Interim Results

NMT GROUP PLC 14 September 1999 NMT GROUP PLC Interim results for the six months ended 30 June 1999 NMT Group PLC ('NMT'), the manufacturer of retractable devices to prevent needlestick injury, announces its interim results for the six months ended 30 June 1999. Key Points - Sales levels running six months behind schedule, but NMT anticipates moving into profitability during year 2000 - Revenues in the period of £43,000, with a loss of £2.9 million. Cash of £15.4 million at period end - Successful Placing and Open Offer raised £16 million - Additional manufacturing capacity ordered and facilities expansion planned - ISO 9001 and EN 46001 accreditation achieved - Momentum building in the market in favour of safety devices - Continued expansion of market access channels - Distribution deal signed for Australia/New Zealand Commenting on the results, Dr John Campbell, Chief Executive Officer of NMT, said: 'Legislative pressure for the use of safe needle devices is continuing to build in the US which is resulting in an increased demand for NMT's safety syringes from both existing and new customers. Awareness is also spreading into European markets and we anticipate that pressure will build towards the use of safe products in these territories. The funds raised in March have enabled us to focus on increasing our manufacturing capacity and our production levels, and will also help us to expand our product range to exploit this global market opportunity. 'During the past six months, we have experienced short-term challenges which typically face developing companies such as NMT. We are confident that we can meet these and that we can take advantage of the exciting growth prospects ahead.' Enquiries: NMT Group PLC Today: 0207 831 3113 Dr John Campbell, Chief Executive Officer Thereafter: 01506 445000 Financial Dynamics Tel: 0207 831 3113 David Yates/Sophie Pender-Cudlip Introduction During the last six months, NMT has experienced some of the challenges which typically face developing companies. None of these challenges is insurmountable but they have meant that our sales are running approximately 6 months behind the levels that we had anticipated. These challenges, which we are in the process of resolving, can be outlined as follows: - It has taken longer than we had anticipated to bring the Sortimat assembly system up to satisfactory levels of quality production. This is being addressed and we estimate that before the end of this year manufacturing capacity and efficiency on this assembly machine will be at a satisfactory level. - Some of our customers have requested that we make some minor alterations to our marketed products, which are underway. They have also indicated to us that they require us to supply a broader product range. This is also being addressed, as discussed more fully under 'Product Development' below. Through listening to the needs of our customers, and with the new legislation coming into force, we remain convinced that our products are right for this marketplace. We will continue to take measures to improve both our product range and manufacturing output to ensure that we have the products available that our customers require. Financial Summary Turnover for the period was £43,000 (1998 - nil) with cost of sales being £475,000 of which some £373,000 related to the costs associated with production on the Kahle semi-automatic line. Since June 30, our cost of materials has improved and is now lower than originally budgeted for. Overall improvements in machine efficiencies have resulted in significant reduction in total cost of goods and this is expected to continue into 2000. Operating expenditure for the period was £3.2 million (1998: £1.6 million) and cash outflow was £3 million (1998: £2.1 million). Continued tight controls, however, have resulted in both measures being well within budget for the period. Cash in hand at the end of the period was £15.4 million (1998: £4.2 million), also showing a favourable comparison to budget. In March, we announced a Placing and Open Offer of new shares in order to expand both our manufacturing capacity and our product range. This offering successfully raised £16 million. We have identified no major Year 2000 issues to be remedied. All mission critical systems are Year 2000 ready. Of our other, office-based systems, those that require upgrading will be upgraded by manufacturers free of charge, or at a cost which is not expected to be material. Production & Manufacturing Towards the end of 1998, we took delivery of our first, fully automated assembly system (custom manufactured for us by Sortimat Automations GmbH). In February of this year, the system was validated for the commercial manufacture of our 3ml 25G x 5/8' Safety Syringe (for subcutaneous injections). We have, however, experienced some problems building up production levels but are now working to increase the productivity of the system towards its specified operating rate to meet the anticipated demand for our product. We have applied some of the learning from operating our first assembly line into the design of our second machine, due later this year. This should enable us to reach a higher operating rate more speedily. In addition to the Sortimat activities, we have also been manufacturing 3ml 21G x 1.5' Safety Syringes (for intra-muscular injections) on our semi- automated line made for us by Kahle Europea