loss before exceptional items £2.5m (2002: £12.4m) • Exceptional charge of £14.5m following decision in December to close manufacturing facility and significantly reduce overheads due to lack of foreseeable orders • Loss after exceptional items £16.5m (2002: £13.9m) • Year end cash position £12.8m • Restructuring plan progressing well in 2004 Commenting on developments in 2003, Tony Fletcher, Chairman said: '2003 was a rollercoaster year in which the Board saw the Group achieve a major increase in turnover and a move into profit on a month-on-month basis and was then forced, due to a lack of foreseeable orders, to close the manufacturing facility in Livingston. Regrettably, this resulted in the loss of approximately 140 jobs. The Board has decided that the best strategic option for the Group is to become a development and licensing company, initially exploiting its existing intellectual property for safe needle technology. The Group now operates from a significantly reduced cost base with approximately 10 employees. ' Enquiries: NMT Group PLC Tony Fletcher, Chairman Tel: 01506 445004 Gerard Cassels, Finance Director Tel: 01506 445004 CHAIRMAN'S STATEMENT 2003 was a 'watershed' for the Group. The Group achieved the best operating performance in its short history supplying 1st Generation safety syringes to Hoffman La Roche for use with its anti HIV drug, Fuzeon(R). In excess of 25 million syringes were manufactured and sold during 2003 resulting in a turnover of £12.3 million (2002: £2.8 million), an operating loss, before exceptional items, of £2.5 million (2002: £12.4 million) and a net cash outflow from operating activities of £2.1 million (2002: £10.6 million). The overall results are however adversely impacted by the events described below. In December 2003 it was necessary to close the 1st Generation syringe manufacturing facility in Livingston due to a lack of foreseeable orders in 2004 and beyond. The Board decided that the best strategic option for the Group was to become a development and licensing business, initially exploiting the existing intellectual property for safe needle technology. Regrettably, this resulted in approximately 140 job losses, significantly reducing employee numbers from a peak, of 156 in 2003 to approximately 10 in 2004. The impact of the total closure of the manufacturing facility for the 1st Generation syringes has been an exceptional charge of £14.5 million resulting in a loss for the financial year of £16.5 million (2002: £13.9 million). The major constituents are the write off of the manufacturing equipment, the termination of leases, the termination of contracts associated with manufacturing and redundancy costs. In parallel to re-organising the ongoing business, significant progress has been made in the settlement of the residual liabilities associated with 1st Generation manufacturing, but it is difficult at this stage to predict a timescale for completion. Management As part of the re-organisation, the Board decided to reduce in size to meet the future needs of the new business. Dr Roger Gilmour, Chairman and Lady Balfour of Burleigh resigned from the Board in January 2004 and I would wish to thank them for their contribution over the past seven years. Roy Smith, Chief Executive and Gerard Cassels, Group Finance Director will be leaving the Company, following completion of handover arrangements to the new business. Graham Crowther, formerly Business Development Director, has been given the executive responsibility for the day-to-day operation of the new business. 2004 Strategy While the new development and licensing business starts in a strong cash position, it will continue to adopt a pragmatic approach to its development projects. It will allocate resources to those areas where there is a reasonable likelihood of securing a satisfactory financial return in the short to medium term. The design has been finalised on the 1cc version of 2nd Generation syringes and a number of potential sources for high volume manufacture have been identified. Discussions continued during 2003 with several prospective partners for the sale and distribution of 2nd Generation safety syringes to the US hospital market. Whilst interest has continued to be expressed, progress has been slow, in part due to the size and complexity of the target organisations. The Group is seeking to secure agreement of commercial terms with a prospective sales and distribution organisation and a separate manufacturing partner, before proceeding to pilot manufacture for clinical trials. Broadly the structure, which the Group is seeking to achieve, is that a third party manufacturing partner will supply the sales and distribution organisation directly, with the Group receiving milestone payments and a royalty on sales. Every effort is being made to complete an agreement of this type, as quickly as possible. Intellectual property rights for needle-shielding technology were purchased from Sterimatic Holdings Limited during the year. Significant design improvements have been achieved by NMT engineers to create a passive automatic needle protection device, suitable for the attachment to pre-fill syringe barrels. Interest has been shown in this product by both pharmaceutical companies and pre-fill syringe manufacturers. This new pre-fill needle unit offers the flexibility of good needle safety provision with minimum disruption to existing pre-fill syringe