TIDMITX
RNS Number : 4353B
Itaconix PLC
04 April 2017
4 April 2017
Itaconix plc
Preliminary Results Announcement - Replacement
The following amendments have been made to the Preliminary
Results announcement released at 7.00 a.m. on 27 March 2017 under
RNS number 5375A.
The 2016 year end value in the consolidated balance sheet of
intangible assets acquired on the purchase of Itaconix Corporation
has been increased to GBP10,124k (from GBP8,561k). There is a
corresponding amendment to exchange differences in the translation
of foreign operations in the consolidated statement of other
comprehensive income, to a credit of GBP1,439k (from a charge of
GBP124k). This change has resulted in the following amendments to
the announcement:
In the 2016 Financial Highlights, the following text has been
amended as shown:
Intangible assets of GBP10.1m (2015: nil), comprising
intellectual property of GBP3.5m (2015: nil) and goodwill of
GBP6.7m (2015: nil), relating to the acquisition of Itaconix
Corporation
In the Chief Executive's Review - Balance sheet items -
intangible assets, the following text has been amended as
shown:
The Group now has GBP10,124k of intangible assets arising on the
acquisition of Itaconix Corporation (2015: nil) which were reviewed
for impairment or amortised as appropriate at the year end. The
main constituents are intellectual property (GBP3,471k, 2015: nil)
and goodwill (GBP6,653k, 2015: nil).
Certain numbers have been amended in the consolidated statement
of other comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity and note 7 Intangibles,
and these are marked with an asterisk in the revised announcement
below.
All other details remain unchanged. The full amended Preliminary
Results announcement is shown below.
Itaconix plc
Preliminary Results for the 12 month period to 31 December
2016
2016 Business Highlights
Strategic refocus:
During 2016 Itaconix plc (formerly Revolymer plc) ("Itaconix" or
the "Company") undertook a major reorganisation to focus on its
Specialty Chemicals business primarily in the high value market
areas of Homecare, Personal Care and Industrial. Itaconix and its
subsidiaries (the "Group") aim to be a leader in functional
polymers that improve the safety, performance and sustainability of
its customer's products.
Structural developments:
Key steps in this strategic transformation included the
following:
-- Acquisition of Itaconix Corporation - on 20 June 2016
the Group announced that it had unconditionally agreed
to acquire Itaconix Corporation based in New Hampshire,
USA, for an initial consideration of $7m (at the time
approximately GBP4.9m) comprising $3m in cash and $4m
in new shares, plus further deferred performance related
consideration of up to $6m payable in new shares
-- Refinancing - Itaconix raised GBP5.8m (before expenses)
in two tranches in June and July 2016 through the placing
of 15,680,222 new shares at 37 pence per share
-- Divestment of Nicotine Gum Business - on 31 October
2016 the Group completed the divestment of its nicotine
gum business to the Danish company Alkalon A/S ("Alkalon"),
for a 15% equity holding in the combined new business,
which may increase to 20% if additional specific contracts
in Canada are secured within nine months of completion
-- Corporate rebranding - after the period end, on 1 March
2017 it was announced that the Company had changed
its name to Itaconix plc, marking the refocus of the
business on specialty chemicals and away from nicotine
gum
-- Plant expansion - a $1m investment has been made to
upgrade the Group's polyitaconate manufacturing facility
in New Hampshire, quadrupling the previous capacity.
After successful commissioning, the facility came on
line in March 2017.
Business model:
Following these developments, the Group now has a portfolio of
specialty products to supply to its customers in its key market
segments of Personal Care, Homecare and Industrial. All of these
segments are global in nature, consistently delivering high growth
rates and attractive margins. There are significant benefits to a
product based business versus a licence only model including
greater customer intimacy, more control over execution timelines
and greater margin potential.
Itaconix is an innovator, developing new products to meet
customer needs. As well as having expertise in designing novel
polymer products that can be protected with patents and know-how,
the business has also developed application and formulation
expertise that provides better insights into how polymers can be
used to provide cost effective solutions for its customers.
Itaconix is engaged in building a high margin, capital efficient
business. Except for its relatively low cost polyitaconate
manufacturing facility, the business uses third party contract
manufacturers for a number of its products.
Commercial Progress:
Itaconix continues to launch new products, gain commercial
traction, generate revenue starts and conclude partnership
deals:
-- Launch of RevCare NE 100S - This new bio-based, high
performance hair styling ingredient was launched at
the Global In-Cosmetics show in April 2016
-- The first commercial sale of Itaconix(R) CHT(TM) was
made in September 2016 for use in a private label automatic
dish wash formula, with further sales awaited
-- Croda - On 23 January 2017, Itaconix announced that
it had signed an exclusive global supply and joint marketing
agreement with Croda Inc. ("Croda") in respect of its
polymer-based odour removal additive Itaconix(R) ZINADOR(TM)
22L ("ZINADOR"). Itaconix will produce ZINADOR for Croda
and Croda will market and sell ZINADOR in household,
municipal, animal and industrial applications. This
was followed in March 2017 by the first major purchase
order from Croda for ZINADOR
-- AkzoNobel - On 27 January 2017, Itaconix announced that
it had signed a joint development agreement with AkzoNobel
Chemicals International B.V. ("AkzoNobel") to advance
commercial collaborations in certain applications for
the itaconic acid polymer technology platform
Management and Board:
The management team has been augmented during the year with the
addition of John Shaw and Dr Yvon Durant from the management of
Itaconix Corporation, and the appointment of Dr Louise Crascall as
Chief Commercial Officer with responsibility for the Personal Care
business area.
The Board of Directors has also undergone change, with the
appointment in September 2016 of chemicals industry veteran Dr Jim
Barber as the nominee director of the former shareholders of
Itaconix Corporation and the retirement of Jack Keenan and Robert
Frost at the 2016 year end.
2016 Financial Highlights:
-- GBP8.8m of short term deposits, cash and cash equivalents
on hand at the year end (2015: GBP10.5m)
-- Financial reporting for the year split into continuing
operations (Specialty Chemicals including the US business
of Itaconix Corporation acquired in June 2016) and discontinued
operations (Nicotine Gum)
-- Continuing operations revenue of GBP0.3m (2015: GBP0.0m),
primarily Itaconix(R) DSP(TM) , resulting in a gross
profit of GBP0.1m (2015: GBP0.0m)
-- Continuing operations administrative expenses (including
research and development expenditure) of GBP5.3m (2015:
GBP2.7m). The increase of GBP2.6m is explained by (i)
an increase in non cash charges relating mainly to the
acquisition of Itaconix of GBP1.0m; (ii) GBP0.3m of
costs not expected to be recurring; (iii) the cost of
running the new US business including research and development
of GBP0.6m; (iv) additional UK staff costs including
research and development of GBP0.3m; (v) additional
other development costs of GBP0.1m; and (vi) additional
advisory (including external finance and audit) costs
of GBP0.1m
-- Accordingly, Group operating loss before taxation was
GBP5.2m (2015: GBP2.6m), the difference mainly accounted
for by the increase in administrative expenses, half
of which were non cash or non recurring
-- Continuing operations loss for the year of GBP5.1m (2015:
GBP0.7m), after R&D tax credits of GBP0.5m, (2015: GBP1.8m
in total in respect of the 4 years 2012 to 2015 inclusive)
and share of loss of associate of GBP0.5m (2015: nil)
-- Net operating cash outflow from continuing operations
before R&D tax credits of GBP3.9m (2015 GBP2.9m). The
components of the GBP1.0m increase in the cash out flow
were (i) GBP0.6m to fund the US business since acquisition;
(ii) GBP0.2m of increased UK operating costs; and (iii)
GBP0.2m of acquisition related transaction costs
-- Intangible assets of GBP10.1m (2015: nil), comprising
intellectual property of GBP3.5m (2015: nil) and goodwill
of GBP6.7m (2015: nil), relating to the acquisition
of Itaconix Corporation
-- Non-current liabilities of GBP4.9m (2015: nil) comprising
the fair value of deferred consideration payable to
the former shareholders of Itaconix Corporation of GBP3.4m
(2015: nil) and deferred tax in relation to the Itaconix
Corporation intellectual property intangible assets
acquired of GBP1.5m (2015: nil)
-- Discontinued operations: loss after tax of GBP0.6m (2015:
GBP1.1m) and net cash out flow of GBP1.3m (2015: GBP1.0m),
reflecting 10 months of the Nicotine Gum business before
divestment on 31 October 2016.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
For further information please contact:
+44 (0) 1244 283
Itaconix plc 500
Kevin Matthews / Rob Cridland
+44 (0)20 7496
N+1 Singer Advisory LLP 3000
Richard Lindley / Nick Owen /
Liz Yong
Chairman's Statement
I am pleased to present my report as Chairman of the recently
renamed Itaconix plc (formerly known as Revolymer plc). Itaconix is
a specialty chemicals business which sells proprietary functional
products or licences technology to the global, high growth and high
margin market sectors of Personal Care, Homecare and Industrial. In
summary, 2016 was a transformational year in the development of the
Itaconix Group during which it has made significant progress in
delivering its strategy.