SpA. In the second half of the year, with an improved production capability for our 3ml Safety Syringe product range, we should be able to more aggressively attack the market, as described below. Product Development As indicated above, we are very aware of the growing need to expand our product range to meet the demand from customers for our technology in the marketplace. Therefore we have recently successfully produced the first commercial quantities of our 3ml 23G x 1' Safety Syringe. This third needle size is an important addition to our product line and our second Sortimat assembly system, which will be delivered to our Livingston facility later this year, will be capable of manufacturing all of the needle lengths and gauges for our full 3ml Safety Syringe product line. The design of our 1ml Safety Syringe product family is also complete. This product family has a range of needle lengths and gauges and will be labelled for a variety of different applications. Early next year, we will install the automated assembly system (manufactured for us by Mikron SA Boudry, Switzerland) and will begin volume manufacture of these products. The addition of this product family to our line will be very significant for us, particularly given that there are very few 1ml Safety Syringe designs currently on the market. Those on the market are manually activated, unlike our syringes which are automatically activated. In addition, we are accelerating the development of our other products which are progressing well and will ensure a pipeline of additional competitive products for us in the coming years. These include: - the Second Generation Safety Syringe (any one of a range of safety needles can be mated with a 3ml, 5ml or 10ml Safety Syringe); - safety Phlebotomy System (for blood drawing); - the Safety Catheter (for drug or nutrition infusion); and - Pre-filled Safety Syringe (for liquid drug delivery and/or reconstitution and delivery of dry drugs). Legislation In the US, the legislative pressure, which has already caused healthcare facilities in certain States to convert to safety products, continues to build. Currently, California, Texas, Tennessee, New Jersey and Maryland all have enacted laws that mandate healthcare facilities to use safety needles if they are available. The law is in effect in California, with laws in the other four States scheduled to come into effect in the near future. Taken together, these five States represent over 20% of the hospital beds in the US. Moreover, more than 20 additional States have similar legislation either being drafted or already introduced into their legislative system. More recently, Federal bipartisan needlestick protection legislation was introduced into both the US House of Representatives and the Senate, and the Federal Occupational Safety and Health Administration (OSHA) is discussing the introduction of legislation which will harmonise needle protection activities nationwide. We believe that it is just a question of time before needle-containing devices with a designed safety feature (such as our products) will be the only types of needle containing devices available for use in the whole of the US. A large union representing many of the US healthcare workers, the Service Employees International Union (SEIU), has been a major force in sparking this legislative momentum. In Europe, we have begun to see signs of a similar union-backed campaign, focused on healthcare worker safety, which is beginning to take hold. This is already materialising in Scotland and we anticipate that it will spread across Europe, just as the early legislation in California is spreading across the 50 American States. Sales and Marketing Sales in the period were £43,000, constrained by the manufacturing and product challenges referred to above. In anticipation of the resolution of these challenges, we have been building our distribution channels to market. NMT's technology and the quality of its products, together with the increased legislative pressure for safe products, has generated interest from many distributors. We are currently in discussions with several companies with a view to increasing our distribution across a number of geographical territories. During the first half of this year, we have continued to expand our distribution network in Europe. As a result, we now have 23 European distributors with 180 sales representatives covering Germany, Italy, France, Spain, Portugal, Switzerland, Austria, Belgium, Scandinavia and the UK. In the US, we have appointed 25 distributors with over 200 sales representatives covering the majority of the 50 States. Our strategy is to select distribution partners who, in addition to providing us with broad geographical coverage, also provide us with broad market segmentation coverage. The major segments covered to date include physicians' offices, occupational health facilities, prisons and correctional facilities, as well as the major hospital segment. Earlier this year, we signed an 18-month evaluation contract with Premier Purchasing Partners, the largest group purchasing organisation (GPO) in the US. More than 1,750 hospitals across the US use Premier's group contracts for the purchase of medical devices as well as other medical supplies. Our products are currently under evaluation in several Premier hospitals and initial feedback is encouraging. In addition, we are pleased to announce