Argosy Minerals
Annual Report 2013

Plain-text annual report

FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2013 FOR ALLERGY THERAPEUTICS PLC Contents Our Business Who We Are and Highlights Chairman’s Statement Chief Executive Officer’s Review Our Markets Our Products Research and Development Report Financial Review Board of Directors Financial Statements Directors’ Report Directors’ Remuneration Report Nominations Committee Report Independent Auditor’s Report to the Members of Allergy Therapeutics plc (Group) Consolidated Income Statement Consolidated Balance Sheet Consolidated Statement of Changes in Equity 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 Shareholder Information 2 4 8 12 16 20 24 30 36 46 49 50 51 52 53 54 55 94 95 96 101 © Allergy Therapeutics plc www.allergytherapeutics.com 01 Who We Are Highlights Allergy Therapeutics is a European-based speciality • Improved market share in Germany and other pharmaceutical company focused on the treatment and European markets prevention of allergy with aluminium free products. • At constant currency* gross revenue (excludes rebate Mission Statement and sales discount) increased 1% to £44.5 million (2012: £44.2 million) – Revenue £39.3 million (2012: £41.3 million) impacted To create a sustainable, fast-growing and profitable global principally by foreign exchange movements speciality pharmaceutical business with a substantial – Revenue outside of Germany increased 4% at franchise in the allergy sector by developing innovative, constant currency to £16.6 million (2012: £15.9 million) patented, registered therapies for both the treatment and – Decline in gross revenues (before rebate) in Germany prevention of allergy-related conditions. of 2% at constant currency to £27.3 million Strategy The Company’s strategy is based on the principles of growth, diversification and careful cost management. (2012 £27.9 million) • Launch of probiotic product range in a number of European countries • • Net profit after tax £0.5 million (2012 £0.8 million) FDA clinical hold lifted in August 2012 on Company’s grass pollen allergy vaccine (Grass MATA MPL/ Pollinex® Specifically, it is the Directors’ intention to focus on the Quattro Grass 0.5ml) following strategies: • Pollinex® Ragweed distribution agreement signed with Paladin Labs in December 2012, replacing the existing • Accelerating organic growth by building and leveraging distributor in Canada the current infrastructure to accelerate penetration • US Patent approved for sublingual administration of MPL of products in current markets and enter into new adjuvant and vaccine antigens emerging markets • Strengthen the Company’s existing product portfolio by * Constant currency uses prior year weighted average developing and acquiring new products and/or entering exchange rates to translate current year foreign currency into further licensing agreements denominated revenue to give a year on year comparison • Exploiting the potential for growth in the United States excluding the effects of foreign exchange movements. (US) market by registering and launching the Pollinex See table in the Financial Review for an analysis of revenue. Quattro franchise in the US market. 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 Group’s portfolio of patent-protected, registered pharmaceutical products. 02 © Allergy Therapeutics plcwww.allergytherapeutics.comChairman’s Statement C h a i r m a n ’ s S t a t e m e n t Chairman’s Statement During the year Allergy Therapeutics has focused on Although certain market conditions in Europe remain diversifying the Group’s product portfolio whilst evaluating challenging, the Group is pleased to report an operating potential partnering opportunities to commercialise our profit of £0.7 million (2012: £1.1 million), the fourth year in Pollinex® Quattro product in the US. succession an operating profit has been reported, coupled with continued investment in increasing the Group’s markets At the beginning of the financial year we were pleased to and research and development. Encouragingly, the Group’s report that the clinical hold on the Group’s development sales in Germany have shown signs of improvement over the program for Pollinex® Quattro in the United States had been last 6 months in addition to increasing its market share and formally lifted by the US FDA (Food and Drug Administration). the Group as a whole is confident of its prospects, based on The Group is focussed on securing a suitable partner with expected news and its strategy to expand the business into whom it intends to complete late stage clinical development, new and existing markets. submit a BLA (Biologics License Application) to the FDA, and launch Pollinex® Quattro in the important US market. The Group has continued to work with the FDA to support the protocol for the Pollinex Grass 304 study and will update the market in due course with any developments. In the absence of a registered subcutaneous vaccine in the US for grass-related allergic rhinitis, commercialisation of Pollinex® Quattro could revolutionise treatment in the US by providing effective, fast-acting treatment to allergy sufferers. Peter Jensen Pollinex® Quattro involves four pre-seasonal allergy vaccine Chairman injections administered over a month, making it an attractive 13 September 2013 alternative to the prolonged course of weekly to monthly injections over three years that is currently available with the allergen extract vaccines used in the US. Outside of the US, the Group anticipates regulatory news in Germany, where it submitted a Marketing Authorisation Application (MAA) for Pollinex® Quattro Grass 0.5 ml to the Paul Ehrlich Institute (PEI). PEI has not disclosed when an update on the review process can be expected owing to the significant increase in its workload as a result of the introduction of Therapeutic Allergen Regulation (TAV). I am pleased to report that the Group has made good progress with its strategy to diversify the business, enter new markets and expand its product portfolio, resulting in reduced reliance on the historically important German market. The Group is progressing the registration process for products in Italy and Portugal and continues to invest prudently in promising R&D programmes. In addition, the Group has introduced three probiotics products – Kallergen- Th, ATI-Prob and Pollagen, which have been well received in Italy and are expected to be launched in other markets later this year. The Group also launched Acarovac Plus in Spain, a modified-allergen product developed for the treatment of perennial mite allergy. 06 © Allergy Therapeutics plcwww.allergytherapeutics.com CEO’s Review C E O ’ s R e v i e w Chief Executive Officer’s Review The lifting of the FDA’s clinical hold on the Group’s Pollinex® Measures implemented over the last two years to improve Quattro vaccine in the US at the beginning of the financial our competitive position in Europe are beginning to show year was a major achievement for the Group. Elsewhere in positive results. Market data, which is available for the 12 the business the Group continued to focus on expanding into months to June 2013 showed a positive performance against new markets and to diversify its product portfolio. the market across our main European markets. Germany was Allergy Therapeutics has continued to grow its revenues by value improvements above the market were recorded as in markets outside Germany, the Group’s largest market, follows: Austria 12, Italy 15 and the Netherlands 17 points. seven points above the market when measured by volume; as part of its broader strategy to reduce its reliance on revenues from this territory. The Group reported revenue The partnering process for Pollinex® Quattro in the US, in Germany of £23.6 million, accounting for 60% of the although it has not entirely completed, has not generated Group’s revenue compared with 73% reported in 2009. a suitable partner to date for the company and as a During the last six months of the year, the Group’s sales in consequence work is underway to explore alternatives to Germany have shown signs of improvement, outperforming develop the US opportunity; an update will be provided on the market by 13 points in volume during the period. The developments in due course. In Europe, a response to the European Commission has recently opened an investigation MAA for Pollinex® Quattro Grass 0.5ml submitted to the PEI into whether the exemption from the increase in rebates in is still awaited. The PEI has not disclosed when an update on Germany constitutes state aid. If it is eventually concluded the review can be expected. that the exemptions constitute state aid, then all unlawful aid may have to be repaid. During the year the Group has made good progress on its strategy to diversify its portfolio, expand into new In other markets, sales in Italy and Austria increased by 3% geographical markets and identify new in-licensing and 8% respectively at constant currency. UK sales were opportunities. To this end the Group introduced three new down owing to the termination of the Anapen distribution probiotics products during the year: Kallergen-Th, ATI Prob agreement as announced in December 2012, but before and Pollagen, each targeting different forms of allergic Anapen sales were positive. Sales in the Spanish market have disease. The Group also made progress with another product, shown signs of recovery due to improvements implemented Acarovac Plus, which has been launched in Spain. Acarovac by management, after a decline over a number of years, Plus is a novel tyrosine-adsorbed, modified-allergen product resulting in a turnaround of the subsidiary. developed for treatment of perennial mite allergy. In December 2012 the Group signed a new distribution Research and Development costs during the financial year agreement for Pollinex® Ragweed, replacing the existing have increased to £2.5 million (2012: £2.1 million) to reflect distributor with Paladin Labs, one of Canada’s leading the Group’s focus on diversifying the business. Registrations specialty pharmaceutical companies with extensive have been undertaken in Peru and Venezuela for mite allergy experience marketing in-licensed products. I am pleased to products. Under the Therapeutic Allergen Regulation in report this is going well with sales increasing by 8% against Germany, progress has been made with the Pollinex Quattro the previous year. Birch dose ranging study: clinical trial and ethics applications have been submitted in Germany, Austria and Poland and the Although we are beginning to see an improvement in certain dosing of patients starts in September 2013. The registration markets, sales across the Group’s principal geographical of various allergy vaccines in Portugal will be concluded in markets continue to reflect the impact of challenging market September 2013. conditions, governmental austerity measures and the weakening average Euro against sterling. As a consequence the Group’s operating profit for the year was £0.7 million (2012: £1.1 million). 10 © Allergy Therapeutics plcwww.allergytherapeutics.comOutlook The lifting of the clinical hold by the FDA in August 2012 has allowed the Group to resume its Pollinex® Quattro development programme in the US, where the search for a suitable development and commercialisation partner continues. In Europe we are also moving forward, implementing efficiencies and strengthening our position by winning market share and diversifying our revenue base. With these developments alongside expected news from PEI, we remain confident of the future prospects of the Company. Manuel Llobet Chief Executive Officer 13 September 2013 11 © Allergy Therapeutics plcwww.allergytherapeutics.comOur Markets O u r M a r k e t s Our Markets We have a particular focus in Europe with our own United Kingdom established operations in important markets including The UK is an important market due to its potential for Germany, Italy, Spain, Austria and the United Kingdom. Our future growth for the Group and the fact that it is an area of newer operations in Switzerland and the Netherlands are scientific development. Whilst there is limited use of allergy developing as anticipated. The only major European market in vaccines in the UK, this has the potential to change and the which we are not yet present is France. Company has been focused on marketing to the medical community, promoting greater awareness of current and In markets where we do not have a direct presence, we more suitable treatment options. often make our products available through partners. The most important distributor markets for the Company are Canada, Austria the Czech and Slovak Republics and South Korea. Austria is an established market with total market sales of approximately €18 million per year and our own operation is Germany is the Group’s main market generating performing well and growing faster than the market. approximately 60% of the Group’s revenue in the 12 months ending 30 June 2013, followed by Italy (11%), Switzerland The Netherlands (5%), Austria (5%), Spain (4%), Czech Republic and Slovakia The total market size in The Netherlands is around €40 million (4% combined), Canada (4%), The Netherlands (3%) and the a year. Like other European countries, new regulations require UK (2%). Germany that only registered products can be sold. This should be to our advantage as we already have registrations in this market for our Pollinex products. Allergy Therapeutics is the only Germany is the largest allergy immunotherapy market in the company showing growth in the market. world by value, with annual sales of over €320 million. Since 2010 the market has been affected by the austerity measures Switzerland the German government put into place in 2010 and by the The allergy vaccine market in Switzerland is well established, new regulatory environment for allergen therapies. Germany and is worth approximately €12 million per annum. The remains a key focus for the Group and improvements acquisition (in the year ended 30 June 2011) of Teomed AG, continue to be made in a number of key business areas the Swiss subsidiary, is providing an opportunity to improve to strengthen the Company’s approach to marketing the earnings, and provides an established infrastructure from which to launch Pollinex Quattro in the future. products. Italy The total Italian allergy immunotherapy market is estimated to be worth €50 million in sales per year; although patients have been impacted by adverse economic conditions affecting their ability to pay for vaccines. The Italian immunotherapy market is dominated by sublingual products. However, despite these challenges, we continue to support our local organisation, and believe there remains a significant opportunity to continue to grow our business in this important market. Spain 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; however, it still remains a large market in terms of volume, with approximately 150,000 patients a year estimated to receive immunotherapy. Injectable immunotherapy products continue to be the treatment of choice for Spanish physicians in this treatment category. 14 © Allergy Therapeutics plcwww.allergytherapeutics.comEmerging Markets In 2012 we launched our products in Argentina, Venezuela, Colombia and Chile, and set up a new marketing operation in Argentina. Regulatory hurdles have caused slow sales in these Latin American markets this year; however it is still seen as a promising potential market. For the purposes of the segmental reporting analysis Central Europe represents the markets of Germany, Austria, Netherlands and Switzerland, and Southern Europe represents Spain and Italy. The Other segment represents the distributor and licensee revenues through other worldwide markets including Canada, Czech and Slovak Republics, South Korea and Latin America. Revenue by Country Germany – 60% Italy – 11% Switzerland – 5% Austria – 5% Spain – 4% Czech Republic & Slovakia – 4% Canada – 4% The Netherlands – 3% UK & Export market – 2% South Korea – 1% Other – 1% 15 © Allergy Therapeutics plcwww.allergytherapeutics.comOur Products O u r P r o d u c t s Our Products The Group sells a wide range of aluminium free allergy containing MPL, a hepatitis B vaccine and an HPV vaccine vaccines and diagnostics. The majority of sales are allergy to protect against cervical cancer - Fendrix and Cervarix vaccines and we sell both injectable vaccines and sublingual respectively - have received broad approval in Europe, the US, vaccines. Our vaccines and diagnostics trade under various Japan and Canada. These modern, successful vaccines are brand names, however, under each brand name is a product already widely used. that is produced in many different forms depending upon the specific allergy needs of the patient, as determined by The adjuvant effect of MPL in specific immunotherapy (SIT) the doctor. The majority of our sales are for the treatment of has been documented in numerous studies and is seen in its pollen-related allergies, particularly for allergies to grasses essential role of promoting the switch from a TH2-directed and trees. immune response (with IgE induction) to a TH1-directed According to the current opinion of expert immunologists, IgE immune response. mediated allergies (type one allergies) are due to deregulation Our sublingual product is Oralvac Compact. Its dosing schedule of the T helper lymphocyte (TH) cell. Whereas healthy allows for a more rapid and simpler escalation of dosage people develop tolerance to allergens, allergy sufferers have making treatment more convenient for patients and doctors. a TH2-dominated immune response with increased IgE and corresponding clinical symptoms. This deregulation of Probiotics the immune system can be counteracted efficiently using Since June 2012, we have launched three new Probiotic specific immunotherapy (SIT). By administering high doses products (Kallergen-Th, ATI Prob and Pollagen) across Spain, of allergen, the balance between TH1 and TH2 response Italy and Portugal. The products contain specific combinations to the allergen can be restored. Since SIT was first carried of Lactobacilli and Bifidobacteria. out successfully by Leonard Noon in 1911, it has become established as the only therapy addressing the cause of type Acarovac Plus one allergies. Acarovac Plus was launched in Spain in March 2013 and is a novel tyrosine-adsorbed, modified-allergen product developed Short course injectable vaccines form the largest segment of for treatment of perennial mite allergy. The product has been our vaccines portfolio and are comprised of one key product, standardised to meet a dose regime consistent with “one Pollinex Quattro, which is our largest product range, as bottle” convenience.  