CONTENTS//
0 1 _
Chairman's Statement
0 6 _
Board of Directors and Advisors
0 7 _
Report of The Directors
1 0 _
Corporate Governance
1 2 _
1 5 _
1 6 _
Report of The Remuneration Committee
Report of The Independent Auditors
Consolidated Profit and Loss Account
1 7 _
Balance Sheets
1 8 _
1 9 _
3 0 _
Consolidated Cashflow Statement
Notes to the Financial Statements
Notice of Annual General Meeting
CHAIRMAN’S STATEMENT _FINANCIAL YEAR ENDED
31 MARCH 2006 SAW THE FIRST SIGNIFICANT
INCOME FOR THE BIOMATERIALS-FOCUSED
BUSINESS STRATEGY THAT HAS BEEN UNDER
DEVELOPMENT SINCE 2003.
OUR GENERAL STRATEGY
IS TO BUILD A PROFITABLE, CASH
POSITIVE, POLYMER LICENSING
AND SUPPLY BUSINESS AND
TO LEVERAGE THAT BASE WITH
SELECTED DEVICE DEVELOPMENT
PROJECTS WITH HIGH
POTENTIAL RETURNS, SUCH
AS HEART VALVE AND BREAST
IMPLANT, WITH WHICH THE
DIRECTORS EXPECT TO ENHANCE
SHAREHOLDER VALUE.
RESULTS//
Results to date are reflected in the summary financial
performance of the business:
For the year ended 31 March 2006, the Company's
turnover was £1,424,944, representing a more than
10-fold increase over the previous year's £136,958.
Approximately £1.1million of the 2006 turnover resulted
from the agreement signed with St.Jude Medical. As
the substance of the transaction is that of a sale of
rights to the use of Elast-Eon™ in specified fields of
use, this has been recognised as revenue in these
financial statements.Operating expenses for the year
were £1,867,740, representing a reduction of almost
15% over the previous year and being 26% less than
the figure for 2004. The operating expenses included
£634,292 of development expenditure
(2005:
£653,896) and amortisation of intangible fixed assets of
£99,491 (2005: £94,589). The Loss after Tax for the
year was £523,348, which compares with the loss for
2005 of £1,867,390.
The cash position as at 31 March 2006 was
£2,715,804, which compares with £4,015,126 on the
corresponding day in 2005. However, the cash position
improved significantly in April 2006 with the receipt of
the US$2million (approximately £1.1million) initial
payment from St.Jude Medical in respect of the
agreement concluded prior to the financial year end.
Other tangible measures of progress came in the form
of the first US FDA Pre-Market Approval (‘PMA’) for the
use of our Elast-Eon™ material in a long-term, life
sustaining application and the agreement reached with
St.Jude Medical for exclusive use of Elast-Eon™ as
insulation for its cardiac pacing products. Post year
end, an extremely important event occurred in July
2006 when Elast-Eon™ achieved first human use as a
cardiac rhythm management lead insulator.
AORTECH INTERNATIONAL PLC | 01
ELAST-EON™ LICENSING AND SUPPLY_AS FDA
APPROVAL OF OUR PRODUCT BECAME KNOWN IN THE
MARKETPLACE AND OUR CONTRACT WITH ST.JUDE
MEDICAL WAS ANNOUNCED, THERE WAS A
SUBSTANTIAL INCREASE IN NEW CUSTOMER
ENQUIRIES.
Almost any clinical use of our polymer requires a
lengthy cycle of application development and testing
followed by a regulatory approval phase. However, as
a consequence of PMA approvals and first human use,
customer interest has risen and we anticipate an
increasing number of clinical applications to be
approved during the coming financial year. We would
expect these to be focused mainly on orthopaedic and
cardiac surgery applications, although there are
additional client development programmes underway
in cardiology and urology, among others.
During the period, under the guidance of our Chief
Scientific Officer, Dr. Ajay Padsalgikar, we also
continued to expand our technology offerings with the
development of new softer grades of Elast-Eon™, an
Elast-Eon™ gel and an injectable form of Elast-Eon™.
Patent applications have been made for all of these
materials.
DEVICE DEVELOPMENT//
THE TWO MOST SIGNIFICANT
INTERNAL PROJECTS I WISH TO
REPORT ON ARE THE POLYMER
HEART VALVE AND THE BREAST
IMPLANT.
POLYMER HEART VALVE//
The global prosthetic heart valve market is in excess of
$1 billion and growing at approximately 6% per annum.
Various estimates suggest that the potential market for
percutaneous heart valves is equivalent in size to the
surgical heart valve market.
Over the past several years, Bovine Spongiform
Encephalopathy (BSE) has emerged as a risk factor in
the use of tissue heart valves manufactured from animal
tissue. A polymer heart valve removes this risk.
AORTECH’S STRATEGY_Prior to suspending our UK
based heart valve development programme in the
summer of 2003, two key objectives were attained.
There has been increased interest from both industry
(percutaneous)
and investors in catheter-delivered
heart valve technology. A percutaneous heart valve
has the advantage of being delivered to the heart via
a catheter inserted through an incision in the groin,
thus avoiding conventional open-chest surgery
utilising cardio-pulmonary bypass. This approach
provides a therapeutic option for patients not strong
enough to undergo a conventional open-chest
procedure. The AorTech polymer valve offers
significant advantages in size and ease of use as
compared with other, tissue-based percutaneous
designs, making this therapy available for smaller
patients. The strength of this increased industry
interest in catheter-delivered heart valves can be
demonstrated by
the Edwards Lifesciences’
acquisition in October 2004 of Percutaneous Valve
Technology Company
reported
$125million up front payment.
for a
(PVT),
THE AORTECH POLYMER VALVE
OFFERS A SIGNIFICANT ADVANTAGE
IN MANUFACTURED COST VERSUS
OTHER COMMERCIALLY AVAILABLE
HEART VALVE PRODUCTS, MAKING
IT IDEALLY SUITED FOR LARGE
EMERGING MARKETS SUCH AS
CHINA AND INDIA.
forms and
These were the filing of patents for the “high
durability” polymer valve known as M-95-C in both
surgical and percutaneous
the
demonstration of a soft failure mode for this valve.
This “soft” failure mode is similar, and our data
to that of
suggests even somewhat superior,
commercial
in
widespread distribution. The significance of a soft
failure mode is that, unlike a mechanical valve
where failure almost always results in death, a
patient with a failing polymer or tissue valve will
exhibit symptoms of the failing valve, providing an
opportunity for an intervention to correct this
situation, thus preserving the life of the patient.
tissue heart valve products
As a result of these technology and market factors
there has been a general level of renewed interest by
outside parties in our AorTech polymer valve. This
interest level has been significant and has led to our
decision to recommence the AorTech polymer valve
programme. We have recruited Dr. Jason Beith, the
inventor of the recently patented M-95-C valve to lead
our development project team.
We are seeking an industry partner to assist in the
development programme and believe that we have
made progress towards identifying a partner who
will provide the necessary resources to continue the
pre-clinical development and testing on our polymer
valve. This would enable the valve project to be
taken successfully to clinical trials in future years
with
the
commercialisation of this heart valve in areas of
surgical, minimally invasive and percutaneous
manifestations. I look forward to reporting on the
progress towards a partnership for the development
of the AorTech polymer valve within the next year.
objective
ultimate
being
the
On 26 March 2006 our M-95-C patent was issued
in the UK and we anticipate that it will be issued in
all major territories over the next 18-24 months.
DEVICE DEVELOPMENT//
>
02 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 03
> DEVICE DEVELOPMENT//
BREAST IMPLANT_WORLDWIDE, 800,000 WOMEN WILL
RECEIVE BREAST IMPLANT PRODUCTS IN THE COMING
YEAR. MORE THAN 90% OF THESE WILL BE FOR
PURELY COSMETIC REASONS.
Although some form of re-approval by US FDA of a
silicone gel-filled implant is anticipated in the near future,
we believe that the case for the use of an Elast-Eon™ gel
filler in existing implants can be made on the basis of both
product and patient safety. Our product avoids the use of
platinum or tin – or indeed any metal catalyst in the
material – and offers a substantive reduction in low
molecular weight compounds compared with the silicone
material that characterises existing silicone breast implant
products.
It is our opinion, therefore, that the anticipated US FDA
approval of silicone gel products will be a positive
development for AorTech as it will reintroduce a
technology factor into market competition for devices that
have been in regulatory limbo for 14 years.