today that we have signed a distribution agreement with Promedica Pty Ltd in Australia and New Zealand. Promedica is a leading supplier of medical and surgical products to the hospital and other medical markets in these territories and has committed to minimum purchases over the next few years amounting to several million syringes. We continue to seek the most qualified distribution partners for the other territories outside North America and Western Europe. Regulatory and Intellectual Property Patents related to our Zero-Stik technology have now been issued in over 20 countries. We have also filed patent applications in respect of an additional six inventions, including designs relating to our Second Generation Safety Syringe, Safety Phlebotomy Set, Pre-filled Safety Syringe and a Filling Sheath, as well as extending the protection of our core needle retraction technology. We continue to believe that the patent infringement lawsuit concerning our automatic needle retraction technology in the USA (which we reported on previously) is unlikely to have a long-term material impact on the Company's business. During the period, we rejected a routine offer of settlement from the plaintiff due to the unfavourable nature of the terms offered. The importance of having a solid quality basis for NMT is essential and over time the NMT Quality Management System has been developing and maturing. This is based on an internationally recognised model for quality assurance in design, development, production, installation and service (ISO9001) and provides the definition and control necessary to ensure that high quality products are consistently produced. This Quality System model has been improved by taking into consideration the requirements of another standard known as EN46001, a European interpretation of ISO9001, specifically for the medical device industry. In May, an audit of our Livingston facility resulted in the award of ISO9001, EN46001 and ISO13485 certificates for the Company. These awards demonstrate the commitment of all of the Company's employees to the highest quality standards in our industry. Facilities and Personnel To date, our total headcount is 115 and, with our continued expansion and the necessary globalisation of the management of our business, we will be making several additional key staff appointments in the coming months. In March this year, our commitment to our staff was recognised by the award of Investors in People. Since the fundraising in March, we have developed a plan for the full expansion of our facilities in Livingston. We have already installed and validated a second clean room in our factory which will accommodate the next Sortimat assembly system due for delivery in the coming weeks. In parallel, we have studied a variety of sites in several US States in order to evaluate the optimal location for our US manufacturing plant. Our decision making process has involved the consideration of factors such as access to an appropriately skilled workforce, proximity to qualified injection moulders and sterilisation facilities, access to a cost effective distribution centre for the whole US and access to local incentives for investment. We are now considering a couple of locations and, at the appropriate time, will move forward in establishing our US operations. For the time being, however, because of the importance of broadening our product range as prudently as possible, we propose to continue to expand development in our Livingston base where most of our expertise is currently located. Outlook Legislative pressure for the use of safe products has been building up much faster than we had originally anticipated and demand for our products from our international customers is increasing. We expect this to spread to Europe and therefore we aim to continue focusing our efforts on broadening our product range and significantly building up manufacturing capacity. As a result of the delay in sales referred to above, we now expect our loss for the full year to exceed market expectations. However, we are confident that we can address the short-term challenges facing us and anticipate moving into profitability during the year 2000. We are also confident that the favourable environment for our products will present our shareholders with exciting growth prospects for the Millennium. UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 JUNE 1999 Six months Six months Year ended ended ended 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 Turnover (note 4) 43 - 14 Cost of sales (note 5) (475) - (13) Gross profit (432) - 1 Administration expenses (2,708) (1,596) (3,961) Exceptional administration - - - expense Other operating income 6 - 500 Operating loss (3,134) (1,596) (3,460) Interest receivable 207 147 228 Interest payable (20) - (6) Loss for period (2,947) (1,449) (3,238) Loss per share (note 2) (6.1)p (3.7)p (8.2)p Diluted loss per share (note 2) (5.8)p (3.7)p (8.2)p The company has no recognised gains and losses other than the losses above and therefore no separate statement of total recognised gains and losses has been presented. There is no difference between loss on ordinary activities before taxation and the loss for the period stated above and their historical cost equivalents. UNAUDITED CONSOLIDATED BALANCE SHEET AT 30 JUNE 1999 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 FIXED ASSETS Intangible assets 