AORTECH INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS
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C H A I R M A N ’ S S T A T E M E N T
CONTENTS//
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Chairman's Statement
0 6 _
Board of Directors and Advisors
0 7 _
Report of The Directors
1 0 _
Statement of Directors’ Responsibilities
Corporate Governance
1 1 _
Accountability and Audit
1 2 _
Report of The Remuneration Committee
1 5 _
Report of The Auditors
1 6 _
Consolidated Profit and Loss Account
1 7 _
Balance Sheets
1 8 _
Consolidated Cashflow Statement
1 9 _
Notes to the Financial Statements
3 0 _
Notice of Annual General Meeting
CHAIRMAN’S STATEMENT_I AM PLEASED TO REPORT
THAT IN THE YEAR ENDED 31 MARCH 2007 THE GROUP
MADE HIGHLY ENCOURAGING PROGRESS IN A NUMBER
OF RESPECTS INCLUDING THE FILING OF THREE
FURTHER PATENTS.
Moreover since the year end it has entered into a
licensing and supply agreement for the evaluation of our
patented polymer, Elast-EonTM, with a global medical
device company. Accordingly, despite reporting an
increased loss for the year, the Board believes that the
Company can look forward to a very promising period
ahead.
Group turnover for the year was £276,000. This was
lower than the £1.4m in the previous year which
included £1.1m from a one-off payment resulting from
an agreement signed with St Jude Medical. Operating
expenses for the year were £2,348,000, an increase of
£481,000 over the previous year due, in the main, to
the move to new premises in Australia and up-scaling
of our operational capacity to meet the expected
increase in demand for Elast-Eon™ polymer.
The
operating expenses included £821,000 of development
expenditure (2006: £634,000) and amortisation of
intangible fixed assets amounting to £96,000 (2006:
£99,000). The loss after tax for the year was £2.1m
(2006: £523,000) and at 31 March 2007 the Group had
cash reserves of £1.5m (2006: £2.7m).
THE GREATER PART OF THIS
STATEMENT FOCUSES ON THE VERY
IMPORTANT COMMERCIAL AND
TECHNICAL PROGRESS THAT HAS
BEEN AND CONTINUES TO BE
ACHIEVED.
AORTECH INTERNATIONAL PLC | 01
OPERATIONAL REVIEW
MANUFACTURING AND SUPPLY OF
ELAST-EON™ BULK MATERIAL//
ELAST-EON™ COMPONENT
MANUFACTURING//
Following the granting of the regulatory approvals in
In response to our customers’ requests for Elast-Eon™
the United States and Europe in 2006 for Elast-Eon™
extrusions and mouldings, we have taken steps to
in human use, our principal operational focus for
improve our capability in the area of medical-grade
2006/07 was to create a capable and reliable
extrusion. AorTech will benefit directly from the
manufacturing infrastructure able to support the large
revenue associated with tubing component orders,
scale and life-sustaining nature of our licensees’
and indirectly by accelerating the customer evaluation
medical device products.
process and, therefore, the achievement of higher-
I AM PLEASED TO REPORT_that our new Melbourne
that are characteristic of our material licence
value late stage development milestone payments
technology and manufacturing facility has achieved
agreements.
very positive results during the year, including 100%
on-time delivery
to customers, 100% quality
certification and acceptance of delivered product and
an overall reduction in the baseline costs from the
previous year.
This has been achieved in a period when we
expanded our manufacturing capacity by 67%, which
we believe is sufficient to satisfy our customers’
growing polymer volume requirements through to the
end of 2008.
WE ARE VERY ENCOURAGED BY THE
RESULTS TO DATE AND EXPECT THAT
ELAST-EON™ EXTRUSION COMPONENTS
WILL COMPRISE A SIGNIFICANT AND
INCREASING PROPORTION OF OUR
POLYMER BUSINESS REVENUES GOING
FORWARD.
02 | AORTECH INTERNATIONAL PLC
DURING THE YEAR THERE WERE A
NUMBER OF CUSTOMER EVALUATIONS
CARRIED OUT ACROSS A RANGE OF
APPLICATIONS FOR ELAST-EONTM.
MARKET AND CUSTOMERS //
The major revenue potential and increased value
In addition to the work already underway in the
return for the Group is expected to arise from joint
areas of cardiac surgery, cardiology, orthopaedics
venture projects and licensing agreements with major
and urology, we have invested and will invest further
medical device companies. In addition, we estimate
in
other
potential
applications
including
the market for our supply of bulk Elast-Eon™ polymer
neurostimulation, pulmonary, drug delivery, women’s
to be approximately US$100m and growing at a rate
health, ventricular assist and non-coronary stent-
of 6-10% per annum. We believe that our customers
based drug delivery, all of which are being
have recognised Elast-Eon™ as a top quality silicone-
developed within customer partnerships.
urethane material for soft, long-term, high fatigue,
blood-contacting implants.