We have been developing a minimally invasive gel implant
technology that we believe may be of significant interest
to both the industry and the market. This technology will
permit a gel implant procedure, without damage to the
shell, and secure the benefits of the safer Elast-Eon™ gel.
We are not aware of any other next generation breast
implant technology like this. Our future development
programme over the coming months is to pursue proof of
concept for the minimally invasive breast implant and to
select a partnership where the development programme
can be taken to clinical trials and ultimately commercial
use. Patents have been filed for this minimally invasive
breast implant device.
OPERATIONAL UPDATE//
In May 2006, our Australian operation moved into a
new and expanded facility located on a technology
campus in Scoresby, Melbourne, approximately 3 miles
from our prior location.
AS A RESULT OF THIS RELOCATION
WE HAVE BEEN ABLE TO BOTH
SCALE UP AND STABILISE OUR
PILOT POLYMER SYNTHESIS
MANUFACTURING CAPABILITY.
TOGETHER WITH THE IMPROVEMENT
IN POLYMER QUALITY LEVELS, WE
ARE ABLE TO ACHIEVE A
SIGNIFICANT REDUCTION IN THE
POLYMER MANUFACTURING COST.
We anticipate that our new capacity levels are adequate
for the foreseeable future. Substantive funding for the
infrastructure elements of this move were obtained from
the Australian State of Victoria. This move is an
endorsement of the success of AorTech’s team in Victoria
and the quality of local support available to a high
technology business.
BOARD CHANGES//
IN CONCLUSION//
In November 2005, we announced the appointment of
Eddie McDaid and Gordon Wright as Non-Executive
Directors of the Company. Their knowledge of the
Company and the industry in which we operate is wide
ranging, and their input has been much welcomed by
their colleagues on the Board.
OUTLOOK//
Over the coming year we expect the early adopters of
Elast-Eon™ technology in the fields of cardiology,
orthopaedics and urology to provide the momentum for
moving this segment of the business forward. We have
prepared our operations for this new business and are
capacity of
confident of our product quality,
manufacturing and new cost basis.
During the same period, we expect to be announcing
significant developments in the use of Elast-Eon™ in
orthopaedic applications and we anticipate
the
formation of a co-development partnership with an
industry partner for our heart valve technology.
Current trading remains in line with the Board’s
expectations.
The positive results for the year are a culmination of the
efforts of the past three years, following the downsizing of
the organisation and its activities during 2002/2003.
These efforts have enabled the Company to focus on
realising the potential of its Elast-Eon™ material and to
deliver the first major commercialisation of Elast-Eon™ in
a medical device product through our licence and supply
agreement with St.Jude Medical. Having achieved this
first commercialisation agreement I am confident that it
will be the first of several licence and supply agreements
over the coming years. Our Company is now achieving a
financial and cash flow stability that we have been
seeking to create since 2003.
None of this progress or these achievements would
have been possible without the expertise, drive and
commitment of our employees in Australia, whom I
thank, on behalf of myself and the Board, for their
outstanding service. I have to also thank my fellow
Board members and in particular our Chief Executive,
Frank Maguire, for his sterling work during the past
twelve months in delivering the positive results and
indeed the major turnaround that the Company has
achieved during the year ended 31 March 2006.
FINALLY_I TAKE THIS OPPORTUNITY TO THANK OUR
SHAREHOLDERS FOR THEIR CONTINUED SUPPORT
OVER THE YEARS. I AM CONFIDENT THAT AORTECH
CAN BUILD ON ITS ACHIEVEMENTS OF THE PAST
TWELVE MONTHS AND THAT THE POTENTIAL OF OUR
UNIQUE ELAST-EON™ MATERIAL WILL CONTINUE TO
ADD VALUE TO THE COMPANY OVER ENSUING YEARS.
JON PITHER CHAIRMAN
04 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 05
BOARD OF DIRECTORS & ADVISORS//
REPORT OF THE DIRECTORS//
DIRECTORS//
Jon Pither Chairman (non-Executive Director; appointed Chairman 12 May 2005)
Laurie Rostron Chairman (resigned 12 May 2005)
Frank Maguire Chief Executive
Peter Gibson non-Executive Director (resigned 12 May 2005)
Eddie McDaid non-Executive Director (appointed 14 November 2005)
Dr Stuart Rollason non-Executive Director (appointed 13 May 2005)
Gordon Wright non-Executive Director (appointed 14 November 2005)
COMPANY SECRETARY//
David Parsons ACIS
REGISTERED OFFICE//
Dalmore House, 310 St Vincent Street, Glasgow G2 5QR
HEAD OFFICE//
Prestige Travel Suite, Barclays Bank House, 81-83 Victoria Road, Surbiton, Surrey, KT6 4NS
REGISTERED AUDITORS//
PricewaterhouseCoopers LLP, Kintyre House, 209 West George Street, Glasgow G2 5TS (resigned 20 January 2006)
Grant Thornton UK LLP, 8 West Walk, Leicester LE1 7NH (appointed 20 January 2006)
NOMINATED ADVISORS & BROKERS//
Bell Lawrie White (a division of Brewin Dolphin Securities Limited), 48 St Vincent Street, Glasgow G2 5TS (resigned 13 April 2006)
Evolution Securities Limited, 100 Wood Street, London EC2V 7AN (appointed 13 April 2006)
SOLICITORS//
Biggart Baillie, Dalmore House, 310 St. Vincent Street, Glasgow G2 5QR
Beachcroft Wansbroughs, 100 Fetter Lane, London, EC4A 1BN
BANKERS//
Bank of Scotland, 123 St. Vincent Street, Glasgow G2 5EA
REGISTRARS//
Lloyds TSB Registrars Scotland, PO Box 28448, Finance House, Orchard Brae, Edinburgh EH4 1WQ
Shareholder helpline: 0870 6015366,
Shareholder website: www.shareview.co.uk
The Directors present their report and the audited financial statements for the year ended 31 March 2006.
PRINCIPAL ACTIVITIES_
The Company is the holding company of a Group whose principal activities are the development and exploitation of a range of innovative biomaterials.
REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS_
A review of the results for the year and of future developments in the business is given in the Chairman’s Statement.
During the financial year, the Group continued to develop and exploit its biomaterial products, with discussions taking place with a number of interested parties. The
Group's manufacturing and research facility in Australia was transferred during 2006 to larger premises near Melbourne.
During the year, costs of £634,292 (2005: £653,896) were charged to the Profit and Loss Account as development expenditure. The consolidated profit and loss
account is set out on page 16, indicating the Group's loss for the financial year of £523,348 (2005: loss of £1,867,390) which will be added to the deficit on reserves.
No dividends have been paid or proposed for the years ended 31 March 2006 and 2005.
DIRECTORS AND THEIR INTERESTS_
At 31 March 2006, the Chairman of the Company was J Pither who took over the role from L Rostron upon the latter's resignation from the Board on 12 May 2005;
the Executive Director was F Maguire, and the non-Executive Directors were E McDaid, Dr S Rollason and G Wright. The other Director who served during the year
was P Gibson, who resigned on 12 May 2005.
At each Annual General Meeting one third of Directors shall be subject to retirement by rotation. Dr S Rollason retires from the Board at the Annual General
Meeting and, being eligible, offers himself for re-election. Mr E McDaid and Mr G Wright, being Directors appointed since the last Annual General Meeting,
will retire and seek re-election.
The interests of the Directors at 31 March 2006 and 31 March 2005 (or date of appointment if later) in the ordinary share capital of the Company
(all beneficially held) were as follows:
J Pither
L Rostron*
F Maguire
P Gibson*
E McDaid**
S Rollason
G Wright**
* not a member of the Board of Directors on 31 March 2006
** not a member of the Board of Directors on 31 March 2005
31 March 2006
number
31 March 2005
(or date of appointment)
number
-
-
1,200
-
499,383
-
447,107
-
-
1,200
5,500
499,383
-
447,107
During the period from the end of the financial year to 30 August 2006, no Director increased his interest in the issued ordinary share capital of the Company.
The 437,107 shares formerly registered in the name of Melody Investments Limited were transferred into the names of Mr E McDaid and his wife on 30 June
2006: there has been no change in the beneficial ownership of these shares.
The interests of Directors in share options are disclosed in the Report of the Remuneration Committee on page 14.
