Final Results

RNS Number : 9320S
Allergy Therapeutics PLC
20 September 2010
 



Monday 20 September 2010

 

Allergy Therapeutics plc

("Allergy Therapeutics" or "the Company")

 

Preliminary Results for the year ended 30 June 2010

 

-Investment in Marketing and Sales and Improved Cost Base Drives Maiden Profit-

 

Allergy Therapeutics plc (AIM: AGY), the fully integrated specialty pharmaceutical company specialising in allergy vaccines announces preliminary results for the year ended 30 June 2010.

 

Highlights  

  • Maiden operating profit of £1.5 million (2009 restated: loss £5.1 million)
  • Cash generated by operations of £1.1million (2009: used £0.1 million)
  • Pollinex Quattro named-patient sales increased by 16% to £21.1 million
  • Revenues increased by 8% to £40.8 million (2009: £37.8 million)
  • Revenues increased by 5% on a constant currency basis
  • Gross profit increased by 22% to £29.6 million (2009: £24.2 million)
  • Profit after tax increased to £0.6 million (2009: loss £11.8 million)
  • £11.7 million debt outstanding (2009: £30.9 million)
  • Net debt reduced by £23.7million to £7.2 million (2009: £30.9 million)
  • Acquisition of Teomed AG on 1 July 2010

 

Manuel Llobet, Chief Executive of Allergy Therapeutics, added:

 

"During the period we achieved a number of objectives set out at the beginning of the year including delivering a maiden operating profit. This has been achieved by investing in our European sales and marketing operations whilst improving the cost base. The second objective was to strengthen our position in Europe which we have achieved through entry into the well-established allergy markets in Switzerland and the Netherlands. Preparations are now underway to expand into new markets outside Europe and further develop our portfolio of products.

 

"The Group is in a strong financial position, with a transformed balance sheet, and now profit-making; I believe that we will build on this base and create significant value for shareholders and all stakeholders."

 

For further information

 

Allergy Therapeutics

+44 (0) 1903 845 820

Manuel Llobet, Chief Executive Officer


Ian Postlethwaite, Finance Director


www.allergytherapeutics.com




Nomura Code Securities

+44 (0) 207 776 1200

Juliet Thompson/ Clare Terlouw




Financial Dynamics

+44 (0) 207 831 3113

Ben Brewerton/ Susan Quigley


 

 

 

Chairman's Statement

 

I am very pleased to report that in the financial year ended 30 June 2010, Allergy Therapeutics has delivered against its strategy: for the first time as a public company it is now profitable, both at the operating and profit after tax levels. This has been achieved by investing in our European sales and marketing operations whilst improving the efficiency of the cost base. Immediately after the year-end the European commercial infrastructure was further strengthened by the acquisition of Teomed AG in Switzerland.

 

It was vital for the Group's success that it should achieve operating profitability. A £6.6 million turnaround from an operating loss of £5.1 million in the previous year to an operating profit this year of £1.5 million is a tremendous achievement. Allergy Therapeutics is now one of few in its life sciences peer-group to be able to claim to be a profitable company. It is a milestone and I would like to thank each and every one of our employees for their efforts in helping to make this happen.

 

It also merits highlighting that our manufacturing and supply operations delivered considerable cost reductions and efficiencies whilst maintaining its excellent service to our customers with continued compliance and quality.  Investment continues in improved methods and equipment both to reduce risk and further improve future margins. 

 

On 1 July 2010 we announced the acquisition of Teomed AG, a Swiss speciality distribution company. Teomed is the first acquisition following the increased emphasis in the Group's strategy towards strengthening its European market position and will provide additional revenue growth and an opportunity to improve earnings.

 

The Group raised £25.7 million in the year from its shareholders.  £20.3 million was raised from shareholders in July 2009, with a cornerstone investment from the Weinstein family, whose interests in pharmaceuticals span over 20 countries from their South American base. A further £3.4 million was received from the exercise of warrants by the Weinstein family and a further £2.0 million fundraising in March. We thank all our shareholders, new and old, for their support. The refinancing in July 2009 enabled the Group to make a £9.4 million repayment of debt to RBS and resulted in a revision of the loan facilities terms.

 

As a consequence of the financing there were changes to the board. Keith Carter agreed to step down as CEO in September 2009 to allow Manuel Llobet, a highly experienced executive from the Weinstein family pharmaceutical businesses, to take over the role. Alejandro Weinstein joined the board as non-executive director as the senior representative of the Weinstein family. As we progress during the next year it is our aim to reduce the total size of the board and appoint a new independent non-executive director.

 

On the regulatory front, the submission in March 2009 of Pollinex Quattro Grass, our ultra-short course four injection grass allergy vaccine, remains under assessment by the Paul-Ehrlich Institute in Germany. Marketing approval is planned for Germany in early 2011 and subsequently elsewhere in Europe. This will enable Allergy Therapeutics to accelerate sales growth in its current markets as well as entering new European markets. Plans for the submission of 10 further marketing authorisations in Germany remain on track to achieve the end of November 2010 deadline, ultimately strengthening the Group's position in its most important market.

 

The last twelve months has seen Allergy Therapeutics pass a significant milestone. The Group is in a strong financial position, now profit-making and with a transformed balance sheet. Operationally the Group is stronger, not only in the targeted sales and marketing areas but also across the board in manufacturing and regulatory activities. I am proud of all that we have achieved and that our people have not only risen to their many challenges but identified the opportunities contained within them.

 

 

Ignace Goethals

Chairman

17 September 2010

 

 

 

CEO's Review

 

I have enjoyed my first year as CEO and I am pleased that the Group is progressing well and in line with its strategy. One of our key ambitions for this year was for the Group to make a profit and I am very pleased to report that this has been achieved. Operating profit for the year is £1.5 million (2009: loss £5.1 million) and profit after tax for the year is £0.6 million (2009: loss £11.8 million).

 

During the year, one of the key areas I have focused on was sales and marketing, with the aim of strengthening sales performance in our markets. Total net sales for the year are £40.8m, an 8% increase over the prior year; at a constant currency the growth was 5%. In Germany, the Group's most important market, we have simplified our portfolio in order to prepare the Group for the new regulatory environment and, despite the resulting reduction in the number of products we offer, sales grew by 5% at a constant currency. With the restructuring of the sales and marketing team now complete and an excellent marketing campaign focusing on the clinical benefits of Pollinex Quattro, we are doing all of the right things to improve sales in Germany further in the future. Sales teams in other key markets have also been reinforced and performance in most markets has been good.

 

The Group has a broad product portfolio that addresses the needs of the market: injectable (both short and longer course), oral and diagnostics. The flagship product is Pollinex Quattro; an injectable short course vaccine which requires only 4 injections over a period of 3 weeks. Pollinex Quattro is currently sold across a number of European countries on a named patient basis.  Completion of the regulatory process outlined below will open up new markets to Pollinex Quattro and enable Allergy Therapeutics to improve pricing and market share in those countries where only named patient sales are currently possible.

 

On the day after the year-end the Group acquired Teomed AG of Switzerland for a consideration of CHF1.2 million (£0.7 million).Teomed specialises in the field of allergy and was the distributor for the Group's products and other companies' products in the Swiss market. Teomed was established in 1989 and employs 12 people with an office in Zurich. In its last full trading year Teomed delivered revenues of CHF3.1 million (£1.9 million) and made a small operating profit. Following this transaction Allergy Therapeutics will have a direct sales and marketing presence in 7 countries: Germany, Italy, Spain, UK, Austria, The Netherlands and Switzerland. The allergy vaccine market in Switzerland is sophisticated and well established, worth around €10-15 million per annum. This is a great opportunity to improve earnings and provides us with an established infrastructure from which to launch Pollinex Quattro in the future.

 

The Group has also recently set up its own operation in the Netherlands where we expect to benefit not only from the sales of our own products but also from in-licensing complementary products to those already in our portfolio.

 

Another significant focus for the Group has been to improve its gross margin. Naturally, increasing the top line helps achieve this objective, but we have also been engaged in improving our manufacturing cost base. Through improving efficiencies within the cost base, focussing on the reduction of waste and rationalising the portfolio, the gross margin percent has improved from 64% to 73%. In turn, improving efficiency in the manufacturing plant will release production capacity permitting future growth without adding resources.

 

The year opened with the granting of two key patents in Europe and Japan and then later in the US for Pollinex Quattro but for the majority of the year the R&D focus has been on regulatory activities. The Therapeutic Allergen Regulation in Germany will change the allergy vaccination sector and we have made great progress to begin to meet the challenge in the preparation of regulatory dossiers for 10 products to be submitted in November 2010. In Germany, the Pollinex Quattro grass 0.5ml submission remains under the review of the Paul-Ehrlich Institute whilst further exciting data from the G301 study emphatically confirms the benefit of the product.  The situation in the US is still on hold although, following the approval of GlaxoSmithKline plc's (GSK) Cervarix® (containing the same monophosphoryl-lipid A (MPL)® adjuvant as Pollinex Quattro), we have now re-opened discussions with the Food and Drug Administration (FDA). 

 

Outlook

 

As a result of the new regulations in Europe, a new global market of registered allergy vaccine products is going to be created. Immunotherapy is receiving more attention and is the only segment of the Allergic Rhinitis market that is expected to show significant growth in the next few years according to a recent Datamonitor report. We are preparing the Group to take advantage of this opportunity. The first objective was to make the Group profitable; this we have achieved. Secondly, we have to strengthen our position in Europe. This process is now underway; restructuring of the German operation is now complete, marketing spend has been increased, a portfolio strategy has been adopted and new market operations have been set up in Switzerland and The Netherlands. Lastly we need to prepare the Group to move into new markets outside Europe and further develop our portfolio of products. We are very excited by the opportunities we have in the dynamic marketplace, we believe we can create value from it and I am sure we will succeed thanks to the great team we have.

 

The current economic climate may affect certain markets: in reimbursed markets there are pressures on authorities to lower the cost of medicines for the state and where products are not fully reimbursed there is pressure on the patient's pocket.

 

I am still as excited today by the opportunities available to Allergy Therapeutics as I was the day I took over as CEO. It is now a strong Group operating in a dynamic market; I believe that, thanks to a great team, we will build on this base and create significant value for shareholders and all stakeholders.

 

 

 

Manuel Llobet

Chief Executive Officer

17 September 2010

 

 

 

Financial Review

 

The results for the twelve months to 30 June 2010 have been very good with the Group posting its maiden operating profit of £1.5 million (2009 restated due to the transfer of derivative costs from administration expenses to finance expenses : loss £5.1 million) and a profit after tax of £0.6 million (2009: loss £11.8 million).

