Final Results

RNS Number : 4947S

Evocutis PLC

03 December 2012

 



Press Release

3 December 2012

Evocutis plc

("Evocutis" or "the Company")

Final Results

Evocutis plc (AIM: EVO), the company focused on advanced laboratory and clinical evaluations of skincare products for the health and cosmetic markets, today announces its audited final results for the year ended 31 July 2012.

Financial highlights:

·     Revenues from commercial deals doubled to £0.46 million (2011: £0.22 million)

·     Adjusted EBITDA* loss reduced by 16% to £0.91 million (2011: loss of £1.09 million)

·     Cash balances of £1.48 million (2011: £2.32 million)

·     Net cash outflow from operating activities reduced to £0.79 million (2011: £1.01 million)

·     Loss per share reduced to 0.88p (2011: 0.90p)

* Earnings before finance income, tax, depreciation, amortisation, impairment losses and share-based payment charges

Operational highlights:

·     Early sales achieved for LabSkin™ as a product, and working on best positioning for the market

·     Further validation of LabSkin™ for claim substantiation in areas of UV damage, pre- and pro-biotic interactions on LabSkin™, and transdermal delivery of compounds within skin

·     Growth Innovators Group and Zeus Capital appointed to review and evaluate strategic options to optimise shareholder value.

Commenting on the results, Dr Gwyn Humphreys, Interim Chief Executive Officer, said: 

"These results show that the integration of Syntopix and Leeds Skin into Evocutis has led to significant growth in collaborations with major multi-national companies.  Our collaborators are seeking the skill base at the core of Evocutis that enables them to strengthen their brands by providing scientific data that supports product claims.  Evocutis aims to grow these relationships over the coming twelve months, and to increase the availability of LabSkin™ for those companies who wish to carry out research in-house rather than by contract relationships with Evocutis.

"Alongside these activities, Evocutis has engaged Growth Innovators Group and Zeus Capital, to assist in a strategic review of the Company.  The objectives of this process are to secure long term strategic partners for the business but may include an offer being made for the Company."

- Ends -

For further information, please contact:

Evocutis plc
Tom Bannatyne, Chairman	[phone]
Dr Gwyn Humphreys, Interim Chief Executive Officer	www.evocutis.com

Zeus Capital Limited
Andrew Jones	Tel: [phone]
Nick Cowles	www.zeuscapital.co.uk

XCAP Securities Plc
Halimah Hussain	Tel: [phone]
	www.xcapgroup.co.uk

Media enquiries:

Abchurch Communications
Sarah Hollins / Adam Michael / Jamie Hooper	Tel: [phone]
[e-mail]	www.abchurch-group.com

Notes to editors

About Evocutis plc

With a rich portfolio of new product opportunities Evocutis offers antimicrobial and dermatological expertise to the cosmetic, consumer healthcare and pharmaceutical industries.  Being uniquely able to combine research for laboratory testing, advanced skin models and clinical testing, Evocutis offers a complete service for the development of skin care products and ingredients.  Through research and testing we enable our clients to advance the discovery of skin care products that actually work.

Offering high quality contract research services, Evocutis specialises in Human Skin Microbiology, tissue culture systems and Human Volunteer and Clinical Dermatology Research.  Unique characteristics of its colonised full thickness model of human skin (LabSkin^TM) allow rapid, cost effective screening of, for example, anti-aging, anti-inflammatory and antimicrobial ingredients and products for use on skin.  Additionally, the clinical, human volunteer testing facility that is housed on-site provides rapid, bespoke evaluation of dermatological products.

When it comes to advanced laboratory and clinical evaluations of skincare products for the health and cosmetic markets, the Evocutis focus is simple: intelligent and specialised R&D input.

For further information, please see www.evocutis.com. 

About LabSkin™

LabSkin™ is an animal-replacement technology, that emulates living skin tissue and is a high value research and product testing tool for the cosmetic and healthcare industries.  It is a full thickness human skin model, comprised of both dermal and epidermal layers, and is produced exclusively and reproducibly on site at Evocutis from primary human cells (keratinocytes & fibroblasts).  The model exhibits a fully differentiated epidermal layer, which provides a completely dry surface for tailored testing requirements.

LabSkin™ is highly versatile, and alongside its antimicrobial model, Evocutis is developing models to test anti-ageing and moisturising products.  The antimicrobial LabSkin™ model allows testing using pathogenic microorganisms which would not be possible in human clinical studies. In addition, methods have been developed to allow LabSkin™ to be inoculated with skin washings taken directly from human skin, thus providing a step-change in the quality of data possible from a laboratory model.  By benchmarking activity against best-in-class products, the activity of new ingredients and formulations can be assessed for several antimicrobial endpoints, including immediate kill, rate of kill and residual activity. 