During the year,
the technology focus has been
towards developing softer materials which compete
more directly with medical grade silicone, and we
have expanded our patent portfolio by a number of
new submissions and approvals. We
have
concentrated, in particular, on collaboration with
major
biomaterials
research
institutes
and
universities. As a result of this work we have
achieved greater profile for Elast-Eon™, different
aspects of which were presented at four separate
conferences and also featured in three journal
publications.
TECHNOLOGY DEVELOPMENTS// >
AORTECH INTERNATIONAL PLC | 03
TECHNOLOGY DEVELOPMENTS
POLYMER HEART VALVE//
During the past year, our heart valve technology has
In the short term, the leading suppliers of these
been evaluated in the in-house laboratories of major
products are placing a strong focus on the re-
medical device companies who could become our
introduction of such implants into the US. They have
partners in the future. This strategy is to enable us to
devoted significant resources to manufacturing
demonstrate and
verify
the durability and
processes, surgeon training and patient awareness
performance characteristics of our heart valve
programmes and the establishment of a clinical
product.
monitoring function capable of supporting the
conditions upon which the US FDA approved these
We believe that good progress is being made towards
silicone-gel implants. In the longer term, and
the commercialisation of the Company’s heart valve
because of the re-approval of the silicone-gel device,
products within a co-development or partnership
the market is seeking the next-generation product
structure, and that these products have the potential
which we believe AorTech is well positioned to
to contribute significantly to our future revenues when
provide.
regulatory and clinical milestones are achieved.
BREAST IMPLANTS//
THE CONDITIONAL RE-APPROVAL OF
THE GEL-FILLED BREAST IMPLANT BY
THE US FDA IN NOVEMBER 2006 HAS
HAD A SUBSTANTIAL, IMMEDIATE AND
LONG-TERM IMPACT ON BREAST
IMPLANT TECHNOLOGY AND THE
RELATED MARKET DYNAMICS.
During the past year, we have continued to refine our
breast implant shell and filler materials, and to
carefully examine these materials in relation to the
guidelines published by FDA. We believe that the
way forward for this technology is to secure a co-
development deal with a suitable partner and we
remain optimistic of achieving this. During the last
year, we have filed three patents covering the use of
our materials and newly invented processes in the
fields of gel technology,
in-situ cure and the
development of a minimally invasive breast implant.
In addition to the breast implant and heart valve
projects, the Group has commenced new projects in
the areas of urology, vascular grafts and non-
coronary stent-based drug delivery.
I look forward
to reporting on progress with these projects in the
coming year.
04 | AORTECH INTERNATIONAL PLC
SUMMARY//
We have made very significant progress during the past
two years in particular, having achieved multinational
regulatory approvals, a reputation for quality and
service, thousands of human implants of our premier
biostable polymer, Elast-Eon™, and significantly
increased operational capacity.
YOUR BOARD BELIEVES THAT THE RECENT ANNOUNCEMENT OF A
PARTNERSHIP DEAL FOR ONE OF OUR MAJOR DEVELOPMENT
PROGRAMMES WHICH, SUBJECT TO AORTECH FULFILLING SPECIFIC
MILESTONE TARGETS, COULD REALISE INCOME OF UP TO
APPROXIMATELY US$32M IN THE YEARS AHEAD TOGETHER WITH
FUTURE ROYALTY PAYMENTS AND THEREFORE VALIDATES OUR
STRATEGY TO GENERATE SHAREHOLDER VALUE THROUGH LICENSING
AND SUPPLY OF AN INNOVATIVE, WORLD-CLASS POLYMER. MUCH
CREDIT FOR THIS PROGRESS GOES TO OUR AUSTRALIAN TEAM
BASED IN THEIR NEW MELBOURNE FACILITY.
Since the year end, we have raised £5.1m by way of a
placing of 1,000,000 new Ordinary Shares which will
provide us with the necessary resource to carry through
our development plans.
Finally I take this opportunity to thank all of our staff for
their continued commitment to the Company and to our
shareholders for their continued support over the past
twelve months. Your Board is confident that AorTech has
the technology, resources, partners and resolve to realise
fully the potential of our unique Elast-EonTM polymer and
thereby to build shareholder value over the coming years.