 

Gross sales for the period, before the statutory sales rebate in Germany of £1.3 million, were £42.0 million (2009: £38.9 million). This represents an increase of 8% over the previous year and at constant currency a growth rate of 5%. This growth is driven primarily by an increase of 13% in named-patient sales of Pollinex Quattro at a constant currency, and by the increasing strength of the Euro which added £1.1 million to the sales over the prior year. After the rebate, group net sales increased by 8% to £40.8 million (2009: £37.8 million).

 

Gross profit increased by 22% to £29.6 million (2009: £24.2 million), representing a gross margin of 73% of sales; a 9 percentage point increase from the previous year at 64%. This is a strong performance, delivered largely by reduced scrapping costs, closely managing overhead and material costs, and also marginally benefiting by the manufacture of £0.5 million of validation batches; used for the marketing authorisation submissions in Germany (charged to administration expenses). The improvements in gross margin reflect the efforts the Group has made to improve its productivity through a cost reduction exercise initiated at the beginning of the financial period.

 

Sales and marketing expenses, the major component of distribution costs, have increased by 9% over the previous period due to the strategy of improving our marketing capabilities in all of our key markets. Total distribution costs increased to £16.1 million (2009: £14.9 million), an increase of 8% over the previous year. Administration costs of £10.2 million (2009 restated: £9.1 million) were higher by £1.1 million than in the previous period due to increased costs for preparing marketing authorisations in Germany of £1.4 million and £0.5 million relating to compensation payments for the outgoing CEO (Mr Carter) offset by a provision release of £1.2 million (2009: £0.1 million) on the movement in fair value of foreign exchange derivative financial instruments.

 

Research and development costs decreased significantly during the period to £2.2 million (2009: £5.3 million) as the development activity for the MPL based vaccine range has now completed its current programme. Other income represents funds received from a partner to build in-house specific manufacturing plant.

 

The operating profit for the period was £1.5 million (2009 restated: loss £5.1 million)  

 

Finance expense costs are significantly lower than the prior year at £1.6 million (2009 restated: £6.4 million) with the lower cost being due to a smaller revaluation loss of £0.1m in the current year compared to a revaluation loss of £2.0 million in the previous year on the Euro denominated loan, a £1.4 million reduced loss (2010: gain of £0.3 million, 2009: loss of £1.1 million) in the fair value of the interest rate swap and a lower charge on interest and fees of £1.8 million (2009: £3.2 million) on the bank facility due to lower outstanding balances throughout the year. During the year a research and development tax credit was received for the previous financial year for £0.8 million, offset by a small tax charge in Germany. The profit after tax for the period was £0.6 million (2009: loss £11.8 million).

 

Spend on capital items was broadly in line with the charges for depreciation and amortisation in the year. Property, plant and equipment however, increased by £1.7 million, to £8.9 million due mainly to the revaluation upwards of the Italian freehold to to market value.

 

Net current assets excluding cash are £0.3 million (2009: net liability of £12.3 million). This improvement of £12.6 million is due principally to the repayment of £9.4 million in July 2009 following the equity fundraising with current borrowings reducing to £1.1 million (2009: £11.7 million) and the write back of £1.2 million regarding the fair valuation of financial derivatives. The last hedging contract expired in June 2010 thus leaving no further liabilities. Stock also rose by £0.9 million due to a stock-build exercise in anticipation of the high season in the autumn.

 

Net assets of £3.9 million (2009: net liability of £23.2 million) show an increase in assets of £27.1 million due primarily to cash received from the equity financing used to repay debt.

 

Net cash generated by operations for the period was an inflow of £1.1 million (2009: outflow £0.1 million), better than the previous period by £1.2 million due principally to an improvement in operating performance offset by an increase in working capital, with the opening working capital balance being lower than in the previous period.

 

Financing

 

Trends in the currency markets over the past 12 months, with the Euro weakening against Sterling, have been unfavourable to the Group's operations. Over 90% of our sales are denominated in Euros whereas roughly 50% of costs are incurred in the United Kingdom and denominated in Sterling. Furthermore, changes in the reimbursement regime in Germany, our key market, whereby there will be a price freeze on reimbursed products from the prices in the market on 1 August 2009 and the rebate paid to sick-funds increasing from the current level of 6% to 16%, will increase the cost of the rebate.

 

The Group raised £25.7 million from shareholders during the year; using some of the proceeds to repay £9.4 million of debt in July 2009. Following the fundraisings and warrant exercises, the Group's issued share capital as at 30 June 2010 is 320,604,947 composed of 310,756,614 ordinary shares of 0.1p each with voting rights attached (one vote per ordinary share) and 9,848,333 deferred shares of 0.1p each with no voting rights attached. The Group has no shares in Treasury; therefore the total number of voting rights in Allergy Therapeutics as at 30 June 2010 is 310,756,614.

 

The Group meets its ongoing financing obligations through a combination of a term loan facility of €11m, a revolving credit facility of €15.5 million and a small bank overdraft. At the balance sheet date £11.7 million was drawn on these facilities (2009: £30.9 million). The Directors believe that the Company and the Group will have access to adequate facilities for the foreseeable future and accordingly, they continue to adopt the going concern basis in preparing the full year results.

 

 

 

Ian Postlethwaite

Finance Director

17 September 2010

 

 

 

Consolidated income statement

for the year ended 30 June 2010








Year to

 30 June

Year to

 30 June

Year  to

 30 June

Year  to

 30 June



2010

2010

2009

2009





Restated

Restated



£'000

£'000

£'000

£'000


Note











Revenue

3


40,750


  37,757







Cost of sales



(11,164)


 (13,563)

Gross profit



29,586


   24,194







Distribution costs



(16,141)


(14,893)







   Administration expenses - other


(10,235)


(9,108)


   Research and development costs


(2,210)


(5,297)


Administration expenses



(12,445)


(14,405)







Other income

8


    456


              -

Operating profit/(loss)



 1,456


(5,104)







Finance income

10


       9 


             30

Finance expense

9


 (1,581)


(6,364)

Loss before tax

5


    (116)


     (11,438)

Income tax

11


    702


(326)







Profit/(loss) for the period



    586


(11,764)



















Earnings/(loss) per share

13





Basic (pence per share)



0.20p


(14.35p)

Diluted (pence per share)



0.19p


(14.35p)







 

Consolidated statement of comprehensive income

for the year ended 30 June 2010









Year to

 30 June


Year to

 30 June




2010


2009




£'000


£'000


Note











Profit/(loss) for the period



586


(11,764)  

Actuarial loss on defined benefit pension scheme

26


(612)


(9) 

Exchange differences on translation of foreign operations



(79)


(485) 

Revaluation gains



1,265


24 

Income tax relating to components of other comprehensive income



(31)


- 







Total comprehensive income/(expense)



1,129


(12,234) 







 

 

 

Consolidated balance sheet






 30 June

 30 June



2010

2009



£'000

£'000


Note



Assets




Non-current assets




Property, plant and equipment

16

8,938

7,191

Intangible assets - Goodwill

14

2,496

2,555

Intangible assets - Other

15

860

1,065

Investments - Retirement benefit asset

17

2,017

1,824

Total non-current assets


14,311

12,635





Current assets




Trade and other receivables

19

3,390

3,440

Inventories

18

6,894

6,002

Cash and cash equivalents

20

4,520

-





Total current assets


14,804

9,442





Total assets


29,115

22,077





Liabilities




Current liabilities




Trade and other payables

21

(8,875)

(8,950)

Current borrowings

22

(1,109)

(11,652)

Derivative financial instruments

24

-

(1,172)





Total current liabilities


(9,984)

(21,774)





Net current assets/(liabilities)


   4,820

      (12,332)





Non current liabilities




Retirement benefit obligation

26

(3,573)

(2,821)

Non current borrowings

22

(10,596)

(19,255)

Derivative financial instruments

24

(830)

(1,126)

Non current provisions

23

(246)

(277)





Total non current liabilities


(15,245)

(23,479)





Total liabilities


(25,229)

      (45,253)





Net assets/(liabilities)


3,886

(23,176)





Equity




Capital and reserves




Issued capital

27

321

92

Share premium


58,704

33,193

Merger reserve - shares issued by subsidiary


40,128

40,128

Reserve - shares held by EBT


67

67

Reserve - share based payments


1,323

1,291

Revaluation reserve


1,381

189

Foreign exchange reserve


(62)

(1,113)

Retained earnings


(97,976)

(97,023)





Total equity


3,886

(23,176)





 

 

 

Consolidated statement of changes in equity

 

 

 
Issued Capital
Share premium
Merger reserve - shares issued by subsidiary
Reserve - shares held in EBT
Reserve - share based payments
Revaluation reserve
Foreign exchange reserve
Retained earnings
Total equity
 
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
 
 
 
 
 
 
 
 
 
 
At 30 June 2008
92
33,173
40,128
(1)
1,031
165
(628)
(85,250)
(11,290)
Exchange differences on translation of foreign operations
 
 
 
 
 
 
(485)
 
(485)
Actuarial losses
 
 
 
 
 
 
 
(9)
(9)
Valuation gains taken to equity
 
 
 
 
 
24
 
      
24
Net income recognised directly in equity
-
-
-
-
-
24
(485)
(9)
(470)
Loss for the period after tax
 
 
 
 
 
 
 
(11,764)
(11,764)
Total comprehensive income
-
-
-
-
-
24
(485)
(11,773)
(12,234)
Share based payments
 
 
 
 
260
 
 
 
260
Sale of shares by Employee Benefit Trust
 
 
 
68
 
 
 
 
68
Shares issued
-
20
 
 
 
 
 
 
20
At 30 June 2009
92
33,193
40,128
67
1,291
189
(1,113)
(97,023)
(23,176)
 
 
 
 
 
 
 
 
 
 
Exchange differences on translation of foreign operations
 
 
 
 
 
 
(79)
 
(79)
Actuarial losses
 
 
 
 
 
 
 
(612)
(612)
Valuation gains taken to equity
 
 
 
 
 
1,265
 
 
1,265
Income tax relating to components of other comprehensive income
 
 
 
 
 
(31)
 
 
(31)
Net income recognised directly in equity
-
-
-
-
-
1,234
(79)
(612)
543
Profit for the period after tax
 
 
 
 
 
 
 
586
586
Total comprehensive income
-
-
-
-
-
1,234
(79)
(26)
1,129
Share based payments
 
 
 
 
193
 
 
 
193
Shares issued
229
25,511
 
 
 
 
 
 
25,740
Transfer of depreciation on revalued property
 
 
 
 
 
(42)
 
42
-
Correction of prior period immaterial errors
 
 
 
 
 
 
1,130
(1,130)
-
Transfer of lapsed options to retained earnings
 
 
 
 
 (161)
 
 
161
-
At 30 June 2010
321
58,704
40,128
67
1,323
1,381
(62)
(97,976)
3,886

 

 

 

Consolidated cash flow statement






Year to

 30 June

Year to

 30 June



2010

2009




Restated



£'000

£'000


Note







Cash flows from operating activities








Loss before tax


(116)

