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Johnson & JohnsonAllergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com Allergy Therapeutics is a European based speciality pharmaceutical company focused on the treatment and prevention of allergy. Financial statements Directors’ report Directors’ remuneration report C o n t e n t s Chairman’s statement Nominations committee report Chief Executive’s review Independent auditor’s report 53 Contents Our business Who we are Highlights Our markets Our products Pollinex Quattro USA opportunity 26 Consolidated balance sheet Research & development Financial review Meet the board 36 statement 4 6 8 12 18 22 28 32 40 49 52 55 56 to the members of Allergy Therapeutics plc (group) Consolidated income statement 54 Consolidated statement of changes in equity Consolidated cash flow 57 Notes to the financial 58 statements Independent auditor’s report 90 to the members of Allergy Therapeutics plc (company) Company balance sheet Notes to the Company balance sheet 91 92 Shareholder information 96 2 © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 3 Allergy Therapeutics is a European based speciality pharmaceutical company focused on the treatment and prevention of allergy. Contents Our business Who we are Highlights Chairman’s statement Chief Executive’s review Our markets Our products C o n t e n t s Financial statements Directors’ report Directors’ remuneration report Nominations committee report Independent auditor’s report to the members of Allergy Therapeutics plc (group) 40 49 52 53 Consolidated income statement 54 4 6 8 12 18 22 Pollinex Quattro USA opportunity 26 Consolidated balance sheet Research & development Financial review Meet the board 28 32 Consolidated statement of changes in equity 36 Consolidated cash flow statement Notes to the financial statements Independent auditor’s report to the members of Allergy Therapeutics plc (company) Company balance sheet Notes to the Company balance sheet 55 56 57 58 90 91 92 Shareholder information 96 2 © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 3 Who we are Allergy Therapeutics is a European-based speciality pharmaceutical company focused on the treatment and prevention of allergy. Mission statement To create a sustainable, fast-growing and profitable global speciality pharmaceutical business with a substantial franchise in the allergy sector by developing innovative, patented, registered therapies for both the treatment and prevention of allergy-related conditions. Strategy The Company’s strategy is based on the principles of growth, diversification and careful cost management. Specifically, it is the Directors’ intention to focus on the following strategies: • Accelerating organic growth by building and leveraging the current infrastructure to accelerate penetration of products in current markets and enter into new emerging markets • Strengthen the Company’s existing product portfolio by acquiring new products and/or entering into further licensing agreements • Having deleveraged the balance sheet to maximise the Company’s opportunities in non-European markets by strengthening the Company’s negotiation position with potential partners In addition, the Company will continue to develop improved allergy vaccines with novel adjuvants, improved dosing regimens in order to improve patient compliance and new delivery formulations to augment the portfolio of patent-protected, registered pharmaceutical products. W h o w e a r e 4 © Allergy Therapeutics plc Annual Report & Accounts 2012 Who we are www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Who we are www.allergytherapeutics.com www.pollinex.com 5 Allergy Therapeutics is a European-based speciality pharmaceutical company focused on the treatment and prevention of allergy. Who we are Mission statement To create a sustainable, fast-growing and profitable global speciality pharmaceutical business with a substantial franchise in the allergy sector by developing innovative, patented, registered therapies for both the treatment and prevention of allergy-related conditions. Strategy cost management. The Company’s strategy is based on the principles of growth, diversification and careful Specifically, it is the Directors’ intention to focus on the following strategies: • Accelerating organic growth by building and leveraging the current infrastructure to accelerate penetration of products in current markets and enter into new emerging markets • Strengthen the Company’s existing product portfolio by acquiring new products and/or entering into further licensing agreements • Having deleveraged the balance sheet to maximise the Company’s opportunities in non-European markets by strengthening the Company’s negotiation position with potential partners In addition, the Company will continue to develop improved allergy vaccines with novel adjuvants, improved dosing regimens in order to improve patient compliance and new delivery formulations to augment the portfolio of patent-protected, registered pharmaceutical products. W h o w e a r e 4 © Allergy Therapeutics plc Annual Report & Accounts 2012 Who we are www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Who we are www.allergytherapeutics.com www.pollinex.com 5 Highlights - at a glance • US Clinical hold lifted on Pollinex® Quattro Grass 0.5ml (Pollinex Quattro) and approval to progress with a Phase III efficacy study, to be conducted in an Environmental Exposure Chamber (“EEC”) • Gross Revenue (before rebate) £43.8 million (2011: £43.0 million) 2.0% higher • Pollinex Quattro sales grew by 2.8% to £21.4 million (2011: £20.9 million) at constant currency • Gross sales increased 9.3% in non-German markets at constant currency • Operating profit higher at £1.1 million (2011: £0.1 million) • Profit after interest and tax higher at £0.8 million (2011: £2.7 million loss) • Submitted complete response to the Paul Ehrlich Institute (“PEI”) for Pollinex® Quattro Complete Grass in Germany • Successful Placing and Subscription of New Ordinary Shares, issue of Convertible Loan Notes and an Offer to Qualifying Participants of New Ordinary Shares raising £13.3 million gross • Substantial reduction in net debt to £0.6 million ( 2011: £14.1 million) H i g h l i g h t s 6 © Allergy Therapeutics plc Annual Report & Accounts 2012 Highlights www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Highlights www.allergytherapeutics.com www.pollinex.com 7 i H g h l i g h t s Highlights - at a glance • US Clinical hold lifted on Pollinex® Quattro Grass 0.5ml (Pollinex Quattro) and approval to progress with a Phase III efficacy study, to be conducted in an Environmental Exposure Chamber (“EEC”) • Gross Revenue (before rebate) £43.8 million (2011: £43.0 million) 2.0% higher • Pollinex Quattro sales grew by 2.8% to £21.4 million (2011: £20.9 million) at constant currency • Gross sales increased 9.3% in non-German markets at constant currency • Operating profit higher at £1.1 million (2011: £0.1 million) • Profit after interest and tax higher at £0.8 million (2011: £2.7 million loss) • Submitted complete response to the Paul Ehrlich Institute (“PEI”) for Pollinex® Quattro Complete Grass in Germany • Successful Placing and Subscription of New Ordinary Shares, issue of Convertible Loan Notes and an Offer to Qualifying Participants of New Ordinary Shares raising £13.3 million gross • Substantial reduction in net debt to £0.6 million ( 2011: £14.1 million) 6 © Allergy Therapeutics plc Annual Report & Accounts 2012 Highlights www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Highlights www.allergytherapeutics.com www.pollinex.com 7 Chairman’s statement “The lifting of the clinical hold by the US Food & Drug Administration (FDA) on the 3rd August 2012 for our Pollinex Quattro Grass product was a significant event and milestone for the Company.” C h a i r m a n ’ s s t a t e m e n t 8 © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com 9 Chairman’s statement “The lifting of the clinical hold by the US Food & Drug Administration (FDA) on the 3rd August 2012 for our Pollinex Quattro Grass product was a significant event and milestone for the Company.” C h a i r m a n ’ s s t a t e m e n t 8 © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com 9 Chairman’s statement “The Group’s strategy of product diversification and geographical expansion, reducing the Group’s reliance on the German market, is clearly reflected in this year’s results.” Peter Jensen Chairman 14 September 2012 C h a i r m a n ’ s s t a t e m e n t I am pleased to write my second statement as Chairman to the Group, allowing it to repay existing bank debt, agree The financial results for the year show consistent sales and a I am pleased to welcome Dr Thomas Lander, who joined the of Allergy Therapeutics and comment upon a year that has a new overdraft facility and allows the Executive Team to better profit after tax position of £0.8m (2011: loss of £2.7m). Board as a Non-Executive Director in May 2012. He brings been important in the continued development of the Group. concentrate on the Group’s continued and future growth. This improvement has arisen as a result of favourable foreign extensive knowledge of drug development and European I would like to thank the Directors, the Executive Team and employees for their contribution to the continued success of the Group for the year. The lifting of the clinical hold by the US Food & Drug Administration (FDA) on the 3rd August 2012 for our Pollinex Quattro® Grass product was a significant event and milestone for the Company. This decision allows the Group to commence a pivotal clinical trial programme for Pollinex Quattro Grass, a major step towards registering the product in the United States. If successful, this implies that Pollinex Quattro Grass will be the first registered subcutaneous vaccine to reach the US market. In order for us to exploit this opportunity, we are in the process of identifying a suitable development and commercialisation partner in the United States. The successful fundraising that took place in April this year raised £13.3m through a combination of equity (£9.3m) and convertible debt (£4.0m) with CFR International acting as the cornerstone investor. The resolutions were approved by shareholders at the General Meeting on 19 April. The fundraising has provided greater financial flexibility exchange movements and effective cost control measures regulatory experience, having held senior executive roles introduced during the year. In addition, the Group’s strategy with major pharma and biotech companies, including of product diversification and geographical expansion, positions in German and Swiss pharmaceutical companies. reducing the Group’s reliance on the German market, I would also like to thank, on behalf of all the stakeholders, is clearly reflected in this year’s results. Ignace Goethals and Virinder Nohria for their contribution to the development of the Group over a number of years. They both stepped down from the Board on 30 June 2012. Despite challenging market conditions, prospects for the Group remain positive, particularly given the lifting of the clinical hold in the US and the anticipated reply from the Paul Ehrlich Institute before the end of the calendar year, both of which bode well for the Group to continue to grow the business and deliver shareholder value. Peter Jensen Chairman 14 September 2012 10 © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com 11 Chairman’s statement “The Group’s strategy of product diversification and geographical expansion, reducing the Group’s reliance on the German market, is clearly reflected in this year’s results.” Peter Jensen Chairman 14 September 2012 C h a i r m a n ’ s s t a t e m e n t I am pleased to write my second statement as Chairman to the Group, allowing it to repay existing bank debt, agree The financial results for the year show consistent sales and a I am pleased to welcome Dr Thomas Lander, who joined the of Allergy Therapeutics and comment upon a year that has a new overdraft facility and allows the Executive Team to better profit after tax position of £0.8m (2011: loss of £2.7m). Board as a Non-Executive Director in May 2012. He brings been important in the continued development of the Group. concentrate on the Group’s continued and future growth. This improvement has arisen as a result of favourable foreign extensive knowledge of drug development and European exchange movements and effective cost control measures regulatory experience, having held senior executive roles introduced during the year. In addition, the Group’s strategy with major pharma and biotech companies, including of product diversification and geographical expansion, positions in German and Swiss pharmaceutical companies. reducing the Group’s reliance on the German market, I would also like to thank, on behalf of all the stakeholders, is clearly reflected in this year’s results. Ignace Goethals and Virinder Nohria for their contribution to the development of the Group over a number of years. They both stepped down from the Board on 30 June 2012. Despite challenging market conditions, prospects for the Group remain positive, particularly given the lifting of the clinical hold in the US and the anticipated reply from the Paul Ehrlich Institute before the end of the calendar year, both of which bode well for the Group to continue to grow the business and deliver shareholder value. Peter Jensen Chairman 14 September 2012 I would like to thank the Directors, the Executive Team and employees for their contribution to the continued success of the Group for the year. The lifting of the clinical hold by the US Food & Drug Administration (FDA) on the 3rd August 2012 for our Pollinex Quattro® Grass product was a significant event and milestone for the Company. This decision allows the Group to commence a pivotal clinical trial programme for Pollinex Quattro Grass, a major step towards registering the product in the United States. If successful, this implies that Pollinex Quattro Grass will be the first registered subcutaneous vaccine to reach the US market. In order for us to exploit this opportunity, we are in the process of identifying a suitable development and commercialisation partner in the United States. The successful fundraising that took place in April this year raised £13.3m through a combination of equity (£9.3m) and convertible debt (£4.0m) with CFR International acting as the cornerstone investor. The resolutions were approved by shareholders at the General Meeting on 19 April. The fundraising has provided greater financial flexibility 10 © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Chairman’s statement www.allergytherapeutics.com www.pollinex.com 11 CEO’s review “The lifting of the FDA clinical hold for Pollinex® Quattro Grass in the United States enables the Group to move forward in this important and currently poorly served market. Diversification into other geographies and product in-licensing opportunities continue to be explored in line with the Group’s strategy for growth.” C E O ’ s r e v i e w 12 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 13 CEO’s review “The lifting of the FDA clinical hold for Pollinex® Quattro Grass in the United States enables the Group to move forward in this important and currently poorly served market. Diversification into other geographies and product in-licensing opportunities continue to be explored in line with the Group’s strategy for growth.” C E O ’ s r e v i e w 12 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 13 CEO’s review “The Pollinex Quattro allergy vaccines, which are already commercialised in a number of European countries under a named patient basis, require only four injections per year and have the potential to transform allergy treatment in the US.” Manuel Llobet Chief Executive Officer 14 September 2012 C E O ’ s r e v i e w The most recent significant achievement was the lifting of favourably with the loss reported in the corresponding the FDA’s clinical hold on the Company’s grass pollen allergy period last year (2011: loss £2.7m). Several factors contributed vaccine Pollinex Quattro Grass announced on 3rd August to a return to profit, including good cost management as 2012. We now have approval to progress with a Phase III we focus on protecting net margins. efficacy study, to be conducted in an Environmental Exposure Chamber (“EEC”). The Company is focused on securing The Company performed well in the UK, Austria, Ireland and Italy a partner to help fund the remainder of the development but in some parts of Europe sales were hampered by government programme and commercialise Pollinex Quattro in the US. austerity measures. Overall sales of Pollinex Quattro increased 2.8% to £21.4m (2011: £20.9m) at constant currency. This ‘four shot’ product is based on the adjuvant MPL®, the Company’s innovative toll-like receptor four (TLR4) The Group believes that the UK market presents an agonist which acts to stimulate and re-direct the immune opportunity for further growth. To this end we have expanded response in decreasing allergenicity and increasing the UK sales team to increase sales going forward. Despite immunogenicity. The Pollinex Quattro allergy vaccines, the Italian market for vaccines decreasing by around 10%, which are already commercialised in a number of European the Company has in fact grown sales thanks to an outstanding countries under a named patient basis, require only four team effort. One of the highlights has been the Company’s injections per year and have the potential to transform annual adjuvant congress held in early July this year, where allergy treatment in the US, providing a convenient, safe, the values of adjuvants in immunotherapy were reviewed. and effective vaccination for allergic rhinitis sufferers. The Austrian market continues to have opportunities for Pollinex Quattro has the potential to greatly benefit allergy allergy vaccines, in particular where vaccines offer an German insurance companies have impacted sales. In spite of this, the Company has improved its competitive position in the number of units sold against the prior year with a strong improvement in sales of the registered TA range. The outlook for Germany remains cautious given the on-going uncertainty in the Eurozone. Sales in Spain have also been affected by austerity measures introduced to counteract the impact of a weaker economy and broader Eurozone related pressures. During the period the Group shipped initial supplies of vaccines to Colombia, Chile, Argentina and most recently, Venezuela. The regulatory requirements in these markets are complex and although significant progress has been made, it has been slower than originally anticipated. The Group is undertaking an educational programme with physicians and continues to develop these markets. The Group continues to identify potential new markets and sufferers in the US in the absence of registered products improved rate of patient compliance, as seen with Pollinex The Group has continued to decrease its reliance on Germany, in-licensing product opportunities. The Group’s in-licensed by being the first subcutaneous immunotherapy vaccine to reach that market. Quattro. The success in Ireland during the year has been generated by the introduction of Anapen®, an epinephrine auto-injector. Following the voluntary recall by Lincoln the Group’s largest market which has been impacted by products in some markets include DAP, a diagnostic product general austerity measures and the withdrawal of de-notified for people who are allergic to penicillin, which is licensed by products. This has contributed to a shrinking market that is Diater Laboratories S.A and Anapen, an emergency device Looking at the financial results, I am pleased to report that Medical, the producer of Anapen, in May 2012, the Company only now showing signs of stabilising. The weaker market and that can inject adrenaline for the treatment of anaphylaxis the profit after tax for the year was £0.8m, which compares is working with Lincoln towards re-establishing normal supply. the increase in the rebate payable to sick funds, operated by licensed from Lincoln Medical. 14 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 15 “The Pollinex Quattro allergy vaccines, which are already commercialised in a number of European countries under a named patient basis, require only four injections per year and have the potential to transform allergy treatment in the US.” CEO’s review Manuel Llobet Chief Executive Officer 14 September 2012 C E O ’ s r e v i e w The most recent significant achievement was the lifting of favourably with the loss reported in the corresponding the FDA’s clinical hold on the Company’s grass pollen allergy period last year (2011: loss £2.7m). Several factors contributed vaccine Pollinex Quattro Grass announced on 3rd August to a return to profit, including good cost management as 2012. We now have approval to progress with a Phase III we focus on protecting net margins. efficacy study, to be conducted in an Environmental Exposure Chamber (“EEC”). The Company is focused on securing The Company performed well in the UK, Austria, Ireland and Italy a partner to help fund the remainder of the development but in some parts of Europe sales were hampered by government programme and commercialise Pollinex Quattro in the US. austerity measures. Overall sales of Pollinex Quattro increased 2.8% to £21.4m (2011: £20.9m) at constant currency. This ‘four shot’ product is based on the adjuvant MPL®, the Company’s innovative toll-like receptor four (TLR4) The Group believes that the UK market presents an agonist which acts to stimulate and re-direct the immune opportunity for further growth. To this end we have expanded response in decreasing allergenicity and increasing the UK sales team to increase sales going forward. Despite immunogenicity. The Pollinex Quattro allergy vaccines, the Italian market for vaccines decreasing by around 10%, which are already commercialised in a number of European the Company has in fact grown sales thanks to an outstanding countries under a named patient basis, require only four team effort. One of the highlights has been the Company’s injections per year and have the potential to transform annual adjuvant congress held in early July this year, where allergy treatment in the US, providing a convenient, safe, the values of adjuvants in immunotherapy were reviewed. and effective vaccination for allergic rhinitis sufferers. The Austrian market continues to have opportunities for Pollinex Quattro has the potential to greatly benefit allergy allergy vaccines, in particular where vaccines offer an German insurance companies have impacted sales. In spite of this, the Company has improved its competitive position in the number of units sold against the prior year with a strong improvement in sales of the registered TA range. The outlook for Germany remains cautious given the on-going uncertainty in the Eurozone. Sales in Spain have also been affected by austerity measures introduced to counteract the impact of a weaker economy and broader Eurozone related pressures. During the period the Group shipped initial supplies of vaccines to Colombia, Chile, Argentina and most recently, Venezuela. The regulatory requirements in these markets are complex and although significant progress has been made, it has been slower than originally anticipated. The Group is undertaking an educational programme with physicians and continues to develop these markets. The Group continues to identify potential new markets and sufferers in the US in the absence of registered products improved rate of patient compliance, as seen with Pollinex The Group has continued to decrease its reliance on Germany, in-licensing product opportunities. The Group’s in-licensed by being the first subcutaneous immunotherapy vaccine Quattro. The success in Ireland during the year has been the Group’s largest market which has been impacted by products in some markets include DAP, a diagnostic product to reach that market. generated by the introduction of Anapen®, an epinephrine auto-injector. Following the voluntary recall by Lincoln general austerity measures and the withdrawal of de-notified for people who are allergic to penicillin, which is licensed by products. This has contributed to a shrinking market that is Diater Laboratories S.A and Anapen, an emergency device Looking at the financial results, I am pleased to report that Medical, the producer of Anapen, in May 2012, the Company only now showing signs of stabilising. The weaker market and that can inject adrenaline for the treatment of anaphylaxis the profit after tax for the year was £0.8m, which compares is working with Lincoln towards re-establishing normal supply. the increase in the rebate payable to sick funds, operated by licensed from Lincoln Medical. 14 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 15 C E O ’ s r e v i e w Outlook Despite the uncertain economic times in the Group’s main markets, the outlook for revenue growth in Europe is expected to see low-mid single digit growth. The lifting of the FDA clinical hold for Pollinex Quattro Grass in the United States enables the Group to move forward in this important and currently poorly served market. Diversification into other geographies and product in-licensing opportunities continue to be explored in line with the Group’s strategy for growth. With opportunities to expand and grow the business in new, growing and established markets, we are confident of the future prospects of the Group to deliver shareholder value in the medium to long term. Manuel Llobet Chief Executive Officer 14 September 2012 As reported previously, a complete response was submitted submitted marketing authorisation applications for its top by the Group in November 2011, addressing the questions 10 products in the Pollinex Quattro, Tyrosin TU t.o.p. and raised by Paul Ehrlich Institute(PEI) in Germany concerning Oralvac Compact ranges. the Marketing Authorisation Application (MAA) for the Pollinex Quattro Complete grass formulation. The Company addressed The PEI has given the Company timelines for a transition all the questions raised by the PEI in their report and expects period ending in 2017 by which time approval of these a decision on the new presentation of Pollinex Quattro applications must have been obtained. The Company currently during 2012. The new presentation differs from the existing intends to meet the requirements associated with those marketed version of Pollinex Quattro due to its lower injection applications which are likely to result in the Group incurring volume of 0.5ml; compared to a 1.0ml injection volume for R&D spend of up to £5m per annum. the earlier version. Subject to approval of Pollinex Quattro Complete, the Company will pursue further registrations There have also been changes in the reimbursement regime through the mutual recognition procedure (MRP) in other in Germany. As announced in the Company’s annual results last European countries. year , there has been a price freeze in Germany on reimbursed products from the prices in the market on 1 August 2009. At the end of November 2010 the Group submitted 10 The rebate paid to sick-funds increased from August 2010 marketing authorisation applications to the PEI. These from the previous level of 6% to 16% and although the marketing authorisation applications have been made in Company has received an exemption from this rebate rise response to the introduction of the Therapeutic Allergen until mid-2011 and preliminary exemption extension until Regulation (TAV), which has changed the regulatory landscape the end of 2011, it is currently uncertain as to whether in Germany. To date many products have been available in the Company will continue to receive such an exemption, Germany on a ‘named patient’ basis. However, as a result however it continues to discuss this with the authorities. of the TAV, all immunotherapy products containing common allergens (grass, trees, house dust mites and insect venoms) will require marketing authorisations by 2017. Since 2008, The Group has reviewed its product portfolio and has 16 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 17 As reported previously, a complete response was submitted submitted marketing authorisation applications for its top by the Group in November 2011, addressing the questions 10 products in the Pollinex Quattro, Tyrosin TU t.o.p. and raised by Paul Ehrlich Institute(PEI) in Germany concerning Oralvac Compact ranges. the Marketing Authorisation Application (MAA) for the Pollinex Quattro Complete grass formulation. The Company addressed The PEI has given the Company timelines for a transition all the questions raised by the PEI in their report and expects period ending in 2017 by which time approval of these a decision on the new presentation of Pollinex Quattro applications must have been obtained. The Company currently during 2012. The new presentation differs from the existing intends to meet the requirements associated with those marketed version of Pollinex Quattro due to its lower injection applications which are likely to result in the Group incurring volume of 0.5ml; compared to a 1.0ml injection volume for R&D spend of up to £5m per annum. the earlier version. Subject to approval of Pollinex Quattro Complete, the Company will pursue further registrations There have also been changes in the reimbursement regime through the mutual recognition procedure (MRP) in other in Germany. As announced in the Company’s annual results last European countries. year , there has been a price freeze in Germany on reimbursed products from the prices in the market on 1 August 2009. At the end of November 2010 the Group submitted 10 The rebate paid to sick-funds increased from August 2010 marketing authorisation applications to the PEI. These from the previous level of 6% to 16% and although the marketing authorisation applications have been made in Company has received an exemption from this rebate rise response to the introduction of the Therapeutic Allergen until mid-2011 and preliminary exemption extension until Regulation (TAV), which has changed the regulatory landscape the end of 2011, it is currently uncertain as to whether in Germany. To date many products have been available in the Company will continue to receive such an exemption, Germany on a ‘named patient’ basis. However, as a result however it continues to discuss this with the authorities. of the TAV, all immunotherapy products containing common allergens (grass, trees, house dust mites and insect venoms) will require marketing authorisations by 2017. Since 2008, The Group has reviewed its product portfolio and has C E O ’ s r e v i e w Outlook Despite the uncertain economic times in the Group’s main markets, the outlook for revenue growth in Europe is expected to see low-mid single digit growth. The lifting of the FDA clinical hold for Pollinex Quattro Grass in the United States enables the Group to move forward in this important and currently poorly served market. Diversification into other geographies and product in-licensing opportunities continue to be explored in line with the Group’s strategy for growth. With opportunities to expand and grow the business in new, growing and established markets, we are confident of the future prospects of the Group to deliver shareholder value in the medium to long term. Manuel Llobet Chief Executive Officer 14 September 2012 16 © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 CEO’s review www.allergytherapeutics.com www.pollinex.com 17 Our markets We have a particularly strong presence in Europe with our own established operations in important markets including Germany, Italy, Spain, Austria and the United Kingdom. O u r m a r k e t s 18 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com 19 Our markets We have a particularly strong presence in Europe with our own established operations in important markets including Germany, Italy, Spain, Austria and the United Kingdom. O u r m a r k e t s 18 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com 19 Our markets During the year, we started to launch our products in Argentina, Venezuela, Columbia and Chile, and set up a new marketing operation in Argentina. Spain Austria Total market sales in Spain are estimated to be €60 million Austria is an established market with total market sales per annum, with low-single digit growth during the past of about €18 million per year and our own operation is year. Growth in this market has been impacted by the performing well, with double-digit growth. patients a year estimated to receive immunotherapy. Switzerland Injectable immunotherapy products continue to be the The allergy vaccine market in Switzerland is sophisticated country’s economic slowdown. It still remains a large market in terms of volume, with approximately 150,000 treatment of choice for Spanish physicians in this treatment category. United Kingdom The UK, our home market, is an important, if challenging, marketplace and a potential area of future growth for the and well established, and is worth approximately €12 million per annum. The acquisition of Teomed AG, the Swiss subsidiary, continues to provide a great opportunity to improve earnings and provides an established infrastructure from which to launch Pollinex Quattro in the future. O u r m a r k e t s Group. Whilst there is limited use of allergy vaccines in the Emerging Markets UK, this is changing and the Company has been focussed During the year, we started to launch our products in on expanding the market within the medical community, Argentina, Venezuela, Colombia and Chile, and set up a promoting greater awareness of current and more suitable new marketing operation in Argentina. Despite slow sales treatment options. in these Latin American Markets this year, it is still seen as a promising potential market. The Netherlands For the purposes of the segmental reporting analysis, Central The total market size in The Netherlands is around €40 million Europe represents the markets of Germany, Austria, Netherlands a year. Like other European countries, new regulations require and Switzerland and Southern Europe represents Spain and that only registered products can be sold. This should be to Italy. The Other segment represents the distributor and licensee our advantage as we already have registrations in this market revenues through other worldwide markets including Canada, for our Pollinex products. Czech Republic, Slovakia, South Korea and Latin America. We have a particularly strong presence in Europe with our Germany own established operations in important markets including The most important market for the Group, Germany, Germany, Italy, Spain, Austria and the United Kingdom. Our newer operations in Switzerland and the Netherlands are developing as anticipated. Currently, the only major is also the single largest immunotherapy market in the world by value, with annual sales of over €300 million. In spite of the market stabilising in volume this year it is European market in which we are not yet present is France. still affected by the austerity measures the government In markets where we do not have a direct presence, for allergen therapies. Germany remains a key focus for we often make our products available through partners. the Group and improvements continue to be made in a The most important distributor markets for the Company number of key business areas to strengthen its approach are Canada, the Czech and Slovak Republics and South Korea. to marketing the products. put into place in 2010 and by the new regulatory environment Germany, the world’s largest immunotherapy market, is the Company’s main market generating approximately 62% of the Company’s net sales in the 12 months ending 30 June Italy 2012, followed by Italy (11%), Switzerland (6%), Austria (5%), Spain (4%) Czech Republic and Slovakia (4% combined), UK and Eire (4% combined) and The Netherlands (3%). The total Italian immunotherapy market is estimated to be worth €55 million in sales per year; although growth is somewhat limited due to negative economic conditions For the year ended 30 June 2012 sales and market share impacting patients and their ability to pay for vaccines. have increased in Austria and Italy with substantial growth in Moreover, the Italian immunotherapy market is dominated the UK and The Netherlands following new product launches. by sublingual products. However, despite these challenges, with a stronger organisation in place, we believe there remains a significant opportunity to continue to grow our business in this important market. Revenue by Country Germany – 62% Italy – 11% UK & Export Market – 9% Spain – 4% Austria – 5% The Netherlands – 3% Switzerland – 6% 20 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com 21 Our markets During the year, we started to launch our products in Argentina, Venezuela, Columbia and Chile, and set up a new marketing operation in Argentina. Spain Austria Total market sales in Spain are estimated to be €60 million per annum, with low-single digit growth during the past year. Growth in this market has been impacted by the country’s economic slowdown. It still remains a large market in terms of volume, with approximately 150,000 Austria is an established market with total market sales of about €18 million per year and our own operation is performing well, with double-digit growth. patients a year estimated to receive immunotherapy. Switzerland Injectable immunotherapy products continue to be the treatment of choice for Spanish physicians in this treatment category. United Kingdom The UK, our home market, is an important, if challenging, marketplace and a potential area of future growth for the The allergy vaccine market in Switzerland is sophisticated and well established, and is worth approximately €12 million per annum. The acquisition of Teomed AG, the Swiss subsidiary, continues to provide a great opportunity to improve earnings and provides an established infrastructure from which to launch Pollinex Quattro in the future. O u r m a r k e t s Group. Whilst there is limited use of allergy vaccines in the UK, this is changing and the Company has been focussed Emerging Markets During the year, we started to launch our products in on expanding the market within the medical community, Argentina, Venezuela, Colombia and Chile, and set up a promoting greater awareness of current and more suitable new marketing operation in Argentina. Despite slow sales treatment options. in these Latin American Markets this year, it is still seen as a promising potential market. The Netherlands For the purposes of the segmental reporting analysis, Central The total market size in The Netherlands is around €40 million a year. Like other European countries, new regulations require Europe represents the markets of Germany, Austria, Netherlands and Switzerland and Southern Europe represents Spain and that only registered products can be sold. This should be to Italy. The Other segment represents the distributor and licensee our advantage as we already have registrations in this market revenues through other worldwide markets including Canada, for our Pollinex products. Czech Republic, Slovakia, South Korea and Latin America. We have a particularly strong presence in Europe with our Germany own established operations in important markets including The most important market for the Group, Germany, Germany, Italy, Spain, Austria and the United Kingdom. is also the single largest immunotherapy market in the Our newer operations in Switzerland and the Netherlands world by value, with annual sales of over €300 million. are developing as anticipated. Currently, the only major In spite of the market stabilising in volume this year it is European market in which we are not yet present is France. still affected by the austerity measures the government In markets where we do not have a direct presence, for allergen therapies. Germany remains a key focus for we often make our products available through partners. the Group and improvements continue to be made in a The most important distributor markets for the Company number of key business areas to strengthen its approach are Canada, the Czech and Slovak Republics and South Korea. to marketing the products. put into place in 2010 and by the new regulatory environment Germany, the world’s largest immunotherapy market, is the Company’s main market generating approximately 62% of the Company’s net sales in the 12 months ending 30 June Italy 2012, followed by Italy (11%), Switzerland (6%), Austria (5%), The total Italian immunotherapy market is estimated to Spain (4%) Czech Republic and Slovakia (4% combined), be worth €55 million in sales per year; although growth UK and Eire (4% combined) and The Netherlands (3%). is somewhat limited due to negative economic conditions For the year ended 30 June 2012 sales and market share impacting patients and their ability to pay for vaccines. have increased in Austria and Italy with substantial growth in Moreover, the Italian immunotherapy market is dominated the UK and The Netherlands following new product launches. by sublingual products. However, despite these challenges, with a stronger organisation in place, we believe there remains a significant opportunity to continue to grow our business in this important market. Revenue by Country Germany – 62% Italy – 11% UK & Export Market – 9% Spain – 4% Austria – 5% The Netherlands – 3% Switzerland – 6% 20 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our markets www.allergytherapeutics.com www.pollinex.com 21 Our products & USA opportunity Injectable vaccines form the largest segment of our vaccines portfolio and are comprised of one key product, Pollinex Quattro, which is our largest and fastest growing product. O u r p r o d u c t s & U S A o p p o r t u n i t y 22 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com 23 Our products & USA opportunity Injectable vaccines form the largest segment of our vaccines portfolio and are comprised of one key product, Pollinex Quattro, which is our largest and fastest growing product. O u r p r o d u c t s & U S A o p p o r t u n i t y 22 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com 23 Our products & USA opportunity Pollinex Quattro, launched in 1999, heralded a transformation in immunotherapy by introducing allergy vaccination with only four injections per course. The majority of our sales are for the treatment of pollen related allergies, particularly for allergies to grasses and trees. Pollinex® Quattro O u r p r o d u c t s & U S A o p p o r t u n i t y Oralvac® Compact Tyrosin TU t.o.p Pollinex® Grasses + Rye Pollinex® Trees (sublingual) The Group sells a wide range of allergy vaccines and as well as various other longer course products. These other The adjuvant effect of MPL in specific immunotherapy anaphylaxis by maintaining blood pressure, increasing the diagnostics. The main sales of the Group are in allergy products trade under different names in different markets (SIT) has been documented in numerous studies and is heart rate, constricting blood vessels and dilating airways. vaccines and we sell both injectable vaccines and sublingual and include Pollinex, TA Mix top and Venomil. seen in its essential role of promoting the switch from The product has been launched in The Netherlands, UK and vaccines. Our vaccines and diagnostics trade under certain a TH2-directed immune response (with IgE induction) Republic of Ireland. brand names, however under each brand name is a product Pollinex Quattro, launched in 1999, heralded a transformation to a TH1-directed immune response. that is produced in many different forms depending upon the in immunotherapy by introducing allergy vaccination with On 23 May 2012 the Company made an announcement specific allergy needs of the patient as determined by the only four injections per course. The short treatment period Our sublingual product is Oralvac Compact. Its dosing regarding Anapen that it had been notified by Lincoln Medical doctor. The majority of our sales are for the treatment of pollen is due to the use of L tyrosine absorbed allergoids, an schedule allows for a more rapid and simpler escalation Limited, the producer of Anapen (adrenaline for injection), related allergies, particularly for allergies to grasses and trees. improved extract allergen that has been modified in order of dosage making treatment more convenient for patients that they are undertaking a voluntary drug recall for all According to the current opinion of expert immunologists, and the innovative adjuvant, monophosphoryl-lipid A (MPL). IgE mediated allergies (type one allergies) are due to An adjuvant is a substance which improves the immune Licensed Products to lower its allergenicity while keeping its immunogenicity and doctors. unexpired units of Anapen in the UK, as a precautionary measure. Lincoln also informed the Company that the UK MHRA had received no reports of defects or adverse events. deregulation of the T helper lymphocyte (TH) cell. Whereas response to an antigen or allergen. MPL is derived from DAP is a product for exclusive use in the diagnosis of type Lincoln Medical is contractually required to reimburse the healthy people develop tolerance to allergens, allergy sufferers a lipopolysaccharide (LPS) which is obtained from the cell I or immediate hypersensitivity to benzylpenicillin and related reasonable costs incurred by the Company in assisting in have a TH2-dominated immune response with increased IgE wall of Salmonella Minnesota R595 using a process of antibiotics (betalactams) by means of cutaneous tests (prick the recall. The recall will impact the Company’s expected and corresponding clinical symptoms. This deregulation of the extraction, purification and detoxification. and intradermal). Allergic reactions to betalactams are the sales for the financial year ending June 2013. The Company immune system can be counteracted efficiently using specific most common cause of severe adverse drug reactions and is working with Lincoln towards re-establishing normal supply. immunotherapy (SIT). By administering high doses of allergen, As a vaccine adjuvant, MPL has been used for many years. the balance between TH1 and TH2 response to the allergen Vaccines with systems containing MPL have been evaluated can be restored. Since SIT was first carried out successfully in various indications such as cervical cancer