Half Yearly Report

RNS Number : 2114S

Fulcrum Pharma PLC

14 May 2009

 



Fulcrum Pharma plc

Interim results for the six months ended 28 February 2009

Highlights

• Revenue up by 11% to £8.2 million (compared to H1 2008 of £7.4 million)

• Gross profit increased by 10% to £3.5 million (compared to H1 2008 of £3.2 million) 

• Operating profit decreased to £122,000 (compared to H1 2008 of £218,000)

• Reduced EBITDA of £310,000 (compared to H1 2008 of £409,000)

• Net cash position strong at £2.7 million after repayment of £461,000 loans and deferred consideration

• EU & PDC business re-structuring programme implemented to increase operational efficiency in H2 2009

For further information, please contact:

Fulcrum Pharma plc
Frank Armstrong, Chief Executive	Tel: [phone]
Seymour Pierce
Jonathan Wright	Tel: [phone]

  Chairmans' report

Introduction

I am pleased to report my first set of interim results as Chairman of Fulcrum Pharma. The trading highlights for the period from 1 September 2008 to 28 February 2009 are:

• Revenue up by 11% to £8.2 million (compared to H1 2008 of £7.4 million)

• Gross profit increased by 10% to £3.5 million (compared to H1 2008 of £3.2 million) 

• Operating profit decreased to £122,000 (compared to H1 2008 of £218,000)

• Reduced EBITDA of £310,000 (compared to H1 2008 of £409,000)

• Net cash position strong at £2.7 million after repayment of £461,000 loans and deferred consideration

• EU & PDC business re-structuring programme implemented to increase operational efficiency in H2 2009

Business review

In this reporting period Fulcrum Pharma has continued to pursue the major elements of its business strategy, which are:

• Winning bigger drug development projects in the Product Development Consultancy (PDC) business through building long term relationships with a more diverse group of clients, including pharma companies, biotechnology companies, the neglected diseases sector and the investment community; and

• Building a bigger regulatory business through organic growth and acquisition of complementary regulatory businesses in the EU and US.

The implementation of this strategy has been impacted by more difficult trading conditions, particularly since the beginning of 2009. There has been a lack of funding available to biotechnology companies for development of their product portfolios and or product acquisition. Pharma and biotechnology companies and investors have also been slower to make budget commitments to new projects or project extensions and, in common with other professional service businesses, there has been some erosion of prices as clients seek to reduce costs. However, there is new and increased interest from pharma companies and the investment community in alternative approaches to drug development, and the trend towards strategic outsourcing continues to grow.

Financial review

Revenue for the Group increased 11% to £8,246,000 (2008: £7,444,000), driven by currency gains. Gross profit increased 10% to £3,498,000 (2008: £3,178,000), whilst operating profit reduced to £122,000 (2008: £218,000). The retained profit was £120,000 (2008: £66,000).

Selling and administrative expenses increased due to investment in the business development and management capabilities of the US business, in accordance with the Group's strategy, and the impact of exchange rate movements compared to the first half of last year.

Earnings before interest, tax, depreciation and amortisation ('EBITDA') were £310,000 (2008: £409,000). Earnings per share were 0.07p (2008: 0.04p).

The balance sheet remains strong with cash and cash equivalents of £2,744,000 (2008: £2,670,000).

The Directors do not propose a dividend (2008: £nil).

Average headcount for the period increased to 148 from 134, reflecting further recruitment in the US and Japan. 152 staff were in post at the period end.

Operating review

• Group

Revenue for the Group has increased, despite the more difficult global market conditions. Fulcrum Pharma has been protected to some extent from the full impact of the market downturn by its geographic spread, in particular the proportion of long term contract work in Japan. However, a business re-structuring programme has been implemented in the EU & PDC to increase operational efficiency in H2 2009.

