Final Results

Fulcrum Pharma PLC 26 November 2007 26th November 2007 FULCRUM PHARMA PLC ('the Group' or 'the Company') Preliminary Results for the Year Ended 31 August 2007 Fulcrum Pharma plc (AIM: FUL), the drug development and strategic outsourcing services company, today announces its preliminary results for the year ended 31 August 2007. Highlights • EBITDA* increased by 88% to £613,000 (2006: £325,000) • Fee sales improved by 38% to £11.5m (2006: £8.3m) • Acquisition of Unicus Regulatory Services Ltd which, after some initial integration issues, is now trading profitably • Operating profit from continuing operations is £408,000 (2006: £77,000) • Profit before tax is £42,000 (2006: £94,000) • Healthy order book which has significantly strengthened since last year * EBITDA is defined as earnings before interest, taxation, depreciation and amortisation Commenting on the results, Chairman Prof. Sir Charles George said: 'The underlying performance of the Group and the continued improvement in operating cash generation are gratifying. We remain committed to growing our services business both organically and by acquisition. I would like to thank the management and staff for their contribution to the business.' For further information, please contact: Fulcrum Pharma PLC Jon Court, Chief Executive Tel: 0870 710 7152 Seymour Pierce Jonathan Wright Tel: 0207 107 8000 Fulcrum Pharma PLC Preliminary Results for the Year Ended 31 August 2007 Chairman's Report Introduction I am pleased to report that over the past year Fulcrum has continued to grow, generate cash and deliver profits. Strategic Review Our strategy to increase the scale of the company both organically and by acquisition has resulted in significant sales growth. The Group's service offering has expanded to include pharmacovigilance, patient information management and regulatory interim management. In April 2007 Fulcrum completed the acquisition of Unicus Regulatory Services Ltd ('Unicus'), a UK based business. This acquisition, together with organic growth across the Group, enables Fulcrum to offer its clients wide ranging drug development and regulatory services to meet the ever increasing demand for outsourced pharmaceutical services. Financial Results The results for the full year have improved in key areas. Fee sales rose by 38% to £11.5m (2006: £8.3m) and earnings before interest, tax and depreciation and amortisation ('EBITDA') increased by 88% to £613,000 (2006: £325,000). Profit before tax was £42,000 (2006: £94,000) and amortisation of goodwill was £261,000 (2006: £51,000). The retained profit for the year was £32,000 (2006: £82,000) and the basic earnings per share was 0.02p (2006: 0.07p). The Company has adopted FRS20 'Share based payments' in these results. The adoption of this accounting standard represents a change in accounting policy and the comparative figures have been restated accordingly. The relocation of the UK office to its new premises in Hemel Hempstead, which was postponed following the explosion at the Buncefield Oil Depot, took place in March 2007. A claim of £390,000 in respect of increased costs of working and business interruption has been registered with the loss adjustor for the oil companies. An amount of £177,000 is included in debtors in respect of this claim as at 31 August 2007 (2006: £40,000) as the Directors have obtained professional advice that this is the minimum that the Company can expect to receive. The cash position and balance sheet remains strong with a net increase in cash and short term investments to £2.4m (2006: £2.1m). Net funds at 31 August 2007 have decreased from £778,000 to £370,000 partially reflecting the bank loan of £1m to fund the acquisition of Unicus. The directors do not propose a dividend (2006: nil). Unicus Fulcrum completed the acquisition of Unicus for an initial consideration of £2,500,000. As stated in the Trading Update of 15th August 2007, this initial consideration was reduced to £2,300,000. Subsequently the vendor has reimbursed £159,000 in cash as a refund of consideration pursuant to the sale and purchase agreement and the earnout agreement has been varied to include an extension of the earnout period to 31st July 2008. This variation is not expected to increase the overall cost of the acquisition. In the trading update it was also reported that Unicus sales had been below forecast since the date of the acquisition. Management has subsequently focused on sales growth and cost control and we are pleased to report that in the quarter ended October 2007 Unicus has returned to profitability. Operating Review Commercial, Sales and Business Development Over the past year Fulcrum has scaled up its sales and marketing resources and operational capacity. This increase in scale has enabled the company to broaden the range of development and regulatory services it offers the pharmaceutical industry. Group sales have continued to improve and, as indicated at the interims, performance was strengthened in the second half with fee sales of £6.6m compared to £4.9m in the first half. Overall