Clinical evaluation and immunogenicity well as various other longer course products. These other studies demonstrate excellent patient tolerability and serological products trade under different names in different markets and analyses consistent with a favourable shift in Th1/Th2 balance include Pollinex, TA Mix top and Venomil. compared with an unmodified version of the product. Pollinex Quattro, launched in 1999, heralded a transformation Licensed Products in immunotherapy by introducing allergy vaccination with DAP is a product for exclusive use in the diagnosis of type I only four injections per course. The short treatment period or immediate hypersensitivity to benzylpenicillin and related is due to the use of L-tyrosine absorbed allergoids, an antibiotics (betalactams) by means of cutaneous tests (prick improved extract allergen that has been modified in order and intradermal). Allergic reactions to betalactams are the to lower its allergenicity while keeping its immunogenicity, most common cause of severe adverse drug reactions and and the innovative adjuvant monophosphoryl-lipid A (MPL). there is an increasing prevalence in the population (up to 10% An adjuvant is a substance which improves the immune of the German population reports an allergy to penicillin). DAP response to an antigen or allergen. MPL is derived from a was launched in Italy in May 2011 and in the UK in July 2011. lipopolysaccharide (LPS) which is obtained from the cell wall of Salmonella Minnesota R595 using a process of extraction, purification and detoxification. As a vaccine adjuvant, MPL has been used for many years. Vaccines with systems containing MPL have been evaluated in various indications such as cervical cancer and malaria at GlaxoSmithKline. Two vaccines with an adjuvant system 18 © Allergy Therapeutics plcwww.allergytherapeutics.com19 © Allergy Therapeutics plcwww.allergytherapeutics.comResearch & Development R e s e a r c h & D e v e o p m e n t l Research & Development This has been an important year for the Group during which clinical information will be required on some of these several key strategic development goals were achieved. products over the next few years to 2017, and the Group has therefore begun preparations for clinical trials. Following the submission of a Complete Response the FDA lifted the clinical hold on Pollinex® Quattro Grass IND on 3 Over the last year the Group has continued to develop August 2012. The Group has gained approval from the FDA additional potential markets in Latin America, Asia and to progress its grass clinical development programme in Europe. Great strides have been made in understanding the the US in an Environmental Exposure Chamber (EEC) and medical & regulatory requirements in these markets and discussions with Health Canada (BGTD) are now planned to to adapt the portfolio accordingly to supply the appropriate enable the pivotal chamber study to be performed. products and supporting information. In June 2011 the Group received feedback from the PEI’s review of the Group’s 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. The Group prepared comprehensive responses which it believes have addressed the points that were raised. The responses were submitted to the PEI in November 2011 and the Group is awaiting feedback. As previously announced, the Therapeutic Allergen Regulation (introduced by the PEI, the Regulatory Authority for biological products in Germany) has changed the regulatory landscape. The Group submitted Marketing Authorisation Applications (MAAs) for our key products in December 2010. The Group has yet to receive feedback from the PEI, however, additional 22 © Allergy Therapeutics plcwww.allergytherapeutics.com23 © Allergy Therapeutics plcwww.allergytherapeutics.comFinancial Review i F n a n c a i l R e v i e w Financial Review The following section should be read in conjunction with the financial statements and related notes on pages 36 to 100. Overview The results for the twelve months to 30 June 2013 demonstrate continuing profitability, despite difficult market conditions, with a Group operating profit of £0.7 million (2012: £1.1 million); the Group has now generated an operating profit for the fourth year in a row. Revenue Despite weak allergy vaccine markets in Europe, revenue at constant currency, excluding the impact of rebates and discounts, was marginally better at £44.5 million (2012: £44.2 million). This can be seen in the table below: 2013 Germany £m 2013 Other £m 2013 Total £m 2012 Germany £m 2012 Other £m 2012 Total £m Revenue 23.6 15.7 39.3 25.4 15.9 41.3 Add rebates and discounts 1.7 0.5 2.2 2.5 0.4 2.9 Gross revenue 25.3 16.2 41.5 27.9 16.3 44.2 Adjustment to retranslate at prior year foreign exchange rate 2.0 1.0 3.0 - - - Gross revenue at constant currency 27.3 17.2 44.5 27.9 16.3 44.2 Revenue 23.6 15.7 39.3 25.4 15.9 41.3 Adjustment to retranslate at prior year foreign exchange rate 1.9 0.9 2.8 - - - Revenue at constant currency 25.5 16.6 42.1 25.4 15.9 41.3 26 © Allergy Therapeutics plcwww.allergytherapeutics.comThe Group recognised revenue of £1.0 million (out of a total to £12.0 million (2012: £13.7 million). Consequently, the gross receipt of £1.25 million) in relation to signing a new distributor profit percentage improved by 2.7% points, to 69.6%, leading for Canada. to a gross margin of £27.3 million (2012: £27.6 million). With a weaker EUR:GBP average exchange rate during the Operating Expenses year compared to the prior year, revenue decreased by 5% Total overheads are slightly higher against the prior year at to £39.3 million (2012: £41.3 million). The average EUR:GBP £26.7 million (2012: £26.5 million). The weaker Euro helped exchange rate in the period was 1.24 compared to 1.15 in reduce distribution costs, which are mainly European sales the previous period; the weakening Euro adversely impacted and marketing costs, to £16.3 million (2012: £17.9 million). revenue by £2.8 million. The Group has continued to grow its Administration expenses include a cost of the fair valuation revenue in markets outside Germany, and to reduce its reliance of foreign exchange hedges, generating a liability at the year on the German market, with 60% of revenue originating in the end of £0.3 million. At the prior year end the fair valuation territory compared with 73% in 2009. In addition to the sale of generated an asset; together these created a loss in the year allergy vaccines, the Group has continued to look to increase of £0.8 million (2012: gain £1.3 million). The initiation of the its revenue from in-licensed products; although revenue was dose ranging study for Pollinex Quattro Birch started during impacted in the year by the loss of Anapen sales due to the the year and was the main factor behind the increase in R&D termination of the agreement with Lincoln, the supplier of costs to £2.5 million (2012: £2.1 million). Anapen, following issues with the device. Total sales from in-licensed products contributed £0.7 million this year (2012: The Euro denominated loan was repaid in April 2012, which £1.5 million). However, the key product is still Pollinex® Quattro, means there is no retranslation difference on the loan in this which accounts for 49% of sales. period (2012: £1.0 million credit). The finance expense reflects Germany experienced various austerity measures and gross being the interest on the overdraft and German pension fund sales at constant currency in Germany fell slightly to £27.3 finance cost. The overdraft was repaid at 31 December 2012 million (2012: £27.9 million). During the period the Group was but drawn against at the year- end as expected due to the subject to a preliminary exemption from the full rebate charge seasonality of the Group’s business. the absence of the loan, with the expense in the period in Germany for the first half of the financial year, although for the second half the full rebate was charged. The Group Tax also benefited from an exemption to the increase in the The tax credit of £0.1 million during the year relates mainly German rebate for the period January 2012 to June 2012. The to the recognition of a deferred tax asset in respect of European Commission has recently opened an investigation accumulated UK trading losses generated by the Group’s into whether the exemption from the increase in rebates in investment in R&D in previous years. This asset has been Germany constitutes state aid. If it is eventually concluded recognised following several years of taxable profits and that the exemptions constitute state aid, then all unlawful aid expected future profits. An R&D tax credit was recognised may have to be repaid (please refer to Note 28). during the prior year. In both years these credits offset tax charges in some of the overseas subsidiaries. Italy’s sales at constant currency increased by 3%, which was a strong result given the weak market during the year. Balance Sheet Similarly, Austria showed strong growth in sales of 8% in the With the major capital investment programme now complete year. By contrast the Group’s sales in Spain and the Czech and a lower maintenance level of spend now required, and Slovak Republics declined marginally during the year. property, plant and equipment has fallen from £7.6 million to Sales in the Latin American market were disappointing for the £7.3 million as the depreciation charge for the period is higher year owing to a number of registration delays. than new equipment purchases. Goodwill remains broadly Gross Profit similar at £2.6 million, whilst other intangible assets have fallen by £0.8 million mainly due to the cancellation of the agreement Tight discipline on costs in all areas helped drive with Lincoln Medical Limited for the Anapen device. manufacturing overheads lower against the prior year by £0.4 million. This lower cost base combined with lower costs attributable to Anapen sales helped reduce the cost of goods 27 © Allergy Therapeutics plcwww.allergytherapeutics.comTotal current assets excluding cash have increased by £1.1 million to £13.2 million (2012: £12.1 million) primarily due to an increase in debtors related to the preliminary exemption to the rebate increase in Germany. Retirement benefit obligations, which relate solely to the German pension scheme, increased to £6.2 million (2012: £4.7 million). The increase in the liability was driven by a fall in German bond yields at the year end compared to the previous year. Net cash generated by operations remained positive, with a reported inflow of £3.0 million (2012: £2.9 million). Financing The fundraising that took place in April 2012 raised £12.6 million through a combination of convertible debt (£4.0 million) and equity (£9.3 million) with CFR Pharmaceuticals acting as the cornerstone investor. The funds raised have 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. Ian Postlethwaite Finance Director 13 September 2013 28 © Allergy Therapeutics plcwww.allergytherapeutics.com29 © Allergy Therapeutics plcwww.allergytherapeutics.comBoard of Directors B o a r d o f D i r e c t o r s Board of Directors Peter Jensen Non-Executive Chairman (62) Manuel Llobet Chief Executive Officer (49) Appointed to the Board in October 2010 and appointed Non- Manuel Llobet joined the Group in July 2009 following the Executive Chairman on 1 January 2011. successful refinancing in which Azure Ventures Limited was As Non-Executive Chairman, Peter is responsible for the main investor. leadership of the Board by ensuring clear company strategy, Prior to this appointment, Manuel was the Principal board effectiveness, good corporate governance and effective Consultant for Biohealth LLC and CEO of International communication with shareholders. Operations of the Weinstein family’s group of companies. Peter held a number of senior roles in his 21 years with Weinstein family’s group of pharmaceutical companies in 20 Manuel was responsible for international development of the SmithKline-Beecham. Between 1994 and 1998 he was countries. Chairman of Consumer Healthcare Europe and between 1998 and 2001 he held the position of President of Worldwide Mr Llobet has over ten years’ experience working in the Supply Operations, based in Philadelphia. pharmaceutical industry, primarily in South America, and has served as Executive Director of Corporación Drokasa Since leaving SmithKline-Beecham at the time of the merger where he was responsible for a US$25 million AAA-rated with Glaxo, Peter has held a number of non-executive director bond issue to finance the group’s expansion plans; CEO of and chairman roles for various public and private companies. Laboratorios Andrómaco, where he led the group to an IPO These include Domino Printing Sciences plc, Glenmorangie on the Santiago Stock Exchange; and Business Development plc, Genetix Group plc, Celsis International plc and Victoria plc. Manager for Laboratorio Chile. Manuel participated in the Executive Program at the Graduate Business School of In addition to his role at Allergy Therapeutics, Peter is Stanford University and has an MBA from IESE, Universidad currently Chairman of Nottingham Racecourse, Screendragon de Navarra in Barcelona. Manuel also has degrees in Industrial Limited, The Home of Horseracing Trust Limited and The Business Management and Chemical Engineering from British Sporting Art Trust and is a director of The Osborne Universitat Ramon Llull in Barcelona. Studio Gallery Limited. Peter chairs the Nomination Committee and is also a member executive management of Group operations, investor of the Audit Committee. relations, and implementation of the Board’s collective As Chief Executive Officer, Manuel is responsible for the decisions overseeing all operational aspects of the Group and directing the long-term strategy. 32 © Allergy Therapeutics plcwww.allergytherapeutics.comIan Postlethwaite Finance Director (50) Stephen Smith Non-Executive Director (60) Ian Postlethwaite joined Allergy Therapeutics in April 2002 Stephen Smith is a Chartered Management Accountant, as Finance Director. Prior to this he worked for Ellerman Fellow of the Association of Corporate Treasurers and Investments (1997 - 2002), a UK private equity house, Member of the Institute for Turnaround. Since 1995, he has undertaking the roles of Chief Executive Officer with AFS, operated as an independent executive, Non-Executive Director one of the largest independent finance houses in the UK, and interim manager (CRO/CEO/COO/FD) on an international and Finance Director with a number of successful start-up basis. Up to 1995 Stephen held various senior financial technology companies. Previously he held senior finance positions in UK based international public companies including positions with Ericsson, from 1994 - 1997, and Philips 6 years as Group Treasurer of The Rank Organisation and 3 Electronics from 1989-1994. He is a Fellow of the Chartered years as Group Finance Director of a quoted hotel company. Association of Certified Accountants and is a non-executive director of Shoreham Port Trust. Stephen chairs the Audit and Remuneration Committees, is a member of the Nomination Committee which he chaired until As Finance Director, Ian is responsible for Group financial 1 January 2011 and is the Senior Non-Executive Director. reporting and control, tax, finance systems and internal audit. Ian is also the Company Secretary, a position he has held since 2004. 33 © Allergy Therapeutics plcwww.allergytherapeutics.comAlejandro Weinstein Jr Non-Executive Director (55) Thomas Lander, M.D. Non-Executive Director (61) Alejandro Weinstein Jr. is CEO of CFR Pharmaceuticals, Dr. Thomas Lander, M.D. is board certified in internal Chile. CFR Pharmaceuticals was listed on the Santiago Stock medicine and diabetology and, moreover, has a strong Exchange in 2010, with a presence currently in 17 countries scientific background in oncology and immunology with concentrated in South America. He is responsible for the a special emphasis on immunotherapy. He trained at the entire Weinstein family group of pharmaceutical companies, Technical University and the Institute for Immunology, whose origins can be traced back to 1922. Munich, Germany. He has spent more than 25 years in senior Alejandro has been active in developing and managing several including Boehringer Ingelheim, Novo Nordisk, Bristol-Myers- businesses and start-ups in the pharmaceutical industry and Squibb and GlaxoWellcome (GlaxoSmithKline) before joining the healthcare sector, including Genomika Foundation, a stem Merck KGaA (Merck Serono) as Executive Vice President, cell research organisation; Biomedical Research Consortium, Global Clinical R&D and Chief Medical Officer in 2003. executive positions in R&D with the pharmaceutical industry a joint venture between a biotech R&D Company and a university; Vidacel and Banco de Vida, public and private stem In 2006 he made a move to the biotech industry as managing cell banks in Chile; and several other joint ventures with local director of CureVac GmbH, Tuebingen. Since 2009, Dr. Lander and foreign R&D companies. Alejandro has a BA, is a Certified has been working as a strategic consultant and also a non- Public Accountant and participated in the Owner/President executive director for several European pharmaceutical and Management Program (OPM) at Harvard Business School. biotech companies. Alejandro sits on the Nomination Committee. Thomas sits on the Remuneration Committee. 34 © Allergy Therapeutics plcwww.allergytherapeutics.comDirectors’ Report D i r e c t o r s ’ R e p o r t Director’s Report The Directors present their annual report and the audited financial The operating profit was £0.7 million (2012: £1.1 million), statements for the 12 months ended 30 June 2013. The financial the decrease being a consequence of the fall in revenue statements are for Allergy Therapeutics plc (the “Company”) and (although this was limited by effective cost control measures). its subsidiary companies (together, the “Group”). Net cash generated by operations for the year was an inflow Principal activities of £3.0 million (2012: £2.9 million). The Group is engaged in the development, manufacture, marketing and sale of a range of pharmaceutical vaccine Staff turnover, including redundancies and temporary staff, in products designed for the immunological treatment of the the UK during the year was 19.1% (2012: 20.3%), compared allergic condition and also licenses in related products. to an average UK staff turnover rate of 12.5% (2012: 12.4%), Vaccinations take the form of allergen-specific, named- (data supplied by the Chartered Institute of Personnel and patient-specific and standard products in injectable and Development). Excluding redundancies and temporary staff, sublingual presentations. The business is headquartered the turnover rate was 12.4% (2012: 9.7%). in Worthing, West Sussex, where development and manufacturing is based, with sales and marketing subsidiaries Description of the principal risks and in Germany, Austria, Italy, Spain, The Netherlands, Switzerland uncertainties facing the Group and Argentina and representative offices in Poland and the In common with many pharmaceutical companies the Group Slovak Republic. Results 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: The profit for the year after taxation was £0.5 million (2012: £0.8 million). The results for the year are set out on page 51 Risk that the Group is unable to provide effective and are dealt with in more detail in the Financial Review. commercially successful products Business review Continued development of viable new products and their successful registration and marketing is key to the success of The purpose of this business review is to inform members of the Group and is a costly and lengthy process. Rationale for the Group and help them to assess the Group’s performance new product development may indicate potential; however during the year, through financial and non-financial activities, following significant investment there is no guarantee that a outlining the trends and factors which are likely to influence product will be successful. future developments. A review of development and performance of the Group, including important events, Two key opportunities for the Group are developing and progress during the year, the financial performance during commercialising Pollinex Grass in the US and the PEI market the year and likely future developments, can be found in the authorisation for Pollinex Quattro Grass 0.5ml in Germany. Chairman’s Statement on pages 4 to 6, the Chief Executive Officer’s Review on pages 8 to 11 and the Financial Review on Product liability risk pages 24 to 28 and are incorporated in this report by reference. Despite extensive product testing prior to market launch, products may produce unanticipated adverse side effects Review of the Group’s business and Key that may hinder their marketability. The Group may be Performance Indicators insufficiently covered for any potential litigation which in The management consider the Key Performance Indicators some cases can potentially be open-ended. The Group’s (KPIs) of the business to be revenue, operating profit, net manufacturing facilities and those of some of its suppliers cash generated and staff turnover. are subject to regulatory requirements and there is a risk Revenue in the year was £39.3 million compared to £41.3 The Group maintains product liability insurance and ensures million in the previous year, a reduction of less than 5%, systems and processes relating to the manufacture of its impacted primarily by foreign exchange. products are compliant and regularly reviewed. It has a that such facilities may not comply with such requirements. pharmacovigilance team in place to monitor and address any safety issues arising. 