Strategy and Implementation:
Historically the Group developed proprietary polymer technology
commercialised through chewing gum products, technology licences
and other product sales into targeted applications. In 2015 the
Group's strategy was reset to transform the company into a more
broadly based specialty chemicals business and the organisation was
restructured accordingly. In 2016 further key steps were taken
including:
- the divestment of the nicotine gum business to Alkalon; and
- the acquisition of Itaconix Corporation, a US specialty
chemicals business with complementary proprietary products and
technology
In addition to these structural steps, the business launched a
number of new products and established a supply chain
infrastructure enabling the production of specialty chemicals,
using a combination of in-house manufacture of polyitaconates and
contract manufacturers.
With this platform established, the Group is well placed for the
key opportunity of 2017 of delivering accelerated revenue growth
and moving towards profitability.
Business Performance:
The acquisition of Itaconix Corporation has significantly
broadened the product portfolio of the Group through the inclusion
of products based on the polymerisation of itaconic acid. This is
important in a number of ways; for example sodium polyitaconate is
the active used in RevCare(TM) NE our hair styling polymer for the
Personal Care market, and products including Itaconix(R)DSP(TM) and
Itaconix(R)CHT(TM) are already being actively marketed and sold in
the Homecare business area. The revenues generated by these
specialty chemical products are higher quality than the revenues
generated by the legacy nicotine gum products, and as a result we
expect gross profit margins to improve.
Although the key strategic changes have been carried out
successfully, the initial rate of revenue growth has been slower
than anticipated. However, in early 2017, there has been
significant commercial progress with the signing of an exclusive
global supply and joint marketing agreement with Croda relating to
the odour removal additive ZINADOR, and a framework joint
development agreement with AkzoNobel that should enable a number of
commercial collaborations.
I look forward to reporting further product launches and growing
revenues as the year progresses.
Shareholder Engagement:
In order to support the acquisition of Itaconix Corporation and
fund the combined business going forward, we engaged with existing
and new shareholders during the year and are very pleased that they
chose to support our strategy, enabling us to raise GBP5.8m before
expenses in July 2016. We also welcome the US-based shareholders of
Itaconix Corporation to our register, having received $4m worth of
Company shares as part consideration for the acquisition.
Looking forward, we have an active engagement program designed
to broaden and diversify our shareholder base, supported by our new
NOMAD and broker N+1 Singer appointed from the start of January
2017. We plan to use the recent re-launch of the business under the
Itaconix name as a platform to interact broadly with institutional
and private investors to clearly broadcast the Itaconix story and
strategy.
The Notice of Annual General Meeting ("AGM") that accompanies
this Annual Report sets out the business for our forthcoming AGM
and we encourage all our shareholders, large or small, to attend
and participate.
Corporate Governance:
The Board continues to monitor and, where appropriate, amend
governance and control structures, including for example a
comprehensive business risk assessment and mitigation process, and
a medium term strategic planning cycle that is used to focus
business priorities and drive the annual budget process.
The Board meets regularly during the year to monitor business
performance and is provided with timely and relevant information
before each meeting.
Although full compliance with the UK Corporate Governance Code
(the "Code") issued by the Financial Reporting Council is not
compulsory for AIM companies, the Board has chosen to apply those
principles of the Code considered appropriate, taking into
consideration Itaconix's size, stage of operations and the
recommendations contained in the Corporate Governance Code for
Small and Mid-Size Quoted Companies 2013 ("QCA guidelines"). We
intend to move towards full compliance over time, as the business
grows and matures.
The performance, constitution and function of the Board of
Directors was considered after the acquisition of Itaconix
Corporation in the third quarter of 2016, around the time Jim
Barber joined the board as the nominee of the Itaconix Corporation
shareholders. As previously announced, Jack Keenan had already
expressed an interest in retiring from the Board given his tenure
since 2008, and both Jack and Robert Frost retired from the board
with effect from 31 December 2016. With these changes in place, we
feel that the size of, and range of experience and expertise
across, the Board is appropriate for overseeing delivery of the
current strategy. I would like to take this opportunity to thank
Jack Keenan for his contribution to the development of Itaconix,
including as the Chairman of the Board. I would also like to thank
Robert Frost for his valuable industry insight and strategic
guidance to the Group in his role as a Non-executive Director.
Conclusion:
2016 has been a continued period of change and evolution for the
business, and I and the rest of the Board firmly believe that,
under the strong leadership of Kevin Matthews, Itaconix is well
placed to continue delivery against its strategy. The Board
recognises that the reconfigured business is still at an early
stage in its commercial development and so is not expected to
become profitable in 2017, but we do expect that this year will see
a number of new customers and revenue starts for Itaconix that will
establish the basis for future revenue growth and
profitability.
Dr Bryan Dobson
Chairman
Chief Executive Officer's Review
Business review
Overview:
2016 was a year of change and progress for Itaconix plc. The
most significant events during the year relate to the strategic
repositioning of the business. This started on 20 June 2016 with
the announcement that the Company had unconditionally agreed to
acquire Itaconix Corporation, a privately owned business based in
New Hampshire, USA, for initial consideration of $7m (at the time
approximately GBP4.9m) comprising $3m in cash and $4m in new
ordinary shares, plus further deferred performance related
consideration of up to $6m payable in new ordinary shares, subject
to the satisfaction of certain performance criteria.
A further announcement was made on 21 June 2016, following the
conclusion of an accelerated bookbuild process, that the Company
had raised approximately GBP4m (before expenses) through the
placing of 10,810,811 new ordinary shares at 37 pence per share. In
addition, Woodford Investment Management agreed to invest an
additional amount of approximately GBP1.8m through the issue of a
further 4,869,411 new ordinary shares at the same placing price by
way of an "accelerated whitewash" which was concluded on 8 July
2016. Through this exercise, the Company raised GBP5.8m (before
expenses) to fund the new business.
On 16 September 2016, the Company announced that it had entered
into agreements committing it to divest its nicotine gum business
to the Danish company Alkalon, with completion subject only to the
satisfaction of certain customary conditions precedent including
the transfer of key customer contracts and the Canadian product
licence to Alkalon. Completion occurred on 31 October 2016. Alkalon
has EU regulatory approval for its products and an established
European customer base, which complemented the Company's Canadian
customer base. This transaction offers the potential to grow the
resulting business in its existing territories as well as to expand
into additional territories, benefiting from economies of scale in
manufacturing and marketing. At completion, the consideration to
Itaconix for the divestment of this business was a 15% equity
holding in the combined new business, which may increase to 20% if
additional specific contracts in Canada are secured within nine
months of completion. The Company currently expects to hold the
investment in Alkalon for the medium to long term and has the right
to appoint a director to the board of the combined business.
