Final Results

RNS Number : 5069V

Avacta Group PLC

03 November 2010

 

Avacta Group plc

Unaudited Preliminary Results for the year to 31 July 2010

Avacta Group plc ("Avacta" or the "Company"), which provides innovative, high value proprietary technologies and services to the pharmaceutical and diagnostics markets, is pleased to announce its unaudited preliminary results for the year to 31 July 2010.

Highlights:

Ø Group revenue growth of 120% to £2.07m (2009: £0.94m)

Ø Core contract services businesses revenue growth of 74% to £1.64m (2009: £0.94m)

Ø First Optim units despatched with sales momentum growing

Ø Midas diagnostic tool launching on 23 November 2010

Ø New acute phase protein diagnostic test kits in development with global commercial partner

Ø Underlying operating loss reduced to £1.53m (2009: £1.81m)

Ø Reported operating loss (including non-recurring expenses, amortisation and share based payment charges) reduced to £2.03m (2009: loss £2.86m)

Ø Year end cash at bank of £1.43m (2009: £0.88m)

Ø Loss per share reduced to 0.15p (2009: 0.28p)

Alastair Smith, CEO commented: 

"Avacta is nowpoised to transition from three years of intense product development to the commercialisation of its innovative products that the Directors believe will drive future revenue growth and profits.

"The harsh economic climate of the past year has slowed early sales progress of Optim which is, of course, disappointing, but the value proposition of the product is very strong and clearly recognised by customers. Commercial progress is now gathering momentum through our own sales efforts and through the recent appointment of Isogen as a distribution partner in Europe.  We have begun to address the US market, which is the largest market for Optim and there has been considerable interest from both customers and potential distribution partners alike.  We hope to update the market shortly on the appointment of a major distribution partner in the US.

"Midas, our first point of care diagnostic tool will be launched on 23 November 2010. We are finalising the manufacturing process of the disposable test cartridge and following the launch there will be a programme to develop a menu of tests, each with a unique consumable cartridge aimed at driving recurring revenues.  Additionally, I am pleased to be able to report that the integration of Reactivlab into Avacta has proceeded as we now finalise new diagnostic test kits based on Reactivlab's intellectual property with a global commercial partner which plans to take these to market next year.

"It's going to be a very exciting year for Avacta with good opportunities for growth across the Group's activities and we look forward to reporting on this progress as it unfolds."

3 November 2010

Enquiries:

Avacta Group plc	Tel:  [phone]
Alastair Smith, Chief Executive Officer	www.avacta.com
Tim Sykes, Chief Financial Officer
Broker - XCAP Securities Plc	Tel: [phone]
John Grant/Karen Kelly/David Newton
NOMAD - Grant Thornton Corporate Finance	Tel: [phone]
Philip Secrett/Colin Aaronson
PR - NexFin
Nicholas Nelson	Tel: [phone]
[e-mail]

The Company's Unaudited Preliminary Results are available on its website www.avacta.com

Chairman's and Chief Executive Officer's Report

Business overview

The Group made solid progress during the year as revenues grew positively across all of its lines of business.  The first two Optim units were shipped and installed which contributed to the 35% advancement of revenues in the Group's analytical business, Avacta Analytical, aimed at the biopharmaceutical drug development sector to £0.50m (2009: £0.37m).  After a programme of detailed testing, Midas, the diagnostic device aimed at delivering rapid test results at the point of care in both the veterinary and human health sectors, will be launched on 23 November 2010 as part of a City analyst's presentation.  Revenues from the Group's veterinary diagnostics business, Avacta Animal Health, grew in its first full year as part of the Group by 114% to £1.22m (2009: £0.57m).  In addition, following the completion of its strategic research alliance with Takeda Pharmaceutical Company Limited in the area of major depression, the Group achieved revenues of £0.35m (2009: £Nil) from contract services in its human health business, Curidium, and is looking to exploit the opportunity further.

Avacta Analytical 

Although well received technically, challenging economic conditions placed severe constraints on our customers' capital equipment budgets and Optim sales fell short of our target in its first year.  Four orders were taken and two units installed. An increase in momentum of the sales process is now clearly being seen as sales leads in the US build and distributors are appointed. The manifestation of this is a growing number of customer samples arriving for technical validation which is a critical step in the sales process. Such is the demand for validation that our in-house Optim resources have become stretched although a recent move of our production group to larger facilities increases capacity and enables us to deal with the forecast demand for Optim and the upcoming manufacture of other products.

