RNS Number : 0097A
Chromogenex PLC
28 July 2008
Chromogenex plc
("Chromogenex" or "the Company")
Preliminary Results
Chromogenex the developer and manufacturer of cosmetic and medical laser systems today announces its preliminary results for the year
ended 31 December 2007.
Highlights:
* Revenues of �4.12m (2006: �4.46m)
* Loss before tax �697k (2006: profit �335k)
* Launch of Nicolite laser for the cessation of smoking
* Cellulite reducing laser due for launch in 2008
* Anticipated return of Canadian sales in Q2 2008 following initial licence validation setback
* Launch of Chromolite EP with FDA approval granted in July 2008
Peter McGuinness, Chairman, commented:
"2007 was a year of change for the company. Following a slow start to the year and a change of management the business achieved
consistent growth in sales particularly in the final quarter.
"Whilst the first half and in particular the first quarter of 2008 has been impacted by no sales to Canada and a general industry
slowdown, the Board expects an improvement in performance in the second half as a result of a cost reduction plan implemented recently and
the launch of three new products in the third quarter in the area of laser assisted liposuction, body shaping and cellulite treatment, the
main growth sector of the industry.
"We have recently launched our Enhanced Pulse model (EP) of the Chromolite and see significant opportunities to upgrade over 1,700
existing systems worldwide. We expect to see increased sales of our higher margin products in 2008 thereby improving our gross margin and
overall profitability. We have a number of new products in the pipeline which will contribute to sales in the second half of 2008 and
beyond."
For further information:
Chromogenex plc 020 8434 0540
Peter McGuinness, Chairman 07775 834 777
HB Corporate 020 7510 8600
Luke Cairns
Threadneedle Communications 020 7936 9605
Graham Herring/Josh Royston
We are pleased to present the consolidated accounts of Chromogenex plc and its subsidiaries for the year ended 31 December 2007.
Introduction and overview
2007 was a year of change for the company. Following a slow start to the year and a change of management the business achieved
consistent growth in sales particularly in the final quarter. At year end, the company was on track for achieving strong sales growth,
however, following notification from the Canadian Health Authority regarding validity of licences for two key products, the company reversed
sales in this territory resulting in a loss for the year and sales lower than budget.
The company invested significantly in R&D throughout the year to upgrade our existing Chromolite product and develop new products to
treat cellulite and fat reduction as well as the Nicolite laser which is clinically proven to help people stop smoking. The Nicolite was
launched during the year and the cellulite system is due for launch in 2008.
Sales of our Nlite laser for treating acne, skin rejuvenation and vascular lesions have improved by 46% whilst sales of Chromolite were
down 26% in part due to the expected release of the new Enhanced Pulse model in 2008. Sales of service and consumables increased by 19%.
Results
Revenue for the year was down 8% to �4,122,000 (2006: �4,462,000) which was lower than expected as a result of reversal of sales to
Canada at year end. Gross margin has reduced to 30% (2006: 46.8%) as a result of increased sales of our Nlite laser, which carry lower gross
margins as a percentage of overall sales and lower sales of Chromolite which contributed higher margins.
A significant portion of R&D costs were expensed in the year. This, along with other factors, has resulted in a net loss of �697,000.
Excluding R&D expenditure the Earnings before Interest Tax Depreciation and amortisation (EBITDA) amounted to a loss of �312,000 (2006:
profit of �413,000). The (loss)/earnings per share is (1.15)p (2006: 0.51p).
At the year-end, the Group had net assets of �1,688,000 (2006: �2,347,000) with cash at bank of �130,000 (2006: �362,000).
Overview and Future Outlook
The lack of sales to Canada and the current tough prevailing market conditions has led to a challenging first half of 2008. Regulatory
Approval for our Chromolite S and Regenlite (formerly NLite) products for sale in the Canadian market has now been received. The Board has
acted to reduce the group's cost base by improvements in cross-skilling and further simplification of business processes.
