Argosy Minerals Annual Report 2015

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FY2015 Annual Report · Argosy Minerals

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Allergy Therapeutics plc

Annual Report
& Accounts
2015

www.allergytherapeutics.com

Contents

Strategic Report

Our Business

2015 Highlights

Chairman’s Statement

Current Market Overview

Our Products

Our Performance

Chief Executive Officer’s Review

Key Performance Indicators

Research & Development Report

Financial Review

Principal Risks and Uncertainties

Our Governance

Board of Directors

Corporate Governance

Report of the Directors

Directors’ Remuneration Report

Nominations Committee Report

Financial Statements

Independent Auditor’s Report to the Members of Allergy Therapeutics plc (Group)

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

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

Company Information

Shareholder information

Advisers

104

ALLERGY THERAPEUTICS PLC

STRATEGIC REPORT

Allergy Therapeutics is an AIM listed speciality

2015 Highlights

pharmaceutical company.

Allergy Therapeutics is European-based and focused

to £46.6m (2014: £42.0m)

•

11% increase in revenue at constant currency*

on the treatment and prevention of allergy with

aluminium free products.

Mission Statement

•

3% increase in revenue to £43.2m (2014: £42.0m)

Gross profit increased 4% to £31.1m (2014: £30.0m)

• Operating profit increased 50% to £1.8m before impact

of revaluation of US dollar cash deposits (2014: £1.2m)

• Operating profit of £0.7m (2014: £1.2m)

•

Net cash generated by operations increased to £2.5m

To create a sustainable, fast-growing and profitable global

(2014: £2.3m)

speciality pharmaceutical business with a substantial

•

£20m fund raising (net of expenses) in March 2015 to

franchise in the allergy sector by developing innovative,

fund US clinical study programme

patented, registered therapies for both the treatment

•

Acquisition of Alerpharma S.A. in early June strengthens

and prevention of allergy-related conditions.

Spanish business

•

Positive results from Acarovac Plus clinical study

demonstrates excellent patient tolerability

•

Continued successful rollout of European

probiotic products

* Constant currency uses prior year weighted average

exchange rates to translate current year foreign currency

denominated revenue to give a year on year comparison

excluding the effects of foreign exchange movements.

See table in the Financial Review for an analysis of

revenue on page 24.

Chairman’s Statement

This year we have made more significant progress towards becoming a global provider of allergy solutions and the Company is now

delivering on all three aspects of its growth strategy:

We are resuming the clinical development programme for Pollinex Quattro Grass in the US, having invested US$100 million to date.

As previously disclosed, the programme relaunch follows in-depth discussions with the US Food and Drug Administration (FDA)

regarding our clinical trial protocols and route to registration for the product. We plan to submit a Biological Licence Application (BLA)

to the FDA for Pollinex Quattro Grass for regulatory approval in 2018, with the anticipated registration of the product in 2019. The US

allergy immunotherapy market is estimated to be worth $2 billion in 2008.

Importantly, our US development plans are fully funded following our successful placing to raise £20 million net in March.

This is a significant milestone for Allergy Therapeutics and introduces new, important institutional investors to the Company.

Pollinex Quattro Grass has the potential to be the first seasonal subcutaneous immunotherapy (SCIT) allergy treatment to receive

regulatory approval in the US, as well as becoming the Company’s first product to be approved for the US market. Apart from a

proven ability to provide a cure versus symptom relief, the short course of treatment is shown to be superior to alternatives on the

market in terms of patient acceptance and compliance, which are key issues in this area and will, we believe, translate into good

uptake for the product. We are excited by the transformational opportunity that Pollinex Quattro Grass represents for the Company, as

we continue to work hard to address the unmet needs of the US allergy market through our innovative solutions for allergy sufferers.

Inorganic growth is a key focus; in June we announced the acquisition of Alerpharma, a privately owned company based in Spain,

spun-out from a leading Spanish biopharmaceutical company, Zeltia S.A. The acquisition provides Allergy Therapeutics with the

opportunity to increase our product range, cross-sell products and strengthen our competitive position in Spain, our second largest

market. Alerpharma also brings a newly-built state-of-the-art 2,200 sq. m manufacturing facility in the Alcalá de Henares technological

park near Madrid. The initial stage of the integration process is progressing well and is expected to be completed by January 2016.

The multiple paid for Alerpharma, at approximately one times the previous year’s sales, provides us with an opportunity to create

value for our shareholders. We will continue to seek synergistic consolidation opportunities in the specific immunotherapy (SIT)

market or allergy related areas, such as respiratory, dermatology, allergy immunomodulation or diagnostics.

Our established revenue model in Europe is progressing well. We have demonstrated organic double digit growth in a flat market,

significantly outperforming our competition and becoming, once again, the best performer in relation to its competitors in specific

immunotherapy in Europe. This progress is consistent with our ambition to strengthen our European position and build a solid platform

for global expansion. Revenues achieved during the year are detailed on the Financial Review on page 24 of the Annual Report.

