Final Results

Plant Health Care PLC 26 April 2005 Embargoed until 7am 26 April 2005 Plant Health Care plc ('PHC' or 'the Company') Preliminary Results for the full year ended 31 December 2004 PHC, a leading provider of natural products for plants and soil, announces its maiden preliminary results for the full year ended 31 December 2004. Highlights •The Company listed on the AIM market of the London Stock Exchange in July raising $10.3 million net of expenses •Sales growth of 6.5% to $8.6m as demand for natural products continues to grow •Net loss of $2.9m reflecting significant one-off costs and increased expenses as listed company, but also significant investment in developing sales and distribution capacity •This investment provides the platform for further growth and profitabilty from existing markets •Acquisition of VAMTech LLC has added powerful new technology and opens door to future penetration of agricultural row crop market worldwide •Alliance with The Scotts Company establishes route for PHC products to retail market •Year-end cash balance of $4.8m Commenting on the results, PHC Chairman, Albert Fischer said: '2004 was a very important year for the company, and the substantial advancement made has created an unparalleled platform in our industry from which to take the business forward in 2005. 'With our proprietary natural products and experienced management team, our focus is now to ensure that we build distribution further. In particular, we are confident that we can grow sales substantially in our existing markets and move forward on our path towards profitability. 'Our new products have the potential to further build market share and to enter new market segments with unparalleled propositions for customers. We continue to develop our own sales channels as well as partnerships as possible routes to market and under new marketing concepts. 'Against a background of rapidly increasing market acceptance for natural solutions for plants and soil, we are pleased with the progress and investments made in the first quarter and are encouraged by the outlook for 2005 and beyond.' Plant Health Care plc Tavistock Communications John Brady, CEO Jeremy Carey/Christian Taylor-Wilkinson 26-29 April Tel: 020 7920 3150 Tel: 020 7920 3150 Thereafter: +1 603 525 3702 Email: ctaylor-wilkinson@tavistock.co.uk 26 April 2005 Plant Health Care plc ('PHC' or 'the Company') Preliminary Results for the full year ended 31 December 2004 Chairman's Statement This is Plant Health Care's first annual statement as a listed company, and I would like to take this opportunity to thank all of those shareholders who have shown us support to bring us to where we are today. 2004 has been a year of significant development for the Plant Health Care group. In July PHC floated on the AIM market of the London Stock Exchange and raised $10.3m net of expenses in new equity. This new capital will be used to fund the development of both our product range and our target markets. We have already completed the acquisition of VAMTech LLC at a cost of $2.6m and strengthened our sales and distribution channels. Results for the year Turnover for the year increased by 6.5% to $8.6m. This growth was achieved despite several setbacks, particularly from the very adverse weather conditions in the USA at the end of 2004 and the loss of a major distributor who left the market. An increased net loss of $2.9m reflected significant investment in the development of our sales and marketing capacity, as well as one-off costs on the flotation and the transfer of our manufacturing operation to a more efficient facility; we also incurred increased costs arising from our new status as a listed company. Further analysis of the year is provided in the Chief Executive's report later in this announcement. No dividend is proposed. Development of the Company The Directors of PHC believe that it has the opportunity to become a leading player in the fast developing global market for natural plant health products. Consumers are rapidly recognising the benefits of farming and gardening naturally; this increasing level of consciousness combined with government legislation to remove potentially harmful synthetic products from the market is creating a significant opportunity for PHC. A paradigm shift is taking place as our natural products perform at not only equal but higher standards than conventional chemical products and at economically attractive prices. We have a unique product portfolio, and the Company is unaware of any other provider of natural products that has such a wide range of high-quality products in response to this demand. We have well established sales channels to our current markets and in 2004 have increased