BUCKINGHAMSHIRE, United Kingdom, July 29, 2003 (PRIMEZONE) -- Amersham plc (LSE:AHM) (NYSE:AHM) (OSE:AHM):
FINANCIAL OVERVIEW
The business performance and statutory results are summarised below and the commentary and tables which follow are on a business performance basis unless otherwise stated. Business performance results are stated before exceptional items and goodwill amortisation unless otherwise noted. Management believes that exclusion of these items provides a better comparison of business performance for the periods presented. All growth rates are stated at constant exchange (CER) unless otherwise noted. #Denotes ongoing business growth excluding discontinued products.
Business performance and highlights
6 months 6 months Growth at Constant
to 30 Jun 03 to 30 Jun 02 Exchange Rates%
Sales 808 812 6#
Operating
profit 141 165 5
Profit before
tax 140 159 8
EPS 13.7p 15.5p 7
Dividend per
share 2.85p 2.65p 8
* Sales up 6%# to 808 million, profit before tax up 8% at 140 million, earnings per share up 7% and dividend per share up 8%
* Medical Diagnostics sales (excluding Japan) up 11% to 382 million: -- Visipaque(tm) posts record sales of 56 million, an increase of 32% following NEPHRIC study on renal safety -- Patented product sales up 22% to 197 million -- Good progress in product development, seven products in phase III trials
* Protein Separations sales up 3% to 133 million -- Bioprocess sales up 10%, excluding speciality products -- Sales affected by weakness in laboratory separations market in Europe -- Stronger sales performance expected in second half
* Discovery Systems sales up 4%# to 192 million -- Restructuring ahead of plan delivering 7 million of cost savings in the first half; savings expected to be running at the rate of 35 million per annum by the end of 2004 -- Restructuring costs of 41 million charged to date -- Strategic focus on protein analysis and cellular bioassays
* Adverse impact of foreign exchange on first half profit before tax of 29 million
* Growth in earnings per share at constant exchange rate expected to be 8-10% for full year
Statutory results
6 months 6 months Growth at Constant
to 30 Jun 03 to 30 Jun 02 Exchange Rates%
Sales## 808 812 0
Profit before
tax 77 144 (47)
EPS 6.4p 14.9p (57)
##Turnover including share of joint venture
Statutory results show growth at actual exchange rates after charging restructuring costs of 41 million (2002, 0 million) and after goodwill amortisation of 22 million (2002, 15 million)
Sir William Castell, Chief Executive, said "Our business fundamentals remain strong. In Amersham Health, we have continued to improve earnings quality, vigorously driving the growth of our patented products, including Visipaque(tm), our premium X-ray imaging product, where new clinical data further validated its superior safety profile. Importantly our development portfolio in Medical Diagnostics is showing the benefits of sustained investment, with seven products now in phase III trials.
"In Protein Separations, our bioprocess business is robust and long-term prospects remain excellent as evidenced by the number of monoclonal antibodies in development and by the recent increase in FDA approvals of biopharmaceuticals. However, first half growth was affected by a slow down in development in the new field of antisense drugs and difficult economic conditions in Europe held back sales in laboratory separations. In Discovery Systems, good progress is being made against our objective of achieving profitability during 2004. Restructuring is ahead of plan and cost savings of 16 million are expected this year.
"The outlook for the second half is encouraging, with an expected continuation of steady growth in Amersham Health, a stronger performance in Protein Separations and further benefits coming though from the restructuring of Discovery Systems."
Business Performance
Amersham plc sales were 808 million, up six per cent. Amersham Health sales were up eight per cent, Discovery Systems sales were up four per cent and Protein Separations sales were up three per cent. Global sales performance saw geographic variation with sales growth in North America, Amersham's largest market, up 11 per cent, Europe flat and Japan up three per cent. Total R&D expenditure was up one per cent to 91 million, reflecting growth in line with sales in Amersham Health, increased R&D investment in Protein Separations and reduced expenditure in Discovery Systems as a result of the restructuring programme. Operating profit was 141 million, up five per cent. Profit before tax was 140 million, up eight per cent following a reduction in net interest expense from 4 million to 1 million.
In February 2003, the estimated adverse full year impact of exchange on profit before tax based on the rates of exchange at that time was 30 million. Since February, the position has worsened notably because of the US dollar and the Norwegian krone rates. As a result, in the first half of 2003, the adverse impact of foreign exchange on profit before tax was 29 million after hedging. Assuming the latest rates of exchange prevail for the remainder of 2003, the adverse impact on profit before tax for the year is now estimated to be around 40 million, (4.1 pence per share at the earnings per share level), compared to 2002.
The tax charge has benefited from the reorganisation of the US tax group following the purchase of the minority stake in Amersham Biosciences in 2002. The tax rate was 31.5 per cent compared with 33.5 per cent in the first half of 2002. The lower tax rate, together with reduced minority interest expense, helped to offset the effect of the increase in the average number of shares in issue, leaving earnings per share at 13.7p up by seven per cent. The Board has approved an interim dividend of 2.85p per share, up eight per cent.