Recent research indicates that our natural microflora is an integral part of our skin and makes a significant contribution to skin health.  LabSkin™ provides a unique living skin surface which is validated for microbial applications and can simultaneously provide information on irritation, penetration, barrier function and skin structure.

Chairman's and Interim Chief Executive Officer's Report

Introduction

The past year has been one of transition for Evocutis.  Following the acquisition of Leeds Skin Centre for Applied Research Limited by Syntopix Group plc in May 2011, Syntopix relocated to Wetherby and the Company was renamed Evocutis plc on 25 October 2011.

Group revenues have increased significantly during the year to £457,000, an increase of £230,000 from the previous year.  These revenues arose from collaboration and consultancy agreements with consumer healthcare companies and reflect the growing recognition by these companies of the value of the Group's technology offerings.  The increase in revenues is mainly as a result of the effect of inclusion of a full year's trading revenues from Leeds Skin Centre for Applied Research Limited, which was acquired in May 2011.

The operating loss (before share-based payments, depreciation, amortisation and impairment losses) reduced to £910,000 (2011: £1,086,000).

Commercial progress

There has been a significant change in the focus of Evocutis over the past year.  In the last annual report, several compounds were described as being under consideration for licensing by companies.  SYN1113, the most advanced of Evocutis' compounds is still in active discussion, but discussions concerning the other compounds have ceased, as announced by the Company on 22 March 2012.

The reasons for the cessation of talks are various and do not relate to lack of activity of the compounds. Decisions on introduction of new products in the consumer healthcare space are often driven more by portfolio issues and marketing concerns.  The original concept on which Evocutis was based has been taken a long way, but thus far, the Company has failed to secure a significant licensing partner.

This is perhaps not altogether as surprising as it seems at first; there has been no major anti-acne product, carrying a new active compound, launched for around 20 years.  This area of skin biology is difficult and the major companies active in the area are also very conservative.  There is still a major and largely unmet need for safe, efficacious products in the area and Evocutis' experience reflects just how difficult it is to make major advances.

Focus of the Group's activity

In April 2012, Dr Stephen Jones resigned as the Company's Chief Executive Officer to pursue other career opportunities.  Dr Gwyn Humphreys, previously Senior Non-Executive Director, took on the role of full-time Interim Chief Executive Officer in May 2012.  Dr Humphreys and the Board reviewed the Company's activities and restated its objective to be a leading science-led skin research group which will deliver product focussed solutions to cosmetic, consumer health and topical pharmaceutical companies.

All these industrial sectors are increasingly competing on the basis of the proven scientific functions of their products and Evocutis is well placed to forge close relationships with such companies.

The three main areas of the Company's activity are:

·        Specialist skin microbiology research and products such as SYN1113;

·        Skin microbiology laboratory services to support Clinical Research Organisations; and

·        Development of LabSkin™ and its use for contract research with sponsor companies and its direct sale as a research product.

Specialist skin microbiology

Microbial interactions with the skin have been the cornerstone of Evocutis' technology since its foundation and continue to be so.  The skin is the human's barrier to the outside world and, as such, is a complex organ of the body.  The interaction of humans with micro-organisms is becoming recognised as increasingly important in the definition of both normal healthy and disease states.  All humans carry a natural population of micro-organisms on their skin and Evocutis has developed a rarely-found expertise in identifying, cultivating and storing these organisms. 

Evocutis offers a range of skin microbiology services to customers.  On 14 March 2012 the Company announced the availability of a standard panel of Propionibacterium acnes strains which can be used to improve the reliability of testing for anti-acne and anti-spot treatments.  Evocutis is developing further panels of eczema-associated Staphylococci and Corynebacteria for additional antimicrobial screens.

Skin microbiology laboratory services to support Clinical Research Organisations

There is a global shift in the business of clinical trials with many studies now being out-sourced to Eastern Europe, India and other territories due to cost constraints.  Evocutis had some business in the past with specialist skin clinical studies to support mainly cosmetic studies.  The Company reviewed this business and decided to concentrate on its key skills relating to skin microbiology.  Evocutis is therefore building relationships with Clinical Research Organisations (CROs) where the Company will supply specialist microbiology studies to support the patient-focused activities of the CROs.  There are few specialist skin microbiology laboratories and it remains to be seen whether the strategy is fruitful; early indications are encouraging.

