Final Results

Aortech International PLC 29 June 2004 Immediate Release 29 June 2004 AorTech International plc ('AorTech' or 'the Company') Preliminary Results for the year ended 31 March 2004 AorTech International plc, the biomaterials Intellectual Property and Material Manufacturing Company is pleased to announce its Preliminary Results for the year ended 31 March 2004. Operational Highlights â€¢ Four Agreements signed with major biomaterial companies â€¢ Increase in milestone payments â€¢ Key materials development with Elast-Eon XLTM - for application in Spinal Disc augmentation â€¢ FDA submission being prepared for Breast Implant Applications â€¢ Pilot scale production and testing of new Elast-EonTM heart value â€¢ 1 for 10 share consolidation Financial Highlights â€¢ Turnover on Continuing Operations Â£360,185 (2003: Â£73,407) â€¢ Group operating loss Â£2,197,509 (2003: Â£28,389,621) â€¢ Loss Before Taxation Â£1,449,557 (2003: Â£39,358,178) â€¢ Tax gain of Â£1,976,817 (2003: nil) â€¢ Profit After Tax Â£527,260 (2003: Loss Â£39,358,178) â€¢ EPS 13.84p (2003: Loss 1,032.95p) Commenting on the progress of the Company, Laurie Rostron, Non-Executive Chairman said: 'The last year for AorTech has been one of consolidation. The Company has signed a number of agreements, which will provide a potential platform for growth in the number of applications for Elast-EonTM and commence a stream of revenues for the underlying business. A number of new applications are also being developed and new agreements are currently being negotiated. 'I would like to thank our shareholders for their support over the past 12 months and look forward to the continued development of the Company in line with our strategic plan' For further information please contacts AorTech International plc 020 7466 5000 (today) Laurie Rostron, Non-Executive Chairman 01698 746699 (thereafter) Frank Maguire, Chief Executive Ian Cameron, Finance Director Buchanan Communications 020 7466 5000 Ben Willey, Lisa Baderoon, Rebecca Skye Dietrich Visit AorTech's new website at: www.aortech.com Chairman's Statement Results For the year ended 31 March 2004, the Company had turnover of Â£360,185, which consisted largely of up front payments from four licencees and purchases of Elast EonTM. Operating expenses for the year were Â£2,527,045, which included development expenditure of Â£559,032, amortisation of intangible fixed assets of Â£97,863, and costs of Â£466,740 which will not be incurred in future periods following the restructuring of the Group and the discontinuance of businesses in the previous year. This led to a Loss on Ordinary Activities Before Tax of Â£1,449,557. During the year the Company received cash in respect of research and development tax credits totalling Â£1,976,817 relating to development expenditure incurred in prior years. This is shown in the Profit and Loss Account as a taxation credit and resulted in a Profit After Tax for the year of Â£527,260. The cash position at the end of the year was Â£5,968,200 compared to Â£6,851,343 at the end of the previous year. Cash outflow from operating activities before exceptional items included expenditure of Â£636,518 which will not be incurred in future periods following the restructuring of the Group and the discontinuance of businesses in the previous year. Biomaterials As reported in the Interim Statement for the year, good progress was made in the period through to October 2003, with four technology/ material supply agreements signed and detailed discussions in progress with a number of other potential licensees. It was at this time, after a series of announcements regarding biomaterials licensing activities, that the Company received an approach from a third party expressing interest in acquiring the Company. In late January 2004, after a series of detailed discussions, the Board unanimously recommended that the negotiations be taken to the next stage. However, before this could be formalised, it became apparent that the Company could not meet all of the pre-conditions of the approach and this led to the third party withdrawing from the negotiations. This process proved very time consuming for the small management team and their time was inevitably deflected from the major operating tasks at a critical period. However in spite of this, considerable progress was made on three fronts: â€¢ Development of new materials for new market segments â€¢ Completion of new technology/material supply agreements â€¢ Development of relationships with existing Partners Development of new materials for new market segments â€¢ A new class of Elast-EonTM technology, which has been named Elast-Eon XL TM in reference to its cross linked composition, has been developed specifically for orthopaedic applications. This material is currently being evaluated by a number of the leading suppliers of spinal disc implant products for use as the material of choice for an emerging class of flexible spinal disc implants. Another version of this new class of Elast-EonTM has been developed with the intent of providing a material that may be injected directly into the interior of the disc to compensate for loss of native disc material. New patents applications have been filed for this material â€¢ The Company has developed a new class of Elast-EonTM with the intent of providing a safer, softer substitute for silicone gel in breast implant products. In