1,823 1,950 1,930 Tangible assets 3,783 2,219 3,187 5,606 4,169 5,117 CURRENT ASSETS Stocks 531 - 54 Debtors 433 274 177 Cash at bank and in hand 15,419 4,161 3,411 16,383 4,435 3,642 CREDITORS: Amounts falling due (1,069) (445) (886) within one year Net current assets 15,314 3,990 2,756 Total assets less current 20,920 8,159 7,873 liabilities CREDITORS: amounts falling due (2,169) (72) (1,548) after more than one year NET ASSETS 18,751 8,087 6,325 CAPITAL AND RESERVES Called up share capital 3,142 1,964 1,964 Share premium account (note 3) 23,784 9,589 9,616 Profit and loss account (8,175) (3,466) (5,255) 18,751 8,087 6,325 The unaudited interim financial statements were approved by the Board of Directors on 14 September 1999. UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 1999 Six months Six months Year ended ended ended 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 Net cash outflow from operating activities (note 1) (3,045) (1,299) (2,815) Returns on investments & servicing of finance Interest received 135 94 248 Interest paid on finance leases (20) - (6) Capital expenditure & financial investment Purchase of tangible fixed assets (68) (989) (1,772) Cash outflow before management of liquid resources and financing (2,998) (2,194) (4,345) Management of liquid resources Cash (placed on)/withdrawn from term deposit (6,800) (2,400) 1,550 Financing Term loan - - 1,500 Finance lease - repayment of principal (340) - (99) Issue of shares 15,346 - - Increase (decrease) in cash in the period 5,208 (4,594) (1,394) NMT Group PLC Notes to the financial statements for the period ended 30 June 1999 1. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 Operating loss (3,134) (1,596) (3,460) Depreciation: Intangible fixed assets 107 - 20 Tangible fixed assets 312 60 282 Share options - application of UITF 17 27 27 55 Movement in: Stocks (increase)decrease (477) - (54) Debtors (increase)decrease (184) 79 45 Creditors increase(decrease) 304 131 297 Net cash outflow from operating activities (3,045) (1,299) (2,815) 2. LOSS PER ORDINARY SHARE Loss per ordinary share has been calculated in accordance with FRS 14 ('Earnings per share') for all periods by dividing the loss attributable to ordinary shareholders by the weighted average number of shares in issue. The difference between the basic and diluted loss per share weighted average number of shares is wholly attributable to outstanding share options. 30 June 30 June 31 December 1999 1998 1998 '000 '000 '000 Loss per ordinary share is calculated as follows: Loss attributable to members of NMT Group PLC £2,947 £1,449 £3,238 Weighted average number of ordinary shares in issue 48,651 39,276 39,276 Loss per ordinary share (6.1)p (3.7)p (8.2)p Diluted loss per ordinary share is calculated as follows: Loss attributable to members of NMT Group PLC £2,947 £1,449 £3,238 Weighted average number of ordinary shares and dilutive shares under option 50,458 39,269 39,313 Diluted loss per ordinary share (5.8)p (3.7)p (8.2)p 3. RECONCILIATION OF SHAREHOLDERS' FUNDS AND MOVEMENTS ON RESERVES Share Share Profit Total capital premium & loss account account £'000 £'000 £'000 £'000 At 1 January 1999 1,964 9,616 (5,255) 6,325 Shares issued in Placing and Open Offer 19 April 1999 1,178 14,847 - 16,025 Expenses of share issue (note 15) - (679) - (679) Retained loss for period - - (2,947) (2,947) Share options - application of - - 27 27 UITF 17 At 30 June 1999 3,142 23,784 (8,175) 18,751 4. SEGMENTAL ANALYSIS BY CLASS OF BUSINESS Turnover Geographical segment 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 United Kingdom 25 - 14 United States 18 - - 43 - 14 5. COST OF SALES Cost of sales for the six months to 30 June 1999 includes £373,000 attributable to producing product for sale on the Kahle assembly line. This line is designed primarily for the development of future products, not for the assembly of product on a commercial basis as it is considerably more costly to operate in terms of labour and manufacturing overhead costs. The line was used at this stage in the development of the company to maximise the breadth of product available to customers. As more of the company's fully automated production capacity comes on line, the use of the development line for this purpose will be phased out. 6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 Increase (decrease) in cash in the period 5,208 (4,594) (1,394) Cash inflow from increase in debt and lease financing (801) - (1,596) Cash inflow from increase in liquid resources 6,800 2,400 (1,550) Change in net debt resulting from cash flows and movement in net debt in the period 11,207 (2,194) (4,540) Net debt at 1 January 1999 1,815 6,355 6,355 Net debt at 30 June 1999 13,022 4,161 1,815 7. ANALYSIS OF NET DEBT 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 Cash at bank and in hand 15,419 4,161 3,411 Bank loan due after one year (1,500) - (1,500) Finance lease due within one year (228) - (48) Finance lease due after one year (669) - (48) 13,022 4,161 1,815 INDEPENDENT REVIEW REPORT TO NMT GROUP PLC Introduction We have been instructed by the company to review the financial information set out on pages 4 to 14 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the interim financial information as presented for the six months ended 30 June 1999. PricewaterhouseCoopers Chartered Accountants Glasgow

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