(11,438)





Adjustments for:




Foreign exchange loss


-

(485)

Finance income

10

(9)

(30)

Finance expense

9

1,499

4,378

Revaluation loss on loan

9

82

1,986

Non cash movements on defined benefit pension plan


155

107

Depreciation and amortisation

15,16

1,427

1,315

Charge for share based payments


193

260

Financial derivative instruments


(1,172)

(104)

Disposal of property, plant and equipment


-

41

Increase in trade and other receivables


(112)

(241)

Increase in inventories


(911)

(185)

Increase in trade and other payables


14

4,313





Net cash generated by / (used in) operations


1,050

(83)





Interest paid


(15)

(31)

Income tax refunded / (paid)


667

(326)





Net cash generated by / (used in) operating activities


1,702

(440)





Cash flows from investing activities




Interest received


9

30

Investments

17

(319)

(296)

Payments for intangible assets


(56)

(295)

Payments for property plant and equipment


(1,642)

(1,426)





Net cash used in investing activities


(2,008)

(1,987)





Cash flows from financing activities




Proceeds from issue of equity shares


25,740

88

Repayment of borrowings


(41,040)

(814)

Proceeds from borrowings


22,442

3,076

Bank loan fees and interest paid


(2,248)

(2,247)





Net cash generated by financing activities


4,894

103





Net increase / (decrease) in cash and cash equivalents


4,588

    (2,324)

Effects of exchange rates on cash and cash equivalents


(42)

-

Cash and cash equivalents at the start of the period


(26)

2,298





Cash and cash equivalents at the end of the period

20,22

4,520

(26)

 

 

 

 

ALLERGY THERAPEUTICS PLC

NOTES TO THE FINANCIAL STATEMENTS

 

1.  BASIS OF PREPARATION

 

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

 

The consolidated balance sheet at 30 June 2010 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2010 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498(2) or (3) of the Companies Act 2006.

 

Those financial statements have not yet been delivered to the registrar of companies.

 

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) in issue as adopted by the European Union ('EU').

 

Allergy Therapeutics Plc is the Group's ultimate parent company. The Company is a limited liability company incorporated and domiciled in England. The address of Allergy Therapeutics Plc's registered office and its principal place of business is Dominion Way, Worthing, West Sussex and its shares are listed on the Alternative Investment Market (AIM).

 

The consolidated financial statements for the year ended 30 June 2010 (including comparatives) have been prepared under the historical cost convention except for land and buildings and derivative financial instruments which have been measured at fair value. They were approved and authorised for issue by the Board of Directors on 17 September 2010.

 

Change of accounting policy

The accounting policy in respect of the measurement basis, subsequent to initial recognition, of the Group's freehold land and buildings has been changed from depreciated cost to the revaluation basis. This change in accounting policy has been applied from the date of change of accounting policy as required by IAS 8 'Accounting policies, accounting estimates and errors', and has resulted in an increase in the carrying amount of the Group's freehold land and buildings by £1,281,000.

 

Revaluations are performed by independent qualified valuers periodically. In the intervening years between independent revaluations, the directors review the carrying values of the freehold land and buildings and adjustments are made if the carrying values differ significantly from their respective fair values. Increases in the carrying value from revaluations are credited to the revaluation reserve. Decreases in the carrying values arising from revaluations are first offset against increases from earlier revaluations in respect of the same assets and are thereafter charged to the consolidated income statement.

 

Restatement of previous year figures

A decision was made in the year to reclassify the movement in the fair value of the interest rate swap financial derivative from administration expenses to finance expenses. The reason for this change is to report the derivative valuation changes in the same place as the actual interest rate swap charges. In order to present a fully comparable position, the 2009 comparative information has been restated on the same basis as detailed in note 33. This restatement has had no effect on profit after tax nor total equity.

 

New standards adopted

The Group has adopted the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board which are relevant to and effective for the Group's financial statements for the year beginning 1 July 2009.

 

IAS 1 Presentation of Financial Statements (Revised 2007)

The adoption of IAS 1 (Revised 2007) does not affect the financial position or profits of the Group, but gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses are unchanged, however some items that were recognised directly in equity are now recognised in other comprehensive income, for example revaluation of property, plant and equipment. IAS 1 (Revised 2007) affects the presentation of owner changes in equity and introduces a 'Statement of comprehensive income'. In accordance with the new standard the entity does not present a 'Statement of recognised income and expenses (SORIE)', as was presented in the 2009 consolidated financial statements. Further, a 'Statement of changes in equity' is presented.

 

In addition, two comparative periods are presented for the consolidated balance sheet when the Group:

 

- applies an accounting policy retrospectively;

- makes a retrospective restatement of items in its financial statements; or

- reclassifies items in the financial statements

 

Whilst there has been a restatement of certain items in the consolidated income statement (see note 33) this has had no impact on the consolidated balance sheet at 30 June 2008 and therefore only one comparative period has been presented for the consolidated balance sheet.

 

IAS 23 (Revised Borrowing Costs)

The revised standard requires the capitalisation of borrowing costs, to the extent that they are directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use or sale. This has had no significant effect on the Group's results as all relevant borrowing costs were already being capitalised as is now required.

 

IFRS 3 Business Combinations (Revised 2008) and IAS 27 Consolidated and Separate Financial Statements (Revised 2008)

The revised Standards introduce major changes to the accounting treatment for business combinations, transactions with non-controlling interests and a loss of control of a subsidiary. There has been no activity in the year under review, however a business combination that has taken place shortly after the year-end and all subsequent combinations will follow this new standard (see note 32).

 

Adoption of amendments to IFRS 7 Financial Instruments: Disclosures - improving disclosures about financial instruments

The amendments require additional disclosures for financial instruments that are measured at fair value in the consolidated balance sheet. These fair value measurements are categorised into a three level fair value hierarchy (see note 24) which reflects the extent to which they are based on observable market data. A separate quantative maturity analysis (see note 24) must be presented for derivative financial liabilities that shows the remaining contractual maturities, where these are essential for an understanding of the timing of cashflows. The Group has taken advantage of the transitional provisions in the amendments and has not provided comparative information in respect of the new requirements.

 

IFRS 8 Operating segments 

This IFRS specifies how an entity should report information about its operating segments in its financial statements. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. Implementation of this standard has not increased the number of reportable segments, but has brought them  in line with the way in which the segments are reported in the Group's monthly management accounts as reviewed by the chief operating decision-maker (see note 4). This change only affects presentational aspects of the financial statements  and there is no impact on earnings per share.

 

IFRIC 14  - IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

This IFRIC addresses the interaction between minimum funding requirements (which are commonly imposed by laws and regulations in some jurisdictions) and the measurement of a defined benefit asset. Application of this IFRIC has not given rise to any change in the Group's results.

 

IFRS 2 amendment to share based payments

This amendment clarifies that vesting conditions are service conditions and performance conditions only, and specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. This amendment does not have a material effect upon the Group's financial statements.

 

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 30 June 2010 financial statements

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. The Group has not adopted any of these pronouncements early. The new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements are as follows:

  •   IAS 39/IFRIC 9 Financial Instruments: Recognition and measurement on hedged items

This IFRIC addresses the treatment of embedded derivatives and whether an assessment should be made only at the commencement of such a contract or throughout the life of the contract. Management are currently assessing the detailed impact on the Group's financial statements.

  •   IFRIC 16 Hedges of Net Investments in Foreign Assets

This IFRIC addresses the consistency of treatment of hedges of net investments in overseas operations. Management are currently assessing the detailed impact on the Group's financial statements.

 

Management anticipate that the above pronouncements will be adopted in the Group's financial statements for the period beginning 1 July 2010. These developments are not expected to have a material impact on the Group's financial statements.

 

Other new standards and Interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

 

Going concern

For the year ended 2010 the Group has reported a profit, however for the financial years ended 2007 to 2009 primarily as a consequence of its investment in research and development activities, it reported losses. These losses have been funded by equity issues, debt facilities and cash generated by the operating business.

 

The Group has prepared detailed budgets, including cash flow projections, for the periods ending 30 June 2011 and 30 June 2012. These projections include assumptions on the trading performance of the operating business and the continued availability of the existing debt facilities. After making appropriate enquiries, which included a review of the annual budget, by considering the cash flow requirements for the foreseeable future and the effects of sales and other sensitivities on the Company's funding plans, the Directors continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable future and accordingly have applied the going concern principle in drawing up the financial statements. In reaching this view, the Directors have considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

 

 

2.  ACCOUNTING POLICIES

 

Consolidation

The Group's financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 June 2010. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of over one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated on the date control ceases.

 

The Group uses the purchase method of accounting for the acquisition of a subsidiary. The cost of an acquisition is measured by the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination that meet the conditions for recognition under IFRS 3 Revised Business Combinations, are recognised at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired the difference is recognised directly in the income statement.

 

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated except for unrealised losses if they show evidence of impairment.

 

Goodwill

Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired. Details of impairment testing are described in the accounting policies.

 

Intangible assets

Acquired as part of a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

 

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses.

 

Internally generated intangible assets

An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if, and only if, all of the following have been demonstrated:

  • the technical feasibility of completing the intangible asset so that it will be available for use or sale
  • the intention to complete the intangible asset and use or sell it
  • the ability to use or sell the intangible asset
  • how the intangible asset will generate probable future economic benefits
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
  • the ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, research and development expenditure is charged to profit or loss in the period in which it is incurred.

 

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation of these assets is calculated on a straight line basis over the useful economic life using the following annual rates: 

 

Manufacturing know-how

15 years

Non-competing know-how

  4 years

Other intangibles

15 years

Computer software

  7 years

 

These periods were selected to reflect the various assets' useful economic lives to the Group.

 

The cost of amortising intangible assets is included within administration costs in the consolidated income statement.

 

Segmental reporting

In identifying its operating segments, management follow the Group's revenue lines which represent the main geographical markets within which the Group operates. These operating segments are managed separately as each requires different local expertise, regulatory knowledge and a specialised marketing approach. An operating segment is a group of assets and activities engaged in operations that is subject to risks and returns that are different from those of other business segments. A market based operating segment is engaged in production, marketing and selling within a particular economic environment that is different from that in segments operating in other economic environments. All inter-segment transfers are carried out at arm's length prices.

 

The Group's operating segments are market based and are reported in a manner consistent with the internal reporting provided to the Group's Chief Operating Decision Maker (CODM) who has been identified as the Board of Directors. The CODM is responsible for allocating resources and assessing the performance of the operating segments.

 

Foreign currency translation

Functional and presentational currency

 

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Group's presentational currency is Sterling.

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

 

Group companies

 

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet with all resulting exchange differences being recognised as a separate component of equity.
  • Income and expenses for each income statement are translated at actual exchange rates or using an average rate as an approximation with resulting exchange differences recognised within the income statement.