Accordingly Rob Cridland, Revolymer's CFO, has joined the Board of
Alkalon.
Integration of the Company and Itaconix Corporation has
progressed well, with significant technical and commercial
opportunities identified to leverage the two organizations. The
integration phase culminated in Revolymer plc being rebranded as
Itaconix plc on 1 March 2017 to emphasise the change in focus and
the acceleration of its development as a specialty chemicals
business.
The strategic repositioning summarized above has brought a
clearer vision to the expanded business. Itaconix plc aims to be a
leader in functional polymers that improve the safety, performance
and sustainability of our customer's products.
We believe that the low level of R&D spending within the
chemical industry is creating the opportunity for expert
innovators. The flexibility to design and produce materials with a
wide range of functional performance and relatively low regulatory
barriers make polymers an attractive space in which to be an
innovator. Itaconix designs and manufactures proprietary specialty
polymers to meet customers' needs. We are the world leader in
polymers from itaconic acid, combining the versatile chemistry of
itaconic acid with breakthrough production economics that make
adoption of our products attractive to our customers. We are
establishing a pipeline of products that compete on unique
functionality and cost advantages in the home care and industrial
markets and personal care. Itaconix also uses its specialty
polymers and know how to encapsulate sensitive ingredients that are
used in everyday products, examples including bleach actives and
fragrances.
The main markets that Itaconix is focused on and that offer
major commercial opportunities are:
-- Homecare (cleaning and hygiene)
-- Personal Care
-- Industrial
These markets have common themes that act as drivers of change
and product reformulation, as outlined below.
Regulations:
Tightening regulations continue to drive the phasing out of
older product technologies, which are unsafe for humans and/or the
environment, and offer opportunities for replacement products.
Particular areas of focus for Itaconix are the replacement of
phosphates in laundry and automatic dish wash ("ADW"), and the
development of formaldehyde free encapsulation for a number of
sensitive ingredients including fragrances.
Performance:
Consumers continue to demand more effective products or cheaper
products with the same performance. Itaconix has product
technologies that can either improve performance (such as an
improved performance hair styling additive) or make more efficient
use of ingredients (such as the encapsulation of bleach for the
laundry or ADW market).
Sustainability:
Increasing concerns regarding the environment are reflected in a
strong consumer trend towards bio-based products, particularly in
markets such as personal care, or products that save energy or
materials. Itaconix has identified these drivers and has launched a
bio-based hair styling polymer for personal care, a bio-based
malodour product for homecare and has licensed technology to Solvay
enabling low-temperature bleach performance in laundry and ADW.
In addition to the strategic redesign of the business described
above, significant effort was also invested in 2016 towards
activities that should underpin future growth, setting up supply
chains for new products, launching new products, and securing new
product revenue starts. In anticipation of the growing commercial
engagement described below, Itaconix undertook a $1m investment to
upgrade its polyitaconate manufacturing facility, quadrupling
previous capacity. After successful commissioning, the facility
came on line in March 2017.
Finally, there have been some board changes during the year that
also reflect the focus of the business going forward. Dr Jim
Barber, a US citizen, was appointed as a non executive director
with effect from 12 September 2016, representing the interests of
the previous shareholders of Itaconix Corporation as their board
nominee. Jim serves on the Advancement Council of the College of
Polymer Science and Polymer Engineering at the University of Akron,
and as a non-executive director of Graham Corporation and Nanocomp
Technologies. He had previously served as an advisor and a director
for a number of firms including being President and CEO of
Metabolix, Inc. from January 2000 to May 2007. During this period,
he led the transformation of Metabolix from a research boutique to
a world renowned, highly regarded leader in "clean tech" and
industrial biotechnology, listed on NASDAQ. Prior to joining
Metabolix Inc., Jim served as Global Business Director for the
Organometallics and Catalysts business of Albemarle Corporation and
as Representative Director of Nippon Aluminum Alkyls, a joint
venture Company between Albemarle Corporation and Mitsui Chemicals,
Inc.
Mr Jack Keenan and Mr Robert Frost both retired from the board
with effect from 31 December 2016. Mr Keenan had been a non
executive director of the business since January 2008, and was
Chairman from the flotation on the AIM Market in July 2012 to
September 2015. Mr Frost joined the board at its flotation on the
AIM Market in July 2012 as the nominated director of Naxos Capital
Partners, an investor in the business since May 2010.
Commercial Review:
Our polymers are used in a number of consumer and industrial
products to reduce cost, improve performance, and reduce impact on
the environment. We make polymers for better living in three broad
market sectors, Personal Care, Homecare and Industrial.
Personal Care:
Itaconix has developed a bio-based polymer, RevCare(TM) NE 100S,
that is an effective hair styling polymer, providing good hair hold
even in highly humid conditions. It is also effective as an
anti-frizz agent and leaves the hair feeling natural. Although no
sales were made in the period, the product was launched at the
Global In Cosmetics show held in Paris in April 2016 with a
positive reception. Since April 2016 we have been actively
developing the market, sampling customers and establishing
distributor relationships. We announced the appointment of Dr
Louise Crascall as Chief Commercial Officer in June 2016 to lead
the Personal Care business segment. Louise has a strong background
in haircare, having previously been with Vivimed (a hair dye
company) and she has helped accelerate commercial engagement with
customers in this market. We are in the process of appointing
distributors in key European and Asian territories and have direct
relationships with a number of the Tier 1 and Tier 2 personal care
houses. The current hair styling polymer market is estimated at
$400m pa and is mainly based on polymers derived from
petrochemicals. The chart below compares the performance of
RevCare(TM) NE 100S with the main products in the market. We
believe that our product represents a competitive offering purely
from a performance perspective, but also offers the added advantage
of being bio-based, and we are progressing a number of commercial
opportunities currently.
Properties Rev Care Product Product Product Product
NE 100S A B C D
---------------- --------- -------- -------- -------- --------
Single X X
curl
retention
---------------- --------- -------- -------- -------- --------
Comb X X
low resistance
---------------- --------- -------- -------- -------- --------
Curl X
softness
---------------- --------- -------- -------- -------- --------
Single X
curl
flexibility
---------------- --------- -------- -------- -------- --------
Anti-frizz X X
---------------- --------- -------- -------- -------- --------
Curl X X
bounce
---------------- --------- -------- -------- -------- --------
Natural X X X
feeling
---------------- --------- -------- -------- -------- --------
Water X
soluble
---------------- --------- -------- -------- -------- --------
Cost X X
in use
---------------- --------- -------- -------- -------- --------
Source: Company data
Homecare and Industrial:
Itaconix has both specialty polymers and encapsulation
technology that are beginning to gain traction in the homecare and
industrial markets, and we will discuss these two sectors together
as some of our products serve both.
On 27 January 2017, Itaconix announced that it had signed a
joint development agreement with AkzoNobel Chemicals International
B.V. to advance commercial collaborations in certain applications
for the itaconic acid polymer technology platform. The agreement
establishes a broad operating framework for the parties to jointly
identify, develop and commercialise new polymers using Itaconix's
patented technology focused on improving the cost and performance
of our customers' formulations with increasingly more sustainable
products, which fits well into AkzoNobel's sustainability agenda.
Although the specific areas of collaboration have yet to be
announced, we are excited by the potential to work together to
identify and develop attractive commercial opportunities.
Specialty Polymers:
1) Itaconix(R) DSP(TM) & Itaconix(R) CHT(TM)
The acquired business of Itaconix has developed polymers that
are effective chelants. Chelating agents are used to improve the
detergency power of cleaners and detergents and are estimated to
have a market worth around $1bn pa in the home care and cleaning
market.
Traditionally the main product used in laundry and ADW
formulations has been sodium tripolyphosphate. Phosphates have been
under increasing pressure due to the fact that they cause
eutrophication of water courses. As a result, they have been banned
in both the USA and EU in laundry, and phosphates are no longer
allowed to be used in European ADW formulations from January 2017.
