8 March 2011

Advanced Medical Solutions Group plc

(“AMS” or the “Group”)

Preliminary Results for the Year Ended 31 December 2010

 

Winsford, UK: Advanced Medical Solutions Group plc (AIM: AMS), the global medical technology company, today announces its unaudited preliminary results for the year ended 31 December 2010.

 

 

Business Highlights:

 

•	Successful US LiquiBand® launch exceeding first full year expectations
•	New facility in Winsford now fully operational, positioning the Group for strong growth
•	Integration of foam business delivering strong performance from new technology
•	ActivHeal® range continuing to gain ground following successful rebranding
•	Silver alginate continuing to gain market share

 

 

Financial Highlights:

 

•	Revenue increased by 32% to £31.9 million (2009: £24.1 million) at actual and constant currency¹
•	Operating profit (pre-exceptional items²) up 31% to £5.3 million (2009: £4.1 million) Operating profit (post exceptional items) up 81% to £4.3 million (2009: £2.4 million)
•	Basic earnings per share (pre-exceptional items²) up 24% to 3.83p (2009: 3.09p) Basic earnings per share (post-exceptional items²) increased 64% to 3.17p (2009: 1.93p)
•	Strong cash generation in second half of year – net funds³ of £3.9 million at 31 December 2010 (2009: £1.7 million)
•	Maiden final dividend proposed at 0.38p per share

 

 

 

Commenting on the results Dr. Don Evans, Chairman of AMS plc, said: “2010 was an outstanding year for AMS.  As well as delivering strong revenue and profit growth a number of key commercial and operational milestones designed to fuel future growth were achieved in the year. I am pleased to report that 2011 has started well for the Group and the outlook remains very positive.“

 

 

– End –

 

¹        Constant currency removes the effect of currency movements by re-translating the current year’s performance at the previous year’s  exchange rates

²        Exceptional costs of £1.0 million were incurred on the new Winsford facility (2009: Exceptional costs of £0.8 million were incurred on an aborted acquisition and £0.9 million related to the Winsford facility)

³        Net funds is defined as cash and cash equivalents plus short term investments less financial liabilities

 

For further information, please visit www.admedsol.com or contact:

 

Advanced Medical Solutions Group plc	Tel: +44 (0) 1606 545508
Chris Meredith, Chief Executive Officer Mary Tavener, Group Finance Director
Tavistock Communications	Tel: +44 (0) 207 920 3150
John West / Chris Munden / Andrew Dunn / Lydia Eades
Investec Bank plc	Tel: +44 (0) 207 597 5970
Gary Clarence / Daniel Adams / Patrick Robb

 

Notes to Editors:

 

AMS’ advanced woundcare products are based on an extensive range of technologies including alginates, silver alginates and hydrophilic polyurethane foams. These and other products pioneer the concept of moist wound healing, allowing wounds to heal faster and with less pain and scarring. They protect the wound, deal with tissue fluids and provide an optimal environment for healing to occur. Silver is widely recognised as a safe and effective broad-spectrum anti-microbial agent for infection control.

 

AMS’ wound closure and sealants products are based on cyanoacrylate adhesive (“superglue”) technology developed for medical applications. Tissue adhesives offer significant benefits over conventional ways of closing wounds following trauma or surgical incision. They are simple to use, non-invasive, help to reduce the risk of infection, minimise trauma to the patient and provide good clinical and cosmetic outcomes. The technology is also ideally suited to protecting skin from breakdown or for use as a skin sealant to help prevent infection of surgical sites.

 

 

 

 

Chairman’s Statement

 

Introduction

I am delighted to inform investors that 2010 was an outstanding year in which AMS continued to make excellent progress in building a major global medical device business.  In addition to delivering strong revenue and profit growth, a number of key commercial and operational milestones, designed to fuel future growth, were achieved in the year.

 

Financial Highlights

Group revenue was up 32% to £31.9 million, profit from operations before exceptional items was up 31% to £5.3 milion, and profit from operations after exceptional items was up 81% to £4.3 million.

 

The business continues to generate strong levels of cash at the operational level, with net cash inflow from operations before exceptional items up 116% to £8.1 million.  Net cash inflow from operations after exceptional items was up 244% to £7.1 million.  Even after further investment in the new Winsford facility, plant and equipment and paying the final deferred consideration for the acquisition of Corpura B.V., net funds³ at year end were up 129% to £3.9 million. 