On 6 September 2010, we appointed Isogen Life Science as European distributor which has already resulted in a placed order.  As to other territories, we are in discussions with distribution partners and we are well advanced with a major global partner for the important US market. We have taken a further Optim order and shipped another unit during the first quarter of the current year and several successful exhibitions in the US and Europe has generated a number of validated sales leads.

As part of our US initiative, we have agreed to place Optim units into two prestigious biopharmaceutical research laboratories at the Universities of Kansas and Colorado.  Both have extensive commercial interaction and are highly influential within the US biopharmaceutical sector.  This move takes the number of Optim orders placed so far to eight.  Those units placed in the two universities will be applied to commercial projects and to training scientists from US biopharmaceutical companies and will rapidly raise the profile of Optim and as such will be highly valuable assets generating sales leads and reference cases for Optim in the US market.

Analytical services revenues grew by 14% to £0.42m (2009: £0.37m) and we are in discussions with distributor/service partners for the Japanese and US markets to be followed by partners in other territories to further drive revenues to a substantial level.

Avacta Animal Health

As mentioned above, Midas, the diagnostic device, will be launched on 23 November 2010 - the system is being tested rigorously within Avacta and the details of scaled up manufacturing of the disposable test cartridge for the first test are being finalised.

Diagnostic testing services revenues grew by 114% to £1.22m (2009: £0.57m) with its first full year contribution to the Group.  Despite a difficult economic climate and poor footfall into veterinary practises during the protracted adverse winter conditions, underlying year-on-year growth was 2%. 

The acquisition of Reactivlab into the Animal Health business has been very successful.  The first Reactivlab product - a test kit for the acute phase protein haptoglobin in dogs and cats which has broad utility in detecting infections and inflammation - has been brought through development to full validation.  The second complementary acute phase protein test kit for dogs is nearing completion. Importantly, we have identified, and are now working closely with, a substantial partner which is expected to provide a global route to market for these and other new products.

Curidium

Curidium entered into a major research project with Takeda Pharmaceutical Company during late 2007 (prior to acquisition by the Group) following a strategic investment by Takeda's venture arm, Takeda Research Investment, Inc with the aim of tailoring drug treatments for people with depression.  Depression is a leading cause of disability worldwide affecting around 15% of the population in developed countries.  Major depressive disorder is one of the most prevalent psychiatric illnesses and only 25 - 40% of patients achieve clinical remission with currently available antidepressants.  Consequently, by identifying biomarkers for subpopulations of patients with depression, the project was designed to provide information that could lead to tailored drug treatments for specific individuals and improve patient outcomes.

On 14 October 2010, we announced that the research project had been completed and contributed revenues of £0.35m.  The discovery of patient subgroups is a validation of Homomatrix®, Curidium's proprietary clinical data analysis tool, which will support our efforts to expand its activities and revenue generation in this rapidly growing area of personalised medicine.

Financial overview

Revenues grew 120% to £2.07m (2009: £0.94m).  This included £1.22m (2009: £0.57m) from Avacta Animal Health and £0.50m from Avacta Analytical (2009: £0.37m) assisted by the contribution of the first two Optim installations. The additional revenues contributed positively to the continued investment in product development and the underlying operating loss reduced as a result to £1.53m (2009: £1.74m). Reported operating loss was reduced to £2.03m (2009: £2.86m) with non-recurring administrative expenses, amortisation of intangible assets and share based payment charges reducing to £0.50m (2009: £1.05m).

Development expenditure capitalised during the year was £1.04m (2009: £0.16m).

The Group reported cash balances of £1.43m (2009: £0.88m) following its fund raise during July 2010 when it raised £1.38m at a price of 1.0p per share.  The Group also raised £2.0m during Autumn 2009 at a price of 1.5p per share.

Loss per share reduced to 0.15p (2009: 0.28p).

Outlook

Avacta is nowpoised to transition from three years of intense product development to the commercialisation of its innovative products that the Directors believe will drive future revenue growth and profits.

The harsh economic climate of the past year has slowed early sales progress of Optim which is, of course, disappointing, but the value proposition of the product is very strong and clearly recognised by customers. Commercial progress is now gathering momentum through our own sales efforts and through the recent appointment of Isogen as a distribution partner in Europe.  We have begun to address the US market, which is the largest market for Optim, and there has been considerable interest from both customers and potential distribution partners alike.  We hope to update the market shortly on the appointment of a major distribution partner in the US.