• EU

Revenue in the EU declined in H1 2009 by 10% compared to H1 2008. This resulted in an operating loss in the EU for the reporting period. The revenue decline was partially due to large one-off projects in H1 2008 not being repeated in H1 2009. More particularly, it was due to the more difficult market conditions, which have resulted in the cancellation of some contracts, retrenchment of biotechnology companies to focus on a limited number of assets and delayed commitment of budget to projects. Fulcrum Pharma Europe, including PDC, is undertaking a substantial re-structuring programme in H2 2009 to reduce the overall cost base by approximately 10% and improve performance for H2 2009 and for Financial Year 2010.

• US

Revenue in the first half increased by 38% (9% when adjusted for currency effects) compared to H1 2008. There has continued to be consistent demand for non-clinical and manufacturing consultancy services, although early effects of the negative market conditions have become apparent in business development, the inability of sponsors to conduct awarded projects and cancellation of existing projects. In addition to the core development services, the capability of the US organisation has been augmented through an expansion of regulatory operations in the US office. There was strong interest among potential customers and partners for the regulatory document management and publishing services provided by this group and this interest is expect to increase. To accommodate the regulatory operations services and future growth of the US organization, an expansion of the North Carolina office was completed. In addition, the business development capability and management support has been augmented, compared to the first half of the 2008 financial year.

• Japan

Domestic revenue and profit grew strongly in H1 2009, with revenue increasing by 67% compared to H1 2008 (13% when adjusted for currency effects). The Group has benefited from the strong Yen. There continues to be a strong demand for Fulcrum Pharma's services in Japan, based on long-term relationships with Japanese companies and with clinical investigators. This has led to longer term contracts which result in a good order book for the next two years. Fulcrum Pharma is expanding the office accommodation in Japan to allow further recruitment of staff and is examining options to further grow the business. There continues to be substantial work generated from Japanese companies for the Fulcrum Pharma EU and US businesses based on the strong local relationships.

• Product Development Consultancy

PDC leads the Group's activities to win big projects, through targeted efforts to build strong relationships with clients based on Fulcrum Pharma's 10 year track record in drug development. Two major projects were won in H1 2009. Fulcrum Pharma is progressing a New Drug Application for a neglected diseases project that has been managed by Fulcrum Pharma throughout the development programme. Since the turn of the year, project conversion has been slower, reflecting the more difficult market conditions.

Future strategy and outlook

The Board and Management of Fulcrum Pharma remain convinced of the opportunity that exists to substantially grow the business through winning bigger PDC projects and building a substantial regulatory business, and these two limbs of the business strategy are progressing satisfactorily. The harsh market conditions, particularly since the beginning of the year, have impacted Fulcrum Pharma in H1 2009, though the Group has increased revenues and maintained a strong cash position. Fulcrum Pharma continues to be very active in business development with clients and has generated a substantial number of new proposals. In addition, the actions being taken to reduce the cost base should lead to an overall stronger Fulcrum Pharma business.

I would like to acknowledge the contributions of my predecessor, Sir Charles George, who ably served as Chairman for 9 years and I would like to thank the employees of Fulcrum Pharma and my fellow Directors for their contributions in H1 2009.

Grahame Cook

Chairman

14 May 2009

  Consolidated income statement

For the period ended 28 February 2009

		Period ended	Period ended	Year ended
		28 February 2009	29 February 2008	31 August 2008
		Unaudited	Unaudited	Audited
	Note	£'000	£'000	£'000
Revenue	3	8,246	7,444	14,826
Cost of sales		(4,748)	(4,266)	(7,966)
Gross profit		3,498	3,178	6,860
Selling expenses		(544)	(359)	(757)
Administrative expenses		(2,832)	(2,621)	(5,437)
Other operating income		-	20	-
Operating profit		122	218	666
Finance income	4	27	31	69
Finance costs	4	(27)	(155)	(281)
Profit on ordinary activities before taxation		122	94	454
Income tax expense	5	(2)	(28)	(130)
Profit for the period		120	66	324
Earnings per share (pence)
Basic	7	0.07p	0.04p	0.19p
Diluted	7	0.07p	0.04p	0.18p

