Interim Results
Aortech International PLC
19 November 2002
AORTECH INTERNATIONAL PLC
Interim Results for the six months to 30 September 2002
Proposed move to the Alternative Investment Market
AorTech International plc, the Scottish-based manufacturer of cardio-vascular
devices, announces its Interim Results for the six months ended 30 September
2002 and its proposed move to the Alternative Investment Market
Highlights
• Operating loss for the period: £7.6 million (H1 2001: loss £5.1 million)
• Increased loss for the period reflects lower gross margins from product
sales, costs associated with the aborted Becton Dickinson acquisition and
a one time rationalization charge of £1.2 million
• Completion of restructuring programme
• Projected annualised cash burn expected to be reduced to £6 million
compared to £16 million for the year to 31 March 2002
• New tissue valve manufacturing plant in Leeds became operational in April
• Tri-Leaflet Heart Valve - Root causes of the adverse performance issues
identified, with corrective action programme underway.
Post-Period Events
• Laurie Rostron to succeed Eddie McDaid as Chairman on 20 November 2002
• Application for Admission to AIM, dealings expected to commence on 18
December 2002
Eddie McDaid, Chairman, commented:
'During the last six months, the Company has completed a restructuring and
rationalization programme. Having completed six years as Chief Executive and
latterly Chairman, I feel that now is the appropriate time to step down and hand
over the reins to the new management team who are well placed to maximize the
value of AorTech's technologies for shareholders'.
19th November 2002
ENQUIRIES:
AorTech International plc Tel: 01698 746 699
Bill Strachan, Chief Executive
Ian Cameron, Finance Director
College Hill Tel: 020 7457 2020
Nicholas Nelson
Clare Warren
CHAIRMAN'S STATEMENT
Results
On 25 September 2002, the Company announced that it anticipated a reduction of
45% in its turnover for the six month period to 30 September 2002 relative to
the six month period to 30 September 2001. The actual reduction in turnover is
57%, the further decline arising from the unforeseen return of product from a
customer immediately prior to the period end.
This disappointing performance during the period was due to three factors:
Sales of heart valves were well down on last year. Although there was volume
growth in the UK, lower pricing in Europe and the Far East, together with the
return of valves following the cancellation of a distributor agreement, have put
the valve business under pressure this year.
The uptake of TruCCOMS (Continuous Cardiac Output Monitoring System) has been
slower than anticipated. In addition, the cancellation of the distribution
agreement with Becton Dickinson and the closure of our US office resulted in
product returns as we endeavoured to reduce the level of unsold stock in the
market place.
Sub-contract work ended during the period, reflecting a decision by our
customers to move to in-house manufacture of their own products, and as a result
was substantially down on the same period last year.
The loss for the period was £7.6 million. This increased loss of just over £2.5
million compared with the same period last year reflects lower gross margins
from product sales, costs associated with the aborted Becton Dickinson
acquisition of £0.5 million and one off rationalisation charges of £1.2 million
associated with the restructuring programme to reduce cash burn.
Mechanical and Tissue Heart Valves
The market for replacement heart valves continues to move toward tissue products
as surgeons experience the increased duration of these valves in patients and as
the patient age profile moves under 70 years of age. Our new tissue valve
manufacturing plant in Swillington, Leeds, became operational in April for the
production of porcine tissue valves. We expect a resumption to growth in sales
of these products following our set backs in the first six months of this
financial year.
TruCCOMS
The TruCCOMS technology continues to be one of AorTech's value propositions. The
product's feature and benefit profile is of particular relevance in open heart
surgery where we believe that continuous cardiac output is an important
requirement for the cardiac anaesthetist. Regrettably, the distribution
agreement with Becton Dickinson was not producing the desired level of uptake
and was terminated on 30 September 2002. We are in the process of setting up a
new distribution network in Europe with the initial focus in the cardiac theatre
as opposed to intensive care. Market experience to date has confirmed the
potential of TruCCOMS in open heart surgery with a number of centres becoming
early adopters. In particular, good progress has recently been made in Italy and
in the UK, where sales are already ahead of the levels achieved under the
previous distribution agreement.