JON PITHER
CHAIRMAN
AORTECH INTERNATIONAL PLC | 05
BOARD OF DIRECTORS & ADVISORS//
DIRECTORS//
Jon Pither non-Executive Chairman
Frank Maguire Chief Executive
Eddie McDaid non-Executive Director
Dr Stuart Rollason non-Executive Director
Gordon Wright non-Executive Director
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//
Grant Thornton UK LLP, 8 West Walk, Leicester LE1 7NH
NOMINATED ADVISORS & BROKERS//
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
06 | AORTECH INTERNATIONAL PLC
120550_Text 3/9/07 20:38 Page 7
REPORT OF THE DIRECTORS//
The Directors present their report and the audited financial statements for the year ended 31 March 2007.
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_
During the financial year under review, the Company continued to achieve key operational milestones in the use of its core product, being Elast-Eon™ polymer. These
included the development and refinement of this material for the medical community, with the aim of providing a wide range of high performance Elast-Eon™ materials
in a variety of application specific formulations and densities for use in medical devices. The Company however remains at present principally focused on the use of
Elast-Eon™ in breast implants, and new cardiovascular and orthopaedic applications alongside existing licensing and supply agreements. The Company continues
to pursue a number of opportunities with the breast implant product, following the FDA re-approval of the silicone gel-filled implant in the United States, and the
Directors believe the market is becoming increasingly receptive to a next-generation breast implant product.
The Company's manufacturing and research facility in Australia was transferred during 2006 to larger premises near Melbourne, thereby inter alia facilitating increased
polymer production capacity.
During the year, costs of £821,161 (2006: £634,292) 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 £2,121,321 (2006: loss of £523,348) which will be deducted from reserves.
No dividends have been paid or proposed for the years ended 31 March 2007 and 2006.
DIRECTORS AND THEIR INTERESTS_
At 31 March 2007, the Chairman of the Company was J Pither; the Executive Director was F Maguire, and the non-Executive Directors were E McDaid, Dr. S Rollason and
G Wright. No other Director served during the year which ended on 31 March 2007.
At each Annual General Meeting one third of Directors shall be subject to retirement by rotation. Jon Peter Pither retires from the Board at the Annual General Meeting and,
being eligible, offers himself for re-election.
The interests of the Directors at 31 March 2007 and 31 March 2006 in the ordinary share capital of the Company (all beneficially held) were as follows:
J Pither
F Maguire
E McDaid
S Rollason
G Wright
31 March 2007
number
31 March 2006
number
-
1,200
375,383
-
347,107
-
1,200
499,383
-
447,107
During the period from the end of the financial year to 6 September 2007, Dr S Rollason subscribed for 8,825 Placing shares at a price of 510p each,
representing 0.18% of the Company's issued share capital following the Placing. No other Director increased his interest in the issued ordinary share capital
of the Company. On 26 April 2007, E McDaid and G Wright each transferred 4,000 ordinary shares to each of three former Directors of the Company. These
transfers were done for nil consideration.
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 21 August 2007 exceed 3% of the Company’s issued share capital:
*
**
Chase Nominees Limited
Mr Edward McDaid & Mrs Kathleen McDaid
Caricature Investments Limited
Goldman Sachs Securities Nominees Limited
The Bank of New York (Nominees) Limited
Deutsche Bank Aktiengesellschaft London
number
995,810
363,383
335,107
232,327
187,000
184,092
%
20.7%
7.6%
7.0%
4.8%
3.9%
3.8%
*the holding of Chase Nominees Ltd includes 962,841 shares held by Bluehone Investors LLP which accounts for 20.0% of the Company's issued share capital.
Dr Stuart Rollason is also a Director of Bluehone Investors LLP. Dr Rollason owns 8,825 shares in the Company
**Caricature Investments Ltd is a company wholly owned by Mr Gordon Wright, a Director of the Company
Percentage of Shares not in public hands (as defined in the AIM rules): 34.7%.
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 share capital and various other 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, cash flow interest rate risk, liquidity 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 settling 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.
2007
Sterling
2006
Sterling
Net foreign currency monetary asset
Australian Dollar
£000
449
420
Euro
£000
8
8
US Dollar
£000
564
224
total
£000
1,021
652
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.
08 | AORTECH INTERNATIONAL PLC
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 2007 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
1,187
-
-
1,187
-
-
-
-
Interest rate
zero
£000
181
-
-
181
-
-
188
188
total
£000
1,480
-
-
1,480
-
-
188
188
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 2007 was 23 days (2006 : 18 days).
CHARITABLE AND POLITICAL DONATIONS_
During the year the Group made no charitable or political donations (2006: nil).