06 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 07
REPORT OF THE DIRECTORS// continued
SUBSTANTIAL SHAREHOLDINGS_
With the exception of the following shareholdings, the Directors have not been advised of any individual interest, or group of interests held by persons acting together,
which at 14 August 2006 exceed 3% of the Company’s issued share capital:
Chase Nominees Limited
Mr Edward McDaid & Mrs Kathleen McDaid
Caricature Investments Limited
Nordea Bank Danmark A/S
Goldman Sachs International
Mr Craig Pickup
number
941,810*
499,383
447,107
247,000**
138,000
118,636
%
24.7%
13.1%
11.7%
6.5%
3.1%
3.1%
*Included in the interests of Chase Nominees Limited above is the following fund whose shareholding at 14 August 2006 exceeds 3% of the Company’s issued share capital:
Bluehone Investors LLP
912,841
24.0%
which includes the interests of Active Capital Trust of 861,861 shares (22.6%) in the Company.
**Included in the interests of Nordea Bank Danmark A/S above is the following shareholding at 14 August 2006 which exceeds 3% of the Company’s issued
share capital:
Forvaltnings AB Bronsstädet, a company wholly owned by Mr P Gyllenhammar
247,000
6.5%
EMPLOYEES_
The Group places considerable value on the involvement of its employees and they are regularly briefed on the Group’s activities through
consultative meetings.
Equal opportunity is given to all employees regardless of their gender, colour, race, religion or ethnic origin.
Applications for employment from disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members
of staff becoming disabled, every effort is made to ensure that their employment within the Group continues and that appropriate training is arranged. It is the policy
of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES_
The Group uses various financial instruments, including cash, equity investments and various items, such as trade debtors and trade creditors that arise directly from
its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below.
The main risks arising from the Group's financial instruments are market risk, currency risk, liquidity risk, interest rate risk and credit risk. The Directors review and
agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.
MARKET RISK_
Market risk encompasses two types of risk, being currency risk and fair value interest rate risk. The Group's policies for managing fair value interest rate risk are
considered along with those for managing cash flow interest rate risk and are set out in the subsection entitled "Interest rate risk" below.
CURRENCY RISK_
The Group is exposed to translation and transaction foreign exchange risk. In relation to translation risk, as far as possible the assets held in the foreign currency are
matched to an appropriate level of borrowings in the same currency. Transaction exposures, including those associated with forecast transactions, are hedged when
known, principally using forward currency contracts. Whilst the aim is to achieve an economic hedge the Group does not adopt an accounting policy of hedge
accounting for these financial statements.
The majority of the Group's sales are to customers in Australia or the United States. These sales are priced in either Australian or US dollars and invoiced in
the currencies of the customers involved. The Group policy is to try to match the timing of the settlement of these sales and purchase invoices so as to eliminate,
as far as possible, currency exposures. Where there is a material residual exposure the Group uses forward currency contracts to minimise the risk associated with
that exposure.
The tables below show the extent to which the Group has residual financial assets and liabilities, after taking account of forward currency contracts, in currencies
other than Sterling. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of the Group.
Functional currency of operation
2006
Sterling
2005
Sterling
Net foreign currency monetary asset/(liability)
Australian Dollar
£000
Euro
£000
US Dollar
£000
420
183
8
8
224
91
total
£000
652
282
LIQUIDITY RISK_
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
INTEREST RATE RISK_
The Group finances its operations through retained cash reserves.
The interest rate exposure of the financial assets and liabilities of the Group as at 31 March 2006 is shown in the table below. The table includes trade debtors and
creditors as these do not attract interest and are therefore subject to fair value interest rate risk.
Financial assets
Cash
Other deposits
Trade debtors
Financial liabilities
Overdrafts
Bank loans
Trade creditors
fixed
£000
112
-
-
112
-
-
-
-
floating
£000
2,591
-
-
2,591
-
-
-
-
Interest rate
zero
£000
13
-
1,106
1,119
-
-
202
202
total
£000
2,716
-
1,106
3,822
-
-
202
202
CREDIT RISK_
The Group's principal financial assets are cash and trade debtors. The credit risk associated with the cash is limited as the counterparties have high credit ratings
assigned by international credit-rating agencies. The principal credit risk arises therefore from its trade debtors.
In order to manage credit risk the Directors set limits for customers based on a combination of payment history and third party credit references. Credit limits are
reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history.
CREDITOR PAYMENT POLICY_
The Company’s current policy concerning the payment of the majority of its trade creditors is to follow the Better Payment Practice Code issued by the Better Payment
Practice Group (copies are available from the DTI). For other suppliers, the Company’s policy is to:
(a) settle the terms of payment with those suppliers when agreeing the terms of each transaction;
(b) ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
(c) pay in accordance with its contractual and other legal obligations.
The payment policy applies to all payments to creditors for revenue and capital supplies of goods and services without exception.
Wherever possible UK subsidiaries follow the same policy and the overseas subsidiaries are encouraged to adopt a similar policy applying local best practice.
The Group's average creditor payment period at 31 March 2006 was 18 days (2005 : 32 days).
CHARITABLE AND POLITICAL DONATIONS_
During the year the Group made no charitable nor political donations (2005: charitable £350).
POST-BALANCE SHEET EVENTS_
Subsequent to the year end, the Group has made announcements regarding: (1) the first FDA approved human use of its polymer technology Elast-Eon™ pursuant
to its exclusive licence agreement with St.Jude Medical (STJ : NYSE) which was announced on March 20, 2006; and (2) the creation of a Medical Advisory Board,
with the appointment of the esteemed plastic surgeons, V. Leroy Young, M.D., and Mark L Jewell, M.D.. Between them they bring eighty years combined experience
in plastic surgery. The Medical Advisory Board will play a key role in the development and promotion of AorTech's unique and highly versatile Elast-Eon™ product,
in a range of surgical applications.
ANNUAL GENERAL MEETING _
The notice convening the Annual General Meeting for 12 noon on 28 September 2006 at at the offices of Biggart Baillie, Solicitors, 310 St Vincent Street, Glasgow G2 5QR,
is set out on page 30. There are a number of resolutions to be passed and further information in relation to these resolutions is set out below.
RESOLUTIONS 1 TO 8_
Resolution 1 provides for the approval of the Company's financial statements for the year ended 31 March 2006. Resolution 2 provides for approval of the Report of the
Remuneration Committee for the year ended 31 March 2006. Resolution 3 deals with the re-appointment of the one Director required by the Company's Articles of
Association to retire this year. Resolutions 4 and 5 deal with the formal appointment of Eddie McDaid and Gordon Wright respectively to the Board, as required by Article
100 of the Company's Articles of Association. Resolution 6 deals with the re-appointment of Grant Thornton UK LLP as the Company's auditors.
Resolution 7 authorises the Directors to allot shares up to a nominal value of £3,175,232. This number represents one third of the Company’s issued share capital.
Resolution 8 disapplies pre-emption rights in relation to a specified number of shares. This figure represents 5% of the issued share capital.
Resolutions 1 to 6 are termed ordinary business. Resolutions 7 and 8 are termed special business.
J C D Parsons
Company Secretary, Surbiton, 30 August 2006
08 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 09
STATEMENT OF DIRECTORS’ RESPONSIBILITIES//
ACCOUNTABILITY AND AUDIT//
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
The Board includes a detailed review of the performance of the Company in the Chairman’s Statement on pages 1 to 5. Reading this alongside the Report of the
Directors on pages 7 to 9, the Board seeks to present a balanced and understandable assessment of the Company’s position and prospects.
Company law requires the Directors to prepare Financial Statements for each financial year that give a true and fair view of the state of affairs of the Company and
the Group as at the end of the financial period and of the profit or loss of the Group for that period.
INTERNAL CONTROL_
The Directors consider that, in preparing these Financial Statements, they have used appropriate accounting policies, consistently applied and supported by
reasonable and prudent judgments and estimates and that all accounting standards that they consider to be applicable have been followed.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and
the Group and to enable them to ensure that the Financial Statements comply with the Companies Act 1985. They are responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In so far as the Directors are aware:
• there is no relevant audit information of which the Company's auditors are unaware; and
• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are
aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United
Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
By order of the Board
J C D Parsons
Company Secretary, Surbiton, 30 August 2006
CORPORATE GOVERNANCE//
The Group currently has a reduced Corporate Governance structure, reflecting the present development stage, the size of the business and the Directors' assessment
of the cost benefit balance of full Corporate Governance. The situation will however be kept under review in the light of ongoing corporate developments and
up-scaling of activities.