 

Key Achievements

Entry into the key $220 million US topical skin adhesive market with our LiquiBand^® tissue adhesive has been a pivotal milestone for the Group.  Whilst we were confident of success due to the positive competitive performance of this product range in Europe over many years, the level of interest, clinical evaluations and subsequent initial product uptake in our first full year of US sales has exceeded our expectations.  We are well placed to continue to grow our US market share and to build a strong global brand for our LiquiBand^® business. 

 

In Advanced Woundcare, our silver alginate range, our foam based wound dressings and our ActivHeal^® value range have also continued to make good progress.  The successful integration of Corpura B.V. has bolstered our position in polyurethane foam, the largest, fastest growing segment of the advanced woundcare market. 

 

Our new world-class Winsford facility, officially opened in January 2011, provides the Group with the capacity to support substantially increased  revenues, whilst addressing the ever more stringent demands being placed on medical device companies by the various regulatory authorities.  It also provides opportunities to enhance margins as the benefits of the new facility and investment in new equipment are realised. 

 

Board

A number of Board changes were made during the year. 

 

I stepped down as Chief Executive Officer and became Chairman of the Group, as of 1 January 2011.

 

Chris Meredith was appointed as Chief Executive Officer effective from 1 January 2011.  Having joined AMS in July 2005 as Commercial Director, Chris was appointed to the Board in April 2006, became Managing Director of Advanced Woundcare in 2008 and then Chief Operating Officer of the Group in January 2010. 

 

Dr. Geoffrey Vernon retired as Chairman at the end of 2010.  The Board would like to thank Geoffrey for his input and guidance in helping to make AMS the successful company that it is today.  We wish him all the best for the future.

 

In March 2010, Penny Freer joined the Board as Senior Independent Non-Executive Director, and Steve Harris stepped down from the Board at the AGM in June 2010.  The Board would like to thank Steve for his significant contribution to AMS during his nine years as a Non-Executive Director.

 

Dividend

As previously indicated, the Board will recommend the introduction of a maiden final dividend relating to the 2010 results.  Whilst AMS’s focus remains on capital growth, the Board feels it is appropriate to propose a dividend, given the cash generative nature of the business and to reflect the stage of the Group’s development.  The proposed maiden final dividend will be 0.38p per share which will be paid on 10 June 2011 to shareholders on the register at close of business on 13 May 2011.

 

Employees

On behalf of the Board and all our shareholders, I would like to thank all AMS employees for their considerable efforts in delivering our 2010 results, and for all their contribution in helping us to move into our new facility with so little disruption.

 

Outlook

I am pleased to report that 2011 has started well for the Group with both our leading brands, LiquiBand^® and ActivHeal®, continuing to perform strongly.  We also continue to see growing demand from our partners for our foam and silver alginate products.

 

In addition to the positive prospects for our organic business, our continued investment in R&D and our strong balance sheet allows us to refresh and broaden the product range and technology base, as well as evaluate opportunities to strengthen our distribution in key markets.

 

Overall, the outlook for the Group remains very positive.

 

 

Dr. Don W. Evans

Chairman

 

 

 

 

Chief Executive’s Statement

 

I am pleased to be providing this, my first Chief Executive Officer’s report, on the back of another very positive year of further development for the Group.

 

With our broad customer base, including almost all major woundcare companies, and our multiple routes to market, we continue to occupy an enviable position in the markets within which we operate.  Enhanced by a combination of two strong emerging brands (LiquiBand^® and ActivHeal®), and three major base technologies (fibres, foams and tissue adhesives), the potential for further growth remains significant.

 

Vision

 

With an increasing range of Operating Room focused products now complementing our base woundcare dressings and emergency room products, AMS continues to benefit from having diverse and plentiful growth opportunities.  As we continue the evolution of the Group, the vision is to strengthen our current position in each of the key focus areas, namely advanced woundcare dressings, tissue adhesives and surgical sealants, and ultimately become recognised as the preferred producer of innovative products and brands in the areas of:-

 

•	Accelerating healing and managing wounds;
•	Minimising adverse surgical outcomes; and
•	Sealing and closing tissue.

