Preliminary Announcement Annual report & accounts
For immediate release
Wednesday 5 March 2008
Evolutec Group plc
("Evolutec" or "the Company")
Preliminary Results for the year ended 31 December 2007
Actively seeking a single investment opportunity
Evolutec Group plc (AIM: EVC), announces Preliminary Results for the
year ended 31 December 2007.
HIGHLIGHTS
* The loss for the year was �1.76 million (2006, loss �11.83
million)
* The Company made a small pre-tax profit of �0.17 million in the
second half of 2007 reflecting the fact that interest payments on
its cash deposits were sufficient to cover its cost base
* Net cash and cash equivalents on 31 December were �5.8 million
(2006, �8.7 million)
* Based on 25.9 million issued ordinary shares, Evolutec had a cash
value of 23.0p per share (2006, 33.6p per share) at the year end
* The Company has out-licensed its intellectual property in the
biopharmaceutical area to third parties
* The Company is now classified as an investment company under the
AIM rules.
* The Company is actively looking for a single investment
opportunity
David Bloxham, Chairman of Evolutec, said:
"The Company is actively seeking a single investment opportunity that
has the potential to deliver value to all its shareholders in the
next twelve months. During this period all steps will be taken to
conserve cash and cash equivalents in the Company."
Enquiries:
Dr David P Bloxham, Chairman 07771 525 875
Mr Michael Meade, Numis Securities 0207 260 1000
Mr Oliver Cardigan, Numis Securities 0207 260 1000
Notes for Editors:
About Evolutec
Evolutec is listed on the AIM market of the London Stock Exchange and
developed therapeutics originally isolated from the saliva of ticks.
Following the unsuccessful outcome of Phase II clinical trials on its
lead clinical trail candidate, the Company licensed its intellectual
property to third parties and is now focussing all its activities on
the identification of a single investment opportunity. This will
take advantage of Evolutec's AIM listing and its cash and cash
equivalent reserve,
Safe Harbour statement: this news release may contain forward-looking
statements that reflect the current expectations of the Company
regarding future events. Forward-looking statements involve risks and
uncertainties. Actual events could differ materially from those
projected herein and depend on a number of factors including the
success of the Company's strategy, the successful integration of
completed mergers and acquisitions and achievement of expected
synergies from such transactions, and the ability of the Company to
identify and consummate suitable strategic and business combination
transactions.
CHAIRMAN'S REVIEW
Following the disappointing clinical results with rEV131 at the end
of 2006 and the subsequent collapse of the Company's share price, the
Company undertook a review of its strategic options in the first
quarter of 2007. It was clear that there was no shareholder appetite
for the risk involved in continuing the Company as an independent
entity engaged in biopharmaceutical research and development and it
was decided to look for alternative solutions.
Numis Securities was appointed to assist the Company with the review
of its strategic options, merging with another company being the most
obvious. After an exhaustive search and the identification of a
potential merger partner, these discussions did not yield a
recommendable offer. The Company was then left with a very difficult
decision to make. After further consultation with major
institutional shareholders it was felt that the majority opinion was
in favour of a return of cash by way of a Member's Voluntary
Liquidation (MVL). The Board felt that the proposed distribution of
net cash by way of liquidation provided shareholders with certainty
as to quantum and timing.
Appropriate steps were taken to begin this process and on the 6th
June the Company sent out a Circular convening an Extraordinary
General Meeting (EGM) to approve the MVL for 6th July 2007. During
this period the Company took all steps to reduce its expenditure to
the minimum and to settle all its outstanding debts. This involved
ending the contracts of all employees and terminating the lease on
the Company's premises in Reading. Effectively the Company became a
cash shell with a listing on the Alternative Investment Market (AIM).
After sending the Circular, the Board received written confirmation
from Gartmore Investment Limited (Gartmore) that they had increased
their holding in Evolutec through market purchases and that at that
time they held 23.9 per cent of the issued share capital of Evolutec.
Furthermore, Gartmore advised the Board that they would not vote in
favour of the Resolutions proposed in the Circular. As the
Resolutions were special, AIM rules required the approval of
three-quarters of those shareholders voting in person or by proxy.