Tri-Leaflet Heart Valve
We announced in May 2002 that adverse performance issues had arisen with several
of the valves during the regulatory testing phase. The root causes of these
performance issues have been identified and steps are currently underway to
implement a corrective action programme. We anticipate that the results of this
work will be available next year after which we will be in a position to resume
the implant study.
The innovative tri-leaflet project is a key constituent of the Company's
intellectual property portfolio and represents a considerable commercial
opportunity. Surgeons worldwide continue to have a desire for a polymer heart
valve which will overcome the limitations present with both mechanical and
tissue valves.
Elast-Eon Material
Work continues to establish further material evaluation agreements with the
leading medical device companies. Elast-Eon's unique bio-stability makes it an
attractive substance for a number of implantable medical products, not least the
tri-leaflet heart valve. A number of companies are re-evaluating the material
with encouraging results and negotiations are ongoing.
Elast-Eon is a significant value builder for AorTech and is a key element of our
intellectual property.
Becton Dickinson
In August, the Company announced that it would not proceed with the proposed
acquisition of the Critical Care business of Becton Dickinson and Company.
During the later stages of due diligence, and despite funding being in place,
technical issues arose which could not be resolved to our satisfaction. As a
result, the Directors concluded that it would not be in the best interests of
AorTech to proceed with the acquisition.
Company Outlook
Significant restructuring has taken place within the Company over the past six
months in order to reduce costs and redefine our strategic direction. Our
projected annual cash consumption will drop markedly to around £6 million
compared to £16 million for the year to 31 March 2002 and the organisation is
undoubtedly leaner than it was. Nevertheless, high costs and insufficient volume
continue to be a barrier to profitability. Focus on cost is a continued
necessity in parallel with expansion of sales.
Expectations for the TruCCOMS technology are more conservative than before,
since our marketing plan is centred on cardiac surgery. To capitalise on
opportunities and to compete effectively in the large intensive care market, the
product requires additional investment. Consequently, business development
activity has focussed on finding investment partners for TruCCOMS and Elast-Eon
as we seek to unlock the value in AorTech's intellectual property.
The Company will continue to take steps to reduce cash burn and to maximise the
value of its technologies for shareholders. This may involve disposal of parts
of the Company not considered core to this strategy. It is, therefore, clear to
the management team that some key strategic choices lie ahead in the immediate
future. A number of options are under review.
At 30 September 2002 the Company had cash reserves of £9 million.
Alternative Investment Market
Given its lower capitalised value, the Directors believe that the interests of
the Company and its shareholders will be better served through a quotation on
the Alternative Investment Market ('AIM') rather than the Official List. We are
today making application for admission to AIM. We anticipate that dealings will
cease on the Official List with effect from close of business on 17 December
2002 and commence on AIM on 18 December 2002.
Board Changes
This will be my last report for AorTech. On 20 November 2002, I will step down
from the Board and Laurie Rostron, currently Non-Executive Chairman of Ranier
Technology Limited and a Non-Executive Director of a number of other companies,
will be appointed Non-Executive Chairman of the Group. Laurie has considerable
experience as a Venture Capitalist in the healthcare industry and has a
successful track record working with small companies. His skill base will bring
new disciplines to the Company and I wish him every success
At the same time Francis Madden will also step down as Non-Executive Director.
Francis has been a Non-Executive Director since 1997 and I thank him for his
hard work over the years.
During the last six months, the Company has completed a restructuring and
rationalisation programme which has seen the formation of a new management team
under the leadership of Bill Strachan, our Chief Executive, who was appointed in
July this year. I have completed six years as CEO and latterly Chairman of the
Group and I feel that now is an appropriate time for me to step down and hand
over the reins to a highly competent professional management team. I take this
opportunity to thank all of the directors, employees and shareholders for their
support over the past six years, particularly these past twelve months. I am
confident that Bill and Laurie with the support of the Executive Management
team will be able to increase value from the technology base that AorTech has
developed.
Personnel
The last six months have been a difficult period for the Group and management
acknowledges the uncertainty that this has caused amongst our employees. I would
like to thank all staff everywhere for their continued enthusiasm and commitment
to the Company. We are blessed with talented people who have a deep desire to
see AorTech succeed.