Midas, our first point of care diagnostic tool will be launched on 23 November 2010. We are finalising the manufacturing process of the disposable test cartridge and following the launch there will be a programme to develop a menu of tests, each with a unique consumable cartridge aimed at driving recurring revenues.  Additionally, I am pleased to be able to report that the integration of Reactivlab into Avacta has proceeded as we now finalise new diagnostic test kits based on Reactivlab's intellectual property with a global commercial partner which plans to take these to market next year.

It's going to be a very exciting year for Avacta with good opportunities for growth across the Group's activities and we look forward to reporting on this progress as it unfolds.

Gwyn Humphreys                                                                      Alastair Smith

Chairman                                                                                  Chief Executive Officer

3 November 2010

Consolidated Income Statement for the year ended 31 July 2010

		2010	2009
	Notes	£000	£000
Revenue		2,067	944
Operating costs		(4,093)	(3,801)
		-------------	-------------
Operating loss before non-recurring expenses, amortisation and share-based payment charges		(1,527)	(1,812)
Non-recurring administrative expenses	4	(367)	(905)
Amortisation of customer related intangible assets		(110)	(8)
Share-based payment charges		(22)	(132)
		-------------	-------------
Operating loss		(2,026)	(2,857)
Finance income		-	25
Finance expenses		(2)	(3)
		-------------	-------------
Loss before taxation		(2,028)	(2,835)
Taxation		149	150
		-------------	-------------
Amount attributable to equity holders of the Company		(1,879)	(2,685)
		-------------	-------------
Loss per ordinary share :
-  Basic and diluted	5	(0.15p)	(0.28p)
		-------------	------------

Consolidated Balance Sheet as at 31 July 2010

		2010	2009
		£000	£000
Non-current assets
Intangible assets		8,551	7,378
Property, plant & equipment		250	281
		-------------	-------------
		8,801	7,659
		-------------	-------------
Current assets
Inventories		174	-
Trade and other receivables		814	427
Income taxes		-	91
Cash and cash equivalents		1,433	878
		-------------	-------------
		2,421	1,396
		-------------	-------------
Total assets		11,222	9,055
		-------------	-------------
Current liabilities
Trade and other payables		(939)	(587)
Income taxes		(21)	(85)
Hire purchase agreements		(11)	(11)
		-------------	-------------
		(971)	(683)
		-------------	-------------
Non-current liabilities
Hire purchase agreements		(5)	(18)
Deferred consideration		(250)	-
Deferred taxation		(26)	(57)
		-------------	-------------
		(281)	(75)
		-------------	-------------
Total liabilities		(1,252)	(758)
		-------------	-------------
Net assets		9,970	8,297
		-------------	-------------
Equity attributable to equity holders of the Company
Called up share capital		1,512	1,230
Share premium account		14,653	11,405
Other reserve		(1,729)	(1,729)
Capital reserve		2,669	2,669
Retained earnings		(7,135)	(5,278)
		-------------	-------------
Total equity		9,970	8,297
		-------------	------------

Consolidated statement of changes in equity for the two years ended 31 July 2010

	Share capital	Share premium	Other reserve	Capital reserve	Retained earnings
	£000	£000	£000	£000	£000
At 1 August 2008	900	6,524	(1,729)	1,899	(2,725)
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	330	4,881	-	-	-
Shares to be issued as consideration for business combinations	-	-	-	770	-
Result for the period	-	-	-	-	(2,685)
Share based payment charges	-	-	-	-	132
	-------------	-------------	-------------	-------------	-------------
At 31 July 2009	1,230	11,405	(1,729)	2,669	(5,278)
Shares issued for cash	276	3,158	-	-	-
Shares issued during the year as consideration for business combinations and in settlement of operating expenses	6	90	-	-	-
Result for the period	-	-	-	-	(1,879)
Share based payment charges	-	-	-	-	22
	-------------	-------------	-------------	-------------	-------------
At 31 July 2010	1,512	14,653	(1,729)	2,669	(7,135)
	-------------	-------------	-------------	-------------	-------------