Following the announcement in February that Amersham was to restructure its Discovery Systems business, the company has recorded an exceptional charge in the first half of 41 million. Tax relief of 12 million is expected on this charge and the cash spend in the first half was 7 million. The total cost of the programme is expected to be 50 million before associated tax relief, of which 37 million is cash outlay. Tax relief is expected to be 15 million.
Net cash flow from operating activities before exceptional items was down from 134 million in 2002 to 106 million in the first half of 2003, affected by foreign exchange. Free cash flow before equity dividends was 10 million, compared with 60 million in the first half of 2002, reflecting higher capital expenditure mainly in new production capacity. Net debt at 30 June 2003 was 234 million, an increase of 52 million compared with 31 December 2002. This increase reflects the reduced free cash flow, cash expenditure on restructuring of 7 million, completion payments on earlier acquisitions totalling 12 million and adverse exchange rate movements.
Statutory Results
The statutory results are shown after goodwill amortisation and exceptional items. Business performance profit before tax of 140 million was reduced by goodwill amortisation of 22 million and the exceptional restructuring charge of 41 million giving statutory profit before tax of 77 million. This was down from 144 million in the comparable 2002 period because of an increase in goodwill amortisation, the exceptional restructuring charge and the adverse impact of exchange. Statutory earnings per share amounted to 6.4p, down from 14.9p in the first half of 2002.
Amersham Health - Medical Diagnostics and Therapy
1H 2003 1H 2002 CER Growth%
Sales
Medical Diagnostics 457 446 9
Therapy 27 33 (12)
Total 484 479 8
Operating profit 118 140 5
Amersham Health is a global market-leading business specialising in in-vivo diagnostic products for the early and accurate detection of disease. In the first six months of 2003, Amersham Health achieved sales of 484 million, up eight per cent. Operating profits were 118 million, an increase of five per cent over 2002. Medical Diagnostics sales grew nine per cent to 457 million. Excluding Japan, sales of medical diagnostic products were up 11 per cent to 382 million.
In X-ray diagnostics, sales were 175 million, up nine per cent. Sales of Visipaque(tm), Amersham's premium non-ionic X-ray imaging agent, increased by 32 per cent to 56 million following the publication of the NEPHRIC data in the New England Journal of Medicine in February 2003. The data showed that Visipaque(tm) is 11 times less likely than the leading second generation product to cause contrast induced kidney damage in high-risk patients undergoing imaging procedures, effectively differentiating it on safety grounds. These findings have supported the use of Visipaque(tm) in high-risk patients, a growing population: approximately 25 per cent of enhanced scans are on patients in this category. Since its launch in 1993, Amersham has reinforced Visipaque(tm) as a premium brand by active life-cycle management and plans to steadily increase the clinical data validating its safety superiority, further expanding market penetration. In addition, increased sales and marketing expenditure was committed to drive the growth of Visipaque(tm). Sales of Omnipaque(tm), the world's best-selling in-vivo diagnostic product, were up two per cent to 108 million.
Overall, sales of patented products were up 22 per cent with Omniscan(tm) sales in magnetic resonance imaging up 13 per cent to 50 million and Myoview(tm) sales in radiopharmaceutical imaging up 24 per cent to 73 million. The continued increase in sales of patented products benefited the gross margin in Medical Diagnostics. This gain was offset at the operating margin by unfavourable exchange, increased sales and marketing expenditure and continuing price pressure in Therapy.
Amersham Health's sales growth of eight per cent in the first half was held back by two factors, the continued stagnation of the market in Japan and weak sales in Therapy. Strategic measures were taken to address both of these issues.
In February, Amersham announced a 68 million investment in positron emission tomography (PET) by Nihon Medi-Physics (NMP), Amersham's joint venture with Sumitomo Chemical in Japan, to enable the delivery of PET diagnostic products to key medical centres through the construction of a network of radionuclide manufacturing facilities. Positive response from future customers has prompted a further 17 million investment to increase the manufacturing network to cover approximately 80 per cent of patients. NMP is conducting additional phase III trials for fluoro-deoxyglucose (FDG), the main radionuclide currently used in PET imaging, and is on track to submit these data in the second half of 2003.
In Therapy, Amersham Health's sales for the first six months of 2003 were 27 million, down 12 per cent. In April, Amersham announced plans to focus on its core medical diagnostics business and to merge its brachytherapy commercial operations with the rapidly growing urology business of Galil Medical to form a new joint venture, known as Oncura. Amersham owns 75 per cent of Oncura and will account for the new company as a joint venture commencing on the date of completion of the merger which was 1 July 2003.
Portfolio development
Amersham Health focuses its R&D expenditure on the management of heart disease, circulatory disease and stroke; degeneration of the brain such as is seen in Alzheimer's and Parkinson's disease; lung disease and a range of cancers. The current product range is primarily used to aid in the diagnosis of anatomical and functional abnormalities of soft tissue within the body. Increasingly Amersham Health is developing products that detect changes in cells at the molecular level.