pursuit of its goals in this area, the Company has produced 'All Elast-EonTM' proto-type breast implants incorporating an Elast-EonTM shell as well as an Elast-EonTM filler. Additionally, these devices were produced utilizing novel device manufacturing processes developed in-house. The Company believes this 'All Elast-EonTM' device offers a number of improvements over existing silicone technology with respect to safety and strength and to a significant degree can demonstrate these improvements with respect to the guidance documents issued by the United States Food and Drug Administration in January of this year. The Company has filed new intellectual property for this material in this application. â€¢ Operationally, the Company has qualified a second tier of suppliers for its key raw materials and upgraded its quality systems to comply with current ISO requirements. Manufacturing processes have been fully validated as the Company prepares to make the transition into routine production and supply of its polymer biomaterials. â€¢ The establishment of an alliance with Xceed Pty of Australia under which Xceed's novel biodegradable polyurethane technology will be scaled-up, stabilised and manufactured at AorTech's ISO certified Technology Centre. â€¢ Continued progress with the qualification of the Elast-EonTM 2 for use in the insulation of pacing leads and the development of a softer second generation material for the same application. â€¢ Seven technical papers on the use of Elast-EonTM were published and delivered at the 7th World Biomaterial Congress in May 2004 in Sydney, Australia. Completion of technology/supply agreements â€¢ Spinal Discs - detailed negotiations were held with an orthopaedic company regarding an exclusive agreement to use the orthopaedic version of Elast EonTM, i.e. Elast Eon XLTM, for minimally invasive spinal surgery devices. However, for reasons not connected with the material, these negotiations were terminated shortly before the agreement was due to be signed. This was obviously very disappointing but at least it demonstrated that Elast Eon XLTM is a leading edge material for this high growth market segment. Negotiations are now proceeding with alternative major spinal surgery companies. â€¢ Breast Implants - as reported previously, discussions have been held with the two market leaders regarding an Elast-EonTM material licence and supply agreement. However the Company has decided to move further up the value chain by developing prototype implants and is seeking a partner in this device development effort. If successful, this would be the Company's first move forward from its basic business model of technology/material supply agreements and could provide a platform with significantly greater revenue generating potential for future growth. â€¢ Successful co-development activities directed at qualifying Elast-EonTM for applications in neuro-vascular stenting with a major US based partner. â€¢ Successful co-development demonstrating the feasibility of an Elast-EonTM application in neuro-stimulation products with the global leader in the field. The Company is also currently pursuing additional licensing opportunities in: â€¢ Cochlear implants â€¢ Small replacement joint prostheses â€¢ Long-term catheters Development of relationships with existing Partners Three of the first four licencees anticipate revenue generating co-development work occurring as part of the licencee's application activities. At this point there are four of these co-development projects underway and more are expected as the relationships develop. Additionally, two of these agreements contain provisions for exclusivity options for the licencee. In both cases, the feasibility work required to support the option decisions is progressing positively. â€¢ On going support and co-development of Elast-EonTM for drug eluting and non-drug eluting stent technology. Elast-EonTM stents have successfully concluded the feasibility phase of their development with 3 partners and are moving forward into the product development phase for a number of new stent products for both coronary and peripheral vascular applications. â€¢ The Company has produced a series of next generation Elast-EonTM heart valves of its own design. The valves have been tested by the Company and have demonstrated superior performance and durability. The intellectual property associated with this heart valve technology continues to move forward in its approval process. This polymer valve technology has applications for both conventional surgical approaches as well as for a percutaneous or interventional cardiology technique approach to the implantation of the heart valve in patients incapable of withstanding full open-chest surgery on cardio-pulmonary bypass. Company Outlook The Board continues to believe that there are considerable opportunities for the Company in the specialist biomaterials market, particularly for implants where material specifications are challenging and added value can be high. The early interest from a third party to acquire the Company appears, in the Directors' opinion, to support this view. As indicated in the last year's Statement, it is not intended that the Company should remain solely a material supplier but should enhance shareholder value by moving up the value chain through the development of new applications utilising new materials, such application