E.McDaid Chairman
19 November 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
restated
six months ended six months ended year ended
30 September 2002 30 September 2001 31 March
2002
Note £ £ £
Turnover 2 851,690 1,963,743 4,626,955
Cost of sales (570,439) (1,118,979) (2,555,856)
Gross Profit 281,251 844,764 2,071,099
Selling and marketing costs (1,275,382) (1,140,708) (2,863,689)
Administrative expenses (6,874,996) (5,296,096) (13,022,661)
Administrative expenses include:
Development expenditure (2,503,420) (2,850,076) (6,811,308)
Amortisation of intangible fixed assets (620,301) (615,222) (1,247,469)
Costs of proposed acquisition 3 (467,915) - (1,267,474)
Rationalisation costs 4 (1,163,006) - -
Loss on ordinary activities before interest (7,869,127) (5,592,040) (13,815,251)
Interest receivable 244,263 524,606 931,594
Loss on ordinary activities before and after
taxation 2 (7,624,864) (5,067,434) (12,883,657)
Loss per ordinary share 5 (20.01p) (14.00p) (34.69p)
Statement of total recognised losses
Loss for the period (7,624,864) (5,067,434) (12,883,657)
Currency translation differences arsing on Consolidation (142,226) (126,571) (47,487)
Total recognised losses (7,767,090) (5,194,005) (12,931,144)
Prior year adjustment 7 (53,487)
(12,984,631)
CONSOLIDATED BALANCE SHEET (UNAUDITED)
restated
30 September 30 September 31 March
2002 2001 2002
£ £ £
Fixed assets
Intangible assets 20,402,981 21,540,048 21,075,294
Tangible assets 4,843,081 3,398,653 4,828,832
25,246,062 24,938,701 25,904,126
Current assets
Stocks 4,398,018 3,640,355 3,992,311
Debtors 1,460,150 2,348,844 2,381,808
Cash at bank 9,011,603 24,953,169 16,558,880
14,869,771 30,942,368 22,932,999
Creditors:
amounts falling due within one year (1,586,491) (1,792,044) (2,508,234)
Net current assets 13,283,280 29,150,324 20,424,765
Total assets less current liabilities 38,529,342 54,089,025 46,328,891
Accruals and deferred income (87,613) (92,922) (120,072)
Net assets 38,441,729 53,996,103 46,208,819
Capital and reserves
Called up share capital 9,525,696 9,525,696 9,525,696
Share premium account 63,359,593 63,409,738 63,359,593
Other reserve (2,003,143) (2,003,143) (2,003,143)
Profit and loss account (32,440,417) (16,936,188) (24,673,327)
38,441,729 53,996,103 46,208,819
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
restated
30 September 2002 30 September 31 March
2001 2002
£ £ £
Net cash outflow from operating activities
(see below) (7,366,419) (5,922,119) (13,821,019)
Returns on investment and servicing of finance 348,941 456,182 832,425
Capital expenditure and financial investment (537,658) (1,238,852) (2,982,325)
Cash outflow before management of liquid resources and financing (7,555,136) (6,704,789) (15,970,919)
Management of liquid resources 7,268,666 (17,180,815) (8,335,126)
Financing - 23,339,114 24,186,714
Decrease in cash in the period (286,470) (546,490) (119,331)
Reconciliation of operating loss to net cash outflow from operating activities
Continuing activities
Operating loss (7,869,127) (5,592,040) (13,815,251)
Amortisation of intangible fixed assets 620,301 615,222 1,247,469
Depreciation of tangible fixed assets 433,758 236,654 744,153
Loss on sale of tangible fixed assets - - 28,172
Release from deferred grants (32,459) (46,162) (147,762)
Increase in stocks (410,830) (1,006,052) (1,358,008)
Decrease/(increase) in trade debtors 730,682 (56,110) (400,583)
(Increase)/decrease in prepayments (5,820) (106,480) 358
Decrease/(increase) in other debtors 89,892 (200,565) (47,300)
(Decrease)/increase in trade creditors (796,095) 95,193 (499,425)
Increase in other taxes and social security 44,732 152,339 166,706
(Decrease)/increase in accruals and other creditors (171,453) (14,118) 260,452
Net cash outflow from operating activities (7,366,419) (5,922,119) (13,821,019)
NOTES
1. These unaudited interim financial statements have been prepared on the basis
of the accounting policies set out in the Group's annual report for the year
ended 31 March 2002.