POST-BALANCE SHEET EVENTS_
In relation to one of its device development applications, on 24 July 2007 the Directors announced a licensing and supply agreement for the evaluation of Elast-Eon™ by
a global medical device company. The agreement included an option for the licensee to acquire certain of the Group's intellectual property rights. Under the terms of the
agreement, the Group received an up-front licence fee payment intended to compensate the Group for initial costs related to the agreement. Contingent upon a number
of key conditions being satisfied, the Group would also be eligible to receive subsequent milestone payments which could total up to approximately $32 million plus potential
material supplies revenue and royalties. In the short-term, this agreement is not expected to have a material impact on the Group's financial position.
Also on 24 July 2007, the Board announced that, subject to the passing of the Resolutions at the Extraordinary General Meeting which was held on 20 August 2007, the Company
had raised £5.1 million, before expenses, through the Placing of 1,000,000 new Ordinary Shares, at a price of 510p per share. The proceeds of the Placing were intended:
• to expand the manufacturing capability of its Melbourne facility in order to enhance manufacturing margins by bringing Elast-Eon™ raw material manufacture in-house;
• to fund additional component manufacture to supplement the Company’s existing technology in heart valves and breast implants;
• to fund the hire of further employees for the sales and marketing department and a full time Finance Director; and
• to provide working capital for the Company.
Dealings in the Placing Shares as issued commenced on 21 August 2007.
ANNUAL GENERAL MEETING _
The notice convening the Annual General Meeting for 10:00am on 2 October 2007 at The Hogarth Partnership, 2nd Floor Upstream, No.1 London Bridge, London SE1
9BG 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 6_
Resolution 1 provides for the approval of the Company's financial statements for the year ended 31 March 2007. Resolution 2 provides for approval of the Report of the
Remuneration Committee for the year ended 31 March 2007. Resolution 3 deals with the re-appointment of the one Director required by the Company's Articles of
Association to retire this year. Resolution 4 deals with the re-appointment of Grant Thornton UK LLP as the Company's auditors.
Resolution 5 authorises the Directors to allot shares up to a nominal value of £4,008,565. This number represents one-third of the Company's issued share capital following
the Placing in August 2007. Resolution 6 disapplies pre-emption rights in relation to a specified number of shares. This figure represents 5% of the issued share capital.
Resolutions 1 to 4 are termed ordinary business. Resolutions 5 and 6 are termed special business.
J C D Parsons
Company Secretary, Surbiton, 6 September 2007
AORTECH INTERNATIONAL PLC | 09
STATEMENT OF DIRECTORS’ RESPONSIBILITIES//
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law. The financial statements have been
prepared under United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
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.
The Directors consider that, in preparing these Financial Statements, they have used appropriate accounting policies, consistently applied and supported by
reasonable and prudent judgements 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 maintenance and integrity of all AorTech websites 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 Financial Statements or associated information which are contained in these websites.
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, 6 September 2007
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 continue to be kept under review in the light of ongoing corporate developments
and up-scaling of activities.
DIRECTORS_
The Company is controlled by the Board of Directors which, at 31 March 2007, 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.
10 | AORTECH INTERNATIONAL PLC
ACCOUNTABILITY AND AUDIT//
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.
INTERNAL CONTROL_
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 misstatement 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.
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 the non-Executive Directors as follows:
Dr S Rollason (Chairman)
E McDaid
J Pither
G Wright
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.
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 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:
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.
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. In July 2006, F Maguire was awarded a bonus of £15,000 by the Remuneration Committee in recognition of
Elast-Eon™ in human use.
12 | AORTECH INTERNATIONAL PLC
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.
PENSIONS_
The Group made contributions to a personal pension plan for F Maguire at the rate of 10% of pensionable salary.
DIRECTORS’ EMOLUMENTS_
Details of individual Directors' emoluments for the year are as follows:
salary
and fees
£
benefits
pension
in kind contributions
£
£
2007
total
£
2006
total
£
Executive
F Maguire (appointed 1 July 2003)
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)
207,678
7,200
13,810
228,688
148,131
32,000
-
-
20,500
20,000
18,000
-
-
-
-
-
-
-
-
-
-
-
-
32,000
-
-
20,500
20,000
18,000
37,000
6,000
3,000
19,500
7,750
6,725
298,178
7,200
13,810
319,188
228,131
Benefits in kind include the provision of a company car and medical insurance.
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.
AORTECH INTERNATIONAL PLC | 13
REPORT OF THE REMUNERATION COMMITTEE// continued
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
2006
at 31 march
2007
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
J Pither
Dr S Rollason
at 1 april granted/(expired)
during year
2006
at 31 march
2007
exercise
price
date from which
exercisable
expiry
date
7,000
19,000
25,000
200,000
-
-
-
-
-
-
20,000
13,000
7,000
19,000
25,000
200,000
20,000
13,000
250p
280p
250p
250p
325p
325p
11/07/2005
08/08/2005
14/07/2006
30/06/2007
01/09/2009
01/09/2009
10/07/2012
07/08/2012
13/07/2013
29/06/2014
01/09/2016
01/09/2016
The range in the mid market price of the Company's shares during the year ended 31 March 2007 was from 310p to 592.5p. The mid market price on 31 March
2007 was 550p.
