Final Results
Monday 22 September 2008
Allergy Therapeutics plc
("Allergy Therapeutics" or "the Company")
Preliminary Results for the year ended 30 June 2008
- Core Business Continues to Grow Strongly -
- Positive results for Phase III Pollinex Quattro Ragweed trial announced today -
Allergy Therapeutics plc (AIM: AGY), the allergy vaccination company with a growing sales base, a substantial manufacturing facility and a European sales and marketing infrastructure, announces preliminary results for the year ended 30 June 2008.
In a separate press release issued this morning, Allergy Therapeutics has also announced positive results from its Phase III Pollinex Quattro Ragweed trial.
Keith Carter, Chief Executive of Allergy Therapeutics, said:
"Today, Allergy Therapeutics has the first ever clinically proven, ultra-short course allergy vaccine which we intend to submit for EU marketing approval in the coming months ahead of a formal EU launch by 2010. Pollinex Quattro Grass should become the first such treatment for hayfever registered across Europe. The positive result from the Ragweed trial announced today provides incontrovertible proof of the efficacy of Pollinex Quattro.
"Our core European business is profitable and continues to grow strongly funded by our existing bank facilities and the cash it increasingly generates. Once the FDA position has been resolved, the Company has valuable late phase development assets for partnering, representing significant further upside potential."
A briefing for analysts will be held at 9.30am today at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. Please call Mo Noonan for further details on 020 7269 7116. In addition, the presentation will be made available on the Company's website at www.allergytherapeutics.com
For further information
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Allergy Therapeutics |
+44 (0) 1903 844 7200 |
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Keith Carter, Chief Executive |
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Ian Postlethwaite, Finance Director |
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Financial Dynamics |
+44 (0) 207 831 3113 |
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David Yates |
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Ben Brewerton |
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Chairman's Statement
This year Allergy Therapeutics celebrated its tenth birthday and it has been a remarkable year. The Company's strategy is to build upon a strong core integrated pharmaceutical business and, through an extensive R&D programme, bring lasting relief to hayfever sufferers through the development of the first ultra-short course allergy vaccine, Pollinex Quattro. Great strides were made in implementing the strategy during the year, with two Phase III clinical trial successes. In May we announced the successful outcome of the first pivotal Phase III study of Pollinex Quattro against grass, Study G301, and as these accounts were being prepared we heard that the equivalent study in Ragweed allergy, R301, had also met its primary efficacy endpoint despite the curtailment of this study by the FDA clinical hold. Evidence of the efficacy of Pollinex Quattro is incontrovertible.
Over the last ten years pursuing our strategy has involved the clinical development of Pollinex Quattro, an innovative vaccine against the often debilitating condition of allergic rhinitis and the first ever allergy treatment to contain a vaccine adjuvant, MPL®. The advantage of MPL® is that the desensitising vaccine works after just four pre-seasonal injections, as compared with twenty or more injections with traditional immunotherapy.
In a landmark result, our G301 study, undertaken in the United States, Canada and Western Europe and the first ever successfully conducted large-scale double blind placebo controlled trial in allergy vaccination to achieve its primary efficacy endpoint, provided a highly successful conclusion to these efforts. The outcome of this study is detailed elsewhere in this report. In summary, it proved that the product is safe and highly effective in treating patients' hayfever.
On the basis of this pivotal result, Allergy Therapeutics will make a submission for marketing authorisation in the European Union for Pollinex Quattro Grass. Already available in Europe on a 'named patient' basis, Pollinex Quattro Grass should become the first ultra-short course allergy vaccine registered across Europe. The combination of solid scientific evidence of efficacy, the associated plethora of clinical data, and marketing authorisations achieved utilizing the most modern and demanding standards of clinical proof, will provide a strong foundation for the future sales and profit growth of the Company.
Allergy Therapeutics has its own sales and marketing operations in five Western European countries - Germany, Italy, Spain, United Kingdom and Austria. As the registration of Pollinex Quattro approaches, our commercial teams have been preparing their sales and marketing infrastructures for the launch of this transformational new product. Led by Germany, the largest market in Europe for allergy vaccines and source of over 70% of the Company's revenues, this has involved a widespread modernisation and restructuring of our commercial operations.
In parallel, we have invested €10m in our manufacturing facilities, human resources and the processes required to ensure and maintain the highest GMP-compliant standards. In essence, investment in the Company's operational areas has increased as the considerable R&D costs have started to reduce. Allergy Therapeutics is now poised to capitalise on carefully laid and diligently executed plans.
In the United States, owing to the Food and Drug Administration ("FDA") clinical hold which is still in force whilst the FDA continues its wider review of vaccine adjuvants, there is still uncertainty surrounding the progress of the Company's ambitions. The strategy of the Company is to defer any further extensive R&D expenditure until the FDA hold is lifted and a partner is identified who can fund such future spending. The United States is the world's largest market and remains a significant potential upside to the Company without further financial exposure.
During the year Allergy Therapeutics has been active in seeking clarity and a way forward with the FDA. The most recent guidance suggests that the FDA plans to introduce a working group on adjuvants in the next six months. GlaxoSmithKline, which also uses MPL® containing adjuvant systems in its broad portfolio of development vaccines, has announced that it will resubmit Cervarix, which also has been caught up in the FDA's general adjuvant review, with new efficacy data in the summer of 2009. Allergy Therapeutics believes that this may be the catalyst to resolve the current uncertainty surrounding the MPL® and Pollinex Quattro adjuvants.
Outlook
Over the coming months we shall be discussing the way forward with the European regulator regarding the approval of Pollinex Quattro Grass and we shall be continuing to prepare our sales and marketing operation across Europe for the launch of the product. In addition, we shall be continuing discussions with the FDA to lift the clinical hold on Pollinex Quattro in the US.
Allergy Therapeutics' core European business remains strong and growing, funded by its existing bank facilities and the cash it increasingly generates. As Allergy Therapeutics moves from the extended period of R&D and operational investment to a core-business focused operating company with growing sales generated by Pollinex Quattro, particularly once approved, its profit margins are expected to improve to the industry average, creating an attractive financial profile for investors.
Chief Executive's Review
Our Markets
Allergy Therapeutics directly conducts commercial operations in most of the major immunotherapy markets in the world. We have a strong presence in Europe with our own operations in several markets including Germany, Italy, Spain and the United Kingdom. In markets without a direct presence, we often make our products available through distributors. The most important distributor markets are Canada, Holland and South Korea.
We are restructuring our operations across Europe. Part of this process has involved the appointment of new talented and experienced management teams in our most important markets to accelerate the growth of our business.
Germany
The most important market for the Company, Germany is also the single largest immunotherapy market in the world by value with IMS reporting annual sales in this market of €260m. The market has a strong preference towards injectable rather than sublingual immunotherapy and this favours Pollinex Quattro.
The Company restructured the business in Germany in 2007 and we expect to see the impact of this in the coming years. Changes that took place include the appointment of a new General Manager as well as two new District Managers and a complete modification of our sales and marketing activities.
Italy
We estimate the total Italian immunotherapy market to be worth €55m in sales per year. There are two market factors that hamper our opportunity in this market. One is that the market is largely a sublingual one although there are signs that this may be about to change. The second factor is the market is in decline due to negative economic conditions impacting patients and their ability to pay for vaccines.
We have conducted a review of our operations in this market and have made and continue to make major changes. In addition to a new General Manager, we have made significant modifications to our activities, as in Germany, and we have added improved data systems to track and grow our business.
Spain
Total market sales per year in Spain are estimated to be €56m. The market has been growing in high single digits over recent years growth which we expect will continue. The market favours injectable over sublingual products.
As with the other markets, we have restructured our business in Spain with the recent appointment of a new General Manager and changes to both our activities and to our information systems that support sales and marketing.
United Kingdom
The United Kingdom, our home market, is one of our most challenging markets. For historical reasons the use of immunotherapy products went into severe decline in the 1980s and 1990s and has yet to recover. The use of immunotherapy products in this market significantly trails that of similarly sized European countries. To exacerbate this, there are few allergy specialists in this country.
