Sinclair Pharma Text-only version

JERRY RANDALL ACA Chief Financial Officer

HIGHLIGHTS

Sinclair recorded its first profitable full year at the EBITDA level since IPO, recording an EBITDA profit of £1.3m before exceptional items (2007: loss of £1.1m). Profit after tax was £3.3m (2007: loss of £4.2m) and included net exceptional credits of £4.4m (2007: charges of £1.5m) and results in basic earnings per share of 3.8p (2007: loss per share of 4.8p) after exceptionals.

The results for the year ended 30 June 2008 show total revenues of £30.3m (2007: £23.2m) for the Group.

Gross profit increased by 29% to £19.4m (2007: £15.1m) whilst the operating profit for the year was £2.2m, after exceptional items (2007: operating loss of £3.9m).

This strong performance was attributable to solid organic revenue growth and management of overheads, fulfilling our commitment to growing sales in line with expectations while keeping costs under control.

REVENUE

Total revenue for the year increased 31% to £30.3m (2007: £23.2m), reflecting the continued growth of our products through our marketing partners and the increased contribution of our own sales and marketing operations in France, Italy, UK, Spain and Portugal.

Product revenue for the year was £24.8m (2007: £20.1m). A further £0.7m was contributed by royalty payments (2007: £0.7m). £4.8m in revenues were also generated by licence fee and milestone payments (2007: £2.3m).

Direct sales through own sales and marketing operations
Sinclair´s own sales and marketing operations in the UK, France, Italy, Spain and Portugal, and generated revenue of £13.7m, an increase of 16% year on year (2007: £11.8m).

A breakdown of the contribution from Sinclair´s own sales and marketing operations for the year are summarised opposite.

Revenues through marketing partners have been primarily driven by growth in Decapinol^® and a significant contribution from exports of the dermo-cosmetic ranges. During the year Sinclair recognised license fees and milestones of £4.8m (2007: £2.3m). This included £1.1m from the re-licensing of Aloclair^® in Europe following the termination of the agreement with Sunstar Butler; £1.2m from licensing some of the patents acquired with the Syrio^® range and £0.7m from the Dr Reddy´s agreement for the distribution of Sebclair^® in the US.

As discussed earlier, all export revenues are now reported through the marketing partner segment, 2007 comparatives have been amended to reflect this classification.

PRODUCT CONTRIBUTION

The Company has evolved over the last 12 months and this can be seen in the profile of the revenue contribution made by the products in our portfolio. We are no longer reliant on two or three products to generate the core of our revenues and have eight products that contributed more than £1.0m revenue. The dermo-cosmetic portfolio which include the recently acquired Syrio^® and Derma Omnium products is central to this and was responsible for contributing £6.6m this year and expected to grow significantly during the next fiscal year.

EXCEPTIONAL ITEMS

During the year there were the following exceptional items recorded which were outside the normal trading activities of the Company, see notes 4 and 7 for further detail.

 

• The Company received confirmation that it had won its dispute against the French tax authorities relating to a claim initiated by Groupe CS Dermatologie prior to its acquisition by Sinclair. This has resulted in a tax repayment (plus interest), of €1.7m being received in September 2008, as well as interest of €0.5m.
• Foreign exchange gains of £3.7m were recorded in the year on the translation of an intra-group loan balance as a result of the sterling weakening against the Euro during the course of the year.
• The Company was involved in preparing for a major acquisition in July 2007. Sinclair was substantially outbid in this transaction. As a consequence exceptional costs of £0.3m were incurred.
• An impairment charge of £0.4m has been recorded against the goodwill arising on the acquisition of Sinclair Pharma UK Ltd (formerly Ashbourne Pharmaceuticals Ltd) in 2006 following the decision to exit the dispensing doctors market and focus on dermatology.
• Financing costs of £330,000 were incurred during the year in arranging facilities that the Directors decided not to enter into in October 2008 as the terms were unfavourable. These have therefore been written off as exceptional financing costs.

TOTAL OPERATING EXPENSES

Total operating expenses of the Group excluding exceptional items were £20.2m (2007: £17.6m) a 15% increase on the prior year. Costs for selling marketing and distribution were £8.4m (2007: £7.2m) reflecting an increased spend on product promotion. Other administrative expenses increased by 13% to £11.8m (2007: £10.4m). This was partially due to increased amortisation charges which increased to £1.5m from £1.0m due to the purchase of the Syrio^® and Derma Omnium ranges and also an increase in the IFRS2 charge for share awards to employees which rose to £0.7m from £0.2m.

 

OPERATING PROFIT

Sinclair recorded an operating profit for the year of £2.2m (2007: operating loss of £3.9m) after exceptional items.

TAXATION

There is a pre-exceptional tax credit of £0.4m for the year (2007: charge of £0.2m). This results from an increase of £0.4m in the value of the deferred tax asset, which is linked to the value of product rights, included in intangible assets. In 2007 the deferred tax asset was reduced by £0.2m. Sinclair has also received R&D tax credits of £0.1m, which offset our overseas corporation tax charges of £0.1m. There is no corporation tax charge on the profit for the year as a result of the tax losses carried forward from prior years.

LIQUIDITY AND CAPTIAL RESOURCES

Sinclair had cash balances of £1.1m (2007: £2.8m) at 30 June 2008. Net cash outflow during the year was £3.3m (2007: £1.8m), which included cash outflow from operations of £3.3m (2007: £1.2m) and cash used in investing activities of £4.2m (2007: £0.5m). Cash inflow from financing was £4.6m (2007: £0.3m).

The Directors expect a further net cash outflow in the six months to 31 December 2008 and are confident that further facilities required will be obtained. Further detail is provided in note 1 to the financial statements.

EARNINGS PER SHARE

Sinclair recorded a basic earning per share of 3.8p (2007: loss per share of 4.8p).

ADDITIONS TO INTANGIBLE ASSETS

Additions to intangible assets were £4.6m resulting from the acquisition of the Syrio^® and Derma Omnium ranges during the year as well as some other smaller additions. These additions resulted in an increased amortisation charge of £1.5m (2007: £1.0m).