As a result of the ban on phosphates, second generation chelants
have been developed and have been formulated into a wide range of
consumer products. The current second generation products still
have some performance limitations and Itaconix has developed cost
competitive alternatives that offer performance advantages.
Itaconix(R) DSP(TM) is a product that is already used in a number
of powder laundry products and represents the majority of the
revenue generated by the business in 2016 since acquisition
(GBP0.3m). Itaconix(R) CHT(TM) is a product used in ADW
formulations which was launched in 2016 and saw its first
commercial sale in September 2016. We are currently working to
generate additional sales.
2) Itaconix(R) ZINADOR(TM)
Itaconix(R) ZINADOR(TM) 22L is a major advance in odour
neutralisation. Zinc complexes are widely used to neutralise odours
and ZINADOR performs equal to or better than the current leading
zinc-based technology at neutralising food odours, cat urine, and
body odour. It is also a 100% naturally derived product that
delivers major new formulating, use, and cost advantages due to its
ready water solubility and lack of residual deposits after use.
On 23 January 2017, Itaconix announced that it had signed an
exclusive global supply and joint marketing agreement with Croda
Inc. in respect of its polymer-based odour removal additive
Itaconix(R) ZINADOR(TM) 22L. Under the terms of the agreement, the
parties will work together to grow and supply worldwide demand for
ZINADOR. Itaconix will produce ZINADOR for Croda and Croda will
market and sell ZINADOR in household, municipal, animal and
industrial applications, subject to certain terms and conditions.
Itaconix will continue providing its technical and marketing
expertise to jointly expand applications and geographic
opportunities for ZINADOR with Croda. This deal results from a
successful initial joint customer development program and was
followed rapidly by the first major order from Croda in March
2016.
Encapsulation:
Itaconix has previously announced three encapsulation licenses
in the homecare ingredients market in which encapsulation is
estimated as representing a $500m pa market:
-- 25 September 2014: Grant of a global exclusive licence
to Solvay for the encapsulation of a specialty peroxide
called PAP for use in laundry detergents and ADW agents,
for the consumer, domestic, industrial and institutional
markets
-- 3 June 2015: Solvay secures exclusive rights to apply
Itaconix's encapsulation technology to the bleaching
active ingredient sodium percarbonate ("SPC") and commercialised
currently by Solvay under the trademark Oxyper(R), in
the field of liquid formulations of laundry and ADW
-- 1 September 2015: OCI secures rights to apply Itaconix's
encapsulation technology to its SPC based bleaching
active ingredients, in the field of powder and other
solid formulations of laundry, ADW and other cleaning
agents.
Following execution of a licence, Itaconix works with its
licensees to transfer the technology and scale-up the industrial
utilisation of the technology. A key commercial challenge for the
Group is the time it takes in the specialty chemicals industry to
successfully develop and market new products from these licences
and generate meaningful revenue.
Pipeline & Technology Development:
The strategic repositioning of the business in 2016 has resulted
in a fundamental shift from a business dominated by licenses and
poor quality nicotine gum revenue to a specialty product based
business. Itaconix now has nine launched products and five
significant deals of which three are licenses (two with Solvay and
one with OCI), one is a supply and joint marketing agreement
(Croda) and one a joint development framework agreement
(AkzoNobel).
There remains a healthy new product development pipeline, but
the main focus of the business is on securing customers for the
products already launched. Itaconix has continued to build its
application expertise in Homecare (laundry and ADW)) and Personal
Care (specifically haircare). This provides the business with the
necessary insights into how its customers are likely to use the new
products and to generate data that will support the selling
process.
Itaconix continues to invest in patents to protect its
innovative new products and technologies. As at 1 February 2017 the
business had 28 patent families and 42 granted patents.
Financial review
The financial statements have been prepared on a going concern
basis which the Directors, having undertaken appropriate
investigation as summarised below in Note 1, believe continues to
be appropriate. Following the divestment of the Nicotine Gum
segment in October 2016, the financial statements have been divided
into continuing operations (comprising the Specialty Chemicals
business segment, including Itaconix Corporation acquired in June
2016), and discontinued operations (comprising the Nicotine Gum
business segment divested in October 2016) which are reported in
single lines in the income and cash flow statements, and further
explained in Note 5.
Continuing operations
Cash ow
Operating cash flow:
Excluding the discontinued operations of Nicotine Gum, net cash
outflow from continuing operating activities was GBP3,478k (2015:
GBP1,591k). Before R&D tax credit receipts of GBP481k (2015:
GBP1,343k), cash outflow from continuing operating activities was
GBP3,959k (2015: GBP2,934k). The components of the increase of
GBP1,025k were (i) GBP613k in respect of the US business since
acquisition on 20 June 2016; (ii) GBP222k in respect of increased
UK operating costs; and (iii) GBP190k of acquisition related
transaction costs.
Investing cash flow:
Excluding existing funds withdrawn from term deposits, investing
activity cash outflow was GBP2,470k (2015: GBP89k), the difference
of GBP2,381k reflecting primarily (i) the $3m upfront cash payment
component of the purchase price of Itaconix Corporation in June
2016; and (ii) purchase of property, plant and equipment as part of
an investment project to expand the manufacturing facility in the
US.
Financing cash flow:
Net cash inflow from financing activities was GBP5,473k (2014:
GBP18k), the difference of GBP5,455k reflecting the net proceeds of
the refinancing completed in July 2016 with existing and new
institutional investors less the transaction costs of the share
issuance to Itaconix Corporation shareholders.
As a result, the balances on hand at the year end were cash,
cash equivalents and short term deposits of GBP8,789k (2015:
GBP10,514k).
Operations
Revenue and gross profit:
Revenue for the period from continuing operations was GBP285k
(2015: GBP27k), being sales of the products of Itaconix Corporation
since acquisition, primarily Itaconix(R) DSP(TM) , resulting in a
gross profit of GBP55k (2015: GBP27k).
Administrative expenses:
The administrative expenses (including research and development)
of continuing operations were GBP5,275k (2015: GBP2,663k), and the
key drivers of the GBP2,612k increase were: (i) an increase of
GBP1,014k in non cash charges to GBP1,018k (2015: GBP4k), the
majority of which relate to the acquisition of Itaconix
Corporation; and (ii) an increase of GBP1,598k in expenses that
have a cash impact to GBP4,257k (2015: GBP2,659k), both as analysed
in the table below. In respect of the increase in expenses that
have a cash impact, at least GBP300k are not expected to be
recurring costs (the largest item being GBP190k of transaction
costs associated with the acquisition of Itaconix Corporation). The
significant components of the increase in administrative expenses
before non cash items and non recurring items of GBP1,296k were:
(i) administrative expenses (including research and development) of
the US business (formerly Itaconix Corporation) of GBP560k; (ii)
additional staff costs in the UK (including research and
development) of GBP307k; (iii) an increase in other product
development costs related to the expanded portfolio of GBP116k; and
(iv) additional advisory costs (including financial and audit)
associated with the expanded Group of GBP139k.
2016 2015
GBP'000 GBP'000
Non cash expenses:
Equity settled share based payment
(credit)
/expense 136 (290)
Employer's national insurance charge/
(credit) associated with vested
share options (108) 69
Depreciation of owned assets 202 160
Amortisation of intangible assets 132 -
Impairment of intangible assets 29 -
Foreign exchange differences 627 65
________ ________
1,018 4
Expenses with a cash impact: 4,257 2,659
________ ________
5,275 2,663
________ ________
Finance income:
Interest receivable on bank deposits and investments was GBP51k
(2015: GBP88k), the reduction reflecting the reduced balance of
cash, cash equivalents and short term deposits compared to the
prior period.