Recently we appointed a new Country Manager to focus on not just growing our market share but also in growing the market as a whole. We are working with several groups who are actively seeking solutions to address these problems. These actions include lobbying the government for greater focus on allergy patients and their treatment.
The issue of the poor provision of healthcare services to allergy sufferers in the United Kingdom was highlighted during the year in a report by the House of Lords Science and Technology Committee. Together with other stakeholders (professional groups, patient groups and companies), Allergy Therapeutics is supporting the National Allergy Strategy Group in its efforts to bring about an appropriate response from the Government to the House of Lords report, and to implement its recommendations. Success in this would mean that the UK for the first time could have the professional infrastructure to treat sizeable numbers of British patients with allergy vaccines.
Pipeline
Following years of significant investment our pipeline has now advanced into late stage development focusing on the major pollen allergies of grass, tree and ragweed in the major markets of Europe and North America. Impact of this work on sales is already being experienced as significant clinical data and publications are being generated.
Although clinical work in the United States has halted under the FDA's clinical hold, Pollinex Quattro, incorporating MPL® as an adjuvant, for grass allergy is entering into Registration phase in Europe with a submission planned for early 2009. Pollinex Quattro products for trees and ragweed are in Phase II and III respectively.
The focus on MPL® in our development work crosses over to sublingual products where we have completed a Phase I/II study in grass. Our goal in this program is to develop a more convenient and effective sublingual product than is currently available. Finally, we are conducting pre-clinical work with Japanese Cedar which is the single most significant pollen in Japan.
Pivotal Phase III Studies
The successful outcome of G301, Allergy Therapeutics' pivotal Phase III study of Pollinex Quattro Grass, announced on 14 May 2008 was undoubtedly the most important event during the financial year. Conducted predominantly in the United States, G301 was the largest ever Phase III double blind placebo controlled study in the allergy vaccine field and to date is the only study of its type to achieve its primary efficacy endpoint.
After the financial year end we were delighted to learn that R301, a similar phase III trial with our Ragweed allergy vaccine, also met its primary efficacy endpoint which was particularly pleasing as this was the study most negatively effected by the FDA's clinical hold which occurred in the middle of the treatment phase of this study. At the time of writing the data is still being assessed, but achieving a phase III clinical trial end-point when fewer than 40% of the subjects were given the full four-shot treatment is very encouraging and speaks volumes for the efficacy of the Pollinex Quattro range.
Variability characterises clinical trials in the field of allergy. The pollen seasons vary from country to country, area to area, and year to year. The patients recruited into studies vary. The subjective assessment of symptom scores by patients in the studies is prone to variation. The compliance of the subjects to the study protocols is geographically highly variable. During 2007, three other allergy vaccine products were in Phase III studies in the United States and all 'failed'. One of these was a successful European product in the same allergen, in the same geography and even using some of the same study centres as G301. We are therefore very pleased that Pollinex Quattro has been successful in this most stringent of tests.
One of the striking features of the G301 outcome is the robustness of the result. All of the key prospectively defined analyses are positive, showing a robust, clear and statistically significant benefit over placebo. Another feature, which bodes well for the future patient experience with Pollinex Quattro, is the unusually high levels of compliance; all but 5% of the patients completed the course of treatment. In most allergy vaccine studies, including those of sub-lingual products where the main proposed advantage is patient convenience, the compliance levels have been significantly worse and of course in real life, outside the controlled conditions of the clinical trial, compliance is likely to be poorer still. The excellent compliance with Pollinex Quattro is explained by the small number of injections, just four, and the speed of the treatment; it can be completed in as little as three weeks and as close as three weeks to the start of the pollen season. We believe that the result in terms of patients actually receiving the treatment as intended by their physicians will make ultra-short course injected allergy vaccines the treatment of choice for allergy specialists and their moderate to severe allergic patients.
EU Registration
The G301 study will form the basis of a submission in early 2009 to the European authorities for the licensure of Pollinex Quattro Grass, with the first registration anticipated in or before 2010. The initial target market will be Germany, followed by Italy, Spain, UK and Austria, in each of which we have an existing commercial infrastructure, and France and the Netherlands. These seven countries represent the biggest commercial potential in Europe for the product.
Our programme of constant improvement in Supply Operations continues to bear fruit, evidenced in the excellent service record last year. The Medicines and Healthcare products Regulatory Agency ("MHRA") conducted an inspection in February 2008, which passed very successfully with no major findings. The 'lean manufacturing' initiative, which builds upon the investments made in plant and people to establish streamlined and efficient processes, improving compliance, cutting costs and enhancing performance, has begun in earnest and benefits are already being felt across the business.
In summary, it has been a year of achievement after many years of investment and hard work by all involved. Allergy Therapeutics today has the first ever clinically proven ultra-short course allergy vaccine and we are poised for submission for registration with the operational infrastructure being prepared to exploit it.
Financial Review
The following review should be read in conjunction with the Group's consolidated financial statements and related notes appearing elsewhere in this preliminary announcement.
Adoption of IFRS
From 1 July 2007, Allergy Therapeutics has adopted International Financial Reporting Standards (IFRS) in the preparation of its financial statements. This has required a restatement of the results for the year ended 30 June 2007 which had been reported previously under UK GAAP.
IFRS has different presentation and disclosure requirements to UK GAAP and has involved significant changes to the presentation of the financial statements. Wherever possible, the Group has attempted to present the financial statements in a consistent manner with those presented in the past.
Revenue
For the year ended 30 June 2008 total gross sales increased by 25% to £34.2m (2007: £27.4m). Sales included the receipt of milestone payments from the Canadian licensee of £2.7m (2007: £1.2m). After statutory rebates in the German market net sales were £31.0m (2007: £25.7m), an increase over the previous year of 21%. Sales benefited from the increasingly strong Euro; the relative strength of the Euro over the previous year adding £1.9m to the net sales.
Own markets
The Group competes directly in eight European markets, including three of Europe's four most important for allergy vaccination: Germany, Italy and Spain.
The Group has the third largest allergy vaccine company in Germany, which is the largest market in the world for 'finished form' allergy vaccines. The allergy vaccine market in Germany continued to grow during the year at the rate of 20% (2007: 9%). Company gross sales in Germany were £23.8m (2007: £18.9m), an increase over the previous year of 26%. The rebate on pharmaceutical sales, which is market wide, changed on 1 May 2006, for 2 years hence, when it was announced that any price rise since 1 November 2005 would be added to the rebate and since approximately 70% of sales originate in Germany, the charge increased to £3.2m for the year (2007: £1.6m).
In Italy and Spain the Group has demonstrated a positive performance. In Italy annual sales were £2.5m (2007: £2.3m), an increase of 9% and in Spain sales were £1.9m (2007: £1.7m), an increase of 12%.
Operations in the UK, the Czech and Slovak Republics, Poland and Austria performed well contributing £1.5m to sales (2007: £1.4m).
Licensees
The Group also sells through licensees and distributors, accounting for 13% of the gross sales. Total sales for the year were £4.5m (2007: £3m) an increase of 50% on the previous year. Included in licensee sales are milestone receipts from the Company's Canadian licensee for Pollinex Quattro; in the year milestones totalling £2.7m (2007: £1.2m) were received, triggered by reaching certain development activities.
Product sales
The Group's flagship product, Pollinex Quattro continued to sell well, with gross sales of £11.9m (2007 £9.5m) an increase of 25% over the previous year.
Cost of sales and net operating expenses
In general, manufacturing costs have increased as a result of an increase in headcount to ensure compliance with recommended good manufacturing practice (GMP) and due to investments in new plant and machinery leading to increased depreciation costs. As a consequence of these investments, cost of goods sold was £10.9m (2007: £10.1m), an increase of 8% over the previous year.
Investments in restructuring the German sales infrastructure increased the marketing and promotion spend, the main component of distribution costs, by 14% to £12.9m (2007: £11.3m). Administrative expenses have increased by 25% to £6.6m (2007: £5.3m) due mainly to the inclusion of the cost of financial derivatives under IFRS. As the development programme for Pollinex Quattro neared its end, R&D costs have decreased by 36% to £16.3m (2007: £25.3m). Most of the activity relates to the extensive Phase III programme for Grass and Ragweed.