 

The Group has taken advantage of the exemption in IFRS 1 which allows all foreign exchange differences on consolidation to be set at zero at transition and the foreign exchange reserve therefore only shows post transition foreign exchange differences.

 

Income recognition

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, net of statutory rebates paid in Germany and excluding value added tax.  Revenue is recognised upon the performance of services or transfer of risk to the customer.

 

Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

  • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when the customer has physically received the goods.
  • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is again when the customer has physically received the goods.
  • the amount of revenue can be measured reliably.
  • it is probable that the economic benefits associated with the transaction will flow to the Group, and
  • the costs incurred or to be incurred in respect of the transaction can be measured reliably.

 

A small proportion of the Group's overseas sales are made though licensees and distributors.

 

For all licensee arrangements, the licensee is invoiced at the time of delivery and title to the product passes upon full and final settlement of the invoice to which the delivery relates. The licensee has full discretion over the setting of the final selling price to the end customer and pays a fixed percentage of the final selling price back to the Group as 'royalties' as and when those sales are made. The licensee is responsible for all customer returns of product.

 

It is considered that the significant risks and rewards of ownership of the product are transferred to the licensee at the point of delivery and therefore revenue is recognised at this point in accordance with IAS 18. Royalties are recognised on an accruals basis as the licensee books the sale to the end customer in accordance with IAS 18 paragraph 30 (b).

 

For all distributor agreements, the distributor places orders with the Group, at which point goods are shipped to them. The Group however, holds title to these products until they are sold on to a third party with the distributor effectively acting as an agent. The selling price to the end user is set by the relevant Government body and the distributor receives a fixed percentage of this selling price. The distributor notifies the Group monthly on stock levels and this is reconciled to a statement which generates an invoice for payment by the distributor. The Group is responsible for any customer returns of product.

 

It is considered that the significant risks and rewards of ownership of the product are not transferred from the Group until the distributor has sold the product to a third party and therefore revenue on these sales is recognised at this point by the Group in accordance with IAS 18 appendix 2 (c).

 

Royalties

Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement.

 

Milestones

Revenues with performance milestones are received from our licensees in Canada and are treated as royalties. These are recognised on the satisfactory occurrence of critical events as pre-defined in the relevant agreement.

 

Expenditure recognition

Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin.

 

Borrowing costs

Borrowing costs primarily comprise interest on the Group's borrowings. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in 'finance costs'

 

Property, plant and equipment

The accounting policy in respect of the measurement basis, subsequent to initial recognition, of the Group's freehold land and buildings has been changed from depreciated cost to the revaluation basis. This change in accounting policy has been applied from the date of change of accounting policy as required by IAS 8 'Accounting policies, accounting estimates and errors', and has resulted in an increase in the carrying amount of the Group's freehold land and buildings by £1,281,000.

 

The estimated useful life of the Group's land and buildings has been increased from ten years to thirty three years. Prior to the revaluation, the assets had been fully depreciated. The effect of the revaluation through the consolidated income statement has been calculated as a charge of £39,000.

 

Revaluations are performed by independent qualified valuers periodically. In the intervening years between independent revaluations, the directors review the carrying values of the freehold land and buildings and adjustments are made if the carrying values differ significantly from their respective fair values. Increases in the carrying value from revaluations are credited to the consolidated statement of comprehensive income. Decreases in the carrying values arising from revaluations are first offset against increases from earlier revaluations in respect of the same assets and are thereafter charged to the consolidated income statement.

 

Plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Provision for depreciation of all tangible assets of the Group is made over their estimated useful lives, on a straight line basis principally using the following annual rates:

 

Land and Buildings

33 years

Computer equipment

3 - 7 years

Motor vehicles

4 years

Fixtures and fittings

5 - 10 years

Plant and equipment

5 - 10 years

 

Asset residual values and useful lives are reviewed annually and amended as necessary. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the fixed asset may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount exceeds the higher of the asset's fair value less costs to sell or value in use.

Assets under course of construction are capitalised but not depreciated. Once the asset is ready for use, it is transferred to the relevant heading and depreciated accordingly.

 

Impairment

The Group's goodwill, other intangible assets, freehold land and buildings and plant & equipment are subject to impairment testing.

 

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Goodwill is allocated to those cash generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows.

 

Individual assets or cash generating units that include goodwill with an indefinite useful life or those not yet available for use are tested for impairment at least annually. All other individual assets or cash generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

An impairment loss is recognised for the amount by which the assets or cash generating units carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.

 

Inventories

Inventory is carried at the lower of cost or net realisable value. The costs of raw materials, consumables, work in progress and finished goods are measured by means of weighted average cost using standard costing techniques. Cost of finished goods comprises direct production costs such as raw materials, consumables, utilities and labour, and production overheads such as employee costs, depreciation, maintenance and indirect factory costs. Standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

 

Net realisable value is calculated based on the revenue from sale in the normal course of business less any costs to sell.

 

Leases

Operating lease rentals are charged to the income statement over the term of the lease. There are no finance leases.

 

Financial assets

Financial assets consist of cash and other receivables. Financial assets are assigned to their different categories by management on initial recognition, depending on the contractual arrangements.

 

Cash and cash equivalents comprise cash on hand, demand deposits and overdrafts, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument and are initially recognised at fair value plus transaction costs, and subsequently at amortised cost.

 

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

 

Financial liabilities

The Group's financial liabilities include bank loans, trade and other payables.

 

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in 'Finance costs' in the income statement.

 

Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

 

Borrowings comprise secured bank borrowings, and are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.

 

Derivative financial instruments

The Group uses interest rate swaps, Euro forward contracts and Euro exchange swaps to manage the exposure to changes in interest and translation rates and these are classified as derivative financial instruments. All derivative financial instruments are initially measured at fair value on acquisition and are subsequently restated to fair value at each reporting date. Any change in the fair value of the instruments is recognised in the Income Statement.

 

Equity

Equity comprises the following:

  • "Issued capital" represents the nominal value of equity shares that have been issued.
  • "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
  • "Merger reserve" represents shares issued by the subsidiaries.
  • "Reserve - Shares held in EBT" represent the shares acquired by a trust set up for the benefit of the Group's employees. These shares are deducted from shareholders funds at the cost that the shares were acquired. The net proceeds received from the issue of these shares through the exercise of options are also recognised through this reserve.
  • "Share based payments reserve" represents equity-settled share-based employee remuneration until such share options are exercised.
  • "Revaluation reserve" represents the revaluations of investment assets and land and buildings..
  • "Foreign Exchange reserve" represents the foreign currency translation differences that have occurred since the transition date. Exchange differences prior to this date are included within retained earnings.
  • "Retained earnings" represents retained profits and losses.

 

Equity is any contract which evidences a residual interest in the assets of the Group after deducting all its liabilities.

 

Income taxes

Current income tax assets and liabilities comprise those obligations to fiscal authorities in the countries in which the Group carries out its operations. They are calculated according to the tax rates and tax laws applicable to the fiscal period and the country to which they relate. All changes to current tax liabilities are recognised as a component of tax expense in the income statement.

 

Deferred income taxes are calculated using the liability method on temporary differences.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.  However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.  Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.  In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

 

Deferred tax liabilities are provided in full, with no discounting.  Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.  Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

 

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to the consolidated statement of comprehensive income (such as the revaluation of land and buildings) in which case the related deferred tax is also charged or credited directly to the consolidated statement of comprehensive income.

 

Defined Benefit Pension Scheme

Scheme assets are measured at fair values.  Scheme liabilities are measured on an actuarial basis using the projected unit credit method and are discounted at appropriate high quality corporate bond rates that have terms to maturity approximating to the terms of the related liability.  Appropriate adjustments are made for past service costs.  Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested.  To the extent that benefits are already vested the Group recognises past service cost immediately.

 

Actuarial gains and losses are recognised immediately through the consolidated statement of comprehensive income and expense.  The net surplus or deficit is presented with other net assets on the balance sheet.   The related deferred tax is shown with other deferred tax balances.  A surplus is recognised only to the extent that it is recoverable by the Group.

 

The current service cost, past service cost and costs from settlements and curtailments are charged against administrative expenses in the income statement.  Interest on the scheme liabilities and the expected return on scheme assets are included in other finance costs.

 

Short-term employee benefits, including holiday entitlement are included in current pension and other employee obligations at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

 

Investments

Investments relate to long-term insurance policies that cannot be directly deducted from the German pension obligation. These are recognised as a separate asset, rather than as a deduction in determining the defined benefit liability. They are held at fair value with any gains or losses on valuation charged or credited to the consolidate statement of comprehensive income.

 

Provisions

Provisions are recognised when the present obligations arising from legal or constructive obligations resulting from past events, will probably lead to an outflow of economic resources from the Group which can be estimated reliably.

 

Provisions are measured at the present value of the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date.

 

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

 

Share based employee compensation

The Group operates equity settled share based compensation plans for remuneration of its employees.

 

All employee services received in exchange for the grant of any share based compensation are measured at their fair values. These are indirectly determined by reference to the share option awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (e.g. profitability or sales growth targets).

 

All share based compensation is ultimately recognised as an expense in the consolidated income statement with a corresponding credit to the share based payments reserve, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options ultimately are exercised than estimated.

 

Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium.

 

Employee Benefit Trust

The financial statements include the assets and liabilities of a trust set up for the benefit of the Group's employees.  The employee benefit trust has acquired shares in the Company and these are deducted from the shareholders' funds on the balance sheet at the cost of acquisition.

 

Use of accounting estimates and judgements

Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements and the key areas are summarised below:

 

Judgements in applying accounting policies

a)   Identification of functional currencies requires analysis of the economic environments of the subsidiaries of the Group and the selection of the presentational currency must reflect the requirements of the users of those statements.

b)   During the year the Group earned no milestone payments (2009: £282k). The amount in the previous year had been recognised as revenue because it was considered that a significant milestone had been reached for which the earnings process, based on cumulative sales, had been completed.

c)   Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the project concerned. Capitalisation of the costs will be made only where there is evidence that an economic benefit will accrue to the Group. To date no development costs have been capitalised and all costs have been expensed in the Income statement as research and development expenditure, £2.2m (2009: £5.3m)

d)   Land and buildings were not revalued to fair value at the reporting date as management determined that the effect of the changes in market prices between the dates of revaluation and the reporting dates were immaterial.

 

Sources of estimation uncertainty

a)   Depreciation rates are based on estimates of the useful lives and residual values of the assets involved.

b)   Estimates of future profitability are required for the decision whether or not to create a deferred tax asset.

c)   Estimates are required as to asset carrying values and impairment charges.

d)   Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit to which the goodwill has been allocated. This value in use calculation requires an estimation of the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value.

e)   Determining the goodwill position on the acquisition of Teomed AG on 1 July 2010 requires an estimation of the future cashflows relating to distributor agreements in place with Teomed AG on that date. It also requires estimation of a suitable discount rate in order to calculate the present value.