The Directors have strengthened the Board structure in line with the undertaking made in the previous year's Annual Report, by appointing two further non-Executive
Directors, both of whom have considerable experience of the industry and of the Company itself. The two recently appointed non-Executive Directors, E McDaid and
G Wright have, within the preceding five years, been Executive Directors of the Company and each remains in beneficial ownership of shareholdings in excess of 11%
of the issued share capital.
DIRECTORS_
The Company is controlled by the Board of Directors which, at 31 March 2006, comprised one Executive and three non-Executive Directors, and a non-Executive
Chairman. All Directors are able to take independent financial advice in furtherance of their duties if necessary.
The Board has formalised the review and reporting of the main internal controls within the business. In previous periods, the Directors commissioned a risk review exercise
in the course of which the key risks facing the Company were identified. These areas included regulatory, research and development, commercial, human resources and
information technology. The Board will continue to review the system of internal controls within the Group.
The Board of Directors is responsible for the Group’s system of internal financial controls. However, it should be recognised that such a system can provide only
reasonable and not absolute assurance against material mis-statement or loss.
The principal elements of the system include:
A clearly defined structure which delegates authority, responsibility and accountability.
A comprehensive system for reporting financial results. Actual results are measured monthly against budget which together with a commentary on variances and
other unusual items allows the Board to monitor the Group’s performance on a regular basis.
A comprehensive annual planning and budgeting programme.
A revision of annual forecasts on a periodic basis.
There is no independent internal audit function. The Directors believe that such a function would not be cost effective given the current size of the Group but they will
continue to monitor the situation as the Group goes forward.
The Board has reviewed the effectiveness of the system of internal controls as outlined above and considers the Group has an established system which the Directors
believe to be appropriate to the business.
AUDIT COMMITTEE_
The Audit Committee, comprising the non-Executive Directors, meets at least twice per year and overviews the monitoring of the Group’s internal controls, accounting
policies and financial reporting and provides a forum through which the external auditors report. It meets at least once a year with the external auditors without
Executive Board members present.
GOING CONCERN_
After making appropriate enquiries and reviewing budgets, profit and cash flow forecasts, and business plans, the Directors have formed a judgement at the time
of approving the financial statements that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason the Directors consider that the adoption of the going concern basis in preparing the Group’s financial statements is appropriate.
10 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 11
REPORT OF THE REMUNERATION COMMITTEE//
This report has been prepared in accordance with the Directors' Remuneration Report Regulations 2002 which introduced new statutory requirements for the disclosure of
Directors' remuneration in respect of periods ending on or after 31 December 2002. The report also meets the relevant requirements of the Listing Rules of the Financial
Services Authority and describes how the Board has applied the Principles of Good Governance relating to Directors' remuneration. As required by the Regulations, a
resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved.
REMUNERATION COMMITTEE_
The Remuneration Committee comprises non-Executive Directors as follows:
P Gibson (Chairman) (resigned 12 May 2005)
Dr S Rollason (Chairman) (appointed 13 May 2005)
L Rostron (resigned 12 May 2005)
J Pither
G Wright (appointed 14 November 2005)
SHARE OPTIONS_
The Company operates a Share Option Scheme and an Unapproved Share Option Scheme.
Only Executive Directors and employees of the Group resident in the UK are eligible to participate in the Share Option Scheme which has been approved by the Inland
Revenue under the provisions of Schedule 9 to the Income and Corporation Taxes Act 1988.
Any person who at the date of grant is approved by the Board is entitled to participate in the Unapproved Share Option Scheme.
The award of options under both schemes is at the discretion of the Remuneration Committee.
The options issued to date under both schemes will only be exercisable if the average mid market closing price of the Company’s shares on the five business days
prior to the date of exercise exceeds the option price by 15% or more.
As appropriate the Committee may invite the Chief Executive to participate in some of its discussions. No Director plays a part in any discussion about his own
remuneration.
PENSIONS_
The Committee is responsible for determining the terms and conditions of employment of Executive Directors. It is also responsible for considering management
recommendations for remuneration and employment terms of the Company's staff, including incentive arrangements for bonus payments and grant of share options.
The constitution and operation of the Committee is in compliance with the provisions of the Combined Code on Corporate Governance. When setting its remuneration
policy the Committee gives full consideration to the provisions and principles of the Combined Code. In setting the policy it considers a number of factors including:
The Group made contributions to a personal pension plan for F Maguire at the rate of 10.8% of gross salary.
DIRECTORS’ EMOLUMENTS_
Details of individual Directors' emoluments for the year are as follows:
the basic salaries and benefits available to Executive Directors and senior management of comparable companies.
the need to attract and retain Directors and senior management of an appropriate calibre.
the need to ensure Executive Directors’ and senior management’s commitment to the future success of the Company by means of incentive schemes.
REMUNERATION OF NON-EXECUTIVE DIRECTORS
The remuneration of the non-Executive Directors is determined by the Board with reference to the annual survey of independent Directors carried out by Independent
Remuneration Solutions.
The non-Executive Directors do not receive any pension or other benefits from the Company, nor do they participate in any of the bonus schemes.
The non-Executive Directors have service agreements which are reviewed by the Board annually and they are also included in the one third of Directors subject to
retirement by rotation at each Annual General Meeting.
REMUNERATION OF EXECUTIVE DIRECTORS_
The Executive Directors have service contracts which can be terminated on one year's notice by either party. The Remuneration Committee will review each case of
early termination individually in order to ensure compensation settlements are made which are appropriate to the circumstances, taking care to ensure that poor
performance is not rewarded. The most recent executed contract for the Executive Directors was for F. Maguire - 6 December 2002.
The Company’s remuneration policy for Executive Directors is to:
Executive
F Maguire (appointed 1 July 2003)
I Cameron (resigned 1 November 2004)
Non-executive
J Pither (Chairman) (appointed as Chairman 12 May 2005)
L Rostron (resigned as Chairman 12 May 2005)
P Gibson (resigned 12 May 2005)
Dr S Rollason (appointed 13 May 2005)
E McDaid (appointed 14 November 2005)
G Wright (appointed 14 November 2005)
salary
and fees
£
124,989
-
37,000
6,000
3,000
19,500
7,750
6,750
benefits
pension
in kind contributions
£
£
2006
total
£
9,600
-
13,542
-
148,131
-
-
-
-
-
-
-
-
-
-
-
-
-
37,000
6,000
3,000
19,500
7,750
6,750
2005
total
£
172,100
68,998
18,000
52,250
18,000
-
-
-
204,989
9,600
13,542
228,131
329,348
have regard to the individual’s experience and the nature and complexity of their work in order to pay a competitive salary that attracts and retains management
of the highest quality.
Benefits in kind include the provision of a company car and medical insurance.
link individual remuneration packages to the Group’s long term performance through the award of share options and bonus schemes.
provide post retirement benefits through defined contribution pension schemes.
provide employment related benefits including the provision of a company car, life assurance, medical insurance and insurance relating to the individual’s duties.
SALARIES AND BENEFITS_
The Remuneration Committee meets twice each year to consider and set the annual salaries and benefits for Executive Directors, having regard to personal
performance and independent advice concerning comparable organisations.
PERFORMANCE RELATED BONUSES_
An annual performance related bonus scheme is operated by the Group. Under the scheme bonuses are payable to Executive Directors subject to terms laid down
by the Remuneration Committee from time to time. No performance related bonuses are payable for the year ended 31 March 2006.
L Rostron is a partner in Linn Medical. All the emoluments of L Rostron above are represented by payments made by the Company to Linn Medical in respect of the
provision of the services of L Rostron to the Company.
P Gibson is employed by Ad Quo Associates Limited ("Ad Quo") in the provision of services to the Company. Included in the emoluments of P Gibson above are
payments of £3,000 made to Ad Quo in respect of these services.
J Pither is employed by Surrey Management Services Limited ("Surrey") in the provision of services to the Company. All of the emoluments of J Pither above are
represented by payments made by the Company to Surrey in respect of these services.
Dr S Rollason is employed by Bluehone Investors LLP ("Bluehone") in the provision of services to the Company. All of the emoluments of Dr S Rollason above are
represented by payments made by the Company to Bluehone in respect of these services.
Directors’ interests in shares
The interests of Directors in the shares of the Company are included in the Directors’ Report on page 7.