Consolidated Cash Flow Statement for the year ended 31 July 2010

		2010	2009
	Note	£000	£000
Operating activities
Loss for the year		(1,879)	(2,685)
Amortisation		110	9
Depreciation		100	87
Share based payment charges		22	132
Net finance expense / (income)		2	(22)
Income taxes		(149)	(150)
		-------------	-------------
Operating cash outflow before changes in working capital		(1,794)	(2,629)
Movement in inventories		(174)	-
Movement in trade and other receivables		(262)	(45)
Movement in trade and other payables		306	(438)
		-------------	-------------
Operating cash outflow from operations		(1,924)	(3,112)
Finance income received		-	82
Finance expense paid		(2)	(3)
Income tax received		176	316
		-------------	-------------
Net cash flow from operating activities		(1,750)	(2,717)
		-------------	-------------
Investing activities
Purchase of plant and equipment		(69)	(57)
Development expenditure capitalised		(1,035)	(155)
Acquisition of subsidiaries	6	102	2,652
		-------------	-------------
Net cash flow from investing activities		(1,002)	2,440
		-------------	-------------
Financing activities
Proceeds from issue of shares		3,318	70
Capital repayment on finance leases		(11)	(12)
		-------------	-------------
Net cash flow from financing activities		3,307	58
		-------------	-------------
Net increase / (decrease) in cash and cash equivalents		555	(219)
Cash and cash equivalents at the beginning of the year		878	1,097
		-------------	-------------
Cash and cash equivalents at the end of the year		1,433	878
		-------------	-------------

Notes

1.   The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 July 2010 or the year ended 31 July 2009 but is derived from those accounts.  The 2010 statutory accounts have not been finalised but this preliminary announcement has been prepared by the Directors based on the results and position which they expect will be reflected in the statutory accounts.  The comparative information in respect of the year ended 31 July 2009 has been derived from the audited statutory accounts for the year ended on that date upon which an unqualified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The audited accounts will be posted to all shareholders in due course and will be available on request by contacting the Company Secretary at the Company's Registered Office.

2.   Basis of preparation

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The Group's activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's and Chief Executive Officer's Report.  The financial position of the Group, its financial performance and its cash flows and liquidity position are described there also and within the financial statements presented.

The current economic conditions create uncertainty particularly over the level of demand for the Group's products and over the availability of finance which the directors are mindful of.  In addition, the Group has incurred significant losses over the last 18-24 months of which a substantial element is in cash.

The Financial Reporting Council issued "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies" in 2009, and the Directors have considered this when preparing this preliminary announcement.  This has been prepared on a going concern basis, notwithstanding the loss for the period ended 31 July 2010.  The Directors have taken steps to ensure that they believe the going concern basis of preparation remains appropriate, and that the carrying value of intangibles remains supported by future cash flows.  The key conclusions are summarised below

-      The Group is at a critical point in its development as it seeks to ramp up sales of its Optim product and launch the Midas product.  These are expected to generate significant revenues for the Group over the coming years, aiding both profitability and cash flows.

-      The Group has taken a significant amount of annualised costs out of the business and will continue to take all appropriate steps to manage its cost base in light of any deviations from the forecast sales levels.

-      The directors have prepared sensitised cash flow forecasts extending to the end of the financial year ended 31 July 2012.  These show that the group has sufficient funds available to meet its debts as they fall due over that period.  

-      The Group's year to date financial performance is materially in line with this budget cumulatively.

-      The Directors are not aware of any evidence to suggest that the budgeted improvement in the level of performance over the short term future will not be realised although the Directors recognise that it is possible that a worsening of performance could become evident, at which point they would act accordingly to mitigate the impact of such a worsening.  The action may include further cost reduction strategies, curtailed capital expenditure programs or equity issues.

-      The Group does not have external borrowings or any covenants based on financial performance.

-      The directors have considered the position of the individual trading companies in the group to ensure that these companies are also in a position to continue to meet their obligations as they fall due. 

-      The markets in which the business operates are not considered to be at significant risk due to the ongoing global economic recession.  

-      There are not believed to be any contingent liabilities which could result in a significant impact on the business if they were to crystallise.

Following this assessment, the Directors have reasonable expectation that the Group has adequate resources to continue for the foreseeable future.  Thus, they continue to adopt the going concern basis of accounting in preparing the unaudited preliminary results.