Contract services and sale of LabSkin™

Last year's Annual Report described the LabSkin™ living skin equivalent tissue culture technology which was developed over a period of 10 years, initially in the University of Leeds.  Throughout the current year the Company offered collaboration studies utilising LabSkin™, with the laboratory studies carried out at Evocutis.  The Company has continued to develop this technology and during the year announced the validation of the model to study antimicrobial and pre-biotic assays, (November 2011), and the evaluation of anti-ageing formulations (January 2012).

Evocutis continues to validate other applications of LabSkin™ including its use to study transdermal delivery of pharmaceutical products.  These promise to be significant areas of development over the coming year.

During the year ended 31 July 2012, Evocutis had several collaborations with major cosmetic and consumer health companies and, although revenues have increased, the revenue from collaborative contract business is always unpredictable.  Consequently, the Board has decided to broaden the commercial offering and, the Company began the sale of LabSkin™ directly for research purposes in Autumn 2012.

The product has a number of advantages over comparable products offered in the market and Evocutis is positioning LabSkin™ as a research tool for molecular studies of skin and products for application to or through the skin.  Thus, studies on LabSkin™ can be used to facilitate development studies of new topically-applied compounds before they are used in expensive clinical trials.  The legislation restricting, or outlawing, the use of animals for topical studies of cosmetic products makes models such as LabSkin™ even more pertinent.

The infrastructure and organisation necessary to sell LabSkin™ directly to customers has been put in place and the Board also believes that promotion of the product will help generate an increase in collaborative research projects.  Many organisations which can see the value of such a model system do not have the in-house capability to do the research themselves and also wish to access the consultancy expertise and experience of Evocutis' scientists.

Outlook

Since the year end, Evocutis launched the LabSkin™ product and has had modest early sales.  The Company continues to characterise the applications of the product, and has excellent data that confirms that LabSkin™ has an excellent barrier function and behaves in most respects in a way very close to normal human skin.  Evocutis will do all it can to drive the sales of LabSkin™ but the rate of uptake of the product is a significant unknown.

The Company has signed several collaboration agreements with major multi-nationals since the year end and the Board hopes to be able to publicise these in due course.  The climate for external spend by all companies is however challenging.  In this context the timing of the uptake of LabSkin™ as a consumable product by customers is crucial for the Company's future business, as it takes a long time to secure and negotiate each collaboration agreement.  

The timing and magnitude of sales is difficult to predict as these are dependent upon the uptake of LabSkin^TM product sales and the number and size of consultancy projects secured.  There is significant uncertainty regarding the level of sales revenue achievable during the next 12 months.  Consequently, the board is reviewing and evaluating a number of strategic options with the primary objective of optimising shareholder value.  This review is underway and further announcements will be made when appropriate.

Tom Bannatyne  Chairman 03 December 2012

Dr Gwyn Humphreys Interim Chief Executive Officer 3 December 2012

Consolidated statement of comprehensive income

for the year ended 31 July 2012

		2012	2011
	Note	£000	£000
Revenue	3	457	227
Cost of sales		(222)	-
Gross profit		235	227
Research and development		(509)	(792)
General and administration		(1,433)	(671)
Other operating income		-	17
Analysis of operating loss:
Operating loss before share-based payment charges, acquisition costs, depreciation, amortisation and impairment losses		(910)	(1,086)
Share-based payment charges		(36)	(54)
Acquisition costs		-	(42)
Impairment of goodwill		(489)	-
Impairment of other intangible assets		(144)	-
Depreciation and amortisation		(128)	(37)
Operating loss		(1,707)	(1,219)
Finance income		26	3
Loss before taxation		(1,681)	(1,216)
Taxation		162	137
Loss after taxation for the year and total comprehensive income attributable to equity shareholders		(1,519)	(1,079)
Loss per ordinary share
Basic and diluted (pence)	4	(0.88p)	(0.90p)