12 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 13
REPORT OF THE REMUNERATION COMMITTEE// continued
REPORT OF THE INDEPENDENT AUDITORS//
Directors’ interests in share options
Details of options held by Directors are set out below:
(i) Share Option Scheme
Number of Options
at 1 april granted/(expired)
during year
2005
at 31 march
2006
exercise
price
date from which
exercisable
expiry
date
F Maguire
12,000
-
12,000
250p
11/07/2005
11/07/2012
(ii) Unapproved Share Option Scheme
Number of Options
F Maguire
at 1 april granted/(expired)
during year
2005
at 31 march
2006
exercise
price
date from which
exercisable
expiry
date
7,000
19,000
25,000
200,000
-
-
-
-
7,000
19,000
25,000
200,000
250p
280p
165p
168p
11/07/2005
08/08/2005
14/07/2006
30/06/2007
10/07/2012
07/08/2012
13/07/2013
29/06/2014
The range in the mid market price of the Company's shares during the year ended 31 March 2006 was from 87.5p to 540p. The mid market price on 31 March
2006 was 482.5p.
On behalf of the Board
Dr Stuart Rollason
Chairman of the Remuneration Committee
30 August 2006
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF AORTECH INTERNATIONAL PLC_
We have audited the Group and parent Company financial statements (the ''financial statements'') of AorTech International plc for the year ended 31 March 2006
which comprise the principal accounting policies, the consolidated profit and loss account, the Group and Company balance sheets, the consolidated cash flow
statement, the consolidated statement of total recognised gains and losses and notes 1 to 28. These financial statements have been prepared under the accounting
policies set out therein.
This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the Company’s members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS_
The Directors' responsibilities for preparing the Annual Report and the financial statements in accordance with United Kingdom law and Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK
and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view, whether the financial statements are properly prepared in accordance
with the Companies Act 1985 and whether the information given in the Report of the Directors is consistent with the financial statements. We also report to you if,
in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if
information specified by law regarding Directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report, and consider whether it is consistent with the audited financial statements. This other information comprises
only the Chairman's Statement, the Report of the Directors, the Corporate Governance statement and the Report of the Remuneration Committee. We consider the
implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not
extend to any other information.
BASIS OF AUDIT OPINION _
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant
estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's
and Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence
to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
OPINION_
In our opinion:
the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Group's and
the parent Company's affairs as at 31 March 2006 and of the Group's loss for the year then ended;
the financial statements have been properly prepared in accordance with the Companies Act 1985; and
the information given in the Report of the Directors is consistent with the financial statements for the year ended 31 March 2006.
GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
Leicester
30 August 2006
The maintenance and integrity of the Company's website is the responsibility of the Directors: the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occured to the financial statements since they were initially
presented on the website.
14 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 15
CONSOLIDATED PROFIT AND LOSS ACCOUNT//
FOR THE YEAR ENDED 31 MARCH 2006
BALANCE SHEETS//
AS AT 31 MARCH 2006
Turnover
Cost of Sales
Gross profit
Net operating expenses
Net operating expenses include:
Development expenditure
Amortisation of intangible assets
Group operating loss
Interest receivable
Loss on ordinary activities before taxation
Taxation
Loss for the financial year
Loss per ordinary share
Basic
Diluted
Notes
2
3
3
3
5
2
8
21
10
2006
£
1,424,944
(222,751)
1,202,193
2005
£
136,958
(31,339)
105,619
(1,867,740)
(2,189,908)
(634,292)
(99,491)
(653,896)
(94,589 )
(665,547)
(2,084,289)
142,199
(523,348)
-
216,899
(1,867,390)
-
(523,348)
(1,867,390)
(13.74p)
(13.74p)
(49.01p)
(49.01p)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 2006
Loss for the financial year
Currency translation differences arising on consolidation
Total losses recognised since last annual report
2006
£
(523,348)
(22,981)
(546,329)
2005
£
(1,867,390)
(45,215)
(1,912,605)
Fixed assets
Intangible assets
Tangible assets
Investment in subsidiary undertakings
Current assets
Stocks
Debtors: amounts falling due within one year
Debtors: amounts falling due after more than one year
Cash at bank
group
company
notes
2006
£
2005
£
2006
£
2005
£
11
12
13
14
15
15
1,360,209
239,775
-
1,449,366
189,678
-
1,599,983
1,639,044
-
-
-
-
-
-
-
-
139,637
1,304,424
-
2,715,804
68,852
278,948
-
4,015,126
-
175,290
7,629,448
2,061,841
-
192,527
6,478,231
3,726,583
4,159,865
4,362,926
9,866,579
10,397,341
Creditors: amounts falling due within one year
16
(508,371)
(348,460)
(116,932)
(88,554)
Net current assets
3,651,494
4,014,466
9,749,647
10,308,787
Total assets less current liabilities
5,251,478
5,653,510
9,749,647
10,308,787
Creditors: amounts falling due after more than one year
16
(144,297)
-
-
-
Net assets
Capital and reserves
Called up share capital
Other reserve
Profit and loss account
Equity shareholders’ funds
5,107,181
5,653,510
9,749,647
10,308,787
18
20
20
21
9,525,695
(2,003,143)
(2,415,371)
9,525,695
(2,003,143)
(1,869,042)
9,525,695
-
223,952
9,525,695
-
783,092
5,107,181
5,653,510
9,749,647
10,308,787
The financial statements on pages 16 to 29 were approved by the Board of Directors on 30 August 2006 and were signed on its behalf by:
J Pither, Chairman
F Maguire, Chief Executive
16 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 17
CONSOLIDATED CASHFLOW STATEMENT//
FOR THE YEAR ENDED 31 MARCH 2006
NOTES TO THE FINANCIAL STATEMENTS//
FOR THE YEAR ENDED 31 MARCH 2006
1 PRINCIPAL ACCOUNTING POLICIES
Net cash outflow from operating activities
22
(1,188,804)
(2,119,791)
notes
2006
£
2005
£
The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards, up to and including Financial Reporting Standard
('FRS') 28. A summary of the more important Group accounting policies, which have been applied consistently, is set out below. The principal accounting policies
represent the most appropriate in accordance with FRS 18. The new standards that are appropriate to the Group (namely FRSs 21, 22, 25 and 28) had no material
impact on the financial statements.
142,199
216,899
The financial statements are prepared in accordance with the historical cost convention.
BASIS OF CONSOLIDATION_
BASIS OF ACCOUNTING_
Returns on investment and servicing of finance
Interest received
Taxation
Research and development tax credits refunded
Capital expenditure and financial investment
Purchase of tangible fixed assets
Net cash outflow from capital expenditure and financial investment
(98,899)
-
(119,759)
(119,759)
(28,000)
(28,000)
Cash outflow before management of liquid resources and financing
(1,265,263)
(1,930,892)
Management of liquid resources
Cash released from short term deposit
Increase in cash in the year
1,658,461
1,994,364
23
393,198
63,472
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 March each year. Intra-group
sales and profits are eliminated on consolidation.
As permitted by the Companies Act 1985, a separate profit and loss account for AorTech International plc is not presented as the results of the Company are
consolidated in the Group profit and loss account.
GOODWILL_
Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill
arising on the acquisition of subsidiary undertakings is capitalised and amortised over its economic useful life, subject to a maximum of 20 years. A full impairment
review is performed at the end of each financial year in accordance with FRS 10 “Goodwill and Intangible Assets” and any excess of the carrying value over the
resulting recoverable amount is charged to the profit and loss account in that year.
INTELLECTUAL PROPERTY_
Intellectual property represents the cost of acquisition of patents, trademarks and copyrights. Amortisation is provided on intellectual property to write off the cost in
equal annual instalments over its estimated economic life of up to 20 years.
TANGIBLE FIXED ASSETS_
The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition. Depreciation commences once an asset is brought into use
and is calculated so as to write off the cost less estimated residual value of tangible fixed assets on a diminishing value basis over their expected useful economic
lives as follows:
Property improvements
Plant and equipment
Fixtures and fittings
Motor vehicles
over term of lease or 10 years if less
10 years
4 - 10 years
4 years
DEVELOPMENT EXPENDITURE_
All research and development expenditure is written off as incurred.
HIRE PURCHASE AND LEASE COMMITMENTS_
Hire purchase and leasing agreements which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset had been
purchased outright. The assets are included in fixed assets and the capital element of the hire purchase and leasing commitments are shown as obligations under
hire purchase contracts and finance leases.
The rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is
charged to the profit and loss account evenly over the period of the contract. Assets held under hire purchase contracts and finance leases are depreciated over the
useful lives of equivalent owned assets.