 

 

2010

 

Advanced Woundcare

 

Revenue from our advanced woundcare product range, aimed at accelerating healing and managing the complications of chronic wounds, increased 30% in 2010, with each of our key growth drivers contributing to the success.  Sales of our silver alginate product range were up 19%, the ActivHeal^® brand grew 21% and foam grew by 270%. 

 

Ongoing technical and clinical support for our silver alginate product range has continued to drive growth in our silver dressings business and has helped our partners capture a 20% market share in just five years, second only to the dominant market leader. 

 

With austerity measures at the forefront of NHS plans, our ActivHeal^® brand continues to deliver real savings to the NHS without any compromise on clinical outcome or patient care.  Following a re-launch of the product range in new, distinctive and easily recognisable packaging, we continue to make progress in establishing ActivHeal^® as a product of first choice when it comes to cost effective dressing of non-infected wounds.

 

With foam revenues benefiting from a number of new product launches with key partners in 2010, it is clear we have a very well accepted base technology from which to drive further organic growth through innovation and product differentiation.

 

The move into the new facility in Winsford was a considerable achievement and was successfully completed without severe disruption to operations as evidenced by the 11% like-for-like growth of the Advanced Woundcare business (excluding Corpura B.V.) during the construction period. The effort and commitment shown by everyone in the Company cannot be underestimated.  With the new site operational, management has taken the opportunity to embrace the principles of lean manufacturing, positioning the Group for improved future operational efficiency.

 

Research and Development has been focused on our new technology platform, foam, with the launch of new sizes and shapes and the development of composite dressings that elegantly combine different layers together in one dressing. Work  has also progressed on our anti-biofilm product development programme and on our active dressings.

 

Wound Closure and Sealants

 

Our product range designed to seal and close tissue has also delivered strong growth to the Group in 2010. Revenues increased 42% to £6.7 million (2009: £4.7 million) with US market entry being a pivotal milestone for the business.

 

We are very pleased with the progress from our first 12 months of promotional activity in the US. As was to be expected, a high number of clinical evaluations took place in 2010 as hospitals tried the LiquiBand^® product for the first time.  We are pleased with both the outcome of these evaluations and the speed with which a growing number of individual hospitals are converting to regular usage.  Whilst we still have a significant major competitor to contend with, progress in our first year has exceeded our initial expectations. It is currently too early to say whether the second year of sales will follow the trend of our previous product launches and temporarily drop back before forging ahead again in year three.

 

We received regulatory approvals for LiquiBand^® in both Canada and Japan during 2010, and our products have since been launched in both countries via local partners.  Elsewhere, the regulatory process continues in a number of other markets.

 

An area for further improvement is the growth rate and sales performance for our devices aimed at minimising adverse surgical outcomes in the Operating Room. Progress with InteguSeal^® through our marketing partner Kimberly Clark, has failed to meet both our and our partner’s original launch expectations and as such, one of our remaining strategic challenges is how we address the routes to market and sales success for our surgically orientated Operating Room product range. This is increasingly important given we received recent confirmation that our LiquiBand^® Surgical ‘close and protect’ tissue sealant device has just been granted approval in the US. We are now working with key surgeons to design the ideal delivery system for this surgical device and expect to launch this into the market in late 2011, which then gives us a product range covering 100% of the target market.

 

Strategy

 

Our strategy has four key elements:- 

 

•	Maximising the value of Group brands;
•	Strengthening our commitment to support partners and develop innovative woundcare products;
•	Improving our ability to generate growth from our Operating Room product range; and
•	Supplementing organic growth through further licensing and acquisition activity.

 

Brand building

We have already taken steps to enhance and simplify our corporate identity, both for major customers and employees.  We have rebranded our two acquired businesses, Medlogic Global and Corpura B.V., with all our businesses now trading under the Advanced Medical Solutions name. 

 

Given the potential impact of success with LiquiBand^® in the US market, and ActivHeal^® in our domestic UK market, developing excellence in brand management is now a very focused part of our plan and we aim to strengthen our support of these brands:-

 

•	LiquiBand®, our ongoing advertising and marketing investment will be enhanced through a series of clinical studies to support our marketing claims and product positioning; and
•	ActivHeal®, our rebrand has been well received and we will invest further in case studies and technical support to ensure the benefits of what the range can deliver to the NHS in terms of potential savings is better understood by all healthcare providers.