Results of operation
As a consequence of investment in the development programmes in preparation for the launch of Pollinex Quattro on a world-wide basis the Group recorded an operating loss on ordinary activities of £15.6m (2007: loss £26.3m). However, before research and development costs, the operating profit including milestones was £0.7m (2007: Loss of £0.9m), which allows for a more reasonable appreciation of the improvement of the core business performance this year.
Taxation
As a result of its investment in research and development, the Company has benefited in the past from making R&D claims. These claims have given the Company enhanced deductions for tax purposes and the possibility of benefiting from the receipt of R&D tax credits. The last R&D tax credit has been received for the year ended 2006. The Budget announcement in April 2006 put forward proposals to revise the definition for small and medium sized entities regarding the number of employees; the number being increased from 250 to 500. The Group's average headcount for this year remained above the 250 threshold. The Budget proposals were approved by the European Commission in July 2008 and the Company should be able to make a claim for R&D tax credits for the period beginning 1 August 2008, subject to meeting the relevant criteria for the period ended June 2009.
The Group in total has losses to carry forward of £59m (2007: £39m), although in Germany it is likely that corporation taxes will fall due before other entities in the Group.
Net assets
Due primarily to investments in R&D the balance sheet had net liabilities at 30 June 2008 of £11.3m (2007, assets: £8.6m), a decrease of £19.9m.
Capital expenditure on tangible fixed assets in the year was £2.3m (2007: £2.9m); contributing to the increase in the value of tangible fixed assets to £6.9m from £5.5m. The main component of this spend is the improvement to the manufacturing plant for the production of Pollinex Quattro.
Stock values increased by 18% during the year to £5.8m (2007: £4.9m) following the strategy, initiated the year before last to maintain supply to markets, resulted in higher levels of key stock items held, and also because the strategic investment in manufacturing is increasing stock costs in general.
Creditors falling due within 1 year were lower at the year end by 26% to £8.1m (2007: £10.9m), primarily due to a decrease in accruals and trade creditors relating to development activities at the end of the year offset by an increase in short term borrowings.
Capital structure
The Group finances its operations through cash generated from its core business and bank lines. The Group arranged a senior debt facility with its bank, RBS, in May 2007 for Euro €40m to be drawn down over a 2 year period conditional upon the operating business performance. The balance drawn at the year end was €31.6m.
The Group's funding requirements depend on a number of factors, including the Group's product development programmes, which began to decrease in activity this year and are set to decrease further in the following financial year.
Cash flows
As at the 30 June 2008 cash totalled £2.3m, a decrease of £3.4m from £5.7m at 30 June 2007 due primarily to the significant investment in the year in the R&D programme. For the year, net cash used in operations amounted to £19.1m (2007: £20.7m).
Consolidated income statement
for the year ended 30 June 2008
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|
Year to 30 June |
Year to 30 June |
Year to 30 June |
Year to 30 June |
|
|
|
2008 |
2008 |
2007 |
2007 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
|
31,022 |
|
25,742 |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
(10,865) |
|
(10,068) |
|
Gross profit |
|
|
20,157 |
|
15,674 |
|
|
|
|
|
|
|
|
Distribution costs |
|
|
(12,852) |
|
(11,312) |
|
|
|
|
|
|
|
|
Administration expenses - other |
|
(6,640) |
|
(5,326) |
|
|
Research and development costs |
|
(16,300) |
|
(25,343) |
|
|
Administration expenses |
|
|
(22,940) |
|
(30,669) |
|
|
|
|
|
|
|
|
Other income |
|
|
42 |
|
32 |
|
Operating loss |
|
|
(15,593) |
|
(26,275) |
|
|
|
|
|
|
|
|
Finance income |
9 |
|
201 |
|
647 |
|
Finance expense |
8 |
|
(4,852) |
|
(131) |
|
Loss before tax |
|
|
(20,244) |
|
(25,759) |
|
Income tax |
10 |
|
(53) |
|
2,503 |
|
|
|
|
|
|
|
|
Loss for the period |
28 |
|
(20,297) |
|
(23,256) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
Basic & diluted (pence per share) |
12 |
|
(24.8p) |
|
(28.4p) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated balance sheet
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|
|
30 June |
30 June |
|
|
|
2008 |
2007 |
|
|
|
£'000 |
£'000 |
|
|
Note |
|
|
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
15 |
6,883 |
5,486 |
|
Intangible assets - Goodwill |
13 |
2,468 |
2,295 |
|
Intangible assets - Other |
14 |
1,073 |
1,159 |
|
Investments |
16 |
1,400 |
1,011 |
|
Derivative financial instruments |
23 |
42 |
- |
|
Total non-current assets |
|
11,866 |
9,951 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
18 |
3,199 |
3,373 |
|
Derivative financial instruments |
23 |
3 |
63 |
|
Inventories |
17 |
5,817 |
4,911 |
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Cash and cash equivalents |
19 |
2,298 |
5,696 |
|
|
|
|
|
|
Total current assets |
|
11,317 |
14,043 |
|
|
|
|
|
|
Total assets |
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23,183 |
23,994 |
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|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
20 |
(4,760) |
(10,802) |
|
Current borrowings |
21 |
(2,422) |
- |
|
Derivative financial instruments |
23 |
(923) |
(62) |
|
|
|
|
|
|
Total current liabilities |
|
(8,105) |
(10,864) |
|
|
|
|
|
|
Net current assets |
|
3,212 |
3,179 |
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
Retirement benefit obligation |
25 |
(2,324) |
(2,182) |
|
Non current borrowings |
21 |
(23,413) |
(2,161) |
|
Derivative financial instruments |
23 |
(382) |
- |
|
Non current provisions |
22 |
(249) |
(191) |
|
|
|
|
|
|
Total non current liabilities |
|
(26,368) |
(4,534) |
|
|
|
|
|
|
Total liabilities |
|
(34,473) |
(15,398) |
|
|
|
|
|
|
Net (liabilities) / assets |
|
(11,290) |
8,596 |
Consolidated balance sheet continued
|
|
|
|
|
|
Equity |
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
26 |
92 |
92 |
|
Share premium |
28 |
33,173 |
33,173 |
|
Merger reserve - shares issued by subsidiary |
28 |
40,128 |
40,128 |
|
Reserve - shares held by EBT |
28 |
(1) |
(36) |
|
Reserve - share based payments |
28 |
1,031 |
675 |
|
Revaluation reserve |
28 |
165 |
226 |
|
Foreign exchange reserve |
28 |
(628) |
(133) |
|
Retained earnings |
28 |
(85,250) |
(65,529) |
|
|
|
|
|
|
Total equity |
|
(11,290) |
8,596 |
|
|
|
|
|
Consolidated statement of recognised income and expense
|
|
|
|
|
|
Year to 30 June |
Year to 30 June |
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Loss for the period |
(20,297) |
(23,256) |
|
Actuarial gain on defined benefit pension scheme |
576 |
133 |
|
Exchange differences on translation of foreign operations |
(495) |
(133) |
|
Revaluation (losses) / gains |
(61) |
163 |
|
|
|
|
|
Total recognised income and (expense) |
(20,277) |
(23,093) |
|
|
|
|
Consolidated cash flow statement
|
|
|
Year to 30 June |
Year to 30 June |
|
|
|
2008 |
2007 |
|
|
|
£'000 |
£'000 |
|
|
Note |
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Loss before tax |
|
(20,244) |
(25,759) |
|
|
|
|
|
|
Adjustments for: |
|
|
|
|
Foreign exchange gain |
28 |
(495) |
(133) |
|
Finance income |
9 |
(201) |
(647) |
|
Finance expense |
8 |
1,972 |
131 |
|
Revaluation loss on loan |
8 |
2,880 |
0 |
|
Non cash movements on defined benefit pension plan |
|
158 |
140 |
|
Depreciation and amortisation |
14,15 |
1,159 |
955 |
|
Charge for share based payments |
|
356 |
369 |
|
Financial derivative instruments |
|
1,261 |
(40) |
|
Disposal of property, plant and equipment |
|
(1) |
22 |
|
Decrease in trade and other receivables |
18 |
174 |
204 |
|
Increase in inventories |
17 |
(906) |
(1,260) |
|
(Decrease) / increase in trade and other payables |
|
(5,246) |
5,321 |
|
|
|
|
|
|
Net cash used in operations |
|
(19,133) |
(20,697) |
|
|
|
|
|
|
Interest paid |
|
(136) |
(5) |
|
Income tax (paid) / refunded |
10 |
(53) |
2,503 |
|
|
|
|
|
|
Net cash used in operating activities |
|
(19,322) |
(18,199) |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Interest received |
|
201 |
647 |
|
Investments |
16 |
(256) |
(191) |
|
Payments for intangible assets |
|
(151) |
(291) |
|
Payments for property plant and equipment |
|
(2,472) |
(2,818) |
|
|
|
|
|
|
Net cash used in investing activities |
|
(2,678) |
(2,653) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of equity shares |
28 |
35 |
24 |
|
Net proceeds from borrowings |
|
20,411 |
3,342 |
|
Bank loan fees and interest paid |
|
(1,844) |
(678) |
|
|
|
|
|
|
Net cash generated by financing activities |
|
18,602 |
2,688 |
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(3,398) |
(18,164) |
|
Cash and cash equivalents at the start of the period |
|
5,696 |
23,860 |
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
19 |
2,298 |
5,696 |
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Publication Of Non Statutory Accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The consolidated balance sheet at 30 June 2008 and the consolidated income statement, 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 2008 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985.
