Final Results - Year Ended 31 December 1999
NMT Group PLC
28 March 2000
NMT GROUP PLC
Preliminary results for the year ended 31 December 1999
NMT Group PLC ('NMT'), the manufacturer of retractable devices to prevent
needlestick injury, announces its preliminary results for the year ended 31
December 1999.
Key Points
-Additional US legislation introduced on the use of safety syringes
-Increased focus on manufacturing scale-up and broadened product range
-Second Sortimat assembly system installed
-Successful Placing and Open Offer raised £15.3 million (net) in March 1999
-Second RSA Grant awarded
Roy Smith, newly appointed Chief Executive Officer, commented:
'Legislation in the all-important US market has moved apace over the past
year, strengthening our view that the safety syringe market presents a major
commercial opportunity for NMT. We recognise and are addressing the need to
expand our product range and to increase our manufacturing capability to meet
the needs of our customers. We have ambitious plans to participate in this
growing market and I firmly believe that we have the best technology to
exploit it.'
Enquiries:
NMT Group PLC Today: 0207 831 3113
Roy Smith, Chief Executive Officer Thereafter: 01506 445000
Financial Dynamics Tel: 0207 831 3113
David Yates/Sophie Pender-Cudlip
Chairman's Statement
US regulation on the mandatory use of safety devices to prevent needlestick
injury was introduced far earlier and more rapidly than the market had
anticipated. This turned what was originally a market niche into a major
market opportunity. As a result, there is a rapidly increasing demand for
products such as NMT's safety syringe in a broader range of sizes. Our
challenge has been to meet this demand and we are therefore working hard to
address the needs of our customers through the expansion of our manufacturing
capability and the broadening of our product range so that we can fully
exploit this market opportunity as quickly as possible.
During the year, John Campbell, the Chief Executive and one of the founders of
NMT, resigned. John worked with the Company from its inception through to
flotation and I would like to take this opportunity to thank him, on behalf of
the Board, for his contribution to the Group.
In January, we were pleased to announce the appointment of Roy Smith who was
previously Chief Executive of the medical devices company, Advanced Medical
Solutions plc and who prior to that, spent 16 years at Johnson & Johnson. He
has a broad understanding of the medical devices market and, having worked
extensively in the US, can bring to NMT knowledge and experience of
commercialising technology and building brands in this market.
Roy has been with the Company since the beginning of March and his initial
impression is that the technology has enormous potential and that the market
opportunity for NMT is a genuinely exciting one. However, he also recognises
that the Company has a number of manufacturing challenges to address. He
therefore intends to carry out a full operational review of the business and
will present the results of his review, together with his plans for the
Company going forward, at the Annual General Meeting on 11 May.
Chief Executive's Review
Operations
During 1999, NMT concentrated on establishing and expanding its manufacturing
base. The challenges faced during that year were typical of those faced by
emerging manufacturing companies. However, we have always taken the view that
having control of the assembly process in house would reduce our manufacturing
risk and increase the potential return to shareholders. Not only is the
assembly process a key value added step in the manufacture of NMT's safety
syringes, it is also unique to our products. As a result, the assembly
equipment, technical knowledge, and process know-how will prove invaluable to
our future success. Whilst we experienced a number of difficulties with our
first automatic assembly system, supplied by Sortimat Automations GmbH., we
have applied that experience to the design of the second Sortimat machine,
which was delivered towards the close of 1999.
Production from the second Sortimat machine will be scaled up over a period of
months and we are now confident of achieving an acceptable level of output.
Furthermore, a third Sortimat machine, identical to the second, is due for
delivery in the second quarter of this year alongside our first assembly
machine for 1ml safety syringes. The 1ml assembly machine is being
manufactured by Mikron SA of Switzerland which, like Sortimat, is a world-
class manufacturer of assembly systems.
Product Development
The first Sortimat assembly machine is restricted to the supply of 3ml 25G x
5/8' safety syringes. Our customers have clearly indicated the need for a
wider range and the second Sortimat machine will supply a broader range of 3ml
syringes. However, initial production is concentrating on 23G x 1' and 21G x
1.5' safety syringes. Including the output from Sortimat 1, we will offer a
good spectrum of subcutaneous, intramuscular and deep intramuscular injection
devices. The third Sortimat machine, also capable of broadening the range of
needle sizes on 3ml syringes, will further supplement this output.
The Mikron system will supply a range of 1ml syringes. These will be the
first automatically retracting 1ml safety syringes on the market, which should
give the Group a major advantage over the competition and will further extend
the range of our products.