 

Commitment to support partners and develop innovative woundcare products

 

We remain  committed to the development of leading edge technology and products and to  working with strategic partners and major brands to commercialise them worldwide. Continuing investment in R&D will help us to deliver new product platforms such as differentiated polyurethane foams and active dressings to address the unmet clinical needs of chronic wounds. We will also be continuing to invest in clinical papers to support superiority claims for our silver alginate products versus the market leader and, in doing so, assist our multiple partners in capturing market share.

Our investment in our operational capability provides further evidence of our long term commitment to our woundcare partners. 

 

Enhanced ability to generate growth from our Operating Room product range

 

With opportunities for our Operating Room product range increasing, and internal applications for our tissue adhesives  potentially emerging out of R&D in the next 12-18 months, finding the right way to successfully access the Operating Room market is a high priority for the management team and remains a key challenge.

 

Supplement organic growth through further licensing and acquisition activity

 

The acquisition and integration of Corpura B.V. has successfully provided an additional technology platform from which to drive growth within the foam market, the largest and fastest growing segment of advanced woundcare.  Foam has already delivered significant value to the Group in 2010 and, given our position in the market, any similar woundcare technology acquisition would provide equal growth potential. In addition, we will continue to look for synergistic businesses that allow us to leverage our enviable customer base, bring new technologies or additional brands to complement our existing product range, and distribution opportunities to help us overcome the Operating Room challenge.

 

Chris Meredith

Chief Executive Officer

 

 

Financial Review

 

Income Statement

 

Revenue for the Group grew 32% in 2010 to £31.9 million (2009: £24.1 million).  

 

Advanced Woundcare sales increased 30% to £25.2 million (2009: £19.4 million), benefiting in part from a full year’s contribution from the Corpura B.V. acquisition, which was completed on 30 September 2009.  Adjusting for this, like-for-like growth was still 11%, well ahead of market growth rates which are estimated to have been about 4% in 2010.

 

The Group’s key growth drivers in Advanced Woundcare performed well, with sales of our silver alginate range of products growing 19% compared with last year and sales of ActivHeal®, the Group’s value range of woundcare products for the NHS market, increasing 21%.  Foam is now also a very important part of the business and contributed 29% of Advanced Woundcare revenues.

 

Wound closure and sealants sales grew 42% to £6.7 million (2009: £4.7 million), with the main contributor being the first full year of sales of LiquiBand^® in the US.  US revenue benefited from sampling and customer evaluations, but has nevertheless exceeded our expectations with Quarter 4 annualised end user sales of over 250,000 units.  InteguSeal^® had a disappointing year with sales down by 8% but we believe that it remains an excellent product with considerable potential that requires a focused sales drive.  We are considering options as to how to exploit this opportunity more effectively.

 

Geographically, the strength of ActivHeal^® and partner business has contributed to the growth of sales in the UK, which increased 15%.  Sales in Europe grew 35%, mainly due to the foam business in The Netherlands, but overall, market conditions in Europe have been difficult and we are expecting pricing challenges in 2011 as austerity measures start to bite. Sales into the US grew 55% due to the launch of LiquiBand^® and the Advanced Woundcare business is also performing well.

 

Profit from operations (pre-exceptional items) increased by 31% to £5.3 million (2009: £4.1 million) and our operating margin (pre-exceptional items) remained at 17%. Advanced woundcare contributed £4.7 million (pre-exceptional items of £1.0 million) to this, (2009: £4.4 million, pre-exceptional items of £0.9 million), with an operating margin of 18.8%, down by 390 basis points (bpts) compared with 2009. There was a 430 bpts of decline from a change of mix, primarily as a result of the previously mentioned lower margin foam business while the Winsford site move caused an estimated 60 bpts reduction in margin due to the temporary but anticipated disruption effect.  Operating expenses were, however, leveraged across the entire business and reduced as a percentage of revenue, partially offsetting the declines.