Increased emphasis has been placed on the higher margin direct sales in the UK market which are backed by finance leases, thereby
improving cashflow
We have recently launched our Enhanced Pulse model (EP) of the Chromolite and see significant opportunities to upgrade over 1,700
existing systems worldwide. We expect to see increased sales of our higher margin products in 2008 thereby improving our gross margin and
overall profitability. We have a number of new products in the pipeline which will contribute to sales in the second half of 2008 and
beyond.
Long term strategy and business objectives
Chromogenex plc (*CGX*) designs, manufactures and distributes aesthetic and therapeutic laser and aesthetic light based technology devices.
The Group has developed this light based technology and holds a number of patents in respect of it. It has two main multifunctional
products:
� The Chromolite* - an intense Xenon pulse light system for permanent hair reduction, skin rejuvenation, treatment of pigmented lesions
and other applications ; and
� RegenLite*, a 585mm pulse dye laser used for the treatment of Acne Vulgaris and other clinical skin lesions, as well as for aesthetic
skin rejuvenation.
The Group has already established a market presence in the UK, USA and Europe by manufacturing and distributing in excess of 500 Nlite*-V
laser systems to over 40 countries.
During 2007 CGX released Nicolite, a low level laser for treatment of nicotine addiction. Backed by double blind studies Nicolite is proven
to be six times more effective than nicotine patches.
It is the directors* intention to continue to expand the Group*s business worldwide and accordingly, the directors have developed a strategy
for the Group as follows:
� Geographic expansion. The Group has been under-represented in the US and developing this market more fully is a major opportunity;
� Continued development of existing products and development of future products. The Group is aware of the problem with obesity and fat
related conditions which are quickly getting more media coverage and the Directors see this as a potentially large market place in which to
exploit; and
� Acquisition of businesses with complementary skills, technologies and products.
Results for 2007 financial year
Revenue
There has been a fall in revenue during the year of 8%. This is in spite of healthy increases in revenue from N-lite which is up 46% and
revenue from sales and spares has increased by 47%. Although the new Chromolite S was launched during the year the overall revenues from the
Chromolite product range have fallen by 26% during the year.
The international sales as a percentage of total sales, has increased to 78% from 74% over the past year.
Operations
Over the past year, the Group has further increased manufacturing capacity through the introduction of more efficient processes.
The Group has upgraded its quality systems during the year to ISO 13485/2003 and was further awarded ISO 9000/2000 Certification. The US
Food and Drugs Administration has given clearance for Chromolite*; and also certification to the Canadian CMDCAS quality requirement has
been granted for both Chromolite* and N-Lite*.
Chromolite* has been manufactured since 2004 and at the beginning of 2007 the 1,000th Chromolite* was shipped to a customer in France.
Financial Review
Revenue
Revenue has fallen by 8% to �4,122,000 (2006: �4,462,000) generating an operating loss of �695,000 (2006: operating profit restated:
�339,000). The fall in revenue and operating loss has arisen primarily as a result of problems encountered with the sale of Chromolite
products, particularly in Canada, where regulatory approval has now been obtained on the part of the Company and its distributor to satisfy
the registration requirements for the products being sold in this market.
Gross Margin and underlying Operating Profit
The Gross profit percentage has fallen to 30%. (2006: 47%). These are lower than the previous year due to reduced Chromolite sales and
increased sales of Nlite, which has lower gross margins.
Administrative expenses have increased by 11% to �1,938,000 (2006: �1,748,000). Research and development expenditure has increased to
�283,000 (2006: �58,000). Staff costs have fallen in the year to �1,126,000 (2006: �1,217,000) whilst staff numbers have risen to 42 (2006:
37).
Operating profit is the net profit of the business before taxation and financing costs. The 2006 Operating Profit has been restated to
reflect the change from UK Generally Accepted Accounting Principles to International Financial Reporting Standards. As a result of this
restatement (see note 19) operating profit is �158,000 lower at �339,000. In 2007 there is an operating loss of �695,000.