and malaria by Leonard Noon in 1911, it has become established as the at GlaxoSmithKline. Two vaccines with an adjuvant system only therapy addressing the cause of type one allergies. containing MPL, a hepatitis B vaccine and an HPV vaccine Injectable vaccines form the largest segment of our vaccines respectively - have received broad approval in Europe, the portfolio and are comprised of one key product, Pollinex US, Japan and Canada. These modern, successful vaccines Quattro, which is our largest and fastest growing product, are already widely used. to protect against cervical cancer - Fendrix and Cervarix there is an increasing prevalence in the population (up to 10% of the German population reports an allergy to penicillin). DAP was launched in Italy in May 2011 and in the UK in July 2011. Anapen is an innovative auto-injector containing 150 mcg, 300 mcg or 500 mcg of epinephrine (adrenaline) for the emergency (self) treatment of anaphylaxis. Anaphylaxis is a severe, life-threatening systemic allergic reaction. Adrenaline (epinephrine) is a hormone which combats the effects of How We’re Doing Gross Sales £m 2009 38.6 2010 42.0 2011 43.0 2012 43.8 24 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com 25 Our products & USA opportunity Pollinex Quattro, launched in 1999, heralded a transformation in immunotherapy by introducing allergy vaccination with only four injections per course. The majority of our sales are for the treatment of pollen related allergies, particularly for allergies to grasses and trees. Pollinex® Quattro O u r p r o d u c t s & U S A o p p o r t u n i t y Oralvac® Compact Tyrosin TU t.o.p Pollinex® Grasses + Rye Pollinex® Trees (sublingual) The Group sells a wide range of allergy vaccines and as well as various other longer course products. These other diagnostics. The main sales of the Group are in allergy products trade under different names in different markets The adjuvant effect of MPL in specific immunotherapy (SIT) has been documented in numerous studies and is anaphylaxis by maintaining blood pressure, increasing the heart rate, constricting blood vessels and dilating airways. vaccines and we sell both injectable vaccines and sublingual and include Pollinex, TA Mix top and Venomil. seen in its essential role of promoting the switch from The product has been launched in The Netherlands, UK and vaccines. Our vaccines and diagnostics trade under certain a TH2-directed immune response (with IgE induction) Republic of Ireland. brand names, however under each brand name is a product Pollinex Quattro, launched in 1999, heralded a transformation to a TH1-directed immune response. that is produced in many different forms depending upon the in immunotherapy by introducing allergy vaccination with On 23 May 2012 the Company made an announcement specific allergy needs of the patient as determined by the only four injections per course. The short treatment period Our sublingual product is Oralvac Compact. Its dosing regarding Anapen that it had been notified by Lincoln Medical doctor. The majority of our sales are for the treatment of pollen is due to the use of L tyrosine absorbed allergoids, an schedule allows for a more rapid and simpler escalation Limited, the producer of Anapen (adrenaline for injection), related allergies, particularly for allergies to grasses and trees. improved extract allergen that has been modified in order of dosage making treatment more convenient for patients that they are undertaking a voluntary drug recall for all According to the current opinion of expert immunologists, and the innovative adjuvant, monophosphoryl-lipid A (MPL). IgE mediated allergies (type one allergies) are due to An adjuvant is a substance which improves the immune deregulation of the T helper lymphocyte (TH) cell. Whereas response to an antigen or allergen. MPL is derived from healthy people develop tolerance to allergens, allergy sufferers a lipopolysaccharide (LPS) which is obtained from the cell have a TH2-dominated immune response with increased IgE wall of Salmonella Minnesota R595 using a process of Licensed Products DAP is a product for exclusive use in the diagnosis of type I or immediate hypersensitivity to benzylpenicillin and related antibiotics (betalactams) by means of cutaneous tests (prick to lower its allergenicity while keeping its immunogenicity and doctors. unexpired units of Anapen in the UK, as a precautionary measure. Lincoln also informed the Company that the UK MHRA had received no reports of defects or adverse events. Lincoln Medical is contractually required to reimburse the reasonable costs incurred by the Company in assisting in the recall. The recall will impact the Company’s expected and corresponding clinical symptoms. This deregulation of the extraction, purification and detoxification. and intradermal). Allergic reactions to betalactams are the sales for the financial year ending June 2013. The Company immune system can be counteracted efficiently using specific most common cause of severe adverse drug reactions and is working with Lincoln towards re-establishing normal supply. immunotherapy (SIT). By administering high doses of allergen, As a vaccine adjuvant, MPL has been used for many years. the balance between TH1 and TH2 response to the allergen Vaccines with systems containing MPL have been evaluated can be restored. Since SIT was first carried out successfully in various indications such as cervical cancer and malaria by Leonard Noon in 1911, it has become established as the at GlaxoSmithKline. Two vaccines with an adjuvant system only therapy addressing the cause of type one allergies. containing MPL, a hepatitis B vaccine and an HPV vaccine Injectable vaccines form the largest segment of our vaccines respectively - have received broad approval in Europe, the portfolio and are comprised of one key product, Pollinex US, Japan and Canada. These modern, successful vaccines Quattro, which is our largest and fastest growing product, are already widely used. to protect against cervical cancer - Fendrix and Cervarix there is an increasing prevalence in the population (up to 10% of the German population reports an allergy to penicillin). DAP was launched in Italy in May 2011 and in the UK in July 2011. Anapen is an innovative auto-injector containing 150 mcg, 300 mcg or 500 mcg of epinephrine (adrenaline) for the emergency (self) treatment of anaphylaxis. Anaphylaxis is a severe, life-threatening systemic allergic reaction. Adrenaline (epinephrine) is a hormone which combats the effects of How We’re Doing Gross Sales £m 2009 38.6 2010 42.0 2011 43.0 2012 43.8 24 © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Our products & USA opportunity www.allergytherapeutics.com www.pollinex.com 25 Pollinex Quattro USA opportunity The benefits of immunotherapy are widely accepted by American allergists as being the only disease modifying treatment for allergic rhinitis. P o l l i n e x Q u a t t r o U S A o p p o r t u n i t y With the FDA Clinical hold now lifted on the Company’s by these issues and it has been noted by experts A post marketing study in Germany involving a total of true potential for the American market with an Environmental clinical development programme for Pollinex Quattro Grass, that a faster route to a maintenance dose would see 1,075 patients of which most were followed for one year Exposure Chamber (“EEC”) trial. Allergy Therapeutics can now focus on strategic partnering improvements in patients adhering to treatment.3 but others for two or three years has shown that patients opportunities with the aim of revolutionising treatment of allergy sufferers in the United States. Pollinex Quattro would offer a patient-friendly ultra-short treatment option with just 4 injections. Each injection with 84% of patients experiencing benefit after 1 year’s allergy treatment. treatment and 95% after three years with Pollinex Quattro.4 receive significant improvements in their symptoms Pollinex Quattro holds the promise of truly transforming The market opportunity in the United States is considerable. contains standardised, purified and modified allergen 1. http://www.aaaai.org/about-the-aaaai/newsroom/ The overall cost of treating allergic rhinitis was US$11.2 billion extracts (allergoids) and Monophosphoryl Lipid A (MPL) The benefits of immunotherapy are widely accepted by allergy-statistics.aspx;Soni A.Allergic Rhintis: Trends in in 20051 with an estimated 30-402 million people suffering to improve the therapy The Company has pioneered the American allergists as being the only disease modifying use and expenditures, 2000 - 2005. Statistical brief # 204, with the condition, with a further 25 million children and concept of slow-release depot formulations for allergy treatment for allergic rhinitis.5 adults being diagnosed with hay fever within the last vaccines, improving safety profiles and enhancing efficacy. 12 months (according to the American College of Pollinex Quattro would significantly improve treatment Transforming Treatment Agency for Healthcare Research Quality, 2008 2. Allergies in AmericaTM : A Landmark Survey of Nasal Allergy Sufferers and Providers conducted in 2006. Allergy, Asthma and Immunology) and between 2-4 million options for the American market by providing a short The original G301 Pivotal Phase III study was the largest 3. BioMedical Insights – Assessment of the American market are receiving immunotherapy, which could lead into a course, standardised product. controlled allergy vaccine study ever conducted. The study 4. Zielen S, et al. Poster P243, ACAAI Annual Meeting market for registered immunotherapy vaccines of about US$2 billion. Addressing unmet needs Currently allergy sufferers receiving immunotherapy in the US are treated with long course injection regimes, typically up to 40 injections a year, with native allergens mixed by the allergists themselves which can result in poor patient compliance and low efficacy. The cost of such a large number of injections (possibly up to 100 injections over a 3-5 year treatment course) may be a prohibitive factor. Patient compliance can be affected met its primary efficacy endpoint and demonstrated that 2007, Dallas, Texas, USA Pollinex Quattro has statistically significant clinical benefits 5. Cox and Jacobson. Ann Allergy Asthma Immunol. over placebo. In the prospectively defined patient population 2009;103: 451-460 who fully recorded key outcomes, Pollinex Quattro showed an improvement of 24.3% over placebo (p = 0.0031). A total of 92% of patients completed the study, again showing high patient compliance with a short injection regime. Building on the success of the 1,000 patient G301 trial and the extensive clinical experience of the Pollinex range with over 3.8 million courses administered in Europe, the Company now has the opportunity to further demonstrate Pollinex Quattro’s 26 © Allergy Therapeutics plc Annual Report & Accounts 2012 Pollinex Quattro USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Pollinex Quattro USA opportunity www.allergytherapeutics.com www.pollinex.com 27 P o l l i n e x Q u a t t r o U S A o p p o r t u n i t y Pollinex Quattro USA opportunity The benefits of immunotherapy are widely accepted by American allergists as being the only disease modifying treatment for allergic rhinitis. With the FDA Clinical hold now lifted on the Company’s by these issues and it has been noted by experts A post marketing study in Germany involving a total of true potential for the American market with an Environmental clinical development programme for Pollinex Quattro Grass, that a faster route to a maintenance dose would see 1,075 patients of which most were followed for one year Exposure Chamber (“EEC”) trial. Allergy Therapeutics can now focus on strategic partnering improvements in patients adhering to treatment.3 but others for two or three years has shown that patients opportunities with the aim of revolutionising treatment of allergy sufferers in the United States. Pollinex Quattro would offer a patient-friendly ultra-short treatment option with just 4 injections. Each injection with 84% of patients experiencing benefit after 1 year’s allergy treatment. treatment and 95% after three years with Pollinex Quattro.4 receive significant improvements in their symptoms Pollinex Quattro holds the promise of truly transforming The market opportunity in the United States is considerable. contains standardised, purified and modified allergen 1. http://www.aaaai.org/about-the-aaaai/newsroom/ The overall cost of treating allergic rhinitis was US$11.2 billion extracts (allergoids) and Monophosphoryl Lipid A (MPL) The benefits of immunotherapy are widely accepted by allergy-statistics.aspx;Soni A.Allergic Rhintis: Trends in in 20051 with an estimated 30-402 million people suffering to improve the therapy The Company has pioneered the American allergists as being the only disease modifying use and expenditures, 2000 - 2005. Statistical brief # 204, with the condition, with a further 25 million children and concept of slow-release depot formulations for allergy treatment for allergic rhinitis.5 adults being diagnosed with hay fever within the last vaccines, improving safety profiles and enhancing efficacy. 12 months (according to the American College of Pollinex Quattro would significantly improve treatment Allergy, Asthma and Immunology) and between 2-4 million options for the American market by providing a short Transforming Treatment The original G301 Pivotal Phase III study was the largest Agency for Healthcare Research Quality, 2008 2. Allergies in AmericaTM : A Landmark Survey of Nasal Allergy Sufferers and Providers conducted in 2006. 3. BioMedical Insights – Assessment of the American market are receiving immunotherapy, which could lead into a course, standardised product. controlled allergy vaccine study ever conducted. The study 4. Zielen S, et al. Poster P243, ACAAI Annual Meeting market for registered immunotherapy vaccines of about US$2 billion. Addressing unmet needs Currently allergy sufferers receiving immunotherapy in the US are treated with long course injection regimes, typically up to 40 injections a year, with native allergens mixed by the allergists themselves which can result in poor patient compliance and low efficacy. The cost of such a large number of injections (possibly up to 100 injections over a 3-5 year treatment course) may be a prohibitive factor. Patient compliance can be affected met its primary efficacy endpoint and demonstrated that 2007, Dallas, Texas, USA Pollinex Quattro has statistically significant clinical benefits 5. Cox and Jacobson. Ann Allergy Asthma Immunol. over placebo. In the prospectively defined patient population 2009;103: 451-460 who fully recorded key outcomes, Pollinex Quattro showed an improvement of 24.3% over placebo (p = 0.0031). A total of 92% of patients completed the study, again showing high patient compliance with a short injection regime. Building on the success of the 1,000 patient G301 trial and the extensive clinical experience of the Pollinex range with over 3.8 million courses administered in Europe, the Company now has the opportunity to further demonstrate Pollinex Quattro’s 26 © Allergy Therapeutics plc Annual Report & Accounts 2012 Pollinex Quattro USA opportunity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Pollinex Quattro USA opportunity www.allergytherapeutics.com www.pollinex.com 27 Research & development In the US a highly significant milestone was achieved for the business in the form of the lifting of the clinical hold on the Company’s Pollinex® Quattro Grass programme. R e s e a r c h & d e v e l o p m e n t 28 © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com 29 Research & development In the US a highly significant milestone was achieved for the business in the form of the lifting of the clinical hold on the Company’s Pollinex® Quattro Grass programme. R e s e a r c h & d e v e l o p m e n t 28 © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com 29 Research & development Over the last year the Company has continued to develop additional potential markets in Latin America, Asia and Europe. Great strides have been made in understanding the medical & regulatory requirements in these markets. R e s e a r c h & d e v e l o p m e n t This has been a year of great importance for the Company were raised. The responses were submitted to the PEI in As mentioned in previous annual reports, the Therapeutic these products over the next few years to 2017 and the with several key strategic development goals achieved in November 2011 and the Company is awaiting feedback. Allergen Regulation (introduced by the Paul-Ehrlich Institute Company have therefore begun preparations for clinical trials. the regulatory arena. (PEI), the Regulatory Authority for biological products A Marketing Authorisation Application (MAA) for the Grass in Germany) has changed the regulatory landscape. Over the last year the Company has continued to develop In the US a highly significant milestone was achieved for MATA MPL (0.5ml) product in Switzerland was submitted The Company submitted Marketing Authorisation Applications additional potential markets in Latin America, Asia and Europe. the business in the form of the lifting of the clinical hold on in April 2011 and the questions from Swissmedic were (MAAs) for our key products in December 2010. This has Great strides have been made in understanding the medical the Company’s Pollinex® Quattro Grass programme. In July received in April 2012. Comprehensive and detailed responses begun to focus the portfolio on registered finished products. & regulatory requirements in these markets and to adapt the 2007 the FDA placed a clinical hold on the Company’s US to the questions have been prepared and will be submitted in Although there has been no feedback from the PEI since, portfolio accordingly to supply the appropriate products and clinical development programme due to an adverse event October 2012. additional clinical information will be required on some of supporting information. in a Phase III trial. In August 2012 the FDA lifted the clinical hold on the Pollinex® Quattro Grass IND following the submission of a Complete Response. Having reached agreement with the FDA to use a pollen chamber this now enables the Company to progress with its grass clinical development programme in the US. The Company is now actively seeking a partner for further development and commercialisation of the product in the US. The Company is preparing for due diligence, including detailed programme plans for discussion with potential partners. In June 2011 the Company received the PEI’s review of the Grass MATA MPL 0.5ml application for the MAA, which was submitted in March 2009. The PEI raised a number of questions on the MAA and requested further clarification on several points. Allergy Therapeutics prepared comprehensive responses which it believes have addressed the points that 30 © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com 31 Research & development Over the last year the Company has continued to develop additional potential markets in Latin America, Asia and Europe. Great strides have been made in understanding the medical & regulatory requirements in these markets. R e s e a r c h & d e v e l o p m e n t This has been a year of great importance for the Company were raised. The responses were submitted to the PEI in As mentioned in previous annual reports, the Therapeutic these products over the next few years to 2017 and the with several key strategic development goals achieved in November 2011 and the Company is awaiting feedback. Allergen Regulation (introduced by the Paul-Ehrlich Institute Company have therefore begun preparations for clinical trials. the regulatory arena. (PEI), the Regulatory Authority for biological products A Marketing Authorisation Application (MAA) for the Grass in Germany) has changed the regulatory landscape. Over the last year the Company has continued to develop In the US a highly significant milestone was achieved for MATA MPL (0.5ml) product in Switzerland was submitted The Company submitted Marketing Authorisation Applications additional potential markets in Latin America, Asia and Europe. the business in the form of the lifting of the clinical hold on in April 2011 and the questions from Swissmedic were (MAAs) for our key products in December 2010. This has Great strides have been made in understanding the medical the Company’s Pollinex® Quattro Grass programme. In July received in April 2012. Comprehensive and detailed responses begun to focus the portfolio on registered finished products. & regulatory requirements in these markets and to adapt the 2007 the FDA placed a clinical hold on the Company’s US to the questions have been prepared and will be submitted in Although there has been no feedback from the PEI since, portfolio accordingly to supply the appropriate products and clinical development programme due to an adverse event October 2012. additional clinical information will be required on some of supporting information. in a Phase III trial. In August 2012 the FDA lifted the clinical hold on the Pollinex® Quattro Grass IND following the submission of a Complete Response. Having reached agreement with the FDA to use a pollen chamber this now enables the Company to progress with its grass clinical development programme in the US. The Company is now actively seeking a partner for further development and commercialisation of the product in the US. The Company is preparing for due diligence, including detailed programme plans for discussion with potential partners. In June 2011 the Company received the PEI’s review of the Grass MATA MPL 0.5ml application for the MAA, which was submitted in March 2009. The PEI raised a number of questions on the MAA and requested further clarification on several points. Allergy Therapeutics prepared comprehensive responses which it believes have addressed the points that 30 © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Research & development www.allergytherapeutics.com www.pollinex.com 31 Financial review “The results for the twelve months to 30 June 2012 show a Group operating profit for the third year running of £1.1m (2011: £0.1m).” F i n a n c i a l r e v i e w 32 © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com 33 Financial review “The results for the twelve months to 30 June 2012 show a Group operating profit for the third year running of £1.1m (2011: £0.1m).” F i n a n c i a l r e v i e w 32 © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com 33 Financial review “Spending on capital maintenance items was lower than the previous year with the significant investment required in prior years now completed.” Ian Postlethwaite Finance Director 14 September 2012 F i n a n c i a l r e v i e w The following section should be read in conjunction with Gross sales for the financial year for the Group overall were Operating Expenses year increased to £14.6m compared to £2.1m last year. the financial statements and related notes on pages 40 to 95. £43.8m (2011: £43.0m), before the statutory sales rebate in Despite challenging market conditions, the Group maintained As a result of favourable working capital movements and Overview of the business model We are a specialist fully integrated pharmaceutical company, Germany of £2.5m (2011: £1.4m). Gross sales were helped by a stronger Euro to GBP exchange rate over the year. its expenditure on sales and marketing. Lower regulatory reduced overheads, the Group generated net cash from costs associated with the TAV project in Germany plus operations of £2.9m (2011: outflow £1.7m). foreign exchange gains from hedges helped lower focused on the allergy vaccine sector. We concentrate The influence of the public spending restraints in Germany administration costs. Moreover the Income Statement Financing on specialist products used by allergists, dermatologists, saw the net sales fall slightly to £41.3m (2011: £41.6m). benefited from the fair valuation of exchange hedges, The successful fundraising that took place in April this year paediatricians and Ear Nose and Throat (ENT) doctors Net sales in the UK and Ireland benefited from the inclusion creating an asset at the year end, and the release of the raised £13.3m through a combination of convertible debt who treat people for Allergic Rhinitis. of Anapen this year, increasing during the financial year to £1.5m (2011: £0.7m). Italy’s net sales increased to £4.4m prior year fair valuation liability; together contributing to (£4.0m) and equity (£9.3m) with CFR International acting as a gain of £1.3m (2011: loss £0.8m). The results for the twelve months to 30 June 2012 show (2011: £3.9m), which was a strong result given the market a Group operating profit for the third year running of £1.1m fell by 10% during the year. Austria showed strong growth Tax (2011: £0.1m). The improvement in the performance is in net sales to £1.9m. (2011: £1.3m). By contrast the Group’s The receipt of an R&D tax credit in the UK of £0.6m, relating The Group utilised the new facility for the first time in mainly due to controlling overhead expenditure and sales in Spain declined marginally during the year. Sales in to previous financial years’ R&D helped offset tax charges June 2012. favourable foreign exchange movements. the Latin American market were disappointing for the year from some of the subsidiaries, resulting in a net credit to owing to a number of registration delays. the income statement of £0.2m. Revenue The Group has continued to grow its revenues in markets outside Germany and therefore the reliance of the Group Gross Profit Manufacturing overheads decreased against the prior year on Germany has continued to decrease, with 62% of by £0.3m. However, there was a slight increase in the cost revenue originating in the territory compared with last of goods due to movements in stock against the prior year. year’s 66%. In addition to the sale of allergy vaccines the Gross profit decreased by 2.5% to £27.6m (2011: £28.3m) Group has also continued to increase its revenue from generating a gross margin of 67% (2011: 68%). in-licensed products, contributing £1.5m this year (2011: £0.4m). However, the key product is still Pollinex® Quattro, which now accounts for 50% of sales. Balance Sheet Spending on capital maintenance items was lower than the previous year with the significant investment required in prior years now completed. Intangible assets increased after the capitalisation of a milestone payment to Lincoln Medical for the rights to Anapen in the UK and Republic of Ireland. Total current assets fell to £13.0m (2011:£14.9m) mainly due Ian Postlethwaite to a German debtor in last year’s accounts relating to a rebate Finance Director repayment. Due to the equity fundraising, net assets for the 14 September 2012 the cornerstone investor. The additional liquidity has enabled the Group to reduce its financing costs by repaying the bank loan facility and replacing it with a seasonal overdraft facility. The Directors believe that the Group will have adequate facilities for the future and accordingly they continue to adopt the going concern basis in preparing the full year results. 34 © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com 35 “Spending on capital maintenance items was lower than the previous year with the significant investment required in prior Financial review years now completed.” Ian Postlethwaite Finance Director 14 September 2012 F i n a n c i a l r e v i e w Operating Expenses Despite challenging market conditions, the Group maintained year increased to £14.6m compared to £2.1m last year. As a result of favourable working capital movements and its expenditure on sales and marketing. Lower regulatory reduced overheads, the Group generated net cash from costs associated with the TAV project in Germany plus operations of £2.9m (2011: outflow £1.7m). foreign exchange gains from hedges helped lower administration costs. Moreover the Income Statement benefited from the fair valuation of exchange hedges, Financing The successful fundraising that took place in April this year paediatricians and Ear Nose and Throat (ENT) doctors Net sales in the UK and Ireland benefited from the inclusion creating an asset at the year end, and the release of the raised £13.3m through a combination of convertible debt who treat people for Allergic Rhinitis. prior year fair valuation liability; together contributing to (£4.0m) and equity (£9.3m) with CFR International acting as a gain of £1.3m (2011: loss £0.8m). Tax The receipt of an R&D tax credit in the UK of £0.6m, relating the cornerstone investor. The additional liquidity has enabled the Group to reduce its financing costs by repaying the bank loan facility and replacing it with a seasonal overdraft facility. The Group utilised the new facility for the first time in mainly due to controlling overhead expenditure and sales in Spain declined marginally during the year. Sales in to previous financial years’ R&D helped offset tax charges June 2012. favourable foreign exchange movements. the Latin American market were disappointing for the year from some of the subsidiaries, resulting in a net credit to owing to a number of registration delays. the income statement of £0.2m. Balance Sheet Spending on capital maintenance items was lower than the previous year with the significant investment required in prior years now completed. Intangible assets increased after the capitalisation of a milestone payment to Lincoln Medical for the rights to Anapen in the UK and Republic of Ireland. The Directors believe that the Group will have adequate facilities for the future and accordingly they continue to adopt the going concern basis in preparing the full year results. Total current assets fell to £13.0m (2011:£14.9m) mainly due to a German debtor in last year’s accounts relating to a rebate Ian Postlethwaite Finance Director repayment. Due to the equity fundraising, net assets for the 14 September 2012 The following section should be read in conjunction with Gross sales for the financial year for the Group overall were the financial statements and related notes on pages 40 to 95. £43.8m (2011: £43.0m), before the statutory sales rebate in Overview of the business model We are a specialist fully integrated pharmaceutical company, Germany of £2.5m (2011: £1.4m). Gross sales were helped by a stronger Euro to GBP exchange rate over the year. focused on the allergy vaccine sector. We concentrate The influence of the public spending restraints in Germany on specialist products used by allergists, dermatologists, saw the net sales fall slightly to £41.3m (2011: £41.6m). The results for the twelve months to 30 June 2012 show (2011: £3.9m), which was a strong result given the market a Group operating profit for the third year running of £1.1m fell by 10% during the year. Austria showed strong growth (2011: £0.1m). The improvement in the performance is in net sales to £1.9m. (2011: £1.3m). By contrast the Group’s of Anapen this year, increasing during the financial year to £1.5m (2011: £0.7m). Italy’s net sales increased to £4.4m Revenue The Group has continued to grow its revenues in markets Gross Profit outside Germany and therefore the reliance of the Group Manufacturing overheads decreased against the prior year on Germany has continued to decrease, with 62% of by £0.3m. However, there was a slight increase in the cost revenue originating in the territory compared with last of goods due to movements in stock against the prior year. year’s 66%. In addition to the sale of allergy vaccines the Gross profit decreased by 2.5% to £27.6m (2011: £28.3m) Group has also continued to increase its revenue from generating a gross margin of 67% (2011: 68%). in-licensed products, contributing £1.5m this year (2011: £0.4m). However, the key product is still Pollinex® Quattro, which now accounts for 50% of sales. 34 © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Financial review www.allergytherapeutics.com www.pollinex.com 35 Meet the Board M e e t t h e B o a r d 36 © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com 37 Meet the Board M e e t t h e B o a r d 36 © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com 37 Ian Postlethwaite Finance Director (49) Ian Postlethwaite joined Allergy Therapeutics in April 2002 as Finance Director. Prior to this he worked for Ellerman Investments (1997 - 2002), a UK private equity house, undertaking the roles of Chief Alejandro Weinstein Jr Non-Executive Director (54) Alejandro Weinstein Jr. is CEO of CFR Pharmaceuticals, Chile. CFR Pharmaceuticals was listed on the Santiago Stock Exchange in 2010, with a presence currently in 17 countries concentrated in South America. He is responsible M e e t t h e B o a r d Executive Officer with AFS, one of the largest independent for the entire Weinstein family group of pharmaceutical finance houses in the UK, and Finance Director with a number companies, whose origins can be traced back to 1922. of successful start-up technology companies. Previously he held senior finance positions with Ericsson, from 1994 - 1997, Alejandro has been active in developing and managing and Philips Electronics from 1989-1994. He is a Fellow of several businesses and start-ups in the pharmaceutical the Chartered Association of Certified Accountants and is industry and the healthcare sector, including Genomika a non-executive director of Shoreham Port Trust. Foundation, a stem cell research organisation; Biomedical Research Consortium, a joint venture between a biotech As Finance Director, Ian is responsible for Group financial R&D Company and a university; Vidacel and Banco de reporting and control, tax, finance systems and internal audit. Vida, public and private stem cell banks in Chile; and Ian is also the Company Secretary, a position he has held several other joint ventures with local and foreign R&D since 2004. companies. Alejandro has a BA, is a Certified Public Accountant and participated in the Owner/President Management Program (OPM) at Harvard Business School. Alejandro sits on the Nomination Committee. Stephen Smith Non-Executive Director (59) Stephen Smith is a Chartered Management Accountant, Fellow of the Association of Corporate Treasurers and Member of the Institute for Turnaround. Since 1995, he has operated as an independent executive, Non- Thomas Lander, M.D. Non-Executive Director (59) Dr. Thomas Lander, M.D. is board certified in internal medicine and diabetology and, moreover, has a strong scientific background in oncology and immunology with a special emphasis on immunotherapy. as Executive Vice President, Global Clinical R&D and Chief Medical Officer in 2003. In 2006 he made a move to the biotech industry as managing director of CureVac GmbH, Tuebingen. Since 2009, Dr. Lander has been working as a strategic consultant and also a non-executive director for several European pharmaceuticals. Thomas sits on the Remuneration Committee. Peter Jensen Non-Executive Chairman (61) Appointed to the Board in October 2010 and appointed Non-E xecutive Chairman on 1 January 2011. As Non-Executive Chairman, Peter is responsible for leadership of the Board by ensuring Board 2011. Manuel Llobet Chief Executive Officer (48) Manuel Llobet joined the Group in July 2009 following the successful refinancing in which Azure Ventures l imited was the main investor. Prior to this appointment, Manuel was the Principal Consultant effectiveness, good corporate governance and effective for Biohealth LLC and CEO of International Operations of communication with shareholders. the Weinstein family’s group of companies. Manuel was responsible for international development of the Weinstein Peter held a number of senior roles in his 21 years with family’s group of pharmaceutical companies in 20 countries. SmithKline-Beecham. Between 1994 and 1998 he was Executive Director and interim manager (CRO/CEO/COO/FD) on an international basis. Up to 1995 Stephen held various senior financial positions in UK based international public companies including 6 years as Group Treasurer of The Rank Chairman of Consumer Healthcare Europe and between Mr Llobet has over ten years’ experience working in the Organisation and 3 years as Group Finance Director of a He trained at the Technical University and the Institute for 1998 and 2001 he held the position of President of pharmaceutical industry, primarily in South America, and has quoted hotel company. Worldwide Supply Operations, based in Philadelphia. served as Executive Director of Corporación Drokasa where Immunology, Munich, Germany. He has spent more than 25 years in senior executive positions in R&D with the he was responsible for a US$25 million AAA-rated bond issue Stephen chairs the Audit and Remuneration Committees, pharmaceutical industry including Boehringer Ingelheim, Since leaving the Group at the time of the merger with Glaxo, to finance the group’s expansion plans; CEO of Laboratorios is a member of the Nomination Committee which he chaired Novo Nordisk, Bristol-Myers-Squibb and Glaxo Wellcome Peter has held a number of non-executive director and chairman Andrómaco, where he led the Group to an IPO on the Santiago until 1 January 2011 and is the Senior Non-Executive Director. (GlaxoSmithKline) before joining Merck KGaA (Merck Serono) roles for various public and private companies. These include Stock Exchange; and Business Development Manager for Domino Printing Sciences plc, Glenmorangie plc, Genetix Group Laboratorio Chile. Manuel participated in the Executive Program plc, Celsis International plc and Victoria plc. at the Graduate Business School of Stanford University and In addition to his role at Allergy Therapeutics, Peter is currently Manuel also has degrees in Industrial Business Management Chairman of Nottingham Racecourse, Screendragon Limited, and Chemical Engineering from Universitat Ramon Llull in has an MBA from IESE, Universidad de Navarra in Barcelona. The Home of Horseracing Trust Limited and The British Barcelona. Sporting Art Trust and is a director of The Osborne Studio Gallery Limited. As Chief Executive Officer, Manuel is responsible for the executive management of Group operations, investor relations, Peter chairs the Nomination Committee and is also a member and implementation of the Board’s collective decisions of the Audit Committee. overseeing all operational aspects of the Group and directing the long-term strategy. 38 © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com 39 Ian Postlethwaite Finance Director (49) Ian Postlethwaite joined Allergy Therapeutics in April 2002 as Finance Director. Prior to this he worked for Ellerman Investments (1997 - 2002), a UK private equity house, undertaking the roles of Chief Alejandro Weinstein Jr Non-Executive Director (54) Alejandro Weinstein Jr. is CEO of CFR Pharmaceuticals, Chile. CFR Pharmaceuticals was listed on the Santiago Stock Exchange in 2010, with a presence currently in 17 countries concentrated in South America. He is responsible Executive Officer with AFS, one of the largest independent for the entire Weinstein family group of pharmaceutical finance houses in the UK, and Finance Director with a number companies, whose origins can be traced back to 1922. of successful start-up technology companies. Previously he held senior finance positions with Ericsson, from 1994 - 1997, Alejandro has been active in developing and managing and Philips Electronics from 1989-1994. He is a Fellow of several businesses and start-ups in the pharmaceutical the Chartered Association of Certified Accountants and is industry and the healthcare sector, including Genomika a non-executive director of Shoreham Port Trust. Foundation, a stem cell research organisation; Biomedical Research Consortium, a joint venture between a biotech As Finance Director, Ian is responsible for Group financial R&D Company and a university; Vidacel and Banco de reporting and control, tax, finance systems and internal audit. Vida, public and private stem cell banks in Chile; and Ian is also the Company Secretary, a position he has held several other joint ventures with local and foreign R&D M e e t t h e B o a r d Peter Jensen Non-Executive Chairman (61) Appointed to the Board in October 2010 and appointed Non-E xecutive Chairman on 1 January 2011. As Non-Executive Chairman, Peter is responsible for leadership of the Board by ensuring Board 2011. Manuel Llobet Chief Executive Officer (48) Manuel Llobet joined the Group in July 2009 following the successful refinancing in which Azure Ventures l imited was the main investor. Prior to this appointment, Manuel was the Principal Consultant effectiveness, good corporate governance and effective for Biohealth LLC and CEO of International Operations of communication with shareholders. the Weinstein family’s group of companies. Manuel was responsible for international development of the Weinstein Peter held a number of senior roles in his 21 years with family’s group of pharmaceutical companies in 20 countries. SmithKline-Beecham. Between 1994 and 1998 he was Chairman of Consumer Healthcare Europe and between Mr Llobet has over ten years’ experience working in the roles for various public and private companies. These include Stock Exchange; and Business Development Manager for Domino Printing Sciences plc, Glenmorangie plc, Genetix Group Laboratorio Chile. Manuel participated in the Executive Program plc, Celsis International plc and Victoria plc. at the Graduate Business School of Stanford University and In addition to his role at Allergy Therapeutics, Peter is currently Manuel also has degrees in Industrial Business Management Chairman of Nottingham Racecourse, Screendragon Limited, and Chemical Engineering from Universitat Ramon Llull in has an MBA from IESE, Universidad de Navarra in Barcelona. The Home of Horseracing Trust Limited and The British Barcelona. Sporting Art Trust and is a director of The Osborne Studio Gallery Limited. Peter chairs the Nomination Committee and is also a member and implementation of the Board’s collective decisions of the Audit Committee. overseeing all operational aspects of the Group and directing the long-term strategy. As Chief Executive Officer, Manuel is responsible for the executive management of Group operations, investor relations, since 2004. Stephen Smith Non-Executive Director (59) Stephen Smith is a Chartered Management Accountant, Fellow of the Association of Corporate Treasurers and Member of the Institute for Turnaround. Since 1995, he has operated as an independent executive, Non- Executive Director and interim manager (CRO/CEO/COO/FD) on an international basis. Up to 1995 Stephen held various senior financial positions in UK based international public companies including 6 years as Group Treasurer of The Rank Organisation and 3 years as Group Finance Director of a 1998 and 2001 he held the position of President of pharmaceutical industry, primarily in South America, and has quoted hotel company. Worldwide Supply Operations, based in Philadelphia. served as Executive Director of Corporación Drokasa where companies. Alejandro has a BA, is a Certified Public Accountant and participated in the Owner/President Management Program (OPM) at Harvard Business School. Alejandro sits on the Nomination Committee. Thomas Lander, M.D. Non-Executive Director (59) Dr. Thomas Lander, M.D. is board certified in internal medicine and diabetology and, moreover, has a strong scientific background in oncology and immunology with a special emphasis on immunotherapy. He trained at the Technical University and the Institute for Immunology, Munich, Germany. He has spent more than 25 years in senior executive positions in R&D with the Since leaving the Group at the time of the merger with Glaxo, to finance the group’s expansion plans; CEO of Laboratorios is a member of the Nomination Committee which he chaired Novo Nordisk, Bristol-Myers-Squibb and Glaxo Wellcome Peter has held a number of non-executive director and chairman Andrómaco, where he led the Group to an IPO on the Santiago until 1 January 2011 and is the Senior Non-Executive Director. (GlaxoSmithKline) before joining Merck KGaA (Merck Serono) he was responsible for a US$25 million AAA-rated bond issue Stephen chairs the Audit and Remuneration Committees, pharmaceutical industry including Boehringer Ingelheim, as Executive Vice President, Global Clinical R&D and Chief Medical Officer in 2003. In 2006 he made a move to the biotech industry as managing director of CureVac GmbH, Tuebingen. Since 2009, Dr. Lander has been working as a strategic consultant and also a non-executive director for several European pharmaceuticals. Thomas sits on the Remuneration Committee. 