Those financial statements have not yet been delivered to the registrar of companies.
First year reporting under IFRS
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') and applied in accordance with the Companies Act 1985. This is the first annual reporting date at which we are required to use IFRS adopted by the EU.
Allergy Therapeutics plc's financial statements were prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) until 30 June 2007. The transition date to IFRS for the Group was 1 July 2006. The comparative figures in respect of the year ended 30 June 2007 have been restated to reflect changes in accounting policies as a result of adoption of IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in the reconciliation schedules, presented and explained in note 33.
The consolidated financial statements have been prepared under the historical cost convention except for derivative financial instruments that have been measured at fair value.
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 2008 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 1 Presentation of Financial Statements (Revised 2007) (effective for reporting periods beginning on or after 1 January 2009)
This amendment affects the presentation of owner changes in equity and introduces a statement of comprehensive income. Preparers will have the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of other comprehensive income). This amendment does not affect the financial position or results of the Group but will give rise to additional disclosures. Management is currently assessing the detailed impact of this amendment on the Groups financial statements.
IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009)
The option to recognise immediately, as an expense, the borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale is removed. All borrowing costs thus arising must therefore be capitalised. Management is currently assessing the detailed impact of this amendment on the Group's financial statements.
IFRS 3 Business Combinations (Revised 2008) and IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective for reporting periods beginning on or after 1 July 2009)
The revised Standards introduce major changes to the accounting treatment for business combinations, transactions with non-controlling interests (a new term for minority interests) and a loss of control of a subsidiary. Management are currently assessing the detailed impact of this amendment on the Group's financial statements.
IFRS 8 Operating segments (effective for reporting periods beginning on or after 1 January 2009)
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 is expected to increase the number of reportable segments as well as the manner in which the segments are reported. i.e in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. As goodwill is allocated to groups of cash generating units based on segment level, the change will also require the reallocation of goodwill to the newly identified operating segments. Management does not anticipate that this will result in any material impairment of goodwill.
IFRIC 14 - IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective 1 January 2008)
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. Management are currently assessing the detailed impact of this amendment on the Group's financial statements.
IFRS 2 amendment to share based payments.
Management are currently assessing the detailed impact of this amendment on the Group's financial statements.
Management anticipate that all the above pronouncements will be adopted in the Group's financial statements for the period beginning 1 January 2009.
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
The Group incurred losses for the financial years ended 2007 and 2008 primarily as a consequence of its investment in research and development activities; 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 2009 to 30 June 2011. 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
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, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the extent of any minority interest. 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 on the consolidated income statement.
Segmental reporting
A business segment is a group of assets and operations engaged in production that is subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in production within a particular economic environment that is different from that in segments operating in other economic environments.
The Group's one principal activity is the research, development, manufacturing, marketing and sales of allergy treating drugs. This forms the single business stream and primary reporting segment. The Group's secondary reporting segment is geographical and is based both on customer location and country of origin.
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;
-
Income and expenses for each income statement are translated at actual exchange rates or using an average rate as an approximation;
-
All resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. 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.
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 licensee 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
All borrowing costs are expensed to the income statement on an accruals basis using the effective interest method.
Property, plant and equipment
Property, 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, principally using the following annual rates:
|
Buildings |
10 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 and property 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.
-
"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 equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity.
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 statement of recognised income and expense (SORIE). 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.
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 profit and loss 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 shares 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
-
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.
-
During the year the Group earned milestone payments to the value of £2,701k (2007: £1,250k). This has been recognised as revenue because it is considered that a significant milestone has been reached for which the earnings process, based on cumulative sales, has been completed.
-
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, £16.3m (2007: £25.3m)
Sources of estimation uncertainty
-
Depreciation rates are based on estimates of the useful lives and residual values of the assets involved.
-
Estimates of future profitability are required for the decision whether or not to create a deferred tax asset.
-
Estimates are required as to asset carrying values and impairment charges.
-
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.
3. REVENUE
An analysis of revenue by category is set out in the table below:
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Sale of goods |
26,476 |
22,745 |
|
Royalties |
1,845 |
1,747 |
|
Milestones |
2,701 |
1,250 |
|
|
|
|
|
|
31,022 |
25,742 |
4. SEGMENTAL REPORTING
The Group's sole principal activity is the research, development, manufacturing, marketing and sale of allergy treating pharmaceuticals. This forms the single business stream and primary reporting segment.