38 © Allergy Therapeutics plcwww.allergytherapeutics.comIntellectual property risk A majority of the Group’s sales are denominated in Euros Group patents may be challenged at any time and any whilst the manufacturing and most corporate administration unsuccessful defence may cause the Group to lose protection costs are in the UK and therefore the Group is exposed to for its products and subsequently affect further development volatility in exchange rate fluctuations. The Group monitors and sales. The Group is reliant on some intellectual property exchange rates regularly and implements hedges to mitigate owned by external stakeholders that, if lost, could hinder such risks. the commercialisation of some of it products. The Group has internal and external patent experts. Internal controls are in Clinical and regulatory place to avoid disclosure of patentable material and to protect The Group operates in a highly regulated environment existing patents. Arrangements are also in place to notify the for the testing, manufacture and supply of its products. Group of any infringements of our intellectual property which Compliance with clinical and regulatory requirements within it would defend robustly. Economic risks the EU affects not only the cost of product development and resource use, but also the time required to comply. Increased regulation may require products to be amended A high level of risk is attached to the research, development to comply with regulations and/or products have to be and commercialisation of innovative drugs. The Group withdrawn, reducing revenues and/or increasing costs. ensures that business cases are scrutinised before Board Regulatory authorities such as the FDA are increasingly approval and that any increases in costs are justified. Key focussed on the benefit/risk of pharmaceutical products and suppliers may be unable to execute contractual requirements safety data making it more onerous to obtain regulatory that hamper product development and/or the route to approval. Compliance systems are in place to ensure all markets, but the Group maintains appropriate measures to clinical, manufacturing and marketing activities comply protect its supply chains. The Group may be unable to attract with regulations in the EU and other territories. Standard partners or licensees on favourable terms or recruit the right operating procedures are maintained to ensure compliance staff to help develop and market its products. Approximately with good manufacturing practice. The Group strictly monitors 60% (2012:64%) of Group sales are made in Germany and new industry regulations and engages with key Regulatory therefore Group results are sensitive to German legislation Authorities to inform the Group’s strategic direction and and government policies, and performance of the German identify factors likely to affect the future development, market. To mitigate this risk, the Group intends to expand its performance and position of the Group’s business. revenue outside Germany. Financial risk management objectives and policies Pharmaceutical products are subject to far greater controls Note 23 in the Notes to the Financial Statements gives on price in certain markets than other products in the details of the Group’s objectives and policies for risk marketplace. Some governments intervene directly in setting management of financial instruments. price levels and rebates paid into public sick funds, especially with an increasing aged population in developed countries. Position of the Group’s business at the end of the year The Group cannot accurately predict when, where and how The implementation of commercial and marketing initiatives such controls and restrictions may be altered, either to its across all territories has helped to maintain and strengthen the benefit or detriment, but it does conduct regular reviews Group in conjunction with the development of new products. of pricing and reimbursement levels and assessments of healthcare reforms on pricing. Main trends and factors likely to affect the future development, performance and position of the Group’s Financial risks business Adequate funding may not be available to the Group, either Allergy remains a market with largely unmet medical needs through reserves or external partners for the advancement of in many countries. The allergy “epidemic” continues to clinical trials, manufacturing and marketing. Failure to obtain grow and it is increasingly recognised that, for many people, further funding may lead to postponement or cancellation hay-fever is far from a trivial matter. There are currently few of programmes. The Board actively reviews the financial competitors in the niche market in which the Group operates. requirements of the Group on a regular basis in order to ensure that adequate funding is available. 39 © Allergy Therapeutics plcwww.allergytherapeutics.comEnvironmental matters Employment policies The Board is committed to minimising the Group’s impact on the environment and ensuring compliance with environmental Equal opportunities legislation. The Board considers that its activities have a low The Group is committed to providing equal opportunities environmental impact. The Group strives to ensure that all in employment irrespective of background, age, sexual emissions including the disposal of gaseous, liquid and solid orientation, religion, gender, nationality, marital status or waste products are controlled in accordance with applicable disability. Our aim is to attract the best people in the industry legislation and regulations. Disposal of hazardous waste is and we believe in maximising every employee’s potential. The handled by specialist agencies. Group does not tolerate any harassment or discrimination. Employees Disabled people The Group employed 376 people at the year-end and The Group, in considering applications for employment from is committed to achieving equality of opportunity in all disabled people, seeks to ensure that fair consideration is employment practices. A thorough review of all employees given to the abilities and aptitudes of the applicant while is performed annually to identify and promote areas that having regard to the requirements of the job for which he or require development and growth; feedback is encouraged and she has applied. Employees who become unable to carry sought. Staff are motivated by performance related incentives, out the requirements of the job for which they have been which help to attract and retain the right people, and are employed are given individual consideration and, depending encouraged to achieve business targets through market-rate on the nature, severity and duration of the disability may be pay, discretionary performance based bonuses and long term considered for alternative work. incentive programmes. The Board is committed to retaining staff as a high priority for the Group and implementing well Communication balanced, challenging incentives makes this possible. Training The Group has an open communication policy with its and development appropriate to individual and business needs employees. Regular communication on the strategy, plans is offered and remuneration for professional development is and performance of the Group is undertaken and reinforced considered on a case by case basis. by site meetings of staff as well as briefings by Directors The Group places considerable value on the involvement of to Group information on the intranet. Information about the its employees and has continued to keep them informed Group is also available on the internet at on matters affecting them as employees and on the various www.allergytherapeutics.com and line management. In the UK, employees have access factors affecting the performance of the Group. This is achieved through formal and informal meetings and email Health & Safety updates. Family friendly employment policies conform to The Group is committed to providing a safe environment statutory requirements and flexible working practices are for its employees and others who are engaged in or may be adopted where viable. impacted by the Group’s operations and considers health & safety a priority. Policies relating to Health & Safety are set The Group implements equality of opportunity in all of its out on the Group’s Intranet and Staff Handbook. Procedures employment practices, policies and procedures. Employees are monitored and improvements identified through periodic are highly valued and their rights and dignity are respected. audits and safety inspections. The Group’s Health and Safety The Group practices equal treatment of all staff and potential Committee meets regularly to discuss issues and promote staff irrespective of their race, creed, colour, sexual orientation, good practice with Health & Safety Officers promoting and nationality, ethnic origin, religion, disability, age, gender or monitoring safe working conditions. The Directors review the marital status. The equal opportunities section of the Staff Health & Safety report at the monthly board meetings. Handbook covers all permanent and temporary employees, job applicants, agency staff, consultants and contractors. Corporate social responsibility The Directors recognise the increasing importance of corporate social responsibility and endeavour to take into account the interests of the Group’s stakeholders, including its investors, employees, customers, suppliers and business partners when operating its business. 40 © Allergy Therapeutics plcwww.allergytherapeutics.comDirectors and Directors’ interests The Directors who held office during the period were as follows: Manuel Llobet Ian Postlethwaite Peter Jensen Thomas Lander Stephen Smith Chief Executive Officer Finance Director Non-Executive Chairman Non-Executive Director Date of appointment 1 July 2009 1 July 2004 1 October 2010 2 May 2012 Non-Executive Director 8 September 2004 Alejandro Weinstein Non-Executive Director 1 July 2009 The dates of appointment above refer to appointment as Directors of Allergy Therapeutics plc. The Directors who held office at the end of the financial year had the following interests in the ordinary shares of the Company: At beginning of year: At end of year: Name Ordinary Shares Options & LTIPs Ordinary Shares Options & LTIPs Manuel Llobet1 Ian Postlethwaite Peter Jensen Thomas Lander Stephen Smith 3,125,000 493,000 120,000 - 776,513 2,190,000 2,983,500 - - 150,000 3,125,000 1,360,000 120,000 - 776,513 Alejandro Weinstein2 201,986,132 - 201,986,132 3,065,000 1,696,000 - - 150,000 - 1 Has an interest in shares pursuant to his interests in Wild Indigo. Structure of the Company’s capital 2 Has an interest in shares pursuant to his interests in Yissum Holding The Company’s share capital which is traded on the AIM Limited, Azure Ventures & CFR International. market of the London Stock Exchange comprises a single Directors’ indemnity class of ordinary shares of 0.1 pence each, which each carry one voting right and all rank equally with each other. At 30 The Directors and officers of the Company are insured against June 2013, 409,866,831 shares were allotted and fully paid. any claims arising against them for any wrongful act in their Details of movements in the Company’s share capital during capacity as a Director, officer or employee of the Group, the period are shown in Note 26 to the financial statements. subject to the terms and conditions of the policy. Details of employee share schemes are set out in Note 27 to the financial statements. Participants in employee share schemes have no voting or other rights in respect of the shares subject to their awards until the options are exercised or conditional shares fully vest, at which time the shares rank pari passu in all respects with shares already in issue. 41 © Allergy Therapeutics plcwww.allergytherapeutics.com Substantial shareholders At 10 September 2013 the Company had been notified of the following major interests, each representing 3% or more of the existing issued ordinary share capital: Shareholder Ordinary shares CFR International SPA & Associated Holdings 201,986,132 Southern Fox Investments Invesco Perpetual 92,603,671 14,548,209 % held 49% 23% 4% Changes to interest in own shares Neither the Company nor any Employee Benefit Trust holds any shares in the Company. The Board Members Manuel Llobet Ian Postlethwaite Peter Jensen Thomas Lander Stephen Smith Alejandro Weinstein Director since Attendance at meetings 2012-13 July 2009 July 2004 October 2010 May 2012 September 2004 July 2009 15/15 15/15 15/15 15/15 15/15 7/15 The Board is led by the Chairman, who is non-executive, and The Board has a formal schedule of matters specifically comprises the Chief Executive Officer, the Finance Director, reserved to it for decision at Board meetings. This covers and three other Non-Executive Directors. Biographical details strategy and management, financial reporting and controls, of all Board members are shown on pages 32 to 34. The internal controls, major contracts, external communications roles of Chairman and Chief Executive Officer are separate. with investors, executive committee appointments and The Directors feel that given the current size of the Group, remuneration, appropriate delegation of authority, corporate the roles of Company Secretary and Finance Director are not governance matters and appropriate policies for key areas deemed necessary to be separated. All Directors have direct including health and safety, corporate social responsibility and access to the services and advice of the Company Secretary the environment. and to external independent professional advice at the expense of the Group. The Board delegates certain other responsibilities to committees, details of which are set out below. Board Committees The Group has an Audit Committee, a Remuneration Committee and a Nominations Committee, all with written terms of reference including formally delegated duties and responsibilities. The Chairman of each committee reports directly to the Board. 42 © Allergy Therapeutics plcwww.allergytherapeutics.comThe Audit Committee comprised Stephen Smith (Chairman) Director make regular presentations to shareholders and and Peter Jensen. The Audit Committee meets at least twice discuss any areas of concern and meet regularly with analysts each year and is responsible for ensuring that the financial and major shareholders to provide information about the performance of the Group is properly reported and monitored, Group. Press releases, general information on the Group, meeting with the Auditor, reviewing the reports from the shareholder presentations and investor information are Auditor relating to the financial statements and monitoring available to be accessed via the Group’s website, www. the internal control function. allergytherapeutics.com. The Remuneration Committee comprised Stephen Smith Annual General Meeting (Chairman), and Thomas Lander. The Remuneration The notice convening and giving details of the Annual General Committee reviews the compensation policy and strategy Meeting of the Group accompanies this report. for the Group as a whole and the scale and structure of the executive Directors’ remuneration packages including the Engagement of auditor for the supply of non-audit services terms of their service contracts. No Director takes part in the It is the Group’s policy that it will only engage the Group’s discussion of his own remuneration. This committee is also auditor to supply other professional services to the Group responsible for the grant of shares under the Group’s Long and its subsidiary undertakings if it is satisfied that all the Term Incentive Plan. usual conditions of engagement and benchmarks are met. Any agreement to purchase services costing more than The Nomination Committee comprised Peter Jensen £10,000 per engagement must have the prior approval of the (Chairman), Stephen Smith and Alejandro Weinstein during Audit Committee. the year. The Committee held one meeting during the past financial year. The Nominations Committee’s principal purpose In determining the policy, the Audit Committee has taken into is to consider and proffer proposals for the composition account relevant ethical guidance regarding the provision of and size of the Board and its Committees as well as Board non-audit services by the external audit firm and does not refreshment and succession planning. agree to the auditor providing a service if, having regard to the Full details of Directors’ remuneration and a statement of own work, the external auditor makes management decisions the Group’s remuneration policy are set out in the Directors’ for the Group, a mutuality of interest is created or the external Remuneration Report on pages 46 to 48. auditor is put in the role of advocate for the Group. ethical guidance, the result is that the external auditor audits its Internal control Research and development The Board has ultimate responsibility for the system of The Group will continue its policy of investment in research internal control maintained by the Group. The system is and development, with the focus being in Germany where designed to manage rather than eliminate risk. It can provide major allergy vaccines, if not already registered, require only reasonable and not absolute assurance against material further clinical evidence. In accordance with International misstatement or loss and includes the safeguarding of Financial Reporting Standards (IFRS), during the year the assets, the maintenance of proper accounting records, the Group expensed to the income statement £2.5m (2012: reliability of financial information, compliance with appropriate £2.1m) on research and development. Further details on the legislation, regulation and best practice and the identification Group’s research and development are included in the Chief and management of business risk. The Group has an internal Executive’s Review on pages 8 to 11. audit function, reporting directly to the Audit Committee, which carries out periodic reviews of the Group’s subsidiaries. Going concern The Group also has a budgeting and reporting system in The Group’s business activities, together with the factors place, with results compared to annual budgets and quarterly likely to affect its future development, performance and forecasts using variance analysis. position are set out in the Chairman’s Statement on pages 4 to 6, the Chief Executive Officer’s Review on pages 8 to Shareholder relations 11 and the Financial Review on pages 24 to 28. The financial The Group maintains a policy of open dialogue with all position of the Group, its cash flows, liquidity position shareholders to ensure that the objectives of the Group are and borrowing facilities are also described in the Finance understood. The Chief Executive Officer and the Finance Director’s Financial Review on pages 24 to 28. 43 © Allergy Therapeutics plcwww.allergytherapeutics.comIn addition, Note 23 to the financial statements includes the Statement of Directors’ responsibilities – Group Group’s objectives, policies and processes for managing its Financial Statements capital, its financial risk management objectives, details of its The Directors are responsible for preparing the Annual Report financial instruments and its exposures to foreign currency and the financial statements in accordance with applicable risk, interest rate risk and liquidity risk. law and regulations. After making appropriate enquiries, which included a review Company law requires the Directors to prepare financial of the annual budget, considering the cash flow requirements statements for each financial year. Under that law the for the foreseeable future, noting the new bank facility, directors have to prepare the financial statements in and the effects of sales and foreign exchange sensitivities accordance with International Financial Reporting Standards on the Group’s funding plans, the Directors continue to (IFRS) as adopted by the European Union. Under company believe that the Group will have adequate resources to law the directors must not approve the financial statements continue in operational existence for the foreseeable future unless they are satisfied that they give a true and fair view and accordingly have applied the going concern principle in of the state of affairs and profit or loss of the Group for that drawing up the financial statements. In reaching this view, period. In preparing these financial statements, the directors the Directors have considered and prioritised the actions are required to: that could be taken to offset the impact of any shortfall in operating performance. • Select suitable accounting policies and then apply them consistently; Market value of land and buildings • Make judgments and accounting estimates that are All freehold properties are stated at market value. The Group’s reasonable and prudent; policy is that a full revaluation is carried out every five years • State whether applicable IFRSs have been followed, with an interim valuation carried out in the third year after subject to any material departures disclosed and each full valuation. In the intervening years the directors explained in the financial statements; review the carrying values of the freehold land and buildings • Prepare the financial statements on the going to ensure that there have been no material variations. concern basis unless it is inappropriate to presume that the Group will continue in business. Creditors’ payment policy and practice The Group agrees payment terms with suppliers when it The Directors are responsible for keeping adequate accounting enters into contracts for the purchase of goods or services records that are sufficient to show and explain the Group’s and generally seeks to abide by those terms when it is transactions and disclose with reasonable accuracy at any time satisfied that the supplier has provided the goods or services the financial position of the Group and enable them to ensure in accordance with the agreed terms and conditions. Whilst that the financial statements comply with the Companies Act. the Company had no trade creditors, the number of trade They are also responsible for safeguarding the assets of the creditor days for the Group at 30 June 2013 was 55 days Group and hence for taking reasonable steps for the prevention (2012: 42 days). Dividend and detection of fraud and other irregularities. The Directors confirm that in so far as each Director is aware: Given the amount invested in research and development in the prior years the Group has negative distributable reserves • there is no relevant audit information of which the and is unable to declare a dividend. Group’s auditor is unaware; and Charitable and political contributions to have taken as Directors in order to make themselves The Group made no political or charitable contributions during aware of any relevant audit information and to establish the year. that the auditor are aware of that information. • the Directors have taken all the steps that they ought 44 © Allergy Therapeutics plcwww.allergytherapeutics.com The Directors are responsible for the maintenance and The Directors confirm that in so far as each Director is aware: integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom • There is no relevant audit information of which the governing the preparation and dissemination of financial Company’s auditors are unaware; and statements may differ from legislation in other jurisdictions. • The Directors have taken all the steps that they ought Statement of Directors’ responsibilities – Company aware of any relevant audit information and to establish Financial Statements that the auditor are aware of that information. to have taken as Directors in order to make themselves The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included Company law requires the Directors to prepare financial on the Company’s website. Legislation in the United Kingdom statements for each financial year. Under that law the directors governing the preparation and dissemination of financial have elected to prepare the financial statements in accordance statements may differ from legislation in other jurisdictions. with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Auditor Under company law the directors must not approve the Grant Thornton UK LLP offer themselves for reappointment as financial statements unless they are satisfied that they give Auditor in accordance with section 489 of the Companies Act a true and fair view of the state of affairs and profit or loss 2006. A resolution for their reappointment is to be proposed of the Company for that period. In preparing these financial at the forthcoming Annual General Meeting. statements, the directors are required to: By order of the Board on 13 September 2013 • Select suitable accounting policies and then apply them consistently; Ian Postlethwaite • Make judgments and accounting estimates that are Company Secretary 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. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 45 © Allergy Therapeutics plcwww.allergytherapeutics.comDirectors’ Remuneration Report The Remuneration Committee The Remuneration Committee comprised Stephen Smith (Chairman) and Thomas Lander during the financial year. The principal purpose of the Committee is to determine and agree the directors’ salary increases, annual bonuses, scope of pension arrangements and any changes in benefits. In addition, the Committee also agrees the share-related compensation for the Directors and other executive management and other executive compensation matters. Members Stephen Smith Thomas Lander Member since November 2004 May 2012 Attendance at meetings 2012-2013 4/4 4/4 Remuneration policy (iv) Long Term Incentive Plan The Committee’s policy is to set remuneration packages for During the year ended 30 June 2013 provisional shares Executive Directors that are competitive with the market, were awarded to directors and senior management under the allowing the Group to attract, motivate and retain executives Allergy Therapeutics plc 2005 Long Term Incentive Plan and the of the highest calibre. Remuneration packages are designed 2013 Long Term Incentive Plan. The major shareholders were to reward executives for performance via annual bonus consulted on the new plan which was approved by the Board payments and awards of share-related compensation, which on 20 March 2013. The new plan is aligned with the Group’s together constitute a potentially significant proportion of the performance rather than on the performance compared to a total remuneration opportunity. group of other companies. The distribution of shares under the Plans is conditional on the Group’s performance over the The remuneration of Executive Directors comprises the 3-year Plan cycle. The number of provisional shares awarded to following elements: Executive Directors under the Plan is shown in the Directors’ (i) Basic salary Basic salary is reviewed annually as at 1 October, taking into (v) Bonus share option table. account personal performance, and benchmarked against a In the case of the executive team, the Group operates a comparator group. performance-related cash bonus based upon individual performance and achievement of personal and corporate (ii) Taxable benefits objectives. Annual bonus payments are capped under service Taxable benefits represent the provision of a car allowance contracts at 40% for Manuel Llobet and 30% for other and private medical insurance. Executive Directors. The bonus is determined and agreed by the Remuneration Committee in September each year for the (iii) Share options preceding financial year. No share options were granted in the year. The share options granted to individual Executive Directors to date are disclosed (vi) Pension arrangements later in this report and comprise grants made in prior years The UK Company operates a defined-contribution Personal under previous approved and unapproved option schemes. Pension scheme and currently makes pension contributions Share options previously granted by Allergy Therapeutics equal to 10% of salary for Executive Directors, with the (Holdings) Limited were surrendered on 5 October 2004 for exception of Manuel Llobet for whom the Group contributes share options in Allergy Therapeutics plc, on substantially the 15% of salary. same terms. 46 © Allergy Therapeutics plcwww.allergytherapeutics.com  Service contracts Executive Directors Date of contract Date of Amendment Notice period Manuel Llobet Ian Postlethwaite 11 June 2009 7 May 2002 21 June 2012 - 12 months 12 months Non-Executive Directors Date of contract Date of Amendment Notice period Peter Jensen Thomas Lander 1 October 2010 2 May 2012 Stephen Smith 5 October 2004 Alejandro Weinstein 1 July 2009 30 June 2012 25 June 2013 1 April 2012 - 6 months 3 months 3 months 3 months Thomas Lander’s Deed of Appointment was altered on 25 June 2013 to add a clause regarding fees payable for additional work in exceptional circumstances above his contractual two days per month. Directors’ remuneration (audited information) Details of remuneration of those who served as directors during the year are set out below. Basic Salary Bonus for the year Taxable benefits £ £ £ Manuel Llobet 199,109 18,857 10,909 Ian Postlethwaite2 156,734 (16,080) 10,625 Peter Jensen Thomas Lander Stephen Smith1 65,000 36,000 - Alejandro Weinstein 36,000 - - - - - - - - Fees Total Pension Total Pension Year ended 30 June 2012 £ £ £ £ 228,875 29,872 253,546 27,690 151,279 44,821 202,484 15,254 65,000 36,000 46,000 46,000 - 36,000 - - - - 65,000 6,000 36,000 36,000 - - - - £ - - - - Totals 492,843 2,777 21,534 46,000 563,154 74,693 599,030 42,944 1 Mr Smith’s fees are paid to SRS Business Enterprises Limited. 2 Mr Postlethwaite received an extra pension contribution in lieu of his accrued bonus from the prior year. 47 © Allergy Therapeutics plcwww.allergytherapeutics.com Directors’ share options and LTIPs Options held at 1 July 2012 Options granted in the year Options exercised in the year Options lapsed in the year Options held at 30 June 2013 Subscription price (pence) Exercise date from Expiry date Executive Directors Manuel Llobet 2,190,0001 1,625,0001 - (750,000) 3,065,000 - - - Ian Postlethwaite 1,500,000 163,500 - - 1,320,0001 812,5001 Non-Executive Directors Stephen Smith 150,000 - (1,500,000) - - - - - - 5.0 17/12/2002 17/12/2012 163,500 18.5 18/10/2009 18/10/2019 (600,000) 1,532,500 - - - - 150,000 45.0 26/02/2004 26/02/2014 Totals 5,323,500 2,437,500 (1,500,000) (1,350,000) 4,911,000 1Long Term Incentive Plan The aggregate amount of gains made by Directors upon the exercise of share options in the year ended 30 June 2013 was £112,500 (2012: £nil). At 30 June 2013 the London Stock Exchange market value of shares was 9.88p per share. The range of values during the period from 1 July 2012 to 30 June 2013 was 7.5p to 13.75p per share. Stephen Smith Chairman, Remuneration Committee 48 © Allergy Therapeutics plcwww.allergytherapeutics.comNominations Committee Report The Nominations Committee during the year comprised Peter Jensen (Chairman), Stephen Smith and Alejandro Weinstein. The Nominations Committee was established in September 2009 and held once during the past financial year. Its principal purpose is to consider and proffer proposals for the composition and size of the Board and its Committees as well as Board refreshment and succession planning. Members Peter Jensen Stephen Smith Member since October 2010 September 2009 Alejandro Weinstein September 2009 Attendance at meetings 2012-13 1/1 1/1 1/1 When proposing appointments of directors, the Committee The review considered all the Non-Executive Directors and considers the skills, knowledge and experience that a in particular Mr Stephen Smith’s position; his independence candidate possesses compared to the skill sets and experience was discussed regarding his share options granted in 2004, as of the Board as it currently stands. Selection of candidates also detailed on page 48, and his term of office, this being slightly takes into consideration the breadth of knowledge that the over 9 years at the Company’s forthcoming Annual General Board has and that it may require to provide a well-balanced Meeting in November, both being contrary to the UK Corporate environment which encourages scrutiny and appropriate Governance Code. The Committee judged that his contribution challenge of the Executive management. in the capacity as Chairman of the Audit Committee, and his experience, integrity and strength of character outweigh any The Group considers the independence of non-executive potential conflict of interest that might arise from these to directors of paramount importance, being a cornerstone impede his independence and accordingly recommended of good corporate governance; as a result the Committee this to the Board who endorsed his continued appointment. periodically reviews the independence of its Non-Executive Mr Stephen Smith is therefore regarded as an independent Directors. Its review is based on independence defined in Non-Executive Director, with Mr Thomas Lander as the other the UK Corporate Governance Code against the practicalities independent Non-Executive Director. for an AIM Company. The Group follows the UK Corporate Governance Code wherever practical to do so, but the code is The Board now consists of four Non-Executive Directors, with not binding on AIM listed companies. three being independent and two Executive Directors. Peter Jensen Chairman, Nominations Committee 49 © Allergy Therapeutics plcwww.allergytherapeutics.comIndependent Auditor’s Report to the Members of Allergy Therapeutics plc (Group) We have audited the Group financial statements of Opinion on other matter prescribed by the Companies Allergy Therapeutics plc for the year ended 30 June 2013 Act 2006 which comprise the consolidated income statement, the In our opinion the information given in the Directors’ Report for consolidated statement of comprehensive income, the the financial year for which the Group financial statements are consolidated balance sheet, the consolidated statement of prepared is consistent with the Group financial statements. changes in equity, the consolidated cash flow statement and the related notes. The financial reporting framework Matters on which we are required to report by exception that has been applied in their preparation is applicable law We have nothing to report in respect of the following: and International Financial Reporting Standards (IFRSs) as Under the Companies Act 2006 we are required to report to adopted by the European Union. you if, in our opinion: This report is made solely to the Company’s members, • Certain disclosures of Directors’ remuneration specified as a body, in accordance with Chapter 3 of Part 16 of the by law are not made; or Companies Act 2006. Our audit work has been undertaken • We have not received all the information and so that we might state to the Company’s members those explanations we require for our audit. matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by Other matter law, we do not accept or assume responsibility to anyone We have reported separately on the parent company financial other than the Company and the Company’s members as a statements of Allergy Therapeutics plc for the year ended body, for our audit work, for this report, or for the opinions we 30 June 2013. have formed. Christian Heeger Respective responsibilities of directors and auditor Senior Statutory Auditor As explained more fully in the Directors’ Responsibilities for and on behalf of Grant Thornton UK LLP Statement set out on pages 44 to 45, the Directors are Statutory Auditor, Chartered Accountants responsible for the preparation of the Group financial Gatwick statements and for being satisfied that they give a true and fair 13 September 2013 view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (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 Group financial statements: • Give a true and fair view of the state of the Group’s affairs as at 30 June 2013 and of its profit for the year then ended; • Have been properly prepared in accordance with IFRSs as adopted by the European Union; and • Have been prepared in accordance with the requirements of the Companies Act 2006. 50 © Allergy Therapeutics plcwww.allergytherapeutics.comConsolidated Income Statement for the year ended 30 June 2013 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 Operating profit Finance income Finance expense Profit before tax Income tax Profit for the period Profit/ Earnings per share Basic (pence per share) Diluted (pence per share) 2013 £’000 (7,845) (2,535) Note 3 9 8 5 10 12 2013 £’000 39,279 (11,953) 27,326 (16,278) (10,380) 668 19 (255) 432 104 536 0.13p 0.13p 2012 £’000 (6,542) (2,095) 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 for the year ended 30 June 2013 Year to 30 June Year to 30 June Note 25 Profit for the period Items that will not be reclassified subsequently to profit or loss: Actuarial loss on defined benefit pension scheme Revaluation gains - freehold land & buildings Items that will be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Revaluation (losses)/gains on investments – retirement benefit assets Total comprehensive loss 2013 £’000 536 (865) 17 77 (17) (252) 2012 £’000 823 (734) - (431) 50 (292) 51 © Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Balance Sheet Note 30 June 2013 £’000 30 June 2012 £’000 7,337 2,560 1,350 3,059 200 14,506 7,185 6,014 1,257 2 14,458 28,964 (7,006) (288) (326) (7,620) 6,838 (6,214) - - (159) (300) (6,673) (14,293) 14,671 420 67,716 40,128 67 679 3,652 1,297 170 (99,458) 14,671 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 Assets Non-current assets Property, plant and equipment Intangible assets – goodwill Intangible assets – other Investments – retirement benefit asset Deferred taxation asset Total non-current assets Current assets Trade and other receivables Inventories Cash and cash in hand Derivative financial 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 obligations Non current borrowings Derivative financial instruments Deferred taxation liability Non current provisions Total non current liabilities Total liabilities Net assets Equity Capital and reserves Issued share capital Share premium 15 13 14 16 11 18 17 19 23 20 21 23 25 21 23 11 22 26 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 These financial statements were approved by the Board of Directors on 13 September 2013 and were signed on its behalf by Manuel Llobet Ian Postlethwaite Chief Executive Officer Finance Director Registered number: 05141592 52 © Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Statement of Changes in Equity Issued Share Merger Reserve – Reserve – Reserve – Revaluation Foreign Retained Total Capital premium reserve – shares share convertible reserve exchange earnings equity shares held in based loan note reserve issued by subsidiary EBT payment At 30 June 2011 321 58,705 40,128 67 1,398 - 1,287 524 (100,291) 2,139 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Exchange differences on translation of foreign operations Actuarial loss Valuation gains taken to equity (Investments) Total other comprehensive income Profit for the period after tax Total comprehensive income Transactions with owners Share based payments Shares issued 96 8,866 Transfer of lapsed options to retained earnings Transfer of depreciation on revalued property (431) (431) (734) (734) 50 50 50 (431) (734) (1,115) 823 823 50 (431) 89 (292) 131 (33) 3,652 131 12,614 - - 33 (40) 40 At 30 June 2012 417 67,571 40,128 67 1,496 3,652 1,297 93 (100,129) 14,592 Exchange differences on translation of foreign operations Actuarial loss Valuation gain taken to equity (Land and Buildings) Valuation loss taken to equity (Investments) Total other comprehensive income Profit for the period after tax Total comprehensive income Transactions with owners Share based payments Shares issued 3 145 Transfer of lapsed options to retained earnings 17 (17) - - 77 77 (865) (865) 17 (17) 77 (865) (788) 536 536 77 (329) (252) 183 148 1,000 - 183 (1,000) At 30 June 2013 420 67,716 40,128 67 679 3,652 1,297 170 (99,458) 14,671 53 © Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Cash Flow Statement Year to 30 June 2013 Year to 30 June 2012 Note £’000 Cash flows from operating activities Profit before tax Adjustments for: Finance income Finance expense Revaluation loss on loan 9 8 8 Non cash movements on defined benefit pension plan Depreciation and amortisation 14, 15 Charge for share based payments Derivative financial instruments Disposal of intangible assets and property, plant and equipment (Increase)/decrease in trade and other receivables Decrease in inventories Increase/(decrease) in trade and other payables Net cash generated by operations Interest paid Income tax (paid)/ refunded Net cash generated by operating activities Cash flows from investing activities Interest received Investments 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 cash generated by/(used in) financing activities Net increase/(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 54 432 (19) 255 - 79 1,342 183 787 607 (2,164) 767 746 3,015 (211) (372) 2,432 19 (355) (157) (664) (1,157) 148 - - - 148 1,423 50 (409) 1,064 1,257 (193) 1,064 £’000 640 (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) © Allergy Therapeutics plcwww.allergytherapeutics.comNotes to the Financial Statements 1. Basis of Preparation IFRS 9 Financial Instruments (effective 1 January 2015) This IFRS replaces IAS39 and addresses the usefulness for The Group’s financial statements have been prepared in users of financial statements by simplifying the classification accordance with International Financial Reporting Standards and measurement requirements for financial instruments. (IFRS) in issue as adopted by the European Union (‘EU’). Management are currently assessing the detailed impact on the Group’s financial statements. Allergy Therapeutics plc is the Group’s ultimate parent company. The Company is a limited liability company IFRS 10 Consolidated Financial Statements (effective 1 incorporated and domiciled in England. The address of Allergy January 2013) Therapeutics plc’s registered office and its principal place of This IFRS establishes principles for the presentation and business is Dominion Way, Worthing, West Sussex and its preparation of consolidated financial statements when an shares are listed on the Alternative Investment Market (AIM). entity controls one or more other entities. The consolidated financial statements for the year ended 30 IFRS 12 Disclosure of Interests in Other Entities (effective June 2013 (including comparatives) have been prepared under 1 January 2013) the historical cost convention except for land and buildings This IFRS looks at the disclosure of information that enables and derivative financial instruments which have been users of financial statements to evaluate the nature of, and measured at fair value. They were approved and authorised risks associated with, its interests in other entities, and the for issue by the Board of Directors on 13 September 2013. effects of those interests on its financial position, financial performance and cash flows. New standards adopted There are no IFRS or IAS interpretations that are effective for IFRS 13 Fair Value Measurement (effective 1 January 2013) the first time in this financial period that have had a material IFRS 13 seeks to increase consistency and comparability in impact on the Group. fair value measurements and related disclosures through a Amendments to IAS 1 Presentation of Other ‘fair value hierarchy’. Comprehensive Income (effective 1 July 2012) IAS 19 (Revised June 2011) Employee Benefits (effective 1 This IAS amendment revises the way the statement January 2013) of other comprehensive income should be presented IAS 19 reviews the treatment of employee benefits with a view requiring separate subtotals for those elements which may to recognising the cost in the period in which the benefit is be ‘recycled’ (e.g. cash-flow hedging, foreign currency earned by the employee, rather than when it is paid or payable. translation), and those elements that will not. IAS 27 (Revised) Separate Financial Statements (effective Standards, amendments and interpretations to existing 1 January 2013) standards that are not yet effective and have not IAS 27 is concerned with the preparation and presentation of been early adopted by the Group in the 30 June 2013 consolidated financial statements for a group of entities under financial statements the control of a parent, and in accounting for investments in At the date of authorisation of these financial statements, subsidiaries, jointly controlled entities and associates when certain new standards, amendments and interpretations an entity elects, or is required by local regulations, to present to existing standards have been published but are not yet separate (non-consolidated) financial statements. effective. Not all of these have yet been adopted by the EU. The Group has not adopted any of these pronouncements Management anticipate that the above pronouncements early. The new standards, amendments and interpretations will be adopted in the Group’s financial statements in line that are expected to be relevant to the Group’s financial with the effective dates stated above. Management are statements are as follows: currently assessing their detailed impact on the Group’s financial statements. Other new standards and Interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. 