 

3.  REVENUE

 

An analysis of revenue by category is set out in the table below:

 

2010

2009


£'000

£'000




Sale of goods

38,735

35,643

Royalties

2,015

1,832

Milestones

-

282





40,750

37,757

 

 

4.  SEGMENTAL REPORTING

 

The Group has implemented the amended (2007) IFRS 8 "Operating Segments" with effect from 1 July 2009. This has resulted in a change to the segmental information reported. Comparative information has been presented on a consistent basis.

 

The Group's operating segments are being reported based on the financial information provided to the Board of Directors, which is the Chief Operating Decision-Maker (CODM), to enable it to allocate resources and make strategic decisions.

 

The CODM reviews information based on geographical market sectors and assesses performance at an operating profit level. Management have identified that the operating segments are Germany and Austria; Italy and Spain; the UK and Other.

 

Revenue by Segment

 

Revenue from External Customers

Inter Segment Revenue

Total Segment Revenue

 

Revenue from External Customers

Inter Segment Revenue

Total Segment Revenue


2010

2010

2010

2009

2009

2009


£'000

£'000

£'000

£'000

£'000

£'000








Germany and Austria

30,906


30,906

28,349


28,349

Italy and Spain

5,562


5,562

5,227


5,227

UK

490

35,024

35,514

329

31,152

31,481

Other

3,792


3,792

3,852


3,852









40,750

35,024

75,774

37,757

31,152

68,909

 

Revenues from external customers in all segments are derived from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition.

 

Other revenues include licensee and distributor sales and royalties through several world-wide markets including Czech and Slovak Republics, Netherlands and Canada.

 

The CODM also reviews revenue by segment on a constant currency basis to provide relevant year on year comparisons.

 

The following revenue table is based on a constant currency rate of € 1.11: £1.00 which was the rate used in the 2010 budget.

 

Revenue from External Customers

Revenue from External Customers


2010

2009


£'000

£'000




Germany and Austria

31,539

29,858

Italy and Spain

5,687

5,507

UK

490

329

Other

3,792

3,852





41,508

39,546

 

Depreciation and Amortisation by Segment

 

2010

2009


£'000

£'000




Germany and Austria

58

70

Italy and Spain

99

62

UK

1,270

1,183





1,427

1,315

 

Operating Profit/(Loss) by Segment

 

2010

2009

Allocated operating profit/(loss)

£'000

£'000




Germany and Austria

463

801

Italy and Spain

214

(39)

UK

779

(5,866)

Allocated operating profit/(loss)

1,456

(5,104)

Finance income

9

30

Finance expense

(1,581)

(6,364)

Loss before tax

(116)

(11,438)

Taxation

702

(326)




Profit/(Loss) for the Year

586

(11,764)

 

Total assets by Segment

 

2010

2009


£'000

£'000




Germany and Austria

6,538

6,395

Italy and Spain

3,255

1,733

UK

34,810

30,344


44,603

38,472

Inter-Segment Assets

(1,620)

(2,525)

Inter-Segment Investments

(13,868)

(13,870)




Total Assets per Balance Sheet

29,115

22,077

 

Total liabilities by Segment

 

2010

2009


£'000

£'000




Germany and Austria

(5,633)

(6,588)

Italy and Spain

(1,289)

(1,202)

UK

(19,927)

(39,988)


(26,849)

(47,778)

Inter-Segment Liabilities

1,620

2,525




Total Liabilities per Balance Sheet

(25,229)

(45,253)

 

 

5.  LOSS BEFORE TAX

 

 

2010

2009

Loss for the period has been arrived at after charging / (crediting):

£'000

£'000



Restated

Foreign exchange loss

730

3,533




Depreciation and amortisation:



Depreciation of property plant and equipment (note 16 )

1,172

1,008

Amortisation of intangible assets (note 15 )

255

307




Research and development

2,210

5,297




Employee benefits expense:



Employee costs (Note 7)

19,029

16,110




Land and buildings held under operating leases

398

518

Other operating leases

520

620




Consultancy and professional fees relating to Group refinancing

-

620

Audit and non-audit services:



Fees payable to the Company's auditor for the audit of the Group accounts

21

21

Fees payable to the Company's auditor and its associates for other services:



The audit of the Company's subsidiaries pursuant to legislation

62

75

Tax services

2

11

Other services pursuant to legislation

11

51




Share based payment expense (note 28 )

193

260




 

The Foreign exchange loss in 2009 has been restated from that which was previously reported (£485,000 to £3,533 000).

 

 

6.  REMUNERATION OF KEY MANAGEMENT PERSONNEL

 

2010

2009


£'000

£'000




Salaries and short-term employee benefits

1,162

865

Severance payments

542

-

Post employment benefits - defined benefit plans

41

42

Post employment benefits - defined contribution plans

71

53


1,816

960

Over accrual of bonuses

(50)

-

Share based payment

75

104





1,841

1,064

 

 

7.  EMPLOYEES

 

2010

2009


£'000

£'000




Wages and salaries

16,093

13,473

Social security costs

2,278

1,970

Share based payments

193

260

Pension costs - defined benefit plans

244

233

Pension costs - defined contribution plans

221

174





19,029

16,110




The average number of employees during the period was made up as follows:






R & D, marketing and administration

136

125

Sales

72

71

Production

186

178





394

374

 

 

8.  OTHER INCOME

 

2010

2009


£'000

£'000







Contribution from third party

456

-

 

During the year a facility has been constructed to manufacture a product component; previously this stage in the manufacturing process was carried out by the Company's supplier. A contribution of £456,000 has been made towards the cost of this construction by the supplier. Under IFRS, this contribution is included in the consolidated income statement as other income whilst the asset is included under fixed assets in the consolidated balance sheet and depreciation is charged annually on the gross amount.
 

 

 

9.  FINANCE EXPENSE

 

2010

2009



Restated


£'000

£'000




Interest on borrowing facility

1,580

3,045

Change in fair value of financial derivative instrument

(289)

1,142

Bank interest

6

24

Employee defined benefit scheme interest expense

193

167

Other interest and charges

9

-


1,499

4,378

Revaluation loss on Euro denominated borrowing facilities

 

82

1,986





1,581

6,364

 



The revaluation loss represents the translation difference on the Group's Euro based borrowing facility caused by the movement of the Euro against Sterling throughout the year.
 
A decision was made in the year to show the change in value brought about by the fair valuation of the interest rate swap financial derivative from administration expenses to finance expenses. The reason for this change is to report the derivative valuation changes in the same place as the actual interest swap charges. In order to present a fully comparable position, the 2009 comparative information has been restated on the same basis (see note 33).

 

10.  FINANCE INCOME

 

 

2010

2009


£'000

£'000







Bank interest

9

30

 

 

11.  INCOME TAX EXPENSE

 

2010

2009


£'000

£'000

Current Tax:






Prior period tax

(831)

-

Overseas tax

129

326




Tax (credit) / charge for the period

(702)

326




 

The tax credit assessed for the period is higher than the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below:

 

2010

2009


£'000

£'000

Loss for the period before tax

(116)

(11,438)




Loss for period multiplied by the respective standard rate of corporation tax applicable in each domain (average 28%).

(32)

(3,203)




Effects of:



Disallowable adjustments

(437)

184

Capital allowances in excess of depreciation

(147)

(170)

Other fixed asset temporary differences, adjustments and movements

31

52

Tax (utilised)/losses

(26)

51

Allowances for R&D expenditure

(386)

(778)

Tax losses not utilised

243

4,170

Adjustment for difference tax rates

26

67

Relief for shares acquired by employees and Directors

(43)

(47)

Tax loss surrendered to R&D tax credit

R&D tax credit received in the period

900

(831)

-

-




Tax (credit) / charge for the period

(702)

326

 

 

12.  UNRECOGNISED DEFERRED TAX

 

2010

2010

2009

2009


Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities


£'000

£'000

£'000

£'000

Non Current Assets





Property, plant and equipment

-

(697)

-

(652)

Current Liabilities





Derivative financial instruments

-

-

328

-

Non Current Liabilities





Pension and other employee obligations

436

-

789

-

Derivative financial instruments

232

-

315

-

Unused tax losses

18,776

-

20,262

-


19,444

(697)

21,694

(652)

Offset

(697)

697

(652)

652






Total

18,747

-

21,042

-

 

No deferred tax has been recognised in respect of these temporary differences.

 

 

13.  EARNINGS / (LOSS) PER SHARE

2010

2009


£'000

£'000




Profit/(loss) after tax attributable to equity shareholders

586

(11,764)





Shares

Shares


'000

'000




Issued ordinary shares at start of the period

82,367

81,951

Ordinary shares issued in the period

228,390

416

Issued ordinary shares at end of the period

310,757

82,367




Weighted average number of shares in issue for the period

293,143

81,985

Weighted average number of shares for diluted earnings per share

305,581

93,952




Basic earnings/(loss) per share (pence)

0.20p

(14.35p)

Diluted earnings/(loss) per share (pence)

0.19p

(14.35p)

 

The diluted loss per share in the prior year does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33.

 

 

14.  GOODWILL

 

2010

2009


£'000

£'000




At 1 July

2,555

2,468

Exchange difference

(59)

87




At 30 June

2,496

2,555

 

For the purposes of impairment testing of goodwill, the directors recognise the Group's Cash Generating Units ("CGU") to be the following:

 

2010

2009


£'000

£'000







Germany

2,496

2,555

 

The recoverable amount for the CGU above was determined based on a value-in-use calculation, covering a detailed three-year forecast of future cash flows using budgeted projections assuming a 12% discount rate which the Group has estimated to be the approximate weighted average cost of capital to the Group.

 

Management's key assumptions include sales growth (average 4%), which has been determined based on past experience in this market. The Group's management believes that this is the best available input for forecasting this mature market.

 

Apart from the considerations described in determining the value in use of the CGU described above, the Group's management is not currently aware of any other probable changes that would necessitate changes in its key estimates.