manufacturing operations. Advanced discussions are presently taking place with several companies to secure commercial partnerships and this area has become an important priority for the Group. Outlook It is now generally accepted that the market for retractable safety syringes has not developed to the size and extent originally predicted. However, it is clear that specific opportunities do exist for the Group's products, particularly for patient self administration and pre-fill needle units for pharmaceutical companies. The Board continues to believe that the Group's intellectual property will allow it to gain a share of these specialised market segments. Prospects of securing satisfactory commercial partnerships for the Group's new products, particularly given the current interest in the pre-fill needle unit, remain positive and the Group will be concentrating on bringing commercial negotiations to a successful conclusion as its main priority in the short term. Furthermore, the Group will continue to optimise its designs to enable its new products to be manufactured in high volumes at appropriate unit cost levels. The Group plans to expand its product portfolio and will continue to seek further opportunities which will deliver increased shareholder value. The closure of the Livingston manufacturing facility has been an extremely traumatic experience for everyone. However, I believe that most employees have reacted to the changes with considerable fortitude and understanding. I would like to thank them for this and for their efforts during the year. The remaining directors, management and staff are committed to making NMT a commercial success. A. T. Fletcher Chairman OPERATING AND FINANCIAL REVIEW OPERATING REVIEW At the beginning of the year the focus of the Group was on the production scale up of the 1st Generation retractable syringe to support our pharmaceutical partner Hoffman La Roche. As the year progressed the Livingston plant achieved significant improvements in both manufacturing output and productivity. On the surface a dramatic change in fortune was becoming a reality. The proof of principle, of the 1cc 2nd Generation syringe was completed and an associated technology-licensing booklet was prepared and made available to several major medical device companies. During the second quarter of 2003 we were able to acquire a range of intellectual property from Sterimatic Holdings Ltd., which, coupled with our own in house patents, has created an excellent commercial platform within the pre fill syringe market. The Group continued to make excellent progress in all three product areas throughout the summer, but, towards the close of the year, it became increasingly evident that, despite a strong financial performance in 2003, the lack of orders for the 1st Generation product meant that the manufacturing facility, in Livingston, would no longer be economically viable. The decision was taken in December to cease manufacturing of 1st Generation syringes and eliminate the associated cash burn so that the Group could focus on the development and licensing opportunities surrounding 2nd Generation and pre-fill syringe products. Development and Licensing In 2004 the design engineering team will be focussing on the two principal projects detailed below. Pre-fill Needle Unit The proof of principle for a safe needle sheathed pre-fill syringe will be completed during the first half of 2004 and discussions with pharmaceutical companies and leading pre-fill glass barrel providers have been most encouraging. The commercial strategy will focus on licensing arrangements with capital investment only being financed after fixed volumes and pricing have been agreed. The NMT safe needle pre-fill technology is a flexible system that can be used with no change in clinical practice, this particular feature being very well received by our potential customers. 2nd Generation Safety Syringe Discussions on 2nd Generation designs have taken place with several medical device companies and interest to license the technology has been shown in both the USA and Asia. The business strategy for this product will involve no capital investment commitment from NMT, but will comprise key milestone payments on licensing the technology and royalty income stream on future sales. It is believed this route represents the most attractive proposition for shareholder value and removes significant risk to NMT resources. During 2003 it became clear that the volume penetration of retractable syringe technology within the hospital and alternate care sectors of the US market remained relatively low, and, in order to optimise the value of this technology, a quantum shift in the market dynamics is required. However, it is also worth noting that the global syringe market remains in the region of 15 billion units used per annum and therefore one or two licensing contracts on a regional basis could in fact represent a lucrative royalty stream income for the life of the patents. NMT will continue to pursue licensing opportunities for this technology during 2004. As well as the existing patents, additional applications on these projects are envisaged during the year to further extend the period of associated potential licence fee income. Litigation The lawsuit, filed by Retractable Technologies Inc (RTI), is scheduled for trial in June 2004, and no new facts during the period of discovery have emerged to cause the