38 © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Meet the Board www.allergytherapeutics.com www.pollinex.com 39 Directors’ report The Directors present their annual report and the audited financial statements for the 12 months ended 30 June 2012. The financial statements are for Allergy Therapeutics plc (the “Company”) and its subsidiary companies (together, the “Group”). D i r e c t o r s ’ r e p o r t 40 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 41 Directors’ report The Directors present their annual report and the audited financial statements for the 12 months ended 30 June 2012. The financial statements are for Allergy Therapeutics plc (the “Company”) and its subsidiary companies (together, the “Group”). D i r e c t o r s ’ r e p o r t 40 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 41 Directors’ report commercialisation of some of it products. The Group has pharmaceutical products and safety data making it more internal and external patent experts. Internal controls are in onerous to obtain regulatory approval. Compliance systems The Directors present their annual report and the audited financial Staff turnover, including redundancies and temporary staff, place to avoid disclosure of patentable material and to protect are in place to ensure all clinical, manufacturing and marketing statements for the 12 months ended 30 June 2012. The financial in the UK during the year was 20.3% (2011: 24.1%), existing patents. Arrangements are also in place to notify the activities comply with regulations in the EU and other territories. statements are for Allergy Therapeutics plc (the “Company”) and compared to an average UK staff turnover rate of 12.4% Group of any infringements of our intellectual property which Standard operating procedures are maintained to ensure its subsidiary companies (together, the “Group”). (2011: 12.4%), (data supplied by the Chartered Institute of it would defend robustly. Principal activities The Group is engaged in the development, manufacture, Personnel and Development). Excluding redundancies and temporary staff, the turnover rate was 9.7% (2011: 9.2%). Economic risks A high level of risk is attached to the research, development possible to contribute to trends in regulatory thinking. marketing and sale of a range of pharmaceutical vaccine A more detailed review of development and performance and commercialisation of innovative drugs. The Group ensures products designed for the immunological treatment of of the Group, including important events, progress during that business cases are scrutinised before Board approval and Financial risk management objectives and policies the allergic condition and also licenses in related products. the year, the financial performance during the year and that any increases in costs are justified. Key suppliers may Note 24 in the Notes to the Financial statements gives Vaccinations take the form of allergen-specific, named- likely future developments, can be found in the Chairman’s be unable to execute contractual requirements that hamper details of the Group’s objectives and policies for risk patient-specific and standard products in injectable and statement on page 8, the Chief Executive Officer’s review product development and/or the route to markets, but the management of financial instruments. sublingual presentations. The business is headquartered on pages 12 to 17 and the Financial review on pages 32 to 35 Group maintains appropriate measures to protect its supply in Worthing, West Sussex, where development and and are incorporated in this report by reference. chains. The Group may be unable to attract partners Development and performance of the Group’s business compliance with good manufacturing practice. The Group maintains constant awareness of new regulations and engages with key Regulatory Authorities whenever manufacturing is based, with sales and marketing subsidiaries in Germany, Austria, Italy, Spain, The Netherlands, Switzerland and Argentina and representative offices in Poland and the Slovak Republic. Results The profit for the year after taxation was £0.8m (2011: loss £2.7m). The results for the year are set out on page 34 Description of the principal risks and uncertainties facing the Group In common with many pharmaceutical companies the Group faces a number of risks and uncertainties. Internal controls are in place to help identify, manage and mitigate these risks. The main risks have been identified as follows: or licensees on favourable terms or recruit the right staff to during the financial year help develop and market its products. Approximately 62% of For a full review of development and performance of the Group sales are made in Germany and therefore Group results Group during the financial year, please refer to the Chief are sensitive to German legislation and government policies, Executive Officer’s review on pages 12 to 17 and the and performance of the German market. To mitigate this risk, Financial review on pages 32 to 35. the Group intends to expand its revenue outside Germany. Pharmaceutical products are subject to far greater controls The implementation of commercial and marketing initiatives Position of the Group’s business at the end of the year and are dealt with in more detail in the Financial review. Risk that the Group is unable to provide effective on price in certain markets than other products in the across all territories has helped to maintain and strengthen the Business review The purpose of this business review is to inform members commercially successful products Continued development of viable new products and their successful registration and marketing is key to the success marketplace. Some governments intervene directly in setting Group. Infrastructure setup in Latin America will provide for price levels and rebates paid into public sick funds, especially growth opportunities beyond the current European focus. with an increasing aged population in developed countries. of the Group and help them to assess the Group’s of the Group and is a costly and lengthy process. Rationale The Group cannot accurately predict when, where and how Main trends and factors likely to affect the future performance during the year, through financial and non- for new product development may indicate potential; such controls and restrictions may be altered, either to its development, performance and position of the Group’s financial activities, outlining the trends and factors which however following significant investment there is no benefit or detriment, but it does conduct regular reviews business are likely to influence future developments. A review of guarantee that a product will be successful. Board approval of pricing and reimbursement levels and assessments of Allergy remains a fast growing market with largely unmet development and performance of the Group, including is sought for all development projects and business cases. healthcare reforms on pricing. important events, progress during the year, the financial performance during the year and likely future developments, A key challenge facing the Group with respect to the Financial risks market needs in many countries. The allergy “epidemic” continues to grow and it is increasingly recognised that for many people suffering from hay-fever, it is far from being a can be found in the Chairman’s statement on page 8, recent lifting of the clinical hold for Pollinex Quattro Adequate funding may not be available to the Group, either trivial matter. There are currently few competitors in the niche the Chief Executive Officer’s review on pages 12 to 17 Grass in the US is securing a partner to help develop through reserves or external partners for the advancement market in which the Group operates. The Board is confident and the Financial review on pages 32 to 35 and are and commercialise it in the US. incorporated in this report by reference. of clinical trials, manufacturing and marketing. Failure to of achieving registration within Europe for Pollinex Quattro obtain further funding may lead to postponement or Grass and expects further expansion of product sales in the Fair review of the Group’s business and Key Performance Indicators The management consider the Key Performance Indicators (KPI’s) of the business to be revenue, operating profit, EBITDA, net cash generated and staff turnover. Revenue in the year was £41.3m compared to £41.6m Product liability risk Despite extensive product testing prior to market launch, products may produce unanticipated adverse side effects that may hinder their marketability. The Group may be insufficiently covered for any potential litigation which in some cases can potentially be open-ended. The Group’s manufacturing facilities and those of some of its suppliers are subject to regulatory requirements and there is a risk that such cancellation of programmes. The Board actively reviews Emerging Markets. the financial requirements of the Group on a regular basis. Environmental matters A majority of the Group’s sales are denominated in Euros The Board is committed to minimising the Group’s impact on whilst the manufacturing and most corporate administration the environment and ensuring compliance with environmental costs are in the UK and therefore the Group is exposed to legislation. The Board considers that its activities have a low volatility in exchange rate fluctuations. The Group monitors environmental impact. The Group strives to ensure that all exchange rates regularly and implements hedges to mitigate emissions including the disposal of gaseous, liquid and solid in the previous year, a reduction of less than 1%. facilities may not comply with such requirements. The Group such risks. maintains product liability insurance and ensures systems waste products are controlled in accordance with applicable legislation and regulations. Disposal of hazardous waste is The operating profit was £1.1m (2011: £0.1m), the increase and processes relating to the manufacture of its products are Clinical and regulatory handled by specialist agencies. being a consequence of effective cost control measures and compliant and regularly reviewed. It has a pharmacovigilance The Group operates in a highly regulated environment for the exchange gains during the year. team in place to monitor and address any safety issues arising. testing, manufacture and supply of its products. Compliance Employees EBITDA for the year was £3.0m (2011: £1.8m) including a gain in the current year from the fair valuation of foreign exchange Intellectual property risk Group patents may be challenged at any time and any with clinical and regulatory requirements within the EU affects The Group currently employs over 365 people in Europe not only the cost of product development and resource use, and Latin America and is committed to achieving equality but also the time required to comply. Increased regulation may of opportunity in all employment practices. A thorough review hedge contracts of £0.5m (2011: loss £0.8m). unsuccessful defence may cause the Group to lose protection require products to be amended to comply with regulations of all employees is performed annually to identify and promote Net cash generated by operations for the year was an inflow and sales. The Group is reliant on some intellectual property and/or increasing costs. Regulatory authorities such as encouraged and sought. Staff are motivated by performance of £2.9m (2011: outflow £1.7m). owned by external stakeholders that, if lost, could hinder the the FDA are increasingly focussed on the benefit/risk of related incentives, which help to attract and retain the right for its products and subsequently affect further development and/or products have to be withdrawn, reducing revenues areas that require development and growth; feedback is 42 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 43 Principal activities The Group is engaged in the development, manufacture, Personnel and Development). Excluding redundancies and temporary staff, the turnover rate was 9.7% (2011: 9.2%). marketing and sale of a range of pharmaceutical vaccine A more detailed review of development and performance products designed for the immunological treatment of of the Group, including important events, progress during the allergic condition and also licenses in related products. the year, the financial performance during the year and Directors’ report commercialisation of some of it products. The Group has pharmaceutical products and safety data making it more internal and external patent experts. Internal controls are in onerous to obtain regulatory approval. Compliance systems The Directors present their annual report and the audited financial Staff turnover, including redundancies and temporary staff, place to avoid disclosure of patentable material and to protect are in place to ensure all clinical, manufacturing and marketing statements for the 12 months ended 30 June 2012. The financial in the UK during the year was 20.3% (2011: 24.1%), existing patents. Arrangements are also in place to notify the activities comply with regulations in the EU and other territories. statements are for Allergy Therapeutics plc (the “Company”) and compared to an average UK staff turnover rate of 12.4% Group of any infringements of our intellectual property which Standard operating procedures are maintained to ensure its subsidiary companies (together, the “Group”). (2011: 12.4%), (data supplied by the Chartered Institute of it would defend robustly. compliance with good manufacturing practice. The Group maintains constant awareness of new regulations and Economic risks A high level of risk is attached to the research, development engages with key Regulatory Authorities whenever possible to contribute to trends in regulatory thinking. and commercialisation of innovative drugs. The Group ensures that business cases are scrutinised before Board approval and that any increases in costs are justified. Key suppliers may Financial risk management objectives and policies Note 24 in the Notes to the Financial statements gives Results The profit for the year after taxation was £0.8m (2011: The main risks have been identified as follows: loss £2.7m). The results for the year are set out on page 34 and are dealt with in more detail in the Financial review. Risk that the Group is unable to provide effective Vaccinations take the form of allergen-specific, named- likely future developments, can be found in the Chairman’s be unable to execute contractual requirements that hamper details of the Group’s objectives and policies for risk patient-specific and standard products in injectable and statement on page 8, the Chief Executive Officer’s review product development and/or the route to markets, but the management of financial instruments. sublingual presentations. The business is headquartered on pages 12 to 17 and the Financial review on pages 32 to 35 Group maintains appropriate measures to protect its supply in Worthing, West Sussex, where development and and are incorporated in this report by reference. manufacturing is based, with sales and marketing subsidiaries in Germany, Austria, Italy, Spain, Description of the principal risks and The Netherlands, Switzerland and Argentina and uncertainties facing the Group chains. The Group may be unable to attract partners Development and performance of the Group’s business or licensees on favourable terms or recruit the right staff to help develop and market its products. Approximately 62% of during the financial year For a full review of development and performance of the Group sales are made in Germany and therefore Group results Group during the financial year, please refer to the Chief representative offices in Poland and the Slovak Republic. In common with many pharmaceutical companies the Group are sensitive to German legislation and government policies, Executive Officer’s review on pages 12 to 17 and the faces a number of risks and uncertainties. Internal controls are in place to help identify, manage and mitigate these risks. and performance of the German market. To mitigate this risk, Financial review on pages 32 to 35. the Group intends to expand its revenue outside Germany. Business review Continued development of viable new products and their price levels and rebates paid into public sick funds, especially growth opportunities beyond the current European focus. The purpose of this business review is to inform members successful registration and marketing is key to the success with an increasing aged population in developed countries. of the Group and help them to assess the Group’s of the Group and is a costly and lengthy process. Rationale The Group cannot accurately predict when, where and how Main trends and factors likely to affect the future performance during the year, through financial and non- for new product development may indicate potential; such controls and restrictions may be altered, either to its development, performance and position of the Group’s commercially successful products marketplace. Some governments intervene directly in setting Group. Infrastructure setup in Latin America will provide for financial activities, outlining the trends and factors which however following significant investment there is no are likely to influence future developments. A review of guarantee that a product will be successful. Board approval benefit or detriment, but it does conduct regular reviews of pricing and reimbursement levels and assessments of development and performance of the Group, including is sought for all development projects and business cases. healthcare reforms on pricing. important events, progress during the year, the financial performance during the year and likely future developments, A key challenge facing the Group with respect to the can be found in the Chairman’s statement on page 8, recent lifting of the clinical hold for Pollinex Quattro Financial risks Adequate funding may not be available to the Group, either business Allergy remains a fast growing market with largely unmet market needs in many countries. The allergy “epidemic” continues to grow and it is increasingly recognised that for many people suffering from hay-fever, it is far from being a trivial matter. There are currently few competitors in the niche the Chief Executive Officer’s review on pages 12 to 17 Grass in the US is securing a partner to help develop through reserves or external partners for the advancement market in which the Group operates. The Board is confident Pharmaceutical products are subject to far greater controls on price in certain markets than other products in the Position of the Group’s business at the end of the year The implementation of commercial and marketing initiatives across all territories has helped to maintain and strengthen the of clinical trials, manufacturing and marketing. Failure to of achieving registration within Europe for Pollinex Quattro obtain further funding may lead to postponement or Grass and expects further expansion of product sales in the cancellation of programmes. The Board actively reviews Emerging Markets. the financial requirements of the Group on a regular basis. in the previous year, a reduction of less than 1%. facilities may not comply with such requirements. The Group such risks. A majority of the Group’s sales are denominated in Euros whilst the manufacturing and most corporate administration costs are in the UK and therefore the Group is exposed to volatility in exchange rate fluctuations. The Group monitors exchange rates regularly and implements hedges to mitigate Clinical and regulatory The Group operates in a highly regulated environment for the testing, manufacture and supply of its products. Compliance with clinical and regulatory requirements within the EU affects Environmental matters The Board is committed to minimising the Group’s impact on the environment and ensuring compliance with environmental legislation. The Board considers that its activities have a low environmental impact. The Group strives to ensure that all emissions including the disposal of gaseous, liquid and solid waste products are controlled in accordance with applicable legislation and regulations. Disposal of hazardous waste is handled by specialist agencies. Employees The Group currently employs over 365 people in Europe EBITDA for the year was £3.0m (2011: £1.8m) including a gain Intellectual property risk not only the cost of product development and resource use, and Latin America and is committed to achieving equality in the current year from the fair valuation of foreign exchange Group patents may be challenged at any time and any but also the time required to comply. Increased regulation may of opportunity in all employment practices. A thorough review hedge contracts of £0.5m (2011: loss £0.8m). unsuccessful defence may cause the Group to lose protection for its products and subsequently affect further development require products to be amended to comply with regulations and/or products have to be withdrawn, reducing revenues of all employees is performed annually to identify and promote areas that require development and growth; feedback is Net cash generated by operations for the year was an inflow and sales. The Group is reliant on some intellectual property and/or increasing costs. Regulatory authorities such as encouraged and sought. Staff are motivated by performance of £2.9m (2011: outflow £1.7m). owned by external stakeholders that, if lost, could hinder the the FDA are increasingly focussed on the benefit/risk of related incentives, which help to attract and retain the right and the Financial review on pages 32 to 35 and are and commercialise it in the US. incorporated in this report by reference. Fair review of the Group’s business and Key Performance Indicators Product liability risk Despite extensive product testing prior to market launch, products may produce unanticipated adverse side effects The management consider the Key Performance Indicators that may hinder their marketability. The Group may be (KPI’s) of the business to be revenue, operating profit, insufficiently covered for any potential litigation which in EBITDA, net cash generated and staff turnover. some cases can potentially be open-ended. The Group’s Revenue in the year was £41.3m compared to £41.6m subject to regulatory requirements and there is a risk that such manufacturing facilities and those of some of its suppliers are The operating profit was £1.1m (2011: £0.1m), the increase and processes relating to the manufacture of its products are being a consequence of effective cost control measures and compliant and regularly reviewed. It has a pharmacovigilance exchange gains during the year. team in place to monitor and address any safety issues arising. maintains product liability insurance and ensures systems 42 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 43 people, and are encouraged to achieve business targets staff and potential staff irrespective of their race, through market-rate pay, discretionary performance based creed, colour, sexual orientation, nationality, ethnic The Directors who held office at the end of the financial year had the following interests in the ordinary shares bonuses and long term incentive programmes. The Board origin, religion, disability, age, gender or marital status. of the Company: is committed to retaining staff as a high priority for the The equal opportunities section of the Staff Handbook Group and implementing well balanced, challenging covers all permanent and temporary employees, job incentives makes this possible. Training and development applicants, agency staff, consultants and contractors. appropriate to individual and business needs is offered and remuneration for professional development is A full review of the Group’s activities, important events considered on a case by case basis. affecting the Group and its development programme is contained in the Chief Executive Officer’s review on The Group places considerable value on the involvement pages 12 to 17 and the Financial review on pages 32 Alejandro Weinstein2 140,568,287 of its employees and has continued to keep them informed to 35, both of which form part of this report. on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings and email Corporate social responsibility The Directors recognise the increasing importance of updates. Family friendly employment policies conform corporate social responsibility and endeavour to take into to statutory requirements and flexible working practices account the interests of the Group’s stakeholders, including Manuel Llobet1 3,125,000 1,470,000 3,125,000 2,190,000 are adopted where viable. its investors, employees, customers, suppliers and business partners when operating its business. The Group is committed The Group implements equality of opportunity in all of to empowering responsible employees who display sound Ian Postlethwaite 493,000 3,023,500 493,000 2,983,500 its employment practices, policies and procedures. judgement and awareness of the consequences of corporate 1 Has an interest in shares pursuant to his interests in Wild Indigo. Employees are highly valued and their rights and dignity decisions and actions, and who act in an ethical and moral way. 2 Has an interest in shares pursuant to his interests in Yissum Holding Limited, Azure Ventures & CFR International. At beginning of year: At end of year: Name Ordinary Shares Options & LTIPs Ordinary Shares Options & LTIPs Peter Jensen 100,000 Stephen Smith 756,513 150,000 776,513 150,000 Thomas Lander - - 120,000 201,986,132 - - - - - - are respected. The Group practices equal treatment of all. Directors and Directors’ interests The Directors who held office during the period were as follows: Date of appointment Date of resignation Peter Jensen Non-Executive Chairman 1 October 2010 Alejandro Weinstein Non-Executive Director 1 July 2009 Stephen Smith Non-Executive Director 8 September 2004 Thomas Lander Non-Executive Director Manuel Llobet Chief Executive Officer Ian Postlethwaite Finance Director 2 May 2012 1 July 2009 1 July 2004 - - - - - - Ignace Goethals Non-Executive Director 8 September 2004 Virinder Nohria Non-Executive Director 1 November 2005 30 June 2012 30 June 2012 The dates of appointment above refer to appointment as Directors of Allergy Therapeutics plc. Mr Lander was appointed a Non-Executive Director on 2 May 2012. Mr Goethals and Mr Nohria resigned as directors on 30 June 2012. The changes to Mr Smith’s, Mr Llobet’s and Mr Jensen’s service contracts are detailed on page 49 of the Remuneration Committee report. Directors’ indemnity Changes to interest in own shares The Directors and officers of the Company are insured Neither the Company nor any Employee Benefit Trust holds against any claims arising against them for any wrongful any shares in the Company. The Board Members Director since Meeting act in their capacity as a Director, officer or employee of the Group, subject to the terms and conditions of the policy. Structure of the Company’s capital The Company’s share capital which is traded on the AIM market of the London Stock Exchange comprises a single attendance 2011-12 15 / 15 15 / 15 15 / 15 15 / 15 7 / 15 3 / 3 class of ordinary shares of 0.1 pence each, which each carry Peter Jensen one voting right and all rank equally with each other. At 30 June 2012 406,912,981 shares were allotted and fully paid. Stephen Smith Manuel Llobet Details of movements in the Company’s share capital during Ian Postlethwaite the period are shown in Note 27 to the financial statements. Alejandro Weinstein Thomas Lander October 2010 September 2004 July 2009 July 2004 July 2009 May 2012 Details of employee share schemes are set out in Note 28 to the financial statements. Participants in employee share schemes have no voting or other rights in respect of the The Board is led by the Chairman, who is non-executive, shares subject to their awards until the options are exercised and comprises the Chief Executive Officer, the Finance or conditional shares fully vest, at which time the shares rank Director, and three other Non-Executive Directors. pari-passu in all respects with shares already in issue. Biographical details of all Board members are shown on Substantial shareholders pages 38 and 39. The roles of Chairman and Chief Executive Officer are separate. The Directors feel that given the current At 10 September 2012 the Company had been notified of the size of the Group, the roles of Company Secretary and following major interests, each representing 3% or more of Finance Director are not deemed necessary to be separated. the existing issued ordinary share capital: All Directors have direct access to the services and advice Shareholder Ordinary shares % held professional advice at the expense of the Group. of the Company Secretary and to external independent Yissum Holdings Limited 137,491,788 CFR International SPA 61,417,845 Southern Fox Investments 60,892,162 Fidelity Investments 12,917,776 33.79 15.09 14.96 3.17 The Board has a formal schedule of matters specifically reserved to it for decision at Board meetings. This covers strategy and management, financial reporting and controls, internal controls, major contracts, external communications with investors, executive committee appointments and 44 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 45 is committed to retaining staff as a high priority for the The equal opportunities section of the Staff Handbook Group and implementing well balanced, challenging covers all permanent and temporary employees, job incentives makes this possible. Training and development applicants, agency staff, consultants and contractors. appropriate to individual and business needs is offered considered on a case by case basis. and remuneration for professional development is A full review of the Group’s activities, important events affecting the Group and its development programme is contained in the Chief Executive Officer’s review on of its employees and has continued to keep them informed to 35, both of which form part of this report. on matters affecting them as employees and on the various factors affecting the performance of the Group. This is Corporate social responsibility achieved through formal and informal meetings and email The Directors recognise the increasing importance of updates. Family friendly employment policies conform corporate social responsibility and endeavour to take into are adopted where viable. its investors, employees, customers, suppliers and business partners when operating its business. The Group is committed The Group implements equality of opportunity in all of to empowering responsible employees who display sound are respected. The Group practices equal treatment of all. Directors and Directors’ interests The Directors who held office during the period were as follows: Peter Jensen Non-Executive Chairman 1 October 2010 Alejandro Weinstein Non-Executive Director 1 July 2009 Stephen Smith Non-Executive Director 8 September 2004 Thomas Lander Non-Executive Director Manuel Llobet Chief Executive Officer Ian Postlethwaite Finance Director 2 May 2012 1 July 2009 1 July 2004 - - - - - - Ignace Goethals Non-Executive Director 8 September 2004 Virinder Nohria Non-Executive Director 1 November 2005 30 June 2012 30 June 2012 The dates of appointment above refer to appointment as Directors of Allergy Therapeutics plc. Mr Lander was appointed a Non-Executive Director on 2 May 2012. Mr Goethals and Mr Nohria resigned as directors on 30 June 2012. The changes to Mr Smith’s, Mr Llobet’s and Mr Jensen’s service contracts are detailed on page 49 of the Remuneration Committee report. people, and are encouraged to achieve business targets staff and potential staff irrespective of their race, through market-rate pay, discretionary performance based creed, colour, sexual orientation, nationality, ethnic The Directors who held office at the end of the financial year had the following interests in the ordinary shares bonuses and long term incentive programmes. The Board origin, religion, disability, age, gender or marital status. of the Company: Name Ordinary Shares Options & LTIPs Ordinary Shares Options & LTIPs At beginning of year: At end of year: The Group places considerable value on the involvement pages 12 to 17 and the Financial review on pages 32 Alejandro Weinstein2 140,568,287 Peter Jensen 100,000 - - 120,000 201,986,132 - - to statutory requirements and flexible working practices account the interests of the Group’s stakeholders, including Manuel Llobet1 3,125,000 1,470,000 3,125,000 2,190,000 Ian Postlethwaite 493,000 3,023,500 493,000 2,983,500 its employment practices, policies and procedures. judgement and awareness of the consequences of corporate 1 Has an interest in shares pursuant to his interests in Wild Indigo. Employees are highly valued and their rights and dignity decisions and actions, and who act in an ethical and moral way. 2 Has an interest in shares pursuant to his interests in Yissum Holding Limited, Azure Ventures & CFR International. Stephen Smith 756,513 150,000 776,513 150,000 Thomas Lander - - - - Directors’ indemnity The Directors and officers of the Company are insured Changes to interest in own shares Neither the Company nor any Employee Benefit Trust holds against any claims arising against them for any wrongful any shares in the Company. Date of appointment Date of resignation act in their capacity as a Director, officer or employee of the Group, subject to the terms and conditions of the policy. Structure of the Company’s capital The Company’s share capital which is traded on the AIM market of the London Stock Exchange comprises a single The Board Members Director since Meeting class of ordinary shares of 0.1 pence each, which each carry Peter Jensen one voting right and all rank equally with each other. At 30 June 2012 406,912,981 shares were allotted and fully paid. Stephen Smith Manuel Llobet Details of movements in the Company’s share capital during Ian Postlethwaite the period are shown in Note 27 to the financial statements. Alejandro Weinstein Thomas Lander October 2010 September 2004 July 2009 July 2004 July 2009 May 2012 Details of employee share schemes are set out in Note 28 to the financial statements. Participants in employee share attendance 2011-12 15 / 15 15 / 15 15 / 15 15 / 15 7 / 15 3 / 3 schemes have no voting or other rights in respect of the The Board is led by the Chairman, who is non-executive, shares subject to their awards until the options are exercised and comprises the Chief Executive Officer, the Finance or conditional shares fully vest, at which time the shares rank pari-passu in all respects with shares already in issue. Substantial shareholders At 10 September 2012 the Company had been notified of the following major interests, each representing 3% or more of Director, and three other Non-Executive Directors. Biographical details of all Board members are shown on pages 38 and 39. The roles of Chairman and Chief Executive Officer are separate. The Directors feel that given the current size of the Group, the roles of Company Secretary and Finance Director are not deemed necessary to be separated. the existing issued ordinary share capital: All Directors have direct access to the services and advice Shareholder Ordinary shares % held professional advice at the expense of the Group. of the Company Secretary and to external independent Yissum Holdings Limited 137,491,788 CFR International SPA 61,417,845 Southern Fox Investments 60,892,162 Fidelity Investments 12,917,776 33.79 15.09 14.96 3.17 The Board has a formal schedule of matters specifically reserved to it for decision at Board meetings. This covers strategy and management, financial reporting and controls, internal controls, major contracts, external communications with investors, executive committee appointments and 44 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 45 remuneration, appropriate delegation of authority, corporate identification and management of business risk. The Group of the Group, its cash flows, liquidity position and borrowing and we believe in maximising every employee’s potential. governance matters and appropriate policies for key areas has an internal audit function, reporting directly to the Audit facilities are also described in the Finance Director’s Finance The Group does not tolerate any harassment or discrimination. including health and safety, corporate social responsibility Committee, which carries out periodic reviews of the Group’s review on pages 32 to 35. and the environment. subsidiaries. The Group also has a budgeting and reporting system in place, with results compared to annual budgets In addition, Note 24 to the financial statements includes the The Group, in considering applications for employment Disabled people The Board delegates certain other responsibilities to and quarterly forecasts using variance analysis. Group’s objectives, policies and processes for managing its from disabled people, seeks to ensure that fair consideration committees, details of which are set out below. Board Committees The Group has an Audit Committee, a Remuneration Shareholder relations The Group maintains a policy of open dialogue with all shareholders to ensure that the objectives of the Group are capital, its financial risk management objectives, details of is given to the abilities and aptitudes of the applicant while its financial instruments and its exposures to foreign currency having regard to the requirements of the job for which he risk, interest rate risk and liquidity risk. or she has applied. Employees who become unable to carry out the requirements of the job for which they have Committee and a Nominations Committee, all with written understood. The Chief Executive Officer and the Finance After making appropriate enquiries, which included a review been employed are given individual consideration and, terms of reference including formally delegated duties and Director make regular presentations to stakeholders and of the annual budget, considering the cash flow requirements depending on the nature, severity and duration of the responsibilities. The Chairman of each committee reports discuss any areas of concern and meet regularly with analysts for the foreseeable future, noting the new bank facility, disability may be considered for alternative work. directly to the Board. and major shareholders to provide information about the Group. Press releases, general information on the Group, and the effects of sales and foreign exchange sensitivities on the Group’s funding plans, the Directors continue to Communication The Audit Committee comprised Stephen Smith (Chairman) shareholder presentations and investor information are to be believe that the Group will have adequate resources to The Group has an open communication policy with its and Ignace Goethals with Peter Jensen joining in May accessed via the Group’s website, www.allergytherapeutics.com. continue in operational existence for the foreseeable future employees. Regular communication on the strategy, plans 2012. Ignace Geothals stepped down on 30 June 2012. The Audit Committee meets at least twice each year and is responsible for ensuring that the financial performance of the Annual General Meeting The notice convening and giving details of the Annual General and accordingly have applied the going concern principle in and performance of the Group is undertaken and reinforced drawing up the financial statements. In reaching this view, by site meetings of staff as well as briefings by Directors and the Directors have considered and prioritised the actions line management. In the UK, employees have access to Group Group is properly reported and monitored, meeting with the Meeting of the Group accompanies this report. that could be taken to offset the impact of any shortfall in information on the intranet. Information about the Group is auditors, reviewing the reports from the Auditors relating to operating performance. also available on the internet at www.allergytherapeutics.com. the financial statements and monitoring the internal control Engagement of auditor for the supply of non-audit function. services It is the Group’s policy that it will only engage the Group’s Market value of land and buildings Health & Safety All freehold properties are stated at market value. The Group’s The Group is committed to providing a safe environment The Remuneration Committee comprised Stephen Smith auditor to supply other professional services to the Group policy is that a full revaluation is carried out every five years for its employees and others who are engaged in or may (Chairman), Ignace Goethals and Virinder Nohria with Thomas and its subsidiary undertakings if it is satisfied that all the with an interim valuation carried out in the third year after be impacted by the Group’s operations and considers health Lander joining in May 2012. Ignace Goethals and Virinder usual conditions of engagement and benchmarks are met. each full valuation. In the intervening years the directors & safety a priority. Policies relating to Health & Safety are set Nohria stepped down on 30 June 2012. The Remuneration Any agreement to purchase services costing more than review the carrying values of the freehold land and buildings out on the Group’s Intranet and Staff Handbook. Procedures Committee reviews the compensation policy and strategy £10,000 per engagement must have the prior approval to ensure that there have been no material variations. are monitored and improvements identified through periodic for the Group as a whole and the scale and structure of the of the Audit Committee. executive Directors’ remuneration packages including the Creditors’ payment policy and practice audits and safety inspections. The Group’s Health and Safety Committee meets regularly to discuss issues and promote terms of their service contracts. No Director takes part in the In determining the policy, the Audit Committee has taken The Group agrees payment terms with suppliers when it good practice with Health & Safety Officers promoting and discussion of his own remuneration. This committee is also into account relevant ethical guidance regarding the provision enters into contracts for the purchase of goods or services monitoring safe working conditions. The Directors review responsible for grant of shares under the Group’s Long of non-audit services by the external audit firm and does not and generally seeks to abide by those terms when it is the Health & Safety report at the monthly board meetings. Term Share Incentive Plan. agree to the auditor providing a service if, having regard to the ethical guidance, the result is that the external auditor satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. During Statement of Directors’ responsibilities The Nomination Committee comprised Peter Jensen audits its own work, the external auditor makes management the last quarter of the year terms with some trade creditors – Group Financial statements (Chairman), Ignace Goethals, Stephen Smith and Alejandro decisions for the Group, a mutuality of interest is created were temporarily renegotiated, although less so than in the The Directors are responsible for preparing the Annual Report Weinstein during the year. Ignace Goethals stepped down or the external auditor is put in the role of advocate for previous year. Shortly after the year end normal terms were and the financial statements in accordance with applicable law on 30 June 2012. The Committee held one meeting during the Group. the past financial year. The Nominations Committee’s principal purpose is to consider and proffer proposals for the composition and size of the Board and its Committees Research and development The Group will continue its policy of investment in research as well as Board refreshment and succession planning. and development, with the focus being in Germany where major allergy vaccines if not already registered require further Dividend Given the Research and Development costs in the prior years with International Financial Reporting Standards as adopted by Full details of Directors’ remuneration and a statement of clinical evidence by 2017. In accordance with International the Group has negative distributable reserves and is unable to the European Union (IFRSs). Under company law the directors the Group’s remuneration policy are set out in the Directors’ Financial Reporting Standards (IFRS), during the year the declare a dividend. remuneration report on pages 49 to 51. Group expensed to the income statement £2.1m (2011: Internal control The Board has ultimate responsibility for the system of internal control maintained by the Group. The system is £1.7m) on research and development. Further details on the Group’s research and development are included in the Chief Executive’s review on pages 12 to 17. designed to manage rather than eliminate risk. It can provide only reasonable and not absolute assurance against material Going concern The Group’s business activities, together with the factors misstatement or loss and includes the safeguarding of likely to affect its future development, performance and The Group is committed to providing equal opportunities reasonable and prudent; assets, the maintenance of proper accounting records, position are set out in the Chairman’s statement on pages 8 to in employment irrespective of background, age, sexual • state whether applicable IFRSs have been followed, the reliability of financial information, compliance with 11, the Chief Executive Officer’s review on pages 12 to 17 and orientation, religion, gender, nationality, marital status or subject to any material departures disclosed and explained appropriate legislation, regulation and best practice and the the Financial review on pages 32 to 35. The financial position disability. Our aim is to attract the best people in the industry in the financial statements; resumed. Whilst the Company had no trade creditors, the and regulations. number of trade creditor days for the Group at 30 June 2012 was 42 days (2011: 62 days). Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance Charitable and political contributions The Group made no political or charitable contributions during financial statements, the directors are required to: must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Group for that period. In preparing these the year. Employment policies Equal opportunities • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are 46 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 47 remuneration, appropriate delegation of authority, corporate identification and management of business risk. The Group of the Group, its cash flows, liquidity position and borrowing and we believe in maximising every employee’s potential. governance matters and appropriate policies for key areas has an internal audit function, reporting directly to the Audit facilities are also described in the Finance Director’s Finance The Group does not tolerate any harassment or discrimination. including health and safety, corporate social responsibility Committee, which carries out periodic reviews of the Group’s review on pages 32 to 35. and the environment. subsidiaries. The Group also has a budgeting and reporting system in place, with results compared to annual budgets In addition, Note 24 to the financial statements includes the Disabled people The Group, in considering applications for employment The Board delegates certain other responsibilities to and quarterly forecasts using variance analysis. Group’s objectives, policies and processes for managing its from disabled people, seeks to ensure that fair consideration committees, details of which are set out below. Shareholder relations capital, its financial risk management objectives, details of is given to the abilities and aptitudes of the applicant while its financial instruments and its exposures to foreign currency having regard to the requirements of the job for which he Board Committees The Group maintains a policy of open dialogue with all risk, interest rate risk and liquidity risk. or she has applied. Employees who become unable to The Group has an Audit Committee, a Remuneration shareholders to ensure that the objectives of the Group are carry out the requirements of the job for which they have Committee and a Nominations Committee, all with written understood. The Chief Executive Officer and the Finance After making appropriate enquiries, which included a review been employed are given individual consideration and, terms of reference including formally delegated duties and Director make regular presentations to stakeholders and of the annual budget, considering the cash flow requirements depending on the nature, severity and duration of the responsibilities. The Chairman of each committee reports discuss any areas of concern and meet regularly with analysts for the foreseeable future, noting the new bank facility, disability may be considered for alternative work. directly to the Board. and major shareholders to provide information about the Group. Press releases, general information on the Group, The Audit Committee comprised Stephen Smith (Chairman) shareholder presentations and investor information are to be and the effects of sales and foreign exchange sensitivities on the Group’s funding plans, the Directors continue to believe that the Group will have adequate resources to Communication The Group has an open communication policy with its and Ignace Goethals with Peter Jensen joining in May accessed via the Group’s website, www.allergytherapeutics.com. continue in operational existence for the foreseeable future employees. Regular communication on the strategy, plans 2012. Ignace Geothals stepped down on 30 June 2012. The Audit Committee meets at least twice each year and is Annual General Meeting and accordingly have applied the going concern principle in and performance of the Group is undertaken and reinforced drawing up the financial statements. In reaching this view, by site meetings of staff as well as briefings by Directors and responsible for ensuring that the financial performance of the The notice convening and giving details of the Annual General the Directors have considered and prioritised the actions line management. In the UK, employees have access to Group Group is properly reported and monitored, meeting with the Meeting of the Group accompanies this report. that could be taken to offset the impact of any shortfall in information on the intranet. Information about the Group is auditors, reviewing the reports from the Auditors relating to operating performance. also available on the internet at www.allergytherapeutics.com. the financial statements and monitoring the internal control Engagement of auditor for the supply of non-audit function. services It is the Group’s policy that it will only engage the Group’s Market value of land and buildings All freehold properties are stated at market value. The Group’s Health & Safety The Group is committed to providing a safe environment The Remuneration Committee comprised Stephen Smith auditor to supply other professional services to the Group policy is that a full revaluation is carried out every five years for its employees and others who are engaged in or may (Chairman), Ignace Goethals and Virinder Nohria with Thomas and its subsidiary undertakings if it is satisfied that all the with an interim valuation carried out in the third year after be impacted by the Group’s operations and considers health Lander joining in May 2012. Ignace Goethals and Virinder usual conditions of engagement and benchmarks are met. each full valuation. In the intervening years the directors & safety a priority. Policies relating to Health & Safety are set Nohria stepped down on 30 June 2012. The Remuneration Any agreement to purchase services costing more than review the carrying values of the freehold land and buildings out on the Group’s Intranet and Staff Handbook. Procedures Committee reviews the compensation policy and strategy £10,000 per engagement must have the prior approval to ensure that there have been no material variations. are monitored and improvements identified through periodic for the Group as a whole and the scale and structure of the of the Audit Committee. executive Directors’ remuneration packages including the terms of their service contracts. No Director takes part in the In determining the policy, the Audit Committee has taken Creditors’ payment policy and practice The Group agrees payment terms with suppliers when it Committee meets regularly to discuss issues and promote good practice with Health & Safety Officers promoting and audits and safety inspections. The Group’s Health and Safety discussion of his own remuneration. This committee is also into account relevant ethical guidance regarding the provision enters into contracts for the purchase of goods or services monitoring safe working conditions. The Directors review responsible for grant of shares under the Group’s Long of non-audit services by the external audit firm and does not and generally seeks to abide by those terms when it is the Health & Safety report at the monthly board meetings. Term Share Incentive Plan. agree to the auditor providing a service if, having regard to the ethical guidance, the result is that the external auditor The Nomination Committee comprised Peter Jensen audits its own work, the external auditor makes management (Chairman), Ignace Goethals, Stephen Smith and Alejandro decisions for the Group, a mutuality of interest is created satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. During Statement of Directors’ responsibilities the last quarter of the year terms with some trade creditors were temporarily renegotiated, although less so than in the – Group Financial statements The Directors are responsible for preparing the Annual Report Weinstein during the year. Ignace Goethals stepped down or the external auditor is put in the role of advocate for previous year. Shortly after the year end normal terms were and the financial statements in accordance with applicable law on 30 June 2012. The Committee held one meeting during the Group. the past financial year. The Nominations Committee’s principal purpose is to consider and proffer proposals for Research and development the composition and size of the Board and its Committees The Group will continue its policy of investment in research as well as Board refreshment and succession planning. and development, with the focus being in Germany where major allergy vaccines if not already registered require further resumed. Whilst the Company had no trade creditors, the and regulations. number of trade creditor days for the Group at 30 June 2012 was 42 days (2011: 62 days). Dividend Given the Research and Development costs in the prior years Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by Full details of Directors’ remuneration and a statement of clinical evidence by 2017. In accordance with International the Group has negative distributable reserves and is unable to the European Union (IFRSs). Under company law the directors the Group’s remuneration policy are set out in the Directors’ Financial Reporting Standards (IFRS), during the year the declare a dividend. remuneration report on pages 49 to 51. Group expensed to the income statement £2.1m (2011: Internal control £1.7m) on research and development. Further details on the Group’s research and development are included in the Charitable and political contributions The Group made no political or charitable contributions during The Board has ultimate responsibility for the system of Chief Executive’s review on pages 12 to 17. the year. must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them the reliability of financial information, compliance with 11, the Chief Executive Officer’s review on pages 12 to 17 and orientation, religion, gender, nationality, marital status or subject to any material departures disclosed and explained appropriate legislation, regulation and best practice and the the Financial review on pages 32 to 35. The financial position disability. Our aim is to attract the best people in the industry in the financial statements; Employment policies consistently; Equal opportunities The Group is committed to providing equal opportunities in employment irrespective of background, age, sexual • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs have been followed, internal control maintained by the Group. The system is designed to manage rather than eliminate risk. It can provide Going concern only reasonable and not absolute assurance against material The Group’s business activities, together with the factors misstatement or loss and includes the safeguarding of likely to affect its future development, performance and assets, the maintenance of proper accounting records, position are set out in the Chairman’s statement on pages 8 to 46 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com 47 • prepare the financial statements on the going concern The Directors are responsible for keeping adequate basis unless it is inappropriate to presume that the Group accounting records that are sufficient to show and explain Directors’ remuneration report will continue in business. the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and The Remuneration Committee Group’s performance over the 3-year Plan Cycle. The number The Remuneration Committee comprised Stephen Smith of provisional shares awarded to Executive Directors under The Directors are responsible for keeping adequate accounting enable them to ensure that the financial statements comply (Chairman), Ignace Goethals and Dr Virinder Nohria during the the Plan is shown in the Directors’ share option table. records that are sufficient to show and explain the Group’s with the Companies Act 2006. They are also responsible for financial year. The Committee held four meetings during the transactions and disclose with reasonable accuracy at any safeguarding the assets of the Company and hence for taking past financial year. The principal purpose of the Committee is (v) SAYE Plan time the financial position of the Group and enable them reasonable steps for the prevention and detection of fraud and to determine and agree the directors’ salary increases, annual During the year ended 30 June 2012 no offer was made to to ensure that the financial statements comply with the other irregularities. Companies Act. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for In so far as each of the directors is aware: the prevention and detection of fraud and other irregularities. bonuses, scope of pension arrangements and any changes in employees or executives under the SAYE scheme. benefits. In addition, the Committee also agrees the share- related compensation for the directors and other executive (vi) Bonus management and other executive compensation matters. In the case of the executive team, the Group operates In so far as each of the Directors is aware: Company’s auditors are unaware; and Members Member since Attendance at performance and achievement of personal and corporate • there is no relevant audit information of which the a performance-related cash bonus based upon individual • there is no relevant audit information of which the Group’s have taken to make themselves aware of any relevant audit auditors are unaware; and information and to establish that the auditors are aware of • the Directors have taken all steps that they ought to • the Directors have taken all steps that they ought to that information. have taken to make themselves aware of any relevant audit information and to establish that the auditors are The Directors are responsible for the maintenance and aware of that information. integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom The directors are responsible for the maintenance and governing the preparation and dissemination of financial Remuneration policy integrity of the corporate and financial information included statements may differ from legislation in other jurisdictions. The Committee’s policy is to set remuneration packages for equal to 10% of salary for Executive Directors, with the on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Statement of Directors’ responsibilities – Company Financial statements The Directors are responsible for preparing the Annual Report Auditor Grant Thornton UK LLP offer themselves for reappointment as Auditor in accordance with section 489 of the Companies Act 2006. A resolution for their reappointment is to be proposed at the forthcoming Annual General Meeting. Executive Directors that are competitive with the market, exception of Manuel Llobet for whom the Group contributes allowing the Group to attract, motivate and retain executives 15% of salary (subject to HMRC cap). of the highest calibre. Remuneration packages are designed to reward executives for performance via annual bonus Service contracts payments and awards of share-related compensation, which together constitute a potentially significant proportion of the Executive Directors Date of contract Notice period total remuneration opportunity. and the financial statements in accordance with applicable law By order of the Board on 14 September 2012 and regulations. The remuneration of Executive Directors comprises the Ian Postlethwaite 7 May 2002 12 months Manuel Llobet 21 June 2012 12 months Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law the directors must Ian Postlethwaite Company Secretary not approve the financial statements unless they are satisfied 14 September 2012 that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Stephen Smith Ignace Goethals Virinder Nohria November 2004 November 2004 November 2005 4/4 4/4 4/4 meetings 2011-12 objectives. Annual bonus payments are capped under service contracts at 40% for Manuel Llobet and 30% for other Executive Directors. The bonus is determined and agreed by the Remuneration Committee in September each year for the preceding financial year. (vii) Pension arrangements The UK Company operates a defined-contribution Personal Pension scheme and currently makes pension contributions following elements: (i) Basic salary Comparator Group. (ii) Taxable benefits and private medical insurance. (iii) Share options Basic salary is reviewed annually as at 1 October, taking into amended on 21 June 2012 to reflect the changes in his account personal performance, and benchmarked against the notice period to twelve months from the Company. Manuel Llobet’s service contract dated 1 July 2009 was Taxable benefits represent the provision of a car allowance Peter Jensen Non-Executive Directors Date of contract Notice period Alejandro Weinstein Stephen Smith Thomas Lander 30 June 2012 1 July 2009 1 April 2012 2 May 2012 6 months 3 months 3 months 3 months 3 months 3 months No share options were granted in the year. The share options Ignace Goethals 8 September 2004 granted to individual Executive Directors to date are disclosed Virinder Nohria 1 November 2005 later in this report and comprise grants made in prior years under previous approved and unapproved option schemes. Share options previously granted by Allergy Therapeutics Stephen Smith’s service contract dated 5 October 2004 was (Holdings) Limited were surrendered on 5 October 2004 for changed for administration purposes only. Peter Jensen’s share options in Allergy Therapeutics plc, on substantially the service contract dated 1 October 2010 was amended on 30 same terms. June 2012 to reflect a change in his notice period from 3 to 6 months and to reflect an additional level of remuneration for work beyond his contractual four days per month when (iv) Long Term Incentive Plan During the year ended 30 June 2012 provisional shares required. were awarded to directors and senior management under the Allergy Therapeutics plc 2005 Long Term Incentive Plan. Distribution of shares under the Plan is conditional on the 48 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com 49 transactions and disclose with reasonable accuracy at any safeguarding the assets of the Company and hence for taking time the financial position of the Group and enable them reasonable steps for the prevention and detection of fraud and to ensure that the financial statements comply with the other irregularities. Companies Act. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for In so far as each of the directors is aware: the prevention and detection of fraud and other irregularities. • there is no relevant audit information of which the • the Directors have taken all steps that they ought to • there is no relevant audit information of which the Group’s have taken to make themselves aware of any relevant audit auditors are unaware; and information and to establish that the auditors are aware of • the Directors have taken all steps that they ought to that information. have taken to make themselves aware of any relevant audit information and to establish that the auditors are The Directors are responsible for the maintenance and aware of that information. integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom • prepare the financial statements on the going concern The Directors are responsible for keeping adequate basis unless it is inappropriate to presume that the Group accounting records that are sufficient to show and explain Directors’ remuneration report will continue in business. the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and The Remuneration Committee The Remuneration Committee comprised Stephen Smith Group’s performance over the 3-year Plan Cycle. The number of provisional shares awarded to Executive Directors under The Directors are responsible for keeping adequate accounting enable them to ensure that the financial statements comply (Chairman), Ignace Goethals and Dr Virinder Nohria during the the Plan is shown in the Directors’ share option table. records that are sufficient to show and explain the Group’s with the Companies Act 2006. They are also responsible for financial year. The Committee held four meetings during the past financial year. The principal purpose of the Committee is to determine and agree the directors’ salary increases, annual (v) SAYE Plan During the year ended 30 June 2012 no offer was made to bonuses, scope of pension arrangements and any changes in employees or executives under the SAYE scheme. benefits. In addition, the Committee also agrees the share- related compensation for the directors and other executive management and other executive compensation matters. (vi) Bonus In the case of the executive team, the Group operates a performance-related cash bonus based upon individual In so far as each of the Directors is aware: Company’s auditors are unaware; and Members Member since Attendance at performance and achievement of personal and corporate meetings 2011-12 objectives. Annual bonus payments are capped under service contracts at 40% for Manuel Llobet and 30% for other The directors are responsible for the maintenance and governing the preparation and dissemination of financial integrity of the corporate and financial information included statements may differ from legislation in other jurisdictions. Remuneration policy The Committee’s policy is to set remuneration packages for Stephen Smith Ignace Goethals Virinder Nohria November 2004 November 2004 November 2005 4/4 4/4 4/4 Executive Directors. The bonus is determined and agreed by the Remuneration Committee in September each year for the preceding financial year. (vii) Pension arrangements The UK Company operates a defined-contribution Personal Pension scheme and currently makes pension contributions equal to 10% of salary for Executive Directors, with the on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial Auditor Executive Directors that are competitive with the market, exception of Manuel Llobet for whom the Group contributes allowing the Group to attract, motivate and retain executives 15% of salary (subject to HMRC cap). statements may differ from legislation in other jurisdictions. Grant Thornton UK LLP offer themselves for reappointment as of the highest calibre. Remuneration packages are designed Statement of Directors’ responsibilities – Company Financial statements The Directors are responsible for preparing the Annual Report Auditor in accordance with section 489 of the Companies Act 2006. A resolution for their reappointment is to be proposed at the forthcoming Annual General Meeting. to reward executives for performance via annual bonus Service contracts payments and awards of share-related compensation, which together constitute a potentially significant proportion of the Executive Directors Date of contract Notice period total remuneration opportunity. and the financial statements in accordance with applicable law By order of the Board on 14 September 2012 and regulations. The remuneration of Executive Directors comprises the Ian Postlethwaite 7 May 2002 12 months Manuel Llobet 21 June 2012 12 months Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards Ian Postlethwaite and applicable laws). Under company law the directors must Company Secretary not approve the financial statements unless they are satisfied 14 September 2012 that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. following elements: (i) Basic salary Basic salary is reviewed annually as at 1 October, taking into Manuel Llobet’s service contract dated 1 July 2009 was amended on 21 June 2012 to reflect the changes in his account personal performance, and benchmarked against the notice period to twelve months from the Company. Comparator Group. Non-Executive Directors Date of contract Notice period (ii) Taxable benefits Taxable benefits represent the provision of a car allowance and private medical insurance. (iii) Share options No share options were granted in the year. The share options Peter Jensen Alejandro Weinstein Stephen Smith Thomas Lander 30 June 2012 1 July 2009 1 April 2012 2 May 2012 Ignace Goethals 8 September 2004 granted to individual Executive Directors to date are disclosed Virinder Nohria 1 November 2005 6 months 3 months 3 months 3 months 3 months 3 months later in this report and comprise grants made in prior years under previous approved and unapproved option schemes. Share options previously granted by Allergy Therapeutics Stephen Smith’s service contract dated 5 October 2004 was (Holdings) Limited were surrendered on 5 October 2004 for changed for administration purposes only. Peter Jensen’s share options in Allergy Therapeutics plc, on substantially the service contract dated 1 October 2010 was amended on 30 same terms. (iv) Long Term Incentive Plan During the year ended 30 June 2012 provisional shares were awarded to directors and senior management under the Allergy Therapeutics plc 2005 Long Term Incentive Plan. Distribution of shares under the Plan is conditional on the June 2012 to reflect a change in his notice period from 3 to 6 months and to reflect an additional level of remuneration for work beyond his contractual four days per month when required. 48 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com 49 Options Options Options Options Directorship Options Subscription Exercise held at 1 granted in exercised lapsed in resigned held at 30 price date from Expiry date July 2012 the year in the year the year in the year June 2012 (pence) Manuel Llobet 1,470,0001 720,0001 - 2,190,000 Ian Postlethwaite 400,000 - 30.0 03/06/2002 03/06/2012 - - - - - - 1,500,000 5.0 17/12/2002 17/12/2012 163,500 18.5 18/10/2009 18/10/2019 960,0001 360,0001 1,320,000 Executive Directors 400,000 1,500,000 163,500 Non-Executive Directors Stephen Smith 150,000 - 150,000 45.0 26/02/2005 26/02/2014 Ignace Goethals 150,000 Virinder Nohria 100,000 150,000 100,000 - - 45.0 26/02/2005 26/02/2014 45.0 15/12/2003 15/12/2013 - - - - - - - - - - - - - - - - - - - - - Totals 4,893,500 1,080,000 - 400,000 250,000 5,323,500 1 Long Term Incentive Plan The aggregate amount of gains made by Directors upon the exercise of share options in the year ended 30 June 2012 was £nil (2011: £nil) At 30 June 2012 the London Stock Exchange market value of shares was 7.75 p per share. The range of values during the period from 1 July 2011 to 30 June 2012 was 14p to 7.75p per share. Stephen Smith Chairman, Remuneration Committee 14 September 2012 Directors’ remuneration (audited information) Details of remuneration of those who served as directors during the year are set out below. Directors’ share options and LTIPs Basic Bonus salary for the year Taxable benefits £ £ £ Manuel Llobet 195,188 47,188 11,170 Ian Postlethwaite 152,542 39,160 10,782 Peter Jensen 65,000 Stephen Smith1 - Alejandro Weinstein 36,000 Ignace Goethals 36,000 Virinder Nohria 36,000 Thomas Lander 6,000 - - - - - - - - - - - - £ - - - 65,000 36,000 36,000 - - - - 36,000 36,000 36,000 6,000 Year ended 30 June 2011 Fees Total Pension Total Pension £ £ £ £ 253,546 27,690 271,531 19,999 202,484 15,254 189,961 14,809 - - - - - - 41,500 36,000 36,000 36,000 36,000 - - - - - - - Totals 526,730 86,348 21,952 36,000 671,030 42,944 646,992 34,808 1 Mr Smith’s fees are paid to SRS Business Enterprises Limited. The audited information detailed above is summarised in Note 6 to the accounts. 50 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com 51 Basic Bonus salary for the year Taxable benefits Fees Total Pension Total Pension £ £ £ £ £ £ £ £ Year ended 30 June 2011 Manuel Llobet 195,188 47,188 11,170 253,546 27,690 271,531 19,999 Ian Postlethwaite 152,542 39,160 10,782 202,484 15,254 189,961 14,809 Peter Jensen 65,000 Alejandro Weinstein 36,000 Ignace Goethals 36,000 Virinder Nohria 36,000 Thomas Lander 6,000 - - - - - - - - - - - - - - - - - - - 65,000 36,000 36,000 36,000 6,000 - - - - - - 41,500 36,000 36,000 36,000 36,000 - - - - - - - Totals 526,730 86,348 21,952 36,000 671,030 42,944 646,992 34,808 1 Mr Smith’s fees are paid to SRS Business Enterprises Limited. The audited information detailed above is summarised in Note 6 to the accounts. Directors’ remuneration (audited information) Details of remuneration of those who served as directors during the year are set out below. Directors’ share options and LTIPs Options Options Options Options Directorship Options Subscription Exercise held at 1 granted in exercised lapsed in resigned held at 30 price date from Expiry date July 2012 the year in the year the year in the year June 2012 (pence) Executive Directors Manuel Llobet 1,470,0001 720,0001 Ian Postlethwaite 400,000 1,500,000 163,500 - - - 960,0001 360,0001 Stephen Smith1 - 36,000 36,000 Non-Executive Directors Stephen Smith 150,000 Ignace Goethals 150,000 Virinder Nohria 100,000 - - - - - - - - - - - - - 2,190,000 - - - 400,000 - 30.0 03/06/2002 03/06/2012 - - - - - - 1,500,000 5.0 17/12/2002 17/12/2012 163,500 18.5 18/10/2009 18/10/2019 1,320,000 - - - - 150,000 45.0 26/02/2005 26/02/2014 150,000 100,000 - - 45.0 26/02/2005 26/02/2014 45.0 15/12/2003 15/12/2013 Totals 4,893,500 1,080,000 - 400,000 250,000 5,323,500 1 Long Term Incentive Plan The aggregate amount of gains made by Directors upon the exercise of share options in the year ended 30 June 2012 was £nil (2011: £nil) At 30 June 2012 the London Stock Exchange market value of shares was 7.75 p per share. The range of values during the period from 1 July 2011 to 30 June 2012 was 14p to 7.75p per share. Stephen Smith Chairman, Remuneration Committee 14 September 2012 50 © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Directors’ remuneration report www.allergytherapeutics.com www.pollinex.com 51 Nominations committee report Independent auditor’s report to the members of Allergy Therapeutics plc (Group) The Nominations Committee during the year comprised The Group considers the independence of non-executive We have audited the Group financial statements of Opinion on financial statements Peter Jensen (Chairman), Stephen Smith, Ignace Goethals directors of paramount importance being a cornerstone Allergy Therapeutics plc for the year ended 30 June 2012 In our opinion the group financial statements: and Alejandro Weinstein. The Nominations Committee was of good corporate governance; as a result the Committee which comprise the consolidated income statement, the established in September 2009 and held once during the periodically reviews the independence of its non-executive consolidated statement of comprehensive income, the • give a true and fair view of the state of the Group’s affairs past financial year. Its principal purpose is to consider and directors. Its review is based on the seven principles of consolidated balance sheet, the consolidated statement of as at 30 June 2012 and of its profit for the year then ended; proffer proposals for the composition and size of the Board independence contained in the Combined Code against the changes in equity, the consolidated cash flow statement and • have been properly prepared in accordance with IFRSs as and its Committees as well as Board refreshment and practicalities for an AIM Company. the related notes. The financial reporting framework that adopted by the European Union; and succession planning. has been applied in their preparation is applicable law and • have been prepared in accordance with the requirements The review considered all the Non-Executive Directors and International Financial Reporting Standards (IFRSs) as adopted of the Companies Act 2006. Members Member Attendance in particular Mr Stephen Smith’s position was discussed by the European Union. since at meetings regarding his share options granted in 2005, as detailed Opinion on other matters prescribed by the 2011-12 on page 51, being contrary to one of the seven principles. This report is made solely to the Company’s members, Companies Act 2006 Stephen Smith September 2009 Ignace Goethals September 2009 Alejandro Weinstein September 2009 Peter Jensen October 2010 1/1 1/1 1/1 1/1 The Committee judged that his contribution in the capacity as Chairman of the Audit Committee, and his experience, integrity and strength of character outweigh any potential conflict of interest that might arise from his share options to impede his independence. Mr Stephen Smith is therefore regarded as an independent Non-Executive Director, with Mr Thomas Lander as the other independent Non-Executive Director. When proposing appointments of directors, the Committee The Committee’s principal focus during the year ended 30 June 2012 was to review the skill sets and size of the Board as a body, in accordance with Chapter 3 of Part 16 of the In our opinion the information given in the Directors’ report for Companies Act 2006. Our audit work has been undertaken the financial year for which the Group financial statements are so that we might state to the Company’s members those prepared is consistent with the group financial statements. matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by Matters on which we are required to report by exception law, we do not accept or assume responsibility to anyone We have nothing to report in respect of the following: other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions Under the Companies Act 2006 we are required to report we have formed. to you if, in our opinion: Respective responsibilities of directors and auditor • certain disclosures of Directors’ remuneration specified considers the skills, knowledge and experience that required by the Group for its future strategy. As part of this As explained more fully in the Directors’ Responsibilities by law are not made; or a candidate possesses compared to the skill sets and process Ignace Goethals and Virinder Nohria resigned on 30 Statement set out on pages 47 to 48, the Directors are • we have not received all the information and explanations experience of the Board as it currently stands. Selection June 2012, and Thomas Lander was appointed on 2 May responsible for the preparation of the group financial we require for our audit. of candidates also takes into consideration the breadth of 2012. The Board now consists of four non-executive directors statements and for being satisfied that they give a true knowledge that the Board has and that it may require to with two being independent. and fair view. Our responsibility is to audit and express Other matter provide a well-balanced environment which encourages scrutiny and appropriate challenge of the Executive management. Peter Jensen Chairman, Nominations Committee 14 September 2012 an opinion on the group financial statements in accordance We have reported separately on the parent company with applicable law and International Standards on Auditing financial statements of Allergy Therapeutics plc for the (UK and Ireland). Those standards require us to comply year ended 30 June 2012. with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements For and on behalf of Grant Thornton UK LLP is provided on the APB’s website at www.frc.org.uk/apb/ Statutory Auditor, Chartered Accountants scope/private.cfm. Christian Heeger Senior Statutory Auditor Gatwick 14 September 2012 52 © Allergy Therapeutics plc Annual Report & Accounts 2012 Nominations committee report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Independent auditor’s report to the members of Allergy Therapeutics plc www.allergytherapeutics.com www.pollinex.com 53 Nominations committee report Independent auditor’s report to the members of Allergy Therapeutics plc (Group) The Nominations Committee during the year comprised The Group considers the independence of non-executive Peter Jensen (Chairman), Stephen Smith, Ignace Goethals directors of paramount importance being a cornerstone and Alejandro Weinstein. The Nominations Committee was of good corporate governance; as a result the Committee established in September 2009 and held once during the periodically reviews the independence of its non-executive past financial year. Its principal purpose is to consider and directors. Its review is based on the seven principles of proffer proposals for the composition and size of the Board independence contained in the Combined Code against the We have audited the Group financial statements of Allergy Therapeutics plc for the year ended 30 June 2012 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and Opinion on financial statements In our opinion the group financial statements: • give a true and fair view of the state of the Group’s affairs as at 30 June 2012 and of its profit for the year then ended; • have been properly prepared in accordance with IFRSs as and its Committees as well as Board refreshment and practicalities for an AIM Company. the related notes. The financial reporting framework that adopted by the European Union; and succession planning. has been applied in their preparation is applicable law and • have been prepared in accordance with the requirements The review considered all the Non-Executive Directors and International Financial Reporting Standards (IFRSs) as adopted of the Companies Act 2006. Members Member Attendance in particular Mr Stephen Smith’s position was discussed by the European Union. Peter Jensen October 2010 Director. body, for our audit work, for this report, or for the opinions Under the Companies Act 2006 we are required to report we have formed. to you if, in our opinion: When proposing appointments of directors, the Committee June 2012 was to review the skill sets and size of the Board considers the skills, knowledge and experience that required by the Group for its future strategy. As part of this Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities • certain disclosures of Directors’ remuneration specified by law are not made; or a candidate possesses compared to the skill sets and process Ignace Goethals and Virinder Nohria resigned on 30 Statement set out on pages 47 to 48, the Directors are • we have not received all the information and explanations experience of the Board as it currently stands. Selection June 2012, and Thomas Lander was appointed on 2 May responsible for the preparation of the group financial we require for our audit. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 In our opinion the information given in the Directors’ report for Companies Act 2006. Our audit work has been undertaken the financial year for which the Group financial statements are so that we might state to the Company’s members those prepared is consistent with the group financial statements. Opinion on other matters prescribed by the matters we are required to state to them in an auditor’s 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 Matters on which we are required to report by exception We have nothing to report in respect of the following: statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance Other matter We have reported separately on the parent company with applicable law and International Standards on Auditing financial statements of Allergy Therapeutics plc for the (UK and Ireland). Those standards require us to comply year ended 30 June 2012. with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements Christian Heeger Senior Statutory Auditor For and on behalf of Grant Thornton UK LLP is provided on the APB’s website at www.frc.org.uk/apb/ Statutory Auditor, Chartered Accountants scope/private.cfm. Gatwick 14 September 2012 Ignace Goethals September 2009 conflict of interest that might arise from his share options to Stephen Smith September 2009 Alejandro Weinstein September 2009 since at meetings regarding his share options granted in 2005, as detailed 2011-12 on page 51, being contrary to one of the seven principles. The Committee judged that his contribution in the capacity as Chairman of the Audit Committee, and his experience, integrity and strength of character outweigh any potential impede his independence. Mr Stephen Smith is therefore regarded as an independent Non-Executive Director, with Mr Thomas Lander as the other independent Non-Executive 1/1 1/1 1/1 1/1 The Committee’s principal focus during the year ended 30 of candidates also takes into consideration the breadth of 2012. The Board now consists of four non-executive directors knowledge that the Board has and that it may require to with two being independent. provide a well-balanced environment which encourages scrutiny and appropriate challenge of the Executive management. Peter Jensen Chairman, Nominations Committee 14 September 2012 52 © Allergy Therapeutics plc Annual Report & Accounts 2012 Nominations committee report www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Independent auditor’s report to the members of Allergy Therapeutics plc www.allergytherapeutics.com www.pollinex.com 53 Consolidated income statement Consolidated income statement for the year ended 30 June 2012 Year to 30 June Year to 30 June Year to 30 June Year to 30 June 2011 £’000 (9,232) (1,670) 2012 £’000 Note 3 (6,542) (2,095) 8 10 9 5 11 Revenue Cost of sales Gross profit Distribution costs Administration expenses – other Research and development costs Administration expenses Other income Operating profit Finance income Finance expense Profit /(Loss) before tax Income tax Profit/(Loss) for the period Earnings /(Loss) per share 13 Basic (pence per share) Diluted (pence per share) 2012 £’000 41,280 (13,670) 27,610 (17,881) (8,637) - 1,092 5 (457) 640 183 823 0.25p 0.24p Consolidated statement of comprehensive income Consolidated statement of comprehensive income for the year ended 30 June 2012 Note Profit/(Loss) for the period Actuarial (loss)/gain on defined 26 benefit pension scheme Exchange differences on translation of foreign operations Revaluation gains/(losses) Total comprehensive income Year to 30 June 2012 £’000 823 (734) (431) 50 (292) 2011 £’000 41,552 (13,221) 28,331 (17,524) (10,902) 210 115 2 (2,430) (2,313) (349) (2,662) (0.86p) (0.86p) Year to 30 June 2011 £’000 (2,662) 235 586 (54) (1,895) Note 30 June 2012 £’000 30 June 2011 £’000 Consolidated balance sheet Consolidated balance sheet Assets Non-current assets Property, plant and equipment Intangible assets – Goodwill Intangible assets – Other Investments – Retirement benefit asset Total non-current assets Current assets Trade and other receivables Inventories Cash and cash in hand Financial derivative instruments Total current assets Total assets Liabilities Current liabilities Trade and other payables Current borrowings Derivative financial instruments Total current liabilities Net current assets Non current liabilities Retirement benefit obligation Non current borrowings Derivative financial instruments Deferred taxation Non current provisions Total non current liabilities Total liabilities Net assets Equity Capital and reserves Issued capital Share premium Merger reserve – shares issued by subsidiary Reserve – shares held by EBT Reserve – share based payments Reserve – convertible loan notes Revaluation reserve Foreign exchange reserve Retained earnings Total equity 16 14 15 17 19 18 20 21 22 24 26 22 24 12 23 27 7,555 2,489 2,107 2,569 14,720 4,997 6,651 903 483 13,034 27,754 (6,312) (1,426) (9) (7,747) 5,287 (4,717) (97) (162) (165) (274) (5,415) (13,162) 14,592 417 67,571 40,128 67 1,496 3,652 1,297 93 (100,129) 14,592 These financial statements were approved by the Board of Directors on 14 September 2012 and were signed on its behalf by Manuel Llobet Chief Executive Officer Registered number: 05141592 Ian Postlethwaite Finance Director 8,809 2,624 1,781 2,493 15,707 6,779 7,087 1,048 - 14,914 30,621 (7,549) (2,793) (805) (11,147) 3,767 (4,114) (12,361) (376) (201) (283) (17,335) (28,482) 2,139 321 58,705 40,128 67 1,398 - 1,287 524 (100,291) 2,139 54 © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated income statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated balance sheet www.allergytherapeutics.com www.pollinex.com 55 Consolidated income statement Consolidated income statement for the year ended 30 June 2012 Year to 30 June Year to 30 June Year to 30 June Year to 30 June Revenue Cost of sales Gross profit Distribution costs Administration expenses – other Research and development costs Administration expenses Other income Operating profit Finance income Finance expense Profit /(Loss) before tax Income tax Profit/(Loss) for the period Earnings /(Loss) per share 13 Basic (pence per share) Diluted (pence per share) 2012 £’000 Note 3 (6,542) (2,095) 8 10 9 5 11 Note Profit/(Loss) for the period Actuarial (loss)/gain on defined 26 benefit pension scheme Exchange differences on translation of foreign operations Revaluation gains/(losses) Total comprehensive income 2012 £’000 41,280 (13,670) 27,610 (17,881) (8,637) - 1,092 5 (457) 640 183 823 0.25p 0.24p 2012 £’000 823 (734) (431) 50 (292) Consolidated statement of comprehensive income Consolidated statement of comprehensive income for the year ended 30 June 2012 Year to 30 June 2011 £’000 (9,232) (1,670) 2011 £’000 41,552 (13,221) 28,331 (17,524) (10,902) 210 115 2 (2,430) (2,313) (349) (2,662) (0.86p) (0.86p) Year to 30 June 2011 £’000 (2,662) 235 586 (54) (1,895) Consolidated balance sheet Consolidated balance sheet Assets Non-current assets Property, plant and equipment Intangible assets – Goodwill Intangible assets – Other Investments – Retirement benefit asset Total non-current assets Current assets Trade and other receivables Inventories Cash and cash in hand Financial derivative instruments Total current assets Total assets Liabilities Current liabilities Trade and other payables Current borrowings Derivative financial instruments Total current liabilities Net current assets Non current liabilities Retirement benefit obligation Non current borrowings Derivative financial instruments Deferred taxation Non current provisions Total non current liabilities Total liabilities Net assets Equity Capital and reserves Issued capital Share premium Merger reserve – shares issued by subsidiary Reserve – shares held by EBT Reserve – share based payments Reserve – convertible loan notes Revaluation reserve Foreign exchange reserve Retained earnings Total equity Note 30 June 2012 £’000 30 June 2011 £’000 16 14 15 17 19 18 20 21 22 24 26 22 24 12 23 27 7,555 2,489 2,107 2,569 14,720 4,997 6,651 903 483 13,034 27,754 (6,312) (1,426) (9) (7,747) 5,287 (4,717) (97) (162) (165) (274) (5,415) (13,162) 14,592 417 67,571 40,128 67 1,496 3,652 1,297 93 (100,129) 14,592 8,809 2,624 1,781 2,493 15,707 6,779 7,087 1,048 - 14,914 30,621 (7,549) (2,793) (805) (11,147) 3,767 (4,114) (12,361) (376) (201) (283) (17,335) (28,482) 2,139 321 58,705 40,128 67 1,398 - 1,287 524 (100,291) 2,139 These financial statements were approved by the Board of Directors on 14 September 2012 and were signed on its behalf by Manuel Llobet Chief Executive Officer Registered number: 05141592 Ian Postlethwaite Finance Director 54 © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated income statement www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated balance sheet www.allergytherapeutics.com www.pollinex.com 55 Consolidated statement of changes in equity Consolidated cash flow statement Issued Share Merger Reserve- Reserve- Reserve- Revaluation Foreign Retained Total equity capital premium reserve- shares issued by subsidary shares held in share convertible reserve exchange earnings based EBT payments loan note reserve £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 30 June 2010 321 58,704 40,128 67 1,323 - 1,381 (62) (97,976) 3,886 Exchange differences on translation of foreign operations Actuarial gains Valuation losses taken to equity Total other comprehensive income Loss for the period after tax Total comprehensive income Share based payments Shares issued Transfer of depreciation on revalued property Transfer of lapsed options to retained earnings - - 586 235 586 235 (54) (54) - (54) 586 235 767 (2,662) (2,662) - (54) 586 (2,427) (1,895) (40) 147 1 - - 40 72 - - - - - - 1 - - 147 (72) At 30 June 2011 321 58,705 40,128 67 1,398 - 1,287 524 (100,291) 2,139 Exchange differences on translation of foreign operations Actuarial (loss) Valuation gains taken to equity Total other comprehensive income - Profit for the period after tax Total comprehensive income - Share based payments - - - - - - - - - - 131 Shares issued 96 8,866 3,652 Transfer of depreciation on revalued property Transfer of lapsed options to retained earnings (40) (33) 131 12,614 - - 40 33 (431) (431) (734) (734) 50 50 50 (431) (734) (1,115) 823 823 Net cash (used in)/ generated by financing activities 50 (431) 89 (292) Year to 30 June 2012 £’000 Note Year to 30 June 2011 £’000 10 9 9 15, 16 Cash flows from operating activities Profit/ (Loss) before tax Adjustments for: Finance income Finance expense Revaluation loss on loan Non cash movements on defined benefit pension plan Depreciation and amortisation Gain