As another institutional shareholder indicated that it too would vote
against the Resolutions, the Board was of the view that the
Resolutions would not be passed. This proved to be the case when the
EGM was held and the resolutions were not passed. Following the EGM,
Nicholas Badman, Dr Mark Carnegie Brown, John Burke and Malcolm
Darvell resigned as Directors of the Company.
Following these structural changes, the cost base of the Company was
considerably reduced. It took all necessary steps to reduce cash
outflow to the minimum consistent with maintaining its AIM listing.
Assuming that interest rates remain broadly similar to current values
then the Company anticipates that it should be able to continue to
preserve its cash reserve. The loss for the financial year was
reduced to �1.76 million (2006, loss �11.83 million) and the Company
had cash and cash equivalents of �5.80 million at the end of the year
(2006, �8.68 million). The Company made a small operating profit of
�0.17 million for the second half of 2007 reflecting the changes
described above. Most of the loss in the first half of the year was
explained by the costs of closing the activities of the Company and
terminating service contracts.
Graeme Hart and I have continued as Directors and in addition
Gartmore proposed that Gordon Hall and Mark Hawtin should join the
Board to assist the Company with its future. These appointments were
subsequently confirmed and it is a pleasure to welcome Gordon and
Mark to the Board. They have considerable experience in the
healthcare and fund management fields respectively, and have been of
considerable benefit to the Company already in reviewing future
opportunities.
The regulatory team at AIM have confirmed that Evolutec will be
classed as an investment company under the AIM Rules pending any
further transaction. The Board intend that the investment policy of
Evolutec will be to seek a single investment, most probably in a UK
or European business, in the technology, healthcare or service
related sectors. It is expected that the investee company will be an
actively trading and profitable entity. The Board believes that it
will have the necessary experience to evaluate any potential
acquisitions. Any proposed acquisition by the Board will be subject
to shareholder approval.
During the second half of the financial year, all the intellectual
properties of the Company were licensed to third parties. The
intellectual property related to the potential vaccine technology was
assigned to Merial Limited for a single payment covering the license
fee and costs. The remaining assets were licensed to Varleigh
Limited, a collaborator of Evolutec in the development of rEV131. In
this case the Company received a single payment covering license fees
and costs as well as a future royalty in the event that there are
commercial revenues. The Company judged that the licensees would have
a better opportunity to evaluate whether the technology worked in a
clinical setting. The Company has retained a commercial interest in
its intellectual property in the event that it proves successful via
its royalty position. The Company does not intend to research or
develop new products in the biopharmaceutical area.
During the last six months the Company has reviewed a number of
investment opportunities which have met the investment criteria
without being able to agree valuations. During this period, market
conditions have worsened considerably and it is not clear when
conditions will either stabilise or improve. The valuations of
smaller companies with market capitalisations below �50 million have
been particularly impacted and this is the area where Evolutec
expects to identify a suitable investment. This has made valuing
companies very difficult, particularly in terms of satisfying
expectations of shareholders on both sides of the transaction.
Nevertheless, the Board believes that it remains in the interests of
Evolutec shareholders for the Company to continue to pursue this
investment route and therefore the Board has proposed a resolution
that the Company should continue as an investment company until the
next Annual General Meeting to be convened in 2009.
In the past year the Company has endeavoured to simplify its
operations in order to facilitate any investment process that might
occur. It would be normal at the time of the Annual General Meeting
to seek the authority to allocate shares to cover the ordinary or
special activities of the Company. Given the expressed intention of
the Company to seek a single investment and to put this to
shareholders for approval, the Directors felt that on this occasion
it was inappropriate to seek any authorisation to allocate additional
shares.
The major shareholder in Evolutec at 31 December 2007 is Gartmore
with 25.8% of the issued equity. More than 50% of the issued equity
is held by five investors. They have continued to acquire shares in
the market during the past six months and the Board has solicited
their opinion on a number of occasions in determining its future
strategy. It remains a key objective of the Board to find an
investment opportunity that delivers value to all its shareholders
over the next twelve months.