the number of sales staff in the North American, Mexican and European markets and opened a sales office in Spain. These investments will allow us to secure further growth from our current markets. In October 2004 we acquired VAMTech, a company which owns a powerful compound called Formononetin that significantly increases the yield of row crops such as corn, wheat, soybeans and cotton. Formononetin is now being sold by PHC under the trade name Myconate. This is PHC's first move into the row crop market and early trials and market interest indicate this product will be one of our key sellers in the future. Myconate complements PHC's existing natural product line and the expansion into row crops presents a significant opportunity to increase sales. The Company also entered into an exclusive long-term agreement for consumer product development and full commercialisation of PHC's natural products with The Scotts Company, which is the world's leading supplier and marketer of branded consumer products for lawn and garden care. The impact of this arrangement is expected to be significant from 2006 onwards. The Company's distribution channels combined with internal development capability will allow us to acquire similar technologies which can easily be absorbed into the Company's existing infrastructure. We will also continue to seek to acquire distribution rights to similar natural and biological products and to develop sustained new relationships with distribution partners. Social responsibility The Company has a strong socially responsible culture. In 2005 the Company will launch a community involvement initiative whereby PHC, partnered with key customers, will undertake select community beautification projects. This initiative utilises the time and talent of PHC employees and its products to carry out our mission of enhancing the environment. Outlook The investments made into our sales and distribution channels provide the Company with an opportunity for steady growth from the markets where it is already established. In 2004 PHC sold products to 10 countries worldwide and we are confident that during 2005 we will achieve a wider distribution. Also, the introduction of new and unique products which we develop, acquire or source under licence will ensure a wide spectrum of offerings to satisfy customer needs. I am pleased to report that the Company has four new products under development which we expect to be ready for distribution in late 2005. The acquisition of VAMTech and the relationship with Scotts both open doors to substantial growth in markets where we are not currently represented. However it should be noted that significant revenues from these opportunities are likely to begin only from 2006 onwards, with 2005 seeing only modest revenue as we develop these ventures. The Company is now on a sound financial footing and is committed to growing the business both organically and through acquisitions. Plant Health Care is dedicated to providing a triple bottom line: profits for our investors, a rewarding work atmosphere for our employees and an ecologically sustainable product for the environment. I would like to thank all our shareholders for their continued trust and support and our employees for their efforts in building this Company. I look forward to reporting on our progress at the half year. Dr. Albert Fischer Chairman 26 April 2005 Chief Executive's Review Financial Report Divisional sales PHC US sells to the arbour, landscaping, horticulture and sports turf markets in the United States. 2004 sales of $5.2m represented an increase of 8% over 2003. This growth was fuelled by continued increasing demand for natural products across these markets and, in the second half, by the development of our sales capacity. The increase was also achieved in spite of several setbacks. The first half of the year saw record rainfalls in the eastern part of the country. Later a total of five hurricanes struck Florida and the south eastern states. In addition, one of the Company's largest distributors in the turf market unexpectedly announced the disposal of its operations east of the Rocky Mountains. PHC Reclamation uses mycorrhizal fungi technology for reforestation and the reclamation of lands disturbed by mining, construc-tion, fire, erosion and other activities. Although sales in 2004 were at the same level as 2003, 2005 has started well with a major contract win from the Wyoming Department of Environmental Quality to provide professional engineering and design services for the reclamation of over 200 abandoned coal mine sites. This project has an initial value of up to $510,000. PHC Reclamation was the 2004 recipient of the coveted People's Choice Award for best national