Chemeq posts $60.7m loss

Antimicrobial specialist Chemeq (ASX:CMQ) posted a $60.7 million loss for 2004-04, 509 per cent greater than the $9.9 million it posted in the previous financial year.

The loss for 2004-05 included a $31.1 million write-down of its Rockingham manufacturing facility, located south of Perth, which was not at nameplate capacity at June 30, 2005. "This write-down does not reflect any change in current manufacturing performance at the plant or the board's view of the longer-term value of the plant but is based upon the prudent use of valuation parameters," said Chemeq CEO David Williams in a statement.

Underlying operating expenses increased across the board, with pre-production and production expenses up markedly from $2.8 million in 2003-04 to $15.4 in 2004-05. Similarly corporate and administrative expenses nearly doubled to $7.2 million ($3.9 million in 2003-04) as did sales and marketing expenses at $0.9 million ($0.5 million in 2003-04). Research and development expenses remained relatively the same, up from $2.3 million in 2003-04 to $2.4 million in 2004-05.

Operating costs increased due to the company's production facility commencing manufacture of its polymeric antimicrobial agent CHEMEQ and efforts to increase output after the plant experienced issues in the filtration part of the production process, the pursuit of sales agreements, the undertaking commercial trials and product launches and continued research and development.

Chemeq's costs were also up due to the company preparing a legal defence against claims made by ASIC, alleging that Chemeq contravened the continuous disclosure provisions of the Corporations Act 2001 on seven occasions between February 2003 and 6 October 2004.

Cash reserves up

During the year, Chemeq also undertook significant debt and equity raising activities, and has cash and short term deposits totalling $37.6 million at June 30, 2005, up from $6.3 million in 2003-04. Chemeq raised $9.8 million through a share placement, a further $20.3 million was raised through an underwritten rights issue to shareholders in September 2004, and in March 2005 the company raised $40 million through a convertible bond agreement with Japanese investment group Mizuho International and related entities of investment management group Stark Investments. The company received an injection of a further $20 million under this agreement in July 2005, after the financial year ended.

Total revenue for Chemeq was up 23 per cent from $0.9 million in 2003-04 to $1.1 million in 2004-05, due to the company making its first sales in South Africa, New Zealand and Malaysia.

Chemeq's year

• Completed capital raisings of $30 million.
• Convertible note issues of $40 million, plus a further $20 million after the financial year ended.
• Receipt of GMP licence for Rockingham manufacturing plant.
• Commencement of product exports.
• Successful commercial-scale trials in South Africa.
• Brian Mangano appointed CFO and company secretary, Tony Davies and John Nicholls appointed as non-executive directors.
• David Williams appointed CEO of Chemeq shortly after the financial year ended, replacing Graham Melrose who became executive chairman.