Loss before taxation:
The loss before tax from continuing operations was GBP5,639k
(2015: GBP2,522k), reflecting the net effect of the movements
described above, as well as the inclusion of the non cash share of
loss of associate in relation to the divested Nicotine Gum business
segment of GBP508k (2015: nil).
Taxation:
During the year R&D tax credits were claimed of GBP531k
(2015: GBP1,793k). These credits include amounts from 2015 of
GBP31k (2015: GBP1,343k - including amounts relating to the three
years 2012 to 2014 as well as 2015).
Loss for the year:
The loss for the year from continuing operations was GBP5,108k
(2015: GBP729k), and the basic and diluted loss per share from
continuing operations was 7.3p (2015: 1.3p).
Discontinued operations:
The loss after tax from discontinued operations was GBP608k
(2015: GBP1,063k), reflecting the loss for the 10 months to the end
of October 2016 before the Nicotine Gum business segment was
divested. The net cash out flow from discontinued operations was
GBP1,250k (2015: GBP1,010k).
Balance sheet items - intangible assets:
The Group now has GBP10,124k of intangible assets arising on the
acquisition of Itaconix Corporation (2015: nil) which were reviewed
for impairment or amortised as appropriate at the year end. The
main constituents are intellectual property (GBP3,471k, 2015: nil)
and goodwill (GBP6,653k, 2015: nil).
Balance sheet items - non-current liabilities:
The Group now has GBP4,872k of non-current liabilities arising
on the acquisition of Itaconix Corporation (2015: nil), comprised
of provisions of GBP3,414k (2015: nil) and a deferred tax liability
of GBP1,458k (2015: nil). The provisions represent the fair value
of the deferred consideration payable in ordinary shares to the
former shareholders of Itaconix Corporation, which will be reviewed
at each period end. The deferred tax liability relates to the
intellectual property acquired with Itaconix Corporation.
Outlook:
Management is pleased to have executed significant transactions
during the year including acquiring the polyitaconic acid based
product platform of Itaconix Corporation and divesting the Nicotine
Gum business segment. Whilst the Group has exited the headline
revenue stream from nicotine gum, this was a non-strategic loss
making business, and we look forward to growing higher quality
revenues from the core Specialty Chemicals business segment. Whilst
the cost base has increased with the addition of our new US
business, the Itaconix Group remains funded with GBP8.8m of short
term deposits, cash and cash equivalents on hand at the year end
(2015: GBP10.5m).
To date we have made progress with a number of new product
launches and agreements signed, based on improving the performance
of our customers' products. The key challenge for the business
looking forward is that revenue and profit is dependent on the
speed with which the Group's customers bring our new products to
market. Accordingly our strategy is to maximise the number of
viable customer relationships to reduce any dependence on
individual customers, and work closely with them to expedite the
commercialisation of these new products; and in this regard we have
made a good start to 2017, and look forward to further commercial
progress in the year ahead.
Dr Kevin Matthews
Chief Executive Officer
Consolidated income statement
For the year ended December 2016
2016 2015
Notes GBP'000 GBP'000
Continuing operations
Revenue 2 285 27
Cost of sales (230) -
---------------------------------------------- ----- ------- -------
Gross profit 55 27
Other operating income 38 26
Administrative expenses (5,275) (2,663)
---------------------------------------------- ----- ------- -------
Group operating loss (5,182) (2,610)
Finance income 51 88
Share of loss of associate 3 (508) -
---------------------------------------------- ----- ------- -------
Loss before tax from continuing operations (5,639) (2,522)
Taxation credit 4 531 1,793
---------------------------------------------- ----- ------- -------
Loss for the year from continuing
operations (5,108) (729)
Loss after tax for the year from discontinued
operations 5 (608) (1,063)
---------------------------------------------- ----- ------- -------
Loss for the year (5,716) (1,792)
---------------------------------------------- ----- ------- -------
Basic loss per share 6 (8.2)p (3.2)p
---------------------------------------------- ----- ------- -------
Diluted loss per share 6 (8.2)p (3.2)p
---------------------------------------------- ----- ------- -------
Basic loss per share from continuing
operations 6 (7.3)p (1.3)p
---------------------------------------------- ----- ------- -------
Diluted loss per share from continuing
operations 6 (7.3)p (1.3)p
---------------------------------------------- ----- ------- -------
The discontinued operations relate to the nicotine gum business,
the divestment of which was completed on 31 October 2016 and
announced on 2 November 2016.
The continuing operations relate to the specialty chemicals
business of the Group, including Itaconix Corporation acquired on
20 June 2016.
Consolidated statement of other comprehensive income
For the year ended December 2016
2016 2015
Notes GBP'000 GBP'000
---------------------------------------------------------- ------ -------- -------
Loss for the year (5,716) (1,792)
Items that will be reclassified subsequently to profit
or loss
Exchange differences in translation of foreign operations *1,439 -
---------------------------------------------------------- ------ -------- -------
Total comprehensive loss for the year, net of tax *(4,277) (1,792)
Atributable to:
Equity holders of parent *(4,277) (1,792)
------------------------------------------------------------------ -------- -------
Consolidated balance sheet
At 31 December 2016
2016 2015
Notes GBP'000 GBP'000
Non-current assets
Property, plant and equipment 803 340
Intangible assets 7 *10,124 -
Trade and other receivables - -
Investment in subsidiary undertakings - -
Investment in associate undertakings 3 145 -
-------------------------------------- ----- -------- --------
*11,072 340
-------------------------------------- ----- -------- --------
Current assets
Inventories 8 210 164
Trade and other receivables 835 1,017
Investments 9 - 7,000
Cash and cash equivalents 8,789 3,514
-------------------------------------- ----- -------- --------
9,834 11,695
-------------------------------------- ----- -------- --------
Total assets *20,906 12,035
-------------------------------------- ----- -------- --------
Financed by
Equity shareholders' funds
Equity share capital 11 787 567
Equity share premium 28,588 23,220
Own shares reserve (5) (5)
Merger reserve 20,361 17,626
Share based payment reserve 6,220 6,084
Foreign translation reserve *1,439 -
Retained earnings (42,936) (37,168)
Total equity *14,454 10,324
-------------------------------------- ----- -------- --------
Non-current liabilities
Provisions 10 3,414 -
Deferred tax liability 1,458 -
-------------------------------------- ----- -------- --------
4,872 -
Current liabilities
Trade and other payables 1,580 1,711
Total liabilities 6,452 1,711
-------------------------------------- ----- -------- --------
Total equity and liabilities *20,906 12,035
-------------------------------------- ----- -------- --------
Consolidated statement of changes in equity
For the year ended 31 December 2016
Share Foreign
Equity Equity Own based translation
share share shares Merger payment reserve Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------- ----------- ---------- --------- --------- ------------- ---------- -------
At 1 January 2015 566 23,203 (5) 17,626 6,374 - (35,376) 12,388
Loss for the year - - - - - - (1,792) (1,792)
Exercise of share
options 1 17 - - - - - 18
Share based payments - - - - (290) - - (290)
--------------------- ------- ----------- ---------- --------- --------- ------------- ---------- -------
At 1 January 2016 567 23,220 (5) 17,626 6,084 - (37,168) 10,324
Loss for the year - - - - - - (5,716) (5,716)
Other comprehensive - - - - - *1,439 - *1,439
income
Shares issued to
the market in the
year 157 5,645 - - - - - 5,802
Shares issued as
consideration for
Itaconix in the
year 63 - - 2,735 - - - 2,798
Transaction costs - (278) - - - - (52) (330)
Exercise of share
options - 1 - - - - - 1
Share based payments - - - - 136 - - 136
--------------------- ------- ----------- ---------- --------- --------- ------------- ---------- -------
At 31 December 2016 787 28,588 (5) 20,361 6,220 *1,439 (42,936) *14,454
--------------------- ------- ----------- ---------- --------- --------- ------------- ---------- -------
The reserves described above have the purposes described
below:
Own shares reserve:
The reserve records the nominal value of shares purchased and
held by the Employee Benefit Trust to satisfy the future exercise
of options under the Group's share option schemes.