In addition to the safety syringe products described above, we have developed,
to prototype stage, a safety I/V catheter, a safety phlebotomy set, and
further extensions to the current safety syringe range.
Recognising the sensitivity of these developments it would not be appropriate
to provide further detail within this Report. However, the Group is confident
that these potential new developments will not only broaden our future product
offering, but will provide an excellent intellectual property platform to
increase shareholder value in the years ahead.
Legislation
Legislative pressure for the use of safety needles continues to build in the
US. Currently six States, California, Texas, Tennessee, New Jersey, Maryland
and Hawaii have passed legislation mandating the use of safety needles by
healthcare facilities. More than twenty other states have similar legislation
pending. At the current pace of development, by the end of the year, safe
needle legislation could apply to healthcare facilities operating over 60% of
the hospital beds in the US.
In addition to the legislation introduced by individual states, bipartisan
needlestick protection legislation has been introduced to both the House of
Representatives and the Senate, at Federal level. Moreover, the Federal
Occupational Safety and Health Administration (OSHA) has recently published a
revised Bloodborne Pathogens Directive. The new directive places emphasis on
using safety needle products and on the requirement for healthcare facilities
to conduct annual reviews of their bloodborne pathogen programme. One effect
of this increase in legislation is that shortages of safety products are
already being experienced in several US states. In addition, it has also
presented established medical device manufacturers with unexpected problems,
not just with capacity issues, but with breadth of product range difficulties.
In Europe, the first signs are appearing of the development of union backed
campaigns focussing on healthcare worker safety. These are similar to those
promoted by the unions and professional bodies in the US, which were major
factors in the initiation of the legislation there. Questions have also been
asked in the Scottish Parliament, and we believe it is only a matter of time
before the pressure forces a regulatory response in Europe.
Regulatory and Intellectual Property
The patent infringement lawsuit concerning NMT's safety syringes in the US is
set down for hearing in the summer of this year. No new facts have emerged
during the process of discovery to cause the Group's advisers to change their
views on the prospects of success. Accordingly, we continue to believe that
the lawsuit is unlikely to have a long-term material impact on our business.
Elsewhere, we continue to establish comprehensive geographical protection for
our core needle retraction technology, with patents granted in 25
jurisdictions and pending in a further 20. Patent applications have also been
submitted in respect of a number of other products and inventions in the field
of needlestick prevention.
NMT's Quality System remains core to the Group's business. The challenges
posed by the scale-up of our manufacturing operation place significant demands
on the Quality System. We were pleased that a routine audit by our notified
body, SGS Yarsley, in late 1999, indicated that the system was operating to
the required standard with no concerns of significance.
Facilities and Personnel
At the time of writing the Group is taking possession of the extension to its
premises in Livingston. This will add 35,000ft squared to the existing
24,000ft squared, and will facilitate a total of 7 cleanrooms plus storage
space. We were granted early entry to the development to start work on the
new cleanrooms, and anticipate that these will be ready to receive the third
Sortimat 3ml machine and the Mikron 1ml machine shortly.
In parallel with the expansion of our facilities, we have recruited a number
of new key employees. In particular, we have significantly strengthened the
Sales & Marketing team. Karen Dunlap has joined New Medical Technology, Inc.
as Vice President of Sales for North America. She was previously Director of
Sales for Futura (formerly Lukens Medical Corporation, a Medisys Group
Company). Her extensive experience will prove invaluable to the Group's
penetration of the North American market. Furthermore, Keith Gardner has
joined as Marketing Manager (North America) from Closer Look Creative, Inc.,
where he was Account Manager for Eli Lilly and Company, with whom he had
previously served in Sales and Marketing Communications roles. In Europe,
Susan Murray joined as Marketing Manager, having previously worked with
Ethicon, Sherwood Davis and Geck, and Sulzer Vascutek.
Sales and Marketing
In the US, the momentum continues to build steadily toward the adoption of
safety products throughout the healthcare marketplace. This drive is being
powered by state and national legislation, revitalized grassroots and
organized labour activities, national agreements signed by the largest
Hospital Purchasing Organizations, and the efforts by manufacturers to develop
and introduce effective user-friendly new safety products such as NMT's Safety
Syringe.
Our experience from competing in these new 'all safety' markets, such as
California, has provided excellent exposure to the key commercial issues. This
will serve the Group well as these changes continue to spread rapidly across
the US. We have observed the main driver in the market to be one of compliance
with the new legislation, rather than the selection of the optimum solutions
to the needlestick problem. Clearly, as the decision-makers continue to comply
with the legislation, they will be required to analyse the effectiveness of
the devices chosen. We are convinced that, as the market becomes more
sophisticated, products that are rendered automatically safe in the normal
course of a medical procedure, will prevail. Hence we are confident in the
ability of our safety products to gain market share.