fee sales increased by 38% for the full year compared to the previous year. As expected net operating costs have increased, reflecting investment in the scale up of the business, recruitment of staff and associated infrastructure. The US dollar and Japanese yen have weakened considerably compared with the same period last year. Although sales in Japan and the US have increased by 13% and 11% respectively at constant currency, currency movements reduce the reported sales by £439,000 compared to last year. However, currency movements have no significant effect on overall Group operating profit, due to the regional spread of the Group's profits. The Group has concentrated on strengthening the Fulcrum brand through the launch of a new corporate website and a broad participation at major biotechnology and partnering conferences in the US, Europe and Japan. The Group's approach to fee generation has been integrated to optimise sales between development and regulatory services. In addition to this year's sales growth, the Group's forward order book has strengthened significantly compared to the same time last year. Europe We have strengthened our business development capacity to drive future sales performance in Europe. This has included placing dedicated sales resource in the US to sell European services to US based clients. In addition more experienced operational staff have been recruited to our offices in Edinburgh, Strasbourg and in the Group's new head office in Hemel Hempstead to deliver rising sales. Europe has continued its excellent track record of developing relationships with international Non Governmental Organisations (NGOs) e.g. the Medicines for Malaria Venture (MMV) which has generated fee sales for both development and regulatory services. Fulcrum is proud that, for the second year running, one of our senior staff received the MMV Project of the Year Award (see http://mmv.org) for work on a project researching a new generation of synthetic peroxides for the treatment of malaria. The enlargement of the Group through organic growth and the acquisitions of Unicus in April 2007 and Quadramed Ltd in February 2006 have enabled Fulcrum to deliver complete regulatory solutions to clients. Furthermore, Fulcrum has entered into a strategic alliance with the Lorenz Life Sciences Group to broaden the offerings in the expanding areas of e-publishing and submission management. The next step is to integrate the recent acquisitions and simplify the organisational structure to improve delivery within the Group. US The recovery of the US business is now well underway with a return to profitability in the second half of the year. There has been strong sales growth in non-clinical services delivered to domestic US clients and to customers in Europe and Japan. It has been encouraging that a significant proportion of sales growth has come from new clients. To help meet increasing demand for preclinical services a new office was opened in November 2007 in Ann Arbor, Michigan. Our next step is to continue building up business development capacity plus operational resources in preclinical, technical and regulatory services. Japan Domestic sales in Japan have increased by 13% in local currency with profit before tax increasing by over 60% over the last year. This success has stemmed from the positioning of the business as a specialist oncology clinical research organisation where Fulcrum Japan now enjoys a strong reputation. Business development by the Japanese subsidiary also generated £1.3m of fee sales from Japanese clients for Europe and US development and regulatory services. Recently our Japanese subsidiary has won a contract to execute a phase III clinical oncology development study in Japan on behalf of a major Pharma company. The project commenced in September 2007 for four years and has a sales value of circa £2.7 million. In conjunction with other contracts already secured this means that, at current capacity, Japan has a full order book for the next two years. Management Incentives The long term incentive plan approved at the EGM held in April 2007 has been implemented. The plan aligns senior management with future goals to deliver growth, profits and shareholder value. Board Changes We are actively looking to add skill sets and expertise to the Board to enable the Group to achieve its aspirations to become a significant player in the pharmaceutical services sector. The Board expects to announce changes in its composition in early 2008. Future Strategy and Outlook The Group has a clear strategy to deliver a sustainable and profitable business and, as stated previously, the steps to achieve this are: 1. Grow the global service business to deliver complete development and regulatory solutions. 2. Increase scale through acquisition and organic growth. 