Preliminary Results

Synexus Clinical Research PLC 13 June 2007 SNX.L SYNEXUS CLINICAL RESEARCH PLC Preliminary Results for the year ended 31 March 2007 Synexus Clinical Research PLC ('Synexus' or 'the Company'), which provides clinical trials services for the global pharmaceutical industry, today announces its preliminary results for the year ended 31 March 2007. HIGHLIGHTS . Total turnover up 8% at £10.3 million (2006: £9.5 million) includes investigator fees up 11% to £9.0 million (2006: £8.1 million) . Profit before tax and goodwill was £0.7 million - ahead of revised market expectations (2006: £1.4 million). . Continued progress made in line with our strategy to replicate our well established UK model. . Clinic opened in Sofia, Bulgaria. . Acquisition of Diagnostic Units Hungary in June 2006 . Acquisition of Clinical Research Centres (SA) Pty Ltd in March 2007 . The total number of patient visits for the year was over 32,500 - an increase of almost 9% over 2006 . Creation of larger "Super Hubs" in the UK has increased capacity by 50% . Strengthening of plc and operational boards . Creation of Scientific Advisory Board chaired by Professor Trevor M Jones Commenting on the results, Executive Chairman, Mike Redmond, said, "Existing signed contracts and bids under negotiation give the Board confidence that its expectations for the current financial year will be met. By the end of the first half, based on the above criteria, activity levels across the operations will be substantially increased with beneficial impact on profits. "This year has seen the Company make major progress in building a multi-country operation, reflecting an increasing interest from our clients in how Synexus can address their clinical trial needs. With a much strengthened executive team, the Company is well placed to achieve profitable growth." Press enquiries Synexus Clinical Research PLC Tel: +44 (0)1257 230 723 Michael Fort, Chief Executive Paul McCluskey, Finance Director Biddicks - Financial Public Relations Tel: +44 (0)20 7448 1000 Zoe Biddick Brewin Dolphin Securities Tel: +44 (0)845 270 8600 Mark Brady Chairman's Statement The attached financial information reviews the first full financial year since the flotation of the Company on AIM in November 2005. Considerable progress has been made in building the foundations of a multi-country operation to meet the clinical trial needs of our clients and in securing acceptance among those clients of the new more cost effective approach we offer, compared with traditional methods of patient recruitment. Financial Results Turnover for the year was £10.3 million against £9.5 million for the previous year. Profit at the EBITDA level was £0.9 million versus £1.9 million, and profit before tax was £0.4 million against £1.2 million in the previous year. In our trading update of 26 January 2007, we drew attention to an unusually large number of contracts whose start dates had been delayed by clients and indicated that the effect of the delays would be to reduce prospects for the financial year as a whole. The results we are announcing today are in line with our expectations at that time. Net cash at the year-end was £0.4 million. It is important to note that only one of the studies that were the subject of delays has been lost; some have now started, although others continue to be delayed beyond our control by sponsors. Strategy Synexus' strategy since flotation has been to replicate its UK capability to recruit large numbers of patients into later stage clinical trials in a number of countries increasingly important to our clients' clinical research programmes. This strategy largely involves the acquisition of existing research sites in those countries to provide the footprints for subsequent expansion as increasingly we win larger multi-country contracts. Accordingly, in addition to the site acquired in Poland in early 2006 and the partnership established in India in December 2005 we have further acquired established research sites in Hungary and South Africa. We have also started a greenfield operation in Bulgaria. Taken together with our original UK operations, we can now offer to our clients the same high standard clinical research capabilities in six countries. We are making good progress with our pharmaceutical clients in gaining acceptance of our model for clinical trials, substantiated by the increasing level of enquiries and bids and by our confirmed order pipeline, described in detail in the Chief Executive's review. However, like many other examples of innovative ways of operating, it does take time for concepts to be fully adopted and acted upon. We are devoting increased resources to our sales and marketing programmes to accelerate the uptake of our services. People The senior management team has been greatly strengthened during the year, firstly by the appointment of Paul McCluskey as Chief Financial Officer in September 2006, and more recently of Alan Boyce as Chief Operating Officer. Both bring extensive operational experience to the Group and, in the case of Alan Boyce, long experience