55 © Allergy Therapeutics plcwww.allergytherapeutics.comGoing concern that meet the conditions for recognition under IFRS 3 Revised For the year ended 2013, and for the fourth year in Business Combinations, are recognised at their fair values succession, the Group has reported an operating profit and an at the acquisition date. The excess of the cost of acquisition operating cash inflow. Operating profit in the period was £0.7 over the fair value of the Group’s share of the identifiable net million (2012: £1.1 million); operating cash inflow was £3.0 assets acquired is recorded as goodwill. If the cost of the million (2012: £2.9 million). acquisition is less than the fair value of the net assets of the subsidiary acquired the difference is recognised directly in the The Group has prepared detailed budgets, including cash profit or loss. flow projections, for the periods ending 30 June 2014 and 30 June 2015. These projections include assumptions on Inter-company transactions, balances and unrealised gains the trading performance of the operating business and the and losses on transactions between Group companies are continued availability of the existing overdraft facilities. After eliminated except for unrealised losses if they show evidence making appropriate enquiries, which included a review of the of impairment. annual budget, by considering the cash flow requirements for the foreseeable future and the effects of sales and other Where necessary, adjustments are made to the financial sensitivities on the Company’s funding plans, the Directors statements of subsidiaries to bring accounting policies used continue to believe that the Group will have adequate into line with those used in the Group. resources to continue in operational existence for the foreseeable future and accordingly have applied the going Goodwill concern principle in drawing up the financial statements. Goodwill arising from business combinations is the difference In reaching this view, the Directors have considered and between the fair value of the consideration paid and the fair prioritised the actions that could be taken to offset the impact value of the assets and liabilities and contingent liabilities of any shortfall in operating performance. acquired. It is initially recognised as an intangible asset at cost and is subject to impairment testing on an annual basis 2. Accounting Policies or more frequently if circumstances indicate that the asset The principal accounting policies adopted in the preparation of may have been impaired. Details of impairment testing are these financial statements are set out below. These policies described in the accounting policies. have been consistently applied to all years presented unless otherwise stated. Consolidation Intangible assets acquired as part of a business combination Intangible assets acquired in a business combination are The Group’s financial statements consolidate those of the identified and recognised separately from goodwill where parent company and all of its subsidiaries drawn up to 30 they satisfy the definition of an intangible asset and their fair June 2013. Subsidiaries are all entities over which the Group values can be measured reliably. The cost of such intangible has the power to govern the financial and operating policies, assets is their fair value at the acquisition date. generally accompanying a shareholding of over one half of the voting rights. The existence and effect of potential Subsequent to initial recognition, intangible assets acquired in voting rights that are currently exercisable or convertible are a business combination are reported at cost less accumulated considered when assessing whether the Group controls amortisation and accumulated impairment losses. another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated on the date control ceases. The Group uses the acquisition method of accounting for the acquisition of a subsidiary. The cost of an acquisition is measured by the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination 56 © Allergy Therapeutics plcwww.allergytherapeutics.comInternally generated intangible assets The cost of amortising intangible assets is included within An internally generated intangible asset arising from administration costs in the consolidated income statement. development (or the development phase) of an internal project is recognised if, and only if, all of the following have Segmental reporting been demonstrated: In identifying its operating segments, management follow the Group’s revenue lines which represent the main geographical • The technical feasibility of completing the intangible markets within which the Group operates. These operating asset so that it will be available for use or sale segments are managed separately as each requires different • The intention to complete the intangible asset and use local expertise, regulatory knowledge and a specialised or sell it marketing approach. Each market based operating segment • • The ability to use or sell the intangible asset is engaged in production, marketing and selling within a How the intangible asset will generate probable future particular economic environment that is different from that economic benefits in segments operating in other economic environments. All • The availability of adequate technical, financial and other inter-segment transfers are carried out at arm’s length prices. resources to complete the development and to use or sell the intangible asset The Group’s operating segments are market based and are • The ability to measure reliably the expenditure reported in a manner consistent with the internal reporting attributable to the intangible asset during its provided to the Group’s Chief Operating Decision Maker development. (CODM) who has been identified as the Executive Directors. The CODM is responsible for allocating resources and The amount initially recognised for internally generated assessing the performance of the operating segments. intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition Foreign currency translation criteria listed above. Where no internally generated intangible Functional and presentational currency asset can be recognised, research and development Items included in the financial statements of each of the expenditure is charged to profit or loss in the period in which Group’s entities are measured using the currency of the it is incurred. primary economic environment in which the entity operates (the functional currency). The Group’s presentational currency Subsequent to initial recognition, internally generated is Sterling, which is also the functional currency of the intangible assets are reported at cost less accumulated Group’s parent. amortisation and accumulated impairment losses. Amortisation shall begin when the asset is available for use, Transactions and balances i.e. when it is in the location and condition necessary for it to be Foreign currency transactions are translated into the functional capable of operating in the manner intended by management. currency using the exchange rates prevailing at the dates of the Amortisation of all intangible assets is calculated on a straight the settlement of such transactions and from the translation, at line basis over the useful economic life using the following reporting period end exchange rates, of monetary assets and transactions. Foreign exchange gains and losses resulting from annual rates: Manufacturing know-how 15 years liabilities denominated in foreign currencies, are recognised in the profit and loss. Non-monetary items are carried at historical cost or translated using the exchange rate at the date of the transaction or an average rate as an approximation where this Non-competing know-how 4 years is not materially different. Other intangibles Computer software 15 years/ period of contract 7 years These periods were selected to reflect the various assets’ useful economic lives to the Group. 57 © Allergy Therapeutics plcwww.allergytherapeutics.comGroup companies A small proportion of the Group’s overseas sales are made The results and financial position of all Group entities that have through licensees and distributors. a functional currency different from the presentational currency are translated into the presentational currency as follows: For all licensee arrangements, the licensee is invoiced at the time of delivery and title to the product passes upon full and • Assets and liabilities for each balance sheet presented final settlement of the invoice to which the delivery relates. are translated at the closing rate at the date of the The licensee has full discretion over the setting of the final balance sheet with all resulting exchange differences selling price to the end customer and pays a fixed percentage being recognised in other comprehensive income and of the final selling price back to the Group as ‘royalties’ as and accumulated in a separate component of equity. when those sales are made. The licensee is responsible for all • Income and expenses for each income statement customer returns of product. item are translated at exchange rates at the date of the transaction or using an average rate as an It is considered that the significant risks and rewards of approximation where this is not materially different, ownership of the product are transferred to the licensee at with resulting exchange differences recognised in other the point of delivery and therefore revenue is recognised at comprehensive income and accumulated in a separate this point in accordance with IAS 18. Royalties are recognised component of equity. on an accruals basis as the licensee books the sale to the end customer in accordance with IAS 18 paragraph 30 (b). The Group has taken advantage of the exemption in IFRS 1 which allows all foreign exchange differences on Where the Group sells to licensees at low margin and consolidation to be set at zero at transition and the foreign the royalty payment receivable actually represents the exchange reserve therefore only shows post transition Group’s normal margin on the product sale, the “royalty” is foreign exchange differences. considered to be deferred consideration and forms part of the fair valuation of consideration receivable by the Group for Revenue recognition goods supplied. In these instances the expected royalty is Revenue is measured by reference to the fair value of accrued at a discounted value at the point of delivery. consideration received or receivable by the Group for goods supplied and services provided, net of statutory rebates For all distributor agreements, the distributor places orders paid in Germany and excluding value added tax. Revenue is with the Group, at which point goods are shipped to them. recognised upon the performance of services or transfer of The Group however, holds title to these products until they risk to the customer. are sold on to a third party with the distributor effectively Sale of goods acting as an agent. The selling price to the end user is set by the relevant Government body and the distributor receives a Revenue from the sale of goods is recognised when all the fixed percentage of this selling price. The distributor notifies following conditions have been satisfied: the Group monthly on stock levels and this is reconciled to a statement which generates an invoice for payment by the • the Group has transferred to the buyer the significant distributor. The Group is responsible for any customer returns risks and rewards of ownership of the goods, which is of product. generally when the customer has physically received the goods. It is considered that the significant risks and rewards of • the Group retains neither continuing managerial ownership of the product are not transferred from the Group involvement to the degree usually associated with until the distributor has sold the product to a third party and ownership nor effective control over the goods sold therefore revenue on these sales is recognised at this point which is again when the customer has physically by the Group in accordance with IAS 18 appendix 2 (c). received the goods. • • the amount of revenue can be measured reliably. Where the Group provides services to new distributors, it is probable that the economic benefits associated with which mainly include marketing and customer information, in the transaction will flow to the Group, and exchange for an up-front lump sum fee, revenue is recognised • the costs incurred or to be incurred in respect of the in line with these services being delivered. These services are transaction can be measured reliably. 58 © Allergy Therapeutics plcwww.allergytherapeutics.com fair valued and pro-rated to agree to the total fee receivable. Provision for depreciation of all tangible assets of the Group Where there is an on-going responsibility to provide services (except land) is made over their estimated useful lives, on a in the future, the balance relating to those services is straight line basis principally using the following annual rates: recognised in future periods as the service is performed. Expenditure recognition Operating expenses are recognised in the income statement Freehold buildings Computer equipment upon utilisation of the service or at the date of their origin. Motor vehicles Borrowing costs Fixtures and fittings Borrowing costs primarily comprise interest on the Group’s Plant and equipment borrowings. Borrowing costs directly attributable to the 33 years 3 – 7 years 4 years 5 – 15 years 5 – 15 years acquisition, construction or production of a qualifying asset Asset residual values and useful lives are reviewed annually are capitalised during the period of time that is necessary to and amended as necessary. Assets are reviewed for complete and prepare the asset for its intended use or sale. impairment whenever events or changes in circumstances Other borrowing costs are expensed in the period in which indicate that the carrying amount of the fixed asset may not they are incurred and reported in ‘finance costs’ be recoverable. An asset’s carrying amount is written down Property, plant and equipment amount exceeds the higher of the asset’s fair value less costs immediately to its recoverable amount if the asset’s carrying The Group policy is that all freehold properties will be subject to sell or value in use. to a full revaluation at least every five years with an interim valuation carried out in accordance with IAS 16 in the third During the year the asset lives of ‘Fixtures and fittings’ and year after each valuation. ‘Plant and equipment’ were extended up to a maximum of 15 years (previous maximum useful life was 10 years). The effect Revaluations are performed by independent qualified and of this change is described in Note 15. experienced valuers who have adequate local knowledge in the country in which the property is situated. In the Depreciation charges are included when arriving at operating intervening years between independent revaluations, the profit in the income statement. directors review the carrying values of the freehold land and buildings and adjustments are made if the carrying values Impairment differ significantly from their respective fair values. Increases The Group’s goodwill, other intangible assets, freehold in the carrying value from revaluations are recognised in other land and buildings and plant & equipment are subject to comprehensive income and accumulated in equity under impairment testing. the heading of revaluation reserve unless this reverses a revaluation decrease on some asset previously recognised For the purposes of assessing impairment, assets are in profit and loss, in which case it is first credited to profit grouped at the lowest levels for which there are separately and loss to that extent. When an item of property, plant and identifiable cash flows (cash generating units). Goodwill is equipment is revalued, any accumulated depreciation at the allocated to those cash generating units that are expected to date of the revaluation is restated proportionately with the benefit from synergies of the related business combination change in the gross carrying amount of the asset. The amount and represent the lowest level within the Group at which of the adjustment arising on the restatement or elimination management controls the related cash flows. of accumulated depreciation forms part of the increase or decrease in carrying amount. Decreases in the carrying Individual assets or cash generating units that include values arising from revaluations are first offset against goodwill with an indefinite useful life or those not yet increases from earlier revaluations in respect of the same available for use are tested for impairment at least annually. assets and are thereafter charged to profit or loss. All other individual assets or cash generating units are tested Plant and equipment are stated at historical cost less indicate that the carrying amount may not be recoverable. accumulated depreciation and accumulated impairment losses. for impairment whenever events or changes in circumstances 59 © Allergy Therapeutics plcwww.allergytherapeutics.comAn impairment loss is recognised for the amount by which through profit and loss’ and subsequently at amortised the assets or cash generating units carrying amount exceeds cost, with any changes going through profit or loss. Where its recoverable amount. The recoverable amount is the higher securities are designated as ‘fair value through profit and of fair value, reflecting market conditions less costs to sell loss’ gains and losses arising from changes in fair value are and value in use, based on an internal discounted cash flow included in net profit or loss for the period. evaluation. Impairment losses recognised for cash generating units, to which goodwill has been allocated, are credited Derecognition of financial assets occurs when the rights initially to the carrying amount of goodwill. Any