 

 

15.  INTANGIBLE ASSETS

 

Manufacturing know-how

Non-competing know-how

Other intangibles

Computer software

Total


£'000

£'000

£'000

£'000

£'000

Cost






At 1 July 2008

1,000

3,416

992

1,277

6,685

Additions

-

-

-

295

295

Foreign exchange

-

218

19

32

269







At 30 June 2009

1,000

3,634

1,011

1,604

7,249

Additions

-

-

-

53

53

Foreign exchange

-

(150)

(14)

(20)

(184)







At 30 June 2010

1,000

3,484

997

1,637

7,118







Amortisation






At 1 July 2008

667

3,416

727

802

5,612

Charge for the year

66

-

51

190

307

Foreign exchange

-

218

18

29

265







At 30 June 2009

733

3,634

796

1,021

6,184

Charge for the year

67

-

51

137

255

Foreign exchange

-

(150)

(12)

(19)

(181)







At 30 June 2010

800

3,484

835

1,139

6,258







Net book value






At 1 July 2008

333

-

265

475

1,073

At 30 June 2009

267

-

215

583

1,065







At 30 June 2010

200

-

162

498

860

 

 

16.  PROPERTY, PLANT AND EQUIPMENT

 

 

Plant & machinery

Fixtures & fittings

Motor vehicles

Computer equipment

Assets under construction

Freehold land & buildings

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

Cost or valuation








At 1 July 2008

3,976

3,406

16

1,546

2,103

309

 11,356

Additions

810

116

20

161

231

-

   1,338

Asset reclassification

204

(11)

-

214

(407)

-

       -

Foreign exchange

8

40

-

36

-

23

      107

Disposals

-

(3)

-

(60)

-

-

     (63)

At 30 June 2009

4,998

3,548

36

1,897

1,927

332

 12,738









Revaluation

-

-

-

-

-

950

950

Additions

150

184

-

78

1,238

-

1,650

Asset reclassification

7

-

-

105

(112)

-

-

Foreign exchange

(6)

(28)

-

(24)

-

(17)

(75)

Disposals

(6)

(50)

-

(10)

-

-

(66)









At 30 June 2010

5,143

3,654

36

2,046

3,053

1,265

15,197









Depreciation








At 1 July 2008

1,906

1,310

8

941

-

308

   4,473

Charge for the year

360

442

6

200

-

-

   1,008

Foreign exchange

5

28

-

32

-

23

        88

Disposals

-

(1)

-

(21)

-

-

     (22)

At 30 June 2009

2,271

1,779

14

1,152

-

331

   5,547









Charge for the year

409

450

8

266

-

39

1,172

Revaluation

-

-

-

-

-

(331)

(331)

Foreign exchange

(4)

(20)

-

(22)

-

(17)

(63)

Disposals

(6)

(50)

-

(10)

-

-

(66)









At 30 June 2010

2,670

2,159

22

1,386

-

22

6,259









Net book value








At 1 July 2008

2,070

2,096

8

605

2,103

1

   6,883

At 30 June 2009

2,727

1,769

22

745

1,927

1

   7,191









At 30 June 2010

2,473

1,495

14

660

3,053

1,243

8,938

 

All assets are secured against the Group's bank borrowings.

 

In June 2010 an impairment review has been carried out on the assets under construction. The recoverable amount for these assets was determined based on a value-in-use calculation covering a detailed three-year forecast of future cash flows using budgeted projections assuming a 12 % discount rate which the Group has estimated to be the approximate weighted average cost of capital to the Group. Key assumptions include sales growth, which has been determined based on past experience. The Group's management believes that this is the best available input for forecasting this mature market.

 

Apart from the considerations described in determining the value-in-use of the cash generating unit described above, the Group's management is not currently aware of any other probable changes that would necessitate changes in its key estimates. At each half year end the Directors have reviewed the assets under construction for possible impairment and concluded that no impairment provision is required.

 

The Group's land and buildings were revalued in July 2009 by independent valuers. The land and buildings were previously valued using the cost model and had a carrying value of £1. Fair values were estimated based on recent market transactions, which were then adjusted for specific conditions relating to the land and buildings.

 

The land and buildings were not revalued to fair value at the reporting date as management determined that the effect of changes in market prices between the date of revaluation and reporting dates were immaterial. If the cost basis was used, the carrying amounts of the revalued land and buildings would be £1. The revalued amounts include a revaluation surplus of £ 1,281,000 before tax (of which £331,000 writes back the accumulated depreciation) which is not available for distribution to the shareholders of the Group.

 

 

17.  INVESTMENTS

 

The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the defined benefit pension scheme. It is valued at fair value (market price) by the Group's actuaries each year.

 

2010

2009


£'000

£'000

At 1 July

1,824

1,400

Additions

319

296

(Loss)/gain on the investment

(15)

24

(Loss)/gain on foreign exchange

(111)

104





2,017

1,824

 

 

18.  INVENTORIES

2010

2009


£'000

£'000




Raw materials and consumables

2,072

1,643

Work in progress

4,474

3,707

Finished goods

348

652





6,894

6,002

 

The cost of inventories recognised as an expense in cost of sales during the year was £11.2m (2009: £13.6m) including write-downs in the year amounting to £1.5m (2009: £2.7m).

 

The value of inventories measured at fair value less cost to sale was £175,000 (2009: £236,000).

 

 

19.  TRADE AND OTHER RECEIVABLES

 

2010

2009


£'000

£'000




Trade receivables

2,132

1,742

Other receivables

373

378

VAT

158

164

Prepayments

727

1,156





3,390

3,440

 

All amounts due as shown above are short-term. The carrying value of trade receivables is considered a reasonable approximation of fair value. All trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and a provision increase of £84,000 (2009: £144,000) has been recorded accordingly.

 

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

 

The following financial assets were overdue by:

2010

2009


£'000

£'000

Trade receivables



Not more than 3 months

334

304

More than 3 months but not more than 6 months

138

66

More than 6 months but not more than 1 year

42

58

More than one year

119

135





633

563

 

Bad and doubtful debt provision

2010

2009


£'000

£'000




Balance b/f

421

267

Foreign exchange adjustments

(21)

10

Charge for the year

84

144

Utilised

-

-




Balance c/f

484

421

 

 

20.  CASH AND CASH EQUIVALENTS

 

2010

2009


£'000

£'000




Cash at bank and in hand

4,520

-

 

 

21.  TRADE AND OTHER PAYABLES

 

2010

2009


£'000

£'000




Trade payables

3,948

3,742

Social security and other taxes

1,657

1,302

Other creditors

134

187

Accrued expenses and deferred income

3,136

3,719





8,875

8,950

 

 

22.  BORROWINGS

 

2010

2009


£'000

£'000

Due within one year



Facility borrowing

891

9,376

Short term loans

218

2,250

Overdraft

-

26


1,109

11,652




Due after more than one year



Facility borrowing

10,596

19,048

Long term loan

-

207


10,596

19,255




The facility borrowing is denominated in Euros and provided by Royal Bank of Scotland plc. The interest on the loan is a floating rate of Euribor plus a variable margin. The loan is secured in favour of The Royal Bank of Scotland plc by means of a debenture over the Group's assets, an Intellectual Property Rights Agreement with Bencard Allergie GmbH and share pledge agreements with Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L.

 

 

23.  PROVISIONS

 

The provision refers to a leaving indemnity reserve in Allergy Therapeutics Italia s.r.l.. Under Italian law, alongside each monthly salary payment an amount is paid into this reserve for each employee. When the employee leaves the company the accrued amount is paid to him in the form of a deferred salary payment.

 

 

2010

2009


£'000

£'000




At 1 July

277

249

Additions

36

31

Utilisation

(56)

(18)

Foreign exchange movement

(11)

15

At 30 June

246

277




 

 

24.  FINANCIAL INSTRUMENTS

 

The Group has adopted the amendments to IFRS 7 Improving Disclosures about Financial Instruments effective from 1 January 2009. These amendments require the Group to present certain information about financial instruments measured at fair value in the consolidated balance sheet. In the first year of application comparative information need not be presented for the disclosures required by the amendment. Accordingly, the disclosure for the fair value hierarchy is only presented for the year ended 30 June 2010.

 

Risk management

The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst maximising the return to stakeholders through the effective management of liquid resources raised through share issues and facility loan arrangements.

 

2010

2009


£'000

£'000




Total equity

3,886

(23,176)

Cash and cash equivalents

(4,520)

-

Capital

(634)

(23,176)




Total equity

3,886

(23,176)

Borrowings

11,705

30,907

Overall financing

15,591

7,731




Capital-to-overall financing ratio

(0.04)

(3.00)

 

The IAS 39 categories of financial assets and liabilities included in the balance sheet and the headings under which they are shown are as follows:

 

Categories of financial instrument

2010

2009


£'000

£'000




Financial assets



Current



Loans and receivables (including cash and cash equivalents)

7,183

2,284




Financial liabilities



Current



At amortised cost (including borrowings and payables)

(5,191)

(15,581)

Fair value through profit and loss

-

(1,172)

Non current



At amortised cost (including borrowings and payables)

(10,842)

(19,532)

Fair value through profit and loss

(830)

(1,126)


(16,863)

(37,411)




 

Derivative financial instruments

The Group uses derivative financial instruments to mitigate the effects of exchange rate exposure through the use of forward exchange contracts and interest rate volatility through the use of interest rate swap arrangements.

 

The fair value is calculated by reference to market rates and supported by counterparty confirmation.

 

Interest rate swap

Although management consider the interest rate swaps as an effective hedging tool they are not formally designated as such. They were arranged to convert 60% of the Company's loan borrowings from floating to fixed rates. Within the fair value hierarchy, this financial derivative is classified as level 2.

 

Euro forward contracts

As at 30 June 2010 the Group has no currency forward hedges. In the previous year, it had Euro forward contracts with its bank that were arranged for the sale of Euros to purchase GBP.

 

Analysis of Derivative Financial Instruments

2010

2009


£'000

£'000

Credit / (Charge) to the Income Statement






Euro forward contacts -  held for trading

1,172

104

Euro forward contracts - matured in the period

(1,755)

(1,820)





(583)

(1,716)




Interest rate swap -  held for trading

296

(1,172)

Interest rate swap - charges in the period

(689)

(311)





(393)

(1,483)

 

The credits/(charges) above were included under administration expenses in the 2009 income statement. However, in 2010, the interest rate swap credit has now been included under finance expense in the income statement and the 2009 figures restated accordingly (see note 33).

 

Forward exchange contracts are considered by management to be part of economic hedge arrangements but have not been formally designated as such.

 

Derivative financial instruments

2010

2009


£'000

£'000




Current liabilities



Derivative financial instruments



 - Euro forward contracts -  held for trading

-

1,172








-

1,172

Non current liabilities



Derivative financial instruments



 - Interest rate swap - held for trading

830

1,126





830

1,126




 

Foreign currency risk

The Group conducts most of its day to day financial activities in either the Euro, which is the functional currency of the active subsidiaries in Germany, Italy, Spain and Austria, or Sterling which is the functional currency of the UK subsidiary. Some costs are denominated in US dollars and some income is denominated in Canadian dollars. In addition a balance of Swiss Francs was obtained during the year to help finance the acquisition of Teomed AG (whose functional currency is Swiss Francs) on 01 July 2010 (see note 32).