of our industry. Since the end of the financial year, we have made a further appointment of a senior sales executive, Chris Hannigan, whose previous roles were in the contract clinical research sector. With his extensive industry expertise, this appointment represents a significant addition to our sales development activities. These appointments clearly impact our overheads, but are strategically important building blocks in strengthening the management of the business, directed firmly at growing our profits and hence shareholder value. After six years with the Company as Chairman, I shall be retiring as a director at the forthcoming Annual General Meeting. I would like to take this opportunity to wish the Company well for the future. Current Trading and Prospects Existing signed contracts and bids under negotiation give the Board confidence that its expectations for the current financial year will be met, having prudently factored in delays to the start of contracts based on recent experience. With the profile of signed studies, factored-in delays and the impact of necessary increases in overheads, it will be some months into the current financial year before profitability increases from most recent levels. By the end of the first half, based on the above criteria, activity levels across the operations will be substantially increased with beneficial impact on profits. Michael Redmond Executive Chairman 13 June 2007 Chief Executive's Review Overview The previous 12 months represent a pivotal year for your Company. Just over a year ago Synexus was a domestic UK business offering patient recruitment solutions to the UK affiliates of major multinational pharmaceutical companies. With the completion of our most recent acquisition in Pretoria, South Africa, and following the previous openings and acquisitions in India, Poland, Hungary and Bulgaria, we now have a footprint in six countries. As a truly international, patient focussed contract research organisation (CRO) we are able to offer worldwide solutions to our customers. This enables us to bid for studies that were previously inaccessible to us, increase the volumes of patients offered to studies and widen our therapeutic capability to include new disease areas such as Chronic Obstructive Pulmonary Disorder (COPD) and Rheumatoid Arthritis (RA). 2006/2007 also saw Synexus complete the recruitment of almost 3,000 patients to a single study for a major pharmaceutical client; we believe this is the largest number of patients ever recruited by one organisation to a late stage clinical trial. Synexus recruited over 20% of the worldwide patient requirements from less than 1% of the sites in the study. This demonstrates the Synexus value offering to clients. Increasingly we are bidding for more studies in a similar vein. Our international footprint, underpinned by our established UK operation, significantly enhances our capacity to develop this strategic model further. The Market The clinical trials process remains underpinned by a very inefficient model, particularly in regard to patient recruitment and retention. Our clients tell us of increasing difficulties in achieving recruitment targets due to problems with access to patients, delays in study starts at sites, increasingly complex protocols with much higher safety hurdle rates and so on. For instance, one major Synexus client spent $17 million in the UK in 2005 on establishing greenfield trial sites that failed to recruit a single patient, whilst the average cost of opening a single General Practitioner (GP) site to global pharmaceutical companies is between $25,000 and $37,000, yet 40% will only recruit one patient. Also 60% of GP sites will only ever carry out one trial, finding the whole process too onerous, leading to a lack of established knowledge base as well as increasing inefficiencies. These are key factors why the industry average number of patients recruited per site across all trials is fewer than five (source: CenterWatch Trials Listings 2006). Despite such issues, the clinical trials market continues to grow, driven by the industry's need to innovate, combined with much more stringent safety regulations in the post Vioxx era. Total pharmaceutical R&D spending is set to move from $115 billion in 2007 to $148 billion by 2009 (source: Thomson CenterWatch/Goldman Sachs), whilst the spending on contract research grants is expected to grow at a compound annual growth rate of 14.8% in the same period. Against this background, the patient recruitment market is increasingly challenging for pharmaceutical companies and CROs alike. 