Taxation
The availability of tax losses brought forward amounting to �8,500,000 will reduce taxable profits to �nil in the current year; and
consequently there is no tax charge.
Earning per share
Basic earnings per share has fallen to a loss of 1.15p (2006: restated earnings per share of 0.56p). The diluted earnings per share has
fallen to a loss of 1.15p (2006: restated earnings per share of 0.51p).
Development Expenditure
During the year the costs of developing Chromolite EP amounting to �81,000 have been capitalised. Costs relating to other products were
fully expensed in the year.
Capital Structure
Under the terms of an Instrument dated 14 December 2004 the company issued 2,500,000 warrants to subscribe for ordinary shares of 1p
each, at a price of 4p per share. These warrants are exercisable between 20 June 2005 and 19 June 2008. During the 2007 year 437,500
warrants have been exercised (2006: 1,312,500 warrants were exercised at 4p per share). At the end of the year 750,000 warrants remained
outstanding (2006: 1,187,500 options outstanding).
In June 2007 the Company granted options over 2,000,000 ordinary shares at 6.5p per share. At 31 December 2007, options over 5,200,000
ordinary shares were outstanding (2006: 6,000,000 options outstanding).
Cash Flow
There was a net cash outflow from operating activities of �133,000 (2006: �288,000 inflow). This was attributable to the operating loss
for the year compared with the operating profit in the previous year.
There was a fall in cash balances in the year to �130,000 (2006: �362,000).
Future Outlook
Whilst the first half and in particular the first quarter of 2008 has been impacted by no sales to Canada and a general industry
slowdown, the Board expects an improvement in performance in the second half as a result of a cost reduction plan implemented recently and
the launch of three new products in the third quarter in the area of laser assisted liposuction, body shaping and cellulite treatment, the
main growth sector of the industry.. We have taken action to reduce our cost base and staffing levels to reflect a more challenging market.
We are focused on continuing to improve direct high margin sales in the UK and this will improve cashflow going forward.
After an extended beta test phase our Enhanced Pulse model (EP) of the Chromolite has seen a successful launch and we see significant
opportunities to upgrade over 1,700 existing systems worldwide. We expect to see increased sales of our higher margin products in 2008
thereby improving our gross margins. We are cautiously confident that new products for fat reduction and body shaping, an area of growing
demand in the market, will contribute to sales in the second half of 2008 and beyond.
Peter McGuinness
Chairman
Consolidated Income Statement
For the year ended 31 December 2007
2007�*000 2006�*000
REVENUE 4,122 4,462
Cost of sales (2,879) (2,375)
-------------------- --------------------
-------------------- --------------------
-- --
Gross profit 1,243 2,087
Administrative expenses (1,938) (1,748)
-------------------- --------------------
-------------------- --------------------
-- --
OPERATING (LOSS)/PROFIT (695) 339
Interest payable and similar (2) (4)
charges
-------------------- --------------------
-------------------- --------------------
-- --
(LOSS)/PROFIT BEFORE TAXATION (697) 335
Taxation - -
-------------------- --------------------
-------------------- --------------------
--- ---
(LOSS)/PROFIT FOR FINANCIAL YEAR (697) 335
==================== ====================
==================== ====================
== ==
(LOSS)/EARNINGS PER ORDINARY
SHARE (PENCE)
Basic (1.15)p 0.56p
Diluted (1.15)p 0.51p
==================== ====================
==================== ====================
== ==
All results relate to continuing activities. The loss for the year (2006: profit) is wholly attributable to the equity shareholders of
the company.