3. Grow the business and its profitability by: • Integrating and simplifying business in Europe post M&A • Continued improvement of systems and processes • Increasing capacity of the sales teams in Europe, US and Japan • Developing and retaining long term client relationships • Focusing on broadening Fulcrum's most profitable services The Group remains committed to growing its global pharmaceutical development and regulatory services. In addition to organic growth the Group is planning further M&A activity to meet its aspirations and build a business with sufficient scale to deliver sustainable profits. Conclusion The operating profit from continuing operations of £408,000 (2006: £77,000) is in line with expectations and Unicus, having now recovered from some initial integration issues, is trading profitably. The Board is further encouraged by the strengthened order book since the year end. Finally, I would like to thank the management and staff for their contribution to the business. Consolidated Profit & Loss Account for the year ended 31 August 2007 Year Ended Year Ended Year Year Ended Ended 31 August 31 August 31 August 31 August 2007 2007 2007 2006 Unaudited Unaudited Unaudited Audited --------------------- ----- --------- -------- --------- (Restated) -------- Continuing Acquisitions Total Total operations Note £'000 £'000 £'000 £'000 --------------------- ----- --------- -------- --------- -------- Turnover 2 18,118 1,119 19,237 15,451 Cost of sales (13,454) (1,056) (14,510) (11,438) --------------------- ----- --------- -------- --------- -------- Gross profit 4,664 63 4,727 4,013 Selling expenses (452) (52) (504) (563) Administrative expenses (3,899) (342) (4,241) (3,438) Other operating income 95 - 95 65 --------------------- ----- --------- -------- --------- -------- Operating profit/(loss) 408 (331) 77 77 Interest receivable and similar income 42 - 42 59 Interest payable and similar charges (73) (4) (77) (42) --------------------- ----- --------- -------- --------- -------- Profit/(loss) on ordinary activities before taxation 377 (335) 42 94 Tax on profit/(loss) on ordinary activities 3 (36) 26 (10) (12) --------------------- ----- --------- -------- --------- -------- Profit/(loss) for the financial year 341 (309) 32 82 --------------------- ----- --------- -------- --------- -------- Earnings per share (pence) 4 Basic 0.02p 0.07p Diluted 0.02p 0.07p Statement of Total Group Recognised Gains and Losses for the year ended 31 August 2007 2007 2006 Unaudited Audited (Restated) £'000 £'000 Profit on ordinary activities after taxation 32 82 Exchange adjustments offset in reserves 6 (27) ------------------------------- --------- -------- Total recognised gains and losses for the year 38 55 -------- Prior year adjustment (128) ------------------------------- --------- Total recognised gains & losses since last annual report (90) ------------------------------- --------- -------- Consolidated Balance Sheet as at 31 August 2007 2007 2006 Unaudited Audited (Restated) Note £'000 £'000 Fixed assets Intangible assets 3,441 1,216 Tangible assets 715 552 Investments 469 469 ------------------------------ -------- -------- ------- 4,625 2,237 Current assets Debtors 5,923 3,657 Short term investments 500 524 Cash at bank and in hand 1,934 1,571 ------------------------------ -------- -------- ------- 8,357 5,752 Creditors: amounts falling due within one (6,498) (3,874) year -------- -------- ------- ------------------------------ Net current assets 1,859 1,878 ------------------------------ -------- -------- ------- Total assets less current liabilities 6,484 4,115 Creditors: amounts falling due after more (803) (545) than one year -------- -------- ------- ------------------------------ Net assets 5,681 3,570 ------------------------------ -------- -------- ------- Capital and reserves Called up share capital 1,779 1,285 Share premium account 6,082 4,547 Merger reserve (454) (454) Profit and loss account (1,726) (1,808) ------------------------------ -------- -------- ------- Equity shareholders' funds 5 5,681 3,570 ------------------------------ -------- -------- ------- Consolidated Cash Flow Statement for the year ended 31 August 2007 ------------------------------ -------- -------- Note 2007 2006 Unaudited Audited £'000 £'000 ------------------------------ -------- -------- -------- Net cash inflow from operating activities 6 922 795 ------------------------------ -------- -------- -------- Returns on investment and servicing of finance Interest received 39 59 Interest paid (44) (42) ------------------------------ -------- -------- -------- Net cash (outflow)/inflow from returns on investments and servicing of finance (5) 17 ------------------------------ -------- -------- -------- Taxation Corporation tax paid (78) (72) ------------------------------ -------- -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (450) (310) Purchase of own shares for employee share options and awards (20) (114) Purchase of equity investments - (297) ------------------------------ -------- -------- -------- Net cash outflow from capital expenditure and financial investment (470) (721) ------------------------------ -------- -------- -------- Acquisitions & disposals Purchase of subsidiary undertakings (including costs) (2,398) (123) Net (overdraft)/cash acquired