Costs in respect of operating leases are charged to the profit and loss account on a straight line basis over the lease term.
STOCKS_
Stocks are valued at the lower of cost and net realisable value. In general, cost is determined on a first in first out basis. In the case of manufactured products, cost
includes all direct expenditure plus attributable overheads based on a normal level of activity. Net realisable value is based on estimated selling prices less any further
costs expected to be incurred to completion and disposal.
FOREIGN CURRENCIES_
Assets and liabilities of subsidiaries in foreign currencies are translated into sterling at the rates of exchange ruling at the end of the financial year and the results of
foreign subsidiaries are translated at the average rates of exchange for the year. Differences on exchange arising from the retranslation of the opening net investment
in the subsidiary undertakings, and from the translation of the results of those companies at average rates, are taken to reserves and are reported in the statement
of total recognised gains and losses. All other foreign exchange differences are taken to the profit and loss account in the period in which they arise. Transactions in
foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the
forward contract rate.
18 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 19
NOTES// continued
TURNOVER_
Turnover excludes value added tax and sales between Group companies and is recognised as follows:
Revenue relating to the supply of material and finished goods to customers is recognised when products are delivered to customers.
Licence revenues, in respect of upfront payments for access by third parties to the Company's technology, and milestone payments are recognised once the
Company's obligations for each milestone have been met and the Company has achieved a right to be paid in return for their contractual performance. In the specific
case of the St.Jude Medical licence agreement, the Group has entered into a two year licence agreement for consideration of US$2 million, with St.Jude Medical
having the option to pay a further US$2 million to extend that licence in perpetuity. The terms constitute in substance a sale of these rights in respect of the specified
fields of use. Therefore the US$2 million initial payment has been recognised as revenue in these financial statements. If received, the additional US$2 million will be
recognised as revenue at the time of receipt.
Royalty revenues are recognised as earned in accordance with third parties’ sales of the underlying products.
DEFERRED TAXATION_
Full provision is made on a non-discounted basis for deferred tax liabilities arising from timing differences. Deferred tax assets are recognised to the extent that they
are regarded as recoverable. Deferred tax is measured at the tax rates that are expected to apply in the periods in which the timing differences reverse, based on
the rates and laws enacted or substantially enacted at the balance sheet date.
GOVERNMENT GRANTS_
Government grants in respect of capital expenditure are credited to a deferred income account and are released to the profit and loss account on a diminishing value
basis over the expected useful lives of the relevant assets. Government grants of a revenue nature are credited to the profit and loss account in the same period as
the related expenditure.
PENSIONS_
The Group operates defined contribution pension schemes. Contributions are charged to the profit and loss account as they become payable in accordance with
the rules of the schemes.
2 SEGMENTAL ANALYSIS BY CLASS OF BUSINESS AND GEOGRAPHICAL AREA
(a) Class of business - The Group operates one class of business.
(b) Geographical area - The analysis by geographical area of the Group's turnover, loss before tax and net assets is set out below:
(i) Turnover
Geographical segment
United Kingdom
Rest of World
(ii) (Loss) / Profit before taxation
Geographical segment
United Kingdom
Rest of World
Loss before interest
Net interest receivable
Loss on ordinary activities before taxation
(iii) Net assets
Geographical segment
United Kingdom
Rest of World
Sales by
destination
£
35,870
1,389,074
1,424,944
2006
2005
Sales by
origin
£
Sales by
destination
£
Sales by
origin
£
-
1,424,944
1,424,944
13,024
123,934
136,958
2006
£
(689,206)
23,659
(665,547)
142,199
-
136,958
136,958
2005
£
(957,192)
(1,127,097)
(2,084,289)
216,899
(523,348)
(1,867,390)
2006
£
2005
£
2,127,732
2,979,449
3,733,878
1,919,632
5,107,181
5,653,510
3 TURNOVER, COST OF SALES, GROSS PROFIT, SELLING AND MARKETING COSTS
AND ADMINISTRATIVE EXPENSES
Turnover
Cost of sales
Gross profit
Selling and marketing costs
Administrative expenses:
Development expenditure
Amortisation of intangible fixed assets
Other
Total administrative expenses
Net operating expenses
Group operating loss
4 OPERATING LOSS
The operating loss is stated after charging:
Depreciation and amortisation charge for the year:
Intangible owned assets
Tangible owned fixed assets
Operating lease rentals:
Other
The above results for the year relate to continuing operations.
Services provided by the Group's auditors
Audit services
Statutory Audit
Audit related regulatory reporting
Tax services
Compliance services
Advisory services
Other services
2006
£
2005
£
1,424,944
136,958
(222,751)
(31,339)
1,202,193
105,619
(243,739)
(185,384)
(634,292)
(99,491)
(890,218)
(653,896)
(94,589)
(1,256,039)
(1,624,001)
(2,004,524)
(1,867,740)
(2,189,908)
(665,547)
(2,084,289)
2006
£
99,491
72,406
90,931
2006
£
2005
£
94,589
70,948
138,689
2005
£
Grant Thornton Pricewaterhouse
Coopers LLP
UK LLP
Grant Thornton Pricewaterhouse
Coopers LLP
UK LLP
30,000
5,000
4,000
-
-
39,000
3,950
-
-
4,800
-
8,750
-
-
-
-
-
-
51,000
-
16,590
9,050
-
76,640
Included in the analysis above are Group audit fees paid to the Group's auditors (former and present) of £38,950 (2005: £51,000), of which £27,450
(2005: £32,500) was paid in respect of the parent company.
20 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 21
NOTES// continued
5 INTEREST RECEIVABLE
Bank interest
6 DIRECTORS' EMOLUMENTS
Detailed disclosures of Directors' individual remuneration and share options are given in the report of the Remuneration Committee on pages 13 and 14.
Aggregate emoluments
Company pension contributions to money purchase schemes
2006
£
2005
£
214,589
284,098
13,542
45,250
Included in aggregate emoluments for the year ended 31 March 2006 are payments of £65,500 (2005: £87,050) made by the Company to third parties.
The highest paid Director received total emoluments of £148,131 including pension contributions of £13,542 (2005: total emoluments of £172,100 including
pension contributions of £37,500)
7 EMPLOYEE INFORMATION
2006
£
2005
£
142,199
216,899
8 TAXATION
No tax arises on the loss for the year (2005: nil)
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 30% (2005: 30%). The differences are explained as follows:
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by standard rate in the UK 30% (30%)
Effects of:
Depreciation for the period in excess of capital allowances and other timing differences
Expenses not deductible for tax purposes and other permanent tax differences
Losses utilised
Losses not utilised
Current tax charge
2006
£
2005
£
(523,348)
(1,867,390)
(157,004)
(560,217)
1,164
17,527
(29,913)
168,225
-
3,755
(8,464)
564,926
-
-
Unrelieved tax losses remain available to offset against future taxable profits of the same trade in the same country. These losses have not been recognised as
deferred tax assets within the financial statements as they do not meet the conditions required in accordance with FRS 19. Losses carried forward in the UK total
£2,401,144 - tax effect is £720,343 (2005: £1,840,679 - tax effect is £552,204). Losses carried forward in Australia total £4,304,906 - tax effect £1,291,472 (2005:
£4,404,615 - tax effect £1,321,384).
The average monthly number of persons (including Executive Directors) employed by the Group during the year was:
2006
number
2005
number
9 LOSS FOR THE FINANCIAL YEAR
By activity
Production
Sales
Development
Administration
Staff costs (for the above persons):
Wages and salaries
Social security costs
Other pension costs
Staff costs incurred include redundancy payments of £nil (2005: £27,282).
3
1
10
3
17
£
624,288
69,741
23,665
717,694
3
1
9
4
17
£
702,519
75,543
66,362
844,424
As permitted by section 230 of the Companies Act 1985, the Parent Company's profit and loss account has not been included in these financial statements. The
Parent Company's loss for the financial year was £559,140 (2005 : £555,846).
10 LOSS PER ORDINARY SHARE
The basic loss per ordinary share is calculated on the loss of the Group of £523,348 (2005: loss of £1,867,390) and on 3,810,278 (2005 : 3,810,278) equity shares,
being the weighted average number of shares deemed to be in issue. The exercise of share options would not have been dilutive and accordingly the basic and
diluted loss per share are the same.