The Group's secondary reporting segments are based on geographical location of customers for the Group's products. The following table provides a breakdown of the Group's sales by geographical market irrespective of the origin of the products and are shown net of inter-segmental sales of £23,602k (2007: £20,825k):
|
|
Year to 30 Jun |
Year to 30 Jun |
|
|
2008 |
2007 |
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
Germany |
20,596 |
17,069 |
|
Rest of Europe |
6,763 |
6,505 |
|
North America |
3,346 |
1,845 |
|
Asia |
317 |
323 |
|
|
|
|
|
|
31,022 |
25,742 |
|
|
|
|
The following table provides a breakdown of the Group's sales by the country of origin of the products sold:
|
|
Year to 30 Jun |
Year to 30 Jun |
|
|
2008 |
2007 |
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
Germany |
20,596 |
17,281 |
|
Rest of Europe |
4,734 |
4,176 |
|
UK |
5,692 |
4,285 |
|
|
|
|
|
|
31,022 |
25,742 |
|
|
|
|
The following analysis shows the carrying value of the assets, excluding cash and cash equivalents, and the additions to those assets in each of the segments:
|
|
Carrying amount of segment assets |
Additions to property, plant & equipment and intangible assets |
||
|
|
Year to 30 Jun |
Year to 30 Jun |
Year to 30 Jun |
Year to 30 Jun |
|
|
2008 |
2007 |
2008 |
2007 |
|
|
|
|
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Germany |
3,511 |
2,753 |
96 |
54 |
|
Rest of Europe |
1,539 |
1,387 |
19 |
46 |
|
UK |
15,835 |
14,158 |
2,289 |
3,067 |
|
|
|
|
|
|
|
|
20,885 |
18,298 |
2,404 |
3,167 |
|
|
|
|
|
|
5. LOSS BEFORE TAX
|
|
2008 |
2007 |
|
Loss for the period has been arrived at after charging / (crediting): |
£'000 |
£'000 |
|
|
|
|
|
Foreign exchange loss |
495 |
133 |
|
|
|
|
|
Depreciation and amortisation: |
|
|
|
Depreciation of property plant and equipment (note 15 ) |
909 |
731 |
|
Amortisation of intangible assets (note 14 ) |
250 |
224 |
|
|
|
|
|
Research and development |
16,300 |
25,343 |
|
|
|
|
|
Employee benefits expense: |
|
|
|
Employee costs (Note 7) |
14,092 |
12,357 |
|
|
|
|
|
Land and buildings held under operating leases |
387 |
350 |
|
Other operating leases |
448 |
382 |
|
|
|
|
|
Audit and non-audit services: |
|
|
|
Fees payable to the Company's auditor for the audit of the Group accounts |
25 |
13 |
|
Fees payable to the Company's auditor and its associates for other services: |
|
|
|
The audit of the Company's subsidiaries pursuant to legislation |
97 |
79 |
|
Tax services |
(6) |
17 |
|
Other services pursuant to legislation |
31 |
60 |
|
|
|
|
|
Share based payment expense (note 27 ) |
356 |
369 |
|
|
|
|
6. REMUNERATION OF KEY MANAGEMENT PERSONNEL
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Salaries and short-term employee benefits |
753 |
775 |
|
Post employment benefits - defined benefit plans |
28 |
26 |
|
Post employment benefits - defined contribution plans |
49 |
47 |
|
Share based payment |
194 |
193 |
|
|
|
|
|
|
1,024 |
1,041 |
7. EMPLOYEES
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Employee costs: |
|
|
|
Wages and salaries |
11,611 |
10,015 |
|
Social security costs |
1,713 |
1,553 |
|
Share based payments |
356 |
369 |
|
Pension costs - defined benefit plans |
204 |
243 |
|
Pension costs - defined contribution plans |
208 |
177 |
|
|
|
|
|
|
14,092 |
12,357 |
|
|
|
|
|
The average number of employees during the period was made up as follows: |
|
|
|
|
|
|
|
R & D, marketing and administration |
126 |
124 |
|
Sales |
69 |
61 |
|
Production |
167 |
149 |
|
|
|
|
|
|
362 |
334 |
8. FINANCE EXPENSE
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Interest on borrowing facility |
1,724 |
0 |
|
Bank interest |
120 |
29 |
|
Employee defined benefit scheme interest expense |
128 |
102 |
|
Other charges |
2,880 |
0 |
|
|
|
|
|
|
4,852 |
131 |
Other charges represent the revaluation of the Euro borrowing facility
9. FINANCE INCOME
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Bank interest |
201 |
647 |
10. INCOME TAX EXPENSE
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Current Tax: |
|
|
|
Corporation tax on loss for the period |
- |
- |
|
Prior period tax |
- |
(2,503) |
|
Overseas tax |
53 |
- |
|
|
|
|
|
Tax charge/ (credit) for the period |
53 |
(2,503) |
|
|
|
|
The tax assessed for the period is lower than the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below:
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Loss for the period before tax |
(20,244) |
(25,759) |
|
|
|
|
|
Loss for period multiplied by the respective standard rate of corporation tax applicable in each domain (average 30%). |
(5,972) |
(7,728) |
|
|
|
|
|
Effects of: |
|
|
|
Disallowable expenses |
365 |
59 |
|
Capital allowances in excess of depreciation |
(228) |
(139) |
|
Other fixed asset timing differences, adjustments and movements |
51 |
- |
|
Tax loses (utilised) |
(349) |
(215) |
|
Allowances for R&D expenditure |
(55) |
(75) |
|
Tax losses not utilised |
6,266 |
8,110 |
|
Adjustment for difference tax rates |
32 |
- |
|
Relief for shares acquired by employees and Directors |
(57) |
(12) |
|
Tax loss surrendered to R&D tax credit |
- |
(2,503) |
|
|
|
|
|
Tax charge / (credit) for the period |
53 |
(2,503) |
11. UNRECOGNISED DEFERRED TAX
|
|
2008 |
2008 |
2007 |
2007 |
|
|
Deferred tax assets |
Deferred tax liabilities |
Deferred tax assets |
Deferred tax liabilities |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Non Current Assets |
|
|
|
|
|
Property, plant and equipment |
- |
(520) |
- |
(378) |
|
Derivative financial instruments |
258 |
- |
19 |
- |
|
Non Current Liabilities |
|
|
|
|
|
Pension and other employee obligations |
270 |
- |
351 |
- |
|
Derivative financial instruments |
107 |
- |
- |
- |
|
Unused tax losses |
16,458 |
- |
11,688 |
- |
|
|
17,093 |
(520) |
12,058 |
(378) |
|
Offset |
(520) |
520 |
(378) |
378 |
|
|
|
|
|
|
|
Total |
16,573 |
- |
11,680 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
No deferred tax has been provided for in respect of these temporary differences.
There is also an unrecognised deferred tax asset in respect of share based payments for £nil (2007: £950k).
12. LOSS PER SHARE
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Loss for the period attributable to equity shareholders |
(20,297) |
(23,256) |
|
|
|
|
|
|
Shares |
Shares |
|
|
'000 |
'000 |
|
|
|
|
|
Issued ordinary shares at start of the period |
81,951 |
81,951 |
|
Ordinary shares issued in the period |
- |
- |
|
Issued ordinary shares at end of the period |
81,951 |
81,951 |
|
|
|
|
|
Weighted average number of shares in issue for the period. |
81,951 |
81,951 |
|
|
|
|
|
Basic and diluted loss per share (pence) |
(24.8p) |
(28.4p) |
|
|
|
|
The diluted loss per share 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.
13. GOODWILL
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
At 1 July |
2,295 |
2,326 |
|
Exchange difference |
173 |
(31) |
|
|
|
|
|
At 30 June |
2,468 |
2,295 |
For the purposes of impairment testing of goodwill, the directors recognise the Group's Cash Generating units ("CGU") to be the following:
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Germany |
2,468 |
2,295 |
The recoverable amount for the cash-generating unit 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 reflecting the Group's weighted average cost of capital.
The Group's management's key assumptions include sales growth, 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 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 goodwill for possible impairment and concluded that no impairment provision is required.
14. INTANGIBLE ASSETS
|
|
Manufacturing know-how |
Non-competing know-how |
Other intangibles |
Computer software |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Cost |
|
|
|
|
|
|
At 1 July 2006 |
1,000 |
3,046 |
960 |
788 |
5,794 |
|
Additions |
- |
- |
- |
291 |
291 |
|
Foreign exchange |
- |
(68) |
(6) |
(13) |
(87) |
|
|
|
|
|
|
|
|
At 30 June 2007 |
1,000 |
2,978 |
954 |
1,066 |
5,998 |
|
Additions |
- |
- |
- |
151 |
151 |
|
Foreign exchange |
- |
438 |
38 |
60 |
536 |
|
|
|
|
|
|
|
|
At 30 June 2008 |
1,000 |
3,416 |
992 |
1,277 |
6,685 |
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
At 1 July 2006 |
537 |
3,046 |
594 |
525 |
4,702 |
|
Charge for the year |
63 |
- |
52 |
109 |
224 |
|
Foreign exchange |
- |
(68) |
(6) |
(13) |
(87) |
|
|
|
|
|
|
|
|
At 30 June 2007 |
600 |
2,978 |
640 |
621 |
4,839 |
|
Charge for the year |
67 |
- |
51 |
132 |
250 |
|
Foreign exchange |
- |
438 |
36 |
49 |
523 |
|
|
|
|
|
|
|
|
At 30 June 2008 |
667 |
3,416 |
727 |
802 |
5,612 |
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
At 1 July 2006 |
463 |
- |
366 |
263 |
1,092 |
|
At 30 June 2007 |
400 |
- |
314 |
445 |
1,159 |
|
At 30 June 2008 |
333 |
- |
265 |
475 |
1,073 |
15. PROPERTY, PLANT AND EQUIPMENT
|
|
Plant & machinery |
Fixtures & fittings |
Motor vehicles |
Computer equipment |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cost or valuation |
|
|
|
|
|
At 1 July 2006 |
2,941 |
1,960 |
8 |
2,302 |
|
Additions |
1,300 |
972 |
12 |
592 |
|
Foreign exchange |
(2) |
(10) |
- |
(5) |
|
Disposals |
(60) |
(2) |
(4) |
(1,318) |
|
|
|
|
|
|
|
At 30 June 2007 |
4,179 |
2,920 |
16 |
1,571 |
|
Additions |
424 |
420 |
- |
228 |
|
Asset reclassification |
(647) |
(7) |
- |
(267) |
|
Foreign exchange |
14 |
76 |
- |
14 |
|
Disposals |
6 |
(3) |
- |
- |
|
|
|
|
|
|
|
At 30 June 2008 |
3,976 |
3,406 |
16 |
1,546 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
At 1 July 2006 |
1,383 |
563 |
7 |
1,939 |
|
Charge for the year |
272 |
292 |
2 |
134 |
|
Foreign exchange |
(1) |
(5) |
- |
(2) |
|
Disposals |
(38) |
(2) |
(4) |
(1,317) |
|
|
|
|
|
|
|
At 30 June 2007 |
1,616 |
848 |
5 |
754 |
|
Charge for the year |
276 |
420 |
3 |
184 |
|
Foreign exchange |
9 |
45 |
- |
3 |
|
Disposals |
5 |
(3) |
- |
- |
|
|
|
|
|
|
|
At 30 June 2008 |
1,906 |
1,310 |
8 |
941 |
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
At 1 July 2006 |
1,558 |
1,397 |
1 |
363 |
|
At 30 June 2007 |
2,563 |
2,072 |
11 |
817 |
|
At 30 June 2008 |
2,070 |
2,096 |
8 |
605 |
|
|
|
|
|
|
All assets are secured against the Company's bank borrowings.