work being funded by commercial partners. At some point in the future the Company may move into the manufacture of proprietary components and /or products. The Board believes that, whilst not without risk, this early stage company has an opportunity to generate shareholder value. Board Changes During the year, Bill Strachan and Jonathan Brooks, both Non-Executive Directors, decided that it would be in the best interests of the Company if the Board could be strengthened by the addition of Non-Executive Directors with small company experience and entrepreneurial backgrounds. As a result they resigned and have been replaced by: Peter Jeremy Gibson, age 58, previously the CEO and Chairman of the Corin Group PLC, a major UK manufacturer of orthopaedic implants. Peter founded Corin in 1985 and managed it through to a public flotation in 2002 before retiring in 2003. He has significant experience of the challenges facing early stage companies in the orthopaedic implant market. Jon Peter Pither, age 69, brings a wealth of Board and City institutional experience. His knowledge and experience of the challenges facing quoted small cap companies with emerging technologies will be particularly valuable at this stage in the development of the Company. I would like to thank both Bill and Jonathan for their significant contributions during their time with the Company. Capital Reduction At the Annual General Meeting, a resolution will be proposed to cancel the Share Premium Account of the Company and to apply this cancellation to eliminate the accumulated deficit on the Company's Profit and Loss Account which stood at Â£62,020,656 on 31 March 2004. The Board believes that the resulting balance sheet will be more suitable for an early stage business and will give the Company the potential to make distributions in the future if appropriate. Summary The Company has completed its first year as an early stage biomaterials business. In general, good progress has been made, although there is little doubt that this progress was slowed by the negotiations concerning the third party approach. The Board remains encouraged by the very positive response from most of the large global medical device companies and their significant interest in the Company's material technology and its development and manufacturing capabilities. The strategic plan has been agreed, the technology is in place and the market appears to be receptive. The challenge is to create a solid business from this opportunity. Finally, my sincere thanks to all employees, ably led by Frank Maguire, for their very considerable efforts during the year. Laurie Rostron Chairman Consolidated Profit and Loss Account for the year ended 31 March 2004 Note 2004 2003 Â£ Â£ Turnover 2 Continuing Operations 360,185 73,407 Discontinued Operations - 1,305,731 --------- --------- 360,185 1,379,138 Costs of Sales 3 (30,649) (1,067,379) --------- --------- Gross Profit 329,536 311,759 Net Operating Expenses 3 (2,527,045) (12,165,968) Net Operating Expenses include: Development Expenditure (559,032) (4,182,296) Amortisation of intangible Fixed (97,863) (1,206,732) Assets Cost of aborted acquisition - (250,281) --------- --------- Group operating loss before provision 3 (2,197,509) (11,854,209) for impairment of goodwill Provision for impairment of goodwill 3 - (16,535,412) Group operating loss Continuing Operations 3 (2,197,509) (18,587,192) Discontinued Operations 3 - (9,802,429) --------- --------- (2,197,509) (28,389,621) Exceptional items 4 552,856 (11,335,504) --------- --------- Loss on ordinary activities before (1,644,653) (39,725,125) interest Interest Receivable 195,096 366,947 --------- --------- Loss on ordinary activities before (1,449,557) (39,358,178) taxation Taxation 5 1,976,817 - --------- --------- Profit/(loss) for the financial year 527,260 (39,358,178) --------- --------- Profit/(loss) per ordinary Share Basic 6 13.84p (1,032.95p) Fully Diluted 13.84p (1,032.95p) Statement of Total Recognised Gains/( Losses) Profit/(loss) for the financial year 527,260 (39,358,178) Currency Translation Differences Arising 130,024 58,190 on Consolidation --------- --------- Total Gains/(Losses) Recognised Since 657,284 (39,299,988) Last Annual Report --------- --------- Balance Sheet as at 31 March 2004 2004 2003 Â£ Â£ Fixed Assets Intangible Assets 1,565,806 1,536,185 Tangible Assets 235,608 319,976 --------- --------- 1,801,414 1,856,161 Current Assets Stocks 48,853 - Debtors 185,848 532,912 Cash at Bank 5,968,200 6,851,343 --------- --------- 6,202,901 7,384,255 Creditors: amounts falling due within one (438,200) (2,061,585) year Net Current Assets 5,764,701 5,322,670 --------- --------- Total Assets less Current Liabilities 7,566,115 7,178,831 Accruals and Deferred Income - (270,000) --------- --------- Net Assets 7,566,115 6,908,831 --------- --------- Capital and Reserves Called up Share Capital 9,525,695 9,525,696 Share Premium Account 63,359,594 63,359,593 Other Reserve (2,003,143) (2,003,143) Profit and Loss Account (63,316,031) (63,973,315) --------- --------- Equity Shareholders Funds 7,566,115 6,908,831 --------- --------- Consolidated Cash Flow Statement for the year ended 31 March 2004 2004 2003 Note Â£ Â£ Operating Activities Net cash outflow before exceptional charges Continuing operations 7 (1,898,890) (828,455) Discontinued operations - (9,892,434) --------- --------- (1,898,890) (10,720,889) Outflow related to exceptional items (1,335,862) (1,709,737) --------- --------- Net cash outflow from operating (3,234,752) (12,430,626) activities Returns on investment and servicing of 188,359 498,976 finance Taxation 2,075,716 - Capital Expenditure and financial 121,532 (401,251) investment Disposals (50,000) 2,618,697 Cash outflow before management of liquid (899,145) (9,714,204) resources and financing --------- --------- --------- Management of Liquid Resources 734,983 9,438,942 --------- --------- Decrease in Cash in Year (164,162) (275,262) --------- --------- Notes to the Accounts Note 1 The financial statements for AorTech International plc have yet to be signed for the year ended 31 March 2004. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 March 2004 or 31 March 2003. The financial information for the year ended 31 March 2003 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. The statutory accounts for the year ended 31 March 2004 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of companies following the Company's Annual General Meeting. Note 2 Segmental analysis by class of business and geographical area (a) Class of The group operates in one class of business business (b) geographical The analysis by geographical area of the group's turnover is area set out below : 2004 2003 destination origin destination origin Â£ Â£ Â£ Â£ Geographical segment United Kingdom - - 545,090 1,025,329 Rest of Europe - - 781,789 309,217 Rest of world 360,185 360,185 52,259 44,592 -------- -------- -------- -------- 360,185 360,185 1,379,138 1,379,138 -------- -------- -------- -------- Note 3 Cost of sales, gross profit, selling and marketing costs and administrative expenses 2004 2003 Total Continuing Discontinued Total Â£ Â£ Â£ Â£ Turnover 360,185 73,407 1,305,731 1,379,138 Cost of Sales (30,649) - (1,067,379) (1,067,379) ------- -------- -------- -------- Gross Profit 329,536 73,407 238,352 311,759 ------- -------- -------- -------- Selling and (296,492) - (2,227,838) (2,227,838) Marketing Costs Administrative Expenses Development (559,032) (483,567) (3,698,729) (4,182,296) expenditure Amortisation of intangible fixed assets (97,863) (1,060,820) (145,912) (1,206,732) Costs of aborted - - (250,281) (250,281) acquisition Other (1,573,658) (580,800) (3,718,021) (4,298,821) ------- -------- -------- -------- Total (2,230,553) (2,125,187) (7,812,943) (9,938,130) administrative ------- -------- -------- -------- expenses Net operating (2,527,045) (2,125,187) (10,040,781) (12,165,968) expenses Group operating loss before provision for impairment of goodwill (2,197,509) (2,051,780,) (9,802,429) (11,854,209) Provision for impairment of goodwill - (16,535,412) - (16,535,412) ------- -------- -------- -------- Group operating (2,197,509) (18,587,192) (9,802,429) (28,389,621) loss ------- -------- -------- -------- The Group operating loss from continuing operations for the year to 31 March 2004 includes costs of Â£466,740 which will not be incurred in future periods following the restructuring of the Group and the discontinuance of businesses in the previous year. The provision for impairment of goodwill during the year ended 31 March 2003 arose following a full review, in accordance with FRS 10 'Goodwill and Intangible Assets' of the carrying value of goodwill relating to the acquisition of AorTech Biomaterials in March 2000. Note 4 - Exceptional Items 2004 2003 Continuing Continuing Discontinued Total Â£ Â£ Â£ Â£ Gain/(loss) on disposal of commercial valve 307,660 - (2,210,589) (2,210,589) operations Gain/(loss) on termination of truCCOMS operations 111,581 - (4,338,964) (4,338,964) Loss on termination of trileaflet heart valve - - (924,570) (924,570) project Fundamental restructuring costs 133,615 (186,267) (3,675,114) (3,861,381) -------- -------- -------- -------- 552,856 (186,267) (11,149,237) (11,335,504) -------- -------- -------- -------- The gain on disposal of commercial valve operations during the year ended 31 March 2004 arises from the release of funds held in Escrow for 12 months and the disposal of assets written off in the previous year. The gain on termination of truCCOMS operations during the year ended 31 March 2004 comprises primarily the disposal of assets written off in the previous year. The gain on fundamental restructuring costs during the year ended 31 March 2004 arises from the overprovision of estimated costs at 31 March 2003. Note 5 Taxation The tax credit of Â£1,976,817 in 2004 relates to research and development credits received in respect of expenditure incurred in previous years. Note 6 Profit/(loss) per ordinary share The basic loss per ordinary share is calculated on the profit of the Group of Â£527,260 (2003 - loss Â£39,358,178) and on 3,810,278 (2003 - 3,810,278) equity shares, being the weighted average number of shares deemed to be in issue after adjusting for the one for ten share consolidation of 1 September 2003. Note 7 Net cash outflow from operating activities Net cash outflow from operating activities before exceptional charges for the year to 31 March 2004 includes expenditure of Â£636,518 which will not be incurred in future periods following the restructuring of the Group and the discontinuance of businesses in the previous year. This information is provided by RNS The company news service from the London Stock Exchange

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