 

Wound closure and sealants contributed £1.6 million (2009: £0.8 million) to profit from operations, with an operating margin that improved by 720 bpts to 24.2% (2009: 17%) resulting from the increased volumes through this business. 2011 will see some additional marketing  spend being incurred to support the LiquiBand^® opportunity in the US which may impact margin.

 

Across the Group, administration costs (pre-exceptional items) increased 19% to £9.3 million (2009: £7.8 million), including support and integration for the new Dutch entity, and investment in sales and marketing, in particular supporting the launch of LiquiBand^® into the US. This increased spend reflects the needs of a larger Group and, overall, operating expenses as a percentage of revenue have decreased 330 bpts compared with last year.  Research and Development spend was lower than normal at 4.0% of sales (2009: 6.7%), partly due to the growth of the Group but also as a result of the timing of some projects.  Annual rent costs relating to our new facility in Winsford are £0.3 million higher than the old facilities.   

 

The Group incurred £1.0 million of exceptional costs in the year, all within the Advanced Woundcare division.  These costs are associated with the move into the new facility in Winsford and result from the transfer and re-validation of manufacturing equipment, additional, duplicated rent and staff dedicated to the project.  There will be no further exceptional costs associated with this project.

 

Profit from operations (post-exceptional items) was £4.3 million, an increase of 81% compared with 2009 (2009: £2.4 million).

 

The Group works with existing and new partners on development projects and earns income through these projects.  This is, however, becoming a less important part of the business, with the Group looking to secure more value by developing products alone.  £0.2 million of other income was earned in the period (2009: £0.5 million) from these activities.

 

The Group achieved pre-exceptional profit before tax of £5.3 million in the period, an increase of 30% compared with 2009 (£4.1 million).  Profit before tax after exceptionals was up 79% to £4.3 million (2009: £2.4 million). 

 

The Group recognised a tax credit of £0.5 million (2009: £0.4 million), £0.3 million of which resulted from deferred tax reflecting the extent to which recoverability of tax losses can be forseen with reasonable certainty.  The Group holds a deferred tax asset in respect of tax losses on the balance sheet of £2.3 million (2009: £1.8 million) and has a further £19.1 million (2009: £24.0 million) of tax losses that have not been recognised.  Corpura B.V., when acquired, had accumulated a small amount of tax losses and, with this business performing strongly, the Group anticipates that it will pay tax in The Netherlands ahead of the businesses in the UK.

 

Profit after tax but before exceptional items for the period was £5.8 million (2009: £4.5 million). On this basis, adjusted basic earnings per share increased by 24% to 3.83p (2009: 3.09p).  Fully diluted earnings per share before exceptional items were 3.77p (2009: 2.87p).  

 

The Group profit after tax and exceptional items was £4.8 million (2009: £2.8 million) resulting in a basic earnings per share of 3.17p (2009: 1.93p) and fully diluted earnings per share of 3.12p (2009: 1.79p).

 

The Board is proposing a maiden final dividend of 0.38p per share (2009: nil) which will be paid on 10 June 2011 to shareholders on the register at close of business on 13 May 2011. 

 

Cash flow and balance sheet

 

The Group had a cash inflow from operating activities, before exceptional items, of £8.1 million (2009: £3.7 million), and £7.1 million (2009: £2.1 million), after exceptional items of £1.0 million (2009: £1.7 million), reflecting a very strong second half year performance.  The cash conversion ratio^⁴ was 79% for the year (2009: negative due to Winsford capital expenditure, now completed).

 

Working capital increased in the period by £0.5 million but decreased as a percentage of sales to 14.9% (2009: 17.6%).  As expected, inventory decreased by £0.7 million to £2.5 million (2009: £3.2 million) as the Winsford move completed. Trade and other receivables reduced by £0.9 milion to £6.0 million (2009: £6.9 million) with debtor days reducing to 52 (2009: 54). Trade and other payables decreased by £2.1 million.  The deferred payment for Corpura B.V. of £1.3 million was included in other payables in 2009.

 

During 2010, the Group invested £3.6 million in capital equipment and paid the remaining £1.3 million of consideration for the Corpura B.V. business. £2.9 million (2009: £3.0 million) of goodwill has been recognised on the balance sheet following the acquisition of Corpura B.V. in 2009. There has been no impairment in value to goodwill upon review as at December 31 2010.