Another effect of the legislation is that hospitals are no longer interested
in protecting only those at highest risk, but all frontline healthcare staff.
It is clearly undesirable to have a mixture of different safety technologies
in the same hospital ward, and therefore there is a requirement for a broader
range of needle sizes in order to satisfy this demand. As we progress through
the year 2000, we will be in a stronger position to respond to this trend.
In anticipation of introducing a broader range of 3cc products during 2000 and
in response to the market opportunity in the US, we have increased the size of
our US Sales and Marketing Group as referred to above. The calibre of these
new additions to the Group is of the highest standard and their experience
will prove invaluable going forward.
We continue to evaluate and enhance our distribution network. We are
confident that we have the network necessary to achieve success in our markets
of focus: hospitals, physicians' offices, prisons, long-term care and
occupational health. These markets currently represent over five billion
syringes used annually.
Our distribution partners and customers continue to believe in our technology
and they have been very clear in their expectations. In order to convert
prospective accounts, and to achieve success, we must be able to assure an
adequate supply of a broad range of safety products. Our intention is to
deliver all this and not just to meet, but to exceed, our customers'
expectations. This will be achieved in a controlled manner, through internal
focus on syringe assembly at our Livingston facility and utilising the
competency of outside contractors when appropriate.
In Europe, the level of awareness of the needlestick problem is still less
than the US. Working with health and safety organisations, trade unions,
politicians and opinion leaders from the healthcare profession we will
continue to increase awareness of the seriousness of needlestick injury.
Within the UK, the healthcare union, UNISON, and professional bodies, such as
the Royal College of Nursing, are now active in launching awareness campaigns.
Furthermore, during 1999 we were able to supply clinical data and economic
analysis demonstrating the intrinsic value in the use of safety devices.
Throughout Europe we have continued to evaluate and work with our distribution
channels in Germany, Italy, France, Spain, Portugal, Switzerland, Scandinavia,
Austria, Belgium and the UK. Many of these distributors have been appointed
since early 1999, and, from detailed discussions with our partners, it is
becoming increasingly apparent that we must be able to offer a broad range of
safety products.
Elsewhere, we announced in our Interim Report the appointment of ProMedica Pty
Ltd as our distributor for Australia and New Zealand, and with their
assistance we have gained regulatory approval for Zero-Stik in these markets.
ProMedica are planning the launch of our Zero-Stik range during the second
quarter of 2000. Our Business Development department has also been active in
other key markets including Japan, South Africa and the Middle East.
Financial Summary
Turnover for the year was £66,000 (1998 £14,000), lower than anticipated due
to the narrowness of our product range. The loss for the year of £7.06m (1998
£3.2m) was also greater than expected and included a provision of £690,000 for
the writing down of stock which, due to its short residual shelf life, was
considered to have become obsolete. Cash reserves at the year end amounted to
£8.87m (1998 £3.4m).
In March 1999, we announced a Placing and Open Offer of new shares to enable
us to expand our manufacturing capacity more rapidly. The offering
successfully raised £15.3m net of expenses. In December 1999, the Group
received the second instalment, £600,000, of the Regional Selective Assistance
(RSA) grant awarded in 1997. This brought the total received to £1.1m out of a
total grant of up to £1.5m. In November, the Group was awarded a further RSA
grant of up to £3m to assist in its expansion. This second grant will also be
receivable in instalments and is linked to the Group's plans for continuing
investment in capital assets and job creation.
In January 1999, we entered into a lease of the first Sortimat assembly system
and subsequently leased other capital equipment all of which yielded net
finance of £1.2m. Since the year-end, we have entered into a lease of the
second Sortimat machine, which has generated additional finance of £1.5m, and
we are continuing to explore further leasing opportunities for future
equipment.
Outlook
The transition from a research-based organisation into a vertically integrated
medical device business is not without challenge. However, the Group remains
confident that during 2000 we will show considerable progress in the
achievement of our business objectives. The demand for safety products will
continue to increase and we are poised to exploit the explosive growth that
will undoubtedly occur within this market sector.
Your Board is very much aware that further improvements will be necessary in
order to expedite the transformation of the Group and we look forward to
achieving our key milestones during 2000.
