Micap plc Preliminary announcement for the twelve months to 31st March 2004 Micap plc (“Micap” or the “company”) today reports its maiden preliminary results for the twelve months to 31st March 2004. Micap’s principal business activity is the development, production and licensing of microencapsulation technology based on single cell organisms, in particular yeast. These organisms can be used as capsules to protect and deliver actives including flavours, agrochemicals and pharmaceuticals. HIGHLIGHTS • • • • • • • • • Admission to the Alternative Investment Market in August 2003, raising in excess of £5.37 million before expenses (£4.64m net) through a successful placing at 55p per share. Turnover on continuing operations grows significantly to £0.90m (12 months to 31 March 2003: £0.09m) Loss after tax of £0.65m greatly improved (2003: loss £3.90m) Launch of savoury products under our first commercial licensing deal, signed with Firmenich, the world’s largest privately owned flavour and fragrance company First pharmaceutical licence granted, to SkyePharma plc, for up to 10 drugs Proof of principle obtained for oral and topical pharmaceutical applications Significant technical advances in herbicides, pesticides and fungicides Feasibility studies underway with AstraZeneca and Fertin Pharma A/S Cash plus short term debtors at year end of £2.86m (2003: £0.43m)
Commenting on the results, Michael Brennand, Chief Executive of Micap, said: “I am delighted with the progress we have made since our flotation, particularly the global launch of products by Firmenich, our flavour partner, and the exercise by SkyePharma of the licence for pharmaceutical applications. We remain committed to creating a profitable company, and commercial deals such as these will assist us in our aim of switching revenues from irregular development fees and milestones into more predictable, royalty based turnover.” Contact: Micap plc Michael Brennand, CEO Michael Norris, Finance Director Gavin Anderson & Company Liz Morley/Janine Brewis 01925 664200 07966 341801 07966 341802 020 7554 1400
Chief Executive’s statement It gives me great pleasure to announce Micap’s maiden preliminary results as a publicly quoted company, following the successful IPO and admission to the Alternative Investment Market in August last year. Our first year as a public company has seen the business transformed, as we have progressed from a laboratory based business to a true commercial enterprise with licence agreements in food flavours and pharmaceuticals. Furthermore, the technical progress we have made has advanced our knowledge in many other fields, particularly agrochemicals, where we continue to work towards commercial relationships with major companies. Our main aim over the coming year is to increase the proportion of our income generated from repeatable sources such as royalties, rather than from development agreements and milestone payments. The announcement on 1st June 2004 that Firmenich have launched their Thermarome® technology into the global marketplace will help us to achieve this aim. To further assist us, we have structured the group into three focussed subsidiaries: Micap Flavours Ltd Micap Healthcare Ltd Micap Specialties Ltd I will review each subsidiary shortly, but I feel that the concentrated effort that the new structure creates will allow us to move swiftly into our cash generative stage. Financial review The loss after tax was £0.65m (2003: loss £3.90m), which represents a loss per ordinary share of 2.6p (2003: loss 28.2p). Turnover on continuing operations was £0.90m (2003: £0.09m), aided by the £0.50m received from SkyePharma for the Pharmaceutical licence, and revenues from the licence to Firmenich, Micap’s first commercial partner in the flavours field. The proceeds of the IPO allowed the company to complete the purchase of core patents from Unilever Bestfoods, where previously these patents had been subject to an onerous licence. The total cost of this acquisition was $1.15m (£0.72m), which was accounted for in last year’s results. At the end of the year, the cash balance plus short term debtors was £2.86m (2003: £0.43m). In addition, there are outstanding claims for reimbursement of R&D tax credits totalling £0.21m. The Company continues to focus on controlling overheads, which is of paramount importance whilst we strive for profitability. To this end, we have negotiated a sub-lease on surplus space within our head office facility, which will contribute over £60,000 per annum towards overhead, without impeding our opportunities for future internal expansion.