On behalf of the Board
Dr Stuart Rollason
Chairman of the Remuneration Committee
6 September 2007
14 | AORTECH INTERNATIONAL PLC
REPORT OF THE AUDITORS//
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 2007
which comprise the consolidated profit and loss account, the Group and Company balance sheets, the consolidated cashflow 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 and whether the financial statements are properly prepared in accordance
with the Companies Act 1985. We also report to you whether the information given in the Report of the Directors is consistent with the financial statements. The
information given in the Report of the Directors includes that specific information presented in the Chairman's Statement that is cross referred from the Review of
Business and Future Developments section of the Report of the Directors.
In addition we 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, the Accountability and Audit 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 judgements 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 2007 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 2007.
GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
Leicester
6 September 2007
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.
AORTECH INTERNATIONAL PLC | 15
CONSOLIDATED PROFIT AND LOSS ACCOUNT//
FOR THE YEAR ENDED 31 MARCH 2007
Turnover
Continuing operations
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 and diluted
Notes
2
3
3
3
5
2
8
21
10
2007
£000
276
(158)
118
(2,348)
(821)
(96)
(2,230)
109
(2,121)
-
(2,121)
2006
£000
1,425
(223)
1,202
(1,867)
(634)
(99)
(665)
142
(523)
-
(523)
(55.67p)
(13.74p)
There is no difference between the losses stated above and their historical cost equivalent.
All results are derived from continuing operations.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 2007
Loss for the financial year
Currency translation differences arising on consolidation
Total losses recognised since last annual report
2007
£000
(2,121)
(25)
(2,146)
2006
£000
(523)
(23)
(546)
16 | AORTECH INTERNATIONAL PLC
BALANCE SHEETS//
AS AT 31 MARCH 2007
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 one year
Cash at bank
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Other reserve
Profit and loss account
Equity shareholders’ funds
group
company
notes
11
12
13
14
15
15
16
16
18
20
20
21
2007
£000
1,262
472
-
1,734
89
374
-
1,480
1,943
(520)
1,423
3,157
(195)
2,962
9,526
(2,003)
(4,561)
2,962
2006
£000
1,360
240
-
1,600
140
1,304
-
2,716
4,160
(508)
3,652
5,252
(144)
5,108
9,526
(2,003)
(2,415)
5,108
2007
£000
2006
£000
-
-
-
-
-
152
8,715
458
9,325
(180)
9,145
9,145
-
-
-
-
-
-
175
7,630
2,062
9,867
(117)
9,750
9,750
-
9,145
9,750
9,526
-
(381)
9,145
9,526
-
224
9,750
The financial statements on pages 16 to 29 were approved by the Board of Directors on 6 September 2007 and were signed on its behalf by
J Pither, Chairman
F Maguire, Chief Executive
AORTECH INTERNATIONAL PLC | 17
CONSOLIDATED CASHFLOW STATEMENT//
FOR THE YEAR ENDED 31 MARCH 2007
Net cash outflow from operating activities
Returns on investment and servicing of finance
Interest received
Taxation
Research and development tax credits received
Capital expenditure and financial investment
Purchase of tangible fixed assets
Net cash outflow from capital expenditure and financial investment
Cash outflow before management of liquid resources and financing
Management of liquid resources
Cash released from short term deposit
Increase in cash in year
notes
22
23
2007
£000
(904)
109
-
(420)
(420)
(1,215)
1,592
377
2006
£000
(1,189)
142
(99)
(119)
(119)
(1,265)
1,658
393
18 | AORTECH INTERNATIONAL PLC
NOTES TO THE FINANCIAL STATEMENTS//
FOR THE YEAR ENDED 31 MARCH 2007
1 PRINCIPAL ACCOUNTING POLICIES
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.
BASIS OF ACCOUNTING_
The financial statements are prepared in accordance with the historical cost convention.
BASIS OF CONSOLIDATION_
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 included
in the consolidated 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
over term of lease or 10 years if less
10 years
4 - 10 years
RESEARCH & 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.
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 its contractual performance.