David P Bloxham
Chairman
4 March 2008
Consolidated income statement
For the year ended 31 December 2007
+-------------------------------------------------------------------+
| | | Year ended 31 | Year ended |
| | | December 2007 | 31 December |
| | | | 2006 |
| | | | |
|-------------------------------+---+---------------+---------------|
| Continuing operations | | �000 | �000 |
|-------------------------------+---+---------------+---------------|
| Revenue | | 82 | 14 |
|-------------------------------+---+---------------+---------------|
| Cost of sales | | (1) | (1) |
|-------------------------------+---+---------------+---------------|
| Gross Profit | | 81 | 13 |
|-------------------------------+---+---------------+---------------|
| | | | |
| Selling and marketing costs | | (160) | (189) |
|-------------------------------+---+---------------+---------------|
| Research and development | | (1,050) | (10,509) |
| expenditure | | | |
|-------------------------------+---+---------------+---------------|
| Administrative expenses | | (1,159) | (2,172) |
|-------------------------------+---+---------------+---------------|
| Operating loss | | (2,288) | (12,857) |
|-------------------------------+---+---------------+---------------|
| | | | |
| Finance income | | 375 | 749 |
|-------------------------------+---+---------------+---------------|
| Finance costs | | (12) | (364) |
|-------------------------------+---+---------------+---------------|
| Loss before tax | | (1,925) | (12,472) |
|-------------------------------+---+---------------+---------------|
| | | | |
| Taxation | | 162 | 645 |
|-------------------------------+---+---------------+---------------|
| Loss for the period | | (1,763) | (11,827) |
|-----------------------------------+---------------+---------------|
| | | | |
|------------------------------+----+---------------+---------------|
| Basic and diluted loss per | | | |
| ordinary share from | | (6.8)p | (49.3)p |
| continuing activities | | | |
+-------------------------------------------------------------------+
Balance sheets
As at 31 December 2007
Group Group Company Company
31 31 31 31
December December December December
2007 2006 2007 2006
ASSETS Note �000 �000 �000 �000
Non-current assets
Property, plant and - 140
equipment
Equity accounted Investments - - 5,791 3,853
- 140 5,791 3,853
Current assets
Research and development tax - -
credits 162 645
Trade and other receivables 28 203 - -
Held-to-maturity investments - - - -
Cash and cash equivalents 5,797 8,682 - 3,147
5,987 9,530 - 3,147
Total assets 5,987 9,670 5,791 7,000
EQUITY
Share capital 2 27,037 27,037 27,037 27,037
Other reserves 3 8,518 9,083 4,784 5,349
Retained deficit (29,602) (27,839) (26,030) (25,386)
Equity shareholders' funds 5,953 8,281 5,791 7,000
LIABILITIES
Non current liabilities - 34 - -
- 34 - -
Current liabilities
Trade and other payables 34 1,355 - -
Total liabilities 34 1,389 - -
Total equity and liabilities 5,987 9,670 5,791 7,000
Consolidated statements of changes in shareholders' equity
Share Share Other Retained
capital Premium reserves deficit Total
Group �000 �000 �000 �000 �000
Balance at 1 January 2006 2,359 22,043 8,793 (16,012) 17,183
Net income recognised
directly in equity
Loss for the year - - - (11,827) (11,827)
Total recognised income - - - (11,827) (11,827)
and expense for the period
Share-based payments - - 290 - 290
charge
Issue of ordinary shares 236 2,399 - - 2,635
Balance at 31 December 2,595 24,442 9,083 (27,839) 8,281
2006
Net income recognised
directly in equity
Loss for the year - - - (1,763) (1,763)
Total recognised income - - - (1,763) (1,763)
and expense for the period
Share-based payments - - (565) - (565)
charge / (credit)
Balance at 31 December 2,595 24,442 8,518 (29,602) 5,953
2007
Company
Balance at 1 January 2006 2,359 22,043 4,784 - 29,186
Net income recognised
directly in equity
Impairment charge - - - (25,386) (25,386)
Total recognised income - - - (25,386) (25,386)
and expense for the period
Share-based payments - - 565 - 565
charge
Issue of ordinary shares 236 2,399 - - 2,635
Balance at 31 December 2,595 24,442 5,349 (25,386) 7,000
2006
Net income recognised
directly in equity
Impairment charge - - - (644) (644)
Total recognised income - - - (644) (644)
and expense for the period
Share-based payments - - (565) - (565)
charge/(credit)
