Interim Results

Fulcrum Pharma PLC 07 May 2003 For Immediate Release Wednesday, 7 May 2003 Fulcrum Pharma plc Interim Results for the six months to 28 February 2003 Fulcrum Pharma PLC (LSE: FUL), the independent drug development company, today announces its interim audited results for the six months ended 28 February 2003. Following the recent rise in the Group's share price and, in order to ensure that the Market remains informed, Fulcrum has decided, on the advice of its brokers, to bring forward the announcement of its interim results from 15 May to today, Wednesday, 7 May 2003. Highlights: â€¢ EU sales remain flat â€¢ US office fully established and operational â€¢ Japanese businesses on track: o new contracts won o specialist oncology contract research organisation set up â€¢ Group loss after exceptionals Â£313,000 (2002: Â£422,000 profit) â€¢ Strong cash position : Â£4.7 million â€¢ Dividend maintained at 0.2 pence per share â€¢ Management Strengthened: Dr Michael Carter to join the Board as Non Executive Director Commenting on the results Chairman, Prof. Sir Charles George said: 'With the global economy remaining volatile, the importance of Fulcrum's balanced global strategy is clear. While our sales in the EU have been lower than expected, our US and Japanese businesses have performed in line with internal expectations and remain well placed to provide revenue streams in coming years. 'Your Board is confident that Fulcrum is positioned to grow in the future outsourcing market as clients and investors recognise the value of strategic outsourcing rather than burning cash on building their own development infrastructure.' For further information, please contact : Fulcrum Pharma PLC Tel: 0870 710 7152 Jon Court, Chief Executive Buchanan Communications Tel: 07956 597 099 Nicola How / Louise Bolton Tel: 0207 466 5000 FULCRUM PHARMA PLC Interim Results for the six months ended 28 February 2003 REPORT OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER INTRODUCTION I am pleased to announce the Interim results for the six months to 28 February 2003. The period under review continues to see the global pharmaceutical market operating under increasingly difficult economic conditions. In Europe, Fulcrum's customers have been slower to commit to new contracts for outsourced work. Furthermore, the difficult financing environment in the biotech sector has forced some companies to conserve cash and reduce the quantity of work outsourced. These conditions have impacted our sales, particularly in the EU, where changes in client strategy have resulted in the termination of two significant contracts. As a result Fulcrum has experienced its first loss. However, in light of the change in market conditions, the Management team has been realigning its EU selling strategy with the consequence that a high number of new clients have been won recently. The Company continues to roll out its plans for the US and Japan. In both areas we are experiencing better trading conditions for Fulcrum's services and this is creating new selling opportunities through marketing Preferred Supplier Arrangements ('PSA'). Progress in these areas is described in the operational report below. FINANCIAL REVIEW The results for the six months ended 28 February 2003 show a loss before tax and exceptional items of Â£313,000 (2002: profit of Â£422,000). During the period Fulcrum has established its US subsidiary and completed the restructuring of the Japanese business into subsidiaries. These activities have incurred anticipated exceptional costs of Â£390,000. The US and Japanese results were in line with expectations. It has been the lower than expected sales in the EU, combined with the costs of Fulcrum's growth plans, which have resulted in the loss before tax and exceptional items of Â£313,000. The loss is stated after an exchange loss of Â£42,000 (2002: exchange gain of Â£50,000) and non-recurring costs of Â£275,000 have been incurred. The latter costs are related to recruitment, business development and office relocation. Fulcrum's cash position remains strong at Â£4.7 million. DIVIDEND The dividend has been maintained at 0.2 pence per share reflecting your Directors' confidence in Group's future. OPERATIONAL REVIEW Last year I described our plan for expansion across Europe, US and Japan. These plans were designed to put in place the capabilities and resources critical to the long-term prospects of the Company. I am pleased to report that Fulcrum has made good progress in all three areas in the implementation of this plan. The solid building blocks now in place will be key to addressing the sales performance in the first half of the year and building for the future. A summary of this plan and how we have progressed since our preliminary statement is outlined below: â€¢ Scale up of the UK/European operation: Fulcrum has been successful in attracting talented and experienced drug developers to the Company. Therapeutic area expertise, project management resources and capabilities in the management of outsourcing have all been strengthened. These skill sets are critical to selling the business model to our clients. Despite the difficult trading