Merger reserve:
This reserve arose as a result of a common control business
combination on the formation of the Group. The premium on the issue
of shares as part of a business combination is credited to this
reserve.
Share based payment reserve:
This reserve records the credit to equity in respect of the
share based payment cost.
Foreign exchange translation reserve:
This reserve arises on the translation of the assets and
liabilities of overseas subsidiaries.
Consolidated statement of cash flow
For the year ended 31 December 2016
2016 2015
Notes GBP'000 GBP'000
-------------------------------------------- ----- ------- -------
Net cash (outflow) / inflow from continuing
operating activities 12 (3,478) (1,591)
Net cash (outflow) from discontinued
operating activities 5 (1,250) (1,010)
-------------------------------------------- ----- ------- -------
Net cash (outflow) / inflow from operating
activities (4,728) (2,601)
-------------------------------------------- ----- ------- -------
Cash flows from investing activities
Interest received 91 107
Purchase of property, plant and equipment (518) (196)
Acquisition of subsidiary, net of cash
acquired (2,043) -
Funds withdrawn from term deposits 7,000 4,500
-------------------------------------------- ----- ------- -------
Net cash inflow from investing activities 4,530 4,411
-------------------------------------------- ----- ------- -------
Cash received from issue of shares 5,525 18
Transactions costs paid on the issue
of shares (52) -
Cash loaned to subsidiary undertaking - -
-------------------------------------------- ----- ------- -------
Net cash inflow / (outflow) from financing
activities 5,473 18
-------------------------------------------- ----- ------- -------
Net inflow / (outflow) in cash and
cash equivalents 5,275 1,828
Cash and cash equivalents at beginning
of year 3,514 1,686
-------------------------------------------- ----- ------- -------
Cash and cash equivalents at end of
year 8,789 3,514
-------------------------------------------- ----- ------- -------
Notes to preliminary results
For the year ended 31 December 2016
1. Basis of preparation
English law requires that the Group's consolidated financial
statements for the year ended 31 December 2016 are prepared in
accordance with all applicable International Financial Reporting
Standards ('IFRSs'), as adopted by the European Union. These
financial statements have been prepared in accordance with IFRS,
International Financial Reporting Interpretations Committee
('IFRIC') interpretations (as issued by the International
Accounting Standards Board) and those parts of the Companies Act
2006 applicable to companies reporting under IFRS.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2016
or 31 December 2015 but is derived from those accounts. Statutory
accounts for 2015 have been delivered to the registrar of
companies, and those for 2016 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006 in respect of the
accounts for 2015 and 2016.
The financial statements have been prepared on a going concern
basis which the Directors, having undertaken appropriate
investigation as summarised below, believe continues to be
appropriate.
The Group made a loss for the year of GBP5,716k, had Net Current
Assets at the period end of GBP8,254k and a Net Cash Outflow from
Operating Activities of GBP4,728k. Primarily, the Group meets its
day to day working capital requirements through existing cash
resources and had on hand cash, cash equivalents and short term
deposits at the balance sheet date of GBP8,789k (2015: GBP10,514k),
following the acquisition of the US Itaconix business (see Note 7)
and cash received from the issue of shares in the period of
GBP5,802k before expenses.
Itaconix plc has been a loss making business in each year of its
existence to date. Whilst it expects to deliver its business plan
of becoming a profitable specialty chemicals company in the medium
term, it currently relies on its shareholders to fund the business.
Uncertainties that are specific to Itaconix's business model
include that revenue and profit growth is dependent on its products
being incorporated into its customers products, and the rate at
which this occurs is inherently difficult to predict.
Trading and cash flow forecasts modelling a number of scenarios
were prepared for the period through to the end of 2020. The
forecasts reflect the status of the Group's current activities and
varying levels of achievement against the Board approved strategic
plan for the business, which is informed by the intent of the Board
to continue to successfully develop its operations and move to
being cash generative by 2020.
These forecasts indicate that the Group has sufficient financial
resources to continue to fund the business, based on the current
scope of operations, through to at least mid 2018 and meet its
liabilities as they fall due. The Board recognises that it is
probable that there will be a need for further fundraising before
the end of 2018 to enable the Group to continue as a going concern,
but anticipates that this will be completed based on the Group
delivering commercial progress (namely product launches and revenue
growth) in the intervening period, and taking into account recent
successful fundraisings. The Board will also consider reducing the
Group's cost base as necessary, depending on commercial
performance.
On this basis, the Directors consider that, at this time, there
are no material uncertainties that might cast doubt upon the
appropriateness of the continuing application of the going concern
basis of preparation.
2. Revenue
Revenue recognised in the Group income
statement is analysed as follows: 2016 2015
GBP'000 GBP'000
Sale of goods 285 27
Revenue 285 27
------- -------
Geographical information
2016 2015
GBP'000 GBP'000
Europe 140 7
North America 145 20
------- -------
285 27
------- -------
The revenue information is based on
the location of the customer.
Segmental information
The revenue information above is derived from the continuing
operations and excludes the Nicotine Gum segment that was disposed
of during the year (see Note 5).
The Group therefore has one segment - the Specialty Chemicals
segment which designs and manufactures proprietary specialty
polymers to meet customers' needs in the home care and industrial
markets and in personal care. This segment makes up the continuing
operations above.
Net assets of the Group are attributable solely to Europe and
the US.
3. Investment in associate
The Group acquired a 15% equity interest in Alkalon on 31
October 2016. Alkalon is a Danish speciality pharma company focused
on developing and commercialising medicated chewing gum
formulations. It is a private entity not listed on any public
exchange and there is only one share class in issue (ordinary
shares) so that all shareholders hold the same class of share with
the same rights attached (i.e. there are no restrictions specific
to the Group's holding). The Group's interest in Alkalon is
accounted for using the equity method in the consolidated financial
statements. The acquisition is considered to be a long term
investment. The fair value of the investment at the period end was
arrived at as described below.
GBP'000
Assets transferred to Alkalon at completion on 31 October
2016
Plant and machinery 26
Inventory 637
------
Value of investment at 31 October 2016 663
Share of loss of equity-accounted investees,
net of tax (2)
------
661
Loss on foreign exchange (10)
------
Value of Alkalon investment before impairment
at 31 December 2016 651
------
Impairment of investment (506)
------
Fair value of Alkalon investment at 31 December
2016 145
------
At completion, independent Danish accountants made a judgement
on the value of the investment at DKK8.178m (GBP987k), as announced
by the Company at the time in accordance with relevant regulatory
requirements. Itaconix management understands this valuation was
based on the delivery of a business plan written by Alkalon
management.
At 31 October 2016 Itaconix management valued the investment at
the value of the assets actually transferred to Alkalon, and then
reviewed this value for impairment as at 31 December 2016. The
conclusion of this review was that, based on developments after,
and information received after, 31 October 2016 (through
participation in Alkalon board meetings), risks associated with the
delivery of the Alkalon business plan exist that are not reflected
in the DKK8.178m valuation, primarily relating to the probable
extent of delivery of the business plan. Therefore an impairment
was triggered subsequent to the acquisition.
To measure the impairment, management adopted a risk adjusted
discounted cash flow approach to valuing the Alkalon business. This
involved projecting and discounting cash flows for upside, base and
downside cases reflecting varying extents of delivery of the
Alkalon business plan, and then applying to the NPV for each case
an estimated probability of occurrence, the sum of which provides a
weighted valuation. From this was subtracted the existing net debt
to derive an estimated overall market value.
The key assumptions were: a discount rate of 10%, valuation of
10 years of cash flows with no terminal value (to reflect
management's conservative approach) and use of the Alkalon business
plan out to 2020, with no further growth assumed 2021 to 2026.
Interest on the debt was per management's understanding of the
agreement with Alkalon's bank.