Balance at 31 December 24,442 4,784 (26,030) 5,791
2007 2,595
Cash flow statements Group Group Year Company Company
for the year ended 31 Year ended ended 31 Year ended Year
December 2006 31 December 31 December ended 31
December 2006 2007 December
2007 2006
�000 �000 �000 �000
Cash flows from
operating activities
Loss for the period (1,763) (11,827) (644) (25,386)
Taxation (162) (645) - -
Depreciation 140 87 - -
Interest received (375) (595) - -
Fair value adjustment on - - 644 25,386
investment in subsidiary
Unrealised foreign - 81 - -
exchange losses
Share options - value of (565) 290 - -
employee services
Decrease in trade and 174 616 - -
other receivables
Decrease in trade and (1,354) (526) - -
other payables
Cash used by operations (3,905) (12,519) - -
Taxation received 645 502 - -
Net cash outflow from (3,260) (12,017) - -
operating activities
Cash flows from
investing activities
Purchase of property, - (66) - -
plant and equipment
(Increase)/decrease in - - (3,147) 512
investment in subsidiary
Interest received 375 595 - -
Decrease/(increase) in - 15,877 - -
held-to-maturity
investments
Net cash generated from
(applied to) investing 375 16,406 (3,147) 512
activities
Cash flows from
financing activities
Proceeds from issuance - 2,635 - 2,635
of shares
Net cash generated from - 2,635 - 2,635
financing activities
Net (decrease)/increase
in cash and cash
equivalents (2,885) 7,024 (3,147) 3,147
Cash and cash 8,682 1,739 3,147 -
equivalents at the start
of the period
Exchange gains/(losses) - (81) - -
on cash and bank
overdrafts
Cash and cash 5,797 8,682 - 3,147
equivalents at the end
of the period
Preliminary results for the year ended 31 December 2007
1. Accounting policies and basis of preparation
Following the cessation of its research and development-based
pharmaceutical business, Evolutec has been classified as an
investment company in the terms of the rules of the Alternative
Investment Market of the London Stock Exchange (AIM). The Directors
believe that the Group has sufficient funds available to continue for
the foreseeable future; therefore the financial statements have been
prepared on the going concern basis.
Basis of preparation These financial statements have been prepared in
accordance with International Financial Reporting Standards and IFRIC
interpretations endorsed by the EU and with those parts of the
Companies Act, 1985 applicable to companies reporting under IFRS. The
financial statements have been prepared under the historical cost
convention.
IFRS7 Financial Instruments: Disclosures A new standard has become
mandatory for reporting periods beginning 1 January 2007 or later.
This standard which replaces rules previously set out in IAS32,
Financial Instruments: Presentation and Disclosures, has been applied
by the group in its 2007 consolidated financial statements. All
disclosures relating to financial instruments including all
comparative information have been updated to reflect the new
requirement. The first time application of IFRS7 has not resulted in
any prior period adjustments of cash flows, net income or balance
sheet line items.
Company income statement In accordance with the provisions of Section
230 of the Companies Act 1985, no separate income statement has been
presented for the Evolutec Group plc. The results for the Company
are also presented under IFRS.
Accounting policies The principal accounting policies adopted in the
preparation of these financial statements are set out below. These
policies have been consistently applied to all periods presented,
unless otherwise stated.
Basis of consolidation The consolidated financial statements of the
Group include the accounts of Evolutec Group plc and all its
subsidiary undertakings (together, the "Group"), made up to 31
December 2007. Inter-company transactions are eliminated on
consolidation.
The identifiable assets and liabilities of subsidiary undertakings
accounted for under acquisition accounting principles are included in
the consolidated balance sheet at their fair values at the date of
acquisition. The results and cash flows of such subsidiaries are
brought into the Group accounts only from the date of acquisition.
The combination of Evolutec Group plc and Evolutec Limited in 2004
was accounted for under merger accounting principles.
Revenue The Group generates revenue by licensing its technologies.