 

The Group carries bank balances in the following currencies:

 

2010

2009


£'000

£'000




Sterling

1,582

862

Euro

2,114

(1,084)

US dollars

17

1

Canadian dollars

8

191

Swiss franc

795

-

Polish zloty

4

4


4,520

(26)




 

Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows:

 

2010

2009


Sterling

Euro

Other

Sterling

Euro

Other


£'000

£'000

£'000

£'000

£'000

£'000








Financial assets

1,824

4,099

1,260

299

1,626

359

Financial liabilities

(1,408)

(2,325)

(1,458)

(2,016)

(13,850)

(887)








Short term exposure

416

1,774

(198)

(1,717)

(12,224)

(528)















Financial assets

-

-

-

-

-

-

Financial liabilities

-

(11,672)

-

-

(20,658)

-








Long term exposure

-

(11,672)

-

-

(20,658)

-

 

The following table illustrates the sensitivity of the net result for the year and the equity of the Group with regard to its financial assets and liabilities and the Euro to Sterling exchange rate. Foreign exchange movements over the last two years have been considered and an average taken, and on this basis a 10% movement is considered to be a reasonable benchmark. For 2009, a 5% movement was used.

 

2010

2009


£'000

£'000

If Sterling had strengthened against the Euro by

10%

5%

Net results for the year

984

768

Other comprehensive income

(211)

778





773

1,546




If Sterling had weakened against the Euro by

10%

5%

Net results for the year

(720)

(842)

Other comprehensive income

254

(860)





(466)

(1,702)

 

Interest rate risk

The Group finances its operations through equity fundraising and bank facilities. Interest is charged at a floating rate on the borrowing facility; hedged by an interest rate swap covering 60% of the total outstanding, converting  floating to fixed rates of interest. This borrowing facility was amended on 03 July 2009 and is now tailored in such a way as to give greater flexibility to the Group. This allows the Group to utilise a higher proportion of the facility in the low sales season and pay down the debt in the high sales season. The following table illustrates the sensitivity of the net result for the year and equity to possible changes in interest rates of + 1% with effect from the beginning of the year on the remaining element of borrowings.  Due to the current low interest rates it is unfeasible to illustrate the results were the interest rates to fall by 1%. The changes are considered to be reasonable given the current market conditions and the calculations are based on the financial instruments held at each balance sheet date, all other variables being held constant.

 

2010

2009


£'000

£'000

£'000

£'000


+ 1%

- 1%

+ 1%

- 1%






Net results for the year

19

n/a

(138)

138

Equity

-

n/a

-

-







19

n/a

(138)

138

 

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount.

 

Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is the amount of the deposit.

 

Liquidity risk

The Group's capital management objectives are to ensure the Group's ability to continue as a going concern, and to provide adequate funding for its day to day operations. Management has access to funding through a bank facility and continues to have the option to raise funding from the issue of equity shares to ensure the Group remains able to meet its commitments as they fall due. As at 30 June 2010 the Group's contractual maturities are summarised as follows:

 

Current liabilities

2010

2009


£'000

£'000

£'000

£'000


Within 6 months

6 to 12  months

Within 6 months

6 to 12 months






Borrowing Facility

996

1,413

11,230

1,149

Trade payables

3,948

-

3,725

17

Other short term liabilities

4,927

-

5,208

-

Derivatives

-

-

836

336







9,871

1,413

20,999

1,502

 

Non-current liabilities

2010

2009


£'000

£'000

£'000

£'000


1 to 5 years

Later than 5 years

1 to 5 years

Later than 5 years






Borrowing Facility

13,859

-

18,472

3,912

Derivatives

830

-

1,126

-







14,689

-

19,598

3,912

 

There is no material difference between the fair values and the book values of these financial instruments.

 

 

25.  OPERATING LEASE COMMITMENTS

 

The following payments are due to be made on operating lease commitments:

 

Land & buildings

Other

Total


2010

2009

2010

2009

2010

2009


£'000

£'000

£'000

£'000

£'000

£'000








Within one year

315

413

409

413

724

826

Two to five years

733

763

335

397

1,068

1,160

Over five years

821

340

8

           -

829

340









1,869

1,516

752

        810

2,621

2,326








 

Of the operating lease commitments for the land and buildings of £1,869,000 (2009: £1,516,000) £1,453,000 relates to the UK based premises. The production facility accounts for £784,000 (2009 £614,000) of this commitment and expires in December 2018. Premises in Spain account for £330,000 (2009 £320,000) expiring in 2020 and in Germany for £114,000 (2009: £316,000) expiring in December 2010.

 

Of the other commitments, £581,000 (2009: £703,000) relates to leased vehicles all expiring within 3 years.

 

 

26.  RETIREMENT BENEFIT OBLIGATIONS

 

Defined contribution scheme

The Group operates a defined contribution pension scheme for certain employees in the UK. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against the profits represents the contributions payable under the scheme in respect of the accounting period totalling £221,000 (2009: £174,000).

 

Defined benefit scheme

The Group operates a defined benefit pension scheme for certain employees in Germany. The actuarial valuation was carried out by Swiss Life Pensions Management GmbH at 30 June 2010. The major assumptions used were as follows:

 

2010

2009


% pa

%pa




Retail price inflation

1.5

2.0

Salary increase rate

4.0

4.0

Rate of pension increase

1.5

2.0

Discount rate at the beginning of the year

6.0

6.0

Discount rate at the end of the year

5.0

6.0

Expected return on assets

4.1

4.1

Increase of social security contribution ceiling

2.0

2.0




Average life expectancies



Male, 65 years of age at the balance sheet date

18.3

18.2

Female, 65 years of age at the balance sheet date

22.4

22.3

Male, 45 years of age at the balance sheet date

41.0

40.9

Female, 45 years of age at the balance sheet date

45.0

44.9

 

The assets in the scheme and the expected rates of return were as follows:

2010

2009


£'000

£'000




Fair value of planned assets

1,076

1,104

Present value of scheme liabilities

(4,649)

(3,925)




Deficit in the scheme

(3,573)

(2,821)




Experience losses on plan assets

(9)

(10)

Experience (losses) / gains on plan liabilities

(108)

1




 

The plan assets consist of long-term insurance policies that cannot be directly deducted from the German pension obligation. These are recognised as a separate asset, rather than as a deduction in determining the defined benefit liability. The basis used to determine the overall expected rate of return is the expected market return as determined by Swiss Life Pensions Management GmbH using the projected unit credit method. The actual return on plan assets for the year is £37,000 (2009: £32,000). The pension charge generates an unrecognised deferred tax asset of £436,000 (2009: £279,000), however this is unrecognised in the Group accounts as there is uncertainty over the recoverability.

 

2010

2009


£'000

£'000




Amounts charged to operating profit/(loss)



Current service costs

244

233




Amounts included in other finance expenses



Expected return on pension scheme assets

(46)

(42)

Interest on pension scheme liabilities

239

209

Net charge

193

167




Amounts recognised in the statement of comprehensive income



Actual return less expected return on pension scheme assets

(9)

(10)

Experience gains and (losses) arising on scheme liabilities

(108)

1

Changes in assumptions underlying the present value of scheme liabilities

(495)

-

Total amount relating to year

(612)

(9)




Opening cumulative losses

(534)

  (525)

Actuarial loss recognised

(1,146)

(534)




Net movement recognised

(1,146)

(534)

 

Movement in assets during the year

2010

2009


£'000

£'000




Balance as at 1 July

1,104

932

Foreign currency differences

(56)

70

Expected return

46

42

Actuarial losses

(9)

(10)

Contributions

74

70

Assets transferred to finance benefits paid

(83)

-




Balance as at 30 June

1,076

1,104

 

Movement in liabilities in the year

       2010

          2009


      £'000

         £'000




Balance as at 1 July

(3,925)

(3,256)

Foreign currency differences

265

(242)

Service cost

(244)

(233)

Interest cost

(239)

(209)

Actuarial (losses)/gains

(108)

1

Benefits paid by employer

15

14

Benefits paid from assets

83

-

Changes in assumptions

(495)

-




Balance as at 30 June

(4,648)

(3,925)

 

The expected contributions over the forthcoming year are £230,500.

 

History of experience gains and losses

2010

2010

2009

2009

2008

2008

2007

2007


%

£'000

%

£'000

%

£'000

%

£'000

Scheme assets









Difference between the expected and actual return

(0.7)

(9)

(0.9)

(10)

2.6

23

1.5

(11)










Scheme liabilities









Experience gains and (losses)

(2.1)

(108)

-

1

6.7

201

1.0

(30)










Changes in assumptions underlying present value


(495)


-


352


174










Total amount recognised

(12.1)

(612)

(0.2)

(9)

17.7

576

4.6

133

 

 

27.  ISSUED SHARE CAPITAL

 

2010

2010

2009

2009


Shares

£'000

Shares

£'000

Authorised share capital





Ordinary shares of 0.10p each





1 July and 30 June

790,151,667

790

790,151,667

790






Deferred shares of 0.10p each





1 July and 30 June

9,848,333

10

9,848,333

10






Issued and fully paid





Ordinary shares of 0.10p

82,366,614

82

81,950,632

82

At 1 July





Issued during the year

228,390,000

229

415,982

-






At 30 June

310,756,614

311

82,366,614

82






Issued and fully paid





Deferred shares of 0.10p





At 1 July

9,848,333

10

9,848,333

10

Issued during the year

-

-

-

-






At 30 June

9,848,333

10

9,848,333

10






Issued share capital

320,604,947

321

92,214,947

92






 

The deferred shares have no voting rights, dividend rights or value attached to them.

 

On 1 July 2009 181,631,937 ordinary shares of 0.1p each were issued pursuant to an Offer, Placing and Subscription at a price of 12.00p per ordinary share and were admitted to trading on AIM having been approved by shareholders of the company in General Meeting on 30 June 2009. Following the exercise of Warrants by Azure Ventures Limited, 12,500,000 ordinary shares were admitted to trading on 10 July 2009 at a price of 12.00p and 16,273,393 ordinary shares on 1 October 2009 at a price of 12.29p. On 9 March 2010, 16,809,670 ordinary shares were issued pursuant to a Placing and Subscription at a price of 12.50p.

 

28.  SHARE BASED PAYMENTS

 

The Group has a Savings Related Share Option Plan ('SAYE') for the benefit of all employees and Executive directors with 12 months continuous service. No options were granted in 2008/09 or 2009/10 under this scheme. (The 2007 SAYE carried a 15% discount while the 2008 SAYE carried a 10% discount to the average market share price on the date of grant). The vesting period is three years and options are settled in equity once exercised. If the options remain unexercised after a period of six months from the end of the vesting period, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

 

The Group has a Long Term Incentive Plan ('LTIP') under which Executive directors and senior employees may receive annual provisional awards of performance vesting shares. The number of shares that vest depends on the Group's performance during the Plan cycle in terms of total shareholder return (TSR) compared to the TSR performance of the companies in the Plan's peer group. If the Group's position in the peer group at the end of the Plan cycle is at or above the 75th percentile, 100% of the shares provisionally awarded may vest; between the 75th and 50th percentile the percentage of shares that may vest will be calculated on a straight-line basis between 100% and 33.33%; below the 50th percentile no shares will vest. Each Plan cycle will comprise not less than three consecutive financial years. Awards are forfeited if the employee leaves the Group before the shares vest.