Consolidated Statement of Changes in Equity
For the year ended 31st December 2007
Attributable to equity holders of the parent company
Share
Share premium Merger Retained Total
capital account reserve Earnings Equity
�'000 �'000 �'000 �'000 �'000
At 1 January 2006 592 1,500 (302) 75 1,865
Profit for the year - - - 335 335
Share option costs - - - 95 95
Exercise of warrants 13 39 - - 52
_______ _______ _______ _______ _______
At 1 January 2007 605 1,539 (302) 505 2,347
Loss for the year - - - (697) (697)
Exercise of warrants 4 14 - - 18
Share option costs - - - 20 20
_______ _______ _______ _______ _______
At 31 December 2007 609 1,553 (302) (172) 1,688
_______ _______ _______ _______ _______
Consolidated Balance Sheet
As at 31 December 2007
2007 2006
Notes �'000 �'000
ASSETS
Non-Current Assets
Intangible assets 79 343
Property, plant and equipment 60 64
-------------------- ----------------------
-------------------- --------------------
--
139 407
-------------------- ----------------------
-------------------- --------------------
--
Current Assets
Inventory 1,777 1,245
Trade and other receivables 866 1,226
Cash and cash equivalents 130 362
-------------------------- ------------------------------------------
----------------
2,773 2,833
LIABILITIES
Current Liabilities
Trade and other payables (1,126) (843)
Provisions (98) (50)
-------------------------- ------------------------------------------
----------------
(1,224) (893)
-------------------------- ------------------------------------------
----------------
NET CURRENT ASSETS 1,549 1,940
-------------------------- ------------------------------------------
----------------
TOTAL ASSETS LESS CURRENT 1,688 2,347
LIABILITIES
-------------------------- ------------------------------------------
----------------
NET ASSETS 1,688 2,347
========================== ==========================================
================
SHAREHOLDERS' EQUITY
Called up share capital 609 605
Share premium 1,553 1,539
Merger reserve (302) (302)
Retained Earnings (172) 505
-------------------- --------------------
-------------------- --------------------
-- --
TOTAL EQUITY (attributable to 1,688 2,347
equity holders of the parent)
==================== ====================
==================== ====================
== ==
Consolidated Cash Flow Statement
For the year ended 31st December 2007
2007 2006
Notes �'000 �'000
NET CASH FLOW FROM OPERATING ACTIVITIES (133) 288
INVESTING ACTIVITIES
Purchase of intangible assets (81) (190)
Property, plant and equipment (34) (61)
-------------------- --------------------
-------------------- --------------------
-- --
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (115) (251)
FINANCING ACTIVITIES
Proceeds from the issue of shares 18 52
Bank and other interest paid (2) (4)
-------------------- --------------------
-------------------- --------------------
-- --
NET CASH INFLOW FROM FINANCING ACTIVITIES 16 48
-------------------- --------------------
-------------------- --------------------
-- --
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS IN (232) 85
YEAR
==================== ====================
==================== ====================
== ==
2007 2006
�'000 �'000
Movement in cash and cash (232) 85
equivalents
Opening cash and cash 362 277
equivalents
--------------------- ------------------------------------------
---------------------
CLOSING CASH AND CASH 130 362
EQUIVALENTS
===================== ==========================================
=====================
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2007
1 ACCOUNTING POLICIES
BASIS OF PREPARATION
Going concern
During the year, the Group incurred a loss of �697,000, compared to a profit in the previous year, and expects to report further losses
for the six months to 30 June 2008. As a result of the Group's financial position, the directors have considered the basis of preparation of
the financial statements on the going concern basis.
In the light of the current market downturn the Board has been reconsidering its strategy and has made a number of decisions to re-focus
the activities of the Group. The Board has streamlined the underlying cost base of the business, started to distribute two new complementary
products into the UK market and has now obtained all regulatory approvals required in order to sell into the Canadian market. Payment plans
are in place with most of the overdue debtors as at the year end.
The directors have prepared detailed forecasts which set out the ongoing cash requirements of the business going forward. The directors
maintain regular communication with the bank and these forecasts incorporate the directors' belief that the Group's bankers will continue to
make available, after the formal review in September 2008, the level of facility that is currently available. There are inherent
uncertainties in the preparation of such forecasts which are not fully under the Group's control. Historically the Group has delivered
greater sales in the second half of the year and the directors expect this trend to continue with the planned introduction of further new
products in the autumn. The directors therefore believe the assumptions used in those forecasts are reasonable and that they have taken into
account all factors that may reasonably be expected to be identified in relation to such forecasts. On the basis of these forecasts the
directors conclude that it is appropriate to prepare the financial statements on the going concern basis and the financial statements do not include any adjustments that would result from the Group not
being able to meet its liabilities as they fall due.