on bargain purchase Charge for share based payments Financial derivative instruments Disposal of property, plant and equipment Decrease/(Increase) in trade and other receivables Decrease in inventories Increase in trade and other payables Net cash generated by/ (used in) operations Interest paid Income tax refunded/ (paid) Net cash generated by/ (used in) operating activities Cash flows from investing activities Interest received Investments Acquisitions Payments for intangible assets Payments for property plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of equity shares and convertible loan notes Repayment of borrowings Proceeds from borrowings Bank loan fees and interest paid Net (decrease) in cash and cash equivalents Effects of exchange rates on cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period Cash at bank and in hand Bank Overdraft Cash and cash equivalents at the end of the period 640 (5) 1,456 (999) 164 1,892 - 131 (1,280) 8 1,287 272 (642) 2,924 (51) 7 2,880 (311) 5 - (829) (432) (1,567) 12,614 (22,623) 7,680 (406) (2,735) (1,422) (35) 1,048 (409) 903 (1,312) (409) (2,313) (2) 1,085 1,345 181 1,698 (186) 147 805 8 (2,728) 73 (1,788) (1,675) (3) (349) (2,027) 3 (313) (740) (87) (1,150) (2,287) 1 (7,016) 9,024 (1,245) 764 (3,550) 78 4,520 1,048 1,048 - 1,048 At 30 June 2012 417 67,571 40,128 67 1,496 3,652 1,297 93 (100,129) 14,592 56 © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated statement of changes in equity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated cash flow statement www.allergytherapeutics.com www.pollinex.com 57 Consolidated statement of changes in equity Consolidated cash flow statement Year to 30 June 2012 £’000 Note Year to 30 June 2011 £’000 10 9 9 15, 16 Cash flows from operating activities Profit/ (Loss) before tax Adjustments for: Finance income Finance expense Revaluation loss on loan Non cash movements on defined benefit pension plan Depreciation and amortisation Gain on bargain purchase Charge for share based payments Financial derivative instruments Disposal of property, plant and equipment Decrease/(Increase) in trade and other receivables Decrease in inventories Increase in trade and other payables Net cash generated by/ (used in) operations Interest paid Income tax refunded/ (paid) Net cash generated by/ (used in) operating activities Cash flows from investing activities Interest received Investments Acquisitions Payments for intangible assets Payments for property plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of equity shares and convertible loan notes Repayment of borrowings Proceeds from borrowings Bank loan fees and interest paid 823 823 Net cash (used in)/ generated by financing activities Net (decrease) in cash and cash equivalents Effects of exchange rates on cash and cash equivalents Cash and cash equivalents at the start of the period Shares issued 96 8,866 3,652 Cash and cash equivalents at the end of the period At 30 June 2012 417 67,571 40,128 67 1,496 3,652 1,297 93 (100,129) 14,592 Cash at bank and in hand Bank Overdraft Cash and cash equivalents at the end of the period 640 (5) 1,456 (999) 164 1,892 - 131 (1,280) 8 1,287 272 (642) 2,924 (51) 7 2,880 5 (311) - (829) (432) (1,567) 12,614 (22,623) 7,680 (406) (2,735) (1,422) (35) 1,048 (409) 903 (1,312) (409) (2,313) (2) 1,085 1,345 181 1,698 (186) 147 805 8 (2,728) 73 (1,788) (1,675) (3) (349) (2,027) 3 (313) (740) (87) (1,150) (2,287) 1 (7,016) 9,024 (1,245) 764 (3,550) 78 4,520 1,048 1,048 - 1,048 Issued Share Merger Reserve- Reserve- Reserve- Revaluation Foreign Retained Total equity capital premium reserve- share convertible reserve exchange earnings shares held in based EBT payments loan note shares issued by subsidary reserve £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 30 June 2010 321 58,704 40,128 67 1,323 - 1,381 (62) (97,976) 3,886 comprehensive income - - (54) 586 235 767 Exchange differences on translation of foreign operations Actuarial gains Valuation losses taken to equity Total other Loss for the period after tax Total comprehensive income - Share based payments Shares issued Transfer of depreciation on revalued property Transfer of lapsed options to retained earnings Exchange differences on translation of foreign operations Actuarial (loss) Valuation gains taken to equity Total other comprehensive income - Profit for the period after tax Total comprehensive income - Share based payments Transfer of depreciation on revalued property Transfer of lapsed options to retained earnings (2,662) (2,662) - (54) 586 (2,427) (1,895) 586 235 586 235 (54) 147 1 - - 40 72 (431) (431) (734) (734) 50 50 50 (431) (734) (1,115) 50 (431) 89 (292) - - (54) (40) (40) 131 12,614 - - 40 33 - - 1 - - - - - - - - - - - - 147 (72) - - 131 (33) At 30 June 2011 321 58,705 40,128 67 1,398 - 1,287 524 (100,291) 2,139 56 © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated statement of changes in equity www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Consolidated cash flow statement www.allergytherapeutics.com www.pollinex.com 57 Notes to the financial statements IFRS 13 Fair Value Measurement 1. Basis of preparation The Group’s financial statements have been prepared in (effective 1 January 2013) IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through accordance with International Financial Reporting Standards a ‘fair value hierarchy’. (IFRS) in issue as adopted by the European Union (‘EU’). Allergy Therapeutics plc is the Group’s ultimate parent company. The Company is a limited liability company IAS 19 (Revised June 2011) Employee Benefits (effective 1 January 2013) IAS 19 reviews the treatment of employee benefits with incorporated and domiciled in England. The address of Allergy a view to recognising the cost in the period in which the Therapeutics plc’s registered office and its principal place of benefit is earned by the employee, rather than when business is Dominion Way, Worthing, West Sussex and its it is paid or payable. shares are listed on the Alternative Investment Market (AIM). In reaching this view, the Directors have considered and Intangible assets prioritised the actions that could be taken to offset the Acquired as part of a business combination impact of any shortfall in operating performance. Intangible assets acquired in a business combination are The principal accounting policies adopted in the preparation fair values can be measured reliably. The cost of such of these financial statements are set out below. These policies intangible assets is their fair value at the acquisition date. have been consistently applied to all years presented unless identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their 2. Accounting policies otherwise stated. Consolidation Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. The Group’s financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 Internally generated intangible assets The consolidated financial statements for the year ended 30 June 2012 (including comparatives) have been prepared (effective 1 January 2013) IAS 27 is concerned with the preparation and presentation has the power to govern the financial and operating policies, development (or the development phase) of an internal project generally accompanying a shareholding of over one half is recognised if, and only if, all of the following have been IAS 27 (Revised) Separate Financial statements June 2012. Subsidiaries are all entities over which the Group An internally generated intangible asset arising from under the historical cost convention except for land and of consolidated financial statements for a group of entities of the voting rights. The existence and effect of potential demonstrated: buildings and derivative financial instruments which have been under the control of a parent, and in accounting for voting rights that are currently exercisable or convertible measured at fair value. They were approved and authorised investments in subsidiaries, jointly controlled entities and are considered when assessing whether the Group controls • the technical feasibility of completing the intangible asset for issue by the Board of Directors on 14 September 2012. associates when an entity elects, or is required by local another entity. Subsidiaries are fully consolidated from the so that it will be available for use or sale. New standards adopted There are no IFRS or IAS interpretations that are effective for the first time in this financial period that have had a material impact on the Group. regulations, to present separate (non-consolidated) financial date on which control is transferred to the Group. They are • the intention to complete the intangible asset and statements. deconsolidated on the date control ceases. use or sell it. Amendments to IAS 1 Presentation of Other Comprehensive Income (effective 1 July 2012) This IAS amendment revises the way the statement The Group uses the purchase method of accounting for • how the intangible asset will generate probable the acquisition of a subsidiary. The cost of an acquisition future economic benefits. is measured by the fair value of the assets given, equity • the availability of adequate technical, financial and other • the ability to use or sell the intangible asset Standards, amendments and interpretations to existing of other comprehensive income should be presented instruments issued and liabilities incurred or assumed at the resources to complete the development and to use or standards that are not yet effective and have not been requiring separate subtotals for those elements which date of exchange. Identifiable assets acquired and liabilities sell the intangible asset. early adopted by the Group in the 30 June 2012 financial may be ‘recycled’ (e.g. cash-flow hedging, foreign and contingent liabilities assumed in a business combination • the ability to measure reliably the expenditure attributable statements At the date of authorisation of these financial statements, currency translation), and those elements that will not. that meet the conditions for recognition under IFRS 3 Revised to the intangible asset during its development. Business Combinations, are recognised at their fair values certain new standards, amendments and interpretations Management anticipate that the above pronouncements at the acquisition date. The excess of the cost of acquisition The amount initially recognised for internally generated to existing standards have been published but are not yet will be adopted in the Group’s financial statements in line over the fair value of the Group’s share of the identifiable net intangible assets is the sum of the expenditure incurred from effective. Not all of these have yet been adopted by the EU. with the effective dates stated above. Management are assets acquired is recorded as goodwill. If the cost of the the date when the intangible asset first meets the recognition The Group has not adopted any of these pronouncements currently assessing their detailed impact on the Group’s acquisition is less than the fair value of the net assets of the criteria listed above. Where no internally generated intangible early. The new standards, amendments and interpretations financial statements. that are expected to be relevant to the Group’s financial statements are as follows: IFRS 9 Financial Instruments (effective 1 January 2015) This IFRS replaces IAS39 and addresses the usefulness for users of financial statements by simplifying the classification and measurement requirements for financial Other new standards and Interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. Going concern For the year ended 2012 and for the third year in succession, of impairment. amortisation and accumulated impairment losses. Amortisation shall begin when the asset is available for instruments. Management are currently assessing the detailed impact on the Group’s financial statements. the Group has reported an operating profit and an operating cash inflow of £2.9m (2011: £2.0m outflow). IFRS 10 Consolidated Financial statements The Group has prepared detailed budgets, including cash (effective 1 January 2013) This IFRS establishes principles for the presentation flow projections, for the periods ending 30 June 2013 and 30 June 2014. These projections include assumptions on and preparation of consolidated financial statements the trading performance of the operating business and the when an entity controls one or more other entities. continued availability of the existing debt facilities. After making appropriate enquiries, which included a review of IFRS 12 Disclosure of Interests in Other Entities the annual budget, by considering the cash flow requirements (effective 1 January 2013) This IFRS looks at the disclosure of information that enables for the foreseeable future and the effects of sales and other sensitivities on the Company’s funding plans, the Directors users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities, and the continue to believe that the Group will have adequate resources to continue in operational existence for the effects of those interests on its financial position, financial foreseeable future and accordingly have applied the going performance and cash flows. concern principle in drawing up the financial statements. subsidiary acquired the difference is recognised directly in asset can be recognised, research and development the profit or loss. expenditure is charged to profit or loss in the period in which it is incurred. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are Subsequent to initial recognition, internally generated eliminated except for unrealised losses if they show evidence intangible assets are reported at cost less accumulated Where necessary, adjustments are made to the financial use, i.e. when it is in the location and condition necessary statements of subsidiaries to bring accounting policies used for it to be capable of operating in the manner intended into line with those used in the Group. by management. Goodwill Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired. Details of impairment testing are described in the accounting policies. 58 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 59 Notes to the financial statements IFRS 13 Fair Value Measurement (effective 1 January 2013) 1. Basis of preparation IFRS 13 seeks to increase consistency and comparability The Group’s financial statements have been prepared in in fair value measurements and related disclosures through accordance with International Financial Reporting Standards a ‘fair value hierarchy’. (IFRS) in issue as adopted by the European Union (‘EU’). In reaching this view, the Directors have considered and Intangible assets prioritised the actions that could be taken to offset the impact of any shortfall in operating performance. 2. Accounting policies The principal accounting policies adopted in the preparation Acquired as part of a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such IAS 19 (Revised June 2011) Employee Benefits of these financial statements are set out below. These policies intangible assets is their fair value at the acquisition date. Allergy Therapeutics plc is the Group’s ultimate parent (effective 1 January 2013) have been consistently applied to all years presented unless company. The Company is a limited liability company IAS 19 reviews the treatment of employee benefits with otherwise stated. incorporated and domiciled in England. The address of Allergy a view to recognising the cost in the period in which the Therapeutics plc’s registered office and its principal place of benefit is earned by the employee, rather than when business is Dominion Way, Worthing, West Sussex and its it is paid or payable. shares are listed on the Alternative Investment Market (AIM). IAS 27 (Revised) Separate Financial statements Consolidation The Group’s financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 June 2012. Subsidiaries are all entities over which the Group Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Internally generated intangible assets An internally generated intangible asset arising from The consolidated financial statements for the year ended (effective 1 January 2013) has the power to govern the financial and operating policies, development (or the development phase) of an internal project 30 June 2012 (including comparatives) have been prepared IAS 27 is concerned with the preparation and presentation generally accompanying a shareholding of over one half is recognised if, and only if, all of the following have been under the historical cost convention except for land and of consolidated financial statements for a group of entities of the voting rights. The existence and effect of potential demonstrated: buildings and derivative financial instruments which have been under the control of a parent, and in accounting for voting rights that are currently exercisable or convertible measured at fair value. They were approved and authorised investments in subsidiaries, jointly controlled entities and are considered when assessing whether the Group controls • the technical feasibility of completing the intangible asset for issue by the Board of Directors on 14 September 2012. associates when an entity elects, or is required by local another entity. Subsidiaries are fully consolidated from the so that it will be available for use or sale. regulations, to present separate (non-consolidated) financial date on which control is transferred to the Group. They are • the intention to complete the intangible asset and New standards adopted statements. There are no IFRS or IAS interpretations that are effective deconsolidated on the date control ceases. use or sell it. • the ability to use or sell the intangible asset for the first time in this financial period that have had a Amendments to IAS 1 Presentation of Other The Group uses the purchase method of accounting for • how the intangible asset will generate probable material impact on the Group. Comprehensive Income (effective 1 July 2012) This IAS amendment revises the way the statement the acquisition of a subsidiary. The cost of an acquisition future economic benefits. is measured by the fair value of the assets given, equity • the availability of adequate technical, financial and other Standards, amendments and interpretations to existing of other comprehensive income should be presented instruments issued and liabilities incurred or assumed at the resources to complete the development and to use or standards that are not yet effective and have not been requiring separate subtotals for those elements which date of exchange. Identifiable assets acquired and liabilities sell the intangible asset. early adopted by the Group in the 30 June 2012 financial may be ‘recycled’ (e.g. cash-flow hedging, foreign and contingent liabilities assumed in a business combination • the ability to measure reliably the expenditure attributable currency translation), and those elements that will not. that meet the conditions for recognition under IFRS 3 Revised to the intangible asset during its development. certain new standards, amendments and interpretations Management anticipate that the above pronouncements at the acquisition date. The excess of the cost of acquisition The amount initially recognised for internally generated to existing standards have been published but are not yet will be adopted in the Group’s financial statements in line over the fair value of the Group’s share of the identifiable net intangible assets is the sum of the expenditure incurred from effective. Not all of these have yet been adopted by the EU. with the effective dates stated above. Management are assets acquired is recorded as goodwill. If the cost of the the date when the intangible asset first meets the recognition The Group has not adopted any of these pronouncements currently assessing their detailed impact on the Group’s acquisition is less than the fair value of the net assets of the criteria listed above. Where no internally generated intangible Business Combinations, are recognised at their fair values statements At the date of authorisation of these financial statements, early. The new standards, amendments and interpretations financial statements. that are expected to be relevant to the Group’s financial statements are as follows: Other new standards and Interpretations have been issued but are not expected to have a material impact IFRS 9 Financial Instruments (effective 1 January 2015) on the Group’s financial statements. This IFRS replaces IAS39 and addresses the usefulness for users of financial statements by simplifying the Going concern classification and measurement requirements for financial For the year ended 2012 and for the third year in succession, subsidiary acquired the difference is recognised directly in asset can be recognised, research and development the profit or loss. expenditure is charged to profit or loss in the period in which it is incurred. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are Subsequent to initial recognition, internally generated eliminated except for unrealised losses if they show evidence intangible assets are reported at cost less accumulated of impairment. amortisation and accumulated impairment losses. Amortisation shall begin when the asset is available for instruments. Management are currently assessing the the Group has reported an operating profit and an operating Where necessary, adjustments are made to the financial use, i.e. when it is in the location and condition necessary detailed impact on the Group’s financial statements. cash inflow of £2.9m (2011: £2.0m outflow). statements of subsidiaries to bring accounting policies used for it to be capable of operating in the manner intended into line with those used in the Group. by management. IFRS 10 Consolidated Financial statements The Group has prepared detailed budgets, including cash (effective 1 January 2013) flow projections, for the periods ending 30 June 2013 and This IFRS establishes principles for the presentation 30 June 2014. These projections include assumptions on and preparation of consolidated financial statements the trading performance of the operating business and the when an entity controls one or more other entities. continued availability of the existing debt facilities. After making appropriate enquiries, which included a review of IFRS 12 Disclosure of Interests in Other Entities the annual budget, by considering the cash flow requirements (effective 1 January 2013) for the foreseeable future and the effects of sales and other This IFRS looks at the disclosure of information that enables sensitivities on the Company’s funding plans, the Directors users of financial statements to evaluate the nature of, and continue to believe that the Group will have adequate risks associated with, its interests in other entities, and the resources to continue in operational existence for the effects of those interests on its financial position, financial foreseeable future and accordingly have applied the going performance and cash flows. concern principle in drawing up the financial statements. Goodwill Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired. Details of impairment testing are described in the accounting policies. 58 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 59 Amortisation of all intangible assets is calculated on a straight translated using the exchange rate at the date of the final settlement of the invoice to which the delivery relates. other comprehensive income and accumulated in equity line basis over the useful economic life using the following transaction or an average rate as an approximation. The licensee has full discretion over the setting of the final under the heading of revaluation reserve. When an item of annual rates: Group companies The results and financial position of all Group entities that Manufacturing know-how 15 years have a functional currency different from the presentational all customer returns of product. Non-competing know-how 4 years as follows: currency are translated into the presentational currency selling price to the end customer and pays a fixed percentage property, plant and equipment is revalued, any accumulated of the final selling price back to the Group as ‘royalties’ as and depreciation at the date of the revaluation is restated when those sales are made. The licensee is responsible for proportionately with the change in the gross carrying amount It is considered that the significant risks and rewards of forms part of the increase or decrease in carrying amount. ownership of the product are transferred to the licensee at Decreases in the carrying values arising from revaluations of the asset. The amount of the adjustment arising on the restatement or elimination of accumulated depreciation Other intangibles 15 years/ • Assets and liabilities for each balance sheet presented the point of delivery and therefore revenue is recognised at are first offset against increases from earlier revaluations in period of contract are translated at the closing rate at the date of the balance this point in accordance with IAS 18. Royalties are recognised respect of the same assets and are thereafter charged to Computer software 7 years recognised in other comprehensive income and customer in accordance with IAS 18 paragraph 30 (b). sheet with all resulting exchange differences being on an accruals basis as the licensee books the sale to the end profit or loss. These periods were selected to reflect the various assets’ translated at exchange rates at the date of the transaction with the Group, at which point goods are shipped to them. Provision for depreciation of all tangible assets of the Group useful economic lives to the Group. or using an average rate as an approximation with resulting exchange differences recognised in other comprehensive The Group however, holds title to these products until they (except land) is made over their estimated useful lives, on a are sold on to a third party with the distributor effectively straight line basis principally using the following annual rates: accumulated in a separate component of equity. Plant and equipment are stated at historical cost less • Income and expenses for each income statement item are For all distributor agreements, the distributor places orders accumulated depreciation and accumulated impairment losses. The cost of amortising intangible assets is included within income and accumulated in a separate component administration costs in the consolidated income statement. of equity. Segmental reporting In identifying its operating segments, management follow The Group has taken advantage of the exemption in IFRS 1 which allows all foreign exchange differences on consolidation the Group’s revenue lines which represent the main geographical markets within which the Group operates. to be set at zero at transition and the foreign exchange reserve therefore only shows post transition foreign exchange These operating segments are managed separately as each differences. requires different local expertise, regulatory knowledge and a specialised marketing approach. A market based operating segment is engaged in production, marketing and selling Income recognition Revenue is measured by reference to the fair value of within a particular economic environment that is different consideration received or receivable by the Group for goods from that in segments operating in other economic supplied and services provided, net of statutory rebates environments. All inter-segment transfers are carried paid in Germany and excluding value added tax. Revenue out at arm’s length prices. is recognised upon the performance of services or transfer Expenditure recognition The Group’s operating segments are market based and are reported in a manner consistent with the internal reporting provided to the Group’s Chief Operating Decision Sale of goods Revenue from the sale of goods is recognised when of risk to the customer. Maker (CODM) who has been identified as the Executive all the following conditions have been satisfied: Borrowing costs primarily comprise interest on the Group’s amount exceeds the higher of the asset’s fair value less costs Directors. The CODM is responsible for allocating resources borrowings. Borrowing costs directly attributable to the to sell or value in use. and assessing the performance of the operating segments. • the Group has transferred to the buyer the significant acquisition, construction or production of a qualifying asset Foreign currency translation Functional and presentational currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Group’s presentational currency risks and rewards of ownership of the goods which is generally when the customer has physically received the goods. • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is again when the customer has physically is Sterling, which is also the functional currency of the received the goods. Group’s parent. Transactions and balances Foreign currency transactions are translated into the • the amount of revenue can be measured reliably. • it is probable that the economic benefits associated with the transaction will flow to the Group, and • the costs incurred or to be incurred in respect of the functional currency using the exchange rates prevailing transaction can be measured reliably. experienced valuers who have adequate local knowledge For the purposes of assessing impairment, assets are grouped at the dates of the transactions. Foreign exchange gains in the country in which the property is situated. In the at the lowest levels for which there are separately identifiable and losses resulting from the settlement of such transactions A small proportion of the Group’s overseas sales are made intervening years between independent revaluations, the cash flows (cash generating units). Goodwill is allocated to and from the translation, at reporting period end exchange rates, of monetary assets and liabilities denominated in though licensees and distributors. directors review the carrying values of the freehold land and those cash generating units that are expected to benefit from buildings and adjustments are made if the carrying values synergies of the related business combination and represent foreign currencies, are recognised in the profit and loss. For all licensee arrangements, the licensee is invoiced at the differ significantly from their respective fair values. Increases the lowest level within the Group at which management Non-monetary items are carried at historical cost or time of delivery and title to the product passes upon full and in the carrying value from revaluations are recognised in controls the related cash flows. 60 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 61 acting as an agent. The selling price to the end user is set by the relevant Government body and the distributor receives a fixed percentage of this selling price. The distributor notifies Buildings the Group monthly on stock levels and this is reconciled to a statement which generates an invoice for payment by the Computer equipment distributor. The Group is responsible for any customer returns of product. Motor vehicles It is considered that the significant risks and rewards of Fixtures and fittings ownership of the product are not transferred from the Group until the distributor has sold the product to a third party and Plant and equipment therefore revenue on these sales is recognised at this point by the Group in accordance with IAS 18 appendix 2 (c). 33 years 3 – 7 years 4 years 5 – 10 years 5 – 10 years Operating expenses are recognised in the income statement impairment whenever events or changes in circumstances upon utilisation of the service or at the date of their origin. indicate that the carrying amount of the fixed asset may not Borrowing costs be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying Asset residual values and useful lives are reviewed annually and amended as necessary. Assets are reviewed for are capitalised during the period of time that is necessary to Assets under course of construction are capitalised but not complete and prepare the asset for its intended use or sale. depreciated. Once the asset is ready for use, it is transferred Other borrowing costs are expensed in the period in which to the relevant heading and depreciated accordingly. they are incurred and reported in ‘finance costs’. Depreciation is included within operating expenses in the Property, plant and equipment income statement. The Group policy is that all freehold properties will be subject to a full revaluation at least every five years with an interim Impairment valuation carried out in accordance with IAS 16 in the third The Group’s goodwill, other intangible assets, freehold year after each valuation. land and buildings and plant & equipment are subject to Revaluations are performed by independent qualified and impairment testing. Amortisation of all intangible assets is calculated on a straight translated using the exchange rate at the date of the final settlement of the invoice to which the delivery relates. other comprehensive income and accumulated in equity line basis over the useful economic life using the following transaction or an average rate as an approximation. The licensee has full discretion over the setting of the final under the heading of revaluation reserve. When an item of annual rates: Group companies selling price to the end customer and pays a fixed percentage property, plant and equipment is revalued, any accumulated of the final selling price back to the Group as ‘royalties’ as and depreciation at the date of the revaluation is restated The results and financial position of all Group entities that when those sales are made. The licensee is responsible for proportionately with the change in the gross carrying amount Manufacturing know-how 15 years have a functional currency different from the presentational all customer returns of product. of the asset. The amount of the adjustment arising on the restatement or elimination of accumulated depreciation It is considered that the significant risks and rewards of forms part of the increase or decrease in carrying amount. ownership of the product are transferred to the licensee at Decreases in the carrying values arising from revaluations Non-competing know-how 4 years as follows: currency are translated into the presentational currency Other intangibles 15 years/ • Assets and liabilities for each balance sheet presented the point of delivery and therefore revenue is recognised at are first offset against increases from earlier revaluations in period of contract are translated at the closing rate at the date of the balance this point in accordance with IAS 18. Royalties are recognised respect of the same assets and are thereafter charged to Computer software 7 years recognised in other comprehensive income and customer in accordance with IAS 18 paragraph 30 (b). sheet with all resulting exchange differences being on an accruals basis as the licensee books the sale to the end profit or loss. These periods were selected to reflect the various assets’ translated at exchange rates at the date of the transaction with the Group, at which point goods are shipped to them. Provision for depreciation of all tangible assets of the Group useful economic lives to the Group. or using an average rate as an approximation with resulting exchange differences recognised in other comprehensive The Group however, holds title to these products until they (except land) is made over their estimated useful lives, on a are sold on to a third party with the distributor effectively straight line basis principally using the following annual rates: accumulated in a separate component of equity. Plant and equipment are stated at historical cost less • Income and expenses for each income statement item are For all distributor agreements, the distributor places orders accumulated depreciation and accumulated impairment losses. The cost of amortising intangible assets is included within income and accumulated in a separate component administration costs in the consolidated income statement. of equity. acting as an agent. The selling price to the end user is set by the relevant Government body and the distributor receives a fixed percentage of this selling price. The distributor notifies Buildings Segmental reporting The Group has taken advantage of the exemption in IFRS 1 the Group monthly on stock levels and this is reconciled to In identifying its operating segments, management follow which allows all foreign exchange differences on consolidation a statement which generates an invoice for payment by the Computer equipment the Group’s revenue lines which represent the main to be set at zero at transition and the foreign exchange geographical markets within which the Group operates. reserve therefore only shows post transition foreign exchange distributor. The Group is responsible for any customer returns of product. Motor vehicles segment is engaged in production, marketing and selling Revenue is measured by reference to the fair value of until the distributor has sold the product to a third party and Plant and equipment It is considered that the significant risks and rewards of Fixtures and fittings ownership of the product are not transferred from the Group 33 years 3 – 7 years 4 years 5 – 10 years 5 – 10 years therefore revenue on these sales is recognised at this point by the Group in accordance with IAS 18 appendix 2 (c). Expenditure recognition Operating expenses are recognised in the income statement and amended as necessary. Assets are reviewed for impairment whenever events or changes in circumstances upon utilisation of the service or at the date of their origin. indicate that the carrying amount of the fixed asset may not Asset residual values and useful lives are reviewed annually reporting provided to the Group’s Chief Operating Decision Revenue from the sale of goods is recognised when Maker (CODM) who has been identified as the Executive all the following conditions have been satisfied: Borrowing costs Borrowing costs primarily comprise interest on the Group’s be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds the higher of the asset’s fair value less costs Directors. The CODM is responsible for allocating resources borrowings. Borrowing costs directly attributable to the to sell or value in use. and assessing the performance of the operating segments. • the Group has transferred to the buyer the significant acquisition, construction or production of a qualifying asset Foreign currency translation Functional and presentational currency risks and rewards of ownership of the goods which is generally when the customer has physically received the goods. are capitalised during the period of time that is necessary to Assets under course of construction are capitalised but not complete and prepare the asset for its intended use or sale. depreciated. Once the asset is ready for use, it is transferred Other borrowing costs are expensed in the period in which to the relevant heading and depreciated accordingly. Items included in the financial statements of each of the • the Group retains neither continuing managerial they are incurred and reported in ‘finance costs’. Group’s entities are measured using the currency of the involvement to the degree usually associated with primary economic environment in which the entity operates ownership nor effective control over the goods sold (the functional currency). The Group’s presentational currency which is again when the customer has physically is Sterling, which is also the functional currency of the received the goods. Group’s parent. Transactions and balances • the amount of revenue can be measured reliably. • it is probable that the economic benefits associated with the transaction will flow to the Group, and Property, plant and equipment The Group policy is that all freehold properties will be subject Depreciation is included within operating expenses in the income statement. to a full revaluation at least every five years with an interim valuation carried out in accordance with IAS 16 in the third Impairment The Group’s goodwill, other intangible assets, freehold year after each valuation. land and buildings and plant & equipment are subject to impairment testing. Foreign currency transactions are translated into the • the costs incurred or to be incurred in respect of the Revaluations are performed by independent qualified and functional currency using the exchange rates prevailing transaction can be measured reliably. experienced valuers who have adequate local knowledge For the purposes of assessing impairment, assets are grouped at the dates of the transactions. Foreign exchange gains in the country in which the property is situated. In the at the lowest levels for which there are separately identifiable and losses resulting from the settlement of such transactions A small proportion of the Group’s overseas sales are made intervening years between independent revaluations, the cash flows (cash generating units). Goodwill is allocated to and from the translation, at reporting period end exchange though licensees and distributors. rates, of monetary assets and liabilities denominated in directors review the carrying values of the freehold land and buildings and adjustments are made if the carrying values those cash generating units that are expected to benefit from synergies of the related business combination and represent foreign currencies, are recognised in the profit and loss. For all licensee arrangements, the licensee is invoiced at the differ significantly from their respective fair values. Increases the lowest level within the Group at which management Non-monetary items are carried at historical cost or time of delivery and title to the product passes upon full and in the carrying value from revaluations are recognised in controls the related cash flows. These operating segments are managed separately as each differences. requires different local expertise, regulatory knowledge and a specialised marketing approach. A market based operating Income recognition within a particular economic environment that is different consideration received or receivable by the Group for goods from that in segments operating in other economic supplied and services provided, net of statutory rebates environments. All inter-segment transfers are carried paid in Germany and excluding value added tax. Revenue out at arm’s length prices. is recognised upon the performance of services or transfer The Group’s operating segments are market based and are reported in a manner consistent with the internal Sale of goods of risk to the customer. 