88% of trial investigators in Europe are part time, with over 80% of investigators globally only ever carrying out fewer than five trials throughout their careers (Source: Thomson CenterWatch). The Synexus solution addresses all of the above issues and our main goal is to continue to educate our clients into fully embracing our model as the cornerstone to their clinical trial strategy. An increasing number of clients are accepting this and we are becoming service provider of choice for a number of major pharmaceutical companies. Indeed, we recently signed our fourth master services agreement with a leading international company. Again, the acquisitions made in overseas operations together with the significant expansion of our capacity within the UK places the Company in a strong position to exploit this demand. Operational and Financial Review As previously reported, total turnover at £10.3 million was up by £0.8 million on the previous year. Investigator fee revenue included in this was £9.0 million, up from £8.1million, an increase of almost 11%. Total direct and operating costs at £10.0 million were up from £8.0 million in financial year 2006 reflecting the increased capacity in the business and the cost of acquisitions. In the UK, payroll costs increased by £0.4m, an additional £0.2m was spent on marketing & business development and property costs increased by £0.2m. The acquisition of DUH increased costs by £0.7 million and the full year impact of the SCM acquisition accounted for a further increase of £0.3 million. The results from CRC (South Africa) could not be consolidated as completion of the acquisition was only finalised immediately prior to the year-end, following a review of the acquisition structure to meet the requirements of the South African Reserve Bank. However, the results from the subsidiary for the year were very encouraging and profits were in line with expectations. In January we reported a delay in studies to start, resulting in a shortfall in results against prevailing market expectations for the full year. Although study delays are not unusual in the contract research market, the number of delayed contracts that affected us was particularly high. Of around 20 studies we were expecting to start in the fourth quarter, nine were delayed. All concentration since then has been focused on delivery of existing contracts and I am pleased to report that we have ended the year marginally ahead of the market's revised expectations. We have learned from this experience and taken an even more prudent approach to our project planning and forecasting for the future. In order to address the opportunities most effectively, the core operation in the UK has undergone major change in order to increase both capacity and efficiencies in our home market, from which we still currently derive the greater majority of our income. The two smaller sites in Glasgow have been consolidated into one much larger new site, renamed as the Scottish Research Centre. Our two original sites in Wigan and Chorley have been merged into the purpose designed Lancashire Research Centre near Preston, which is much better placed for all major communication links. Our small satellite centre in Coventry has been merged into the Midlands Research Centre in Birmingham and the available clinical area more than doubled. Similarly, Liverpool has been merged with Crosby into the Merseyside Research Centre, again with over a doubling of floor area. Plans have recently been agreed to relocate our outdated Reading site to another purpose designed Thames Valley Research Centre also in Reading. This Centre will also house a sales office much closer to the sites of our major clients based in the UK. All of this has had the effect of significantly improving the throughput of our UK sites, allowing us to increase capacity by around 50%. The increase in capacity with the acquisition of new clinical space meant the total number of patient visits during the year increased to over 32,500. These figures do not include South Africa for reasons discussed above and only include Synexus Hungary for the period since its acquisition in June 2006. We look forward to their full year contributions in 2007/2008. Synexus Poland, acquired in February 2006, made a positive contribution to the Company and on one competitive study in particular was the fastest recruiting site, contributing over 200 randomised patients in record time. Our new greenfield site in Sofia, Bulgaria won and completed its first clinical trial towards the end of the year and contributed patients to a previously difficult therapeutic area for us in COPD. Our presence in Central and Eastern Europe (CEE) is becoming a very important hub of operations, not only in gaining access to new patient demographics, but also in broadening the spread of therapy areas. As our operations in India and South Africa become further established, we see a broadening of the therapy areas that can be offered to our clients. The main focus of the studies will continue to concentrate on Phase 3, but we see also an opportunity in accelerated Proof of Concept studies in Phase 2 trials, a business area that we are exploring with two major pharmaceutical clients. We now work with all of the top 10 international pharmaceutical companies and importantly are seeing a broader spread of business across those clients, lessening the dependence on one or two key trials. People Paul McCluskey joined the board as Chief Financial Officer in September and has made tremendous progress in developing the Company's