conditions there has been a good conversion on small bids and new customers have been won. We are working to extend these new relationships into longer term contracts. â€¢ Globalisation to meet the needs of our clients: We have used our global resources to develop new business and serve existing clients in EU, US and Japan. US: I am pleased to report that our US office under the leadership of Dr Bruce McCreedy now has a high quality team of drug developers in place and has won contracts from new clients within its first half year of operation. The first US office has been established in North Carolina where Fulcrum can access new clients, the suppliers required to execute its business model and an excellent pool of talent for future recruitment. Since the US market represents more than half of the global R&D spend this is an important development for Fulcrum. Japan: We are delighted that we have been able to recruit Mr Fujimaru (formerly a senior executive and Board member of EPS, one of Japan's leading service providers) to lead Niphix KK. Niphix is Fulcrum's newly created, specialist oncology Contract Research Organisation ('CRO'). It is our aim that Niphix will provide oncology services to the Pharma community which, in Japan, is an area still poorly served. Fulcrum's CRO has already gained its first contract and with Mr Fujimaru's recent experience of setting up and running a successful service company in Japan we have every confidence in this being the first of many client wins. Niphix is an important piece of Fulcrum's mid to long term strategy to create shareholder value. Our first Japanese company, Fulcrum Pharma KK continues to provide project design and management services to Japanese and European clients and retains its reputation as a supplier of specialist oncology drug development services. â€¢ Development of Partnership or Preferred Supplier Arrangements ('PSA'): Fulcrum continues to use the PSA concept as an effective selling tool for its core development services. The PSA concept is where Fulcrum makes an equity or other capital investment into a client company in return for preferred supplier status to manage the development of a number of client products. As reported last year, while this has been useful to access clients it has been difficult to implement due to the volatility in the Biotech and Pharma industries. Management has therefore taken steps to optimise the conditions for success and are incubating a PSA venture within Fulcrum and this could ultimately provide a portfolio of contracts for Fulcrum's core business. It is intended to spin out this venture within 12 months and a team of senior executives has been recruited. Some of the Â£3,250,000 funds raised last year are being invested to develop this PSA. This is another example of Fulcrum diversifying within its market to create value downstream for our investors. â€¢ Strategic Services: These have been further developed in order to provide new products in Chemistry Manufacturing & Controls (CMC) and preclinical development. These products have been used to increase access to new and existing clients and facilitate cross-selling. For example, contracts are being won in Japan, which utilise our technical and CMC expertise and resources in our EU and US Offices. STRENGTHENING THE BOARD I am delighted that Dr Michael Carter has agreed to join our Board. Dr Carter brings important industry and City experience. He has gained these skill sets from a range of directorship roles in start up Pharma companies in Europe and the US, a venture partner role with Schroder Ventures Life Sciences and through commercial roles in big Pharma. PROSPECTS The current trading conditions, which have impacted sales in the first half, will have a knock on effect in the second half of the year. We expect sales to improve in the future and I look forward to reporting a positive outcome for the full year - however this will be significantly below current market expectations. With the global economy remaining volatile, the importance of Fulcrum's balanced global strategy is clear. While our sales in the EU have been lower than expected, our US and Japanese businesses are performing in line with internal expectations and remain well placed to provide revenue streams in coming years. Your Board is confident that Fulcrum remains well positioned to grow in the future outsourcing market as clients and investors recognise the value of strategic outsourcing rather than burning cash on building their own development infrastructure. Further, the incubation of a Preferred Supplier Arrangement within Fulcrum has the potential to provide upside to our sales and further mitigate the risks associated with the current market. FULCRUM PHARMA PLC Consolidated profit and loss account for the period ended 28 February 2003 Six months Six months Year ended ended ended 28 February 28 February 31 August 2003 2002 2002 Unaudited Unaudited Audited Notes Â£'000 Â£'000 Â£'000 Turnover 2,498 2,983 5,742 Cost of sales (1,988) (2,064) (3,808) Exceptional cost of sales related to new subsidiaries 2a (225) - - Exceptional credit 2b - - 554 Total cost of sales (2,213) (2,064) (3,254) __________ ______ ________ Gross Profit 285 919 2,488 Selling expenses (228) (127) (275) Exceptional selling expenses - - 185 Total selling expenses (228) (127) (90) Administrative expenses (658) (398) (817) Exceptional administrative expenses related to new subsidiaries 2a (165) - (181) Exceptional credit 2b - - 196 Total administrative expenses (823) (398) (802) __________ ______ ________ Operating (loss)/profit (766) 394 1,596 Interest receivable & similar income 63 28 75 __________ ______ ________ (Loss)/profit on ordinary activities before taxation (703) 422 1,671 Tax on (loss)/profit on ordinary activities 3 168 (139) (231) __________ ______ ________ (Loss)/profit attributable to shareholders (535) 283 1,440 Proposed dividend 4 (244) (123) (123) __________ ______ ________ Retained (loss)/profit for the period (779) 160 1,317 __________ ______ ________ Earnings per share (pence) Basic 5 (0.44p) 0.46p 1.44p Adjusted basic 5 (0.19p) - 0.63p Adjusted earnings per share exclude the effect of the exceptional items. All items included in the Profit and Loss accounts relate to continuing operations. There were no recognised gains or losses other than the profit for the period. FULCRUM PHARMA PLC Consolidated Balance Sheet As at 28 February 2003 28 February 28 February 31 August 2003 2002 2002 Unaudited Unaudited Audited Â£'000 Â£'000 Â£'000 Fixed assets Tangible assets 405 35 24 Investments 53 - 53 ______ ______ ______ 458 35 77 Current assets Debtors 1,766 1,732 1,982 Short term investments 3,781 - 4,520 Cash at bank and in hand 948 2,624 582 _____ _____ _____ 6,495 4,356 7,084 Creditors: amounts falling due within one year (1,810) (1,796) (1,249) _____ _____ _____ Net current assets 4,685 2,560 5,835 _____ _____ _____ Total assets less current liabilities 5,143 2,595 5,912 Provision for liabilities and charges (15) (10) (5) _____ _____ _____ 5,128 2,585 5,907 _____ _____ _____ Capital and reserves Called up share capital 1,219 615 1,219 Share premium 4,370 1,543 4,370 Merger reserve (454) (133) (454) Profit and loss account (7) 560 772 _____ _____ ______ Equity shareholders' funds 5,128 2,585 5,907 _____ _____ _____ Jon Court Geoffrey Smith Directors May 2003 FULCRUM PHARMA PLC Consolidated cash flow statement for the period ended 28 February 2003 Six months Six months Period ended ended ended 28 February 28 February 31 August 2003 2002 2002 Unaudited Unaudited Audited Notes Â£'000 Â£'000 Â£'000 Net cash (outflow/inflow) from operating activities 6 (24) 629 228 Returns on investments and servicing of finance Interest received 63 28 75 Taxation paid - - (145) Capital expenditure and financial investment Purchase of tangible fixed assets (412) (13) (23) Equity dividends paid to shareholders 4 - - (123) ________ _________ _________ Net cash outflow before management of liquid resources and financing (373) 644 12 Management of liquid resources Decrease/(increase) in short term investment 739 - (4,520) Financing Issue of ordinary share capital - - 3,250 Share issue costs - - (140) _______ _________ _________ - - 3,110 _______ _________ _________ Increase/(decrease) in cash 6 366 644 (1,398) _______ _________ ______ Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash 6 366 644 (1,398) Cash flow from (decrease)/increase in short term investment 6 (739) - 4,520 _______ _______ ______ Change in net funds from cash flows (373) 644 3,122 Net funds at start of period 6 5,102 1,980 1,980 _______ _______ ______ Net funds at end of period 6 4,729 2,624 5,102 ________ _______ ______ FULCRUM PHARMA PLC For the period ended 28 February 2003 1. FINANCIAL INFORMATION The interim results for the six months ended 28 February 2003 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. They have been drawn up using accounting policies and principles consistent with those applied in the preparation of the audited accounts for the year ended 31 August 2002. The comparative information contained in the report for the year ended 31 August 2002 does not constitute the statutory accounts for the financial period. Those accounts have been reported on by the Company's Auditors, PricewaterhouseCoopers, 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. 2. EXCEPTIONAL ITEMS Six months to Six months to Year ended 28 February 28 February 31 August 2003 2002 2002 Â£'000 Â£'000 Â£'000 Loss/(profit) on ordinary activities before tax (703) 422 1,671 Exceptional expenses related to subsidiaries 390 - 181 Exceptional credit - - (935) ________ _______ _______ (Loss)/profit on ordinary activities before taxation and exceptional items (313) 422 917 ________ _______ _______ The Group has reported a loss before tax and exceptional items of Â£313,000. As set out in the paragraphs below, the Company has recorded an exceptional charge of Â£390,000 in the current period, and an exceptional charge of Â£181,000 and exceptional credit of Â£935,000 in the year to 31 August 2002. a. Exceptional expenses related to new subsidiaries Â£390,000 (31.08.2002, Â£181,000) The exceptional charge to cost of sales of Â£225,000 and administration expenses of Â£165,000 (31 August 2002, Â£181,000) represents the initial set up and related costs for the Group's new