remaining to receive cash flows from the investments expire or are impairment loss is charged pro rata to the other assets in transferred and substantially all of the risks and rewards the cash generating unit. With the exception of goodwill, all of ownership have been transferred. An assessment for assets are subsequently reassessed for indications that an impairment is undertaken at least at each balance sheet date impairment loss previously recognised may no longer exist. whether or not there is objective evidence that a financial asset or a group of financial assets is impaired. Inventories Inventory is carried at the lower of cost or net realisable Financial liabilities value. The costs of raw materials, consumables, work in The Group’s financial liabilities include bank loans, trade and progress and finished goods are measured by means of other payables and derivative financial instruments. weighted average cost using standard costing techniques. Cost of finished goods comprises direct production costs Financial liabilities are recognised when the Group becomes such as raw materials, consumables, utilities and labour, and a party to the contractual agreements of the instrument. All production overheads such as employee costs, depreciation, interest related charges are recognised as an expense in maintenance and indirect factory costs. Standard costs are ‘Finance costs’ in the income statement. reviewed regularly in order to ensure relevant measures of utilisation, production lead time and appropriate levels of Trade and other payables are recognised initially at their fair manufacturing expense are reflected in the standards. value and subsequently measured at amortised cost using the effective interest method. Net realisable value is calculated based on the revenue from sale in the normal course of business less any costs to sell. Borrowings comprise secured bank borrowings, and are Leases initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings. Operating lease rentals are charged to the income statement After initial recognition, interest-bearing loans and borrowings over the term of the lease. There are no finance leases. are subsequently measured at amortised cost using the effective interest rate method. Financial assets Financial assets consist of cash, trade and other receivables Convertible loan notes and derivative financial instruments. Financial assets are Convertible loan notes are regarded as compound assigned to their different categories by management on initial instruments consisting of a liability component and an recognition, depending on the contractual arrangements. equity component. At the date of issue the fair value of the liability component is estimated using a discount rate for Cash and cash equivalents comprise cash on hand, demand an equivalent liability without the conversion feature. The deposits and overdrafts, together with other short-term, difference between the proceeds of issue of the convertible highly liquid investments that are readily convertible into loan note and the fair value assigned to liability component, known amounts of cash and which are subject to an representing the embedded option to convert the liability into insignificant risk of changes in value. equity of the Group, is included in equity. 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, including transaction costs, with the exception of ‘fair value 60 © Allergy Therapeutics plcwww.allergytherapeutics.comDerivative financial instruments Income taxes The Group uses interest rate swaps, Canadian Dollar forward Current income tax assets and liabilities comprise those contracts, Euro forward contracts and Euro exchange obligations to fiscal authorities in the countries in which the swaps to manage the exposure to changes in interest and Group carries out its operations. They are calculated according translation rates and these are classified as derivative financial to the tax rates and tax laws applicable to the fiscal period instruments. All derivative financial instruments are initially and the country to which they relate. All changes to current measured at fair value on acquisition and are subsequently tax liabilities are recognised as a component of tax expense restated to fair value at each reporting date. Any change in in the income statement. the fair value of the instruments is recognised in profit and loss. Equity Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of Equity comprises the following: assets and liabilities and their tax bases. However, deferred tax is neither provided on the initial recognition of goodwill • “Issued capital” represents the nominal value of equity nor on the initial recognition of an asset or liability unless the shares that have been issued. related transaction is a business combination or affects tax • “Share premium” represents the excess over nominal or accounting profit. Deferred tax on temporary differences value of the fair value of consideration received for associated with shares in subsidiaries is not provided if equity shares, net of expenses of the share issue. reversal of these temporary differences can be controlled • “Merger reserve” represents the excess over nominal by the Group and it is probable that reversal will not occur value of the fair value of consideration received for in the foreseeable future. In addition, tax losses available to equity shares issued on acquisition of subsidiaries, net be carried forward as well as other income tax credits to the of expenses of the share issue. Group are assessed for recognition as deferred tax assets. • “Reserve - Shares held in EBT” represents the shares acquired by a trust set up for the benefit of the Deferred tax liabilities are provided in full, with no Group’s employees. These shares are deducted from discounting. Deferred tax assets are recognised to the extent shareholders funds at the cost that the shares were that it is probable that the underlying deductible temporary acquired. The net proceeds received from the issue of differences will be able to be offset against future taxable these shares through the exercise of options are also income. Current and deferred tax assets and liabilities are recognised through this reserve. calculated at tax rates that are expected to apply to their • “Reserve - share based payments” represents equity- respective period of realisation, provided they are enacted or settled share-based employee remuneration until such substantively enacted at the balance sheet date. share options are exercised. • “Reserve - convertible loan notes” represents the equity Changes in deferred tax assets or liabilities are recognised component of consideration received for convertible loan as a component of tax expense in the income statement, notes, net of expenses. except where they relate to items that are charged or • “Revaluation reserve” represents the revaluations of credited directly to other comprehensive income (such as the investment assets and land and buildings. revaluation of land and buildings) in which case the related • “Foreign exchange reserve” represents the foreign deferred tax is also charged or credited directly to other currency translation differences that have occurred since comprehensive income. the transition date. Exchange differences prior to this date are included within retained earnings. Defined benefit pension scheme • “Retained earnings” represents retained profits and Scheme assets are measured at fair values. Scheme liabilities losses. are measured on an actuarial basis using the projected unit credit method and are discounted at appropriate high Equity is any contract which evidences a residual interest in quality corporate bond rates that have terms to maturity the assets of the Group after deducting all its liabilities. approximating to the terms of the related liability. Appropriate adjustments are made for past service costs. Past service cost is recognised as an expense on a straight-line basis over 61 © Allergy Therapeutics plcwww.allergytherapeutics.comthe average period until the benefits become vested. To the Share based employee compensation extent that benefits are already vested the Group recognises The Group operates equity-settled share based compensation past service cost immediately. plans for remuneration of its employees including Long Term Incentive Plan (LTIP) schemes. Actuarial gains and losses are recognised immediately in other comprehensive income. The net surplus or deficit All employee services received in exchange for the grant of is presented with other net assets on the balance sheet. any share based compensation are measured at their fair The related deferred tax is shown with other deferred tax values. These are indirectly determined by reference to the balances. A surplus is recognised only to the extent that it is share option or shares awarded. Their value is appraised at recoverable by the Group. the grant date and excludes the impact of any non-market vesting conditions (e.g. profitability or sales growth targets). The current service cost, past service cost and costs The fair value of LTIP shares, which have market conditions from settlements and curtailments are charged against attached, includes an adjustment based on the probability of administrative expenses in the income statement. Interest the shares vesting at the end of the vesting period. on the scheme liabilities and the expected return on scheme assets are included in other finance costs. Details of the LTIP schemes and the conditions applying to each scheme are fully disclosed in Note 27 (Share Based Short-term employee benefits, including holiday entitlement Payments) on pages 89 to 91. are included in current pension and other employee obligations at the undiscounted amount that the Group All share based compensation is ultimately recognised as expects to pay as a result of the unused entitlement. an expense in the consolidated income statement with a Investments corresponding credit to the share based payments reserve, net of deferred tax where applicable. If vesting periods or Investments relate to long-term insurance policies. In other vesting conditions apply, the expense is allocated over accordance with IAS19 these cannot be directly deducted the vesting period, based on the best available estimate of from the German pension obligation. These are recognised as the number of share options expected to vest. Non market a separate asset, rather than as a deduction in determining vesting conditions are included in assumptions about the the defined benefit liability. They are held at fair value with number of options that are expected to become exercisable. any gains or losses on valuation charged or credited to other Estimates are subsequently revised if there is any indication comprehensive income. that the number of share options expected to vest differs Provisions from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options Provisions are recognised when the present obligations ultimately are exercised than estimated. arising from legal or constructive obligations resulting from past events, will probably lead to an outflow of economic Upon exercise of share options, the proceeds received, net of resources from the Group which can be estimated reliably. any directly attributable transaction costs, up to the nominal value of the shares issued are allocated to share capital with Provisions are measured at the present value of the any excess being recorded as share premium. estimated expenditure required to settle the present obligation, based on the most reliable evidence available at Employee benefit trust the balance sheet date. The financial statements include the assets and liabilities of a All provisions are reviewed at each balance sheet date and The employee benefit trust has acquired shares in the adjusted to reflect the current best estimates. Company and these are deducted from the shareholders’ trust set up for the benefit of the Group’s employees. funds on the balance sheet at the cost of acquisition less proceeds on disposal. 62 © Allergy Therapeutics plcwww.allergytherapeutics.comUse of accounting estimates and judgements b) Estimates of future profitability are required for the Many of the amounts included in the financial statements decision whether or not to create a deferred tax involve the use of judgement and/or estimation. These asset. A deferred tax asset of £0.2m has been judgements and estimates are based on management’s best recognised in this period (Note 11). knowledge of the relevant facts and circumstances, having c) Determining whether goodwill is impaired requires regard to prior experience, but actual results may differ from an estimation of the value in use of the cash the amounts included in the financial statements. Information generating unit to which the goodwill has been about such judgements and estimation is contained in allocated. This value in use calculation requires an the accounting policies and/or the notes to the financial estimation of the future cash flows expected to arise statements and the key areas are summarised below: from the cash generating unit and a suitable discount rate in order to calculate the present value. Judgements in applying accounting policies d) The Group has been awarded a provisional exemption a) Capitalisation of development costs requires analysis to the increased rebate charge in Germany for the of the technical feasibility and commercial viability period July to December 2012. Revenue of £1.1m has of the project concerned. Capitalisation of the costs been accrued in relation to this exemption. While will be made only where there is evidence that the Group is confident that the exemption will be an economic benefit will accrue to the Group. To date confirmed, there is a possibility that this will not happen. no development costs have been capitalised and all costs have been expensed in the Income 3. Revenue statement as research and development expenditure, £2.5m (2012: £2.1m) An analysis of revenue by category is set out in the table below: b) The Directors assume that the loan note will be repayable in April 2014 rather than any earlier date nominated by the note holder. Repayment of the principal has been treated as not substantive as 2013 £’000 2012 £’000 the repayment of principal and reinvestment in equity Sale of goods 38,467 40,317 are viewed as occurring at the same time in contemplation of one another. Royalties c) As part of setting up a new distributor in a particular Rendering of services - 812 963 - 39,279 41,280 territory, the Group received a payment of £1.25m in exchange for services rendered. These services have been fair valued and the total fee apportioned across the services in proportion to these valuations. Of this value £0.47m has been matched to a related payable and recognised in full; £0.51m valuation has been supported by an independent valuer; and the remaining £0.27m has been apportioned by management. Of the £1.25m, £0.27m is judged to relate to services to be performed in future periods and has been carried forward in deferred revenue. Sources of estimation uncertainty a) Depreciation rates are based on estimates of the useful lives and residual values of the assets involved. There is inherent uncertainty in the useful lives of assets, which means that they are constantly reviewed by management (Accounting policies note (page 59) and Note 15). As noted in the accounting policy for revenue recognition for sale of goods, royalties that are deemed to part of the fair valuation of supply of goods are included in sale of goods. Rendering of services relates to the supply of services to a new distributor to assist them in setting up operations in their territory. 63 © Allergy Therapeutics plcwww.allergytherapeutics.com 4. Segmental Reporting The Group’s operating segments are reported based on the financial information provided to the Executive Directors, who are defined as the Chief Operating Decision-Maker (CODM), to enable them 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), the UK (including Latin America) and Other. Revenue by segment Central Europe Germany Other Southern Europe UK Other Revenue from External Customers Inter Segment Revenue Total Segment Revenue Revenue from External Customers Inter Segment Revenue Total Segment Revenue 2013 £’000 23,613 5,143 28,756 5,774 2013 £’000 2013 £’000 2012 £’000 2012 £’000 23,613 25,407 5,143 5,617 28,756 31,024 2012 £’000 25,407 5,617 31,024 6,180 5,774 881 32,081 32,962 3,868 3,868 6,180 1,509 2,567 33,861 35,370 2,567 39,279 32,081 71,360 41,280 33,861 75,141 Revenues from external customers in all segments are derived principally 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 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 64 © Allergy Therapeutics plcwww.allergytherapeutics.comThe CODM also reviews revenue by segment on a constant currency basis to provide relevant year on year comparisons. The following revenue table is based on a constant currency rate of € 1.20: £1.00 which was the rate used in the 2013 budget. Revenue from External Customers Revenue from External Customers Central Europe Germany Other Southern Europe UK Other 2013 £’000 24,442 5,157 29,599 5,977 881 3,866 40,323 The Group has no customers which individually account for more than 10% of the Group’s revenue. Depreciation and amortisation by segment Central Europe Southern Europe UK 2013 £’000 199 86 1,057 1,342 2012 £’000 24,331 5,180 29,511 5,814 1,509 2,686 39,520 2012 £’000 119 89 1,684 1,892 65 © Allergy Therapeutics plcwww.allergytherapeutics.comEBITDA by segment Allocated EBITDA Central Europe Southern Europe UK Allocated EBITDA Depreciation and amortisation Operating profit Finance income Finance expense Profit before tax Total assets by segment Central Europe Southern Europe UK Inter-segment assets Inter-segment investments Total assets per Balance Sheet 2013 £’000 (791) (323) 3,124 2,010 (1,342) 668 19 (255) 432 2013 £’000 9,306 4,117 37,038 50,461 (3,126) (18,371) 28,964 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 Included within Central Europe are non-current assets to the value of £2,560,000 relating to Goodwill and within Southern Europe assets to the value of £1,207,000 relating to freehold land and buildings. 66 © Allergy Therapeutics plcwww.allergytherapeutics.comTotal liabilities by segment Central Europe Southern Europe UK Inter-segment liabilities Total liabilities per Balance Sheet 5. Profit Before Tax Profit for the period has been arrived at after charging: Foreign exchange loss Depreciation and amortisation: Depreciation of property plant and equipment (note 15 ) Amortisation of intangible assets (note 14 ) Research and development 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 2013 £’000 (10,070) (2,518) (4,831) (17,419) 3,126 (14,293) 2013 £’000 350 968 374 2,535 422 521 22 69 20 23 2012 £’000 (8,227) (2,150) (4,743) (15,120) 1,958 (13,162) 2012 £’000 808 1,506 386 2,095 439 533 21 67 9 99 Share based payment expense (note 27 ) 183 131 67 © Allergy Therapeutics plcwww.allergytherapeutics.com6. Remuneration of Key Management Personnel Salaries and short-term employee benefits Social security costs Post employment benefits – defined contribution plans Under/ (Over) accrual of bonuses Share based payment 2013 £’000 597 66 75 738 (35) 29 732 2012 £’000 677 70 43 790 (6) 58 842 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 46 to 48 and forms part of the financial statements. 7. Employees (including Directors) Wages and salaries Social security costs Share based payments Pension costs – defined benefit plans Pension costs – defined contribution plans 2013 £’000 14,292 2,110 158 243 267 17,070 The average number of employees during the period (including executive directors) was made up as follows: R & D, marketing and administration Sales Production 2013 113 91 147 351 2012 £’000 15,423 2,366 131 240 234 18,394 2012 120 87 151 358 68 © Allergy Therapeutics plcwww.allergytherapeutics.com8. Finance Expense Interest on borrowing facility Change in fair value of derivative financial instrument Employee defined benefit scheme interest expense Other interest and charges Retranslation profit on Euro denominated borrowing facilities 2013 £’000 167 (149) 193 44 255 - 255 2012 £’000 1,368 (214) 212 90 1,456 (999) 457 The retranslation profit represents the translation difference on the Group’s Euro based borrowing facility caused by the movement of the Euro against Sterling throughout the previous year. The borrowing facility was repaid in April 2012. 