During the first half of our fiscal year, and as a result of the takeover of CFR Pharmaceuticals by Abbott Laboratories Inc. (“Abbott”),

Alejandro Weinstein stepped down from the Board of Allergy Therapeutics and was succeeded by Jean-Yves Pavée, Senior Vice

President of Developed Markets for Abbott’s Established Products division. Alejandro joined the Board in 2009 and I would like to take

this opportunity to thank him for his contribution, valuable guidance and support. We are pleased to welcome Jean-Yves to our Board.

In conclusion, I would like to express my appreciation to all Allergy Therapeutics employees for their commitment, dedication and hard

work during the year and we look forward to making further significant progress in executing our growth strategy in the coming years.

Peter Jensen

Chairman

18 September 2015

Current Market Overview

We have a strong presence in Europe with our own established operations in important markets including Germany, Italy, Spain,

Austria, Switzerland, Netherlands and the United Kingdom.

In markets where we do not have a direct presence, we often make our products available through partners. The most important

distributor markets for the Group are Canada, the Czech and Slovak Republics, South Korea and more recently, Greece and the Baltics.

Germany is the Group’s main market, generating approximately 63% of the Group’s revenue in the 12 months ending 30 June 2015.

The percentage of revenue derived from each country is detailed below:

Germany (63%)

Germany is the single largest allergy immunotherapy market in Europe, with annual sales of over €320 million. In recent years,

the market has been affected by the austerity measures introduced by the German government in 2010 and by the new regulatory

environment for allergen therapies. In spite of this, the group outperformed market trends and Germany remains a key focus for the

Group as we continue to strengthen our approach to marketing which has been instrumental to an increase in our market share.

Italy (10%)

The total Italian allergy immunotherapy market is estimated to be worth €40 million in sales per year. The market is falling because

patients have been impacted by adverse economic conditions affecting their ability to pay for vaccines, compounded by the withdrawal

of reimbursement in certain regions. The Italian immunotherapy market is dominated by sublingual products. However, despite

these challenges, we believe that there remains a significant opportunity to continue to grow our business in this important market.

Austria (6%)

Austria is an established market with total market sales of approximately €18 million per year and our own operation is performing

well with a strong increase in market share.

Switzerland (5%)

The allergy vaccine market in Switzerland is well established, and is worth approximately €13 million per annum. Further alignment

to EU regulations for specific immunotherapy (SIT) products and diagnostics has the potential to generate new opportunities.

Spain (6%)

Total market sales in Spain are estimated to be €70 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 continues to be a large valuable market, with

approximately 150,000 patients a year estimated to receive immunotherapy. Injectable immunotherapy products of modified

allergen remain the treatment of choice for Spanish physicians in this treatment category.

Dr. Albert Roger, Director of the Allergy Unit at Hospital Universitari Germans Trias i Pujol, Barcelona, Spain presented positive

Acarovac Plus clinical study results for the treatment of house dust mite allergy at the Company’s Adjuvants in Allergy conference in

July. Acarovac Plus is well positioned for significant growth potential in this market.

The acquisition of Alerpharma S.A., which includes a newly-built state-of-the-art 2,200 sq m manufacturing facility in the Alcala de

Henares Technological Park, Madrid, and a broad product range, including a specialised franchise on an olive vaccine, one of the

most important allergens in southern Europe, strengthens the Company’s presence in this market.

United Kingdom (3%)

The UK is an important market due to its potential for future growth for the Group. Whilst currently, there is limited use of allergy

vaccines in the UK, there is potential for this to change and the Group has focused on marketing to the medical community to

promote greater awareness of more suitable treatment options. Pollinex is the only pollen subcutaneous immunotherapy (SCIT)

product currently registered in the UK.

Germany – 63%

Italy – 10%

Austria – 6%

Spain – 6%

Switzerland – 5%

The Netherlands – 3%

UK & Export market – 3%

Czech Republic & Slovakia – 2%

Canada – 1%

South Korea – 1%

The total market size in The Netherlands is around €19 million a year. In January 2014, insurance companies decided to only reimburse

registered products. This new policy took effect in January 2015 and has impacted approximately 50% of the products currently in

the market but does not impact our products as we already have Pollinex registrations in this market. Therefore, Allergy Therapeutics

is the only allergy company showing growth in the Dutch market with year-on-year growth in revenue of 29% in local currency.

After the year end, in July 2015, the Company hosted its Eighth Annual Adjuvants in Allergy Conference in Amsterdam. The

conference is part of the Company’s on-going training programme for medical professionals. It is a highly scientific open forum

to discuss allergy topics with expert key opinion leaders and allergists from around the world.

Emerging Markets

In 2012, we set up a new marketing operation in Argentina and launched our first products in Argentina, Venezuela, Colombia and

Chile. Sales have been slow to date due to regulatory hurdles in these Latin American markets, with the company putting on hold any

further development whilst the regulatory framework is simplified, although this region is still seen as having promising potential.