Consolidated statement of financial position

As at 31 July 2012

	2012	2011
	£000	£000
Non-current assets
Property, plant and equipment	166	177
Goodwill	-	489
Other intangible assets	242	444
Total non-current assets	408	1,110
Current assets
Current tax recoverable	110	120
Trade and other receivables	129	201
Cash and cash equivalents	1,479	2,316
Total current assets	1,718	2,637
Total assets	2,126	3,747
Current liabilities
Trade and other payables	(117)	(176)
Current tax payable	-	(34)
Total current liabilities	(117)	(210)
Non-current liabilities
Deferred tax liabilities	(74)	(119)
Total non-current liabilities	(74)	(119)
Total liabilities	(191)	(329)
Net assets	1,935	3,418
Equity attributable to equity holders of the company
Called up share capital	1,732	1,732
Share premium reserve	7,632	7,632
Share based payments reserve	211	279
Merger reserve	979	979
Retained earnings	(8,619)	(7,204)
Total equity	1,935	3,418

Consolidated statement of changes in equity

for the year ended 31 July 2012

		Share	Share-based
	Share	premium	Payments	Merger	Retained
	Capital	reserve	Reserve	Reserve	Earnings	Total
	£000	£000	£000	£000	£000	£000
At 1 August 2010	1,071	6,282	225	338	(6,125)	1,791
Loss for the year and total comprehensive income	-	-	-	-	(1,079)	(1,079)
Transactions with owners:
Share-based payment charge	-	-	54	-	-	54
Issue of shares	661	1,500	-	641	-	2,802
Expenses of share issue	-	(150)	-	-	-	(150)
At 31 July 2011	1,732	7,632	279	979	(7,204)	3,418
At 1 August 2011	1,732	7,632	279	979	(7,204)	3,418
Loss for the year and total comprehensive income	-	-	-	-	(1,519)	(1,519)
Transactions with owners:
Share-based payment charge	-	-	36	-	-	36
Share options lapsed	-	-	(104)	-	104	-
At 31 July 2012	1,732	7,632	211	979	(8,619)	1,935

Consolidated statement of cash flows

for the year ended 31 July 2012

	2012	2011
	£000	£000
Cash flow from operating activities
Cash outflow from operations	(879)	(1,122)
Taxation received	93	112
Net cash outflow from operating activities	(786)	(1,010)
Cash flow from investing activities
Purchase of property, plant and equipment	(59)	(67)
Purchase of business, net of cash acquired	-	(105)
Finance income	8	3
Net cash outflow from investing activities	(51)	(169)
Cash flow from financing activities
Issue of share capital	-	2,000
Expenses of share issue	-	(150)
Repayment of short term loans	-	(92)
Net cash flow from financing activities	-	1,758
Net (decrease)/increase in cash and cash equivalents	(837)	579
Cash and cash equivalents at the beginning of the year	2,316	1,737
Cash and cash equivalents at the end of the year	1,479	2,316

Notes to the Financial Statements

1        Financial information

The financial information set out in this announcement does not constitute the Group's statutory accounts for the years ended 31 July 2011 or 31 July 2012 within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.  Statutory accounts for the year ended 31 July 2011 have been delivered to the Registrar of Companies and those for 31 July 2012 will be delivered following the Company's Annual General Meeting.  The reports of the auditors for the years ended 31 July 2011 and 31 July 2012 did not contain statements under s498(2) or (3) of the Companies Act 2006.  Their report for the year ended 31 July 2012 includes reference to the material uncertainty in respect of achieving forecast sales revenues together with the Group's ability to find a third party with a potential interest in making an offer for, merging with or proposing other forms of corporate transaction which the auditors drew attention to by way of emphasis of matter without qualifying their report.     

2        Basis of preparation

(a)        Statement of compliance

The financial statements have been prepared in accordance with the Companies Act 2006, Article 4 of the IAS Regulation and International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations, as adopted by the European Union.

(b)        Accounting convention

The financial statements have been prepared using the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies.

(c)        Functional and presentational currency

The consolidated and Parent Company financial statements are drawn up in Sterling, the functional currency of Evocutis plc and in accordance with IFRS accounting presentation.  The level of rounding for financial information is the nearest thousand pounds. 

(d)        Use of estimates and judgements

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

(e)        Going concern

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 the financial statements.  The financial statements have been prepared on a going concern basis, notwithstanding the loss for the year ended 31 July 2012.  This basis assumes that the company will have sufficient funding to enable it to continue to operate for the foreseeable future and the Directors have taken steps to ensure that they believe that the going concern basis of preparation remains appropriate. 

The Group made a loss for the year of £1,519,000 after taxation.  The Group had net assets of £1,935,000 and cash balances of £1,479,000 at 31 July 2012.  The Directors have prepared financial forecasts which cover a period of at least 12 months from date that these financial statements are approved.  These forecasts assume a significant increase in the anticipated levels of cash inflows  generated from sales revenues during the forecast period.  The forecasts show that, if target revenues can be achieved, the Group will have sufficient funding available for at least the next 12 months.  However, the Group's fixed annual operating costs are significant and the adequacy of funding is heavily dependent upon achieving the target sales revenues.