The recognition of such revenue, including up front and milestone
payments, is dependent on the terms of the related arrangement,
having regard to the ongoing risks and rewards of the arrangement,
and the existence of any performance or repayment obligations with
any third party.
Non-refundable access fees, options fees and milestone payments
receivable for participation by a third party in development and
commercialisation of a product development candidate are recognised
when they become contractually binding, provided there are no related
commitments of the Group. Where there are related commitments,
revenue is recognised on a percentage-of-completion basis in line
with the actual levels of expenditure incurred in fulfilling these
commitments. All other licence income and contract research fees are
recognised over the accounting period to which the relevant services
relate. Revenues derived from grants received are recognised in line
with the related expenditure. Royalty income is recognised in
relation to sales to which the royalty relates.
Operating leases Costs in respect of operating leases are charged to
the income statement on a straight-line basis over the terms of the
leases.
Share-based payments The Group makes equity-settled share-based
payments to its employees and Directors. Equity-settled share-based
payments are measured at fair value at the date of grant and expensed
on a straight-line basis over the vesting period of the award. At
each balance sheet date, Evolutec revises its estimate of the number
of options that are expected to become exercisable.
The value of any shares or options granted is charged to the income
statement over the period the shares vest, with a corresponding
credit to reserves. When share options are exercised, the proceeds
received, net of any transaction costs, are credited to share capital
(nominal value) and share premium.
The principal assumptions used to calculate the value of options
issued are:
Share price volatility 45%
Risk free rate of return 4.5%
Date of exercise Normally assumed to be the first
possible exercise date
Employee benefits All employee benefit costs, notably holiday pay and
contributions to personal defined contribution pension plans, are
charged to the income statement on an accruals basis. The Group does
not offer any other post-retirement benefits.
Taxation Current tax, including UK corporation tax and research and
development tax credits, is provided (or shown) at amounts expected
to be paid (or recovered) using the tax rates or laws that have been
enacted, or substantially enacted, by the balance sheet date.
Credit is taken in the accounting period for research and development
tax credits, which will be claimed from HM Revenue and Customs in
respect of qualifying research and development costs incurred in the
same accounting period.
Deferred tax is recognised in respect of all temporary differences
identified at the balance sheet date. Temporary differences are
differences between the carrying amount of the Group's assets and
liabilities and their tax base.
A deferred tax asset is recognised only when, on the basis of all the
available evidence, it can be regarded as probable that there will be
suitable taxable profits, within the same jurisdiction, in the
foreseeable future against which the deductible temporary difference
can be utilised.
Deferred tax is provided on temporary differences arising in
subsidiaries, except where the timing of reversal of the temporary
difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the asset is realised or liability
settled, based on tax rates and laws that have been enacted or
substantially enacted by the balance sheet date. Measurement of
deferred tax liabilities and assets reflects the tax consequence
expected to follow from the manner in which the asset or liability is
recovered or settled.
Property, plant and equipment Property, plant and equipment are
stated at historic cost less depreciation and any provision for
impairment. Historic cost comprises the purchase price together with
any incidental costs of acquisition. Depreciation is calculated to
write off the cost, less residual value, of tangible fixed assets in
equal annual instalments over their estimated useful lives as
follows:
Plant and machinery 3-5 years
Fixtures and fittings 3 years
The carrying values of plant and equipment are reviewed for
impairment when events or changes in circumstances indicate that
carrying value may not be recoverable. The assets residual values and
useful lives are reviewed and adjusted, if appropriate, at each
financial year end.
Internally-generated intangible assets - product research and
development Development expenditure on new or substantially improved
products is capitalised as an intangible asset and amortised through
cost of sales over the expected useful life of the product
concerned. Capitalisation commences from the point at which the
technical feasibility and commercial viability of the product can be
demonstrated and the Group is satisfied that it is probable that
future economic benefit will result from the product once completed.
This is usually at the point of regulatory filing in a major market
and approval is highly probable. Capitalisation ceases when the
product is ready for launch. Where assets are acquired or
constructed in order to provide facilities for research and
development over a number of years, they are capitalised and
depreciated over their useful lives. Expenditure relating to
clinical trials is accrued on a percentage-of-completion basis with
reference to fee estimates with third parties.
