Interim Results

NMT Group PLC 24 September 2002 24 September 2002 NMT Group PLC Interim Results for the six months ended 30 June 2002 NMT Group, the manufacturer of retractable devices to prevent needlestick injury, announces its interim results for the six months ended 30 June 2002. Key points - Discussions with a major pharmaceutical partner for a 1st Generation syringe contract are continuing, but NMT is now much less optimistic of a satisfactory outcome. - Assuming no contract is agreed, NMT will streamline the business and reduce cashburn; - production of 1st Generation syringes will cease; and - resources and efforts will be focused on 2nd Generation intellectual property and process design. - Discussions with potential partners for the licensing of 2nd Generation syringe technology are ongoing. - Strong financial position - cash balance at 31 August 2002 £18m. Commenting on the results, Roy Smith, Chief Executive Officer, said: 'Although talks for the supply of our 1st Generation syringes are ongoing with a large pharmaceutical company, we are now much less optimistic that this major contract can be agreed on terms that are mutually acceptable. 'If satisfactory agreement cannot be reached, then we will not recommence production of our fixed needle 1st Generation, which has been halted to reduce our cash outflow, and we will focus our activities on the licensing of our 2nd Generation intellectual property and the development of our product and process design capabilities in the field of safe needle technology. 'We consider the Group's intellectual property and product development programmes have significant value and we are in preliminary discussions on potential licensing opportunities with multi-national companies. We believe that such companies have the distribution resources to capture significant market share using our core intellectual property and process design skills.' Enquiries: NMT Group PLC Roy Smith, Chief Executive Officer Tel: 01590 687901 Gerard Cassels, Finance Director Tel: 01506 445004 Financial Dynamics Tel: 0207 831 3113 Fiona Noblet CHAIRMAN'S STATEMENT In August 2002, we announced that we were to focus our core activities on supplying global pharmaceutical companies with 'safer needle devices' in the field of drug delivery, whilst increasing our efforts to seek distribution and licensing partners for our retractable needle technology in the US hospital market. As a direct result, at the beginning of this month, we significantly reduced our US sales and marketing efforts in traditional healthcare markets. This announcement was made against the background of our experience of direct selling in the US, in particular over the last 6 months, where there is a continuing delayed impact of the US Needlestick Safety and Prevention Act on hospital procurement practices. At this time, the Group was well advanced in negotiations with a leading pharmaceutical company for a contract to supply syringes for use with a new anti-viral drug. The technical and manufacturing due diligence on our syringe had already been successfully completed, and the contract was expected to utilise a substantial proportion of our 1st Generation syringe manufacturing capacity at Livingston. During the last month, whilst in the final stages of negotiation with the pharmaceutical company, we have not reached commercial terms that are acceptable to NMT. We believe that the terms currently offered could result in an unsustainable cash outflow being incurred by the Group in its first two years, with no guarantee of future business to recoup these losses. Unless there can be agreement of acceptable commercial terms in this regard, the Group considers that it will have no alternative but to take action to reduce its cash outflow going forward by ceasing production of 1st Generation syringes at its Livingston facility. Discussions are continuing with the pharmaceutical company to alleviate the situation. With our experiences of trying to sell in the US, and the dominance of 'global safety companies' in medical device distribution, NMT considers that to secure best value in the 2nd Generation syringe technology held by the Group we should look for licensing partners. This view is supported by discussions we are currently having with multinational companies. Results Turnover in the first half of 2002 was £ 0.9m (2001 : £0.4m). Although a material increase on last year, the growth rate has not been sufficient to achieve acute care sales at the levels of critical mass as originally envisaged, primarily due to the factors discussed above. Operating costs have remained similar to the same period last