The timing and magnitude of sales revenues are difficult to predict due to the irregular nature of the services work carried out by the Group and the recent launch of LabSkin^TM as a consumable product with uncertainty regarding the speed of uptake from customers.  The Directors believe that the forecasts are achievable, however, should sufficient sales revenues take longer to achieve than anticipated, they believe that they will still be able to optimise shareholder value.  The Directors are reviewing and evaluating a number of strategic options available to the Group, including securing long term third party strategic partners for the business, which may include an offer being made for the Group, a merger, or other form of corporate transaction. No agreements are yet in place.

In the event that sufficient revenues are not generated or that the Group cannot find a third party with a potential interest in making an offer for, merging with or proposing other forms of corporate transaction, then the Group may not be able to continue as a going concern.  These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.  The financial statements do not include the adjustments that would be necessary if the Group was unable to continue as a going concern.

For these reasons, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future and that it remains appropriate for the financial statements to be prepared on a going concern basis.

3        Segment information

The Group's revenue and loss was derived from its principal activity which is the provision of contract microbiology research services and clinical evaluation studies using its proprietary advanced living skin equivalent model, LabSkin^TM.

Operating segment information is reported in accordance with IFRS 8 'Operating Segments' based on the financial information provided to the Board of Directors, which is regarded as the 'Chief Operating Decision Maker' (CODM) as all key strategic and operating decisions are made by the Board. 

Operating segments are determined based on the internal reporting information and management structure within the Group.  The CODM considers that the Group operates as a single operating segment and internal management information is presented on that basis.  Due to the small size and low complexity of the business, profitability is not analysed in further detail beyond the operating segment level and is not allocated by revenue stream.

An analysis of revenue streams is presented to the CODM on a monthly basis and as such, this information has been provided below.

	2012	2011
Revenue	£000	£000
LabSkinTM and microbiology services	353	122
Clinical evaluation services	104	105
Total revenue	457	227

Geographical information

The UK is the Group's country of domicile.

	2012	2011
Revenue by location of customer	£000	£000
UK	168	142
Belgium	75	-
France	77	8
Germany	69	42
Sweden	11	-
USA	57	35
Total revenue	457	227

	2012	2011
Revenue by location of group entity	£000	£000
UK	457	227

Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items

Information regarding the results of the reportable segment is included below.  Performance is based on segment operating profit or loss before share-based payment charges, depreciation, amortisation and acquisition costs, as reported in the internal management reports that are reviewed by the CODM.  The segment operating profit or loss is used to measure performance.  Revenues disclosed below represent revenues to external customers

	2012	2011
	£000	£000
Revenues
Total revenue for reportable segments	457	227
Consolidated revenue	457	227
Loss
Total loss for reportable segments	(910)	(1,086)
Loss before share-based payment charges, depreciation, amortisation, impairment losses and acquisition costs	(910)	(1,086)

	2012	2011
	£000	£000
Assets
Total assets for reportable segments	2,126	3,258
Unallocated assets:
Goodwill	-	489
Consolidated total assets	2,126	3,747
Liabilities
Total liabilities for reportable segments	117	210
Unallocated liabilities:
Deferred tax	74	119
Consolidated total liabilities	191	329

Major customers

Transactions with the Group's three largest customers represent 18%, 16% and 16% of the Group's total revenues respectively (2011: 64%, 19% and 12%).

4        Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. 

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all potentially dilutive ordinary shares. 

The Group has one class of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.  However, due to losses incurred in the year there is no dilutive effect from the potential exercise of these share options.

	Loss for	Weighted	Loss per
	the year	average number	share
Basic and diluted loss per share	£000	of shares	(pence)
Year ended 31 July 2012	(1,519)	173,179,690	(0.88p)
Year ended 31 July 2011	(1,079)	119,631,060	(0.90p)

5        Annual Report and Annual General Meeting

The Company anticipates dispatching a copy of its annual report and accounts to all shareholders on or around 15 December 2012. A copy will also be available on the Company's website www.evocutis.com and by request from the Company Secretary at the Company's registered office.

The Annual General Meeting of the Company will be held at the offices of IP Group plc, 24 Cornhill, London, EC3V 3ND on Monday 28 January 2013 at 12.00pm.

 

END

 

 

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