International Financial Reporting Standards
These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the
European Union, and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. In preparing the underlying
financial information the Directors have applied certain first time adoption provisions allowed by IFRS 1. These standards remain subject to
ongoing amendment and / or interpretation and are therefore still subject to change. Accordingly, information contained in these financial
statements may need updating for subsequent amendments to IFRS required for first time adoption or for new standards issued post balance
sheet date.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in
these financial statements were in issue but not yet effective:
Amendment to IAS1 - Presentation of financial statements
Amendment to IFRS3 - Business combinations
Amendment to IAS27 - Consolidated and separate financial statements
IAS23 (Amended) - Borrowing costs
IFRS 8 - Operating Segments
IFRIC 11 - Group and Treasury Share Transactions
IFRIC 12 - Service Concession Arrangements
IFRIC 13 - Customer loyalty programmes
IFRIC 14 - IAS19 - The limit on a defined benefit asset, minimum funding requirements and their interaction.
Amendment to IFRS3 - Share based payment - vesting conditions and cancellations
Amendment to IAS32 - Financial Statements
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the
financial statements of the Group when the relevant standards and interpretations come into effect.
The Group has established IFRS accounting policies for the year ended 31 December 2007 and applied these policies and the opening
balance sheet at its date of transition being 1 January 2006. The impact of transition from UK GAAP to IFRS on Group shareholders' equity as
at 31 December 2006 and on the date of transition of 1 January 2006, and on the Group's income statement for the year ended 31 December 2006
is outlined in note 19. The transition to IFRS has not affected the company's cash flows.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise judgement in the process of applying the accounting policies. The notes to the financial statements set out
areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the financial statements such as
intangible assets. In particular, the directors regularly review the commercial viability of development projects and make estimates on the
level of amortisation based upon the quantum and timing of future revenues from those products (see note 9). Although these estimates are
based upon management's best knowledge of the amount event or actions, actual results may ultimately differ from those estimates.
Transitional arrangements
The adoption of the provisions set out in IFRS 1 is set out below.
* Business combinations: a first time adopter may elect not to apply IFRS 3 - 'Business combinations' retrospectively to business
combinations that occurred before the date of transition to IFRS. The Group elected to take advantage of this exemption, not applying IFRS 3
to the business
combinations that occurred before 31 December 2005 the Group's date of transition.
* Share-based payments: the Group has applied the requirements of IFRS 2 - 'Share-based payments' in accordance with the transitional
provisions. IFRS 2 has been applied to all grants of equity instruments after 1 July 2005 that had not vested at 31 December 2005.
The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting
standards.
BASIS OF CONSOLIDATION
The consolidated financial information comprise the financial information of Chromogenex plc and its subsidiary undertakings. All
business combinations occurred prior to the date of transition and were accounted for in accordance with the transitional arrangements set
out above.
2 TAXATION
Current tax: 2007 2006
�'000 �'000
In respect of the current year - -
Over provision in prior years - -
-------------------- ---------------------------
-------
- -
==================== ==========================
======
Factors affecting the tax charge
The tax assessed for the years are lower than the applicable rate of corporation tax in the UK. The difference is explained below:
2007 2006
�'000 �'000
(Loss)/profit on ordinary (697) 335
activities before tax
==================== ====================
============ ============
(132) 64
(Loss)/profit on ordinary
activities multiplied by the
standard rate of tax in the UK
(19%)
Effects of:
Expenses not deductible/income 16 (3)
not taxable
Accelerated capital allowances 7 1
Losses utilised/carried 109 (62)
forward
-------------- --------------
Total current tax - -
============== ==============
The group has tax losses of approximately �8.5 million (2006: �8.5 million) available to carry forward to offset against future profits
or to be surrendered in respect of Research and Development tax credit claims, subject to agreement by HM Revenue & Customs.