reclamation project presented by the United States Department of the Interior, Office of Surface Mining. PHC Mexico focuses on the very significant commercial agriculture market in that country. This division's 2004 sales were also at the same level as 2003. One disappointment related to a major contract which was postponed until 2005. During the year this operation restructured its sales channels and several underperforming distributors were eliminated. We are already seeing the benefits of this improved sales channel. Sales in Europe increased 19% over 2003, surpassing the $1m mark. PHC's European operations had previously focused on the UK and Dutch markets; in 2004, due to increasing demand and the potential for PHC's products in agriculture, an operating subsidiary was established in Spain and new distributors were set up in Greece in 2004 and Italy in 2005. All three of these will begin to contribute in 2005. Gross profit The gross profit of $3.7m (2003: $3.7m) represented a gross margin percentage on sales of 42.5% (2003: 45.3%) The gross margin in the US was impacted by our newly introduced early order program, which brought PHC into line with standard industry practice and accelerated sales from February and March 2005 back into 2004. In addition there were more sales of soil nutrient products than in 2003, and they carry a lower margin than some other product lines. A major marketing focus for 2005 is on promoting our higher margin products to ensure growth in sales is converted to growth in profitability. Following the transfer of our manufacturing facility to a newer and more efficient facility in April, we anticipate improved margins on our sales. Operating costs Operating costs increased from $4.5m in 2003 to $6.3m, reflecting the investments made to build future revenues, and the additional costs of becoming and operating as a public company, as well as certain significant one-off costs. During 2004 we made a number of additions to the sales force in the U.S., Mexico and Spain. A general manager was hired for the U.S. operation. Additional advertising costs were incurred for the production of a Golf Guide, a Landscape Guide, and a specifier CD for landscape architects as well as for supporting the additional sales personnel. We invested considerable time and cost into securing and developing our relationship with The Scotts Company and invested in product trials and on the recruitment process for a general manager for the newly acquired VAMTech operation. The Company also experienced increases in expenses such as audit, legal, directors' fees and public relations fees related to being a quoted public company. Such expenses will be a constant in our existence as a listed company but should not need to grow in line with our projected sales growth. Approximately $0.25m of non-recurring costs related to our IPO were expensed. In addition a provision of $0.2m was made to cover the costs of transferring to our new manufacturing facility. Cash position PHC entered the year with net debt of $2.2m. The flotation allowed the conversion of some $2.1m of debt and related interest to equity, and raised a further $10.3m in new cash for investment and working capital. At the close of the year, the Group had net cash in hand of $4.8m. Acquisitions In October 2004, PHC acquired VAMTech LLC for a consideration of $1.95m plus interest free debt with a face value of $0.8m, payable over five years. VAMTech's key product Myconate specialises in the synthesis of Formononetin, a compound that stimulates the growth of mycorrhizal fungi already existing in the soil. The acquisition included all technology and patents surrounding VAMTech's production of Formononetin. A series of independent trials in six locations with differing soil and climatic characteristics were carried out in the United States on soybean and corn seeds by two professional research groups, Beck Hybrid and AgriBusiness Group. Yield increases of corn and soybean crops from seed treated with Myconate were remarkable. Corn yields improved by up to 25% and soybean yields improved by up to 42%. The benefits were most apparent in those areas where soil quality was low and the weather was poor. We believe that the acquisition opens the door to the row crop market which, due to the relatively high cost of previous biological based products, has hitherto been closed to the Company. Some fifty further trials are now being conducted across the globe and the results of these in later 2005 will help establish our initial marketing priorities for this exciting new product. We also believe that there will be other opportunities to acquire companies or businesses which can bring additional products into the Group