60 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 61 Individual assets or cash generating units that include with any changes going through profit or loss. • “Share premium” represents the excess over nominal value Current and deferred tax assets and liabilities are calculated goodwill with an indefinite useful life or those not yet Where securities are designated as ‘fair value through of the fair value of consideration received for equity shares, at tax rates that are expected to apply to their respective available for use are tested for impairment at least annually. profit and loss’ gains and losses arising from changes in net of expenses of the share issue. period of realisation, provided they are enacted or All other individual assets or cash generating units are tested fair value are included in net profit or loss for the period. • “Merger reserve” represents the excess over nominal substantively enacted at the balance sheet date. for impairment whenever events or changes in circumstances value of the fair value of consideration received for equity indicate that the carrying amount may not be recoverable. Derecognition of financial assets occurs when the rights shares issued on acquisition of subsidiaries, net of Changes in deferred tax assets or liabilities are recognised to receive cash flows from the investments expire or are expenses of the share issue. as a component of tax expense in the income statement, An impairment loss is recognised for the amount by which transferred and substantially all of the risks and rewards • “Reserve - Shares held in EBT” represent the shares except where they relate to items that are charged or the assets or cash generating units carrying amount exceeds of ownership have been transferred. An assessment for acquired by a trust set up for the benefit of the Group’s credited directly to other comprehensive income (such as its recoverable amount. The recoverable amount is the higher impairment is undertaken at least at each balance sheet employees. These shares are deducted from shareholders the revaluation of land and buildings) in which case the related of fair value, reflecting market conditions less costs to sell date whether or not there is objective evidence that a funds at the cost that the shares were acquired. The net deferred tax is also charged or credited directly to other and value in use, based on an internal discounted cash flow financial asset or a group of financial assets is impaired. proceeds received from the issue of these shares through comprehensive income. evaluation. Impairment losses recognised for cash generating the exercise of options are also recognised through this units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining Financial liabilities The Group’s financial liabilities include bank loans, reserve. Defined Benefit Pension Scheme • “Reserve - share based payments” represents equity- Scheme assets are measured at fair values. Scheme liabilities impairment loss is charged pro rata to the other assets in trade and other payables and derivatives. settled share-based employee remuneration until such are measured on an actuarial basis using the projected the cash generating unit. With the exception of goodwill, share options are exercised. unit credit method and are discounted at appropriate high all assets are subsequently reassessed for indications that Financial liabilities are recognised when the Group becomes • “Reserve - convertible loan notes” represents the equity quality corporate bond rates that have terms to maturity an impairment loss previously recognised may no longer exist. a party to the contractual agreements of the instrument. component of consideration received for convertible loan approximating to the terms of the related liability. Appropriate Inventories Inventory is carried at the lower of cost or net realisable All interest related charges are recognised as an expense notes, net of expenses. adjustments are made for past service costs. Past service in ‘Finance costs’ in the income statement. • “Revaluation reserve” represents the revaluations of cost is recognised as an expense on a straight-line basis investment assets and land and buildings. over the average period until the benefits become vested. value. The costs of raw materials, consumables, work in Trade and other payables are recognised initially at their fair • “Foreign Exchange reserve” represents the foreign To the extent that benefits are already vested the Group progress and finished goods are measured by means of value and subsequently measured at amortised cost using currency translation differences that have occurred since recognises past service cost immediately. weighted average cost using standard costing techniques. the effective interest method. the transition date. Exchange differences prior to this date Cost of finished goods comprises direct production costs are included within retained earnings. Actuarial gains and losses are recognised immediately in such as raw materials, consumables, utilities and labour, Borrowings comprise secured bank borrowings, and are • “Retained earnings” represents retained profits and losses. other comprehensive income. The net surplus or deficit and production overheads such as employee costs, initially recognised at the fair value of the consideration is presented with other net assets on the balance sheet. depreciation, maintenance and indirect factory costs. received net of issue costs associated with the borrowings. Equity is any contract which evidences a residual interest The related deferred tax is shown with other deferred tax Standard costs are reviewed regularly in order to ensure After initial recognition, interest-bearing loans and borrowings in the assets of the Group after deducting all its liabilities. balances. A surplus is recognised only to the extent that relevant measures of utilisation, production lead time are subsequently measured at amortised cost using the it is recoverable by the Group. and appropriate levels of manufacturing expense are effective interest rate method. Income taxes reflected in the standards. Net realisable value is calculated based on the revenue Convertible loan notes Convertible loan notes are regarded as compound instruments Current income tax assets and liabilities comprise those The current service cost, past service cost and costs obligations to fiscal authorities in the countries in which the from settlements and curtailments are charged against Group carries out its operations. They are calculated according administrative expenses in the income statement. from sale in the normal course of business less any consisting of a liability component and an equity component. to the tax rates and tax laws applicable to the fiscal period and Interest on the scheme liabilities and the expected costs to sell. At the date of issue the fair value of the liability component is estimated using a discount rate for an equivalent liability Leases Operating lease rentals are charged to the income statement without the conversion feature. The difference between the proceeds of issue of the convertible loan note and the the country to which they relate. All changes to current tax return on scheme assets are included in other finance costs. liabilities are recognised as a component of tax expense in the income statement. Short-term employee benefits, including holiday entitlement are included in current pension and other employee over the term of the lease. There are no finance leases. fair value assigned to liability component, representing the Deferred income taxes are calculated using the liability obligations at the undiscounted amount that the Group embedded option to convert the liability into equity of the method on temporary differences. Deferred tax is generally expects to pay as a result of the unused entitlement. Financial assets Financial assets consist of cash, other receivables and financial derivative instruments. Financial assets are assigned to their different categories by management on initial recognition, depending on the contractual arrangements. Group, is included in equity. Derivative financial instruments The Group uses interest rate swaps, Euro forward contracts and Euro exchange swaps to manage the exposure to changes in interest and translation rates and these are provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred Investments tax is not provided on the initial recognition of goodwill, nor Investments relate to long-term insurance policies that on the initial recognition of an asset or liability unless the cannot be directly deducted from the German pension related transaction is a business combination or affects tax obligation. These are recognised as a separate asset, or accounting profit. Deferred tax on temporary differences rather than as a deduction in determining the defined Cash and cash equivalents comprise cash on hand, demand classified as derivative financial instruments. All derivative associated with shares in subsidiaries is not provided if benefit liability. They are held at fair value with any gains deposits and overdrafts, together with other short-term, highly financial instruments are initially measured at fair value on reversal of these temporary differences can be controlled or losses on valuation charged or credited to liquid investments that are readily convertible into known acquisition and are subsequently restated to fair value at by the Group and it is probable that reversal will not occur other comprehensive income. amounts of cash and which are subject to an insignificant risk each reporting date. Any change in the fair value of the in the foreseeable future. In addition, tax losses available to of changes in value. instruments is recognised in the profit and loss. be carried forward as well as other income tax credits to the Provisions All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument and loans and receivables are initially recognised at fair value, Equity Equity comprises the following: Group are assessed for recognition as deferred tax assets. Provisions are recognised when the present obligations Deferred tax liabilities are provided in full, with no discounting. past events, will probably lead to an outflow of economic Deferred tax assets are recognised to the extent that it is resources from the Group which can be estimated reliably. arising from legal or constructive obligations resulting from including transaction costs, with the exception of ‘fair value • “Issued capital” represents the nominal value of equity through profit and loss’ and subsequently at amortised cost, shares that have been issued. probable that the underlying deductible temporary differences will be able to be offset against future taxable income. 62 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 63 Individual assets or cash generating units that include with any changes going through profit or loss. • “Share premium” represents the excess over nominal value Current and deferred tax assets and liabilities are calculated goodwill with an indefinite useful life or those not yet Where securities are designated as ‘fair value through of the fair value of consideration received for equity shares, at tax rates that are expected to apply to their respective available for use are tested for impairment at least annually. profit and loss’ gains and losses arising from changes in net of expenses of the share issue. period of realisation, provided they are enacted or All other individual assets or cash generating units are tested fair value are included in net profit or loss for the period. • “Merger reserve” represents the excess over nominal substantively enacted at the balance sheet date. for impairment whenever events or changes in circumstances value of the fair value of consideration received for equity indicate that the carrying amount may not be recoverable. Derecognition of financial assets occurs when the rights shares issued on acquisition of subsidiaries, net of Changes in deferred tax assets or liabilities are recognised to receive cash flows from the investments expire or are expenses of the share issue. as a component of tax expense in the income statement, An impairment loss is recognised for the amount by which transferred and substantially all of the risks and rewards • “Reserve - Shares held in EBT” represent the shares except where they relate to items that are charged or the assets or cash generating units carrying amount exceeds of ownership have been transferred. An assessment for acquired by a trust set up for the benefit of the Group’s credited directly to other comprehensive income (such as its recoverable amount. The recoverable amount is the higher impairment is undertaken at least at each balance sheet employees. These shares are deducted from shareholders the revaluation of land and buildings) in which case the related of fair value, reflecting market conditions less costs to sell date whether or not there is objective evidence that a funds at the cost that the shares were acquired. The net deferred tax is also charged or credited directly to other and value in use, based on an internal discounted cash flow financial asset or a group of financial assets is impaired. proceeds received from the issue of these shares through comprehensive income. evaluation. Impairment losses recognised for cash generating units, to which goodwill has been allocated, are credited Financial liabilities the exercise of options are also recognised through this reserve. initially to the carrying amount of goodwill. Any remaining The Group’s financial liabilities include bank loans, • “Reserve - share based payments” represents equity- Defined Benefit Pension Scheme Scheme assets are measured at fair values. Scheme liabilities impairment loss is charged pro rata to the other assets in trade and other payables and derivatives. settled share-based employee remuneration until such are measured on an actuarial basis using the projected the cash generating unit. With the exception of goodwill, share options are exercised. unit credit method and are discounted at appropriate high all assets are subsequently reassessed for indications that Financial liabilities are recognised when the Group becomes • “Reserve - convertible loan notes” represents the equity quality corporate bond rates that have terms to maturity an impairment loss previously recognised may no longer exist. a party to the contractual agreements of the instrument. component of consideration received for convertible loan approximating to the terms of the related liability. Appropriate Inventories Inventory is carried at the lower of cost or net realisable All interest related charges are recognised as an expense notes, net of expenses. adjustments are made for past service costs. Past service in ‘Finance costs’ in the income statement. • “Revaluation reserve” represents the revaluations of cost is recognised as an expense on a straight-line basis investment assets and land and buildings. over the average period until the benefits become vested. value. The costs of raw materials, consumables, work in Trade and other payables are recognised initially at their fair • “Foreign Exchange reserve” represents the foreign To the extent that benefits are already vested the Group progress and finished goods are measured by means of value and subsequently measured at amortised cost using currency translation differences that have occurred since recognises past service cost immediately. weighted average cost using standard costing techniques. the effective interest method. the transition date. Exchange differences prior to this date Cost of finished goods comprises direct production costs are included within retained earnings. Actuarial gains and losses are recognised immediately in such as raw materials, consumables, utilities and labour, Borrowings comprise secured bank borrowings, and are • “Retained earnings” represents retained profits and losses. other comprehensive income. The net surplus or deficit and production overheads such as employee costs, initially recognised at the fair value of the consideration is presented with other net assets on the balance sheet. depreciation, maintenance and indirect factory costs. received net of issue costs associated with the borrowings. Equity is any contract which evidences a residual interest The related deferred tax is shown with other deferred tax Standard costs are reviewed regularly in order to ensure After initial recognition, interest-bearing loans and borrowings in the assets of the Group after deducting all its liabilities. balances. A surplus is recognised only to the extent that relevant measures of utilisation, production lead time are subsequently measured at amortised cost using the and appropriate levels of manufacturing expense are effective interest rate method. reflected in the standards. Income taxes Current income tax assets and liabilities comprise those The current service cost, past service cost and costs it is recoverable by the Group. Net realisable value is calculated based on the revenue Convertible loan notes are regarded as compound instruments Group carries out its operations. They are calculated according administrative expenses in the income statement. from sale in the normal course of business less any consisting of a liability component and an equity component. to the tax rates and tax laws applicable to the fiscal period and Interest on the scheme liabilities and the expected Convertible loan notes obligations to fiscal authorities in the countries in which the from settlements and curtailments are charged against costs to sell. Leases At the date of issue the fair value of the liability component is estimated using a discount rate for an equivalent liability without the conversion feature. The difference between Operating lease rentals are charged to the income statement the proceeds of issue of the convertible loan note and the the country to which they relate. All changes to current tax return on scheme assets are included in other finance costs. liabilities are recognised as a component of tax expense in the income statement. Short-term employee benefits, including holiday entitlement are included in current pension and other employee over the term of the lease. There are no finance leases. fair value assigned to liability component, representing the Deferred income taxes are calculated using the liability obligations at the undiscounted amount that the Group embedded option to convert the liability into equity of the method on temporary differences. Deferred tax is generally expects to pay as a result of the unused entitlement. Financial assets Group, is included in equity. Financial assets consist of cash, other receivables and financial derivative instruments. Financial assets are assigned Derivative financial instruments to their different categories by management on initial The Group uses interest rate swaps, Euro forward contracts provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the Investments Investments relate to long-term insurance policies that cannot be directly deducted from the German pension recognition, depending on the contractual arrangements. and Euro exchange swaps to manage the exposure to related transaction is a business combination or affects tax obligation. These are recognised as a separate asset, changes in interest and translation rates and these are or accounting profit. Deferred tax on temporary differences rather than as a deduction in determining the defined Cash and cash equivalents comprise cash on hand, demand classified as derivative financial instruments. All derivative associated with shares in subsidiaries is not provided if benefit liability. They are held at fair value with any gains deposits and overdrafts, together with other short-term, highly financial instruments are initially measured at fair value on reversal of these temporary differences can be controlled or losses on valuation charged or credited to liquid investments that are readily convertible into known acquisition and are subsequently restated to fair value at by the Group and it is probable that reversal will not occur other comprehensive income. amounts of cash and which are subject to an insignificant risk each reporting date. Any change in the fair value of the of changes in value. instruments is recognised in the profit and loss. All financial assets are recognised when the Group becomes Equity a party to the contractual provisions of the instrument and Equity comprises the following: loans and receivables are initially recognised at fair value, in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Provisions Provisions are recognised when the present obligations arising from legal or constructive obligations resulting from Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is past events, will probably lead to an outflow of economic resources from the Group which can be estimated reliably. including transaction costs, with the exception of ‘fair value • “Issued capital” represents the nominal value of equity through profit and loss’ and subsequently at amortised cost, shares that have been issued. probable that the underlying deductible temporary differences will be able to be offset against future taxable income. 62 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 63 Provisions are measured at the present value of the estimated having regard to prior experience, but actual results may 4. Segmental reporting expenditure required to settle the present obligation, based on differ from the amounts included in the financial statements. the most reliable evidence available at the balance sheet date. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the All provisions are reviewed at each balance sheet date and financial statements and the key areas are summarised below: adjusted to reflect the current best estimates. Share based employee compensation The Group operates equity-settled share based compensation Judgements in applying accounting policies a) Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the plans for remuneration of its employees including Save As You project concerned. Capitalisation of the costs will be made Earn (SAYE) and Long Term Incentive Plan (LTIP) schemes. only where there is evidence that an economic benefit will All employee services received in exchange for the grant of been capitalised and all costs have been expensed in the any share based compensation are measured at their fair Income statement as research and development values. These are indirectly determined by reference to the expenditure, £2.1m (2011: £1.7m). accrue to the Group. To date no development costs have The Group’s operating segments are being reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable it to allocate resources and make strategic decisions. The CODM reviews information based on geographical market sectors and assesses performance at an EBITDA (operating profit before interest, tax, depreciation and amortisation) and operating profit level. Management have identified that the reportable segments are Central Europe (which includes the following operating segments; Germany, Austria, Switzerland and the Netherlands), Southern Europe (Italy and Spain), share option or shares awarded. Their value is appraised at the b) Land and buildings were not revalued to fair value at the the UK and Other. grant date and excludes the impact of any non-market vesting reporting date as management determined that the conditions (e.g. profitability or sales growth targets). The fair effect of the changes in market prices between the dates value of LTIP shares, which have market conditions attached, of revaluation and the reporting dates were immaterial. Revenue by Segment includes an adjustment based on the probability of the shares c) The Directors assume that the loan note will be repayable vesting at the end of the vesting period. in April 2014 rather than any earlier date nominated by the note holder. Repayment of the principal has been treated Details of the SAYE and LTIP schemes and the conditions as not substantive as the repayment of principal and applying to each scheme are fully disclosed in Note 28 reinvestment in equity are viewed as occurring at the (Share Based Payments) on page 87 to 88. same time in contemplation of one another. All share based compensation is ultimately recognised as an expense in the consolidated income statement with Sources of estimation uncertainty a) Depreciation rates are based on estimates of the a corresponding credit to the share based payments reserve, useful lives and residual values of the assets involved. net of deferred tax where applicable. If vesting periods or b) Estimates of future profitability are required for the other vesting conditions apply, the expense is allocated decision whether or not to create a deferred tax asset. over the vesting period, based on the best available c) Estimates are required as to asset carrying values and estimate of the number of share options expected to impairment charges. vest. Non market vesting conditions are included in d) Determining whether goodwill is impaired requires an assumptions about the number of options that are expected estimation of the value in use of the cash generating unit to become exercisable. Estimates are subsequently revised to which the goodwill has been allocated. This value in if there is any indication that the number of share options use calculation requires an estimation of the future cash expected to vest differs from previous estimates. flows expected to arise from the cash generating unit No adjustment to expense recognised in prior periods and a suitable discount rate in order to calculate the is made if fewer share options ultimately are exercised present value. than estimated. Upon exercise of share options, the proceeds received, 3. Revenue net of any directly attributable transaction costs, up to the An analysis of revenue by category is set out in the table nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium. below: Employee Benefit Trust The financial statements include the assets and liabilities 2012 £’000 2011 £’000 of a trust set up for the benefit of the Group’s employees. Sale of goods 40,317 40,445 The employee benefit trust has acquired shares in the Company and these are deducted from the shareholders’ Royalties 963 1,107 funds on the balance sheet at the cost of acquisition. Use of accounting estimates and judgements Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, 41,280 41,552 There were no milestone payments in either the current or previous year. Revenue from Inter Segment Total Revenue from Inter Segment External Customers Revenue Segment External Customers Revenue 2012 £’000 Revenue 2012 £’000 2011 £’000 2012 £’000 25,407 5,617 31,024 6,180 1,509 2,567 Central Europe Germany Other Southern Europe UK Other 2011 £’000 27,390 4,816 5,931 700 2,715 31,024 32,206 25,407 5,617 6,180 35,370 2,567 Total Segment Revenue 2011 £’000 27,390 4,816 32,206 5,931 35,625 2,715 33,861 34,925 41,280 33,861 75,141 41,552 34,925 76,477 Revenues from external customers in all segments are derived from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition. Other revenues include licensee and distributor sales and royalties through several world-wide markets including Czech and Slovak Republics, Canada and South Korea. Inter-segment revenues represent sales of product from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation. The CODM also reviews revenue by segment on a constant currency basis to provide relevant year on year comparisons. 64 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 65 Provisions are measured at the present value of the estimated having regard to prior experience, but actual results may 4. Segmental reporting The Group’s operating segments are being reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable it to allocate resources and make strategic decisions. The CODM reviews information based on geographical market sectors and assesses performance at an EBITDA (operating profit before interest, tax, depreciation and amortisation) and operating profit level. Management have identified that the reportable segments are Central Europe (which includes the following operating segments; Germany, Austria, Switzerland and the Netherlands), Southern Europe (Italy and Spain), share option or shares awarded. Their value is appraised at the b) Land and buildings were not revalued to fair value at the the UK and Other. grant date and excludes the impact of any non-market vesting reporting date as management determined that the conditions (e.g. profitability or sales growth targets). The fair effect of the changes in market prices between the dates value of LTIP shares, which have market conditions attached, of revaluation and the reporting dates were immaterial. Revenue by Segment Revenue from Inter Segment Total Revenue from Inter Segment External Customers Revenue Segment External Customers Revenue 2012 £’000 25,407 5,617 31,024 6,180 1,509 2,567 2012 £’000 33,861 Revenue 2012 £’000 25,407 5,617 2011 £’000 27,390 4,816 31,024 32,206 6,180 35,370 2,567 5,931 700 2,715 2011 £’000 34,925 Central Europe Germany Other Southern Europe UK Other Total Segment Revenue 2011 £’000 27,390 4,816 32,206 5,931 35,625 2,715 41,280 33,861 75,141 41,552 34,925 76,477 Revenues from external customers in all segments are derived from the sale of a range of pharmaceutical products designed for the immunological treatment of the allergic condition. Other revenues include licensee and distributor sales and royalties through several world-wide markets including Czech and Slovak Republics, Canada and South Korea. Inter-segment revenues represent sales of product from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation. The CODM also reviews revenue by segment on a constant currency basis to provide relevant year on year comparisons. expenditure required to settle the present obligation, based on differ from the amounts included in the financial statements. the most reliable evidence available at the balance sheet date. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the All provisions are reviewed at each balance sheet date and financial statements and the key areas are summarised below: adjusted to reflect the current best estimates. Judgements in applying accounting policies Share based employee compensation a) Capitalisation of development costs requires analysis of The Group operates equity-settled share based compensation the technical feasibility and commercial viability of the plans for remuneration of its employees including Save As You project concerned. Capitalisation of the costs will be made Earn (SAYE) and Long Term Incentive Plan (LTIP) schemes. only where there is evidence that an economic benefit will All employee services received in exchange for the grant of been capitalised and all costs have been expensed in the any share based compensation are measured at their fair Income statement as research and development values. These are indirectly determined by reference to the expenditure, £2.1m (2011: £1.7m). accrue to the Group. To date no development costs have includes an adjustment based on the probability of the shares c) The Directors assume that the loan note will be repayable vesting at the end of the vesting period. in April 2014 rather than any earlier date nominated by the note holder. Repayment of the principal has been treated Details of the SAYE and LTIP schemes and the conditions as not substantive as the repayment of principal and applying to each scheme are fully disclosed in Note 28 reinvestment in equity are viewed as occurring at the (Share Based Payments) on page 87 to 88. same time in contemplation of one another. All share based compensation is ultimately recognised Sources of estimation uncertainty as an expense in the consolidated income statement with a) Depreciation rates are based on estimates of the a corresponding credit to the share based payments reserve, useful lives and residual values of the assets involved. net of deferred tax where applicable. If vesting periods or b) Estimates of future profitability are required for the other vesting conditions apply, the expense is allocated decision whether or not to create a deferred tax asset. over the vesting period, based on the best available c) Estimates are required as to asset carrying values and estimate of the number of share options expected to impairment charges. vest. Non market vesting conditions are included in d) Determining whether goodwill is impaired requires an assumptions about the number of options that are expected estimation of the value in use of the cash generating unit to become exercisable. Estimates are subsequently revised to which the goodwill has been allocated. This value in if there is any indication that the number of share options use calculation requires an estimation of the future cash expected to vest differs from previous estimates. flows expected to arise from the cash generating unit No adjustment to expense recognised in prior periods and a suitable discount rate in order to calculate the is made if fewer share options ultimately are exercised present value. than estimated. Upon exercise of share options, the proceeds received, 3. Revenue nominal value of the shares issued are allocated to share below: capital with any excess being recorded as share premium. net of any directly attributable transaction costs, up to the An analysis of revenue by category is set out in the table of a trust set up for the benefit of the Group’s employees. Sale of goods 40,317 40,445 Company and these are deducted from the shareholders’ Royalties 963 1,107 Employee Benefit Trust The financial statements include the assets and liabilities The employee benefit trust has acquired shares in the funds on the balance sheet at the cost of acquisition. Use of accounting estimates and judgements 2012 £’000 2011 £’000 41,280 41,552 Many of the amounts included in the financial statements There were no milestone payments in either the current or involve the use of judgement and/or estimation. These previous year. judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, 64 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 65 The following revenue table is based on a constant currency rate of 1.20: £1.00 which was the rate used in the 2012 budget. Revenue from External Customers Revenue from External Customers Central Europe Germany Other Southern Europe UK Other Depreciation and Amortisation by Segment Central Europe Southern Europe UK 2012 £’000 24,331 5,180 29,511 5,814 1,509 2,686 39,520 2012 £’000 119 89 1,684 1,892 2011 £’000 26,783 4,855 31,638 5,689 700 2,638 40,665 2011 £’000 74 93 1,531 1,698 EBITDA by Segment Allocated EBITDA Central Europe Southern Europe UK Allocated EBITDA Depreciation and amortisation Operating profit Finance income Finance expense Profit/(Loss) before tax Total assets by Segment Central Europe Southern Europe UK Inter-Segment Assets Inter-Segment Investments Total Assets per Balance Sheet Total liabilities by Segment Central Europe Southern Europe UK Inter-Segment Liabilities Total Liabilities per Balance Sheet 5. Profit/ (Loss) before tax Profit/ (Loss) for the period has been arrived at after charging: Foreign exchange loss Depreciation and amortisation: Depreciation of property plant and equipment (note 16 ) Amortisation of intangible assets (note 15 ) Research and development Employee benefits expense: Employee costs (note 7) Land and buildings held under operating leases Other operating leases Audit and non-audit services: Fees payable to the Company’s auditor for the audit of the Group accounts Fees payable to the Company’s auditor and its associates for other services: The audit of the Company’s subsidiaries pursuant to legislation Tax services Other services pursuant to legislation Share based payment expense (note 28 ) 2012 £’000 (1,029) 372 3,641 2,984 (1,892) 1,092 5 (457) 640 2012 £’000 8,386 3,963 35,220 47,569 (1,958) (17,857) 27,754 2012 £’000 (8,227) (2,150) (4,743) (15,120) 1,958 (13,162) 2012 £’000 808 1,506 386 2,095 18,394 439 533 21 67 9 99 131 2011 £’000 363 (189) 1,639 1,813 (1,698) 115 2 (2,430) (2,313) 2011 £’000 9,849 3,823 33,436 47,108 (1,835) (14,652) 30,621 2011 £’000 (7,836) (1,646) (20,835) (30,317) 1,835 (28,482) 2011 £’000 2,180 1,355 343 1,670 17,459 446 503 21 54 3 17 147 66 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 67 The following revenue table is based on a constant currency rate of 1.20: £1.00 which was the rate used in the 2012 budget. Revenue from External Customers Revenue from External Customers Central Europe Germany Other Southern Europe UK Other Central Europe Southern Europe UK Depreciation and Amortisation by Segment 2012 £’000 24,331 5,180 29,511 5,814 1,509 2,686 39,520 2012 £’000 119 89 1,684 1,892 2011 £’000 26,783 4,855 31,638 5,689 700 2,638 40,665 2011 £’000 74 93 1,531 1,698 EBITDA by Segment Allocated EBITDA Central Europe Southern Europe UK Allocated EBITDA Depreciation and amortisation Operating profit Finance income Finance expense Profit/(Loss) before tax Total assets by Segment Central Europe Southern Europe UK Inter-Segment Assets Inter-Segment Investments Total Assets per Balance Sheet Total liabilities by Segment Central Europe Southern Europe UK Inter-Segment Liabilities Total Liabilities per Balance Sheet 5. Profit/ (Loss) before tax Profit/ (Loss) for the period has been arrived at after charging: Foreign exchange loss Depreciation and amortisation: Depreciation of property plant and equipment (note 16 ) Amortisation of intangible assets (note 15 ) Research and development Employee benefits expense: Employee costs (note 7) Land and buildings held under operating leases Other operating leases Audit and non-audit services: Fees payable to the Company’s auditor for the audit of the Group accounts Fees payable to the Company’s auditor and its associates for other services: The audit of the Company’s subsidiaries pursuant to legislation Tax services Other services pursuant to legislation Share based payment expense (note 28 ) 2012 £’000 (1,029) 372 3,641 2,984 (1,892) 1,092 5 (457) 640 2012 £’000 8,386 3,963 35,220 47,569 (1,958) (17,857) 27,754 2012 £’000 (8,227) (2,150) (4,743) (15,120) 1,958 (13,162) 2012 £’000 808 1,506 386 2,095 18,394 439 533 21 67 9 99 131 2011 £’000 363 (189) 1,639 1,813 (1,698) 115 2 (2,430) (2,313) 2011 £’000 9,849 3,823 33,436 47,108 (1,835) (14,652) 30,621 2011 £’000 (7,836) (1,646) (20,835) (30,317) 1,835 (28,482) 2011 £’000 2,180 1,355 343 1,670 17,459 446 503 21 54 3 17 147 66 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 67 6. Remuneration of key management personnel 8. Other income Salaries and short-term employee benefits Social security costs Severance payments Post employment benefits – defined benefit plans Post employment benefits – defined contribution plans Over accrual of bonuses Share based payment 2012 £’000 677 70 - - 43 790 (6) 58 842 2011 £’000 1,044 98 31 22 50 1,245 - 46 1,291 Key management personnel are considered to be the Directors and full details of their remuneration are set out in the audited information included in the Director’s Remuneration Report on pages 49 to 51 and forms part of the financial statements. 7. Employees Wages and salaries Social security costs Share based payments Pension costs – defined benefit plans Pension costs – defined contribution plans 2012 £’000 15,423 2,366 131 240 234 18,394 The average number of employees during the period (including executive directors) was made up as follows: R & D, marketing and administration Sales Production 2012 120 87 151 358 2011 £’000 14,684 2,158 147 261 209 17,459 2011 125 83 165 373 Gain on bargain purchase Contribution from third party The gain on bargain purchase in the prior year relates to the acquisition of Teomed AG on 1 July 2010 and is primarily due to the fair valuation of the distribution agreements acquired exceeding the cash paid. The contribution from the third party in the prior year relates to the construction of a manufacturing facility which commenced in the year ended 30 June 2010. 9. Finance expense Interest on borrowing facility Change in fair value of financial derivative instrument Employee defined benefit scheme interest expense Other interest and charges Retranslation (profit)/loss on Euro denominated borrowing facilities The retranslation (profit)/ loss represents the translation difference on the Group’s Euro based borrowing facility caused by the movement of the Euro against Sterling throughout the year. 10. Finance income Bank interest 11. Income tax expense Current Tax: Prior period tax Overseas tax Deferred tax – current year Tax (credit)/charge for the period 2012 £’000 - - - 2012 £’000 1,368 (214) 212 90 1,456 (999) 457 2012 £’000 5 2012 £’000 (440) 270 (170) (13) (183) 2011 £’000 186 24 210 2011 £’000 1,342 (454) 196 1 1,085 1,345 2,430 2011 £’000 2 2011 £’000 (66) 429 363 (14) 349 68 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 69 Key management personnel are considered to be the Directors and full details of their remuneration are set out in the audited information included in the Director’s Remuneration Report on pages 49 to 51 and forms part of the financial statements. Salaries and short-term employee benefits Social security costs Severance payments Post employment benefits – defined benefit plans Post employment benefits – defined contribution plans Over accrual of bonuses Share based payment 7. Employees Wages and salaries Social security costs Share based payments Pension costs – defined benefit plans Pension costs – defined contribution plans R & D, marketing and administration Sales Production 2012 £’000 677 70 - - 43 790 (6) 58 842 2012 £’000 15,423 2,366 131 240 234 18,394 2012 120 87 151 358 2011 £’000 1,044 98 31 22 50 - 46 1,245 1,291 2011 £’000 14,684 2,158 147 261 209 17,459 2011 125 83 165 373 6. Remuneration of key management personnel 8. Other income Gain on bargain purchase Contribution from third party 2012 £’000 - - - The gain on bargain purchase in the prior year relates to the acquisition of Teomed AG on 1 July 2010 and is primarily due to the fair valuation of the distribution agreements acquired exceeding the cash paid. The contribution from the third party in the prior year relates to the construction of a manufacturing facility which commenced in the year ended 30 June 2010. 9. Finance expense Interest on borrowing facility Change in fair value of financial derivative instrument Employee defined benefit scheme interest expense Other interest and charges Retranslation (profit)/loss on Euro denominated borrowing facilities 2012 £’000 1,368 (214) 212 90 1,456 (999) 457 The retranslation (profit)/ loss represents the translation difference on the Group’s Euro based borrowing facility caused by the movement of the Euro against Sterling throughout the year. The average number of employees during the period (including executive directors) was made up as follows: 10. Finance income Bank interest 11. Income tax expense Current Tax: Prior period tax Overseas tax Deferred tax – current year Tax (credit)/charge for the period 2012 £’000 5 2012 £’000 (440) 270 (170) (13) (183) 2011 £’000 186 24 210 2011 £’000 1,342 (454) 196 1 1,085 1,345 2,430 2011 £’000 2 2011 £’000 (66) 429 363 (14) 349 68 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 69 The tax (credit)/ charge assessed for the period is higher than the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below: Unrecognised deferred tax Profit/(Loss) for the period before tax Profit/ (Loss) for period multiplied by the respective standard rate of corporation tax applicable in each domain (average 25.5%). Effects of: Disallowable adjustments Depreciation in excess of capital allowances Other temporary differences on property plant and equipment, adjustments and movements Tax losses utilised Allowances for R&D expenditure Tax losses not utilised Adjustment of taxes for prior periods Adjustment for different tax rates R&D tax credit received in the period Deferred tax release Tax (credit)/charge for the period 12. Deferred tax Recognised deferred tax liability At 1 July Acquisition of Teomed AG Released in the period Exchange differences At 30 June 2012 £’000 640 163 125 74 14 (263) (46) 312 213 (108) (654) (170) (13) (183) 2012 £’000 201 - (13) (23) 165 Deferred tax is provided under the balance sheet liability method using the local tax rate for the overseas difference. 2011 £’000 (2,313) (636) 589 (2) 23 (24) (138) 650 - (33) (66) 363 (14) 349 2011 £’000 - 177 (14) 38 201 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Non Current Assets Property, plant and equipment Derivative financial instruments Current Liabilities Derivative financial instruments Non Current Liabilities Pension and other employee obligations Derivative financial instruments Share options Unused tax losses Offset Total 2012 £’000 - - 2 708 39 91 16,523 17,363 (620) 16,743 13. Earnings /(Loss) per share Profit/(Loss) after tax attributable to equity shareholders Issued ordinary shares at start of the period Ordinary shares issued in the period Issued ordinary shares at end of the period Weighted average number of shares in issue for the period Potentially dilutive share options under Group’s share option scheme Weighted average number of shares for diluted earnings per share Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) 2012 £’000 (504) (116) - - - - - - (620) 620 2012 £’000 823 Shares ‘000 310,772 96,141 406,913 326,795 13,256 340,051 0.25p 0.24p 2011 £’000 - - 209 535 98 119 17,783 18,744 (632) 18,112 2011 £’000 (632) - - - - - - - (632) 632 2011 £’000 (2,662) Shares ‘000 310,757 15 310,772 310,759 12,595 323,354 (0.86p) (0.86p) The main UK corporation tax rate is to change from 24% to 23% with effect from 1 April 2013. The unrecognised deferred tax assets have been calculated at 24%, being the rate enacted at 30 June 2012. The estimated impact of the reduction in the tax rate to the net deferred tax asset and liabilities is a net reduction in the asset of £0.7m. No deferred tax has been recognised in respect of these temporary differences. The diluted loss per share in the previous year does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33. 70 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 71 The tax (credit)/ charge assessed for the period is higher than the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below: Unrecognised deferred tax Profit/(Loss) for the period before tax Profit/ (Loss) for period multiplied by the respective standard rate of corporation tax applicable in each domain (average 25.5%). Effects of: Disallowable adjustments Depreciation in excess of capital allowances Other temporary differences on property plant and equipment, adjustments and movements Tax losses utilised Allowances for R&D expenditure Tax losses not utilised Adjustment of taxes for prior periods Adjustment for different tax rates R&D tax credit received in the period Deferred tax release Tax (credit)/charge for the period 12. Deferred tax Recognised deferred tax liability At 1 July Acquisition of Teomed AG Released in the period Exchange differences At 30 June 2012 £’000 640 163 125 74 14 (263) (46) 312 213 (108) (654) (170) (13) (183) 2012 £’000 201 - (13) (23) 165 Deferred tax is provided under the balance sheet liability method using the local tax rate for the overseas difference. 2011 £’000 (2,313) (636) 589 (2) 23 (24) (138) 650 - (33) (66) 363 (14) 349 2011 £’000 - 177 (14) 38 201 2012 2012 2011 2011 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities £’000 £’000 £’000 £’000 Non Current Assets Property, plant and equipment Derivative financial instruments Current Liabilities Derivative financial instruments Non Current Liabilities Pension and other employee obligations Derivative financial instruments Share options Unused tax losses Offset Total - - 2 708 39 91 16,523 17,363 (620) 16,743 (504) (116) - - - - - (620) 620 - - - 209 535 98 119 17,783 18,744 (632) 18,112 The main UK corporation tax rate is to change from 24% to 23% with effect from 1 April 2013. The unrecognised deferred tax assets have been calculated at 24%, being the rate enacted at 30 June 2012. The estimated impact of the reduction in the tax rate to the net deferred tax asset and liabilities is a net reduction in the asset of £0.7m. No deferred tax has been recognised in respect of these temporary differences. 13. Earnings /(Loss) per share Profit/(Loss) after tax attributable to equity shareholders Issued ordinary shares at start of the period Ordinary shares issued in the period Issued ordinary shares at end of the period Weighted average number of shares in issue for the period Potentially dilutive share options under Group’s share option scheme Weighted average number of shares for diluted earnings per share Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) 2012 £’000 823 Shares ‘000 310,772 96,141 406,913 326,795 13,256 340,051 0.25p 0.24p The diluted loss per share in the previous year does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33. (632) - - - - - - (632) 632 - 2011 £’000 (2,662) Shares ‘000 310,757 15 310,772 310,759 12,595 323,354 (0.86p) (0.86p) 70 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 71 14. Goodwill At 1 July Exchange difference At 30 June 2012 £’000 2,624 (135) 2,489 For the purposes of impairment testing of goodwill, the directors recognise the Group’s Cash Generating Units (“CGU”) to be the following: Germany 2012 £’000 2,489 The recoverable amount for the CGU above was determined based on a value-in-use calculation, covering a detailed three-year forecast of future cash flows using budgeted projections assuming a 6% discount rate which the Group has estimated to be the weighted average cost of capital adjusted for risks specific to the CGU. Management’s key assumptions include sales growth (at an average of 4% for the three year period), which has been determined based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Apart from the considerations described in determining the value in use of the CGU described above, the Group’s management is not currently aware of any other probable changes that would necessitate changes in its key estimates. 