with subsidiary (58) 445 ------------------------------ -------- -------- -------- Net cash (outflow)/inflow from acquisitions and disposals (2,456) 322 ------------------------------ -------- -------- -------- Net cash (outflow)/inflow before management of liquid resources and financing (2,087) 341 ------------------------------ -------- -------- -------- Management of liquid resources Decrease in short term investments 24 669 ------------------------------ -------- -------- -------- Financing Proceeds of ordinary shares issued 2,029 - Increase in borrowings 1,043 - Capital element of finance lease payments (17) (30) Bank loan repayments (104) (87) Loan note repayments (740) - ------------------------------ -------- -------- -------- Net cash inflow/(outflow) from financing 2,211 (117) ------------------------------ -------- -------- -------- Increase in cash 148 893 ------------------------------ -------- -------- -------- Reconciliation of net cash flow to movement in net funds ------------------------------ -------- -------- 2007 2006 Unaudited Audited £'000 £'000 ------------------------------ -------- -------- Increase in cash 363 893 Increase in overdrafts (34) - (Increase)/decrease in bank loans (939) 87 Bank loans and overdrafts acquired with subsidiary (181) (11) Decrease/(increase) in loan notes 504 (1,090) Decrease in short term investments (24) (669) Decrease in finance leases 17 30 ------------------------------ -------- -------- Change in net funds from cash flows (294) (760) Net funds at 1 September 778 1,538 ------------------------------ -------- -------- Net funds at 31 August (484) 778 ------------------------------ -------- -------- 1 Financial Information The results for the year ended 31 August 2007 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. They have been drawn up using accounting policies and principles consistent with those applied in the preparation of the audited accounts for the year ended 31 August 2006, other than as explained below. The comparative information contained in the report for the year ended 31 August 2006 does not constitute the statutory accounts for the financial period. Those accounts have been reported on by the Company's Auditors, PricewaterhouseCoopers LLP, and delivered to the Registrar of Companies. The report of the Auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act. The 2007 financial year is the first year in which the Company has adopted FRS 20 - 'Share-based payments'. In accordance with this standard, the cost of share options awarded to employees under the Group's share option schemes is measured by reference to their fair value at the date of grant. This cost is recognised over the vesting period of the options based on the number of options which, in the opinion of the Directors, will ultimately vest. The impact in the year ended 31 August 2007 is a charge of £64,000 (2006: £60,000). The aggregate charge for prior periods up to 31 August 2007 is £192,000. The prior period financial statements have been restated to reflect this the adaption of this new standard. 2 Turnover Turnover represents sales to third parties including fee income and pass through costs. Geographical analysis by origin 2007 2006 Unaudited Audited £'000 £'000 Europe 8,081 5,162 USA 1,464 1,349 Japan 1,958 1,831 ------------------------------------ -------- -------- Total fee sales 11,503 8,342 Pass through costs 7,734 7,109 ------------------------------------ -------- -------- Turnover 19,237 15,451 ------------------------------------ -------- -------- Geographical analysis by destination 2007 2006 Unaudited Unaudited £'000 £'000 United Kingdom 4,214 2,184 Rest of Europe 4,674 4,669 North America 5,506 4,136 Japan 3,680 4,044 Rest of the World 1,163 418 ------------------------------------ -------- -------- Turnover 19,237 15,451 ------------------------------------ -------- -------- 3 Tax on profit on ordinary activities 2007 2006 Unaudited Audited (Restated) £'000 £'000 UK taxation UK corporation tax at 30% (26) 10 ------------------------------------ -------- -------- Overseas taxation 36 2 Corporation taxes ------------------------------------ -------- -------- Total current taxation 10 12 ------------------------------------ -------- -------- ------------------------------------ -------- -------- Tax on profit on ordinary activities 10 12 ------------------------------------ -------- -------- The tax charge for the period differs from the standard rate of corporation tax in the UK of 30% (2006: 30%). The differences are explained below: 2007 2006 Unaudited Audited (Restated) £'000 £'000 ---------------------------------- --------- --------- Profit on ordinary activities before tax 42 94 ---------------------------------- --------- --------- Profit on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 30% (2006: 30%) 13 28 Effects of: Capital allowances in excess of depreciation (1) (7) Expenses not deductible for tax purposes 114 52 Tax losses for the period not relieved 63 51 Tax losses for the period carried forward (35) - Adjustment regarding