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:
2007
2006
Sales by
destination
£000
Sales by
origin
£000
Sales by
destination
£000
Sales by
origin
£000
8
-
268
276
-
-
276
276
36
-
1,389
1,425
2007
£000
(818)
-
(1,412)
(2,230)
109
(2,121)
2007
£000
445
-
2,516
2,961
-
-
1,425
1,425
2006
£000
(689)
-
24
(665)
142
(523)
2006
£000
2,128
-
2,979
5,107
(i) Turnover
Geographical segment
United Kingdom
Rest of Europe
Rest of World
(ii) Loss before taxation
Geographical segment
United Kingdom
Rest of Europe
Rest of World
Loss before interest
Net interest receivable
Loss on ordinary activities before taxation
(iii) Net assets
Geographical segment
United Kingdom
Rest of Europe
Rest of World
20 | AORTECH INTERNATIONAL PLC
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
2007
£000
276
(158)
118
(147)
(821)
(148)
(1,232)
(2,201)
(2,348)
2006
£000
1,425
(223)
1,202
(244)
(634)
(99)
(890)
(1,623)
(1,867)
(2,230)
(665)
2006
£000
99
72
91
2006
£000
2007
£000
96
133
139
2007
£000
Grant Thornton
UK LLP
Grant Thornton Pricewaterhouse
Coopers LLP
UK LLP
Services to the Company and its subsidiaries
Fees payable to the Company's auditors and its associates for the audit of the financial statements
29
Fees payable to the Company's auditors and its associates for other services:
Audit of the financial statements of the Company's subsidiaries pursuant to legislation
Other services relating to taxation
4
6
39
The audit fee analysis above includes amounts paid to the associates of the Company’s auditors
in Australia for review work in connection with the Australian subsidiary totalling £12,000 (2006 : £13,000).
28
7
4
39
4
-
5
9
AORTECH INTERNATIONAL PLC | 21
NOTES// continued
5 INTEREST RECEIVABLE
Bank interest
6 DIRECTORS' EMOLUMENTS
2007
£000
109
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
2007
£000
305
14
2006
£000
142
2006
£000
215
14
Included in aggregate emoluments for the year ended 31 March 2007 are payments of £52,500 (2006: £65,500) made by the Company to third parties.
The highest paid Director received total emoluments of £228,688 including pension contributions of £13,810 (2006 : total emoluments of £148,131 including
pension contributions of £13,542).
7 EMPLOYEE INFORMATION
The average monthly number of persons (including Executive Directors) employed by the Group during the year was:
2007
number
2006
number
By activity
Production
Sales
Development & Quality Control
Administration
Staff costs (for the above persons):
Wages and salaries
Social security costs
Other pension costs
Staff costs incurred include redundancy payments of £nil (2006: £27,282).
3
-
11
3
17
£000
723
59
25
807
3
1
10
3
17
£000
624
70
24
718
22 | AORTECH INTERNATIONAL PLC
120550_Text 3/9/07 20:26 Page 23
8 TAXATION
No tax arises on the loss for the year (2006: nil)
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 30% (2006: 30%). The differences are explained as follows:
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by standard rate in the UK of 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
Tax charge
2007
£000
(2,121)
(636)
17
59
-
560
-
2006
£000
(523)
(157)
1
18
(30)
168
-
Unrelieved tax losses remain available to offset against future taxable profits. 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
(2006: £2,401,000 - tax effect is £720,000). Losses carried forward in Australia total £4,304,906 - tax effect £1,291,472 (2006: £4,305,000 - tax effect £1,292,000).
9 LOSS FOR THE FINANCIAL YEAR
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 £610,164 (2006 : £559,892).
10 LOSS PER ORDINARY SHARE
The basic loss per ordinary share is calculated on the loss of the Group of £2,121,321 (2006: loss of £523,348) and on 3,810,278 (2006 : 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 FIXED ASSETS
Group:
Cost
At 1 April 2006
Exchange differences
At 31 March 2007
Amortisation
At 1 April 2006
Exchange differences
Charge for year
At 31 March 2007
Net book value
At 31 March 2007
Net book value
At 31 March 2006
intellectual
property
£000
1,943
(1)
1,942
583
1
96
680
1,262
1,360
goodwill
£000
19,501
-
19,501
19,501
-
-
19,501
-
-
total
£000
21,444
(1)
21,443
20,084
1
96
20,181
1,262
1,360
AORTECH INTERNATIONAL PLC | 23
NOTES// continued
12 TANGIBLE FIXED ASSETS
Group
Cost
At 1 April 2006
Transfers
Additions
Disposals
At 31 March 2007
Depreciation
At 1 April 2006
Charge for year
Disposals
Transfers
Exchange differences
At 31 March 2007
Net book value
At 31 March 2007
Net book value
At 31 March 2006
Cost
Historical cost
Exchange differences
Provision for impairment
Net book value - at 31 March 2007 and 31 March 2006
(b) interests in subsidiary undertakings
name of
undertaking
property
improvements
£000
plant &
equipment
£000
fixtures
& fittings
£000
2
196
307
(188)
317
1
53
(137)
129
1
47
270
1
509
-
87
-
596
361
68
-
-
1
430
166
148
2007
£000
-
-
-
-
302
(196)
26
(8)
124
211
12
(6)
(129)
-
88
36
91
2006
£000
-
-
-
-
country of
registration or
incorporation
description
of shares held
total
£000
813
-
420
(196)
1,037
573
133
(143)
-
2
565
472
240
company
2007
£000
2006
£000
23,159
-
(23,159)
-
23,159
-
( 23,159)
-
proportion of nominal
value of shares held by:
company
%
group
%
No assets were held under hire purchase contracts at 31 March 2007 and 31 March 2006.