2011 £’000 2,496 128 2,624 2011 £’000 2,624 15. Intangible assets Cost At 1 July 2010 Additions Acquired assets Foreign exchange Additions Asset reclassification Foreign exchange Amortisation At 1 July 2010 Charge for the year Foreign exchange At 30 June 2011 Asset reclassification Charge for the year Foreign exchange Net book value At 1 July 2010 At 30 June 2011 At 30 June 2012 At 30 June 2011 1,000 3,810 2,153 At 30 June 2012 1,000 3,467 2,733 1,884 9,084 Manufacturing Non-competing Other intangibles know-how know-how £’000 £’000 £’000 Computer software £’000 1,000 3,484 - - - - - - 800 67 - 867 66 - - 200 133 67 326 (343) 3,484 - 326 3,810 (343) - - - - - - - - - 997 55 884 217 727 - (147) 835 125 27 987 - 172 (37) 162 1,166 1,611 1,637 128 - 59 1,824 97 28 (65) 1,139 151 52 1,342 25 148 (60) 498 482 429 Total £’000 7,118 183 884 602 8,787 824 28 (555) 6,258 343 405 7,006 25 386 (440) 860 1,781 2,107 At 30 June 2012 933 3,467 1,122 1,455 6,977 Acquired assets includes £600,000 for the exclusive distribution rights for Anapen in the UK and Republic of Ireland. Net book value at 30 June 2012 is £554,000 and is to be amortised over the initial period of the contract to October 2016 pro rata by sales forecast. The acquired assets in the previous year relate to the fair valuation of existing distribution agreements acquired during the purchase of 100% of the share capital of Teomed AG, a Swiss company that specialises in the field of allergy. These intangible assets represent the potential future discounted cashflows lost to the group should these existing agreements be terminated. 72 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 73 14. Goodwill At 1 July Exchange difference At 30 June Germany 2012 £’000 2,624 (135) 2,489 2012 £’000 2,489 2011 £’000 2,496 128 2,624 2011 £’000 2,624 For the purposes of impairment testing of goodwill, the directors recognise the Group’s Cash Generating Units (“CGU”) to be the following: The recoverable amount for the CGU above was determined based on a value-in-use calculation, covering a detailed three-year forecast of future cash flows using budgeted projections assuming a 6% discount rate which the Group has estimated to be the weighted average cost of capital adjusted for risks specific to the CGU. Management’s key assumptions include sales growth (at an average of 4% for the three year period), which has been determined based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Apart from the considerations described in determining the value in use of the CGU described above, the Group’s management is not currently aware of any other probable changes that would necessitate changes in its key estimates. 15. Intangible assets Cost At 1 July 2010 Additions Acquired assets Foreign exchange At 30 June 2011 Additions Asset reclassification Foreign exchange Manufacturing Non-competing Other intangibles know-how know-how £’000 £’000 £’000 Computer software £’000 1,000 - - - 1,000 - - - 3,484 - - 326 3,810 - - (343) 997 55 884 217 2,153 727 - (147) 1,637 128 - 59 1,824 97 28 (65) Total £’000 7,118 183 884 602 8,787 824 28 (555) At 30 June 2012 1,000 3,467 2,733 1,884 9,084 Amortisation At 1 July 2010 Charge for the year Foreign exchange At 30 June 2011 Asset reclassification Charge for the year Foreign exchange 800 67 - 867 - 66 - 3,484 - 326 3,810 - - (343) 835 125 27 987 - 172 (37) 1,139 151 52 1,342 25 148 (60) 6,258 343 405 7,006 25 386 (440) At 30 June 2012 933 3,467 1,122 1,455 6,977 Net book value At 1 July 2010 At 30 June 2011 At 30 June 2012 200 133 67 - - - 162 1,166 1,611 498 482 429 860 1,781 2,107 Acquired assets includes £600,000 for the exclusive distribution rights for Anapen in the UK and Republic of Ireland. Net book value at 30 June 2012 is £554,000 and is to be amortised over the initial period of the contract to October 2016 pro rata by sales forecast. The acquired assets in the previous year relate to the fair valuation of existing distribution agreements acquired during the purchase of 100% of the share capital of Teomed AG, a Swiss company that specialises in the field of allergy. These intangible assets represent the potential future discounted cashflows lost to the group should these existing agreements be terminated. 72 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 73 16. Property, plant and equipment 17. Investments Plant & Fixtures Motor Computer Assets under Freehold land Total benefit pension scheme (see note 26). It is valued at fair value (market price) by the Group’s actuaries each year. The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the defined machinery & fittings vehicles equipment construction & buildings £’000 £’000 £’000 £’000 £’000 £’000 £’000 Cost or valuation At 1 July 2010 Additions Acquired assets Asset reclassification Foreign exchange Disposals 5,143 3,654 36 2,046 3,053 1,265 297 10 2,068 14 (29) 636 4 408 61 (18) - - - - - 129 1 577 58 - At 30 June 2011 7,503 4,745 36 2,811 Additions Asset reclassification Foreign exchange Disposals 200 (16) (20) (21) 109 - (70) (2) - - - - 118 (12) (64) (7) At 30 June 2012 7,646 4,782 36 2,846 Depreciation At 1 July 2010 Charge for the year Foreign exchange Disposals 2,670 2,159 518 10 (28) 512 50 (11) At 30 June 2011 3,170 2,710 Charge for the year Asset reclassification Foreign exchange Disposals 633 - (9) (14) 566 - (59) (2) 22 7 - - 29 5 - - - 1,386 275 52 - 1,713 265 (25) (60) (6) At 30 June 2012 3,780 3,215 34 1,887 - - (3,053) - - - - - - - - - - - - - - - - - - - - - 138 - 15,197 1,062 15 - 271 (47) 1,403 16,498 - - (145) - 427 (28) (299) (30) 1,258 16,568 Raw materials and consumables 22 43 2 - 67 37 - (7) - 97 6,259 1,355 114 (39) 7,689 1,506 (25) (135) (22) 9,013 The cost of inventories recognised as an expense in cost of sales during the year was £13.7m (2011: £13.2m) including write-downs in the year amounting to £1.3m (2011: £1.1m). The value of inventories measured at fair value less cost to sell was £75,000 (2011: £252,000). At 1 July Additions Profit/(Loss) on the investment (Loss)/Gain on foreign exchange 18. Inventories Work in progress Finished goods 19. Trade and other receivables Trade receivables Other receivables VAT Prepayments 2012 £’000 2,493 311 50 (285) 2,569 2012 £’000 2,018 2,823 1,810 6,651 2012 £’000 3,107 542 112 1,236 4,997 2011 £’000 2,017 296 (54) 234 2,493 2011 £’000 2,196 3,134 1,757 7,087 2011 £’000 2,842 2,774 130 1,033 6,779 Net book value At 1 July 2010 At 30 June 2011 2,473 4,333 1,495 2,035 At 30 June 2012 3,866 1,567 14 7 2 660 1,098 959 3,053 - - 1,243 1,336 8,938 8,809 1,161 7,555 Note 22 provides details of the assets secured against the Group’s bank borrowings. There are no assets under construction as at 30 June 2012. The Group’s land and buildings were revalued in July 2009 by independent valuers. The land and buildings were previously valued All amounts due as shown above are short-term. The carrying value of trade receivables is considered a reasonable approximation using the cost model and had a carrying value of £1. Fair values were estimated based on recent market transactions, which were of fair value. All trade and other receivables have been reviewed for indicators of impairment. During the year, none of the provision then adjusted for specific conditions relating to the land and buildings. was utilised whilst £54,000 of trade receivables were found to be impaired. The land and buildings were not revalued to fair value at the reporting date as management determined that the effect of changes in market prices between the date of revaluation and reporting dates were immaterial. If the cost basis was used, the carrying amounts of the revalued land and buildings would be £1. The revalued amounts include a revaluation surplus of £1,281,000 before tax (of which £331,000 writes back the accumulated depreciation) which is not available for distribution to the shareholders of the Group. 74 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 75 16. Property, plant and equipment 17. Investments Plant & Fixtures Motor Computer Assets under Freehold land Total benefit pension scheme (see note 26). It is valued at fair value (market price) by the Group’s actuaries each year. The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the defined At 1 July Additions Profit/(Loss) on the investment (Loss)/Gain on foreign exchange 18. Inventories At 30 June 2012 7,646 4,782 36 2,846 1,258 16,568 Raw materials and consumables Work in progress Finished goods 2012 £’000 2,493 311 50 (285) 2,569 2012 £’000 2,018 2,823 1,810 6,651 At 30 June 2011 3,170 2,710 The cost of inventories recognised as an expense in cost of sales during the year was £13.7m (2011: £13.2m) including write-downs in the year amounting to £1.3m (2011: £1.1m). The value of inventories measured at fair value less cost to sell was £75,000 (2011: £252,000). 19. Trade and other receivables Trade receivables Other receivables VAT Prepayments 2012 £’000 3,107 542 112 1,236 4,997 2011 £’000 2,017 296 (54) 234 2,493 2011 £’000 2,196 3,134 1,757 7,087 2011 £’000 2,842 2,774 130 1,033 6,779 The Group’s land and buildings were revalued in July 2009 by independent valuers. The land and buildings were previously valued All amounts due as shown above are short-term. The carrying value of trade receivables is considered a reasonable approximation using the cost model and had a carrying value of £1. Fair values were estimated based on recent market transactions, which were of fair value. All trade and other receivables have been reviewed for indicators of impairment. During the year, none of the provision then adjusted for specific conditions relating to the land and buildings. was utilised whilst £54,000 of trade receivables were found to be impaired. At 30 June 2011 7,503 4,745 36 2,811 1,403 16,498 Cost or valuation At 1 July 2010 Additions Acquired assets Asset reclassification Foreign exchange Disposals Additions Asset reclassification Foreign exchange Disposals Depreciation At 1 July 2010 Charge for the year Foreign exchange Disposals Charge for the year Asset reclassification Foreign exchange Disposals Net book value At 1 July 2010 At 30 June 2011 machinery & fittings vehicles equipment construction & buildings £’000 £’000 £’000 £’000 £’000 £’000 £’000 5,143 3,654 36 2,046 3,053 1,265 (3,053) 138 297 10 2,068 14 (29) 200 (16) (20) (21) 518 10 (28) 633 - (9) (14) 636 4 408 61 (18) 109 - (70) (2) 512 50 (11) 566 - (59) (2) 2,670 2,159 - - - - - - - - - 22 7 - - 29 5 - - - 14 7 2 129 1 577 58 - 118 (12) (64) (7) 1,386 275 52 - 1,713 265 (25) (60) (6) 660 1,098 959 (145) - - - - - - - 22 43 2 - 67 37 (7) - - 97 15,197 1,062 15 - 271 (47) 427 (28) (299) (30) 6,259 1,355 114 (39) 7,689 1,506 (25) (135) (22) 9,013 - - - - - - - - - - - - - - - - - - - - - - At 30 June 2012 3,780 3,215 34 1,887 2,473 4,333 1,495 2,035 3,053 1,243 1,336 8,938 8,809 At 30 June 2012 3,866 1,567 1,161 7,555 Note 22 provides details of the assets secured against the Group’s bank borrowings. There are no assets under construction as at 30 June 2012. The land and buildings were not revalued to fair value at the reporting date as management determined that the effect of changes in market prices between the date of revaluation and reporting dates were immaterial. If the cost basis was used, the carrying amounts of the revalued land and buildings would be £1. The revalued amounts include a revaluation surplus of £1,281,000 before tax (of which £331,000 writes back the accumulated depreciation) which is not available for distribution to the shareholders of the Group. 74 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 75 Bad and doubtful debt provision Balance b/f Foreign exchange adjustments Charge for the year Utilised Balance c/f 2012 £’000 79 (15) (10) - 54 In addition, some of the unimpaired trade receivables are past due as at the reporting date. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The age of financial assets past due but not impaired is as follows: The financial assets which were overdue but not provided for were: Trade receivables Not more than 3 months More than 3 months but not more than 6 months More than 6 months but not more than 1 year More than one year 20. Cash and cash in hand Cash at bank and in hand 21. Trade and other payables Trade payables Social security and other taxes Other creditors Accrued expenses and deferred income 2012 £’000 551 465 112 158 1,286 2012 £’000 903 2012 £’000 2,553 682 136 2,941 6,312 2011 £’000 484 27 39 (471) 79 2011 £’000 515 269 76 3 863 2011 £’000 1,048 2011 £’000 3,821 765 146 2,817 7,549 22. Borrowings Due within one year Loans Convertible loan note Overdraft Due after more than one year Loans Convertible loan note At 1 July Additions Utilisation At 30 June Foreign exchange movement The loans in the previous year were repaid in full during the year. All outstanding fees and interest relating to the facility and previously held on the balance sheet have been charged to the profit and loss account. The overdraft facility is provided by The Royal Bank of Scotland Plc and has a variable limit during the year up to a maximum of £7 million. The interest on the overdraft is at the bank’s base rate plus the bank’s fixed margin. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and it’s principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L. The Convertible loan notes were issued in April 2012 (Note 27). The liability relates to the interest payable over the two year term, half of which is due one year from the date of issue. 23. Provisions The provision refers to a leaving indemnity reserve in Allergy Therapeutics Italia s.r.l. Under Italian law, alongside each monthly salary payment an amount is paid into this reserve for each employee. When the employee leaves the company the accrued amount is paid to him in the form of a deferred salary payment. 2012 £’000 - 114 1,312 1,426 - 97 97 2012 £’000 283 42 (20) (31) 274 2011 £’000 2,793 - - 2,793 12,361 - 12,361 2011 £’000 246 43 (33) 27 283 76 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 77 Bad and doubtful debt provision 22. Borrowings Due within one year Loans Convertible loan note Overdraft Due after more than one year Loans Convertible loan note 2012 £’000 - 114 1,312 1,426 - 97 97 2011 £’000 2,793 - - 2,793 12,361 - 12,361 The loans in the previous year were repaid in full during the year. All outstanding fees and interest relating to the facility and previously held on the balance sheet have been charged to the profit and loss account. The overdraft facility is provided by The Royal Bank of Scotland Plc and has a variable limit during the year up to a maximum of £7 million. The interest on the overdraft is at the bank’s base rate plus the bank’s fixed margin. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and it’s principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L. The Convertible loan notes were issued in April 2012 (Note 27). The liability relates to the interest payable over the two year term, half of which is due one year from the date of issue. 23. Provisions The provision refers to a leaving indemnity reserve in Allergy Therapeutics Italia s.r.l. Under Italian law, alongside each monthly salary payment an amount is paid into this reserve for each employee. When the employee leaves the company the accrued amount is paid to him in the form of a deferred salary payment. At 1 July Additions Utilisation Foreign exchange movement At 30 June 2012 £’000 283 42 (20) (31) 274 2011 £’000 246 43 (33) 27 283 In addition, some of the unimpaired trade receivables are past due as at the reporting date. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The age of financial assets past due but not impaired is as follows: The financial assets which were overdue but not provided for were: Balance b/f Foreign exchange adjustments Charge for the year Utilised Balance c/f Trade receivables Not more than 3 months More than 3 months but not more than 6 months More than 6 months but not more than 1 year More than one year 20. Cash and cash in hand Cash at bank and in hand 21. Trade and other payables Trade payables Social security and other taxes Other creditors Accrued expenses and deferred income 2012 £’000 79 (15) (10) - 54 2012 £’000 551 465 112 158 1,286 2012 £’000 903 2012 £’000 2,553 682 136 2,941 6,312 2011 £’000 484 27 39 (471) 79 2011 £’000 515 269 76 3 863 2011 £’000 1,048 2011 £’000 3,821 765 146 2,817 7,549 76 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 77 24. Financial instruments Risk management The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst maximising the return to stakeholders through the effective management of liquid resources raised through share issues and facility loan arrangements. Capital management objectives are met through regular reviews of cash Interest rate swap flows, debtor/creditor balances, budgets and forecasts. Total equity Cash and cash equivalents Capital Total equity Borrowings Overall financing Capital-to-overall financing ratio 2012 £’000 14,592 (903) 13,689 14,592 1,523 16,115 0.85 The Directors are satisfied with the ratio above following the equity fundraising during the year. The IAS 39 categories of financial assets and liabilities included in the balance sheet and the headings under which they are shown are as follows: Categories of financial instrument Financial assets Current Loans and receivables (including cash and cash equivalents) Fair value through profit and loss – Held for trading Non financial current assets Financial liabilities Current At amortised cost (including borrowings and payables) Fair value through profit and loss – Held for trading Non financial current liabilities Non current At amortised cost (including borrowings and payables) Fair value through profit and loss – Held for trading Non financial non current liabilities 2012 £’000 4,663 483 1,236 6,382 (4,293) (9) (3,445) (372) (162) (165) (8,446) 2011 £’000 2,139 (1,048) 1,091 2,139 15,154 17,293 0.06 2011 £’000 6,794 - 1,033 7,827 (6,760) (805) (3,582) (12,644) (376) (201) (24,368) Derivative financial instruments The Group uses derivative financial instruments to mitigate the effects of exchange rate exposure through the use of forward exchange contracts and interest rate volatility through the use of interest rate swap arrangements. The fair value is calculated by reference to market rates and supported by counterparty confirmation. Although management consider the interest rate swaps as an effective hedging tool they are not formally designated as such. They were arranged to convert 60% of the Company’s loan borrowings from floating to fixed rates. Within the fair value hierarchy, this financial derivative is classified as level 2. Euro forward contracts The Group has Euro forward contracts with its bank that are arranged for the sale of €12,108,000 to purchase GBP at an average blended rate of 1.177 at future dates from July 2012 to February 2013. Within the fair value hierarchy, this financial derivative is classified as level 2. Euro exchange swap The Group has utilised Euro exchange swaps for the sale of €1,186,000 to purchase GBP at a blended rate of 1.248, maturing in September 2012. Within the fair value hierarchy, this financial derivative is classified as level 2. Forward exchange contracts are considered by management to be part of economic hedge arrangements but have not been Analysis of Derivative Financial Instruments (Charge) / Credit to the Income Statement Euro exchange swap - held for trading Euro exchange swap - matured in the period Euro forward contacts - held for trading Euro forward contracts - matured in the period Interest rate swap - held for trading Interest rate swap - charges in the period formally designated as such. Derivative Financial Instruments Current Assets Derivative financial instruments - Euro forward contracts - held for trading Current liabilities Derivative financial instruments - Euro exchange swap - held for trading - Euro forward contracts - held for trading Non current liabilities Derivative financial instruments - Interest rate swap – held for trading 2012 £’000 (3) 1 1,282 51 1,331 214 (278) (64) 2012 £’000 483 483 9 - 9 162 162 2011 £’000 (6) - (799) (293) (1,098) 454 (474) (20) 2011 £’000 - - 6 799 805 376 376 78 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 79 The net gain at fair value of financial instruments through the profit and loss is £1,493,000 (2011: £351,000 loss). whilst maximising the return to stakeholders through the effective management of liquid resources raised through share issues and facility loan arrangements. Capital management objectives are met through regular reviews of cash flows, debtor/creditor balances, budgets and forecasts. The Directors are satisfied with the ratio above following the equity fundraising during the year. The IAS 39 categories of financial assets and liabilities included in the balance sheet and the headings under which 24. Financial instruments Risk management Total equity Cash and cash equivalents Capital Total equity Borrowings Overall financing Capital-to-overall financing ratio they are shown are as follows: Categories of financial instrument Financial assets Current Loans and receivables (including cash and cash equivalents) Fair value through profit and loss – Held for trading Non financial current assets Financial liabilities Current At amortised cost (including borrowings and payables) Fair value through profit and loss – Held for trading Non financial current liabilities Non current At amortised cost (including borrowings and payables) Fair value through profit and loss – Held for trading Non financial non current liabilities 2012 £’000 14,592 (903) 13,689 14,592 1,523 16,115 0.85 2012 £’000 4,663 483 1,236 6,382 (4,293) (9) (3,445) (372) (162) (165) (8,446) 2011 £’000 2,139 (1,048) 1,091 2,139 15,154 17,293 0.06 2011 £’000 6,794 - 1,033 7,827 (6,760) (805) (3,582) (12,644) (376) (201) (24,368) The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern by reference to market rates and supported by counterparty confirmation. Derivative financial instruments The Group uses derivative financial instruments to mitigate the effects of exchange rate exposure through the use of forward exchange contracts and interest rate volatility through the use of interest rate swap arrangements. The fair value is calculated Interest rate swap Although management consider the interest rate swaps as an effective hedging tool they are not formally designated as such. They were arranged to convert 60% of the Company’s loan borrowings from floating to fixed rates. Within the fair value hierarchy, this financial derivative is classified as level 2. Euro forward contracts The Group has Euro forward contracts with its bank that are arranged for the sale of €12,108,000 to purchase GBP at an average blended rate of 1.177 at future dates from July 2012 to February 2013. Within the fair value hierarchy, this financial derivative is classified as level 2. Euro exchange swap The Group has utilised Euro exchange swaps for the sale of €1,186,000 to purchase GBP at a blended rate of 1.248, maturing in September 2012. Within the fair value hierarchy, this financial derivative is classified as level 2. Analysis of Derivative Financial Instruments (Charge) / Credit to the Income Statement Euro exchange swap - held for trading Euro exchange swap - matured in the period Euro forward contacts - held for trading Euro forward contracts - matured in the period Interest rate swap - held for trading Interest rate swap - charges in the period 2012 £’000 (3) 1 1,282 51 1,331 214 (278) (64) 2011 £’000 (6) - (799) (293) (1,098) 454 (474) (20) Forward exchange contracts are considered by management to be part of economic hedge arrangements but have not been formally designated as such. Derivative Financial Instruments Current Assets Derivative financial instruments - Euro forward contracts - held for trading Current liabilities Derivative financial instruments - Euro exchange swap - held for trading - Euro forward contracts - held for trading Non current liabilities Derivative financial instruments - Interest rate swap – held for trading 2012 £’000 483 483 9 - 9 162 162 2011 £’000 - - 6 799 805 376 376 78 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 79 The net gain at fair value of financial instruments through the profit and loss is £1,493,000 (2011: £351,000 loss). Foreign currency risk The Group conducts most of its day to day financial activities in either the Euro, which is the functional currency of the active subsidiaries in Germany, Italy, Spain, Austria and The Netherlands, Sterling which is the functional currency of the UK parent entity, Swiss Francs which is the functional currency of the Swiss subsidiary or Argentinean Pesos which is the functional currency of the If Sterling had strengthened against the Euro by Argentine subsidiary. Some costs are denominated in US dollars and some income is denominated in Canadian dollars. Net results for the year Other comprehensive income The Group carries bank balances in the following currencies: Sterling Euro US dollars Canadian dollars Swiss franc Slovak krona Polish zloty Argentinean peso 2012 £’000 (1,263) 706 33 - 80 10 - 25 (409) Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows: 2012 Sterling £’000 344 (2,709) 2012 Euro £’000 3,935 (1,305) Financial assets Financial liabilities Short term exposure (2,365) 2,630 Financial assets Financial liabilities Long term exposure - (97) (97) - (437) (437) 2012 Other £’000 867 (288) 579 - - - 2011 Sterling £’000 304 (1,606) 2011 Euro £’000 5,657 (5,208) (1,302) 449 - - - - (13,021) (13,021) 2011 £’000 56 882 47 5 40 17 1 - 1,048 2011 Other £’000 833 (751) 82 - - - 2012 £’000 10% 1,674 (419) 1,255 10% (1,796) 512 (1,284) 2011 £’000 10% 157 (628) (471) 10% (337) 767 430 2011 £’000 - 1% n/a n/a n/a If Sterling had weakened against the Euro by Net results for the year Other comprehensive income Interest rate risk The Group finances its operations through equity fundraising and bank loan and overdraft facilities. Interest is charged at a floating rate on the borrowing facility. The loan was repaid in April 2012. The overdraft facility is tailored in such a way as to give greater flexibility to the Group. This allows the Group to utilise a higher proportion of the facility in the low sales season and pay down the debt in the high sales season. The following table illustrates the sensitivity of the net result for the year and equity to possible changes in interest rates of + 1% with effect from the beginning of the year on the remaining element of borrowings. Due to the current low interest rates it is unfeasible to illustrate the results were the interest rates to fall by 1%. The changes are considered to be reasonable given the current market conditions and the calculations are based on the financial instruments held at each balance sheet date, all other variables being held constant. Net results for the year Equity 2012 £’000 + 1% (43) - (43) 2012 £’000 - 1% n/a n/a n/a 2011 £’000 + 1% (32) - (32) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is regularly monitored. The maximum exposure to credit risk is the The following table illustrates the sensitivity of the net result for the year and the equity of the Group with regard to value of the outstanding amount. its financial assets and liabilities and the Euro to Sterling exchange rate. Foreign exchange movements over the last two years have been considered and an average taken, and on this basis a 10% movement is considered to be a reasonable benchmark. For 2011, a 10% movement was also used. Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is the amount of the deposit. 80 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 81 Foreign currency risk The Group conducts most of its day to day financial activities in either the Euro, which is the functional currency of the active subsidiaries in Germany, Italy, Spain, Austria and The Netherlands, Sterling which is the functional currency of the UK parent entity, Argentine subsidiary. Some costs are denominated in US dollars and some income is denominated in Canadian dollars. The Group carries bank balances in the following currencies: Sterling Euro US dollars Canadian dollars Swiss franc Slovak krona Polish zloty Argentinean peso 2012 £’000 (1,263) 706 33 - 80 10 - 25 (409) 2012 Sterling £’000 344 (2,709) Financial assets Financial liabilities Financial assets Financial liabilities Long term exposure - (97) (97) 2012 Euro £’000 3,935 (1,305) - (437) (437) 2012 Other £’000 867 (288) 579 - - - 2011 Sterling £’000 304 (1,606) - - - 2011 Euro £’000 5,657 (5,208) - (13,021) (13,021) Short term exposure (2,365) 2,630 (1,302) 449 2011 £’000 56 882 47 5 40 17 1 - 1,048 2011 Other £’000 833 (751) 82 - - - Swiss Francs which is the functional currency of the Swiss subsidiary or Argentinean Pesos which is the functional currency of the If Sterling had strengthened against the Euro by Net results for the year Other comprehensive income If Sterling had weakened against the Euro by Net results for the year Other comprehensive income 2012 £’000 10% 1,674 (419) 1,255 10% (1,796) 512 (1,284) 2011 £’000 10% 157 (628) (471) 10% (337) 767 430 Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows: current low interest rates it is unfeasible to illustrate the results were the interest rates to fall by 1%. The changes are considered Interest rate risk The Group finances its operations through equity fundraising and bank loan and overdraft facilities. Interest is charged at a floating rate on the borrowing facility. The loan was repaid in April 2012. The overdraft facility is tailored in such a way as to give greater flexibility to the Group. This allows the Group to utilise a higher proportion of the facility in the low sales season and pay down the debt in the high sales season. The following table illustrates the sensitivity of the net result for the year and equity to possible changes in interest rates of + 1% with effect from the beginning of the year on the remaining element of borrowings. Due to the to be reasonable given the current market conditions and the calculations are based on the financial instruments held at each balance sheet date, all other variables being held constant. Net results for the year Equity 2012 £’000 + 1% (43) - (43) 2012 £’000 - 1% n/a n/a n/a 2011 £’000 + 1% (32) - (32) 2011 £’000 - 1% n/a n/a n/a Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is regularly monitored. The maximum exposure to credit risk is the The following table illustrates the sensitivity of the net result for the year and the equity of the Group with regard to value of the outstanding amount. its financial assets and liabilities and the Euro to Sterling exchange rate. Foreign exchange movements over the last two years have been considered and an average taken, and on this basis a 10% movement is considered to be a reasonable benchmark. For 2011, a 10% movement was also used. Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is the amount of the deposit. 80 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 81 Liquidity risk The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern, and to provide 25. Operating lease commitments adequate funding for its day to day operations. Management has access to funding through a bank facility and continues to The following payments are due to be made on operating lease commitments: have the option to raise funding from the issue of equity shares to ensure the Group remains able to meet its commitments as they fall due. As at 30 June 2012 the Group’s contractual maturities are summarised as follows: Current liabilities 2012 £’000 2012 £’000 2011 £’000 2011 £’000 Within 6 months 6 to 12 months Within 6 months 6 to 12 months Borrowing facility - principal Borrowing facility - interest and other charges Convertible loan note - interest and other charges Trade payables Other short term liabilities Derivatives Non-current liabilities 1,312 2 - 2,867 3,445 7,626 9 7,635 2012 £’000 - - 114 - - 114 - 114 2012 £’000 1,396 658 - 3,821 3,728 9,603 684 10,287 2011 £’000 1,397 451 - - - 1,848 121 1,969 2011 £’000 1 to 5 years Later than 5 years 1 to 5 years Later than 5 years Defined contribution scheme Borrowing facility - principal Borrowing facility - interest and other charges Convertible loan note - interest and other charges Other long term liabilities Derivatives - - 97 275 372 162 534 - - - - - - - 12,361 1,387 - 283 14,031 376 14,407 - - - - - - - There is no material difference between the fair values and the carrying values of these financial instruments. Land & buildings Land & buildings 2012 £’000 454 1,354 411 2,219 2011 £’000 485 1,628 621 2,734 Within one year Two to five years Over five years Other 2012 £’000 400 587 - 987 Other 2011 £’000 457 745 - 1,202 Total 2012 £’000 854 1,941 411 3,206 Total 2011 £’000 942 2,373 621 3,936 Of the operating lease commitments for the land and buildings of £2,219,000 (2011: £2,734,000), £1,114,000 relates to the UK based premises. The production facility accounts for £599,000 (2011: £692,000) of this commitment and expires in December 2018. Premises in Spain account for £207,000 (2011: £255,000) expiring in 2020 and in Germany for £648,000 (2011: £1,035,000) expiring in December 2015. Of the other commitments, £782,000 (2011: £893,000) relates to leased vehicles all expiring within 5 years. 26. Retirement benefit obligations The Group operates a defined contribution pension scheme for certain employees in the UK. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against the profits represents the contributions payable under the scheme in respect of the accounting period totalling £234,000 (2011: £209,000). Defined benefit scheme The Group operates a partly funded non-contributory defined benefit pension scheme for certain employees in Germany. The actuarial valuation was carried out by Swiss Life Pensions Management GmbH at 30 June 2012. The major assumptions used were as follows: Retail price inflation Salary increase rate Rate of pension increase Discount rate at the beginning of the year Discount rate at the end of the year Expected return on assets Increase of social security contribution ceiling Average life expectancies Male, 65 years of age at the balance sheet date Female, 65 years of age at the balance sheet date Male, 45 years of age at the balance sheet date Female, 45 years of age at the balance sheet date Fair value of plan assets Present value of scheme liabilities Deficit in the scheme Experience losses on plan assets Experience (losses)/gains on plan liabilities The assets in the scheme and the expected rates of return were as follows: 2012 2012 % pa 1.5 3.0 1.5 5.0 4.0 3.5 3.0 Years 18.6 22.7 38.8 43.9 £’000 1,196 (5,913) (4,717) (4) (88) 2011 % pa 1.5 4.0 1.5 5.0 5.0 3.8 3.7 Years 18.5 22.6 38.7 43.8 2011 £’000 1,275 (5,389) (4,114) (6) 241 82 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 83 have the option to raise funding from the issue of equity shares to ensure the Group remains able to meet its commitments as they fall due. As at 30 June 2012 the Group’s contractual maturities are summarised as follows: Within 6 months 6 to 12 months Within 6 months 6 to 12 months Current liabilities Borrowing facility - principal Borrowing facility - interest and other charges Convertible loan note - interest and other charges Trade payables Other short term liabilities Derivatives Borrowing facility - principal Borrowing facility - interest and other charges Convertible loan note - interest and other charges Other long term liabilities Derivatives 2012 £’000 1,312 2 - 2,867 3,445 7,626 9 7,635 2012 £’000 - - 97 275 372 162 534 2012 £’000 114 114 114 2012 £’000 - - - - - - - - - - - - 2011 £’000 1,396 658 - 3,821 3,728 9,603 684 10,287 2011 £’000 12,361 1,387 - 283 14,031 376 14,407 2011 £’000 1,397 451 1,848 121 1,969 2011 £’000 - - - - - - - - - - 1 to 5 years Later than 5 years 1 to 5 years Later than 5 years There is no material difference between the fair values and the carrying values of these financial instruments. Liquidity risk 25. Operating lease commitments The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern, and to provide adequate funding for its day to day operations. Management has access to funding through a bank facility and continues to The following payments are due to be made on operating lease commitments: Land & buildings Land & buildings 2012 £’000 454 1,354 411 2,219 2011 £’000 485 1,628 621 2,734 Within one year Two to five years Over five years Other 2012 £’000 400 587 - 987 Other 2011 £’000 457 745 - 1,202 Total 2012 £’000 854 1,941 411 3,206 Total 2011 £’000 942 2,373 621 3,936 Of the operating lease commitments for the land and buildings of £2,219,000 (2011: £2,734,000), £1,114,000 relates to the UK based premises. The production facility accounts for £599,000 (2011: £692,000) of this commitment and expires in December 2018. Premises in Spain account for £207,000 (2011: £255,000) expiring in 2020 and in Germany for £648,000 (2011: £1,035,000) expiring in December 2015. Of the other commitments, £782,000 (2011: £893,000) relates to leased vehicles all expiring within 5 years. Non-current liabilities 26. Retirement benefit obligations Defined contribution scheme The Group operates a defined contribution pension scheme for certain employees in the UK. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against the profits represents the contributions payable under the scheme in respect of the accounting period totalling £234,000 (2011: £209,000). Defined benefit scheme The Group operates a partly funded non-contributory defined benefit pension scheme for certain employees in Germany. The actuarial valuation was carried out by Swiss Life Pensions Management GmbH at 30 June 2012. The major assumptions used were as follows: Retail price inflation Salary increase rate Rate of pension increase Discount rate at the beginning of the year Discount rate at the end of the year Expected return on assets Increase of social security contribution ceiling Average life expectancies Male, 65 years of age at the balance sheet date Female, 65 years of age at the balance sheet date Male, 45 years of age at the balance sheet date Female, 45 years of age at the balance sheet date 2012 % pa 1.5 3.0 1.5 5.0 4.0 3.5 3.0 Years 18.6 22.7 38.8 43.9 The assets in the scheme and the expected rates of return were as follows: 2012 Fair value of plan assets Present value of scheme liabilities Deficit in the scheme Experience losses on plan assets Experience (losses)/gains on plan liabilities £’000 1,196 (5,913) (4,717) (4) (88) 2011 % pa 1.5 4.0 1.5 5.0 5.0 3.8 3.7 Years 18.5 22.6 38.7 43.8 2011 £’000 1,275 (5,389) (4,114) (6) 241 82 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 83 2011 £’000 1,275 (5,389) 2010 £’000 1,076 (4,649) 2009 £’000 1,104 (3,925) 2008 £’000 932 (3,256) 2012 £’000 1,196 (5,913) (4,717) Fair value of plan assets Present value of scheme liabilities History of experience gains and losses 2012 % 2012 £’000 2011 % 2011 £’000 2010 % 2010 £’000 2009 % 2009 £’000 2008 % 2008 £’000 Difference between (0.3) (4) (0.5) (6) (0.7) (9) (0.9) (10) 2.6 23 Experience gains (1.4) (88) 4.7 254 (2.1) (108) 1 6.7 201 (642) - (495) 352 - - Total amount (11.5) (734) 4.6 248 (12.1) (612) (0.2) (9) 17.7 576 Scheme assets the expected and actual return Scheme liabilities and (losses) Changes in assumptions underlying present value recognised The plan assets consist of long-term insurance policies held to cover the German pension obligation. The value of the plan History of retirement benefit obligation assets is deducted from the value of the pension liability to give a net liability of £4,717,000 (2011: £4,114,000). The basis used to determine the overall expected rate of return is the expected market return as determined by Swiss Life Pensions Management GmbH using the projected unit credit method. The actual return on plan assets for the year is £44,000 (2011: £41,000). The pension charge generates an unrecognised deferred tax asset of £708,000 (2011: £535,000), however this is unrecognised in the Group accounts as there is uncertainty over the recoverability. Long term insurance policies that do not qualify as plan assets are recognised as separate investment assets at fair value and represent a re-imbursement right as defined by IAS 19. Management have assumed that there will be no expected Scheme deficit (4,114) (3,573) (2,821) (2,324) return on these assets as was the case in the previous year. See note 17 for further details of these investment assets. Amounts charged to operating profit Current service costs Amounts included in other finance expenses Expected return on pension scheme assets Interest on pension scheme liabilities Net charge Amounts recognised in the other comprehensive income Actual return less expected return on pension scheme assets Experience (losses)/ gains arising on scheme liabilities Changes in assumptions underlying the present value of scheme liabilities Total amount relating to year Opening cumulative losses Actuarial loss recognised Net movement recognised Movement in assets during the year Balance as at 1 July Foreign currency differences Expected return Actuarial losses Contributions from employer Assets transferred to finance benefits paid Balance as at 30 June Movement in liabilities in the year Balance as at 1 July Foreign currency differences Service cost Interest cost Actuarial gains / (losses) Benefits paid by employer Benefits paid from assets Changes in assumptions Balance as at 30 June 2012 £’000 240 (48) 259 211 (4) (88) (642) (734) (911) (1,645) (1,645) 2012 £’000 1,275 (136) 48 (4) 57 (44) 1,196 2012 £’000 (5,389) 644 (240) (259) (88) 17 44 (642) (5,913) 2011 £’000 279 (47) 243 196 (6) 241 - 235 (1,146) (911) (911) 2011 £’000 1,076 120 47 (6) 80 (42) 1,275 2011 £’000 (4,648) (520) (279) (243) 241 18 42 - (5,389) 84 © Allergy Therapeutics plc Annual Report & Accounts 2012 The expected contributions over the forthcoming year are £210,000. Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 85 The plan assets consist of long-term insurance policies held to cover the German pension obligation. The value of the plan History of retirement benefit obligation assets is deducted from the value of the pension liability to give a net liability of £4,717,000 (2011: £4,114,000). The basis used to determine the overall expected rate of return is the expected market return as determined by Swiss Life Pensions Management GmbH using the projected unit credit method. The actual return on plan assets for the year is £44,000 (2011: £41,000). The pension charge generates an unrecognised deferred tax asset of £708,000 (2011: £535,000), however this is unrecognised in the Group accounts as there is uncertainty over the recoverability. Long term insurance policies that do not qualify as plan assets are recognised as separate investment assets at fair value and represent a re-imbursement right as defined by IAS 19. Management have assumed that there will be no expected Scheme deficit return on these assets as was the case in the previous year. See note 17 for further details of these investment assets. Fair value of plan assets Present value of scheme liabilities 2012 £’000 1,196 (5,913) (4,717) 2011 £’000 1,275 (5,389) 2010 £’000 1,076 (4,649) 2009 £’000 1,104 (3,925) 2008 £’000 932 (3,256) (4,114) (3,573) (2,821) (2,324) History of experience gains and losses 2012 % 2012 £’000 2011 % 2011 £’000 2010 % 2010 £’000 2009 % 2009 £’000 2008 % 2008 £’000 Scheme assets Difference between (0.3) (4) (0.5) (6) (0.7) (9) (0.9) (10) 2.6 23 the expected and actual return Scheme liabilities Experience gains (1.4) (88) 4.7 254 (2.1) (108) and (losses) Changes in assumptions underlying present value (642) - (495) - - 1 6.7 201 352 Total amount (11.5) (734) 4.6 248 (12.1) (612) (0.2) (9) 17.7 576 recognised Amounts charged to operating profit Current service costs Amounts included in other finance expenses Expected return on pension scheme assets Interest on pension scheme liabilities Net charge Amounts recognised in the other comprehensive income Actual return less expected return on pension scheme assets Experience (losses)/ gains arising on scheme liabilities Changes in assumptions underlying the present value of scheme liabilities Total amount relating to year Opening cumulative losses Actuarial loss recognised Net movement recognised Movement in assets during the year Balance as at 1 July Foreign currency differences Expected return Actuarial losses Contributions from employer Assets transferred to finance benefits paid Balance as at 30 June Movement in liabilities in the year Balance as at 1 July Foreign currency differences Service cost Interest cost Actuarial gains / (losses) Benefits paid by employer Benefits paid from assets Changes in assumptions Balance as at 30 June 2012 £’000 240 (48) 259 211 (4) (88) (642) (734) (911) (1,645) (1,645) 2012 £’000 1,275 (136) 48 (4) 57 (44) 1,196 2012 £’000 (5,389) 644 (240) (259) (88) 17 44 (642) (5,913) 2011 £’000 279 (47) 243 196 (6) 241 - 235 (1,146) (911) (911) 2011 £’000 1,076 120 47 (6) 80 (42) 1,275 2011 £’000 (4,648) (520) (279) (243) 241 18 42 - (5,389) 84 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 85 The expected contributions over the forthcoming year are £210,000. 