year, which has resulted in a loss before exceptional items and interest of £6.6m (2001 : £6.8m). We have incurred £2.5m of exceptional charges in the period. As a result of our decision to cease direct sales in the US hospital market, we incurred an exceptional write down of £1.3m for slow moving and obsolete stock (2001 : £nil), and in the context of the contract volumes originally being discussed in our negotiations with the pharmaceutical company, we took the decision to write down the carrying value of the first of our manufacturing lines (Sortimat 1) to £nil, resulting in an exceptional charge of £1.2m. If our negotiations with the pharmaceutical company do not reach a successful conclusion, and we take the decision to close our 1st Generation manufacturing facility in Livingston, there will be further exceptional charges in the second half of the year relating to redundancies, further manufacturing plant impairments, other fixed asset write-downs and provisions in respect of property lease commitments. The Group has not quantified these at this stage, as the amounts are dependent on our contract negotiations and a final decision on the future shape of the business. Litigation In June 2002, Retractable Technologies Inc (RTI), a US competitor to NMT, filed a lawsuit against the Group alleging that the NMT 1st Generation syringe infringes various patents held by RTI. Having taken legal advice we continue to believe the claims can be successfully defended but acknowledge that the actions by RTI have had an adverse impact on 1st Generation distribution discussions, incurred expense and absorbed management resources. Board At the close of September, Mr Tony Fletcher will relinquish his role as Chief Operating Officer of the Group. The Board would like to take the opportunity of thanking Tony for his significant contribution during the last two years, particularly his leadership in the turnaround of the Group's manufacturing capabilities. We are pleased that he has agreed to remain on the Board as a non-executive director. Outlook The conclusion of our negotiations with the pharmaceutical company over the next few weeks will be critical to the future shape of the NMT Group. If there is not satisfactory resolution to the negotiations, the actions discussed above will have an adverse impact on second half earnings in 2002, but will significantly reduce fixed costs in 2003. The Group has a strong cash position and we believe that, with limited investment, our 2nd Generation syringe can provide a foundation for a sustainable business. The Group has good product development and process design skills, which will play key roles in our future. R H Gilmour Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Turnover 925 393 1,136 ______ ______ ______ Operating loss - before exceptional items (6,601) (6,801) (13,690) Exceptional items (2,524) - - ______ ______ ______ Group operating loss (9,125) (6,801) (13,690) ______ ______ ______ Interest receivable 438 390 552 Interest payable (63) (80) (168) ______ ______ ______ Loss on ordinary activities before (8,750) (6,491) (13,306) taxation Taxation 94 - - ______ ______ ______ Loss for the period (8,656) (6,491) (13,306) ====== ====== ====== Loss per share basic and diluted (1.0)p (2.8)p (5.2)p ====== ====== ====== CONSOLIDATED BALANCE SHEET As at 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 30 June 30 June 31 December 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Fixed assets Tangible assets 9,815 10,868 11,532 ______ ______ ______ Current assets Stocks 1,243 1,596 2,621 Debtors 850 728 640 Cash at bank and in hand 20,410 10,477 26,740 ______ ______ ______ 22,503 12,801 30,001 Creditors: amounts falling due within one (1,900) (2067) (2,720) year ______ ______ ______ Net current assets 20,603 10,734 27,281 ______ ______ ______ Total assets less current liabilities 30,418 21,602 38,813 ______ ______ ______ Creditors: amounts falling due after more (790) (1,393) (1,088) than one year ______ ______ ______ Net assets 29,628 20,209 37,725 ______ ______ ______ Capital and reserves Called up share capital 37,187 11,708 37,187 Share premium account 38,639 39,949 38,639 Profit and loss account (46,198) (31,448) (38,101) ______ ______ ______ Total shareholders' equity funds 29,628 20,209 37,725 ______ ______ ______ CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Net cash outflow from operating activities (6,141) (7,479) (14,171) ______ ______ ______ Returns on investments and servicing of finance Interest received (net) 363 314 450 Taxation 94 - - Capital expenditure (372) (2,012) (3,096) ______ ______ ______ Net cash outflow before management