The impairment calculated of GBP506k was charged to share of
loss of equity-accounted investees, net of tax.
Place Proportion
of incorporation of ownership
Name Principal activity and operation interest
Trading Danish
associate of
Alkalon A/S (from 31 October Itaconix (U.K.)
2016) Ltd Denmark 15%
The following table summarises financial information relating to
Alkalon for the 2016 financial year and shows the Group's share of
the loss for the two months since the Group acquired its
shareholding:
2016
GBP'000
Intangible fixed assets 528
Tangible fixed assets 60
Current assets 2,640
Current liabilities (1,771)
---------
Equity 1,457
---------
2016
GBP'000
Revenue 3,826
Cost of sales (2,983)
Administration expenses (871)
Finance income 1
Finance costs (60)
---------
Loss before tax (87)
Income tax expense -
---------
Loss for the year (continuing operations) (87)
---------
Total comprehensive loss for the year (87)
---------
Group's share of loss for the year (2)
---------
The Group's share of the loss for the year is based on a pro
rata amount since acquisition.
The associate had no contingent liabilities or commitments as at
31 December 2016.
4. Taxation
2016 2015
GBP'000 GBP'000
Corporation tax credits
Prior years' corporation tax credits 31 1,343
Current year corporation tax credits 500 450
--------- ---------
UK corporation tax credits 531 1,793
--------- ---------
During the year ended 31 December 2016, the Group had a taxation
credit of GBP531k (2015: GBP1,793k) GBP500k of which relates to
R&D tax credits estimated to be claimable on qualifying
expenditure for the year ended 31 December 2016. The amount of
R&D tax credits actually received in the year of GBP481k
relates to submitted R&D tax claims for the year ended 31
December 2015 and the amount to be received of GBP500k relates to
the R&D tax claim to be submitted for the year ended 31
December 2016. In 2015 the amount of R&D tax credits actually
received in the year of GBP1,343k relates to submitted R&D tax
claims for the three years ended 31 December 2014 and the amount to
be received of GBP450k relates to the R&D tax claim to be
submitted for the year ended 31 December 2015.
5 Discontinued operations
On 16 September 2016, the Group announced that it had entered
into agreements for the divestment of the nicotine gum business to
Alkalon A/S, a Danish company, with completion subject to the
satisfaction of certain conditions precedent including the transfer
of key customer contracts and product licences to Alkalon.
Completion was announced on 2 November 2016.
The results of the Nicotine Gum segment for the year are
presented below:
2016 2015
GBP'000 GBP'000
Revenue 1,127 1,222
Cost of sales (948) (1,162)
------- -------
Gross profit 179 60
Administrative expenses (787) (1,123)
Impairment loss recognised on the re-measurement to fair value - -
less costs to sell
------- -------
(Loss) before tax from discontinued operations (608) (1,063)
Tax benefit: Related to current pre-tax loss - -
Tax benefit: Related to re-measurement to fair value less - -
costs to sell (deferred tax)
------- -------
(Loss) for the year from discontinued operations (608) (1,063)
------- -------
Administrative expenses are stated after charging:
Depreciation (8) (10)
The net cash flows incurred by the Nicotine Gum segment are, as
follows:
2016 2015
GBP'000 GBP'000
Operating (1,250) (1,010)
Investing - -
Financing - -
------- -------
Net cash outflow (1,250) (1,010)
------- -------
Earnings per share:
2016 2015
Basic loss for the year from discontinued operations (0.9p) (1.9p)
Diluted loss for the year from discontinued operations (0.9p) (1.9p)
------ ------
6. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year.
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
2016 2016 2016 2015 2015 2015
Loss GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Loss for the purposes
of basic and diluted
loss per share
(GBP'000) 5,108 608 5,716 729 1,063 1,792
----------- ------------ ------- ----------- ------------ -------
Weighted average
number of ordinary
shares for the
purposes of basic
and diluted loss
per share ('000) 69,738 69,738 69,738 56,603 56,603 56,603
----------- ------------ ------- ----------- ------------ -------
Basic and diluted
loss per share 7.3p 0.9p 8.2p 1.3p 1.9p 3.2p
----------- ------------ ------- ----------- ------------ -------
The loss for the period and the weighted average number of
ordinary shares for calculating the diluted earnings per share for
the period to 31 December 2016 are identical to those used for the
basic earnings per share. This is because the outstanding share
options would have the effect of reducing the loss per ordinary
share and would therefore not be dilutive.
7. Intangibles
Customer Intellectual
Goodwill Relationships Property Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost - - - -
At 1 January 2015
Additions - - - -
Disposals - - - -
---------- ---------------- -------------- ---------
At 1 January 2016 - - - -
Acquisitions through
business combinations 5,662 29 3,031 8,722
Foreign exchange movements *991 - *578 *1,569
At 31 December 2016 *6,653 29 *3,609 *10,291
---------- ---------------- -------------- ---------
Amortisation and impairment
At 1 January 2015 - - - -
Amortisation for the - - - -
year
Impairment charge - - - -
---------- ---------------- -------------- ---------
At 1 January 2016 - - - -
Amortisation for the
year - - 132 132
Impairment charge - 29 - 29
Foreign exchange movements - - *6 *6
At 31 December 2016 - 29 *138 *167
---------- ---------------- -------------- ---------
Net book value
At 31 December 2016 *6,653 - *3,471 *10,124
---------- ---------------- -------------- ---------
At 31 December 2015 - - - -
---------- ---------------- -------------- ---------
Since the acquisition of Itaconix Corporation occurred in the
middle of the year, the intangible assets acquired are required to
be amortised or reviewed for impairment at the period end (and at
least annually thereafter). The intangible assets identified out of
the purchase price allocation process were intellectual property
and customer relationships, and the balance required to reconcile
from the value of the net tangible assets to the fair value of the
purchase price was goodwill.
Intellectual property arising from the acquisition of Itaconix
Corporation has been amortised over a useful life of 13 years,
based on the estimated life of the overall intellectual property
portfolio acquired.
Management conducted an impairment review of the customer
relationships. On review, management noted that the lack of
customer contracts could theoretically result in such relationships
being terminated at short notice and so elected to impair them to
nil. It was also noted that the initial value of these assets was
immaterial.
With respect to reviewing goodwill for impairment, management
adopted a discounted cash flow approach to valuing the relevant
cash generating unit (CGU). The Board approved strategic plan is
the current medium term performance target for the Group covering
the four financial years 2017 to 2020, and so was used as the
source of cash flows for the CGU. For the years beyond 2020 a
terminal value was included based on a 2% growth rate, which
management believes is appropriate for the specialty chemicals
industry. A discount rate of 12.4% was used to discount the cash
flows.
Using this approach a net present value exceeding the fair value
of the consideration was arrived at. Sensitivity analysis was also
performed by varying the discount rate used and the extent to which
the strategic plan was delivered, as summarised below:
Discount rate - the discount rate could increase to 13.5% before
impairment is required
Delivery of strategic plan - the delivery of the plan could
reduce to 88% of forecast before impairment is required
Based on the analysis and sensitivity analysis performed,
management concluded that there was no need to impair the value of
goodwill. However, it was noted that there was limited headroom
before impairment would be necessary and so the matter will be kept
under close review.
Acquisitions
On 20 June 2016, the Group acquired 100% of the voting rights of
Itaconix Corporation, an unlisted company incorporated in the
United Stated of America. Itaconix Corporation is a specialty
polymer company that develops and commercialises polymers based on
its proprietary itaconic acid polymerisation technology. The Group
acquired Itaconix Corporation as its product offerings are
complementary to Itaconix Plc's own product lines, with
differentiated functionality and high customer value in the Group's
target markets.