Operating review Micap Flavours Ltd The Company’s first commercial licensing agreement, for savoury flavours, was signed in June last year with Firmenich, the world’s largest privately owned flavour and fragrance manufacturer, with a total turnover approaching £1 billion. Firmenich have launched the encapsulation technology initially as Thermarome® and are currently introducing this to many of their major global customers. We are hopeful that the royalties due to Micap from the license deal will exceed the annual minimum royalty within the 2nd quarter after full launch. Firmenich also has an option to licence the technology for sweet and beverage applications, in return for a further access fee. The option runs until August 1 2004. In addition to the Firmenich deal, we have established relationships with a number of food manufacturers for the use of Micap encapsulated flavours. For example, we have supplied encapsulated mustard flavour to a major US producer of horseradish products, and encapsulated garlic to a well-known producer of oriental foods in the UK. We see this as an opportunity to generate profitability, and we are investing significant time in the sale and marketing of our flavours. Micap Healthcare Ltd On 28th February this year, Micap achieved a very significant milestone in its development when we signed a license with SkyePharma plc, granting them the right to nominate up to 10 drug candidates over a twelve month period to use Micap’s technology. The financial terms of the licence entitled Micap to an upfront payment of £500,000, with further milestones and pre-agreed royalties payable on successful commercialisation. Significant development and formulation work continues with SkyePharma, and we look forward to the next phase of our relationship. We are also currently carrying out a feasibility study for AstraZeneca, whereby we are optimizing loading levels on a number of drug candidates prior to pre-clinical trials. AstraZeneca is funding the study. Discussions are underway with another “Big Pharma” company regarding commencement of trials on a specific drug candidate that has been identified. More information on this will be made available as soon as possible. An interesting new opportunity we have explored is in the use of our technology in pharmaceutical chewing gum applications. Micap has entered into a collaboration agreement with Fertin A/S, the leading developer of medical gum. The most recognised brands Fertin Pharma has been involved with include Nicotinell®, produced for Novartis, and NiQuitin CQ® gum, produced for GlaxoSmithKline. Initial results from the collaboration are due in the summer. We continue to work with a division of Boots plc on a number of opportunities. Our research into the use of essential oils in Woundcare applications has continued to generate valuable information. We have recently filed a patent in this field, and we are currently working towards commencement of hospital trials. As part of our drive towards commercializing the technical progress we have made, we have strengthened our team by appointing Dr Jane Worlock as Development Director for Micap Healthcare Ltd. Jane has considerable experience in licensing of pharmaceutical technologies, most recently as Vice President, Business Development for SkyePharma plc and as Business Development and Licensing Director with PolyMasc Plc. I welcome Jane on board, and look forward to her contribution in the future.
Micap Specialties Ltd Our focus in Micap Specialties Ltd has been upon improving the patent position with regards to agrochemicals, and establishing commercial agreements with major players in the biocides market. The crop trials carried out by a major agrochemical company, which were mentioned in our prospectus, showed that once formulated, the Micap product used in the field did not exceed an equivalent performance to the commercially available product, despite performing considerably better in the greenhouse. This was a disappointing outcome, the reasons for which were unclear. We have therefore concentrated our efforts on creating a better understanding of the behaviour of our technology in agrochemicals, by carrying out a number of projects with Universities and research institutes. The outcome has been significant progress in the fields of fungicides, herbicides and pesticides, which has led to the filing of our first application patents in this field. We are now pulling together a portfolio of technical data which will enable us to re-enter negotiations with major agrochemical companies in the coming months. We also believe that the benefits of our technology will significantly enhance performance in specific biocide applications. We are at an advanced stage in a feasibility study with Arch Chemicals, a world leading chemicals company. Direct contact has also been made with the majority of the other leading players in this market, and we are hopeful of establishing further relationships soon. Research and development A critical factor in the development of the Micap technology is the understanding and ability to control the performance of the yeast capsules. To develop our understanding of different types of yeast, Micap has had discussions with most of the world’s major yeast companies. We have established a relationship with Lallemand to investigate production of yeast for GMP (“Good Manufacturing Practice”) purposes, and our long standing yeast supplier, Aventine, continues to assist us in our research. It has always been our policy to involve local academic institutions in our search for technical progress. We are currently sponsoring PhD students at Manchester and Leeds Universities, and postgraduate Knowledge Transfer Partnerships (KTP) at Lancaster and Manchester Metropolitan Universities. As part of our effort to increase our knowledge and understanding of the Micap technology, we recently held our first Company R&D day, where over 40 scientists from Micap, University partners and experts from all areas of its operations in food, pharmaceuticals and agrochemicals, including Firmenich and SkyePharma, shared their experiences and learning in a creative environment. This will now become an annual event.
Prospects Micap is entering a new and challenging stage in its development, as initial feasibility studies conclude, and we look to commercialisation of our technologies. We are determined to drive the Company forward to profitability, and we are confident that our range of licences and development agreements will enable us to reach this goal.
MICAP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2004
2004 £ TURNOVER Continuing operations Discontinued operations Cost of sales GROSS PROFIT Administrative expenses OPERATING LOSS Continuing operations Discontinued operations Interest receivable Interest payable LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION TAX ON LOSS ON ORDINARY ACTIVITIES LOSS ON ORDINARY ACTIVITIES AFTER TAXATION EARNINGS PER SHARE - BASIC EARNINGS PER SHARE - DILUTED (917,292) (917,292) 67,006 (1,163) (851,449) 203,042 (648,407) (2.61p) (2.80p) 900,296 900,296 (12,565) 887,731 (1,805,023)
2003 £
87,156 202,965 290,121 (170,221) 119,900 (4,343,684) (3,969,640) (254,144) (4,223,784) 10,283 (6,607) (4,220,108) 322,511 (3,897,597) (28.2p) (28.2p)
There were no recognised gains and losses for 2004 or 2003 other than those included in the profit and loss account.