reporting systems to meet the needs of our expanding operational base. The board was boosted towards the end of the year with the appointment of Alan Boyce as Chief Operating Officer. Alan joins the Company from Kendle International, one of the world's leading contract research organisations where he held the post of Vice President Global Clinical Development. Alan's knowledge of our market is already proving to be an invaluable asset to the business as we seek to grow our offering in our existing markets as well as in new ones. We have additionally strengthened our sales team with the appointment to our Operational Board of Chris Hannigan as Vice President International Business Development. Chris also brings a wealth of experience from the international CRO market. I believe we now have a first class executive board, capable of delivering strong future growth in profitability. I am delighted to report that Professor Trevor M Jones is working with the company in chairing our Scientific Advisory Board. Professor Jones was Director General of the Association of the British Pharmaceutical Industry from 1994 to 2004 and formerly the R&D Director for the Wellcome Foundation. He has a wealth of experience within the international pharmaceutical industry and his knowledge and contacts in the industry are proving a real asset to our business. I am grateful for the continued dedication and professionalism of our staff and I welcome those new staff members to the Company who have joined in the last 12 months in different areas of the world. Our UK team has gone through a significant period of change with the opening of new sites and the moving of others whilst keeping patients and studies on target and the sincere thanks of the Board is passed to all. As noted in the Chairman's Report, Mike Redmond retires from the board at the Annual General Meeting after six years with Synexus. The Board would like to take this opportunity to thank him for his contribution to the Company. Malcolm Hughes, our senior independent non-executive director will fill the position of non-executive Chairman until a suitable replacement is found. Current Trading and Outlook The level of enquiries reflects the continued buoyancy of the market and the increasing reliance of our major clients on outsourcing to CROs such as ours and I am pleased to report that the current year has started on plan. As of the date of this report, the value of the bid pipeline has increased from £22.8 million (September 2006) to £27.0 million. The value of contracted orders stands at £11.8 million, generating a book to bill ratio on firm orders of 1.1. Our sales focus on the United States is beginning to deliver results. More discussions are taking place with US budget holders at the leading pharmaceutical companies regarding the allocation of resources internationally through Synexus on the basis of "fourteen centres, six countries, one contract". A number of the potential contracts in our pipeline reflect this offering. We will continue to research the market to identify future acquisition opportunities that can expand our operational capability and enhance shareholder returns. However, our primary focus during the current year will be on optimising operational performance from our expanded network of sites. The Synexus model, as an international, patient focused CRO, continues to gain acceptance and I look forward to reporting further progress to you in the near future. Michael J Fort Chief Executive Officer 13 June 2007 Consolidated Profit and Loss Account for the year ended 31 March 2007 Note 2007 2006 £000 £000 Turnover -------- -------- Continuing operations 9,547 9,542 Acquisitions 784 - -------- -------- 10,331 9,542 Cost of sales (5,390) (4,719) --------- -------- Gross profit 4,941 4,823 Operating expenses -------- -------- Amortisation of goodwill (295) (213) Other operating expenses (4,318) (3,079) -------- -------- Total operating expenses (4,613) (3,292) --------- -------- Operating profit -------- -------- Continuing operations 230 1,531 Acquisitions 98 - -------- -------- Total operating profit 328 1,531 --------- -------- Interest -------- -------- Interest receivable and similar income 70 27 Interest payable and similar charges (39) (326) -------- -------- 31 (299) --------- -------- Profit on ordinary activities before taxation 359 1,232 Taxation 3 122 29 --------- -------- Profit for the financial year 481 1,261 ========= ======== Basic earnings per share 2 2.1p 6.8p ========= ======== Diluted earnings per share 2 2.1p 6.8p ========= ======== Consolidated Statement of Total Recognised Gains and Losses for the year ended 31 March 2007 2007 2006 £000 £000 Profit for the financial year 481 1,261 Currency translation differences on foreign currency net investments 37 - -------- -------- Total recognised gains and losses relating to the year 518 1,261 ======== ======== Consolidated Balance Sheet at 31 March 2007 Note 2007 2006 £000 £000 Fixed assets Intangible assets 5 5,709 3,881 Tangible assets 1,415 514 Investments 22 - ------------- ------------- 7,146 