subsidiaries in the USA and Japan. These subsidiaries have commenced trading during the current period b. Exceptional credit of Â£935,000 Fulcrum acquired the share capital of Fulcrum Pharma Developments Ltd (FPD Ltd) in March 2000 by means of a share for share exchange. Due to uncertainties regarding the valuation of FPD Ltd, it was agreed between the Company and the vendors that additional shares would be issued by the Company by way of deferred consideration, the number of such shares depending on the profits of the Company in the year ending 31 August 2001. Although the directors believed that the substance of this arrangement was deferred consideration, they received advice that the appropriate accounting treatment was to charge the profit and loss account in the year ended 31 August 2001 with the fair value of the additional shares to be issued (Â£950,000). This charge was reversed in the year to 31 August 2002. Consequently, there is an exceptional credit in the year to 31 August 2002. The credit has been allocated to the same cost centres to which the exceptional charge was allocated in the previous year, as follows:- 2002 Â£'000 Cost of sales (554) Selling expenses (185) Administrative expenses (196) (935) As disclosed in the document dated 8 March 2000, produced by the Company in connection with its admission to AIM and in the Company's annual accounts for the year ended 31 August 2000, certain shareholders, including directors, of the Company were entitled under a share exchange agreement dated 7 March 2000 to be allotted up to a maximum of 56,666,666 additional 1p ordinary shares in the Company by reference to the consolidated profits before tax of the Group for the twelve months ended 31 August 2001. Based on the profit before tax for that year, of Â£546,000, the Company issued 31,666,667 additional ordinary shares for no cash consideration on 11 June 2002. 3. TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES Six months to Six months to Year ended 28 February 28 February 31 August 2003 2002 2002 Â£'000 Â£'000 Â£'000 Current taxation UK Corporation tax at 30%: (178) 139 241 Adjustment in respect of prior period - - (5) _________ _______ ______ (178) - 236 Deferred taxation Deferred taxation 10 - (5) ________ _______ _______ (168) 139 231 ________ _______ _______ The tax charge for the year differs from the standard rate of corporation tax in the UK of 30% (2002: 30%). The differences are explained below:- Six months to Six months to Year ended 28 February 28 February 31 August 2003 2002 2002 Â£'000 Â£'000 Â£'000 Loss/(profit) on ordinary activities before tax (703) 422 1,671 Exceptional credit (see note 5b) - - (935) _______ _______ ______ (Loss)/profit on ordinary activities before tax and exceptional items (703) 422 736 _______ _______ ______ (Loss)/profit on ordinary activities before tax and exceptional items multiplied by the standard rate of corporation tax in the UK of 30% (2002:30%)) (211) 127 221 Effects of: Depreciation in excess of capital allowances - 5 10 Expenses not deductible for tax purposes 6 7 5 Tax losses for the period not relieved 27 - - ________ _______ _______ Current tax charge for period (178) 139 236 ________ _______ _______ 4. DIVIDENDS An interim dividend of 0.2p per ordinary share (2002 0.2p) is proposed. 5. EARNINGS PER SHARE Six months Six months Year ended ended ended 28 February 28 February 31 August 2003 2002 2002 (Loss)/profit on ordinary activities after taxation for basic earnings per share (535) 283 1,440 Exceptional expenses related to new subsidiaries 390 - 181 Exceptional credit - - (935) Tax on exceptional items (90) - (55) ____________ ____________ __________ (Loss)/profit on ordinary activities after taxation for adjusted earnings per share (235) 283 631 _____________ ___________ _____________ Weighted average number of ordinary shares for earnings per share 121,401,451 61,500,000 99,846,929 _____________ ___________ ____________ The weighted average number of shares is calculated excluding those held by the Employee Share Ownership Plan, which are treated as cancelled. 6. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of the operating profit to net cash (outflow)/inflow from operating activities. Six months to Six months to Year to 28 February 28 February 31 August 2003 2002 2002 Â£'000 Â£'000 Â£'000 Operating (loss)/profit (766) 394 1,596 Depreciation 31 20 41 Exchange gain - - (10) Non cash exceptional item - - (935) Decrease/(increase) in debtors 216 (747) (298) Increase/(decrease) in creditors 495 962 (166) _________ _________ _______ Net cash (outflow)/inflow from operating activities (24) 629 228 _________ _________ _______ (b) Analysis of net funds Cash at bank Short term Total and in hand Investments Â£'000 Â£'000 Â£'000 At 1 September 2002 582 4,520 5,102 Cashflow 366 (739) (373) ______ ______ ______ At 28 February 2003 948 3,781 4,729 ______ ______ ______ 7. COPIES OF UNAUDITED INTERIM REPORT Copies of this report are being sent to shareholders and are also available at the registered office of Fulcrum Pharma plc, Kodak House, Station Road, Hemel Hempstead, Hertfordshire HP1 1JY. 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