of (6,056) (9,177) (16,817) liquid resources and financing Management of liquid resources 4,950 10,434 (5,566) Net cash (outflow) / inflow from financing (274) (276) 23,627 ______ ______ ______ (Decrease) / increase in cash in the (1,380) 981 1,244 period ______ ______ ______ RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Operating loss (9,125) (6,801) (13,690) Depreciation - tangible fixed assets 885 626 1,504 Exceptional items 2,524 - - Exchange adjustments 526 (66) (100) Share options - application of UITF 17 34 196 392 Decrease / (increase) in stock 57 (636) (1,661) (Increase) / decrease in debtors (198) (3) 23 (Decrease)/increase in creditors (844) (795) (639) ______ ______ ______ Net cash outflow from operating activities (6,141) (7,479) (14,171) ______ ______ ______ RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ (Decrease) / increase in cash (1,380) 981 1,244 Cashflow from finance leases - repayments 274 276 542 of principle Cash (inflow) / outflow from management of liquid resources (4,950) (10,434) 5,566 ______ ______ ______ (Decrease) / increase in net funds in (6,056) (9,177) 7,352 period Net funds at beginning of period 25,077 17,725 17,725 ______ ______ ______ Net funds at end of period 19,021 8,548 25,077 ______ ______ ______ STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Loss on ordinary activities after tax (8,656) (6,491) (13,306) Exchange adjustment on translation of investment in subsidiary 525 (66) (100) ______ ______ ______ Total recognised losses for the period (8,131) (6,557) 13,406 ______ ______ ______ RECONCILIATION OF SHAREHOLDERS' FUNDS For the six months ended 30 June 2002 Unaudited Unaudited Audited Interim Interim Full year 2002 2001 2001 £'000 £'000 £'000 ______ ______ ______ Total losses relating to the period (8,131) (6,557) (13,406) Placing and Open Offer - shares issued 24,169 Share options - notional cost of share 34 196 392 options granted ______ ______ ______ Total movements during the period (8,097) (6,361) 11,155 Shareholders' funds at start of period 37,725 26,570 26,570 ______ ______ ______ Total recognised losses for the period 29,628 20,209 37,725 ______ ______ ______ NOTES 1 BASIS OF PREPARATION The financial information in this report does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. The interim accounts for the six months ended 30 June 2002 and six months ended 30 June 2001, which are unaudited, have been prepared on the basis of accounting policies consistent with those set out in the Company's full accounts for the year ended 31 December 2001, except for the mandatory adoption of FRS 19 on deferred taxation which has been implemented in the current period. This change in accounting policy has had no impact on the 2001 interim and full year figures due to the ongoing tax losses available to the Group. The accounts for the year ended 31 December 2001 presented in this report are an abridged version of the full accounts which carried an unqualified auditors' report and have been filed with the Registrar of Companies. There is no difference between the loss on ordinary activities before taxation and the retained loss for the period stated above and their historical cost equivalents. 2 EXCEPTIONAL ITEMS Due to the slower than expected sales to acute care customers and the decision to focus on the global pharmaceutical market the Group has considered it appropriate to write down the carrying value of specific raw material and finished syringe stock items and accordingly an exceptional charge of £1.32m has been incurred in the period. In addition, to optimize production capacity utilisation of 3cc syringes, Sortimat 1 will not be used for the foreseeable future and under FRS 11 Impairment of Fixed Assets and Goodwill the net book value of the machine has been written off resulting in an exception charge of £1.2m. 3 TAXATION As a result of losses brought forward there is anticipated to be no tax charge in the current year. The tax credit reflects a research and development tax credit paid in the current year relating to the financial year ended 31 December 2000. 4 LOSS PER SHARE The calculation of loss per share is based on the loss for the period attributable to ordinary shareholders and on the average number of ordinary shares in issue during the period, which totalled 871,131,294 shares (2001 interim - 234,158,819 : full year - 255,043,162). As a loss has been incurred during the six months ended 30 June 2002 there is no dilutive effect of unexercised share options. This information is provided by RNS The company news service from the London Stock Exchange

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