11 INTANGIBLE ASSETS
Group:
Cost
At 1 April 2005
Exchange differences
At 31 March 2006
Amortisation
At 1 April 2005
Exchange differences
Charge for year
At 31 March 2006
Net book value
At 31 March 2006
Net book value
At 31 March 2005
intellectual
property
£
goodwill
£
total
£
1,932,488
10,668
19,501,141
-
21,433,629
10,668
1,943,156
19,501,141
21,444,297
483,122
334
99,491
19,501,141
-
-
19,984,263
334
99,491
582,947
19,501,141
20,084,088
1,360,209
1,449,366
-
-
1,360,209
1,449,366
22 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 23
NOTES// continued
12 TANGIBLE FIXED ASSETS
Group
Cost
At 1 April 2005
Exchange differences
Additions
Disposals
At 31 March 2006
Depreciation
At 1 April 2005
Exchange differences
Charge for year
Disposals
At 31 March 2006
Net book value
At 31 March 2006
Net book value
At 31 March 2005
property
improvements
£
2,224
13
-
-
plant &
equipment
£
919,098
3,894
114,229
(528,026)
fixtures
& fittings
£
294,815
1,627
5,530
-
motor
vehicles
£
25,634
-
-
(25,634)
total
£
1,241,771
5,534
119,759
(553,660)
2,237
509,195
301,972
-
813,404
1,179
37
179
-
842,188
1,742
45,202
(528,026)
183,092
1,011
27,025
-
25,634
-
-
(25,634)
1,395
361,106
211,128
842
148,089
90,844
1,045
76,910
111,723
-
-
-
1,052,093
2,790
72,406
(553,660)
573,629
239,775
189,678
No assets were held under hire purchase contracts at 31 March 2006 and 31 March 2005
13 FIXED ASSET INVESTMENTS
(a) Investment in subsidiary undertakings
Cost
Historical cost
Exchange differences
Provision for impairment
Net Book Value - at 31 March 2006 and 31 March 2005
(b) interests in subsidiary undertakings
name of
undertaking
group
2006
£
2005
£
company
2006
£
2005
£
-
-
-
-
-
-
-
-
23,158,823
(41)
(23,158,782)
-
23,158,823
(41)
(23,158,782)
-
country of
registration or
incorporation
description
of shares held
proportion of nominal
value of shares held by:
company
%
group
%
(i)
(ii)
(iii)
AorTech Biomaterials Limited (formerly AorTech Europe Limited)
AorTech Critical Care Limited
AorTech Biomaterials Pty Limited
Scotland
Scotland
Australia
ordinary £1
ordinary £1
ordinary Aus. $1
100
92
100
100
92
100
The principal business activities and country of operation of the above operations are:
(i)
(ii)
(iii)
Ownership of tri-leaflet heart valve intellectual property.
A dormant company.
The development of new biostable polyurethanes, operating principally in Australia.
14 STOCKS
All stocks at 31 March 2006 and 31 March 2005 comprise raw materials.
15 DEBTORS
Amounts falling due within one year
Trade debtors
Other debtors
Prepayments
Amounts falling due after more than one year
Amounts owed by Group undertakings*
group
company
2006
£
2005
£
1,106,077
22,329
176,018
34,501
30,996
213,451
1,304,424
278,948
2006
£
-
36,955
138,335
175,290
2005
£
-
28,049
164,478
192,527
-
-
7,629,448
6,478,231
Total debtors
1,304,424
278,948
7,804,738
6,670,758
*AorTech International plc has agreed not to seek repayment of the amount owing by its subsidiary, AorTech Biomaterials Pty Ltd, within 12 months.
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Other taxes and social security
Deferred Income - Government grants towards capital expenditure
deduct: amount of grant to be released in more than one year
Other creditors
Accruals
Corporation tax
group
company
2006
£
201,901
12,506
247,169
(144,297)
107,391
83,701
-
2005
£
54,276
(169)
-
-
63,731
131,723
98,899
2006
£
22,226
12,506
-
-
-
82,200
-
508,371
348,460
116,932
2005
£
-
(169)
-
-
-
88,723
-
88,554
The government grants received towards capital expenditure are being released to the profit and loss account on a diminishing value basis over a period equal to the useful
economic life of the assets to which they relate. On average, this equates to a period of 5 years.
17 FINANCIAL INSTRUMENTS
The Group's financial instruments comprise cash and liquid resources and various items, such as trade debtors and trade creditors, that arise directly from its operations.
The main purpose of these financial instruments is to finance the Group's operations.
The Board reviews and agrees policies for managing each of the risks associated with interest rates, liquidity and foreign currency although to date the Group's exposure
to these risks has not been significant. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken.
Interest rate risk
The Group’s current policy is to finance its operations through equity, although in prior years both bank borrowings and hire purchase finance have been used to a
lesser extent.
Liquidity risk
As at 31 March 2006, the Group had no borrowings. Liquidity has been maintained through equity financing.
Foreign currency risk
The Board considers that the Group’s current exposure to foreign currency risk is not material and therefore, is of the opinion that no steps to minimise this exposure
require to be taken for the time being.
The Group has an Australian subsidiary whose costs are denominated in Australian Dollars. The Board will continue to review the situation as activities in this
subsidiary increase.
Short term debtors and creditors
Short term debtors and creditors have been excluded from all of the disclosures in this note, other than the currency risk disclosures.
Interest rate profile of financial liabilities
The Group had no financial liabilities at 31 March 2006 and 31 March 2005.
24 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 25
NOTES// continued
17 FINANCIAL INSTRUMENTS (CONTINUED)
Profile of financial assets
The profile of the Group's cash and deposits at 31 March 2006 and 2005 was:
Currency:
Sterling
US Dollars
Australian Dollars
Euros
At 31 March 2006
cash at bank and in hand
2005
£
2006
£
short term deposits
2005
£
2006
£
12,866
224,413
34,386
7,919
23,345
91,621
71,364
7,744
2,051,010
-
385,210
-
3,709,470
-
111,582
-
2006
£
2,063,876
224,413
419,596
7,919
total
2005
£
3,732,815
91,621
182,946
7,744
279,584
194,074
2,436,220
3,821,052
2,715,804
4,015,126
Cash at bank is held in interest bearing current accounts. The short term deposits are placed with banks for periods of up to 12 months according to funding
requirements. The weighted average rate of interest earned during the year ended 31 March 2006 was 4.59%. (2005 : 4.40%). In the opinion of the Directors, there
are no financial assets or liabilities that require restating at fair value, and therefore all such items are held at book value which is deemed to approximate to fair value.
18 CALLED UP SHARE CAPITAL
Authorised
5,600,000 (2004 : 5,600,000) Ordinary shares of 250p each
Issued
3,810,278 (2005 : 3,810,278) Ordinary shares of 250p each allotted,
called up and fully paid
2006
£
2005
£
14,000,000
14,000,000
9,525,695
9,525,695
19 OPTIONS IN SHARES OF AORTECH INTERNATIONAL PLC
At 31 March 2006, options were exercisable over the following 250p Ordinary shares:
(i) approved share option scheme
number of shares
subscription price per share
12,000
600
250p
295p
period of option
Between 11 July 2005 and 10 July 2012
Between 26 July 2005 and 25 July 2012
Only Executive Directors and employees resident in the UK are eligible to participate in this scheme. No options were exercised during the year to 31 March 2006.
(ii) unapproved share option scheme
number of shares
subscription price per share
9,600
1,000
2,000
5,000
1,500
1,600
1,050
7,000
19,000
25,000
1,350
240,500
50,000
1,250p
1,025p
5,625p
7,425p
8,100p
4,175p
9,035p
250p
280p
165p
1725p
168p
196p
period of option
Between 5 February 2000 and 4 February 2007
Between 9 January 2001 and 8 January 2008
Between 17 December 2002 and 16 December 2009
Between 11 July 2003 and 10 July 2010
Between 16 June 2003 and 15 June 2010
Between 29 May 2004 and 28 May 2011
Between 18 December 2003 and 17 December 2010
Between 11 July 2005 and 10 July 2012
Between 8 August 2005 and 7 August 2012
Between 14 July 2006 and 14 July 2013
Between 18 December 2004 and 17 December 2011
Between 30 June 2007 and 29 June 2014
Between 22 November 2007 and 21 November 2014
Any person who at the date of grant of the option is approved by the Board of Directors is eligible to participate in this scheme.
No options were exercised during the year to 31 March 2006.
(iii) other
The range in the mid market price of the Company's shares during the year ended 31 March 2006 was from 87.5p to 540p.
The mid market price on 31 March 2006 was 482.5p.