3 EARNINGS PER ORDINARY SHARE
The earnings per ordinary share has been calculated using the profit for the year and the weighted average number of ordinary shares in
issue during the year as follows:
2007 2006
�'000 �'000
(Loss)/Profit for the year after taxation (697) 335
_______ _______
No. No.
Basic weighted average of ordinary shares 60,659,747 59,519,417
of 1p each
_____ __ ____ ___
Basic earnings (pence per share) (1.15)p 0.56p
_______ _______
Fully diluted earnings (pence per share) (1.15)p 0.51p
_______ _______
The weighted average number of shares for the calculation of diluted earnings per share at 31 December 2007 was 63,920,534 (2006:
65,349,352) reflecting the unexercised share options and warrants in place.
As the Group is reporting a loss for the period then, in accordance with IAS33, the share options are not considered dilutive because
the exercise of the share options would have the effect of reducing the loss per share.
4 SHARE CAPITAL
2007 2006
No. No.
Authorised
1p ordinary shares 500,000,000 500,000,000
========================== ==============================================
====================
Allotted, issued and fully
paid
1p ordinary shares 60,931,818 60,494,318
========================== ==============================================
====================
2007 2006
�'000 �'000
Authorised
1p ordinary shares 5,000 5,000
========================== ==============================================
====================
Allotted, issued and fully
paid
1p ordinary shares 609 605
========================== ==============================================
====================
The following share warrants were exercised at 4p per share during the period to 31 December 2007.
5 February 2007 375,000
1 May 2007 62,500
-----------------------------------------
437,500
==========================================
The Company has one class of ordinary shares which carry no right to fixed income.
6 CASH FLOWS
2007 2006
�'000 �'000
A Reconciliation of
operating
(loss)/profit to net
cash flow from
operating activities
Operating (695) 339
(loss)/profit
Amortisation 345 -
Depreciation 38 74
Movement in (532) (26)
inventory
Movement in trade 360 (348)
and other
receivables
Movement in trade 331 154
and other payables
Share option costs 20 95
-------------------- --------------------
------------ ------------
Net cash flow from (133) 288
operating activities
==================== ====================
============ ============
2007 2006
�'000 �'000
B Analysis of change
of net funds
Opening cash and 362 277
cash equivalents
Movement in cash and (232) 85
cash equivalents
--------------------- --------------------------------
-----------
Closing cash and 130 362
cash equivalents
===================== ================================
===========
7 RECONCILIATION OF NET ASSETS AND LOSS UNDER UK GAAP TO IFRS
Chromogenex plc reported under UK GAAP in its previously published financial statements for the year ended 31 December 2006. The
analysis below shows the reconciliation of profit and net assets as reported under UK GAAP as at 31 December 2006 and the revised net assets
and profit under IFRS as reported in these financial statements. In addition there is a reconciliation of equity under UK GAAP to IFRS at
the transition date for the Group being 1 January 2006.
Group Reconciliation of loss for the year
31 Dec 2006
�'000
Profit for the year reported under UK GAAP
493
Adjustments
- Amortisation of negative goodwill (158)
_______
Profit for the year reported under IFRS 335
Group Reconciliation of shareholders' equity
31 Dec 2005 31 Dec 2006
�'000 �'000
Shareholders' equity reported under
GAAP 1,707 2,347
Adjustments
- Amortisation of negative goodwill 158 -
_______ _______
Shareholders' equity for the year reported under
IFRS 1,865 2,347
_______ _______
In accordance with IFRS 3, negative goodwill as at 1 January 2006 amounting to �158,000 has been written back to Retained Earnings
as at that date. The amortised goodwill previously credited to the Profit and Loss account in the periods ending 31 December 2006 has also
been written back.
The consolidated cash flow statement presents substantially the same information as that required under UK GAAP.
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