directors to change their views on a successful defence. Furthermore, NMT remains of the opinion that irrespective of the outcome of the RTI claim, the issues raised have no impact on the validity of patents associated with the current development projects. FINANCIAL REVIEW Operating Results The results for the year are dominated by the impact of the Roche contract. The build up in sales was almost entirely due to Roche and the closure of the manufacturing facility at the end of the year reflected the fact that, as NMT's main customer, forward demand for 2004 and beyond would not be sufficient to allow manufacturing to be financially viable. Turnover of £12.3 million, over four times last year's £2.8 million was almost entirely due to Roche under the Fuzeon supply contract. The operating loss on the continuing business before exceptional items, which comprises the core design and development business, was £1.6 million (2002: £1.5 million). The loss on discontinued operations relating to the manufacturing activities was £0.9 million and compares to a corresponding £10.9 million loss in the previous year. The Group incurred £14.5 million of exceptional charges in the year (2002: £2.5 million). These were due to the decision in December 2003 to stop manufacturing 1st Generation syringes and close the Livingston factory. The major cost associated with the exceptional charge was a non-cash charge of £7.9 million arising on the write-down of three manufacturing lines and associated tooling to £ nil. In addition, a provision of £3.2 million was made at the end of the year for the redundancy of approximately 140 people, nearly all by early March 2004, and a provision of £3.1 million has been made to reflect liabilities of the Group under onerous contracts incurred on the cessation of manufacturing. Further charges have been made to unwind the normal business commitments made up until the decision to stop manufacturing was made on 9th December 2003. After net interest receivable of £0.4 million (2002: £0.7 million) the loss for the financial year was £16.5 million (2002: £13.9 million). Financial Position and Cashflow. The Group's net cash at the end of the financial year was £12.8 million, a decrease of £2.6 million for the period. Cash outflow from operating activities was £2.1 million (2002: £10.6 million). The major contributor to the reduction in cash outflow during 2003 was the supply of product under the Roche contract during the year. The settlement of the 31st December 2003 re-organisation provisions is expected to amount to approximately £6.3 million, the majority of which will be spent in 2004. Taxation The tax credit of £0.1 million was related to Research and Development allowances in the year and compares with the credit of £0.3 million in the previous year which was related to similar allowances for both 2002 and prior years. No charge arose for the current year due to trading losses incurred. The Group has significant unutilised tax trading losses available to carry forward against future profits. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2003 2003 2002 Before Exceptional Before Exceptional exceptional items exceptional items items (Note 3) Total items (Note 3 ) Total Note £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2 Discontinued operation 12,285 - 12,285 2,758 - 2,758 Group operating loss Continuing operation (1,599) - (1,599) (1,482) - (1,482) Discontinued operation (873) - (873) (10,929) (2,524) (13,453) Group operating loss (2,472) - (2,472) (12,411) (2,524) (14,935) Loss on closure of discontinued 3 - (14,476) (14,476) - - - business Loss before interest (2,472) (14,476) (16,948) (12,411) (2,524) (14,935) Interest receivable and similar 471 789 income Interest payable and similar (72) (102) charges Loss on ordinary activities before taxation (16,549) (14,248) Taxation on loss on ordinary 87 316 activities Loss for the financial year (16,462) (13,932) Loss per ordinary share Basic and diluted 4 (1.9) p (1.6)p Continuing operation (0.1)p (0.1)p Discontinued operation (1.8)p (1.5)p Loss per share before 4 (0.2) p (1.3)p exceptional items Continuing operation (0.1)p (0.1)p Discontinued operation (0.1)p (1.2)p There is no difference between the loss on ordinary activities before taxation and the loss for the year stated above and their historical cost equivalents. BALANCE SHEETS At 31 December 2003 Group Company 2003 2002 2003 2002 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 386 9,385 386 9,370 Current assets Stock - 701 - 632 Debtors 3,157 1,446 3,043 10,259 Cash at bank and in hand 12,842 15,406 12,663 15,034 15,999 17,553 15,706 25,925 Creditors: amounts falling due within one year (1,018) (1,747) (999) (1,684) Net current assets 14,981 15,806 14,707 24,241 Total assets less current liabilities 15,367 25,191 15,093 33,611 Creditors: amounts falling due after more than one year (60) (457) (60) (457) Provisions for liabilities and (6,310) - (6,310) - charges Net assets 8,997 24,734 8,723 33,154 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 (66,829) (51,092) (67,103) (42,672) Total shareholders' equity funds 8,997 24,734 8,723 33,154 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2003 Group 2003 2002 £'000 £'000 Loss for the financial year (16,462) (13,932) Exchange adjustment on translation of net assets of subsidiary 688 874 Total recognised losses for the year (15,774) (13,058) RECONCILIATION OF