to promote through our developing distribution capability. Other products will also be available to us through licensing arrangements. This expanded product portfolio will help accelerate the Group toward becoming the world's leading player in the natural product market. Research and development During 2004, the Group continued its programme of development to create new formulations and applications from its core technology base. Amongst the more significant activities were: Decomposing soil bacteria were isolated from several golf courses in the US to be used to develop a new PHC Dethatch product. The bacteria were tested for cellulose/lignin decomposition, and six functional species were identified. These have been mass produced and sufficient inoculant is available for field testing this spring. Studies are currently underway in Florida testing the effectiveness of Palm Saver and new formulations of natural based palm fertilizers. Over 50 field tests in nine countries are currently underway with Myconate(R). Treatments involve different amounts on seed, drench applications and storage effectiveness. These studies include important crops such as corn, cotton, soybean, tomato, sunflower, beans and various grasses. Relationship with Scotts In October 2004 PHC entered into an exclusive long-term agreement for consumer product development and commercialisation with The Scotts Company (Scotts). Scotts is the world's leading supplier and marketer of branded consumer products for lawn and garden care. The focus of the agreement combines PHC's expertise in mycorrhizal fungi and bacterial ingredient products with Scotts' expertise in consumer retail product development. The alliance gives Scotts exclusive consumer market rights to use PHC's proprietary technology and plant products. We expect the benefits of this arrangement to begin to have a material impact on revenues in 2006. The interim will be devoted to market research, refining product specifications and working with Scotts to ensure a successful product launch. The partnership has the potential to create a major new market outlet for PHC in this important and growing segment of the natural products market. Staff It is with great sadness that we note the passing in November 2004 of Len Marrs, who had been President of PHC Reclamation from the founding of the Company. Christopher Walla, our lead engineer, has been appointed to take Len's place as President of PHC Reclamation. The Company continues to build its staff in two main areas: increasing our sales and marketing staff to allow expansion into new markets and territories and improving the overall leadership capabilities of the Company. In the second half of the year, the Company added eight field sales people in the United States, Mexico and Spain. In December, Martin Baumann was hired as General Manager of Plant Health Care U.S. In this capacity, he is responsible for the manufacturing operations in the US as well as sales and marketing activities in the arbour, horticulture, landscaping and sports turf markets. I would like to take this opportunity to thank all of our staff for their efforts and enthusiasm during 2004. Outlook We believe that the Plant Health Care Group is poised to become a dominant player in the green industry. The proceeds from the equity placing have given the Group the resources to invest and grow into new markets. Our investment in sales and marketing over the last year is now beginning to increase the level of enquiries that we are receiving. Our traditional markets are providing steady growth in the USA, Mexico and Europe. The Scotts agreement allows us access to the retail market from 2006 onwards in a way that would not otherwise be possible. The VAMTech acquisition gives us an exciting new product line with an avenue into the worldwide row crop market, currently estimated at 1.1 billion acres. The early trials of the VAMTech product, Myconate, have been very encouraging and we will be pushing this product strongly into the agriculture market in the future. Finally, our Reclamation division is pursuing various proposals which we hope will lead to new contracts in 2005, and we continue to evaluate opportunities for further acquisitions or licences to increase our penetration of our target markets. As a result we are extremely encouraged about the future of your Company. John Brady Chief Executive Officer 26 April 2005 Consolidated profit and loss account for the year ended 31 December 2004 Note 2004 2003 Unaudited Unaudited $'000 $'000 Turnover 3 8,611 8,082 Cost of sales (4,952) (4,420) ----- ----- Gross profit 3,659 3,662 Administrative expenses (6,284) (4,539) ----- ----- Operating loss (2,625) (877) Other interest receivable