Consolidated statement of recognised income and expense

For the period ended 28 February 2009

		Period ended	Period ended	Year ended
		28 February 2009	29 February 2008	31 August 2008
		Unaudited	Unaudited	Audited
	Note	£'000	£'000	£'000
Fair value (losses) / gains net of tax:      -   Available-for-sale financial assets	9	(46)	(29)	1
Net (loss) / gain recognised directly in equity		(46)	(29)	1
Profit for the period		120	66	324
Total recognised income for the period		74	37	325
Currency translation differences	9	106	-	53
Total recognised gains attributable to the shareholders		180	37	378

  Consolidated balance sheet

As at 28 February 2009

		28 February 2009	29 February 2008	31 August 2008
		Unaudited	Unaudited and restated	Audited
	Note	£'000	£'000	£'000
Assets Non current assets Intangible assets Property, plant and equipment Available-for-sale financial assets Deferred tax assets		3,932 740 332 219	3,548 670 446 -	3,973 627 378 57
		5,223	4,664	5,035
Current assets Trade and other receivables Cash and cash equivalents		5,718 2,744	5,036 2,670	5,704 2,903
		8,462	7,706	8,607
Liabilities Current liabilities Trade and other payables  Current tax liabilities Bank and other borrowings Convertible loan notes Deferred cash consideration	8 8	(5,404) (161)  (457) (295) (122)	(5,186) (4)  (329) (136) (114)	(5,520)   (102) (337) (148) (372)
		(6,439)	(5,769)	(6,479)
Net current assets		2,023	1,937	2,128
Non current liabilities Bank loans and other borrowings Convertible loan notes Deferred tax liabilities	8 8	(693) (148)  (73)	(772) - -	(599) (295)  (73)
		(914)	(772)	(967)
Net assets		6,332	5,829	6,196
Equity Share capital Share premium account Merger reserve Retained earnings	9 9 9 9	1,779 6,082 (454) (1,075)	1,779 6,082 (454) (1,578)	1,779 6,082 (454) (1,211)
Total equity		6,332	5,829	6,196

Consolidated cash flow statement

For the period ended 28 February 2008

	Period ended	Period ended	Year ended
	28 February 2009	29 February 2008	31 August 2008
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Continuing operations Profit before tax Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share based payments Loss on disposal of fixed assets Net finance costs Changes in working capital: Decrease in trade and other receivables (Decrease)/increase in payables	122 146 42 36 1 - 529 (695)	94 138 53 30 - 124 631 5	454 283 191 38 - 212 335 (20)
Cash generated by operations	181	1,075	1,493
Operating activities Interest received Interest paid - bank and other loans Taxation paid	12 (31) (52)	34 (72) (49)	72 (108) (64)
Net cash absorbed by operating activities	(71)	(87)	(100)
Investing activities Purchase of property, plant and equipment Acquisition of a subsidiary	(218) (250)	(90) 155	(180) 135
Net cash used in investing activities	(468)	65	(45)
Financing activities Increase in bank borrowings Repayment of bank loans Repayment of obligations under finance leases Loan note repayments (Purchase)/sale of shares for Employee Share Option Plan Trust	369 (211) (3) - (44)	52 (168) (6) (450) (17)	43 (282) (10) (450) 1
Net cash generated from/(used by) financing activities	111	(589)	(698)
Effect of foreign exchange rate changes on cash and cash equivalents	88	(11)	36
Net (decrease)/increase in cash and cash equivalents	(159)	453	686
Cash and cash equivalents at the beginning of the period	2,903	2,217	2,217
Cash and cash equivalents at the end of the period	2,744	2,670	2,903

Notes to the financial statements

For the year ended 28 February 2009

1.  GENERAL INFORMATION

Fulcrum Pharma Plc (“the Company”) and its subsidiaries (together “the Group”) are professional service companies providing clients with expert solutions for the development of therapeutic products. The Company is a public limited company incorporated and domiciled in England. The address of its registered office is Hemel One, Boundary Way, Hemel Hempstead, Herts, HP2 7YU, UK.