Expenditure on research and development activities which do not meet
the above criteria is charged to the income statement as incurred.
Financial instruments The Group's financial instruments comprise cash
and cash equivalents, held-to-maturity financial assets and various
receivables and payables, such as trade receivables and trade and
other payables, which arise directly from its operations. The Group
does not enter into derivative transactions or other forms of hedging
arrangements.
Held-to-maturity investments Held-to-maturity investments are
non-derivative financial assets with fixed or determinable payments
and fixed maturities that the Group's management has the positive
intention and ability to hold to maturity. Assets in this category
are held at amortised cost. Held-to-maturity investments include
short-term investments with original maturities of more than 3
months.
Cash and cash equivalents Cash and cash equivalents include cash in
hand, bank deposits repayable on demand and other short-term highly
liquid investments with original maturities of 3 months or less.
Foreign currencies Transactions in foreign currencies are
translated into sterling at the rate of exchange ruling at the
transaction date. Monetary assets and liabilities in foreign
currencies are retranslated into sterling at the rates of exchange
ruling at the balance sheet date. Differences arising due to
exchange rate fluctuations are taken to the income statement in the
period in which they arise.
2. Share Capital
Number of ordinary Share Share Total
shares capital premium �000
�000 �000
At 1 January 2006 23,590,906 2,359 22,043 24,402
Proceeds from shares 2,359,090 236 2,399 2,635
issued
At 31 December 2006 25,949,996 2,595 24,442 27,037
At 31 December 2007 25,949,996 2,595 24,442 27,037
The authorised share capital of the Company at 31 December 2007 was
�7,700,000 divided into 77,000,000 ordinary shares of 10p each (2006:
77,000,000).
All issued shares are fully paid.
The rights and restrictions attaching to the ordinary shares are set
out in the Articles of Association.
Capital management objectives and policies
Evolutec Group Plc's capital management objectives are:
to ensure the Group's ability to continue as a going
concern
to provide an adequate return to shareholders
by seeking a single investment opportunity in the technology,
healthcare or service related sectors.
The Group monitors capital on the basis of the carrying value of the
amount of equity.
3. Other reserves
Share-based Capital Merger Own Total
payments redemption reserve shares
reserve reserve held
by
�000 �000 �000 Employee �000
Benefit
Trust
�000
Group
Balance at 1 January 275 4,804 3,734 (20) 8,793
2006
Share-based payments 290 - - - 290
charge
Balance at 31 December 565 4,804 3,734 (20) 9,083
2006
Share-based payments
charge/(credit) (565) - - - (565)
Balance at 31 December - 4,804 3,734 (20) 8,518
2007
Company
Balance at 1 January - 4,804 - (20) 4,784
2006
Share-based payments 565 - - - 565
charge
Balance at 31 December 565 4,804 - (20) 5,349
2006
Share-based payments
charge/(credit) (565) - - - (565)
Balance at 31 December - 4,804 - (20) 4,784
2007
The share-based payments reserve arose from the value of share-based
payments to employees which were recognised over the vesting period.
The merger reserve arose as a difference on consolidation under
merger accounting principles and is solely in respect of the merger
of Evolutec Group plc and Evolutec Limited in a prior period. The
reserve represents the difference between the nominal value of shares
issued by Evolutec Group plc in consideration for Evolutec Limited
shares and the nominal value and share premium and other capital
reserves of Evolutec Limited shares at the date of the merger.
The capital redemption reserve arises from the the off-market
purchase of deferred shares on 4 May 2005 and their subsequent
cancellation.
4. Publication of non-statutory accounts
The financial information set out in this preliminary announcement
does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985.
The balance sheets at 31 December 2007 and the consolidated income
statement, statements of
changes in shareholders' equity, cash flow statements and associated
notes for the year then
ended have been extracted from the Group's 2007 statutory financial
statements upon which the
auditor's opinion is unqualified and does not include any statement
under section 237 of the
Companies Act 1985.
These financial statements have not yet been delivered to the
Registrar of Companies.
- ---END OF MESSAGE---
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