Assets acquired and liabilities assumed:
The fair value of the identifiable assets and liabilities of
Itaconix Corporation as at the date of acquisition were:
Provisional Provisional
$'000 GBP'000
Fair value of consideration
Cash consideration 3,000 2,043
Itaconix Plc shares (6,305,050
shares @ 44.38p) 4,000 2,798
7,000 4,841
Deferred consideration
Itaconix Plc shares at fair
value 4,210 2,867
11,210 7,708
------------ ------------
Fair value of assets and liabilities
acquired
Non-current assets
Property, plant and equipment 266 181
Intangible Fixed Assets
Customer Relationships acquired 42 29
Intellectual Property acquired 4,451 3,031
4,493 3,060
Current assets
Inventories 220 150
Accounts receivable 68 46
Other current assets 88 60
Cash 1 1
377 257
Current liabilities
Trade and other payables (333) (228)
Non-current liabilities
Deferred tax liability (1,798) (1,224)
Net assets acquired 3,005 2,046
------------ ------------
Goodwill arising (consideration
less net assets acquired) 8,205 5,662
------------ ------------
The deferred tax liability comprises the tax effect of the
accelerated depreciation for tax purposes of the assets
acquired.
The goodwill on acquisition of GBP5,662k comprises the value of
expected synergies arising from the acquisition and is allocated
entirely to the US operations CGU.
The Group issued 6,305,050 ordinary shares of nominal value 1p
each as consideration for a 100% interest in Itaconix Corporation.
The fair value of the shares is calculated with reference to the
quoted price of the shares of the Company at the date of
acquisition, which was 44.38p per share. The fair value of the
consideration was therefore GBP2,798k. Transaction costs of GBP190k
were expensed and are included in administrative expenses. The cost
of issuance of the shares to Itaconix Corporation shareholders was
GBP52k, charged to the retained earnings.
As part of the purchase agreement with the previous owners of
Itaconix Corporation, a contingent consideration has been agreed.
This deferred performance related consideration will be payable to
the Itaconix Corporation shareholders, subject to the achievement
of certain growth targets for the calendar years 2017 to 2020,
based on 50% of incremental annual net sales value above $3m in
2017 and in excess of the prior year for 2018 to 2020 inclusive.
The deferred performance related consideration is capped at $6m in
aggregate. Such deferred performance consideration, if any, will be
satisfied annually entirely in ordinary shares of Itaconix plc.
At the reporting date the deferred consideration was measured as
GBP3,414k. In order to value the deferred performance related
consideration, management made judgements about the likelihood of
it being paid, and the phasing of such payments. To inform this
judgement reference was made to the following significant
unobservable valuation inputs:
- the Board approved medium term strategic plan for the Group
which forecasted relevant product annual net sales and therefore
allowed a profile of future deferred consideration payments to be
estimated
- this payment profile was then discounted at an appropriate
rate (12.4%) to derive a net present value that was used as the
basis for the fair value of the deferred consideration.
As at 31 December 2016, management has assumed that the medium
term strategic plan will be achieved and the full $6m will be
payable, settled in Itaconix plc ordinary shares. This is reflected
as a non-current liability in the Group balance sheet after
discounting to reflect risk and the time value of money.
Future developments may require revisions to the estimate. A
significant decrease in the net sales or a significant increase in
the discount rate and non-performance risk would result in a lower
fair value of the contingent consideration liability. A 1% increase
in the discount rate would reduced the deferred consideration by
GBP136k as at 31 December 2016.
The total amount of goodwill expected to be deductable for tax
purposes is nil.
From the date of acquisition, Itaconix Corporation contributed
GBP285k of revenue and GBP852k of losses from continuing operations
to the Group. The amount of revenue of the subsidiary for 2016
financial year assuming the acquisition had taken place at the
start of the accounting period was GBP510k and the loss for the
same period was GBP1,274k.
8. Inventories
2016 2015
Group GBP'000 GBP'000
Raw materials 46 70
Work in progress - 14
Finished goods 164 100
Goods in transit - -
Provisions - (20)
--------- ---------
210 164
========= =========
9. Investments
2016 2015
GBP'000 GBP'000
Term deposits maturing within one year - 7,000
--------- --------
10. Provisions
Contingent consideration 2016 2015
GBP'000 GBP'000
As at 1 January 2016 - -
Arising during the year 3,414 -
------- -------
As at 31 December 2016 3,414 -
------- -------
Current - -
Non-current 3,414 -
------- -------
The contingent consideration relates to the fair value of the $6
million of deferred consideration payable to the former owners of
Itaconix Corporation as part of the acquisition price. This
consideration is payable in new ordinary shares in Itaconix Plc,
subject to the satisfaction of certain business performance
criteria in the period 2017 to 2020 inclusive. Management currently
believes that all of the consideration will become payable, but it
has been discounted to reflect its risk and payment profile in
future periods. See Note 7 for further details.
11. Share capital
GBP'000
At 1 January 2015 (56,561,140 shares in issue) 566
Issued as a result of an exercise of options
01/09/15-3,000, 07/10/15- 44,000 1
09/10/15-3,000, 21/10/15-16,500, 27/11/15-3,000
New share issued
08/05/15-36,036
At 31 December 2015 (56,666,676 shares in issue) 567
Issued as a result of an exercise of options
25/02/16-3,000, 30/03/16-3,000 -
New share issued
20/06/16-6,305,050 220
11/07/16 -15,680,222
At 31 December 2016 (78,657,948 shares in issue) 787
-------
Itaconix plc (previously Revolymer plc) was incorporated on 10
April 2012.
On the 20 June 2016 the Company issued 6,305,050 ordinary shares
with a nominal value of 1p per share for 44.38p per share as part
of the consideration for the acquisition of Itaconix Inc (see Note
7).
On the 11 July 2016, the Company issued 15,680,222 ordinary
shares with a nominal value of 1p per share for 37p per share . The
consideration was received in cash.
12. Notes to the cash flow statement
2016 2015
GBP'000 GBP'000
Operating loss (5,182) (2,610)
Depreciation of property, plant and
equipment 202 160
Amortisation and impairment 161 -
Impairment of group indebtedness - -
Loss on foreign exchange 627 -
Share based payments / (credits) charge 136 (290)
Taxation 481 1,343
3
-------- --------
Operating cash flows before movements
in working capital (3,575) (1,397)
Decrease / (increase) in inventories (60) -
(Increase) / decrease in receivables 339 (90)
(Decrease) / increase in payables (182) (104)
-------- --------
Net operating cash (outflow)/inflow (3,478) (1,591)
-------- --------
13. Contingent asset
Under the terms of the divestment of the nicotine gum business
to Alkalon, the Group will be entitled to an additional 5%
shareholding in the combined business that resulted from the
transaction if a certain commercial contract is awarded to Alkalon
within 9 months of completion of the divestment, i.e. before the
start of August 2017. No asset has been recognised in respect of
this matter.
14. Contingent liability
In connection with the divestment of the nicotine gum business,
at the time of publication of this annual report: (i) the Canadian
nicotine gum product licences have been transferred to Alkalon;
(ii) the Canadian nicotine gum customers have new direct contracts
with Alkalon; (iii) Itaconix (U.K.) Ltd has served notice of
termination on the Canadian customers (but it will not be effective
until August 2017); and (iv) the Group's nicotine gum contract
manufacturing agreement has not yet been transferred or novated in
favour of Alkalon. Therefore there is limited risk associated with
the incomplete transfer of these commercial relationships,
notwithstanding that transaction completion has occurred and
Alkalon has provided the Group with appropriate contractual
indemnities. If Alkalon was insolvent and unable to pay Itaconix,
Itaconix would still be liable to the contract manufacturer under
the yet to be novated agreement for payment for product supplies.
Additionally, since Itaconix is required to give 6 months notice of
termination to the Canadian customers (actually served in February
2017) there is a limited risk that such customers place orders on
Itaconix before termination is effective in August 2017 which it
cannot honour as it is no longer the product licence holder,
notwithstanding the agreements the Canadian customers have directly
with Alkalon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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