MICAP PLC CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2004
2004 £ FIXED ASSETS Intangible fixed assets Tangible fixed assets Investments 755,969 404,402 188,333 1,348,704 CURRENT ASSETS Debtors Cash at bank and in hand 886,175 3,323,395 4,209,570 CREDITORS: amounts falling due within one year NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year PROVISIONS FOR LIABILITIES AND CHARGES Other provisions NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Profit and loss account SHAREHOLDERS' FUNDS Shareholders' funds include non-equity interests. 10,333,626 5,977,379 (12,080,181) 4,230,824 4,230,824 (1,292,450) 2,917,120 4,265,824 431,077 1,466,880 1,897,957 (2,079,924) £ £
2003 £ 795,969 398,709 100,000 1,294,678
(181,967) 1,112,711
(35,000)
(35,000)
(800,000) 277,711
7,892,138 3,817,347 (11,431,774) 277,711
MICAP PLC CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2004 2004 £ Net cash flow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment (2,935,557) 65,843 327,579 (183,221) 2003 £ (2,572,679) 3,676 62,227 (369,480)
CASH OUTFLOW BEFORE FINANCING Financing
(2,725,356) 4,601,049
(2,876,256) 2,212,320
INCREASE/(DECREASE) IN CASH IN THE YEAR
1,875,693
(663,936)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS FOR THE YEAR ENDED 31 MARCH 2004 2004 £ Increase/(Decrease) in cash in the year Cash decrease from decrease in debt and lease financing 1,875,693 471 2003 £ (663,936) 10,089
MOVEMENT IN NET FUNDS IN THE YEAR Net funds at 1 April 2003
1,876,164 417,321
(653,847) 1,071,168
NET FUNDS AT 31 MARCH 2004
2,293,485
417,321
NOTES TO THE FINANCIAL STATEMENTS 1. Preparation of the financial statements The preliminary results have been prepared in accordance with the accounting policies set out in the Group’s annual accounts to 31st March 2003. 2. The financial information set out above does not comprise the company’s statutory financial statements. Statutory financial statements for the previous financial year ended 31 March 2003 have been delivered to the Registrar of Companies. The auditors’ report on those financial statements was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The auditors have not yet reported on financial statements for the year ended 31 March 2004, nor have any such financial statements been delivered to the Registrar of Companies. The financial statements were approved by a duly appointed and authorised committee of the Board of Directors on 7th June 2004. 3. Earnings per share Basic earnings per share are calculated on loss for the financial year of £648,407 (2003: £3,897,597) and on the weighted average number of shares in issue during the year of 24,830,730 (2003: 13,827,768). Diluted earnings per share are calculated on loss for the financial year of £648,407 (2003: £3,897,597) and on the weighted average number of shares in issue during the year of 23,142,971 (2003: 13,827,768). 4. Movement in reserves Share premium account £ At 1 April 2003 Loss retained for the year Premium on shares issued during the year Expenses of share issue At 31 March 2004 3,817,347 2,929,786 (769,754) Profit and loss account £ (11,431,774) (648,407) -
5,977,379 (12,080,181)
5. Reconciliation of operating loss to net cash flow from operating activities 2004 2003 £ £ (917,292) (4,223,784) 40,000 445,596 89,195 65,244 (13,786) 141,317 (579,635) 159,582 (767,825) 153,152 (800,000) 700,000 (2,935,557) (2,572,679)
Operating loss Amortisation/impairment of intangibles Depreciation of tangible fixed assets Profit on disposal of tangible fixed assets Decrease in stocks (Increase)/decrease in debtors (Decrease)/increase in creditors (Decrease)/increase in provisions NET CASH OUTFLOW FROM OPERATIONS 6. Taxation
Analysis of tax credit in year UK corporation tax credit on losses of the year Adjustments in respect of prior periods Tax on loss on ordinary activities
2004 £ (214,149) 11,107 (203,042)
2003 £ (322,511) (322,511)
Factors affecting tax charge for year: The tax assessed for the year is lower than the standard rate of corporation tax in the UK (19%). The differences are explained below: 2004 £ Loss on ordinary activities before tax (851,449) Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2003 - 19%) Effects of: Expenses not deductible for tax purposes Capital allowances for period in excess of depreciation Movement in tax losses Tax losses in overseas subsidiary Research and development adjustment Adjustments in respect of prior periods Research and development Current tax credit for year (see note above) There were no factors that may affect future tax charges. 7. Dividend The Directors have not declared a dividend. Copies of the annual report will be sent to all shareholders shortly and will also be available to the public at the Company’s registered office, 1 The Parks, Lodge Lane, Newton le Willows, WA12 0JQ. (161,775) 7,708 (1,165) (3,075) 490 (97,078) 11,107 40,746 (203,042)
2003 £ (4,220,108) (801,820) 89,998 (18,789) 505,391 11,528 (168,665) 59,846 (322,511)