27. Issued share capital 28. Share based payments 2012 Shares 2012 £’000 2011 Shares 2011 £’000 Authorised share capital Ordinary shares of 0.10p each 1 July and 30 June Deferred shares of 0.10p each 1 July and 30 June Issued and fully paid Ordinary shares of 0.10p At 1 July 790,151,667 9,848,333 310,771,614 Issued during the year 96,141,367 At 30 June 406,912,981 Issued and fully paid Deferred shares of 0.10p At 1 July Issued during the year At 30 June 9,848,333 - 9,848,333 Issued share capital 416,761,314 790 10 311 96 407 10 10 417 790,151,667 9,848,333 310,756,614 15,000 310,771,614 9,848,333 - 9,848,333 320,619,947 790 10 311 - 311 10 - 10 321 The deferred shares have no voting rights, dividend rights or value attached to them. On 20 April 2012 96,141,367 ordinary shares of 0.1p each were issued pursuant to an Offer, Placing and Subscription at a price of 9.7p per ordinary share and were admitted to trading on AIM having been approved by shareholders of the Company at a General Meeting on 19 April 2012. Convertible Loan Notes to the value of £4,042,000 were also issued on 20 April 2012 following approval by shareholders. Interest is payable at a rate of 3% per annum during the term of the notes. On redemption, the Convertible Loan Notes will be converted into 41,674,938 ordinary shares at a price of 9.7p per share. The Group has a Savings Related Share Option Plan (‘SAYE’) for the benefit of all employees and Executive directors with 12 months continuous service. No options have been granted since 2008 under this scheme. (The 2007 SAYE carried a 15% discount while the 2008 SAYE carried a 10% discount to the average market share price on the date of grant). The vesting period is three years and options are settled in equity once exercised. If the options remain unexercised after a period of six months from the end of the vesting period, the options expire. Options are forfeited if the employee leaves the Group before the options vest. The Group has a Long Term Incentive Plan (‘LTIP’) under which Executive directors and senior employees may receive annual provisional awards of performance vesting shares. The number of shares that vest depends on the Group’s performance during the Plan cycle in terms of total shareholder return (TSR) compared to the TSR performance of the companies in the Plan’s peer group. If the Group’s position in the peer group at the end of the Plan cycle is at or above the 75th percentile, 100% of the shares provisionally awarded may vest; between the 75th and 50th percentile the percentage of shares that may vest will be calculated on a straight-line basis between 100% and 33.33%; below the 50th percentile no shares will vest. Each Plan cycle will comprise not less than three consecutive financial years. Awards are forfeited if the employee leaves the Group before the shares vest. Share options were granted to employees and Directors under earlier schemes. The vesting periods are usually from one to three years. The vesting of some options is dependent on the Group’s TSR performance as for the LTIP detailed above. The options are settled in equity once exercised. If the options remain unexercised after a period of 10 years from the date of the grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest. During the year a new grant under the LTIP was provisionally awarded. This scheme falls under the initial 2005 award and therefore, all calculations and assumptions have been performed under the same conditions as the previous LTIPs. For the following outstanding share options disclosure, LTIP awards, with a nil exercise price have been disclosed separately to avoid distorting the weighted average exercise price (WAEP): 2012 WAEP Number 2012 WAEP Price (£) Outstanding at the beginning of the year 4,650,730 Granted during the year Exercised during the year Forfeited during the year Cancelled during the year Outstanding at the year end Exercisable at the year end - - - (2,182,240) 2,468,490 2,362,304 0.16 - - - 0.17 0.16 0.16 2011 WAEP Number 5,768,713 (15,000) (1,102,983) - - 4,650,730 4,650,730 2011 WAEP Price (£) 0.19 0.05 0.29 - - 0.16 0.16 Included in the above numbers outstanding at 30 June 2012 are 1,850,256 (2011: 3,752,306) share options granted before 7 November 2002 or vested before 1 July 2006 which have been excluded from the share-based payments charge in accordance with the IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ transitional provisions. No options were exercised during the year (2011: weighted average share price at date of exercise was 14p). The share options outstanding at the end of the year have a weighted average remaining contractual life of 1.6 years (2011: 2.3 years) and have the following range of exercise prices: Exercise price (p) 0.1-5 6-45 46-120 30 June 2012 Number 1,614,700 825,224 28,566 2,468,490 30 June 2011 Number 3,025,000 1,498,986 126,744 4,650,730 86 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 87 27. Issued share capital 28. Share based payments 2012 Shares 2012 £’000 2011 Shares 2011 £’000 Authorised share capital Ordinary shares of 0.10p each 1 July and 30 June Deferred shares of 0.10p each 1 July and 30 June Issued and fully paid Ordinary shares of 0.10p At 1 July Issued and fully paid Deferred shares of 0.10p At 1 July Issued during the year At 30 June 790,151,667 9,848,333 310,771,614 9,848,333 - 9,848,333 Issued during the year 96,141,367 At 30 June 406,912,981 790,151,667 9,848,333 310,756,614 15,000 310,771,614 9,848,333 - 9,848,333 790 10 311 96 407 10 10 417 790 10 311 - 311 10 - 10 321 Issued share capital 416,761,314 320,619,947 The deferred shares have no voting rights, dividend rights or value attached to them. On 20 April 2012 96,141,367 ordinary shares of 0.1p each were issued pursuant to an Offer, Placing and Subscription at a price of 9.7p per ordinary share and were admitted to trading on AIM having been approved by shareholders of the Company at a General Meeting on 19 April 2012. Convertible Loan Notes to the value of £4,042,000 were also issued on 20 April 2012 following approval by shareholders. Interest is payable at a rate of 3% per annum during the term of the notes. On redemption, the Convertible Loan Notes will be converted into 41,674,938 ordinary shares at a price of 9.7p per share. The Group has a Savings Related Share Option Plan (‘SAYE’) for the benefit of all employees and Executive directors with 12 months continuous service. No options have been granted since 2008 under this scheme. (The 2007 SAYE carried a 15% discount while the 2008 SAYE carried a 10% discount to the average market share price on the date of grant). The vesting period is three years and options are settled in equity once exercised. If the options remain unexercised after a period of six months from the end of the vesting period, the options expire. Options are forfeited if the employee leaves the Group before the options vest. The Group has a Long Term Incentive Plan (‘LTIP’) under which Executive directors and senior employees may receive annual provisional awards of performance vesting shares. The number of shares that vest depends on the Group’s performance during the Plan cycle in terms of total shareholder return (TSR) compared to the TSR performance of the companies in the Plan’s peer group. If the Group’s position in the peer group at the end of the Plan cycle is at or above the 75th percentile, 100% of the shares provisionally awarded may vest; between the 75th and 50th percentile the percentage of shares that may vest will be calculated on a straight-line basis between 100% and 33.33%; below the 50th percentile no shares will vest. Each Plan cycle will comprise not less than three consecutive financial years. Awards are forfeited if the employee leaves the Group before the shares vest. Share options were granted to employees and Directors under earlier schemes. The vesting periods are usually from one to three years. The vesting of some options is dependent on the Group’s TSR performance as for the LTIP detailed above. The options are settled in equity once exercised. If the options remain unexercised after a period of 10 years from the date of the grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest. During the year a new grant under the LTIP was provisionally awarded. This scheme falls under the initial 2005 award and therefore, all calculations and assumptions have been performed under the same conditions as the previous LTIPs. For the following outstanding share options disclosure, LTIP awards, with a nil exercise price have been disclosed separately to avoid distorting the weighted average exercise price (WAEP): 2012 WAEP Number 2012 WAEP Price (£) Outstanding at the beginning of the year 4,650,730 Granted during the year Exercised during the year Forfeited during the year Cancelled during the year Outstanding at the year end Exercisable at the year end - - (2,182,240) - 2,468,490 2,362,304 0.16 - - 0.17 - 0.16 0.16 2011 WAEP Number 5,768,713 - (15,000) (1,102,983) - 4,650,730 4,650,730 2011 WAEP Price (£) 0.19 - 0.05 0.29 - 0.16 0.16 Included in the above numbers outstanding at 30 June 2012 are 1,850,256 (2011: 3,752,306) share options granted before 7 November 2002 or vested before 1 July 2006 which have been excluded from the share-based payments charge in accordance with the IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ transitional provisions. No options were exercised during the year (2011: weighted average share price at date of exercise was 14p). The share options outstanding at the end of the year have a weighted average remaining contractual life of 1.6 years (2011: 2.3 years) and have the following range of exercise prices: Exercise price (p) 0.1-5 6-45 46-120 30 June 2012 Number 1,614,700 825,224 28,566 2,468,490 30 June 2011 Number 3,025,000 1,498,986 126,744 4,650,730 86 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 87 Outstanding shares provisionally awarded under the Long Term Incentive Plan, with a nil exercise price, are as follows: 31. Related party transactions Outstanding at the beginning of the year Awarded during the year Forfeited during the year Cancelled during the year Outstanding at the year end 30 June 2012 Number 7,944,000 4,725,000 (1,882,000) - 10,787,000 30 June 2011 Number 6,669,124 4,320,000 (2,397,447) (647,677) 7,944,000 The fair value of the Long Term Incentive Plan shares has been arrived at using the share price at the date of grant and applying a vesting probability for the market performance conditions. The assumptions made to value shares awarded were as follows: Allergy Therapeutics Date of Vesting grant period (yrs) Date of vesting 14/12/11 07/12/10 20/07/09 21/12/07 09/10/06 14/12/05 3 3 3 3 3 3 14/12/14 07/12/13 20/07/12 27/12/10 09/10/09 14/12/08 Expected Exercise Share price Vesting Fair value Number life (yrs) price (£) at grant (£) probability (%) (£) outstanding Allergy Therapeutics (UK) Ltd UK Manufacture and sale 3 3 3 3 3 3 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.106 0.091 0.148 0.385 1.000 0.695 41.5 41.5 41.5 41.5 41.5 41.5 0.044 0.038 0.061 0.160 0.415 0.288 4,251,000 3,150,000 3,386,000 - - - The share-based payment charge assumes an employee attrition rate of 5% per annum. The Group recognised total expenses of £131,000 (2011: £147,000) related to equity-settled share based payment transactions during the year. 29. Contingent liabilities Allergy Therapeutics plc’s related parties include its subsidiary companies and its key management. Key management personnel are the Company’s Directors, and as such full disclosure of their remuneration can be found in the Directors’ Remuneration report on pages 25 and 27. During the period the Group added a new subsidiary, Allergy Therapeutics Argentina SA, which is 95% owned by Allergy Therapeutics (Holdings) Ltd and 5% owned by Allergy Therapeutics (UK) Ltd. At 30 June 2012, the Company’s subsidiary undertakings were: Subsidiary undertaking Country of Principal activity Percentage Class of incorporation of shares held shares held (Holdings) Ltd UK Holding Company 100 Ordinary and deferred of pharmaceutical products 100 Ordinary Bencard Allergie GmbH Germany Sale of pharmaceutical products 100 Ordinary Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100 Ordinary Teomed A.G. Switzerland Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 Ordinary Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has guaranteed the deposits required for leases on cars and rented office space of Bencard Allergie GmbH. The amount as at 30 June 2012 was €107,426; £86,508 (2011: €107,426; £96,493). During the year, group companies entered into the following transactions with related parties that are not members of the Group: A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Related Party Sales of goods Sales of goods Amounts owed Amounts owed Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L. in which the liabilities of each entity to the Royal Bank of Scotland Plc are guaranteed by all the others. 30. Capital commitments The Group’s capital commitments at the end of the financial period, for which no provision has been made, are as follows: Capital commitments 30 June 2012 30 June 2011 £’000 148 £’000 237 Included in the above is £nil for ongoing factory refurbishments in the UK (2011: £154,000); £142,000 for new plant and machinery (2011: £28,000) and £6,000 for IT equipment and systems upgrades (2011: £55,000). Laboratorios Synthesis S.A.S. Gynopharm de Venezuela C.A. Laboratorio Internacional Argentino S.A. Total 2012 £’000 29 6 24 59 2011 £’000 - - - - by related parties by related parties 2012 £’000 4 6 27 37 2011 £’000 - - - - Laboratorios Synthesis S.A.S., Gynopharm de Venezuela C.A. and Laboratorio Internacional Argentino S.A. are wholly owned subsidiaries of the CFR Group. CFR is a major investor in Allergy Therapeutics plc. Sales of goods to related parties were made at the Group’s usual list prices on the Group’s normal trading terms. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. 88 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 89 Outstanding shares provisionally awarded under the Long Term Incentive Plan, with a nil exercise price, are as follows: 31. Related party transactions 30 June 2012 Number 7,944,000 4,725,000 (1,882,000) - 10,787,000 30 June 2011 Number 6,669,124 4,320,000 (2,397,447) (647,677) 7,944,000 Allergy Therapeutics plc’s related parties include its subsidiary companies and its key management. Key management personnel are the Company’s Directors, and as such full disclosure of their remuneration can be found in the Directors’ Remuneration report on pages 25 and 27. During the period the Group added a new subsidiary, Allergy Therapeutics Argentina SA, which is 95% owned by Allergy Therapeutics (Holdings) Ltd and 5% owned by Allergy Therapeutics (UK) Ltd. At 30 June 2012, the Company’s subsidiary undertakings were: Subsidiary undertaking Country of Principal activity Percentage Class of incorporation of shares held shares held The fair value of the Long Term Incentive Plan shares has been arrived at using the share price at the date of grant and applying a vesting probability for the market performance conditions. The assumptions made to value shares awarded were as follows: Allergy Therapeutics Expected Exercise Share price Vesting Fair value Number life (yrs) price (£) at grant (£) probability (%) (£) outstanding Allergy Therapeutics (UK) Ltd UK Manufacture and sale (Holdings) Ltd UK Holding Company 100 Ordinary and deferred 3 3 3 3 3 3 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.106 0.091 0.148 0.385 1.000 0.695 41.5 41.5 41.5 41.5 41.5 41.5 0.044 0.038 0.061 0.160 0.415 0.288 4,251,000 3,150,000 3,386,000 - - - The share-based payment charge assumes an employee attrition rate of 5% per annum. The Group recognised total expenses of £131,000 (2011: £147,000) related to equity-settled share based payment transactions of pharmaceutical products 100 Ordinary Bencard Allergie GmbH Germany Sale of pharmaceutical products 100 Ordinary Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100 Ordinary Teomed A.G. Switzerland Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products 100 Ordinary Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 Ordinary Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has guaranteed the deposits required for leases on cars and rented office space of Bencard Allergie GmbH. The amount as at 30 June 2012 was €107,426; £86,508 (2011: €107,426; £96,493). During the year, group companies entered into the following transactions with related parties that are not members of the Group: A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Related Party Sales of goods Sales of goods Amounts owed Amounts owed Allergy Therapeutics Italia s.r.l. and Allergy Therapeutics Iberica S.L. in which the liabilities of each entity to the Royal Bank of Scotland Plc are guaranteed by all the others. The Group’s capital commitments at the end of the financial period, for which no provision has been made, are as follows: 30 June 2012 30 June 2011 £’000 148 £’000 237 Included in the above is £nil for ongoing factory refurbishments in the UK (2011: £154,000); £142,000 for new plant and machinery (2011: £28,000) and £6,000 for IT equipment and systems upgrades (2011: £55,000). Laboratorios Synthesis S.A.S. Gynopharm de Venezuela C.A. Laboratorio Internacional Argentino S.A. Total 2012 £’000 29 6 24 59 2011 £’000 - - - - by related parties by related parties 2012 £’000 4 6 27 37 2011 £’000 - - - - Laboratorios Synthesis S.A.S., Gynopharm de Venezuela C.A. and Laboratorio Internacional Argentino S.A. are wholly owned subsidiaries of the CFR Group. CFR is a major investor in Allergy Therapeutics plc. Sales of goods to related parties were made at the Group’s usual list prices on the Group’s normal trading terms. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Outstanding at the beginning of the year Awarded during the year Forfeited during the year Cancelled during the year Outstanding at the year end Date of Vesting grant period (yrs) Date of vesting 14/12/11 07/12/10 20/07/09 21/12/07 09/10/06 14/12/05 3 3 3 3 3 3 14/12/14 07/12/13 20/07/12 27/12/10 09/10/09 14/12/08 during the year. 29. Contingent liabilities 30. Capital commitments Capital commitments 88 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the financial statements www.allergytherapeutics.com www.pollinex.com 89 Independent auditor’s report to the members of Allergy Therapeutics plc (Company) Company balance sheet We have audited the parent company financial statements Opinion on other matter prescribed of Allergy Therapeutics plc for the year ended 30 June 2012 which comprise the parent company balance sheet and the by the Companies Act 2006 In our opinion the information given in the Directors’ report related notes. The financial reporting framework that has for the financial year for which the financial statements are been applied in their preparation is applicable law and United prepared is consistent with the parent company financial Kingdom Accounting Standards (United Kingdom Generally statements. Accepted Accounting Practice). This report is made solely to the company’s members, Matters on which we are required to report by exception We have nothing to report in respect of the following matters Debtors: amounts falling due within one year Creditors: amounts falling due within one year as a body, in accordance with Chapter 3 of Part 16 of the where the Companies Act 2006 requires us to report to you Companies Act 2006. Our audit work has been undertaken so if, in our opinion: that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for • adequate accounting records have not been kept by the no other purpose. To the fullest extent permitted by law, we parent company, or returns adequate for our audit have do not accept or assume responsibility to anyone other than not been received from branches not visited by us; or the company and the company’s members as a body, for our • the parent company financial statements are not in Net assets audit work, for this report, or for the opinions we have formed. agreement with the accounting records and returns; or Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations Statement set out on page 48, the directors are responsible we require for our audit. for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on Other matter We have reported separately on the group financial the parent company financial statements in accordance statements of Allergy Therapeutics plc for the year with applicable law and International Standards on Auditing ended 30 June 2012. Christian Heeger Senior Statutory Auditor For and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Gatwick 14 September 2012 (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/ scope/private.cfm. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company’s affairs as at 30 June 2012; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Note 30 June 2012 £’000 30 June 2011 £’000 Fixed assets Investments Current assets Net current assets Total assets less current liabilities Creditors: amounts falling due after one year Capital and reserves Called up share capital Share premium account Other reserves – Convertible loan note Other reserves – shares held by EBT Other reserves – share based payments Profit and loss account Total equity 3 4 5 6 7 8 8 8 8 1,276 332 (114) 218 1,494 (97) 1,397 417 67,571 3,652 67 1,496 (71,805) 1,397 1,444 731 731 2,175 2,175 - - - 321 58,705 67 1,398 (58,316) 2,175 These financial statements were approved by the Board of Directors on 14 September 2012 and were signed on its behalf by: Manuel Llobet Chief Executive Officer Registered number: 05141592 Ian Postlethwaite Finance Director 90 © Allergy Therapeutics plc Annual Report & Accounts 2012 Independent auditor’s report to the members of Allergy Therapeutics plc www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Company balance sheet www.allergytherapeutics.com www.pollinex.com 91 Independent auditor’s report to the members of Allergy Therapeutics plc (Company) Company balance sheet Fixed assets Investments Current assets Debtors: amounts falling due within one year Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after one year the company and the company’s members as a body, for our • the parent company financial statements are not in Net assets Capital and reserves Called up share capital Share premium account Other reserves – Convertible loan note Other reserves – shares held by EBT Other reserves – share based payments Profit and loss account Total equity Note 30 June 2012 £’000 30 June 2011 £’000 3 4 5 6 7 8 8 8 8 1,276 332 (114) 218 1,494 (97) 1,397 417 67,571 3,652 67 1,496 (71,805) 1,397 1,444 731 - 731 2,175 - 2,175 321 58,705 - 67 1,398 (58,316) 2,175 These financial statements were approved by the Board of Directors on 14 September 2012 and were signed on its behalf by: Manuel Llobet Chief Executive Officer Registered number: 05141592 Ian Postlethwaite Finance Director We have audited the parent company financial statements Opinion on other matter prescribed of Allergy Therapeutics plc for the year ended 30 June 2012 by the Companies Act 2006 which comprise the parent company balance sheet and the In our opinion the information given in the Directors’ report related notes. The financial reporting framework that has for the financial year for which the financial statements are been applied in their preparation is applicable law and United prepared is consistent with the parent company financial Kingdom Accounting Standards (United Kingdom Generally statements. Accepted Accounting Practice). This report is made solely to the company’s members, We have nothing to report in respect of the following matters as a body, in accordance with Chapter 3 of Part 16 of the where the Companies Act 2006 requires us to report to you Matters on which we are required to report by exception Companies Act 2006. Our audit work has been undertaken so if, in our opinion: that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for • adequate accounting records have not been kept by the no other purpose. To the fullest extent permitted by law, we parent company, or returns adequate for our audit have do not accept or assume responsibility to anyone other than not been received from branches not visited by us; or audit work, for this report, or for the opinions we have formed. agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified Respective responsibilities of directors and auditor by law are not made; or As explained more fully in the Directors’ Responsibilities • we have not received all the information and explanations Statement set out on page 48, the directors are responsible we require for our audit. for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Other matter Our responsibility is to audit and express an opinion on We have reported separately on the group financial the parent company financial statements in accordance statements of Allergy Therapeutics plc for the year with applicable law and International Standards on Auditing ended 30 June 2012. (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Christian Heeger Senior Statutory Auditor Scope of the audit of the financial statements For and on behalf of Grant Thornton UK LLP A description of the scope of an audit of financial statements Statutory Auditor, Chartered Accountants is provided on the APB’s website at www.frc.org.uk/apb/ Gatwick scope/private.cfm. 14 September 2012 Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company’s affairs as at 30 June 2012; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. 90 © Allergy Therapeutics plc Annual Report & Accounts 2012 Independent auditor’s report to the members of Allergy Therapeutics plc www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Company balance sheet www.allergytherapeutics.com www.pollinex.com 91 Shares in subsidiary undertaking £’000 1,444 130 (298) 1,276 Ordinary and deferred Notes to Company balance sheet 1. Accounting policies Basis of preparation The separate financial statements of the Company The Employee Benefit Trust has acquired shares in the Company and these are deducted from shareholders funds on the balance sheet within ‘Other reserves’ initially at the cost that the shares were acquired. The net proceeds are presented as required by the Companies Act 2006. received from the issue of these shares through the exercise As permitted by that Act, the separate financial statements of options are recognised through this reserve. There are no have been prepared in accordance with applicable United shares remaining in the EBT. Kingdom accounting standards and under the historical cost convention. Going concern For the third year running, the Group has reported an Share based payments The Company has adopted the amendment to FRS 20 (Group cash-settled share based payment transactions). The Company has equity-settled share based payments 3. Investments Cost Investment brought forward Additions Intercompany provision Investment carried forward operating profit, however for the financial years ended 2007 but no cash-settled share based payments. All share based At 30 June 2012 the Company’s subsidiary undertakings were: to 2009 primarily as a consequence of its investment in payment awards granted after 7 November 2002 which had research and development activities, it reported losses. not vested prior to 1 July 2006 are recognised in the financial Subsidiary undertaking Country of Principal activity Percentage Class of These losses have been funded by equity issues, debt statements of the subsidiary which receives the goods or facilities and cash generated by the operating business. service from the supplier (including employees), however incorporation of shares held shares held the share based payment reserve remains in the Company’s Allergy Therapeutics (Holdings) Ltd UK Holding Company 100 The Group has prepared detailed budgets, including cash financial statements. Share based payments made in respect flow projections, for the periods ending 30 June 2013 and of the Company’s shares to employees of its subsidiaries 30 June 2014. These projections include assumptions on are reported as an increase in investment. Allergy Therapeutics (UK) Ltd UK Manufacture and sale the trading performance of the operating business and the continued availability of the existing debt facilities. After All goods and services received in exchange for the grant of pharmaceutical products 100 Ordinary making appropriate enquiries, which included a review of of any share-based payment are measured at their fair values. Bencard Allergie GmbH Germany Sale of pharmaceutical products 100 Ordinary the annual budget, by considering the cash flow requirements Where employees are rewarded using share-based payments, for the foreseeable future and the effects of sales and other the fair values of employees’ services are determined Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100 Ordinary sensitivities on the Group’s funding plans, the Directors indirectly by reference to the fair value of the instrument continue to believe that the Group and Company will have granted to the employee. This fair value is appraised at the Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100 Ordinary adequate resources to continue in operational existence grant date and excludes the impact of non-market vesting for the foreseeable future and accordingly have applied the conditions (for example, profitability and sales growth targets). Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100 Ordinary going concern principle in drawing up the financial statements. In reaching this view, the Directors have considered and If vesting periods or non-market based vesting conditions Teomed A.G. Switzerland Sale of pharmaceutical products 100 Ordinary prioritised the actions that could be taken to offset the apply, the expense is allocated over the vesting period, impact of any shortfall in operating performance. based on the best available estimate of share options Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products 100 Ordinary Investments Investments in shares in subsidiary undertakings are expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any included at cost less amounts written off. cumulative adjustment prior to vesting is recognised in Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the preceding month-end. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange the current period. If market based vesting conditions apply, the expense is allocated over the relevant period, usually the period over which performance is measured. Vesting assumptions and resulting expenses are fixed at the date of grant, Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 Ordinary Allergy Therapeutics (Holdings) Ltd is fully owned by Allergy Therapeutics plc. All other subsidiary undertakings except Bencard Allergie (Austria) GmbH and Allergy Therapeutics S.A. are fully owned by Allergy Therapeutics (Holdings) Ltd. Bencard Allergie (Austria) GmbH is fully owned by Bencard Allergie GmbH. As part of its ongoing strategy to enter the Emerging Markets, in August 2011 the Group set up its own 100% owned subsidiary in Argentina; Allergy Therapeutics S.A. is 95% owned by Allergy Therapeutics (Holdings) Ltd and 5% owned ruling at the balance sheet date and the gains or losses regardless of whether market conditions are actually by Allergy Therapeutics (UK) Ltd. on translation are included in the profit and loss account. met. Any adjustment for options which lapse prior to vesting is recognised in the current period. 4. Debtors Deferred taxation Deferred tax is recognised without discounting in respect of all timing differences, in the following year, between 2. Loss for the financial period the treatment of certain items for taxation and accounting purposes, which have arisen but not reversed by the balance The Company has taken advantage of s.408 of the Companies sheet date except as otherwise required by FRS 19. Act 2006 and has not included its own profit and loss account Employee Benefit Trust (EBT) The financial statements include the assets and liabilities of a trust, set up for the benefit of the Company’s employees. in these financial statements. The Company’s loss for the period was £13.5m loss (2011: £122,000 loss). Amounts falling due within one year Amount owed by subsidiary undertakings Prepayments 30 June 2012 £’000 30 June 2011 £’000 318 14 332 722 9 731 The amount owed by subsidiary undertakings is stated net of provisions of £70,740,000 (2011: £57,849,000). 92 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com 93 Notes to Company balance sheet 3. Investments Cost Investment brought forward Additions Intercompany provision Investment carried forward Shares in subsidiary undertaking £’000 1,444 130 (298) 1,276 operating profit, however for the financial years ended 2007 but no cash-settled share based payments. All share based At 30 June 2012 the Company’s subsidiary undertakings were: to 2009 primarily as a consequence of its investment in payment awards granted after 7 November 2002 which had research and development activities, it reported losses. not vested prior to 1 July 2006 are recognised in the financial Subsidiary undertaking Country of Principal activity Percentage Class of incorporation of shares held shares held the share based payment reserve remains in the Company’s Allergy Therapeutics (Holdings) Ltd UK Holding Company 100 Ordinary and deferred 30 June 2014. These projections include assumptions on are reported as an increase in investment. Allergy Therapeutics (UK) Ltd UK Manufacture and sale of pharmaceutical products 100 Ordinary making appropriate enquiries, which included a review of of any share-based payment are measured at their fair values. Bencard Allergie GmbH Germany Sale of pharmaceutical products 100 Ordinary for the foreseeable future and the effects of sales and other the fair values of employees’ services are determined Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products 100 Ordinary continue to believe that the Group and Company will have granted to the employee. This fair value is appraised at the Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products 100 Ordinary for the foreseeable future and accordingly have applied the conditions (for example, profitability and sales growth targets). Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products 100 Ordinary In reaching this view, the Directors have considered and If vesting periods or non-market based vesting conditions Teomed A.G. Switzerland Sale of pharmaceutical products 100 Ordinary impact of any shortfall in operating performance. based on the best available estimate of share options Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products 100 Ordinary Transactions in foreign currencies are recorded using If market based vesting conditions apply, the expense Bencard Allergie (Austria) GmbH is fully owned by Bencard Allergie GmbH. ruling at the balance sheet date and the gains or losses regardless of whether market conditions are actually by Allergy Therapeutics (UK) Ltd. on translation are included in the profit and loss account. met. Any adjustment for options which lapse prior to vesting is recognised in the current period. 4. Debtors As part of its ongoing strategy to enter the Emerging Markets, in August 2011 the Group set up its own 100% owned subsidiary in Argentina; Allergy Therapeutics S.A. is 95% owned by Allergy Therapeutics (Holdings) Ltd and 5% owned Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 Ordinary Allergy Therapeutics (Holdings) Ltd is fully owned by Allergy Therapeutics plc. All other subsidiary undertakings except Bencard Allergie (Austria) GmbH and Allergy Therapeutics S.A. are fully owned by Allergy Therapeutics (Holdings) Ltd. Amounts falling due within one year Amount owed by subsidiary undertakings Prepayments 30 June 2012 £’000 30 June 2011 £’000 318 14 332 722 9 731 The amount owed by subsidiary undertakings is stated net of provisions of £70,740,000 (2011: £57,849,000). 1. Accounting policies Basis of preparation The Employee Benefit Trust has acquired shares in the Company and these are deducted from shareholders funds on the balance sheet within ‘Other reserves’ initially The separate financial statements of the Company at the cost that the shares were acquired. The net proceeds are presented as required by the Companies Act 2006. received from the issue of these shares through the exercise As permitted by that Act, the separate financial statements of options are recognised through this reserve. There are no have been prepared in accordance with applicable United shares remaining in the EBT. Kingdom accounting standards and under the historical cost convention. Going concern Share based payments The Company has adopted the amendment to FRS 20 (Group cash-settled share based payment transactions). For the third year running, the Group has reported an The Company has equity-settled share based payments These losses have been funded by equity issues, debt statements of the subsidiary which receives the goods or facilities and cash generated by the operating business. service from the supplier (including employees), however The Group has prepared detailed budgets, including cash financial statements. Share based payments made in respect flow projections, for the periods ending 30 June 2013 and of the Company’s shares to employees of its subsidiaries the trading performance of the operating business and the continued availability of the existing debt facilities. After All goods and services received in exchange for the grant the annual budget, by considering the cash flow requirements Where employees are rewarded using share-based payments, sensitivities on the Group’s funding plans, the Directors indirectly by reference to the fair value of the instrument adequate resources to continue in operational existence grant date and excludes the impact of non-market vesting going concern principle in drawing up the financial statements. prioritised the actions that could be taken to offset the apply, the expense is allocated over the vesting period, Investments in shares in subsidiary undertakings are expected to vest differs from previous estimates. Any included at cost less amounts written off. cumulative adjustment prior to vesting is recognised in the current period. Investments Foreign currencies expected to vest. Estimates are revised subsequently if there is any indication that the number of share options the rate of exchange ruling at the preceding month-end. is allocated over the relevant period, usually the period Monetary assets and liabilities denominated in foreign over which performance is measured. Vesting assumptions currencies are translated using the rate of exchange and resulting expenses are fixed at the date of grant, Deferred taxation Deferred tax is recognised without discounting in respect of all timing differences, in the following year, between 2. Loss for the financial period the treatment of certain items for taxation and accounting purposes, which have arisen but not reversed by the balance The Company has taken advantage of s.408 of the Companies sheet date except as otherwise required by FRS 19. Act 2006 and has not included its own profit and loss account in these financial statements. The Company’s loss for the period was £13.5m loss (2011: £122,000 loss). Employee Benefit Trust (EBT) The financial statements include the assets and liabilities of a trust, set up for the benefit of the Company’s employees. 92 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com 93 5. Creditors – amounts falling due within one year Other reserve – EBT £’000 30 June 2012 30 June 2011 £’000 114 £’000 - At 30 June 2011 Sale of shares by EBT At 30 June 2012 30 June 2012 30 June 2011 £’000 97 £’000 - Convertible loan note interest 6. Creditors – amounts falling due after one year Convertible loan note interest 7. Called up share capital Full details of the Company’s share capital are set out in Note 27 of the consolidated financial statements. 8. Reserves At 30 June 2011 Loss for the year Lapsed share based payments transferred to retained losses At 30 June 2012 At 30 June 2011 Shares issued in the year Share issue costs in the year At 30 June 2012 Profit and loss account £’000 (58,316) (13,522) 33 (71,805) Share premium account £’000 58,705 9,229 (363) 67,571 Other reserve – Convertible Loan Note £’000 Convertible loan note issued in the year At 30 June 2012 9. Share based payments 10. Directors’ emoluments Full details of the Company’s share based payments are set out in note 28 of the consolidated financial statements. Full details of the Company’s directors’ emoluments are set out in the Directors’ remuneration report in the Director’s Report. 11. Reconciliation of movement in shareholders’ funds Year to 30 June 2012 Year to 30 June 2011 (Loss)/ Profit for the financial year Issue of shares from EBT Share based payments Shares Issued Convertible loan note issued Net (reduction)/ addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds £’000 (13,523) - 131 8,962 3,652 (778) 2,175 1,397 67 - 67 3,652 3,652 £’000 122 - 148 1 - 271 1,904 2,175 At 30 June 2011 Provision in year for share based payments Lapsed share based payments transferred from retained losses At 30 June 2012 1,398 131 (33) 1,496 Other reserve – share based payments £’000 12. Contingent liabilities Full details of the Company’s contingent liabilities are set out in note 29 of the consolidated financial statements. 13. Related party transactions In accordance with FRS 8 on Related Party transactions, details of transactions with the Company’s subsidiaries are not disclosed as they are included in the consolidated financial statements. The consolidated financial statements include the results of the Company. Details of the related party transactions can be found in note 31 to the consolidated financial statements. 94 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com 95 5. Creditors – amounts falling due within one year Convertible loan note interest 6. Creditors – amounts falling due after one year 30 June 2012 £’000 114 30 June 2012 £’000 97 Convertible loan note interest 7. Called up share capital 8. Reserves At 30 June 2011 Loss for the year At 30 June 2012 At 30 June 2011 Shares issued in the year Share issue costs in the year At 30 June 2012 Lapsed share based payments transferred to retained losses At 30 June 2011 Provision in year for share based payments Lapsed share based payments transferred from retained losses At 30 June 2012 30 June 2011 £’000 30 June 2011 £’000 - - (58,316) (13,522) 33 (71,805) 58,705 9,229 (363) 67,571 1,398 131 (33) 1,496 Share premium account £’000 At 30 June 2011 Sale of shares by EBT At 30 June 2012 Convertible loan note issued in the year At 30 June 2012 9. Share based payments Other reserve – EBT £’000 67 - 67 Other reserve – Convertible Loan Note £’000 3,652 3,652 Full details of the Company’s share capital are set out in Note 27 of the consolidated financial statements. Full details of the Company’s share based payments are set out in note 28 of the consolidated financial statements. 10. Directors’ emoluments Full details of the Company’s directors’ emoluments are set out in the Directors’ remuneration report in the Director’s Report. Profit and loss account £’000 11. Reconciliation of movement in shareholders’ funds Year to 30 June 2012 Year to 30 June 2011 (Loss)/ Profit for the financial year Issue of shares from EBT Share based payments Shares Issued Convertible loan note issued Net (reduction)/ addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds £’000 (13,523) - 131 8,962 3,652 (778) 2,175 1,397 £’000 122 - 148 1 - 271 1,904 2,175 Other reserve – share based payments £’000 12. Contingent liabilities Full details of the Company’s contingent liabilities are set out in note 29 of the consolidated financial statements. 13. Related party transactions In accordance with FRS 8 on Related Party transactions, details of transactions with the Company’s subsidiaries are not disclosed as they are included in the consolidated financial statements. The consolidated financial statements include the results of the Company. Details of the related party transactions can be found in note 31 to the consolidated financial statements. 94 © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 Notes to the Company balance sheet www.allergytherapeutics.com www.pollinex.com 95 Notes: Shareholder information Registered Office Dominion Way Worthing West Sussex BN14 8SA Advisers Nominated Adviser and Broker Nomura Code Securities 1 Carey Lane London EC2V 8AE Auditor Grant Thornton UK LLP The Explorer Building Fleming Way Manor Royal Crawley West Sussex RH10 9GT Lawyers Reed Smith The Broadgate Tower 20 Primrose Street London EC2A 2RS Covington and Burling LLP 265 Strand London WC2R 1BH Actuary Swiss Life Pensions Management GmbH Swiss Life Gruppe Berliner Strasse 85 80805 Munchen Germany Registrars Capita IRG plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers The Royal Bank of Scotland Plc South East Corporate Centre Turnpike House 123 High Street Crawley West Sussex RH10 1DQ Public Relations Advisers FTI Consulting Holborn Gate 26 Southampton Buildings London WC2A 1PB Patent Attorneys D Young & Co 120 Holborn London EC1N 2DY Trademark Attorneys Hoffman Eitle Sardinia House Sardinia Street 52 Lincoln’s Inn Fields London WC2A 3LZ Arabellastrasse 4 D-81925 München Germany 96 © Allergy Therapeutics plc Annual Report & Accounts 2012 Shareholder information www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 97 Notes: Shareholder information Registered Office Dominion Way Worthing West Sussex BN14 8SA Advisers Nominated Adviser and Broker Nomura Code Securities 1 Carey Lane London EC2V 8AE Auditor Grant Thornton UK LLP The Explorer Building Fleming Way Manor Royal Crawley West Sussex RH10 9GT Lawyers Reed Smith The Broadgate Tower 20 Primrose Street London EC2A 2RS Covington and Burling LLP 265 Strand London WC2R 1BH Actuary Swiss Life Gruppe Berliner Strasse 85 80805 Munchen Germany Swiss Life Pensions Management GmbH Registrars Capita IRG plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers The Royal Bank of Scotland Plc South East Corporate Centre Turnpike House 123 High Street Crawley West Sussex RH10 1DQ Public Relations Advisers FTI Consulting Holborn Gate London WC2A 1PB 26 Southampton Buildings Patent Attorneys D Young & Co 120 Holborn London EC1N 2DY Trademark Attorneys Hoffman Eitle Sardinia House Sardinia Street 52 Lincoln’s Inn Fields London WC2A 3LZ Arabellastrasse 4 D-81925 München Germany 96 © Allergy Therapeutics plc Annual Report & Accounts 2012 Shareholder information www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 97 Allergy Therapeutics has a long-term commitment to research and in particular development of innovative therapies for both the treatment and prevention of allergy-related conditions. 98 © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 99 Allergy Therapeutics has a long-term commitment to research and in particular development of innovative therapies for both the treatment and prevention of allergy-related conditions. 98 © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com © Allergy Therapeutics plc Annual Report & Accounts 2012 www.allergytherapeutics.com www.pollinex.com 99 Allergy Therapeutics plc (Registered Company Number 05141592) Dominion Way Worthing West Sussex BN14 8SA Tel: +44 (0)1903 844720 Fax: +44 (0)1903 844726 www.allergytherapeutics.com www.pollinex.com
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