(continued from table above)
|
|
Assets under course of construction |
Freehold land & buildings |
Total |
|
Cost or valuation |
£'000 |
£'000 |
£'000 |
|
At 1 July 2006 |
|
|
|
|
Additions |
- |
270 |
7,481 |
|
Foreign exchange |
- |
- |
2,876 |
|
Disposals |
- |
(7) |
(24) |
|
|
- |
- |
(1,384) |
|
At 30 June 2007 |
|
|
|
|
Additions |
- |
263 |
8,949 |
|
Asset reclassification |
1,182 |
- |
2,254 |
|
Foreign exchange |
921 |
- |
- |
|
Disposals |
- |
46 |
150 |
|
|
- |
- |
3 |
|
At 30 June 2008 |
|
|
|
|
|
2,103 |
309 |
11,356 |
|
Depreciation |
|
|
|
|
At 1 July 2006 |
|
|
|
|
Charge for the year |
- |
215 |
4,107 |
|
Foreign exchange |
- |
31 |
731 |
|
Disposals |
- |
(6) |
(14) |
|
|
- |
- |
(1,361) |
|
At 30 June 2007 |
|
|
|
|
Charge for the year |
- |
240 |
3,463 |
|
Foreign exchange |
- |
26 |
909 |
|
Disposals |
- |
42 |
99 |
|
|
- |
- |
2 |
|
At 30 June 2008 |
|
|
|
|
|
- |
308 |
4,473 |
|
Net book value |
|
|
|
|
At 1 July 2006 |
|
|
|
|
At 30 June 2007 |
- |
55 |
3,374 |
|
At 30 June 2008 |
- |
23 |
5,486 |
|
|
2,103 |
1 |
6,883 |
|
|
|
|
|
16. INVESTMENTS
The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the defined benefit pension scheme.
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
At 1 July |
1,011 |
843 |
|
Additions |
256 |
191 |
|
Gains / (losses) in the investment |
133 |
(23) |
|
|
|
|
|
|
1,400 |
1,011 |
|
|
|
|
17. INVENTORIES
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Raw materials and consumables |
1,763 |
1,706 |
|
Work in progress |
3,620 |
2,452 |
|
Finished goods |
434 |
753 |
|
|
|
|
|
|
5,817 |
4,911 |
18. TRADE AND OTHER RECEIVABLES
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Trade receivables |
1,956 |
1,802 |
|
Other receivables |
447 |
131 |
|
VAT |
296 |
718 |
|
Prepayments |
500 |
722 |
|
|
|
|
|
|
3,199 |
3,373 |
|
|
|
|
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 of £267k (2007: £57k) has been recorded accordingly. The impaired receivable has arisen due to the non-performance of a supplier to Allergy Therapeutics Italia s.r.l. where an amount of money collected on the company's behalf was not paid over.
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: |
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Trade receivables |
|
|
|
Not more than 3 months |
494 |
463 |
|
More than 3 months but not more than 6 months |
43 |
35 |
|
More than 6 months but not more than 1 year |
229 |
70 |
|
More than one year |
8 |
50 |
|
|
|
|
|
|
774 |
618 |
|
|
|
|
19. CASH AND CASH EQUIVALENTS
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Cash at bank and in hand |
2,298 |
5,696 |
20. TRADE AND OTHER PAYABLES
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Trade payables |
2,312 |
4,612 |
|
Social security and other taxes |
403 |
446 |
|
Other creditors |
292 |
157 |
|
Accrued expenses and deferred income |
1,753 |
5,587 |
|
|
|
|
|
|
4,760 |
10,802 |
21. BORROWINGS
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Due within one year |
|
|
|
Facility borrowing |
1,582 |
- |
|
Short term loan |
840 |
- |
|
|
2,422 |
- |
|
|
|
|
|
Due after more than one year |
|
|
|
Facility borrowing |
22,444 |
2,161 |
|
Long term loan |
969 |
- |
|
|
23,413 |
2,161 |
|
|
|
|
|
|
|
|
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 2.75%. 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
22. 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.
|
|
2008 |
|
|
£'000 |
|
At 1 July 2007 |
191 |
|
Additions in year |
58 |
|
At 30 June 2008 |
249 |
|
|
|
23. FINANCIAL INSTRUMENTS
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. 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 |
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Financial assets |
|
|
|
Current |
|
|
|
Fair value through profit and loss |
42 |
- |
|
Loans and receivables (including cash and cash equivalents) |
4,997 |
8,347 |
|
Non current |
|
|
|
Fair value through profit and loss |
3 |
63 |
|
Loans and receivables (including cash and cash equivalents) |
- |
- |
|
|
5,042 |
8,410 |
|
|
|
|
|
Financial liabilities |
|
|
|
Current |
|
|
|
At amortised cost (including borrowings and payables) |
(6,779) |
(10,356) |
|
Fair value through profit and loss |
(923) |
(62) |
|
Non current |
|
|
|
At amortised cost (including borrowings and payables) |
(23,662) |
(2,352) |
|
Fair value through profit and loss |
(382) |
- |
|
|
(31,746) |
(12,770) |
|
|
|
|
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 are arranged to convert 60% of the Company's loan borrowings from floating to fixed rates.
Euro forward contracts
The Group has Euro forward contracts with its bank that are arranged for the sale of €29,309k to purchase GBP at an average blended rate of 1.3306 at future dates from July 2008 to March 2010.
Euro exchange swap
The Group has utilised a Euro exchange swap for the sale of €1,675k to purchase GBP at an average blended rate of 1.259, due for maturity in August 2008.
|
Derivative of financial instrument |
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Current assets |
|
|
|
Derivative financial instruments |
|
|
|
- Euro forward contracts - held for trading |
- |
63 |
|
- Euro exchange swap - held for trading |
3 |
- |
|
|
|
|
|
|
3 |
63 |
|
Non current assets |
|
|
|
Derivative financial instruments |
|
|
|
- Interest rate swap - held for trading |
42 |
- |
|
|
|
|
|
Current liabilities |
|
|
|
Derivative financial instruments |
|
|
|
- Euro forward contracts - held for trading |
897 |
62 |
|
- Interest rate swap - held for trading |
26 |
- |
|
|
|
|
|
|
923 |
62 |
|
Non current liabilities |
|
|
|
Derivative financial instruments |
|
|
|
- Euro forward contracts - held for trading |
382 |
- |
|
|
|
|
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 majority of the active subsidiaries, or Sterling. In addition some costs are denominated in US dollars and Canadian dollars.