9. Finance Income Bank interest 10. Income Tax Expense Current Tax: Prior period tax Overseas tax Deferred tax – current year Tax credit for the period 2013 £’000 19 2013 £’000 (57) 166 109 (213) (104) 2012 £’000 5 2012 £’000 (440) 270 (170) (13) (183) 69 © Allergy Therapeutics plcwww.allergytherapeutics.comThe tax credit assessed for the period is higher than the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below: Profit for the period before tax Profit for period multiplied by the respective standard rate of corporation tax applicable in each domain (average 23.75%, 2012: 25.5%). Effects of: Disallowable adjustments Capital allowances in excess of depreciation 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 Relief for shares acquired by employees and Directors Deferred tax release Tax credit for the period 11. Deferred Tax Recognised deferred tax liability 2013 £’000 432 103 429 (34) 20 (479) (48) 216 (57) (14) - (27) 109 (213) (104) 2012 £’000 640 163 125 74 14 (263) (46) 312 213 (108) (654) - (170) (13) (183) 2013 2013 2013 Tax value of carried forward losses Tax value of accelerated capital allowances Acquisition of Teomed AG 2013 Total 2012 2012 2012 Tax value of carried forward losses Tax value of accelerated capital allowances Acquisition of Teomed AG 2012 Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 July Amount credited to the income statement Exchange differences At 30 June - 671 - 671 - (165) (165) (471) - 13 (7) 213 (7) (471) (159) (41) - - - - - - - - (201) (201) 13 23 13 23 (165) (165) 70 © Allergy Therapeutics plcwww.allergytherapeutics.comDeferred tax is provided under the balance sheet liability method using the local tax rate for the overseas difference. Deferred tax assets and deferred tax liabilities are offset where the Group has a legally enforceable right to do so and when the deferred tax assets and liabilities relate to tax levied by the same tax authority and where there is an intention to settle the balances on a net basis. The following is the analysis of the deferred tax balances after offset for financial reporting purposes: Deferred tax assets Deferred tax liabilities Unrecognised deferred tax Non Current Assets Property, plant and equipment Derivative financial instruments Current Assets Stock Current Liabilities Derivative financial instruments Non Current Liabilities Pension and other employee obligations Derivative financial instruments Share options Unused tax losses Offset Total 2013 £’000 200 (159) 41 2012 £’000 - (165) (165) 2013 Deferred tax assets £’000 2013 Deferred tax liabilities £’000 2012 Deferred tax assets £’000 2012 Deferred tax liabilities £’000 - - 402 72 1,040 3 131 15,023 16,671 - 16,671 - - - - - - - - - - - - - - 2 708 39 91 16,523 17,363 (620) 16,743 (504) (116) - - - - - - (620) 620 - 71 © Allergy Therapeutics plcwww.allergytherapeutics.comAs at 30 June 2013 the Group had approximately £69m of unutilised tax losses (2012: approximately £69m) available for offset against future profits. A deferred tax asset has been recognised in respect of £2.9m (2012 £nil) of such losses, the recovery of which is supported by the expected level of future profits of the Group. Substantially all the tax losses have no fixed expiry date. The main UK corporation tax rate is to change from 23% to 21% with effect from 1 April 2014. The recognised and unrecognised deferred tax assets have been calculated at 23%, being the rate enacted at 30 June 2013. The estimated impact of the reduction in the tax rate to the net deferred tax asset is a reduction of £17,000 and on the unrecognised net deferred tax asset and liabilities is a net reduction in the asset of £1.3m. 12. Earnings Per Share Profit 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 per share (pence) Diluted earnings per share (pence) 2013 £’000 536 Shares ‘000 406,913 2,954 409,867 408,388 18,635 427,023 0.13p 0.13p 2012 £’000 823 Shares ‘000 310,772 96,141 406,913 326,795 13,256 340,051 0.25p 0.24p 72 © Allergy Therapeutics plcwww.allergytherapeutics.com13. Goodwill At 1 July Exchange difference At 30 June 2013 £’000 2,489 71 2,560 For the purposes of impairment testing of goodwill, the Directors recognise the Group’s Cash Generating Units (“CGU”) to be the following: Germany 2013 £’000 2,560 2012 £’000 2,624 (135) 2,489 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 12% 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. There are no reasonable possible changes in the assumptions that could lead to an impairment being recorded. 73 © Allergy Therapeutics plcwww.allergytherapeutics.comManufacturing know-how Non-competing know-how Other intangibles Computer software Total £’000 £’000 £’000 £’000 £’000 1,000 3,810 2,153 1,824 8,787 14. Intangible Assets Cost At 1 July 2011 Additions Asset reclassification Foreign exchange At 30 June 2012 Additions Asset reclassification Disposals Foreign exchange - - 1,000 - - - - - (343) 3,467 - - - 183 3,650 At 30 June 2013 1,000 867 3,810 - 66 - 933 - 67 - 1,000 133 67 - - - (343) 3,467 - 183 3,650 - - - Amortisation At 1 July 2011 Asset reclassification Charge for the year Foreign exchange At 30 June 2012 Disposals Charge for the year Foreign exchange At 30 June 2013 Net book value At 1 July 2011 At 30 June 2012 At 30 June 2013 74 727 - (147) 2,733 - - (684) 56 2,105 987 - 172 (37) 97 28 824 28 (65) (555) 1,884 9,084 157 11 42 157 11 (684) 281 2,094 8,849 1,342 7,006 25 148 (60) 25 386 (440) 1,122 1,455 6,977 (84) 173 15 - 134 34 (84) 374 232 1,226 1,623 7,499 1,166 1,611 879 482 429 471 1,781 2,107 1,350 © Allergy Therapeutics plcwww.allergytherapeutics.com15. Property, Plant and Equipment Plant & machinery Fixtures & fittings Motor vehicles Computer equipment Freehold land & buildings Total £’000 £’000 £’000 £’000 £’000 £’000 Cost or valuation At 1 July 2011 7,503 4,745 36 2,811 1,403 16,498 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 Revaluation Additions Asset reclassification* Foreign exchange Disposals - 343 - 10 - - 177 - 38 (8) At 30 June 2013 7,999 4,989 Depreciation At 1 July 2011 Charge for the year Asset reclassification* Foreign exchange Disposals At 30 June 2012 Charge for the year Revaluation Asset reclassification* Foreign exchange Disposals 3,170 2,710 633 - (9) (14) 3,780 425 - - 7 - 566 - (59) (2) 3,215 224 - - 31 (2) - - - - - 36 29 5 - - - 34 2 - - - - - 144 (11) 32 (2) 1,713 265 (25) (60) (6) 1,887 275 - - 25 - At 30 June 2013 4,212 3,468 36 2,187 Net book value At 1 July 2011 At 30 June 2012 At 30 June 2013 * Assets reclassified to intangibles. 4,333 3,866 3,787 2,035 1,567 1,521 7 2 - 1,098 959 822 3,009 1,207 17,240 - - (145) - 1,258 (128) - - 77 - 427 (28) (299) (30) 16,568 (128) 664 (11) 157 (10) 67 37 - (7) - 97 42 (145) - 6 - - 1,336 1,161 1,207 7,689 1,506 (25) (135) (22) 9,013 968 (145) - 69 (2) 9,903 8,809 7,555 7,337 75 © Allergy Therapeutics plcwww.allergytherapeutics.comNote 21 provides details of the assets secured against the Group’s bank borrowings. The Group’s land and buildings were revalued in July 2009 by independent valuers. The land and buildings were previously valued using the cost model and had a carrying value of £1. Fair values were estimated based on recent market transactions, which were then adjusted for specific conditions relating to the land and buildings. An interim valuation of the Land and Buildings was carried out in April 2013 by independent valuers. Land and buildings were revalued to fair value at the reporting date based on this valuation as management determined that the effect of changes in market prices between the date of valuation 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 £1,298,000 before tax (of which £476,000 writes back the accumulated depreciation) which is not available for distribution to the shareholders of the Group. During the year, following a review of the useful lives of all assets within the classes ‘Plant and machinery’ and ‘Fixtures and fittings’, certain asset lives were extended by varying amounts, up to a maximum total useful life of 15 years. This had the effect of reducing the depreciation charge for the current year by £480,000. 16. Investments The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the defined benefit pension scheme (see note 25). It is valued at fair value (market price) by the Group’s actuaries each year. At 1 July Additions (Loss)/Profit on the investment Gain/(Loss) on foreign exchange 17. Inventories Raw materials and consumables Work in progress Finished goods 2013 £’000 2,569 355 (17) 152 3,059 2013 £’000 1,895 2,273 1,846 6,014 2012 £’000 2,493 311 50 (285) 2,569 2012 £’000 2,018 2,823 1,810 6,651 The cost of inventories recognised as an expense in cost of sales during the year was £11.0m (2012: £12.6m) including write-downs in the year amounting to £1.2m (2012: £1.3m). The value of inventories measured at fair value less cost to sell was £77,000 (2012: £75,000). 76 © Allergy Therapeutics plcwww.allergytherapeutics.com18. Trade and Other Receivables Trade receivables Other receivables VAT Prepayments 2013 £’000 3,129 2,158 117 1,781 7,185 2012 £’000 3,107 542 112 1,236 4,997 All amounts due as shown above are short-term. The carrying value of trade receivables is considered a reasonable approximation of fair value. All trade and other receivables have been reviewed for indicators of impairment. During the year, £152,000 of trade receivables was found to be impaired and £105,000 of the provision utilised. The impaired trade receivables are mostly due from private customers in the Italian market who are experiencing financial difficulties. Bad and doubtful debt provision Balance b/f Foreign exchange adjustments Charge for the year Utilised Balance c/f 2013 £’000 54 8 152 (105) 109 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 2013 £’000 640 456 200 99 1,395 2012 £’000 551 465 112 158 1,286 77 © Allergy Therapeutics plcwww.allergytherapeutics.com 19. Cash and Cash in Hand Cash at bank and in hand 20. Trade and Other Payables Trade payables Social security and other taxes Other creditors Accrued expenses and deferred income 21. Borrowings Due within one year Convertible loan note Overdraft Due after more than one year Convertible loan note 2013 £’000 1,257 2013 £’000 3,050 536 717 2,703 7,006 2013 £’000 95 193 288 - - 2012 £’000 903 2012 £’000 2,553 682 136 2,941 6,312 2012 £’000 114 1,312 1,426 97 97 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 £6 million. The interest on the overdraft is at the bank’s base rate plus a fixed margin of 3.35%. The facility is secured in favour of The Royal Bank of Scotland Plc by means of debentures granted by the Company and its principal subsidiaries and share pledge agreements relating to Bencard Allergie GmbH, Allergy Therapeutics Italia SRL and Allergy Therapeutics Iberica SL. The Convertible loan notes were issued in April 2012 (Note 26). The liability relates to the interest payable over the next year. 78 © Allergy Therapeutics plcwww.allergytherapeutics.com22. Provisions The provision refers to a leaving indemnity reserve in Allergy Therapeutics Italia srl. 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. 2013 £’000 274 26 (19) 19 300 2012 £’000 283 42 (20) (31) 274 At 1 July Additions Utilisation Foreign exchange movement At 30 June 23. Financial instruments Risk management The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst maximising the return to shareholders through the effective management of liquid resources raised through share issues and loan arrangements. Capital management objectives are met through regular reviews of cash flows, debtor/creditor balances, budgets and forecasts. Total equity Cash and cash equivalents Capital Total equity Borrowings Overall financing Capital-to-overall financing ratio The Directors are satisfied with the ratio above. 2013 £’000 14,671 (1,257) 13,414 14,671 288 14,959 0.90 2012 £’000 14,592 (903) 13,689 14,592 1,523 16,115 0.85 79 © Allergy Therapeutics plcwww.allergytherapeutics.com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 2013 £’000 6,661 2 1,781 8,444 (3,918) (326) (3,376) (300) - (159) (8,079) 2012 £’000 4,664 483 1,236 6,383 (4,293) (9) (3,445) (372) (162) (165) (8,446) Derivative financial instruments The Group uses derivative financial instruments to mitigate the effects of exchange rate exposure through the use of forward exchange contracts and interest rate volatility through the use of interest rate swap arrangements. The fair value is calculated by reference to market rates and supported by counterparty confirmation. Interest rate swap These were arranged to convert 60% of the Company’s loan borrowings from floating to fixed rates. The loan was fully repaid in April 2012 and the swaps will come to an end in September 2013. Within the fair value hierarchy, this financial derivative is classified as level 2. Canadian Dollar forward contracts The Group has Canadian Dollar forward contracts with its bank that are arranged for the purchase of CAD 150,000 to sell GBP at a rate of 1.60 in July 2013. 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 €14,396,000 to purchase GBP at an average blended rate of 1.1967 at future dates from August 2013 to April 2014. Within the fair value hierarchy, this financial derivative is classified as level 2. 80 © Allergy Therapeutics plcwww.allergytherapeutics.com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 2013 £’000 10 11 (797) 506 (270) 149 (167) (18) 2012 £’000 (3) 1 1,282 51 1,331 214 (278) (64) Forward exchange contracts are considered by management to be part of economic hedge arrangements but have not been formally designated as such and hence hedge accounting is not used. Derivative financial instruments Current Assets Derivative financial instruments - Euro forward contracts - held for trading - Euro exchange swap - held for trading Current liabilities Derivative financial instruments - Euro exchange swap - held for trading - Euro forward contracts - held for trading - Interest rate swap – held for trading Non current liabilities Derivative financial instruments - Interest rate swap – held for trading 2013 £’000 - 2 2 - 313 13 326 - - The net loss at fair value of financial instruments through the profit and loss is £637,000 (2012 gain: £1,493,000). 2012 £’000 483 - 483 9 - - 9 162 162 81 © Allergy Therapeutics plcwww.allergytherapeutics.com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 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 Polish zloty Argentinean peso 2013 £’000 (178) 863 6 259 113 - 1 2012 £’000 (1,263) 716 33 - 80 - 25 Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows: 1,064 (409) 2013 Other Sterling £’000 344 Euro £’000 3,935 (2,709) (1,305) (2,365) 2,630 - (97) (97) - (437) (437) £’000 981 (605) 376 - - - 2012 Other £’000 867 (288) 579 - - - Financial assets Sterling £’000 480 Euro £’000 5,202 Financial liabilities (2,202) (1,437) Short term exposure (1,722) 3,765 Financial assets Financial liabilities Long term exposure - - - - (300) (300) 82 © Allergy Therapeutics plcwww.allergytherapeutics.com The following table illustrates the sensitivity of the net result for the year and the equity of the Group with regard to its financial assets and liabilities and the Euro to Sterling exchange rate. Foreign exchange movements over the last two years have been considered and an average taken, and on this basis a 10% movement is considered to be a reasonable benchmark. For 2013, a 10% movement was also used. 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 2013 £’000 10% 2,051 (430) 1,621 10% (2,509) 525 (1,984) 2012 £’000 10% 1,674 (419) 1,255 10% (1,796) 512 (1,284) Interest rate risk The Group finances its operations through equity fundraising and overdraft facilities. Interest is charged at a floating rate on the overdraft facility. The overdraft facility is tailored in such a way as to give 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. Movement in net results for the year Equity 2013 £’000 + 1% 34 - 34 2013 £’000 - 1% n/a n/a n/a 2012 £’000 + 1% (43) - (43) 2012 £’000 - 1% n/a n/a n/a 83 © Allergy Therapeutics plcwww.allergytherapeutics.com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 value of the outstanding amount. Credit risk on cash and cash equivalents is considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is the amount of the deposit. Liquidity risk The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern, and to provide adequate funding for its day to day operations. Management has access to funding through a bank facility and continues to have the option to raise funds from the issue of equity shares to ensure the Group remains able to meet its commitments as they fall due. The Group’s bank facility (Note 21) is due for renewal in May 2014. As at 30 June 2013 the Group’s contractual maturities are summarised as follows: 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 2013 £’000 Within 6 months 2013 £’000 6 to 12 months 193 - - 3,630 3,376 7,199 292 7,491 - - 95 - - 95 34 129 2012 £’000 Within 6 months 1,312 2 - 2,867 3,445 7,626 9 7,635 2012 £’000 6 to 12 months - - 114 - - 114 - 114 Non-current liabilities 2013 2013 2012 2012 Borrowing facility - principal Borrowing facility - interest and other charges Convertible loan note - interest and other charges Other long term liabilities Derivatives £’000 1 to 5 years £’000 Later than 5 years £’000 1 to 5 years £’000 Later than 5 years - - - 300 300 - 300 - - - - - - - - - 97 275 372 162 534 - - - - - - - There is no material difference between the fair values and the carrying values of these financial instruments. 84 © Allergy Therapeutics plcwww.allergytherapeutics.com 24. Operating Lease Commitments The following payments are due to be made on operating lease commitments: Within one year Two to five years Over five years Land & buildings 2013 £’000 701 2,187 1,655 4,543 2012 £’000 454 1,354 411 2,219 Other 2012 £’000 400 587 - 987 2013 £’000 367 427 - 794 2013 £’000 1,068 2,614 1,655 5,337 Total 2012 £’000 854 1,941 411 3,206 Of the operating lease commitments for the land and buildings of £4,543,000 (2012: £2,219,000), £3,758,000 relates to the UK premises (2012: £1,114,000). The production facility accounts for £3,307,000 (2012: £599,000) of this commitment and expires in December 2023. Premises in Spain account for £187,000 (2012: £207,000) expiring in 2020 and in Germany for £491,000 (2012: £648,000) expiring in December 2015. Of the other commitments, £588,000 (2012: £782,000) relates to leased vehicles all expiring within 5 years. 25. Retirement Benefit Obligations Defined contribution scheme The Group operates a defined contribution pension scheme for certain employees in the UK. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against the profits represents the contributions payable under the scheme in respect of the accounting period totalling £267,000 (2012: £234,000). 85 © Allergy Therapeutics plcwww.allergytherapeutics.com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 2013. The major assumptions used were as follows: 2013 % pa 1.5 3.0 1.5 4.0 3.35 3.35 3.0 Years 19.2 23.3 38.9 44.0 2013 £’000 1,414 (7,628) (6,214) 18 (191) 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 2012 £’000 1,196 (5,913) (4,717) (4) (88) 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 The assets in the scheme and the expected rates of return were as follows: Fair value of plan assets Present value of scheme liabilities Deficit in the scheme Experience gains/(losses) on plan assets Experience losses on plan liabilities 86 © Allergy Therapeutics plcwww.allergytherapeutics.comThe plan assets consist of long-term insurance policies held to cover the German pension obligation. The value of the plan assets is deducted from the value of the pension liability to give a net liability of £6,214,000 (2012: £4,717,000). 