 

Share options were granted to employees and Directors under earlier schemes. The vesting periods are usually from one to three years. The vesting of some options is dependent on the Group's TSR performance as for the LTIP detailed above. The options are settled in equity once exercised. If the options remain unexercised after a period of 10 years from the date of the grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

 

During the year a new grant under the LTIP was provisionally awarded. This scheme falls under the initial 2005 award and therefore, all calculations and assumptions have been performed under the same conditions as the previous LTIPs.

 

During the year an Option Replacement Programme (ORP) was approved by the Board and was offered to share option-holders in September 2009. The programme permitted share option-holders, whose options had an exercise price below the market share price as at the date of the offer, to voluntarily revoke that original grant of options and replace them with new options. The new grant was made under an existing share option plan at an exercise price equal to the market share price at the date of grant, 18 October 2009. The ORP was structured so as to have no additional costs attached bar a clause which stated that participants were guaranteed a minimum of 15% of their original options.

 

The model used to calculate the amounts was the Black Scholes Model. The inputs into this model were obtained from an independent advisor and included the volatility of the options, the risk free interest rate, the exercise price and the expected life of the options. The net effect of this grant is a cost to the Company of £4,455 in this financial year and a further cost of £4,877 spread over the next three years

 

 

For the following outstanding share options disclosure, LTIP awards, with a nil exercise price have been disclosed separately to avoid distorting the weighted average exercise price (WAEP):

 

2010 WAEP

2009 WAEP


Number

Price (£)

Number

Price (£)

Outstanding at the beginning of the year

9,497,620

0.36

11,453,300

0.31

Granted during the year

740,656

0.18

-

-

Exercised during the year

(1,175,000)

0.01

(1,794,275)

0.05

Forfeited during the year

(353,508)

0.64

(161,405)

0.66

Cancelled during the year

(2,941,055)

0.754

-

-

Outstanding at the year end

5,768,713

0.19

9,497,620

0.36

Exercisable at the year end

4,399,245

0.17

8,769,055

0.35

 

Included in the above numbers outstanding at 30 June 2010 are 3,993,386 (2009: 6,901,478) share options granted before 7 November 2002 or vested before 1 July 2006 which have been excluded from the share-based payments charge in accordance with the IFRS 1 'First-time Adoption of International Financial Reporting Standards' transitional provisions.

 

Options exercised during the year had a weighted average share price at date of exercise of 14p (2009: 14p).

The share options outstanding at the end of the year have a weighted average remaining contractual life of 3.2 years (2009: 3.4 years) and have the following range of exercise prices:

 

30 June 2010

30 June 2009

Exercise price (p)

Number

Number

0.1-5

3,258,580

4,441,486

6-45

2,276,136

3,135,480

46-120

233,997

1,920,654





5,768,713

9,497,620

 

 

The fair value of options granted under the Savings Related Share Option Plan has been arrived at using the Black-Scholes model. The assumptions made to value options granted were as follows:

 

 

Date of grant

Vesting period (yrs)

Date of vesting

Expected life (yrs)

Exercise price (£)

Risk-free rate

Share price at grant (£)

Volatility of share price

Fair value (£)

Number outstanding











10/04/08

3

01/05/11

3.2

0.3060

5%

0.34

42%

0.13

628,812

26/03/07

3

01/05/10

3.2

0.9945

5%

1.17

30%

0.41

99,753

11/01/06

3

01/03/09

3.2

0.6400

5%

0.75

30%

0.26

-





















  • Expected volatility was based on historic volatility at the date of grant.
  • The share-based payment charge assumes an expected option life of 3.2 years, an employee attrition rate of 5% per annum and an early surrender risk of 5% per annum.
  • The expected number of shares vesting was 'trued-up' for actual leavers at the balance sheet date.

 

 

 

Details of the shares provisionally awarded under the Long Term Incentive Plan are as follows:

 

Date of grant

Vesting period (yrs)

Date of vesting

Expected life (yrs)

Exercise price (£)

Risk-free rate

Share price at grant (£)

Volatility of share price

Fair value (£)

Number outstanding











20/07/09

3

20/07/12

3

0.0000

n/a

0.148

n/a

0.148

5,544,000

21/12/07

3

27/12/10

3

0.0000

n/a

0.385

n/a

0.385

1,125,124

09/10/06

3

09/10/09

3

0.0000

n/a

1.000

n/a

1.000

-

14/12/05

3

14/12/08

3

0.0000

n/a

0.695

n/a

0.695

-





















  • Awards granted under the LTIP are valued at the market price at the date of grant.
  • The share-based payment charge assumes an employee attrition rate of 5% per annum and a vesting probability of 41.5%.

 

 

The Group recognised total expenses of £193,000 (2009: £260,000) related to equity-settled share based payment transactions during the year.

 

 

29.  CONTINGENT LIABILITIES

 

Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has guaranteed the deposits required for leases on Group cars and rented office space occupied by a fellow subsidiary, Bencard Allergie GmbH. The amount as at 30 June 2010 was €107,426; £86,999 (2009: €107,568; £91,469).

 

A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L. in which the liabilities of each entity under the RBS loan agreement are guaranteed by all the others.

 

 

 

30.  CAPITAL COMMITMENTS

 

The Group's capital commitments at the end of the financial period, for which no provision has been made, are as follows:

 

30 June 2010

30 June 2009


£'000

£'000



 

Capital commitments

252

        482

 

Included in the above is £192,000 for ongoing factory refurbishments in the UK (2009: £389,000); £29,000 for new plant and machinery (2009: £72,000) and £31,000 for IT equipment and systems upgrades (2009: £21,000).

 

 

31.  RELATED PARTY TRANSACTIONS

Allergy Therapeutics plc's related parties include its subsidiary companies and its key management.

 

 

At 30 June 2010, the Company's subsidiary undertakings were:

 

 

Subsidiary undertaking

Country of incorporation

Principal activity

Percentage of shares held

Class of shares held

Allergy Therapeutics (Holdings) Ltd

UK

Holding Company

100

Ordinary and deferred

Allergy Therapeutics (UK) Ltd

UK

Manufacture and sale of pharmaceutical products

100

Ordinary

Allergy Therapeutics Development Ltd

UK

Dormant

100

Ordinary

Bencard Allergie GmbH

Germany

Sale of pharmaceutical products

100

Ordinary

Bencard Allergie (Austria) GmbH

Austria

Sale of pharmaceutical products

100

Ordinary

Allergy Therapeutics Italia s.r.l.

Italy

Sale of pharmaceutical products

100

Ordinary

Allergy Therapeutics Iberica S.L.

Spain

Sale of pharmaceutical products

100

Ordinary

 

 

32.  EVENTS AFTER THE BALANCE SHEET DATE

 

On 1 July 2010, Allergy Therapeutics plc acquired 100% of the issued share capital of Teomed AG. Teomed was established in 1989 and specialises in the field of allergy and is the distributor for the Company's products and other company's products in the Swiss market. It employs 12 people with offices in Zurich.

 

Teomed is the first acquisition following the increased emphasis in the Group's strategy towards strengthening its European market position and will provide additional revenue growth and an opportunity to improve earnings.

The total consideration was CHF1,200,000 (£740,000) and comprises an initial cash payment of CHF800,000 (£494,000) on signing, and a deferred payment of CHF400,000 (£246,000), paid  into an escrow account, payable twelve months from date of completion. The deferred consideration is contingent on the basis that existing distributor agreements continue for a period of at least one year from the acquisition date.

The allocation of the purchase price to the assets and liabilities of Teomed AG at the acquisition date are as follows:

Pre- acquisition carrying amount

£'000

Adjustment to fair value

£'000

Recognised at acquisition date

£'000





Property, plant and equipment

15

-

15

Intangible assets

-

884

884

Total non-current assets

15

884

899

Trade and other receivables

217

(10)

207

Inventories

133

-

133

Cash and cash equivalents

3

-

3

Total Assets

368

874

1,242

Trade and other payables

(139)

-

(139)

Deferred taxation liability

-

(177)

(177)

Net identifiable assets and liabilities

229

697

926

Gain on bargain purchase



(186)

Cost of acquisition



740

 

Acquisition costs incurred up to 30 June 2010 relating to the purchase of Teomed AG of £120,000 have been expensed under administration costs within the consolidated income statement in the year ended 30 June 2010.

 

The adjustment to fair value on trade and other receivables relates to trade debtors which existed at the acquisition date.

 

The acquisition gave rise to a gain on bargain purchase primarily due to the fair valuation of the existing distribution agreements exceeding the consideration paid. These intangible assets represent the potential future discounted cashflows lost to the Group should these existing agreements be terminated within the next 12 months. They were not recognised on the balance sheet of the acquired company. The gain will be included in the Group's consolidated income statement in the year ending 30 June 2011.

 

 

The pre-existing distributor agreement between the Group and Teomed AG had expired prior to the acquisition taking place.

 

Also in July 2010, the Group terminated its relationship with its existing distributor in the Netherlands and set up its own Limited Company.

 

 

33.  RESTATEMENT OF PRIOR YEAR FIGURES

A decision was made in the year to reallocate the fair valuation of the interest rate swap financial derivative from administration expenses to finance expenses. The reason for this change is to report the derivative valuation changes in the same place as the actual interest swap charges. In order to present a fully comparable position, the 2009 comparative information has been restated on the same basis.
 

The amount of the restatement for each financial statement line item is as follows:

Consolidated Income statement

As Originally Reported

 2009

 £'000

Amount of Restatement 2009

 £'000

 

As Restated

 2009

 £'000

Gross Profit

24,194


24,194

Distribution costs

(14,893)


(14,893)

Administrative expenses - other

(10,250)

1,142

(9,108)

Research and development costs

(5,297)


(5,297)

Administrative expenses

(15,547)

1,142

(14,405)

Other income

-


-

Operating loss

(6,246)


(5,104)

Finance income

30


30

Finance expense

(5,222)

(1,142)

(6,364)

Loss before tax

(11,438)


(11,438)

 

Consolidated cash flow statement

As Originally Reported

 2009

 £'000

Amount of Restatement 2009

 £'000

 

As Restated

 2009

 £'000

Finance expenses

3,236

1,142

4,378

Financial derivative instruments

1,038

(1,142)

(104)

 

Finance Expense note

As Originally Reported

 2009

 £'000

Amount of Restatement 2009

 £'000

 

As Restated

 2009

 £'000

Change in fair value of financial derivative instrument

3,045

1,142

4,187

Total Finance Expenses

5,222

1,142

6,364

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR SFEESUFSSEFU

Companies

Allergy Therapeutics (AGY)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today