and similar income 44 - Interest payable and similar charges (299) (366) ----- ----- Loss on ordinary activities before taxation (2,880) (1,243) Taxation (52) (70) ----- ----- Loss on ordinary activities after taxation (2,932) (1,313) Minority interest (14) (34) ----- ----- Loss for the period (2,946) (1,347) ===== ===== Basic loss per share 4 14.0c 10.2c ===== ===== Diluted loss per share 14.0c 10.2c ===== ===== All amounts relate to continuing activities. Included within administrative expenses is an amount of $109,000 relating to the operating results of the business aquired during the year. Consolidated statement of total recognised gains and losses 2004 2003 Unaudited Unaudited $'000 $'000 Loss for the financial year (2,946) (1,347) Exchange translation differences on consolidation 43 (49) ----- ----- Total recognised gains and losses for the year (2,903) (1,396) ===== ===== Consolidated balance sheet at 31 December 2004 2004 2003 Unaudited Unaudited $'000 $'000 Fixed assets Intangible assets 2,810 260 Tangible fixed assets 453 386 ----- ----- 3,263 646 ----- ----- Current assets Stocks 1,124 790 Debtors 2,192 1,422 Cash at bank and in hand 4,812 335 ----- ----- 8,128 2,547 ----- ----- Creditors: amounts falling due within one year Convertible redeemable loan stock - (1,864) Other creditors (1,771) (1,640) ----- ----- (1,771) (3,504) ----- ----- Net current assets/ (liabilities) 6,357 (957) ----- ----- Total assets less current liabilities 9,620 (311) ----- ----- Creditors: amounts falling during after one year Convertible redeemable loan stock - (363) Other creditors (615) (76) ----- ----- (615) (439) ----- ----- Net assets/ (liabilities) 9,005 (750) ===== ===== Capital and reserves Called up share capital 538 9 Share premium 10,700 11,639 Merger reserve 11,913 - Profit and loss account (14,309) (12,547) ----- ----- Shareholders' funds - equity 8,842 (899) Minority interests - equity 163 149 ----- ----- 9,005 (750) ===== ===== Company balance sheet at 31 December 2004 2004 Unaudited $'000 Fixed assets Fixed asset investments 20,959 Current assets Debtors 24 Cash at bank and in hand 4,217 ----- 4,241 ----- Creditors: amounts falling due within one year (123) ----- Net current assets 4,118 ----- Total assets less current liabilities 25,077 ------ Net assets 25,077 ====== Capital and reserves Called up share capital 538 Share premium 10,700 Merger reserve 14,453 Profit and loss account (614) ------ Shareholders' funds - equity 25,077 ====== Consolidated cash flow statement for the year ended 31 December 2004 Note 2004 2003 Unaudited Unaudited $'000 $'000 Net cash outflow from operating activities 6 (3,256) (1,038) ------- ------- Returns on investments and servicing of finance Interest paid (205) (221) Interest received 44 - ------- ------- Net cash outflow from returns on investments and servicing of finance (161) (211) ------- ------- Taxation Current tax on foreign income for the year (45) (11) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (217) (86) Purchase of licences (37) - ------- ------- Net cash outflow from capital expenditure and financial investment (254) (86) ------- ------- Acquisition of subsidiary Purchase of subsidiary undertaking (1,986) - ------- ------- Cash outflow before financing (5,702) (1,346) ------- ------- Financing Issuing of ordinary share capital for cash 10,308 - Exercise of warrants 205 - Increase of convertible redeemable loan stock 775 1,520 Issue of new finance leases 25 - Redemption of loan stock (1,000) (36) Repayment of notes payable (173) - Repayment of finance leases - capital 39 (10) ------- ------- 10,179 1,474 ------- ------- Increase in cash 4,477 128 ======= ======= Notes forming part of the financial statements for the year ended 31 December 2004 1. Statutory Information The financial information contained in this annoucement for the years ended 31 December 2004 and 2003, does not consitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 December 2004 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary annoucement and will be delivered to the Registrar of Companies following the company's annual general meeting. The audit report for the year ended 31 December 2004 has yet to be signed. 