Balance Sheets
At 31 December
1999
Group Company
______ ______
1999 1998 1999 1998
£'000 £'000 £'000 £'000
Fixed assets
Intangible assets 1,810 1,930 1,110 1,230
Tangible assets 7,064 3,187 7,064 3,187
8,874 5,117 8,174 4,417
______ ______ ______ ______
Current assets
Stocks 520 54 520 54
Debtors 742 177 3,540 1,475
Cash at bank and
in hand 8,868 3,411 8,849 3,263
10,130 3,642 12,909 4,792
______ ______ ______ ______
Creditors
Amounts falling
due (2,555) (886) (2,514) (886)
Within one year
______ ______ ______ ______
Net current
assets 7,575 2,756 10,395 3,906
______ ______ ______ ______
Total assets
less current
liabilities 16,449 7,873 18,569 8,323
______ _____ ______ ______
Creditors
Amounts falling
due (1,782) (1,548) (1,782) (1,548)
After more than
one year
______ ______ ______ ______
Net assets 14,667 6,325 16,787 6,775
______ ______ ______ ______
Capital and
reserves
Called up share
capital 3,142 1,964 3,142 1,964
Share premium
account 23,784 9,616 23,784 9,616
Profit and loss
account (12,259) (5,255) (10,139) (4,805)
______ ______ ______ ______
Equity
shareholders'
funds 14,667 6,325 16,787 6,775
______ ______ ______ ______
Consolidated Cash Flow Statement
For the year ended 31 December 1999
1999 1998
£'000 £'000
Net cash outflow
from operating
activities
(note 3) (7,140) (2,815)
______ ______
Returns on
investments and
servicing of
finance
Interest received 472 248
Interest paid (150) (6)
322 242
______ ______
Capital
expenditure
and financial
investment
Purchase of
tangible fixed
assets (2,575) (1,772)
______ ______
Cash outflow
before management
of liquid
resources
and financing (9,393) (4,345)
______ ______
Management of
liquid resources
Cash (placed on)/
withdrawn from
term deposit (4,300) 1,550
______ ______
Financing
Term loan - 1,500
Finance lease -
repayment of
principal (496) (99)
Issue of shares 15,346 -
14,850 1,401
______ ______
Increase/
(Decrease)in
cash in the
year 1,157 (1,394)
______ ______
Consolidated Profit and Loss Account
For the year ended 31 December 1999
1999 1998
£'000 £'000
Turnover 66 14
Cost of sales
(note 4) (2,388) (13)
_______ ______
Gross (loss) /
profit (2,322) 1
Administration
expenses (5,708) (3,961)
Other operating
income 612 500
______ ______
Operating loss (7,418) (3,460)
Interest
receivable 509 228
Interest payable (150) (6)
______ ______
Loss on ordinary
activities before
and after tax (7,059) (3,238)
______ ______
Loss per share
Basic and diluted
loss per share (12.6)p (8.2)p
______ ______
NMT Group PLC
Notes to the Financial Statements
For the year ended 31 December 1999
1 Basis of preparation
This preliminary announcement 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 1998.
The information shown for the year ended 31 December 1999 does not constitute
statutory Accounts within the meaning of Section 240 of the Companies Act
1985.
2 Reconciliation of net cash flow to movement in net funds
1999 1998
£'000 £'000
Increase/
(Decrease)
in cash in the
year 1,157 (1,394)
Cash outflow from
finance leases -
repayment of
principal (994) (1,596)
Cash inflow/
(outflow) from
increase in
liquid resources 4,300 (1,550)
______ ______
Change in net
funds resulting
from cash flows
and movement in
net debt in the
year 4,463 (4,540)
Net funds at 31
December 1998 1,815 6,355
______ ______
Net funds at 31
December 1999 6,278 1,815
______ ______
3 Reconciliation of Operating Loss to Net Cash Outflow
1999 1998
£'000 £'000
Operating loss (7,418) (3,460)
Amortisation of
intangible fixed
assets 120 20
Depreciation on
tangible fixed
assets 653 282
Share options -
application of
UITF 17 55 55
Movement in:
(Increase) in
stocks (466) (54)
(Increase)
/decrease in
debtors (528) 45
Increase in
creditors 444 297
______ ______
Net cash outflow
from operating
activities (7,140) (2,815)
______ ______
4 Cost of Sales
Cost of sales for the year includes £373,000 attributable to producing product
for sale on the Kahle assembly line. This line is designed primarily for the
development of future products, not for the assembly of product on a
commercial basis as it is considerably more costly to operate in terms of
labour and manufacturing overhead costs. The line was used at this stage in
the development of the Company to maximise the breadth of product available to
customers. As more of the Company's fully automated production capacity comes
on line, the use of the development line for this purpose will be phased out.
Cost of sales includes a provision of £690,000 for the reduction in value of
finished goods stock because of obsolescence. The obsolescence related to
shelf life of stock at 31 December 1999 or the projected date of sale.
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