4,395 ============= ============= Current assets Debtors 2,689 2,428 Deferred tax 246 103 Cash at bank and in hand 1,490 1,982 ------------- ------------- 4,425 4,513 Creditors: amounts falling due within one year (3,542) (2,020) ------------- ------------- Net current assets 883 2,493 ------------- ------------- Total assets less current liabilities 8,029 6,888 Creditors: amounts falling due after more than one year (485) (251) ------------- ------------- Net assets 7,544 6,637 ------------- ------------- Capital and reserves Called up share capital 2,315 2,279 Share premium account 2,491 2,491 Merger reserve 1,471 1,253 Capital redemption reserve 2,661 2,661 Exchange reserve 37 - Share based payment reserve 44 - Profit and loss account (1,475) (2,047) ------------- ------------- Equity shareholders' funds 7,544 6,637 ============= ============= Consolidated Cash Flow Statement for the year ended 31 March 2007 Note 2007 2006 £000 £000 Net cash inflow from operating activities 6 851 899 Return on investments and servicing of finance 31 (28) Taxation (28) - Capital expenditure and financial investment (1,021) (71) Acquisitions and disposals (1,090) (53) ------------- ------------- Cash (outflow)/inflow before financing 7 (1,257) 747 Financing 765 807 ------------- ------------- (Decrease)/increase in cash in the year 7 (492) 1,554 ============= ============= Notes to the Financial Information 1. Basis of preparation and financial information The financial information in this preliminary announcement has been prepared in accordance with the accounting policies set out in the financial statements of Synexus Clinical Research Plc for the year ended 31 March 2006, which have remained unchanged for the financial year ended 31 March 2007. The financial information in this document does not constitute the Company's statutory accounts for the year ended 31 March 2007, but is derived from those accounts. Statutory accounts for 2007 will be delivered to the Registrar of Companies following the company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under sections 237 (2) or (3) of the Companies Act 1985. 2. Earnings Per Share Earnings per share is calculated on the basis of the profit for the year divided by the weighted average number of shares in issue for 2007 of 22,956,871 (2006: 18,656,563). An adjusted earnings per share, which excludes goodwill amortisation, has been calculated to allow shareholders to gain a greater understanding of the trading performance of the Group. The diluted earnings per share takes the weighted average number of shares in issue during the year to 31 March 2007 and adjusts this for dilutive share options existing at the period end. This results in a diluted average number of shares of 23,276,638. 2007 2006 Earnings Number of Pence Earnings Number of Pence attributable to shares per attributable to shares per ordinary share ordinary share shareholders shareholders £000 Number p £000 Number p Basic earnings per share 481 22,956,871 2.1 1,261 18,656,563 6.8 Amortisation of goodwill 304 - - 213 - - Adjusted earnings per share 785 22,956,871 3.4 1,474 18,656,563 7.9 Diluted earnings per share 481 23,276,638 2.1 1,261 18,656,563 6.8 Amortisation of goodwill 304 - - 213 - - Adjusted diluted earnings per share 785 23,276,638 3.4 1,474 18,656,563 7.9 3. Taxation Analysis of (charge)/credit in period 2007 2006 £000 £000 UK corporation tax Current tax on income for the period - - Foreign tax Current tax on income for the period (21) - -------- -------- Total current tax (21) - Deferred tax 143 29 -------- -------- Tax on profit on ordinary activities 122 29 ======== ======== Taxable losses available for relief against future taxable profits in the UK amount to approximately £533,000 (2006: £962,000). Factors affecting the tax charge for the year The differences are explained below: 2007 2006 £000 £000 Profit on ordinary activities before taxation 359 1,232 -------- -------- Profit on ordinary activities multiplied by the rate of corporation tax in the UK at 30% (2006: 30%) 108 370 Effects of: Capital allowances in excess of depreciation (16) (22) Expenses not deductible for tax purposes 34 - Goodwill amortisation 86 61 Reversal of short term timing differences (66) - Short term timing differences (29) 10 Losses(utilised)/carried forward (63) (414) Group relief 11 (5) Differences on overseas rate (19) - Other (25) - -------- -------- Current tax charge for year 21 - ======== ======== 4. Acquisitions Diagnostic Units Hungary Kft On 5 June 2006 the Company acquired the entire issued share capital of Diagnostic Units Hungary Kft. The initial consideration of €1.5m was satisfied by payment of €1.0m in cash (£689,000) and the allotment of 362,976 shares at a price of 95p per share. A further €500,000 is payable on the first anniversary of the acquisition based on successful retention of key personnel within the acquired business. Such key personnel were in employment at 13 June 2007, therefore the Directors have accrued £345,000 within deferred consideration to account for this expected liability. The