The Group carries bank balances in the following currencies:
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Sterling |
1,812 |
478 |
|
Euro |
(624) |
1,113 |
|
US dollars |
418 |
2,199 |
|
Canadian dollars |
671 |
1,895 |
|
Slovak koruna |
13 |
5 |
|
Polish zloty |
8 |
6 |
|
|
2,298 |
5,696 |
|
|
|
|
|
|
|
|
The risks resulting from transaction exposure are mitigated by the use of forward contracts which are managed to eliminate approximately 80% of the exposure on a 12 month basis. Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows:
|
|
2008 |
||
|
|
Sterling |
Euro |
Other |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Financial assets |
2,698 |
1,192 |
1,110 |
|
Financial liabilities |
(2,758) |
(4,944) |
- |
|
|
|
|
|
|
Short term exposure |
(60) |
(3,752) |
1,110 |
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
- |
42 |
- |
|
Financial liabilities |
(382) |
(23,662) |
- |
|
|
|
|
|
|
Long term exposure |
(382) |
(23,620) |
- |
(continued from table above)
|
|
2007 |
||
|
|
Sterling |
Euro |
Other |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Financial assets |
1,376 |
2,891 |
4,143 |
|
Financial liabilities |
(4,261) |
(3,168) |
(2,989) |
|
|
|
|
|
|
Short term exposure |
(2,885) |
(277) |
(1,154) |
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
- |
- |
- |
|
Financial liabilities |
- |
(2,352) |
- |
|
|
|
|
|
|
Long term exposure |
- |
(2,352) |
- |
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.
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
If Sterling had strengthened against the Euro by 5% |
|
|
|
Net results for the year |
895 |
19 |
|
Equity |
405 |
341 |
|
|
|
|
|
|
1,300 |
360 |
|
|
|
|
|
If Sterling had weakened against the Euro by 5% |
|
|
|
Net results for the year |
(639) |
(19) |
|
Equity |
(448) |
(377) |
|
|
|
|
|
|
(1,087) |
(396) |
Interest rate risk
The Group finances its operations through both equity fundraising and bank facilities. The main borrowing facility borrowing is at floating rates of interest with a hedge comprising an interest rate swap covering 60% of the total outstanding which converts floating to fixed rates of interest. The following table illustrates the sensitivity of the net result for the year and equity to possible changes in interest rates of + 1% and - 1%, with effect from the beginning of the year on the remaining element of borrowings. These 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:
|
|
2008 |
2007 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
+ 1% |
- 1% |
+ 1% |
- 1% |
|
|
|
|
|
|
|
Net results for the year |
(83) |
83 |
(1) |
1 |
|
Equity |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
(83) |
83 |
(1) |
1 |
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 currently holds substantial cash balances to provide funding for research and production activity. Management continues to have the option to raise funding from the issue of equity shares and, more recently, has raised significant funding through a bank facility to ensure the Group remains able to meet its commitments as they fall due. As at 30 June 2008 the Group's contractual maturities are summarised as follows:
|
Current liabilities |
2008 |
2007 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Within 6 months |
6 to 12 months |
Within 6 months |
6 to 12 months |
|
|
|
|
|
|
|
Borrowing Facility |
- |
2,422 |
- |
- |
|
Trade payables |
2,506 |
9 |
4,603 |
9 |
|
Other short term liabilities |
2,245 |
- |
6,190 |
- |
|
Derivatives |
555 |
368 |
55 |
7 |
|
|
|
|
|
|
|
|
5,306 |
2,799 |
10,848 |
16 |
|
Non-current liabilities |
2008 |
2007 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
1 to 5 years |
Later than 5 years |
1 to 5 years |
Later than 5 years |
|
|
|
|
|
|
|
Borrowing Facility |
23,413 |
- |
2,161 |
- |
|
Other long term liabilities |
- |
2,573 |
- |
2,373 |
|
Derivatives |
382 |
- |
- |
- |
|
|
|
|
|
|
|
|
23,795 |
2,573 |
2,161 |
2,373 |
There is no material difference between the fair values and the book values of these financial instruments.
24. OPERATING LEASE COMMITMENTS
The following payments are due to be made on operating lease commitments:
|
|
Land & buildings |
Other |
Total |
|||
|
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
|
|
£'000 |
£'000 |
£'000 |
|
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Within one year |
384 |
293 |
276 |
308 |
660 |
601 |
|
Two to five years |
836 |
818 |
436 |
236 |
1,272 |
1,054 |
|
Over five years |
431 |
517 |
- |
- |
431 |
517 |
|
|
|
|
|
|
|
|
|
|
1,651 |
1,628 |
712 |
544 |
2,363 |
2,172 |
|
|
|
|
|
|
|
|
25. 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 £208k (2007: £177k).
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 2008. The major assumptions used were as follows:
|
|
2008 |
2007 |
|
|
% pa |
%pa |
|
|
|
|
|
Retail price inflation |
3.3 |
2.0 |
|
Salary increases |
4.0 |
3.5 |
|
Pension increases in payment |
2.0 |
2.0 |
|
Discount rate at the beginning of the year |
5.0 |
4.6 |
|
Discount rate at the end of the year |
6.0 |
5.0 |
|
Expected return on assets |
4.1 |
4.1 |
|
Increase of social security contribution ceiling |
3.25 |
3.25 |
|
|
|
|
|
Average life expectancies |
|
|
|
Male, 65 years of age at the balance sheet date |
18.0 |
17.9 |
|
Female, 65 years of age at the balance sheet date |
22.2 |
22.0 |
|
Male, 45 years of age at the balance sheet date |
40.8 |
40.6 |
|
Female, 45 years of age at the balance sheet date |
44.8 |
44.6 |
The assets in the scheme and the expected rates of return were as follows:
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Fair value of planned assets |
932 |
718 |
|
Present value of scheme liabilities |
(3,256) |
(2,900) |
|
|
|
|
|
Deficit in the scheme |
(2,324) |
(2,182) |
|
|
|
|
|
Experience gains / (losses) on plan assets |
23 |
(11) |
|
Experience gains / (losses) on plan liabilities |
201 |
(30) |
|
|
|
|
The pension charge generates an unrecognised deferred tax asset of £270k, however this is unrecognised in the Group accounts as there is uncertainty over the recoverability.
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Amounts charged to operating loss |
|
|
|
Current service costs |
222 |
194 |
|
|
|
|
|
Amounts included in other finance costs |
|
|
|
Expected return on pension scheme assets |
(31) |
(27) |
|
Interest on pension scheme liabilities |
159 |
129 |
|
Net charge |
128 |
102 |
|
|
|
|
|
Amounts recognised in the statement of recognised income and expense |
|
|
|
Actual return less expected return on pension scheme assets |
23 |
(11) |
|
Experience gains and losses arising on scheme liabilities |
201 |
(30) |
|
Changes in assumptions underlying the present value of scheme liabilities |
352 |
174 |
|
Total amount relating to year |
576 |
133 |
|
|
|
|
|
Opening cumulative (losses) |
(1,101) |
(1,234) |
|
Actuarial loss recognised |
(525) |
(1,101) |
|
|
|
|
|
Net movement recognised |
(525) |
(1,101) |
Movement in deficit during the year
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
Deficit at 1 July |
(2,182) |
(2,210) |
|
Foreign currency differences |
(444) |
127 |
|
Current service cost and finance cost |
(350) |
(296) |
|
Contributions |
64 |
54 |
|
Benefits paid |
12 |
10 |
|
Actuarial gains |
576 |
133 |
|
|
|
|
|
Deficit at 30 June |
(2,324) |
(2,182) |
The expected contributions over the forthcoming year are £228,000.
History of experience gains and losses
|
|
2008 |
2008 |
2007 |
2007 |
|
|
% |
£'000 |
% |
£'000 |
|
Scheme assets |
|
|
|
|
|
Difference between the expected and actual return |
2.6 |
23 |
1.5 |
(11) |
|
|
|
|
|
|
|
Scheme liabilities |
|
|
|
|
|
Experience gains and (losses) |
6.7 |
201 |
1.0 |
(30) |
|
|
|
|
|
|
|
Changes in assumptions underlying present value |
|
352 |
|
174 |
|
|
|
|
|
|
|
Total amount recognised |
17.7 |
576 |
4.6 |
133 |
The Group has taken advantage of the exemption from the requirement to disclose the history of experience prior to the date of transition contained within IFRS 1.