13 FIXED ASSET INVESTMENTS
(a) Investment in subsidiary undertakings
group
(i)
(ii)
(iii)
(iv)
AorTech Biomaterials Limited (formerly AorTech Europe Limited)
AorTech Critical Care Limited
AorTech Biomaterials Pty Limited
AorTech Medical Devices (USA), Inc
Scotland
Scotland
Australia
USA
ordinary £1
ordinary £1
ordinary Aus. $1
common US $1
100
92
100
100
100
92
100
100
The principal business activities and country of operation of the above operations are:
(i)
(ii)
(iii)
(iv)
Ownership of tri-leaflet heart valve intellectual property in the UK.
A dormant company in the UK.
The development of new biostable polyurethanes, operating principally in Australia.
Marketing in the Americas.
24 | AORTECH INTERNATIONAL PLC
14 STOCKS
All stocks at 31 March 2007 and 31 March 2006 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*
Total debtors
group
company
2007
£000
68
194
112
374
-
374
2006
£000
1,106
22
176
1,304
-
1,304
2007
£000
-
44
108
152
8,715
8,867
*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
group
company
2007
£000
187
-
247
(195)
86
195
520
2006
£000
202
12
247
(144)
107
84
508
2007
£000
10
-
-
-
-
170
180
2006
£000
-
37
138
175
7,630
7,805
2006
£000
23
12
-
-
-
82
117
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 2007, the Group had no borrowings.
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 and US subsidiary whose costs are denominated in Australian and US Dollars respectively. The Board will continue to
review the situation as activities in these subsidiaries 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 2007 and 31 March 2006.
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 2007 and 2006 was:
Currency:
Sterling
US Dollars
Australian Dollars
Euros
As at 31 March 2007
cash at bank and in hand
2006
£000
2007
£000
short term deposits
2006
£000
2007
£000
-
36
262
8
306
13
224
35
8
280
459
528
187
-
1,174
2,051
-
385
-
2,436
2007
£000
459
564
449
8
1,480
total
2006
£000
2,064
224
420
8
2,716
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 2007 was 4.66%. (2006 : 4.59%)
18 CALLED UP SHARE CAPITAL
Authorised
5,600,000 (2006 : 5,600,000) Ordinary shares of 250p each
Issued
3,810,278 (2006 : 3,810,278) Ordinary shares of 250p each allotted,
called up and fully paid
2007
£000
2006
£000
14,000
14,000
9,526
9,526
At an EGM of Members held on 20 August 2007, the Company's authorised share capital was increased to £17,500,000, comprising 7,000,000 Ordinary shares
of 250p each. On 22 August 2007, there were 4,810,278 Ordinary shares of 250p each allotted, called up and fully paid.
19 OPTIONS IN SHARES OF AORTECH INTERNATIONAL PLC
At 31 March 2007, 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 2007.
(ii) unapproved share option scheme
number of shares
subscription price per share
1,000
2,000
1,500
5,000
1,050
1,600
1,350
7,000
19,000
25,000
30,500
200,000
20,000
78,000
1,025p
5,625p
8,100p
7,425p
9,035p
4,175p
1,725p
250p
280p
250p
168p
250p
196p
325p
period of option
Between 9 January 2001 and 8 January 2008
Between 17 December 2002 and 16 December 2009
Between 16 June 2003 and 15 June 2010
Between 11 July 2003 and 10 July 2010
Between 18 December 2003 and 17 December 2010
Between 29 May 2004 and 28 May 2011
Between 18 December 2004 and 17 December 2011
Between 11 July 2005 and 10 July 2012
Between 8 August 2005 and 7 August 2012
Between 14 July 2006 and 13 July 2013
Between 30 June 2007 and 29 June 2014
Between 30 June 2007 and 29 June 2014
Between 22 November 2007 and 21 November 2014
Between 1 September 2009 and 1 September 2016
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 2007.