3.   Segmental reporting

Operating segment analysis 2010

			Biopharma-ceutical		Animal Health		Human Health		Total
			£000		£000		£000		£000
Revenue			496		1,221		350		2,067
			-------------		-------------		-------------		-------------
Operating loss before non-recurring expenses, amortisation and share-based payment charges			(1,985)		(622)		(385)		(2,992)
Non-recurring administrative expenses			-		-		(130)		(130)
Share-based payment charges			(7)		(3)		-		(10)
			-------------		-------------		-------------		-------------
Segmental operating loss			(1,992)		(625)		(515)		(3,132)
Corporate and other unallocated items									180
IFRS translation related items									926
									-------------
Operating loss									(2,026)
Finance income									-
Finance expenses									(2)
									-------------
Loss before taxation									(2,028)
Taxation									149
									-------------
Amount attributable to equity holders of the Company									(1,879)
									-------------
Segment intangible assets			6,317		1,069		-		7,386
Segment tangible assets			501		371		454		1,326
			-------------		-------------		-------------		-------------
Segmental assets			6,818		1,440		454		8,712
Corporate and other unallocated items									1,378
IFRS translation related items									1,132
									-------------
									11,222
									-------------
Segmental liabilities			(296)		(280)		(214)		(790)
Corporate and other unallocated items									(436)
IFRS translation related items									(26)
									-------------
									(1,252)
									-------------

Operating segment analysis 2009

			Biopharma-ceutical		Animal Health		Human Health		Total
			£000		£000		£000		£000
Revenue			368		571		5		944
			-------------		-------------		-------------		-------------
Operating loss before non-recurring expenses, amortisation and share-based payment charges			(2,213)		(92)		(277)		(2,582)
Non-recurring administrative expenses			(77)		-		(245)		(322)
Share-based payment charges			(50)		(6)		(5)		(61)
			-------------		-------------		-------------		-------------
Segmental operating loss			(2,340)		(98)		(527)		(2,965)
Corporate and other unallocated items									(39)
IFRS translation related items									147
									-------------
Operating loss									(2,857)
Finance income									25
Finance expenses									(3)
									-------------
Loss before taxation									(2,835)
Taxation									150
									-------------
Amount attributable to equity holders of the Company									(2,685)
									-------------
Segment intangible assets			6,317		820		-		7,137
Segment tangible assets			477		213		195		885
			-------------		-------------		-------------		-------------
Segmental assets			6,794		1,033		195		8,022
Corporate and other unallocated items									826
IFRS translation related items									207
									-------------
Total Group assets									9,055
									-------------
Segmental liabilities			(255)		(172)		(107)		(534)
Corporate and other unallocated items									(167)
IFRS translation related items									(57)
									-------------
									(758)
									-------------

4.   Non-recurring administrative expenses

	2010	2009
	£000	£000
Non-recurring research projects	-	565
Non-recurring administrative expenses	309	242
Non-recurring employment expenses	58	98
	-------------	-------------
	367	905
	-------------	-------------

The non-recurring administrative expenses incurred during the year ended 31 July 2010 relate principally to the costs associated with the issue of new shares during that period.  The non-recurring employment expenses during the year ended 31 July 2010 relate to termination costs of employees committed to prior to 31 July 2010.

5.   Basic and diluted loss per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period and the weighted average number of equity voting shares in issue.  The earnings per ordinary share is the same as the diluted earnings per ordinary share because the earnings per share is negative.

	2010	2009
Loss (£000)	(1,879)	(2,685)
Non-recurring administrative expenses (£000)	367	905
	-------------	-------------
Loss excluding non-recurring administrative expenses (£000)	(1,512)	(1,780)
	-------------	-------------
Weighted average number of shares (number '000)	1,260,608	949,383
	-------------	-------------
Basic and diluted loss per ordinary share (pence)	(0.15)p	(0.28)p
	-------------	-------------
Loss before exceptional items per ordinary share (pence)	(0.12)p	(0.19)p
	-------------	-------------

6.   Acquisitions

Reactivlab Limited

On 9 March 2010, the Company legally acquired the entire issued Ordinary share capital of Reactivlab Limited.

	£000
Tangible fixed assets	3
Cash in hand and at bank	102
Debtors	14
Creditors	(28)
	-------------
Net assets acquired	91
Goodwill	249
	-------------
	340
Purchase consideration
Shares issued at completion	90
Deferred consideration	250
	-------------
	340
	-------------
Cash inflow on acquisition	102
	-------------

 

END

 

 

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