Sustained investment over recent years, both in life-cycle management and new product development, has transformed Amersham's late-stage clinical development portfolio with seven products now in phase III trials. In addition, good progress has been made in pre-clinical research and a full review of Amersham's R&D portfolio will take place in London on 17 November and in New York on 18 November.
Amersham Biosciences -- Protein Separations and Discovery Systems
1H 2003 1H 2002 CER Growth%
Sales
Protein Separations 133 131 3
Discovery Systems 192 202 4#
Operating profit
Protein Separations 43 48 0
Discovery Systems (10) (12) 4
#Ongoing business growth excluding discontinued products.
Protein Separations
Protein Separations is the global market leader in chromatography systems (instruments, software and media) for the purification of proteins. Laboratory separations supports small scale protein research and scale-up, while bioprocess provides products involved in the development and manufacture of biopharmaceuticals.
Sales for the first half of 2003 were 133 million, up three per cent, and operating profit was flat at 43 million. The underlying strength of the business was demonstrated by strong growth in bioprocess sales, up 10 per cent excluding speciality products, and sales growth of 14 per cent in North America. However, sales performance in the second quarter was adversely impacted by the slow down in antisense development and a challenging economic climate in Europe, specifically affecting academic sales in laboratory separations. In the US, laboratory separations sales growth was up six per cent, helped by greater than anticipated demand for the recently launched AKTApilot(tm), a bench-top protein purification system. Protein Separations' sales growth is expected to accelerate in the second half.
An upturn in confidence in the biopharmaceutical sector following the recent FDA approval of seven biologicals which included four monoclonal antibodies means that monoclonal antibodies are the fastest growing biopharmaceutical product category, accounting for an estimated 25 per cent of phase II clinical trials. With a strong franchise in this sector, Amersham is confident that Protein Separations will benefit from the flow of new biologically-based drugs. MabSelect(tm), specifically designed to purify monoclonal antibodies, has continued its strong growth and is rapidly establishing lead-brand status. MabSelect(tm) has been developed for the high-throughput capture of monoclonal antibodies from cell culture, and can process 10,000 litres of cell culture a day -- five times faster than conventional methods.
Discovery Systems
Discovery Systems comprises three application areas: genomics, proteomics and bioassays, providing laboratory research tools to help customers understand the molecular basis of disease, and to accelerate drug development. Sales in the first half of 2003 were 192 million, up four per cent, excluding discontinued product sales of 12 million, and including a one per cent benefit from acquisitions. Growth in proteomics and bioassays was offset by the continued weakness in the genomics market. The operating loss was reduced to 10 million including the continued investment in the CodeLink(tm) technologies, which had net expenditure of 7 million in the first half. CodeLink(tm) offers the highest-quality arrays with greater sensitivity, reproducibility and more useable data points and has attracted a high level of interest with a significant number of customer trials ongoing in the academic sector.
Sales have held up well during a period of considerable change in Discovery Systems as the business moves to focusing on profit rather than sales growth. Sales were strong in Japan and other international markets and showed improvement in North America in the last two months. Europe remains weak due to reduced funding in academia. Looking to the future, the strategic focus will be on protein analysis and cellular bioassays which have high growth potential and offer the opportunity for Amersham to become a clear market leader. In these areas a number of new products were launched in the first half of the year, including new DIGE dyes, sample preparation products and software for protein analysis and, in the bioassays area, the IN Cell Analyzer 1000. Product life-cycle extension, management of product mix and targeted development investment are being used to improve profitability of the genomics product range.
Restructuring of Discovery Systems
The restructuring programme announced in February, to accelerate the move of Discovery Systems into profitability during 2004 by reducing R&D and manufacturing costs and to realign the business portfolio, is ahead of schedule. In the first half of the year, savings of 7 million were achieved, with full year savings in 2003 forecast to be 16 million, and savings are expected to run at the rate of 35 million per annum by the end of 2004. Head count was reduced by 210 out of a total planned reduction of 445. Research has been consolidated into Piscataway, New Jersey, and development activities into three main hubs based in Cardiff (UK), Uppsala (Sweden) and Piscataway. Manufacturing has been rationalised onto two main sites in Cardiff and Umea (Sweden).
Outlook
The outlook for Amersham is encouraging with stronger growth in constant exchange rate terms expected in the second half of the year compared with the first. The company's business performance guidance is for a constant exchange rate increase in earnings per share for the full year of between 8 and 10 per cent, based on a continuation of steady growth from Amersham Health, a stronger performance from Protein Separations and further benefits of the restructuring programme in Discovery Systems.
The effect of movements in foreign currency, based on current rates of exchange, is likely to be a reduction in 2003 pre-tax profits of around 40 million, (4.1 pence per share at the earnings per share level) compared to 2002.
Dividend calendar
2 Oct 2003 Ex dividend date 3 Oct 2003 Record date for interim dividend 31 Oct 2003 Payment of interim dividend