 

The Company is listed on the London AIM stock exchange.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The interim results for the six months ended 28 February 2009 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 August 2008 were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRIC interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS and 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 accounting policies adopted are consistent with those of the Financial Statements for the year ended 31 August 2008.

3.  SEGMENTAL REPORTING

Primary reporting format – Business segments

Based on the risks and returns, the Directors consider that the primary reporting format is by business segment. The Directors consider that there is only one business segment, being professional services to the pharmaceutical industry. Therefore, the disclosures for the primary segment have already been given in the financial statements.

 

Secondary reporting format – Geographical segments

Although the Group is located in several different geographical areas, sales and costs are cross-charged around the group to such an extent that the results of each location are significantly dependent on the activities of the others. The geographical segments are therefore considered to be the secondary reporting format.

Revenue analysis

	Revenue by origin			Revenue by destination
	Period ended	Period ended	Year ended	Period ended	Period ended	Year ended
	28 February 2009	29 February 2008	31 August 2008	28 February 2009	29 February 2008	31 August 2008
	Unaudited	Unaudited	Audited	Unaudited	Unaudited	Audited
	£’000	£’000	£’000	£’000	£’000	£’000
United Kingdom	4,677	5,045	9,831	1,859	2,589	4,779
Europe	—	—	—	1,682	1,343	2,656
North America	1,525	1,198	2,431	1,419	1,672	2,787
Japan	2,044	1,201	2,564	2,978	1,837	3,999
Other countries	—	—	—	308	3	605
	8,246	7,444	14,826	8,246	7,444	14,826

Total assets by asset location

	Segment assets			Capital expenditure
	As at	As at	As at	Period ended	Period ended	Year ended
	28 February 2009	29 February 2008	31 August 2008	28 February 2009	29 February 2008	31 August 2008
	Unaudited	Unaudited	Audited	Unaudited	Unaudited	Audited
	£’000	£’000	£’000	£’000	£’000	£’000
United Kingdom and Europe	9,465	9,598	10,239	91	78	164
North America	2,195	1,513	1,968	97	12	16
Japan	2,025	1,221	1,435	29	—	—
	13,685	12,332	13,642	218	90	180

4.  FINANCE INCOME AND COSTS

Group

				Period ended	Period ended	Year ended
				28 February 2009	29 February 2008	31 August 2008
				Unaudited	Unaudited	Audited
				£'000	£'000	£'000
Interest income:
-    Bank interest				27	31	69
Finance income				27	31	69
Interest expense:
-    On bank loans and overdrafts				(26)	(47)	(74)
-    On convertible loan stock				-	(8)	(8)
-    In respect of finance leases				(1)	(1)	(2)
Fair value losses on financial instruments
-    Impairment of available-for-sale financial assets				-	(99)	(197)
Finance costs				(27)	(155)	(281)
Net finance income/(costs)				-	(124)	(212)

5.  INCOME TAX EXPENSE

Group

				Period ended	Period ended	Year ended
				28 February 2009	29 February 2008	31 August 2008
				Unaudited	Unaudited	Audited
				£'000	£'000	£'000
Current taxation				160	28	111
Adjustments in respect of prior periods				(1)	-	(3)
Total current taxation				159	28	108
Deferred taxation				(157)	-	22
Taxation charge				2	28	130

6.  DIVIDENDS

The Directors do not propose to pay an interim dividend (2008: £Nil per share).