26. ISSUED SHARE CAPITAL
|
|
2008 |
2008 |
2007 |
2007 |
|
|
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 |
81,950,632 |
82 |
81,950,632 |
82 |
|
At 1 July |
|
|
|
|
|
Issued during the year |
- |
- |
- |
- |
|
|
|
|
|
|
|
At 30 June |
81,950,632 |
82 |
81,950,632 |
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 |
91,798,965 |
92 |
91,798,965 |
92 |
|
|
|
|
|
|
The deferred shares have no voting rights, dividend rights or value attached to them.
27. SHARE BASED PAYMENTS
The Group has a Savings Related Share Option Plan for the benefit of all employees and Executive directors with 12 months continuous service. Options granted in 2007/8 are exercisable at a 10% discount to the average market share price on the date of grant. (The 2006 and 2007 schemes carried a 15% discount). The vesting period is three years. The 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 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 Long Term Incentive Plan 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.
The following share based payments were issued during the year:
|
|
Number issued |
Exercise |
Exercise period on or before: |
|
|
|
Price (£) |
|
|
|
|
|
|
|
LTIP |
1,921,165 |
0.000 |
01/07/2010 |
|
SAYE |
632,576 |
0.306 |
01/05/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
2,553,741 |
|
|
|
|
|
|
|
For the following disclosure, Long Term Incentive Plan awards, with a nil exercise price have been disclosed separately to avoid distorting the weighted average exercise price (WAEP):
|
|
2008 WAEP
|
2007 WAEP
|
||
|
|
Number
|
Price (£)
|
Number
|
Price (£)
|
|
Outstanding at the beginning of the year
|
13,064,761
|
0.38
|
13,000,273
|
0.37
|
|
Granted during the year
|
632,576
|
0.31
|
179,358
|
0.99
|
|
Exercised during the year
|
(710,206)
|
0.05
|
(82,683)
|
0.30
|
|
Forfeited during the year
|
(1,533,831)
|
0.98
|
(32,187)
|
0.80
|
|
Outstanding at the year end
|
11,453,300
|
0.31
|
13,064,761
|
0.38
|
|
Exercisable at the year end
|
10,362,224
|
0.30
|
10,435,218
|
0.24
|
Included in the above numbers outstanding at 30 June 2008 are 8,983,191 (2007: 9,751,897) 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 28p (2007: 112p).
The share options outstanding at the end of the year have a weighted average remaining contractual life of 5.4 years (2007: 5.7 years) and have the following range of exercise prices:
|
|
30 June 2008 |
30 June 2007 |
|
Exercise price (p) |
Number |
Number |
|
0.1-5 |
6,260,261 |
6,971,967 |
|
6-45 |
3,194,244 |
2,561,668 |
|
46-120 |
1,998,795 |
3,531,126 |
|
|
11,453,300 |
13,064,761 |
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 |
|
|
|
|
|
|
|
|
10/04/08 |
3 |
01/05/11 |
3.2 |
0.3060 |
5% |
|
26/03/07 |
3 |
01/05/10 |
3.2 |
0.9945 |
5% |
|
11/01/06 |
3 |
01/03/09 |
3.2 |
0.6400 |
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued from table above)
|
Date of grant |
Share price at grant (£) |
Volatility of share price |
Fair value (£) |
Number outstanding |
|
|
|
|
|
|
|
10/04/08 |
0.34 |
41.6% |
0.17 |
632,576 |
|
26/03/07 |
1.17 |
30% |
0.41 |
101,653 |
|
11/01/06 |
0.75 |
30% |
0.26 |
356,847 |
|
|
|
|
|
|
|
|
|
|
|
|
-
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 |
|
|
|
|
|
|
|
|
21/12/07 |
3 |
04/07/10 |
3 |
0.0000 |
n/a |
|
09/10/06 |
3 |
01/07/09 |
3 |
0.0000 |
n/a |
|
14/12/05 |
3 |
14/12/08 |
3 |
0.0000 |
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued from table above)
|
Date of grant |
Share price at grant (£) |
Volatility of share price |
Fair value (£) |
Number outstanding |
|
|
|
|
|
|
|
21/12/07 |
0.385 |
n/a |
0.385 |
1,724,536 |
|
09/10/06 |
1.000 |
n/a |
1.000 |
818,602 |
|
14/12/05 |
0.695 |
n/a |
0.695 |
1,026,459 |
|
|
|
|
|
|
|
|
|
|
|
|
-
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 £356,000 (2007: £369,000) related to equity-settled share based payment transactions during the year.
28. 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 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July 2006 |
92 |
33,173 |
40,128 |
(60) |
306 |
|
Exchange differences on translation of foreign operations |
|
|
|
|
|
|
Actuarial gains |
|
|
|
|
|
|
Valuation gains taken to equity |
|
|
|
|
|
|
Net income recognised directly in equity |
|
|
|
|
|
|
Loss for the period after tax |
|
|
|
|
|
|
Total recognised income and expense |
|
|
|
|
|
|
Share based payments |
|
|
|
|
369 |
|
Sale of shares by Employee Benefit Trust |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
At 30 June 2007 |
92 |
33,173 |
40,128 |
(36) |
675 |
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
|
|
|
|
|
|
Actuarial gains |
|
|
|
|
|
|
Valuation losses taken to equity |
|
|
|
|
|
|
Net income recognised directly in equity |
|
|
|
|
|
|
Loss for the period after tax |
|
|
|
|
|
|
Total recognised income and expense |
|
|
|
|
|
|
Share based payments |
|
|
|
|
356 |
|
Sale of shares by Employee Benefit Trust |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
At 30 June 2008 |
92 |
33,173 |
40,128 |
(1) |
1,031 |
|
|
|
|
|
|
|
(continued from table above)
|
|
Revaluation reserve |
Foreign exchange reserve |
Retained earnings |
Total equity |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 July 2006 |
63 |
- |
(42,406) |
31,296 |
|
Exchange differences on translation of foreign operations |
|
(133) |
|
(133) |
|
Actuarial gains |
|
|
133 |
133 |
|
Valuation gains taken to equity |
163 |
|
|
163 |
|
Net income recognised directly in equity |
163 |
(133) |
133 |
163 |
|
Loss for the period after tax |
|
|
(23,256) |
(23,256) |
|
Total recognised income and expense |
163 |
(133) |
(23,123) |
(23,093) |
|
Share based payments |
|
|
|
369 |
|
Sale of shares by Employee Benefit Trust |
|
|
|
24 |
|
|
|
|
|
|
|
At 30 June 2007 |
226 |
(133) |
(65,529) |
8,596 |
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
|
(495) |
|
(495) |
|
Actuarial gains |
|
|
576 |
576 |
|
Valuation losses taken to equity |
(61) |
|
|
(61) |
|
Net income recognised directly in equity |
(61) |
(495) |
576 |
20 |
|
Loss for the period after tax |
|
|
(20,297) |
(20,297) |
|
Total recognised income and expense |
(61) |
(495) |
(19,721) |
(20,277) |
|
Share based payments |
|
|
|
356 |
|
Sale of shares by Employee Benefit Trust |
|
|
|
35 |
|
|
|
|
|
|
|
At 30 June 2008 |
165 |
(628) |
(85,250) |
(11,290) |
|
|
|
|
|
|
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 2008 was €78,000; £52,000 (2007: €78,000; £52,000).
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 2008 |
30 June 2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Capital commitments |
1,123 |
1,311 |
Included in the above is £126,000 for ongoing factory refurbishments in the UK (2007: £280,000); £623,000 for new plant and machinery (2007: £854,000) and £374,000 for IT equipment and systems upgrades (2007: £177,000).
31. RELATED PARTY TRANSACTIONS
At 30 June 2008, 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
There have been no material post-balance sheet events as defined by IAS 10 which would require disclosure or adjustment to the 30 June 2008 Financial Statements.
This information is provided by RNS
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