2. Basis of preparation The financial statements have been prepared under UK GAAP and are presented in US dollars. The directors believe that it is more appropriate to use US dollars as a currency for presentation, given that the majority of the Group's operations are denominated in that currency. Basis of consolidation On 6 July 2004 Plant Health Care plc became the legal parent company of Plant Health Care, Inc. in a share for share transaction. The former shareholders of Plant Health Care, Inc became the majority shareholders of Plant Health Care plc. Further, the continuing operations and executive management of Plant Health Care plc were those of Plant Health Care, Inc. Accordingly, the substance of the combination was that Plant Health Care, Inc. acquired Plant Health Care plc in a reverse acquisition. Under the requirements of the Companies Act 1985, it would normally be necessary for the consolidated accounts of Plant Health Care plc to follow the legal form of the business combination. In that case the pre-combination results would be those of Plant Health Care plc, which would exclude Plant Health Care, Inc. Plant Health Care, Inc. would then be brought into the Group from 6 July 2004. However, this would portray the combination as an acquisition of Plant Health Care, Inc., and would, in the opinion of the directors, fail to give a true and fair view of the substance of the business combination. Accordingly, the directors have adopted reverse acquisition accounting as the basis of consolidation in order to give a true and fair view. In invoking the true and fair override the directors note that reverse acquisition accounting is endorsed under International Financial Reporting Standard 3 and that the Urgent Issues Task Force of the UK's Accounting Standards Board considered the subject and concluded that there are instances where it is right and proper to invoke the true and fair override in such a way. As a consequence of applying reverse acquisition accounting, the results for the period ended 31 December 2004 comprise the results of Plant Health Care, Inc. for the period ended 31 December 2004 plus those of Plant Health Care plc from 6 July 2004, the acquisition date. The comparative figures are those of Plant Health Care, Inc., using the principles of reverse acquisition accounting. 3. Segmental analysis 2004 2004 2004 2003 2003 2003 Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Turnover Pre-tax Net Turnover Pre-tax Net Profit/ assets/ Profit/ assets/ (Loss) (liabilities) (Loss) (liabilities) $'000s $'000s $'000s $'000s $'000s $'000s US 6,154 (1,471) 756 5,789 (751) (420) Mexico 1,365 123 628 1,375 136 476 Europe 1,092 (66) (700) 918 115 (559) Group - (1,466) 8,321 - (743) (247) ------- ------- ------- ------- ------- ------- 8,611 (2,880) 9,005 8,082 (1,243) (750) ======= ======= ======= ======= ======= ======= 4. Loss per share Loss per ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue is 21,014,576 (2003 - 13,223,373) and the loss after tax and minority interests is $2,946,000 (2003 - $1,347,000). The weighted average number of shares outstanding for 2003 and for 2004 prior to admission to AIM has been adjusted to reflect the exchange of shares of Plant Health Care, Inc for those of Plant Health Care plc. 5. Acquisitions On 12 October 2004 the Group acquired all of the membership interests of VAMTech LLC for a total of $1,950,000 paid by cash plus $775,000 of non-interest-bearing notes. These notes have been recorded at a discounted present value of $660,000. In accounting for the acquisition, the fair value of the net assets has been assessed and adjustments from book value have been made where necessary. Because the fair value of the net assets acquired has been determined to equal the consideration paid for the acquisition, no goodwill has arisen. These adjustments are summarised in the following table: Fair Fair Book value value value adjustments to the group $'000s $'000s $'000s Fixed assets Intangible assets 2,000 549 2,549 Tangible assets 1 (1) - ------- ------- ------- 2,001 548 2,549 ------- ------- ------- Current assets Stocks 81 (3) 78 Debtors 20 (1) 19 ------- ------- ------- 101 (4) 97 Creditors: amount falling due within one year (226) 226 - ------- ------- ------- Net current assets/(liabilities) (125) 222 97 ------- ------- ------- Net assets 1,876 770 2,646 ======= ======= ======= $'000s Cash consideration (including expenses of $36,000) 1,986 Present value of non-interest bearing notes 660 ------- Total consideration 2,646 Net assets acquired (2,646) ------- Goodwill arising on acquisition - ======= 6. Reconciliation of operating profit to net cash outflow from operating activities 2004 2003 Unaudited Unaudited $'000s $'000s Operating loss (2,625) (877) Depreciation 150 138 Amortisation of intangibles 36 40 Gain on sale of fixed assets - 4 (Increase)/decrease in stocks (257) (10) (Increase)/decrease in debtors (751) (498) Increase/(decrease) in creditors 191 150 Exchange differences - 15 ------- ------- Net cash outflow from operating activities (3,256) (1,038) ======= ======= This information is provided by RNS The company news service from the London Stock Exchange

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