7.  EARNINGS PER SHARE

				Period ended	Period ended	Year ended
				28 February 2009	29 February 2008	31 August 2008
				Unaudited	Unaudited	Audited
Basic earnings per share				0.07p	0.04p	0.19p
Diluted earnings per share				0.07p	0.04p	0.18p

				As at	As at	As at
				28 February 2009	29 February 2008	31 August 2008
				Unaudited	Unaudited	Audited
				Number	Number	Number
Weighted average number of shares				177,940,743	177,940,743	177,940,745
Weighted average number of shares held by the ESOP Trust				(5,068,172)	(4,588,929)	(4,264,364)
Weighted average number of shares for basic earnings per share				172,872,571	173,351,814	173,676,381
Number of dilutive shares under option				1,903,153	2,888,501	2,107,702
Weighted average number of shares for diluted earnings per share				174,775,724	176,240,315	175,784,083

The basic earnings per ordinary share is based on the Group's profit for the period of £120,000 (2008: £66,000) divided by the weighted average number of ordinary shares in issue, excluding those shares held by the ESOP Trust.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the effects of potentially dilutive potential ordinary shares.

8.  BORROWINGS

		As at	As at	As at
		28 February 2009	29 February 2008	31 August 2008
		Unaudited	Unaudited	Audited
		£'000	£'000	£'000
Current:
Bank loans		455	318	332
Finance lease obligation		2	11	5
Convertible loan notes		295	136	148
		752	465	485
Non-Current:
Bank loans		693	772	598
Finance lease obligation		-	-	1
Convertible loan notes		148	-	295
		841	772	894
		1,593	1,237	1,379

Bank loans and overdrafts are unsecured.  There is no difference between the fair value and carrying value of borrowings.

9.  STATEMENT OF CHANGES IN EQUITY

Group

				Retained earnings
		Share
	Called up	premium	Merger	Available-for-		Retained
	share capital	account	reserve	sale assets	Translation	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 September 2007	1,779	6,082	(454)	104	12	(1,744)	5,779
Retained profit for year	-	-	-	-	-	66	66
Fair value gains/(losses) on available for sale assets	-	-	-	(29)	-	-	(29)
IFRS 2 charge	-	-	-	-	-	30	30
Sale/(purchase) of shares for ESOP Trust	-	-	-	-	-	(17)	(17)
Unrealised exchange profit/(loss) on consolidation	-	-	-	-	-	-	-
At 28 February 2008	1,779	6,082	(454)	75	12	(1,665)	5,829
Retained profit for year	-	-	-	-	-	258	258
Fair value gains/(losses) on available for sale assets	-	-	-	30	-	-	30
IFRS 2 charge	-	-	-	-	-	8	8
Sale/(purchase) of shares for ESOP Trust	-	-	-	-	-	18	18
Unrealised exchange profit/(loss) on consolidation	-	-	-	-	53	-	53
At 31 August 2008	1,779	6,082	(454)	105	65	(1,381)	6,196
Retained profit for year	-	-	-	-	-	120	120
Fair value gains/(losses) on available for sale assets	-	-	-	(46)	-	-	(46)
IFRS 2 charge	-	-	-	-	-	-	-
Sale/(purchase) of shares for ESOP Trust	-	-	-	-	-	(44)	(44)
Unrealised exchange profit/(loss) on consolidation	-	-	-	-	106	-	106
At 28 February 2009	1,779	6,082	(454)	59	171	(1,305)	6,332

10.   RESTATEMENT OF THE OPENING BALANCE SHEET

The financial statements for the year ended 31 August 2008 were the Group’s first financial statements prepared under IFRS. In the preparation of the full year accounts, some of the IFRS accounting treatments were revised from those presented in the Interim Report for the period ended 29 February 2008, resulting in a restatement to the opening balance sheet as presented in the unaudited Interim Report to 28 February 2009.

The adjustments relate primarily to IFRS 3 Business Combinations, resulting in a decrease in goodwill and an increase in intangible assets, and an increase in available-for-sale financial assets. The increase in net assets at 29 February 2008 was £73,000.

No changes have been made to the comparative income statement

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