foreign taxes 9 - Research and development tax credits (153) (112) ---------------------------------- --------- --------- Current tax charge for the year 10 12 ---------------------------------- --------- --------- 4 Earnings per share 2007 2006 Unaudited Audited (Restated) £'000 £'000 --------------------------------- --------- --------- Profit on ordinary activities after taxation for basic earnings per share 32 82 --------------------------------- --------- --------- Number Number Weighted average number of shares 147,499,808 125,478,759 Weighted average number of shares held by the ESOP Trust (4,093,963) (2,013,839) --------------------------------- --------- --------- Weighted average number of shares for basic earnings per share 143,405,845 123,464,920 Number of dilutive shares under option 2,888,501 1,640,253 --------------------------------- --------- --------- Weighted average number of shares for diluted earnings per share 146,294,346 125,105,173 --------------------------------- --------- --------- pence pence Basic earnings per share 0.02 0.07 --------------------------------- --------- --------- Diluted earnings per share 0.02 0.7 --------------------------------- --------- --------- The basic earnings per ordinary share is based on the Group's profit for the year of £32,000 (2006: £82,000) divided by the weighted average number of ordinary shares in issue, excluding those shares held by the Employee Share Ownership Trust ('ESOT'). 5 Movement in shareholders' funds 2007 2006 Unaudited Audited (Restated) £'000 £'000 Profit for the period 32 82 FRS 20 Share option charge 64 60 Issue of ordinary shares 2,029 243 Purchase of own shares for ESOT (20) (114) Unrealised exchange profit/(loss) on consolidation 6 (27) --------------------------------- --------- --------- Net increase in shareholders' funds for the period 2,111 244 Opening shareholders' funds 3,570 3,326 --------------------------------- --------- --------- Closing shareholders' funds 5,681 3,570 --------------------------------- --------- --------- 6 Notes to the consolidated cash flow statement Reconciliation of the operating profit to net cash inflow from operating activities: 2007 2006 Unaudited Audited (Restated) £'000 £'000 - Operating profit 77 77 Amortisation of intangible fixed assets 261 51 Depreciation of tangible fixed assets 275 197 FRS 20 Share option charge 64 60 Loss on disposal of fixed assets 48 15 Exchange profit/ (loss) 11 (13) Increase in debtors (1,293) (216) Decrease in creditors 1,479 624 ----------------------------------- -------- -------- Net cash inflow from operating activities 922 795 ----------------------------------- -------- -------- Analysis of net funds As at As at 1 September 31 August 2006 Cash flow Non Cash Changes 2007 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited --------------------- --------- --------- -------- -------- Cash at bank and in 1,571 363 - 1,934 hand Bank overdraft - (215) (215) --------- --------- -------- -------- 148 Bank loans (194) (939) - (1,133) Loan notes (1,090) 740 (236) (586) Short term investments 524 (24) - 500 Finance lease (33) 17 - (16) --------------------- --------- --------- -------- -------- 778 - (236) 484 --------------------- --------- --------- -------- -------- 7 Acquisition On 19 March 2007, the Company acquired the entire issued share capital of Unicus for an initial consideration of £2.3million in cash, of which £159,000 was refunded by the vendor pursuant to the sale and purchase agreement, and further consideration of £200,000 which was paid in employee benefits. Deferred consideration of up to £2.3million, based on the turnover of Unicus during the year ended 31 July 2008, and estimated to be £250,000, will be payable in cash and loan notes by 30 October 2008. The loan notes are repayable in three equal instalments within the period 1 May 2009 to 1 May 2010. Book value and provisional fair value of net assets acquired £'000 Fixed assets 41 Debtors 805 Bank overdraft (58) Creditors - amounts falling due within one year (504) ------------------------------------ ------- --------- Net assets 284 ------------------------------------ ------- --------- Consideration ------------------------------------ ------- --------- Initial Cash consideration 2,300 Other consideration - employee benefits 200 Estimated deferred consideration in cash 114 Estimated deferred consideration in convertible loan notes 136 Refund of Consideration (159) Acquisition costs 81 ------------------------------------ ------- --------- Total estimated consideration 2,672 ------------------------------------ ------- --------- Capitalised goodwill 2,388 ------------------------------------ ------- --------- 8 Copies of Annual Report Copies of the Annual Report will be sent to shareholders and will also be available at the registered office of Fulcrum Pharma plc, Hemel One, Boundary Way, Hemel Hempstead, Hertfordshire, HP2 7YU. This information is provided by RNS The company news service from the London Stock Exchange

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