acquisition has been accounted for using the acquisition method of accounting and goodwill arising on the acquisition, as shown below, has been capitalised and will be amortised over a period of 20 years being the expected useful economic life. The unaudited accounts of the Company for the 5 month period from the beginning of its financial year to the date of acquisition show a net profit of £182,674. In its previous financial year the reported profit was £103,245. Book Adjustments Fair value value £000 £000 £000 Fixed assets Tangible 106 - 106 Current assets Debtors 426 426 Cash 93 - 93 -------- -------- -------- Total assets 625 - 625 ======== ======== ======== Creditors (222) - (222) -------- -------- -------- Total liabilities (222) - (222) ======== ======== ======== Net assets acquired 403 - 403 ======== ======== ======== Consideration given: Initial cash consideration 689 Initial share consideration 345 Deferred consideration 345 Professional fees 62 Purchase consideration and costs of acquisition 1,441 ======== Goodwill arising on acquisition 1,038 ======== Clinical Research Centres (South Africa) (Pty) Ltd On 30 March 2007 the Company acquired the entire share capital of Clinical Research Centres (South Africa) (Pty) Ltd. The initial consideration of ZAR 7,868,638 was satisfied entirely in cash (£564,060). A further payment of ZAR 3,433,805 was due shortly after the year end on receipt of outstanding tax certificates. The relevant documents have since been received therefore the Directors have accrued £246,000 within deferred consideration for this liability. A payment of £246,175 is payable based on the results for the year ended 31 March 2007. Funds of £246,175 were held in escrow at the year end to met this liability. These funds are shown within cash at the year end. A further ZAR 10,263,409 could become payable based on the results for the year ended 31 March 2008. Based on current expectations of performance, the Directors do not expect to make payment of deferred consideration. The acquisition has been accounted for using the acquisition method of accounting and goodwill arising on the acquisition, as shown below, has been capitalised and will be amortised over a period of 20 years being the expected useful economic life. The acquired undertaking made a profit of £112,676 from the beginning of its financial year to the date of acquisition. In its previous financial year the Company's reported profit was £5,917. Book Adjustments Fair value value £000 £000 £000 Fixed assets Tangible 23 - 23 Investments 11 - 11 34 - 34 Current assets Debtors 23 - 23 Cash 188 - 188 -------- -------- -------- Total assets 245 - 245 ======== ======== ======== Creditors (210) - (210) -------- -------- -------- Total liabilities (210) - (210) ======== ======== ======== Net assets acquired 35 - 35 ======== ======== ======== Consideration given: Initial cash consideration 564 Deferred consideration 492 Professional fees 64 ======== Purchase consideration and costs of acquisition 1,120 ======== Goodwill arising on acquisition 1,085 ======== Skandynawskie Centrum Medyczne Sp.Z o.o. (SCM) Deferred consideration of £1,400,000 was payable in cash and/or ordinary shares dependent on the level of the profit after tax of SCM for the year ending 31 March 2007. Based on the results for this period this amount is no longer payable and hence not recognised in the financial statements. 5. Intangible fixed assets Goodwill £000 Cost At 1 April 2006 5,047 Acquisitions 2,123 -------- At 31 March 2007 7,170 ======== Amortisation At 1 April 2006 1,166 Charge for year 295 -------- At 31 March 2007 1,461 ======== Net book value At 31 March 2007 5,709 ======== At 31 March 2006 3,881 ======== 6. Reconciliation of operating profit to operating cash flows 2007 2006 £000 £000 Operating profit 328 1,531 Share based payment charge 44 - Depreciation and amortisation charges 545 324 Decrease/(increase) in debtors 213 (737) Decrease in creditors (279) (219) -------- -------- Net cash inflow from operating activities 851 899 ======== ======== 7. Reconciliation of net cash flow to movement in net debt 2007 2006 £000 £000 (Decrease)/increase in cash during the period (492) 1,554 Cash (inflow)/outflow from (increase)/decrease in debt (765) 1,927 Change in net debt resulting from cash flows (1,257) 3,481 Debt acquired with subsidiary (51) (264) Debt capitalised into share capital - 3,297 Exchange movements on debt acquired (2) - Interest accrued - (271) Interest waived - 1,172 -------- -------- Movement in net debt in the period (1,310) 7,415 Net cash/(debt) at 1 April 1,731 (5,684) -------- -------- Net cash at 31 March 421 1,731 ======== ======== 8. Copies of the preliminary announcement are available from the company's Registered Office at Sandringham House, Ackhurst Park, Chorley, Lancashire, PR7 1NY. The Annual Report and Accounts for the year ended 31 March 2007 will be posted to shareholders on or before 27 June 2007 This information is provided by RNS The company news service from the London Stock Exchange

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