SHAREHOLDERS' FUNDS For the year ended 31 December 2003 Group Company 2003 2002 2003 2002 £'000 £'000 £'000 £'000 Loss for the financial year (16,462) (13,932) (24,468) (11,656) Other recognised foreign exchange gains for the year 688 874 - - Total recognised losses for the financial year (15,774) (13,058) (24,468) (11,656) Share options - notional cost of shares 37 67 37 67 Total movements during the year (15,737) (12,991) (24,431) (11,589) Shareholders' funds at 1 January 24,734 37,725 33,154 44,743 Shareholders' funds at 31 December 8,997 24,734 8,723 33,154 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2003 2003 2002 £'000 £'000 Net cash outflow before exceptional items (1,785) (10,609) Net cash outflow - exceptional items (313) - Net cash outflow from operating activities (2,098) (10,609) Returns on investments and servicing of finance Interest received 539 672 Interest paid (72) (102) Net cash inflow from returns on investments and servicing of finance 467 570 Taxation 114 94 Capital expenditure and financial investment Purchase of tangible fixed assets (439) (791) Cash outflow before management of liquid resources and financing (1,956) (10,736) Management of liquid resources Cash returned from term deposit 2,714 9,369 Financing Finance lease - repayment of principal (608) (598) Net cash outflow from financing (608) (598) Increase/(decrease) in cash in the year 150 (1,965) 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 2002. The financial information on pages 6 to 11 was approved by the Board on 4 March 2004. The information shown for the years ended 31 December 2003 and 31 December 2002 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 2003 and 31 December 2002 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 2002 have been filed with the Registrar of Companies. The Accounts for the year ended 31 December 2003 will be delivered to the Registrar of Companies in due course. 2 Segmental analysis Turnover Operating Loss Net assets 2003 2002 2003 2002 2003 2002 £'000 £'000 £'000 £'000 £'000 £'000 By origin Europe - - (1,599) (1,482) 8,997 341 Total continuing operations - - (1,599) (1,482) 8,997 341 Europe 6,961 1,083 (2,163) (8,638) - 23,603 United States 5,324 1,675 1,290 (2,291) - 790 Total discontinued operation 12,285 2,758 (873) (10,929) - 24,393 12,285 2,758 8,997 24,734 Operating loss before exceptional items (2,472) (12,411) Exceptional items (note 3) (14,476) (2,524) Net interest 399 687 Loss before tax (16,549) (14,248) Turnover 2003 2002 £'000 £'000 By customer location Europe 6,961 969 United States 5,324 1,789 Total discontinued operation 12,285 2,758 3 Exceptional items The following exceptional items have been reflected in the accounts for the year ended 31 December 2003: In December 2003, with insufficient forward orders it was decided to cease manufacture of 1st Generation syringes and close the Livingston factory. The major exceptional item was a non-cash charge of £7.9 million on the write down of three manufacturing lines and associated tooling to their expected value on disposal of £ nil after taking into account all associated costs. Closure costs of £3.5 million arose principally relating to the redundancy of approximately 140 people and the associated operational costs to close the factory. In addition, a charge of £3.1 million was made to reflect liabilities of the Group under onerous contracts incurred on the cessation of manufacturing. The following exceptional items were reflected in the accounts for the year ended 31 December 2002: Due to the slower than expected sales to acute care customers and the decision to focus on the global pharmaceutical market, the Group considered it appropriate to write down the carrying value of specific raw material and finished syringe stock items and, accordingly, an exceptional charge of £1.3 million was incurred in the period. In addition, to optimise production capacity utilisation of 3cc syringes, Sortimat 1 was decommissioned and, under FRS 11 Impairment of Fixed Assets and Goodwill the net book value of the machine was written off resulting in an exceptional charge of £1.2 million. 2003 2002 £'000 £'000 Closure costs 3,532 - Onerous contracts 3,091 - Write down of stock - 1,320 Impairment of tangible assets 7,853 1,204 14,476 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. 2003 2002 £'000 £'000 Loss attributable to members of NMT Group PLC 16,462 13,932 Exceptional items (note 3) (14,476) (2,524) Loss before exceptional item 1,986 11,408 2003 2002 Weighted average number of ordinary shares in issue 871,132,000 871,131,500 The loss before exceptional items provides a more meaningful comparison of business performance year on year. As a result of losses incurred in 2003, the exercise of share options would not have been dilutive and accordingly, the basic and diluted loss per share are the same. 5 Contingent liabilities A claim against New Medical Technology Inc, New Medical Technology Limited and NMT Group PLC for patent infringement has been made by Retractable Technologies Inc. The Directors have taken legal advice on this claim and believe that there is a high probability the claim will be successfully defended, therefore no provision has been made at 31 December 2003 for any potential legal settlements. END This information is provided by RNS The company news service from the London Stock Exchange

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