20 RESERVES
Group
At 1 April 2005
Loss for the year
Exchange differences arising on consolidation
At 31 March 2006
other
reserve
£
profit
and loss
reserve
£
(2,003,143)
-
-
(1,869,042)
(523,348)
(22,981)
(2,003,143)
(2,415,371)
The 'other reserve' represented the difference arising on consolidation between the nominal value of AorTech International plc shares issued (£3,206,884) and the
nominal value of AorTech Biomaterials Limited (formerly AorTech Europe Limited) shares acquired (£1,001,884) and the associated share premium account
(£201,857) in the company.
Company
At 1 April 2005
Loss for the year
At 31 March 2006
profit
and loss
reserve
£
783,092
(559,140)
223,952
21 RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
Opening shareholders’ funds
Loss for the financial year
Exchange differences arising on consolidation
Closing shareholders' funds
2006
£
2005
£
5,653,510
7,566,115
(523,348)
(22,981)
(1,867,390)
(45,215)
5,107,181
5,653,510
22 RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Group operating loss
Amortisation of intangible assets
Depreciation of tangible fixed assets
Increase in stocks
Increase in debtors
Increase / (decrease) in creditors
Net cash outflow from operating activities
2006
£
(665,547)
99,491
72,406
(70,785)
(1,027,476)
403,107
(1,188,804)
2005
£
(2,084,289)
94,589
70,948
(20,199)
(91,100)
(89,740)
(2,119,791)
26 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 27
NOTES// continued
23 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
27 FINANCIAL COMMITMENTS
At 31 March 2006 the Group had annual commitments under non-cancellable operating leases as follows:
Expiring within one year
Expiring between one and two years
Expiring between two and five years
Expiring over five years
2006
2005
land and
buildings
£
102,051
117,429
377,526
32,828
629,834
other
£
-
-
-
-
-
land and
buildings
£
102,657
15,833
-
-
118,490
other
£
-
-
-
-
-
28 RELATED PARTY TRANSACTIONS
In accordance with FRS 8, “Related Party Disclosures”, AorTech International plc has taken advantage of the exemption for over 90% owned subsidiaries not to
disclose any transactions or balances between group entities including those that have been eliminated on consolidation.
Increase in cash in the year
Cash outflow from decrease in liquid resources
Change in net debt resulting from cash flows
Other non-cash items:
Currency translation differences arising on consolidation
Movement in net funds in the year
Net funds at 1 April 2005
Net funds at 31 March 2006
24 ANALYSIS OF NET FUNDS
Net cash:
Cash at bank and in hand
Deposits treated as liquid resources
Liquid resources:
Deposits included in cash
Net funds
2006
£
393,198
(1,658,461)
(1,265,263)
(34,059)
(1,299,322)
4,015,126
2,715,804
2005
£
63,472
(1,994,364)
(1,930,892)
(22,182)
(1,953,074)
5,968,200
4,015,126
1 april
2005
£
cash
flow
£
exchange
differences
£
31 march
2006
£
4,015,126
(3,709,470)
(1,265,263)
1,658,461
(34,059)
-
2,715,804
(2,051,010)
305,656
393,198
(34,059)
664,794
3,709,470
(1,658,461)
-
2,051,010
4,015,126
(1,265,263)
(34,059)
2,715,804
25 PENSION AND SIMILAR OBLIGATIONS
The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in
independently administered funds. Contributions payable by the Group amounted to £61,281 (2005 : £66,362)
26 POST-BALANCE SHEET EVENTS
Subsequent to the year end, the Group has made announcements regarding: (1) the first FDA approved human use of its polymer technology Elast-Eon™
pursuant to its exclusive licence agreement with St.Jude Medical (STJ : NYSE) which was announced on March 20, 2006; and (2) the creation of a Medical
Advisory Board, with the appointment of the esteemed plastic surgeons, V. Leroy Young, M.D., and Mark L Jewell, M.D.. Between them they bring eighty
years combined experience in plastic surgery. The Medical Advisory Board will play a key role in the development and promotion of AorTech's unique and
highly versatile Elast-Eon™ product, in a range of surgical applications.
28 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 29
NOTICE OF ANNUAL GENERAL MEETING//
Notice is hereby given that the ninth Annual General Meeting of AorTech International plc will be held at the offices of Biggart Baillie, Dalmore House, 310 St Vincent Street,
Glasgow G2 5QR on 28 September 2006 at 12 noon for the following purposes:
AS ORDINARY BUSINESS_
1
2
3
4
5
6
To receive and adopt the financial statements of the Company for the year ended 31 March 2006
together with the Reports of the Directors and Auditors thereon.
To approve the Report of the Remuneration Committee for the year ended 31 March 2006.
To re-elect as a Director Dr Stuart Rollason, who is retiring by rotation.
To elect as a Director Edward McDaid, who was appointed a Director on 14 November 2005.
To elect as a Director James Gordon Wright, who was appointed a Director on 14 November 2005.
To re-appoint Grant Thornton UK LLP as auditors of the Company and to authorise the Directors to fix their remuneration.
AS SPECIAL BUSINESS_
To consider, and if thought fit, pass the following resolution as an Ordinary Resolution:
7
That the Directors be hereby generally and unconditionally authorised for the purpose of section 80 of the Companies Act 1985 (“the Act”)
to exercise all the powers of the Company to allot relevant securities (within the meaning of said Section 80) up to an aggregate nominal
amount of £3,175,232 which authority will expire on the earlier of the conclusion of the next Annual General Meeting of the Company and
the date falling 15 months after the passing of this Resolution save that the Company may, before such expiry, make an offer or agreement
which would, or might, require relevant securities to be allotted after such expiry and the Directors may allot such securities in pursuance of
such offer or agreement as if the authority so conferred had not expired.
To consider, and if thought fit, pass the following resolution as a Special Resolution:
8
(a)
(b)
That subject to the passing of Resolution 7 above as an Ordinary Resolution, in substitution for any existing power under Section 95 of the
Act, the Directors be and are hereby empowered until the conclusion of the next Annual General Meeting of the Company or the date falling
15 months after the passing of this Resolution, whichever is the earlier (“the period of the Section 95 power”), pursuant to Section 95 of the
Act to allot equity securities (as defined by Section 94(2) of the Act) pursuant to the authority granted by Resolution 7 above in accordance
with Section 80 of the Act as if Section 89(1) of the Act did not apply to such allotment, provided that this power shall be limited to:
the allotment of equity securities in connection with or pursuant to an offer by way of rights in favour of ordinary shareholders subject to such
exclusions or arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements or legal or practical
problems under the laws of any territories or requirements of any recognised regulatory body or stock exchange in any territory; and
the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities consisting of or related to Ordinary shares up to an
aggregate nominal amount of £476,284, or if less, five percent of the issued Ordinary share capital of the Company from time to time
but so that this power shall allow the Company to make an offer or enter into an agreement before the expiry of the period of the Section 95
power which would, or might, require equity securities to be allotted after such expiry and the Directors may allot equity securities in
pursuance of any such offer or agreement as if the power conferred thereby had not expired.
By order of the Board,
J C D Parsons
Company Secretary
30 August 2006
Victoria Road
Surbiton
Surrey KT6 4NS
1
2
3
4
5
Any member of the Company who is entitled to attend and vote at the Annual General Meeting may appoint another person or persons
(whether a member or not) as their proxy to attend and, on a poll, to vote on their behalf.
To be valid, Forms of Proxy must be lodged with the Company's Registrars, Lloyds TSB Registrars, The Causeway, Worthing, BN99 6ZR
not later than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting together with any
documentation required.
In the case of a corporation, the Form of Proxy should be executed under its common seal or signed by a duly authorised officer or attorney of
the corporation.
Completing and returning a Form of Proxy will not prevent any member from attending the meeting in person and voting should they so wish.
The following documents will be available at the registered office of the Company on any weekday (except Saturday) during normal business hours
from the date of this notice until the date of the Annual General Meeting:
(a)
(b)
(c)
(d)
A copy of the service agreements for the Executive Directors.
A copy of the letters of appointment for the non-Executive Directors.
The register of interests of the Company's Directors in the shares of the Company which is maintained under
Section 325 of the Companies Act 1985.
The Memorandum and Articles of Association of the Company.
These documents will also be available for inspection during the Annual General Meeting and for at least fifteen minutes before it begins.
30 | AORTECH INTERNATIONAL PLC
AORTECH INTERNATIONAL PLC | 31
NOTES//