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 £60,000 (2012: £44,000). The pension charge generates an unrecognised deferred tax asset of £1,040,000 (2012: £708,000), 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 return on these assets as was the case in the previous year. See note 16 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 other comprehensive income Actual return less expected return on pension scheme assets Experience losses 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 gain/ (losses) Contributions from employer Assets transferred to finance benefits paid Balance as at 30 June 2013 £’000 243 (42) 235 193 18 (191) (692) (865) (1,645) (2,510) (2,510) 2013 £’000 1,196 97 42 18 121 (60) 1,414 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 87 © Allergy Therapeutics plcwww.allergytherapeutics.comMovement in liabilities in the year Balance as at 1 July Foreign currency differences Current service costs Interest cost Actuarial losses Benefits paid by employer Benefits paid from assets Balance as at 30 June 2013 £’000 (5,913) (455) (243) (235) (885) 43 60 2012 £’000 (5,389) 644 (240) (259) (730) 17 44 (7,628) (5,913) The expected contributions over the forthcoming year are £57,000. History of retirement benefit obligation Fair value of plan assets 2013 £’000 1,414 2012 £’000 1,196 2011 £’000 1,275 2010 £’000 1,076 2009 £’000 1,104 Present value of scheme liabilities (7,628) (5,913) (5,389) (4,649) (3,925) Scheme deficit (6,214) (4,717) (4,114) (3,573) (2,821) History of experience gains and losses 2013 2013 2012 2012 2011 2011 2010 2010 2009 2009 % £’000 % £’000 % £’000 % £’000 % £’000 (1.4) 18 (0.3) (4) (0.5) (6) (0.7) (9) (0.9) (10) Scheme assets Difference between the expected and actual return Scheme liabilities Experience gains and (losses) (2.7) (191) (1.4) (88) 4.7 254 (2.1) (108) - Changes in assumptions underlying present value (692) (642) - (495) 1 - Total amount recognised (12.0) (865) (11.5) (734) 4.6 248 (12.1) (612) (0.2) (9) 88 © Allergy Therapeutics plcwww.allergytherapeutics.com26. Issued Share Capital Authorised share capital Ordinary shares of 0.10p each 2013 Shares 2013 £’000 2012 Shares 2012 £’000 1 July and 30 June 790,151,667 790 790,151,667 Deferred shares of 0.10p each 1 July and 30 June 9,848,333 10 9,848,333 Issued and fully paid Ordinary shares of 0.10p At 1 July Issued during the year At 30 June Issued and fully paid Deferred shares of 0.10p 406,912,981 2,953,850 409,866,831 407 3 410 310,771,614 96,141,367 406,912,981 At 1 July 9,848,333 10 9,848,333 Issued during the year At 30 June Issued share capital 9,848,333 419,715,164 10 420 - 9,848,333 416,761,314 The deferred shares have no voting rights, dividend rights or value attached to them. Share options were exercised in the year with proceeds of £148,000. 790 10 311 96 407 10 10 417 Convertible Loan Notes to the value of £4,042,000 were 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. 27. Share Based Payments The Group has a Long Term Incentive Plan (‘LTIP’) under which Executive Directors and senior employees may receive an annual provisional award of performing vesting shares. The Group has two plans: the initial 2005 Plan and the 2013 Plan. The 2013 LTIP was adopted by the Board on 20 March 2013, the board having consulted major shareholders. Awards were made under the initial 2005 plan and the new plan during the year. Under the 2005 plan 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. 89 © Allergy Therapeutics plcwww.allergytherapeutics.comFor the 2013 plan implemented during the year, performance criteria for each award under the plan will be set by the remuneration committee. The 2013 award is based on the annual compound shareholder growth calculated as a percentage of a formula, the TSR Growth. An award shall vest to a 100% if at the end of a plan cycle the maximum annual compound growth has been satisfied being 25% of TSR Growth. If the TSR Growth is less than 10% only 25% shares shall be awarded. If the TSR Growth is between 100% and 25% an award based on a straight line basis will be vested. Performance criteria for subsequent awards under this plan may vary. Each plan cycle will comprise a period of three years. An award will be 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 two new LTIP grants were provisionally awarded. The first of these grants was awarded under the initial 2005 Plan. The latest grant, in May 2013, was awarded under the 2013 Plan. For the following outstanding share options disclosure, LTIP awards (which have a nil exercise price) have been disclosed separately to avoid distorting the weighted average exercise price (WAEP): Outstanding at the beginning of the year 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 2013 WAEP 2012 WAEP Number Price (£) Number Price (£) 2,468,490 2,050,000 (2,953,850) (412,057) - 1,152,583 1,152,583 0.16 0.07 0.05 0.33 - 0.23 0.23 4,650,730 0.16 - - - - (2,182,240) 0.17 - 2,468,490 2,362,304 0.16 0.16 Options exercised during the year had a weighted average share price at the date of exercise of 12p (2012: None). The share options outstanding at the end of the year detailed above have a weighted average remaining contractual life of 4.3 years (2012: 1.6 years) and have the following range of exercise prices: 30 June 2013 30 June 2012 Number - 1,124,017 28,566 1,152,583 Number 1,614,700 825,224 28,566 2,468,490 Exercise price (p) 0.1-5 6-45 46-120 90 © Allergy Therapeutics plcwww.allergytherapeutics.comOutstanding shares provisionally awarded under the Long Term Incentive Plan, with a nil exercise price, are as follows: Outstanding at the beginning of the year Awarded during the year Forfeited during the year Cancelled during the year 30 June 2013 30 June 2012 Number 10,787,000 10,802,500 (4,107,000) - Number 7,944,000 4,725,000 (1,882,000) - Outstanding at the year end 17,482,500 10,787,000 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: Date of grant Vesting period (yrs) Date of vesting Expected life (yrs) Exercise price (£) Share price at grant (£) Vesting probability (%) Fair value (£) Number outstanding 10/05/13 20/12/12 14/12/11 07/12/10 20/07/09 3 3 3 3 3 10/05/16 20/12/15 14/12/14 07/12/13 20/07/12 3 3 3 3 3 0.0000 0.0000 0.0000 0.0000 0.0000 0.101 0.118 0.106 0.091 0.148 36.8 36.8 41.5 41.5 41.5 0.042 6,367,500 0.049 4,230,000 0.044 3,825,000 0.038 3,060,000 0.061 - The share-based payment charge assumes an employee attrition rate of 5% per annum. In addition to the above employee related awards, the Group also awarded options for 650,000 shares with an exercise price of £0.124 as payment to a third party advisor. The Group recognised total expenses of £183,000 (2012: £131,000) related to equity-settled share based payment transactions during the year. 28. Contingent Liabilities 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 2013 was €107,426; £91,833 (2012: €107,426; £86,508). A cross-guarantee exists between Allergy Therapeutics (Holdings) Ltd, Allergy Therapeutics (UK) Ltd, Bencard Allergie GmbH, Allergy Therapeutics Italia srl. and Allergy Therapeutics Iberica SL. inwhich the liabilities of each entity to the Royal Bank of Scotland Plc are guaranteed by all the others. The European Commission has recently opened an investigation into whether the exemption of pharmaceutical manufacturers from the increase in rebates in Germany constitutes state aid. If it is eventually concluded that the exemptions constitute state aid, then all unlawful aid may have to be repaid. On the balance of probabilities, the Group does not consider that it will have to repay any rebate exemptions. However, should a repayment be required, then the maximum amount to be repaid would be approximately £5 million. Included in other receivables is an amount of £1.4 million in respect of exempted rebates which the Group continues to collect. 91 © Allergy Therapeutics plcwww.allergytherapeutics.com29. 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 2013 30 June 2012 £’000 459 £’000 148 Included in the above is £22,000 for ongoing factory refurbishments in the UK (2012: £nil); £156,000 for new plant and machinery (2012: £142,000) and £281,000 for IT equipment and systems upgrades (2012: £6,000). 30. Related Party Transactions 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 46 to 48. At 30 June 2013, the Company’s subsidiary undertakings were: Subsidiary undertaking Country of incorporation Principal activity Percentage of shares held Class of shares held Allergy Therapeutics (Holdings) Ltd Allergy Therapeutics (UK) Ltd UK UK Holding Company Manufacture and sale of pharmaceutical products Bencard Allergie GmbH Germany Sale of pharmaceutical products Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products Teomed A.G. Switzerland Sale of pharmaceutical products Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 100 100 100 100 100 100 100 100 Ordinary and deferred Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 92 © Allergy Therapeutics plcwww.allergytherapeutics.comDuring the year, Group companies entered into the following transactions with related parties that are not members of the Group: Related Party Sales of goods Amounts owed by/(to) related parties Laboratorios Synthesis S.A.S. Gynopharm de Venezuela C.A. Laboratorio Internacional Argentino S.A. Total 2013 £’000 2012 £’000 13 28 9 50 29 6 24 59 2013 £’000 (33) (4) 3 (34) 2012 £’000 4 6 27 37 Laboratorios Synthesis S.A.S., Gynopharm de Venezuela C.A. and Laboratorio Internacional Argentino S.A. are wholly-owned subsidiaries of CFR Pharmaceuticals SA. CFR Pharmaceuticals SA 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. 93 © Allergy Therapeutics plcwww.allergytherapeutics.comIndependant Auditor’s Report to the Members of Allergy Therapeutics plc (Company) We have audited the parent company financial statements Opinion on other matter prescribed by of Allergy Therapeutics plc for the year ended 30 June 2013 the Companies Act 2006 which comprise the parent company balance sheet and the In our opinion the information given in the Directors’ Report for related notes. The financial reporting framework that has the financial year for which the financial statements are prepared been applied in their preparation is applicable law and United is consistent with the parent company financial statements. Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Matters on which we are required to report by exception We have nothing to report in respect of the following matters This report is made solely to the company’s members, where the Companies Act 2006 requires us to report to you as a body, in accordance with Chapter 3 of Part 16 of the if, in our opinion: Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those • Adequate accounting records have not been kept by the matters we are required to state to them in an auditor’s parent company, or returns adequate for our audit have report and for no other purpose. To the fullest extent not been received from branches not visited by us; or permitted by law, we do not accept or assume responsibility • The parent company financial statements are not in to anyone other than the company and the company’s agreement with the accounting records and returns; or members as a body, for our audit work, for this report, or for • Certain disclosures of directors’ remuneration specified the opinions we have formed. by law are not made; or • We have not received all the information and Respective responsibilities of directors and auditor explanations we require for our audit. As explained more fully in the Directors’ Responsibilities Statement set out on page 45, the directors are responsible Other matter for the preparation of the parent company financial We have reported separately on the Group financial statements and for being satisfied that they give a true and statements of Allergy Therapeutics plc for the year ended fair view. Our responsibility is to audit and express an opinion 30 June 2013. on the parent company financial statements in accordance with applicable law and International Standards on Auditing Christian Heeger (UK and Ireland). Those standards require us to comply with Senior Statutory Auditor the Auditing Practices Board’s (APB’s) Ethical Standards for for and on behalf of Grant Thornton UK LLP Auditors. Statutory Auditor, Chartered Accountants Scope of the audit of the financial statements 13 September 2013 Gatwick 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 2013; • 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. 94 © Allergy Therapeutics plcwww.allergytherapeutics.com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 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 3 4 5 6 7 8 8 8 8 8 30 June 2013 £’000 1,300 305 (134) 171 1,471 - 1,471 420 67,716 3,652 67 679 (71,063) 1,471 30 June 2012 £’000 1,276 332 (114) 218 1,494 (97) 1,397 417 67,571 3,652 67 1,496 (71,806) 1,397 These financial statements were approved by the Board of Directors on 13 September 2013 and were signed on its behalf by Manuel Llobet Chief Executive Officer Registered number: 05141592 Ian Postlethwaite Finance Director 95 © Allergy Therapeutics plcwww.allergytherapeutics.com Notes to Company Balance Sheet 1. Acounting Policies date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay Basis of preparation less or to receive more, tax. The separate financial statements of the Company are presented as required by the Companies Act 2006. As Deferred tax assets are recognised only to the extent that the permitted by that Act, the separate financial statements have directors consider that it is more likely than not that there will been prepared in accordance with applicable United Kingdom be suitable taxable profits from which the future reversal of accounting standards and under the historical cost convention. the underlying timing differences can be deducted. Going Concern Deferred tax is measured on an undiscounted basis at the tax For the fourth year running, the Group has reported an rates that are expected to apply in the periods in which timing operating profit, however for the financial years ended 2007 to differences reverse, based on tax rates and laws enacted or 2009 primarily as a consequence of its investment in research substantively enacted at the balance sheet date. and development activities, it reported losses. These losses have been funded by equity issues, debt facilities and cash Employee Benefit Trust (EBT) generated by the operating business The financial statements include the assets and liabilities of a trust, set up for the benefit of the Company’s employees. The Group has prepared detailed budgets, including cash flow projections, for the periods ending 30 June 2014 and The Employee Benefit Trust has acquired shares in the 30 June 2015. These projections include assumptions on Company and these are deducted from shareholders funds on the trading performance of the operating business and the the balance sheet within ‘Other reserves’ initially at the cost continued availability of the existing debt facilities. After that the shares were acquired. The net proceeds received making appropriate enquiries, which included a review of the from the issue of these shares through the exercise of options annual budget, by considering the cash flow requirements are recognised through this reserve. There are no shares for the foreseeable future and the effects of sales and other remaining in the EBT. sensitivities on the Group’s funding plans, the Directors continue to believe that the Group and Company will have Share based payments adequate resources to continue in operational existence for The Company has adopted the amendment to FRS 20 the foreseeable future and accordingly have applied the going (Group cash-settled share based payment transactions). concern principle in drawing up the financial statements. The Company has equity-settled share based payments In reaching this view, the Directors have considered and but no cash-settled share based payments. All share based prioritised the actions that could be taken to offset the impact payment awards granted after 7 November 2002 which had of any shortfall in operating performance. not vested prior to 1 July 2006 are recognised in the financial Investments statements of the subsidiary which receives the goods or service from the supplier (including employees), however Investments in shares in subsidiary undertakings are included the share based payment reserve remains in the Company’s at cost less amounts written off. financial statements. Share based payments made in respect Foreign currencies of the Company’s shares to employees of its subsidiaries are reported as an increase in investment. All goods and Transactions in foreign currencies are recorded using the rate services received in exchange for the grant of any share-based of exchange ruling at the preceding month-end. Monetary payment are measured at their fair values. Where employees assets and liabilities denominated in foreign currencies are are rewarded using share-based payments, the fair values of translated using the rate of exchange ruling at the balance employees’ services are determined indirectly by reference sheet date and the gains or losses on translation are included to the fair value of the instrument granted to the employee. in the profit and loss account. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, Deferred taxation profitability and sales growth targets). Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet 96 © Allergy Therapeutics plcwww.allergytherapeutics.com If vesting periods or non-market based vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of share options 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 cumulative adjustment prior to vesting is recognised in 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, regardless of whether market conditions are actually met. Any adjustment for options which lapse prior to vesting is recognised in the current period. 2. Loss for the Financial Period The Company has taken advantage of s.408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Company’s loss for the period was £257,000 loss (2012: £13.5 million loss). 3. Investments Cost Investment brought forward Additions Diminution in value Investment carried forward Shares in subsidiary undertaking £’000 1,276 184 (160) 1,300 At 30 June 2013 the Company’s subsidiary undertakings were: Subsidiary undertaking Country of incorporation Principal activity Percentage of shares held Class of shares held Allergy Therapeutics (Holdings) Ltd Allergy Therapeutics (UK) Ltd UK UK Holding Company Manufacture and sale of pharmaceutical products Bencard Allergie GmbH Germany Sale of pharmaceutical products Bencard Allergie (Austria) GmbH Austria Sale of pharmaceutical products Allergy Therapeutics Italia s.r.l. Italy Sale of pharmaceutical products Allergy Therapeutics Iberica S.L. Spain Sale of pharmaceutical products Teomed A.G. Switzerland Sale of pharmaceutical products Allergy Therapeutics Netherlands BV Netherlands Sale of pharmaceutical products Allergy Therapeutics Argentina S.A. Argentina Marketing of pharmaceutical products 100 100 100 100 100 100 100 100 100 Ordinary and deferred Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 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. 97 © Allergy Therapeutics plcwww.allergytherapeutics.com 4. Debtors Amounts falling due within one year Amount owed by subsidiary undertakings Prepayments 30 June 2013 30 June 2012 £’000 £’000 298 7 305 318 14 332 The amount owed by subsidiary undertakings is stated net of provisions of £71,139,000 (2012: £70,740,000). 5. Creditors – amounts falling due within one year Convertible loan note interest Accruals Taxation and social security 6. Creditors – amounts falling due after one year Convertible loan note interest 7. Called up share capital 30 June 2013 30 June 2012 £’000 95 38 1 134 £’000 114 - - 114 30 June 2013 30 June 2012 £’000 - £’000 97 Full details of the Company’s share capital are set out in Note 26 of the consolidated financial statements. 98 © Allergy Therapeutics plcwww.allergytherapeutics.com 8. Reserves At 30 June 2012 Loss for the year Lapsed share based payments transferred to retained losses At 30 June 2013 At 30 June 2012 Shares issued in the year Share issue costs in the year At 30 June 2013 At 30 June 2012 Provision in year for share based payments Lapsed share based payments transferred from retained losses At 30 June 2013 At 30 June 2012 and 2013 At 30 June 2012 and 2013 Profit and loss account £’000 (71,806) (257) 1,000 (71,063) Share premium account £’000 67,571 145 - 67,716 Other reserve – share based payments £’000 1,496 183 (1,000) 679 Other reserve – EBT £’000 67 Other reserve – Convertible Loan Note £’000 3,652 99 © Allergy Therapeutics plcwww.allergytherapeutics.com9. Share Based Payments Full details of the Company’s share based payments are set out in Note 27 of the consolidated financial statements. 10. Directors’ emoluments Full details of the Company’s directors’ emoluments are set out in the Directors’ Remuneration Report on pages 46 to 48. 11. Reconciliation of movement in shareholders’ funds Loss for the financial year Issue of shares from EBT Share based payments Shares Issued Convertible loan note issued Net addition/(reduction) to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 12. Contingent Liabilities Year to 30 June 2013 £’000 (257) - 183 148 - 74 1,397 1,471 Year to 30 June 2012 £’000 (13,523) - 131 8,962 3,652 (778) 2,175 1,397 Full details of the Company’s contingent liabilities are set out in Note 28 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 30 to the consolidated financial statements. 100 © Allergy Therapeutics plcwww.allergytherapeutics.comShareholder information Registered office Dominion Way Worthing West Sussex BN14 8SA Advisers Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET 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 München 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 © Allergy Therapeutics plc www.allergytherapeutics.com 101 

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