The financial information contained in these interim financial statements
does not constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985. The financial information for the year ended 31 March
2002 is an extract from the latest published financial statements that have
been delivered to the Registrar of Companies and on which the auditors'
report was unqualified.
2. Segmental analysis by class of business and geographical area
(a) class of business The Group operates in one class of business.
(b) geographical area The analysis by geographical area of the Group's
turnover, loss before tax and net assets is set
out below:
(i) turnover Restated
six months ended six months ended year ended
30 September 2002 30 September 2001 31 March 2001
sales by sales by sales by sales by sales by sales by
destination origin destination origin destination origin
£ £ £ £ £ £
Geographical segment
United Kingdom 385,205 614,189 606,062 1,399,840 1,170,269 3,541,413
Rest of Europe 429,070 217,463 1,273,593 494,427 2,918,684 818,863
Rest of World 37,415 20,038 84,088 69,476 538,002 266,679
851,690 851,690 1,963,743 1,963,743 4,626,955 4,626,955
(ii) profit/(loss) before tax restated
six months ended six months ended year ended
30 September 30 September 31 March
2002 2001 2002
£ £ £
Geographical segment
United Kingdom (6,087,448) (4,278,108) (11,497,728)
Rest of Europe 31,383 (81,209) 88,592
Rest of World (1,813,062) (1,232,723) (2,406,115)
Loss before interest (7,869,127) (5,592,040) (13,815,251)
Net interest receivable 244,263 524,606 931,594
Loss before and after tax (7,624,864) (5,067,434) (12,883,657)
(iii) net assets restated
30 September 30 September 31 March
2002 2001 2002
£ £ £
Geographical segment
United Kingdom 35,891,512 50,954,786 43,333,313
Rest of Europe 301,046 363,835 401,507
Rest of World 2,249,171 2,677,482 2,473,999
38,441,729 53,996,103 46,208,819
3. Costs of proposed acquisition
The costs relate to the proposed acquisition of the Critical Care business of
Becton Dickinson. On 23 August 2002, the Company announced that it would not
be proceeding with the proposed acquisition due to certain technical
difficulties which arose during the due diligence process.
4. Rationalisation Costs
Rationalisation costs comprise the costs associated with the restructuring
programme to reduce cash burn.
5. Loss per ordinary share
The basic loss per ordinary share is calculated on the loss of the Group of
£7,624,864 for the six months to 30 September 2002 (six months ended 30
September 2001: £5,067,434, year ended 31 March 2002: £12,883,657) and on the
following number of shares:
a) 38,102,783 equity shares being the weighted average number of shares in
issue during the six months ended 30 September 2002.
b) 36,176,714 equity shares being the weighted average number of shares in
issue during the six months ended 30 September 2001.
c) 37,137,110 equity shares being the weighted average number of shares in
issue during the year ended 31 March 2002.
No material dilution of loss per ordinary share would arise if all share options
were exercised.
6. Analysis of net funds
1 April cash non-cash 30 September
2002 flow changes 2002
£ £ £ £
Net Cash:
Cash at bank and in hand 16,558,880 (7,555,136) 7,859 9,011,603
Deposits treated as liquid resources (15,877,759) 7,268,666 - (8,609,093)
681,121 (286,470) 7,859 402,510
Liquid resources:
Deposits included in cash 15,877,759 (7,268,666) - 8,609,093
Net funds 16,558,880 (7,555,136) 7,859 9,011,603
7. Prior year adjustment
During the year ended 31 March 2002, the Group changed its accounting policy
with regard to revenue recognition. Comparative figures for the six months
ended 30 September 2001 have been adjusted to reflect this change, the effect
being to increase the loss for that period by £43,353 and to reduce
shareholders' funds at 30 September 2001 by £96,840.
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