 

In August 2009 the Group entered into a three year Revolving Credit Facility with Lloyds TSB Bank for £5.0 million, including a £1.0 million overdraft facility at market rate.  As a consequence of this, the Group’s going concern position has been strengthened as more fully described in Note 9.  The Group drew down £1.0 million of the revolving credit facility during 2010 due to the timing of investment in the new site and payments for the Corpura B.V. business but it was not being used at the end of the year.

 

The Group had net funds of £3.9 million as at 31 December 2010.  The strong balance sheet  provides options to support future growth of the business.

 

Mary Tavener

Group Finance Director

 

 

_⁴    cash conversion ratio is defined as cash generated from operating activities before exceptional items including spend on property, plant and equipment, software and capitalised research and development but excluding spend on acquisitions as a ratio of Profit from Operations before exceptional items

 

 

 

CONDENSED CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2010

 

		(Unaudited) Year ended 31 December 2010			(Audited) Year ended 31 December 2009
		Before  exceptional  items	Exceptional   Items  (note 7)	Total	Before  exceptional  items	Exceptional  items  (note 7)	Total
	Note	£’000	£’000	£’000	£’000	£’000	£’000
Revenue from continuing operations	4	31,881	–	31,881	24,091	–	24,091
Cost of sales		(17,144)	–	(17,144)	(12,482)	–	(12,482)
Gross profit		14,737	–	14,737	11,609	–	11,609
Distribution costs		(307)	–	(307)	(157)	–	(157)
Administration costs		(9,263)	(1,001)	(10,264)	(7,799)	(1,672)	(9,471)
Other income		173	–	173	488	–	488
Share of result of joint venture		–	–	–	(66)	–	(66)
Profit from operations	4,5	5,340	(1,001)	4,339	4,075	(1,672)	2,403
Finance income		12	–	12	21	–	21
Finance costs		(60)	–	(60)	(30)	–	(30)
Profit before taxation		5,292	(1,001)	4,291	4,066	(1,672)	2,394
Income tax		542	–	542	390	–	390
Profit for the year attributable  to equity holders of the parent		5,834	(1,001)	4,833	4,456	(1,672)	2,784
Earnings per share
Basic	6	3.83p	(0.66)p	3.17p	3.09p	(1.16)p	1.93p
Diluted	6	3.77p	(0.65)p	3.12p	2.87p	(1.08)p	1.79p

 

The above results relate to continuing operations.

 

 

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2010

 

	(Unaudited)	(Audited)
	Year ended	Year ended
	31 December 2010	31 December 2009
	£’000	£’000
Profit for the year	4,833	2,784
Exchange differences on translation of foreign operations	(257)	(153)
Loss arising on cash flow hedges	(76)	(26)
Other comprehensive income for the year	(333)	(179)
Total comprehensive income for the year attributable to equity holders of the parent	4,500	2,605

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2010

		(Unaudited) 2010	(Audited) 2009
		£’000	£’000
Assets
Non-current assets
Acquired intellectual property rights		1,062	1,230
Software intangibles		16	34
Development costs		771	725
Goodwill		2,878	2,978
Property, plant and equipment		12,828	10,284
Deferred tax assets		2,756	2,422
Trade and other receivables		19	6
		20,330	17,679
Current assets
Inventories		2,498	3,179
Trade and other receivables		6,035	6,945
Cash and cash equivalents		4,122	1,992
		12,655	12,116
Total assets		32,985	29,795
Liabilities
Current liabilities
Trade and other payables		3,798	5,887
Other taxes payable		424	463
Financial liabilities		18	18
Obligations under finance leases		19	16
		4,259	6,384
Non-current liabilities
Trade and other payables		677	278
Financial liabilities		226	244
Obligations under finance leases		23	39
		926	561
Total liabilities		5,185	6,945
Net assets		27,800	22,850
Equity
Share capital		7,740	7,248
Share premium		306	99
Share-based payments reserve		442	502
Investment in own shares		(37)	(27)
Share-based payments deferred tax reserve		397	576
Other reserve		1,531	1,531
Translation reserve		(85)	248
Retained earnings		17,506	12,673
Equity attributable to equity holders of the parent		27,800	22,850