(iii) other
The range in the mid market price of the Company's shares during the year ended 31 March 2007 was from 310p to 592.5p.
The mid market price on 31 March 2007 was 550p.
On 1 September 2006, the Company granted options over 78,000 ordinary shares exercisable at 325p during the period 1 September 2009 to 1 September 2016.
26 | AORTECH INTERNATIONAL PLC
20 RESERVES
Group
At 1 April 2006
Loss for the year
Exchange differences arising on consolidation
At 31 March 2007
other
reserve
£000
(2,003)
-
-
(2,003)
profit
and loss
reserve
£000
(2,415)
(2,121)
(25)
(4,561)
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 2006
Loss for the year
Exchange differences arising on consolidation
At 31 March 2007
21 RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
Opening shareholders’ funds
Loss for the financial year
Exchange differences arising on consolidation
Closing shareholders' funds
22 RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Group operating loss
Amortisation of intangible fixed assets
Depreciation of tangible fixed assets
Loss on sale of fixed assets
Decrease / (increase) in stocks
Decrease / (increase) in debtors
Increase / (decrease) in creditors
Net cash outflow from operating activities
2007
£000
5,107
(2,121)
(24)
2,962
2007
£000
(2,230)
133
96
53
51
930
63
(904)
profit
and loss
account
£000
224
(610)
5
(381)
2006
£000
5,653
(523)
(23)
5,107
2006
£000
(665)
99
72
-
(71)
(1,027)
403
(1,189)
AORTECH INTERNATIONAL PLC | 27
NOTES// continued
23 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
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 2006
Net funds at 31 March 2007
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
2007
£000
377
(1,592)
(1,215)
(21)
(1,236)
2,716
1,480
2006
£000
393
(1,658)
(1,265)
(34)
(1,299)
4,015
2,716
1 april
2006
£000
2,716
(2,051)
665
2,051
2,716
cash
flow
£000
exchange
differences
£000
31 march
2007
£000
(1,215)
1,592
377
(1,592)
(1,215)
(21)
-
(21)
-
(21)
1,480
(459)
1,021
459
1,480
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 £51,478 (2006 : £61,281).
26 POST-BALANCE SHEET EVENTS
Subsequent to the year end, the Group has made announcements regarding; (1) the entering into a licensing and supply agreement for the evaluation of its
patented polymer, Elast-EonTM, with a global medical device company; (2) the increase to £17,500,000 of its authorised share capital; and (3) an increase in the
issued and fully paid up share capital of the Company to 4,810,278 Ordinary shares of 250p each, as a result of a Placing of 1,000,000 new Ordinary shares of
250p each at a price of 510p per share, thereby raising £5.1m before expenses.
28 | AORTECH INTERNATIONAL PLC
27 FINANCIAL COMMITMENTS
At 31 March 2007 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
2007
2006
land and
buildings
£000
-
-
118
-
118
other
£000
-
-
-
-
-
land and
buildings
£000
-
-
103
-
103
other
£000
-
-
-
-
-
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.
AORTECH INTERNATIONAL PLC | 29
120550_Text 3/9/07 20:38 Page 30
NOTICE OF ANNUAL GENERAL MEETING//
Notice is hereby given that the tenth Annual General Meeting of AorTech International plc will be held at the offices of The Hogarth Partnership, 2nd Floor Upstream, No.1
London Bridge, London SE1 9BG on 2 October 2007 at 10:00am for the following purposes:
AS ORDINARY BUSINESS_
1.
2.
3.
4.
To receive and adopt the financial statements of the Company for the year ended 31 March 2007 together with the Reports of the
Directors and Auditors thereon.
To approve the Report of the Remuneration Committee for the year ended 31 March 2007.
To re-elect as a Director Jon Peter Pither, who is retiring by rotation.
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:
5
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 £4,008,565 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:
6
That subject to the passing of Resolution 5 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 5 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:
(a)
(b)
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 recognized 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 £601,284, 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
6 September 2007
Victoria Road
Surbiton
Surrey KT6 4NS
30 | AORTECH INTERNATIONAL PLC
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.
AORTECH INTERNATIONAL PLC | 31
.
K
U
O
C
.
INTERNATIONAL PLC
Prestige Travel Suite, Barclays Bank House,
81-83 Victoria Road, Surbiton, Surrey, England KT6 4NS
Tel: +44(0)870 850 8286 Fax: +44(0)208 399 3897
E-mail: info@aortech.com Web: www.aortech.com
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C H A I R M A N ’ S S T A T E M E N T