Recent Developments in US Market

In December 2013 and January 2014, the US Food and Drug Administration (FDA) held two Allergenic Products Advisory Committee

(APAC) review meetings where three new sublingual immunotherapy (SLIT) products were recommended for licence approval in

the US. All three products were subsequently licensed in 2014. These are the first allergy vaccine products to be formally approved

by the FDA, opening the door for subcutaneous immunotherapy (SCIT) products (e.g. Allergy Therapeutics’ Pollinex Quattro

products) to be licensed. SCIT products offer a number of advantages over the recently licensed SLIT products and are more

aligned to the current allergist immunotherapy practice in the US. Allergy affects 15-40% of the US population (i.e. circa 50m), so

the total market size for allergy vaccine products is potentially very large. We have submitted four studies to the FDA to support

the clinical development of Grass MATA MPL, with two of these due to begin in the US in September 2015, the detail of which is

covered within the R&D Director’s Review on page 21.

For the purposes of the segmental reporting analysis, Central Europe represents the markets of Germany, Austria, Netherlands

and Switzerland, and Southern Europe represents Spain, Italy and Portugal. The Other segment represents revenues through

distributors and agents in other worldwide markets including Canada, Czech and Slovak Republics, South Korea and Latin America.

Our Products

The Group sells a wide range of aluminium free allergy vaccines and diagnostics. The majority of our revenue arises from sales of

allergy vaccines. We sell both injectable and sublingual formats. The most commonly prescribed are those for the treatment of pollen-

related allergies, particularly for allergies to grasses, weeds and trees. Our vaccines trade under various brand names depending on

the market, e.g. Pollinex Quattro, Polligoid, TA Gräser Top. Our extensive range of well characterised diagnostics include 94 diagnostics

in Germany with marketing authorisations and specialised allergens for other markets like Blomia tropicalis for Latin America.

According to the current opinion of expert immunologists, IgE mediated allergies (type one allergies) are due to deregulation of

the T helper lymphocyte (TH) cell. Whereas healthy people develop tolerance to allergens, allergy sufferers have a TH2-dominated

immune response with increased IgE and corresponding clinical symptoms. This deregulation of the immune system can be

counteracted efficiently using specific immunotherapy (SIT). By administering high doses of allergen in a controlled fashion, the

balance between TH1 and TH2 response to the allergen can be restored. Since SIT was first carried out successfully by Leonard

Noon in 1911, it has become established as the only therapy addressing the cause of type one allergies.

Pollinex Quattro, launched in 1999, heralded a transformation in immunotherapy by introducing allergy vaccination with only four

injections per course. The short treatment period is due to the use of microcrystalline tyrosine (MCT) absorbed allergoids, an improved

extract allergen that has been modified in order to lower its allergenicity while keeping its immunogenicity, and the innovative adjuvant

monophosphoryl-lipid A (MPL). An adjuvant is a substance which improves the immune response to an antigen or allergen.

MPL is derived from a 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 containing MPL

have been evaluated in various indications such as cervical cancer and malaria at GlaxoSmithKline. Two vaccines with an adjuvant

system containing MPL - Fendrix, a hepatitis B vaccine and Cervarix, a HPV vaccine to protect against cervical cancer - have

received broad approval in Europe, the US, Japan and Canada. These modern, successful vaccines are already widely used.

The adjuvant effect of MPL in specific immunotherapy (SIT) has been documented in numerous studies and is seen in its essential

role of promoting the switch from a TH2-directed immune response (with IgE induction) to a TH1-directed immune response.

Our sublingual product is Oralvac Compact. Its dosing schedule allows for a more rapid and simple escalation of dosage making

treatment more convenient for patients and doctors. The treatment can be taken by the patient in their own homes and is

raspberry flavoured for improved patient compliance.

Wasp and Bee treatment is provided by our freeze dried Venomil product, which can be used following a ‘Rush’ dosing regimen.

Probiotics

Probiotics act as immunomodulators of the allergic response. In June 2012, we launched three new Probiotic products (Kallergen-

Th, ATI Prob and Pollagen) across Spain and Italy. Since then we have included Austria and Germany. In 2013 we launched a further

new probiotic product, Syngut, specifically designed for food intolerance. The products contain specific combinations of Lactobacilli

and Bifidobacteria.

Acarovac Plus

Acarovac Plus was launched in Spain in March 2013 and is a novel MCT-adsorbed, modified-allergen product developed for treatment

of perennial mite allergy. The product has been standardised to meet a dose regime consistent with “one vial” convenience. We have

completed clinical evaluation to demonstrate excellent patient tolerability and serological analyses consistent with a favourable shift in

Th1/Th2 balance compared with an unmodified version of the product.

Penicillin Diagnostics

DAP is a product for exclusive use in the diagnosis of type I, or immediate hypersensitivity to benzylpenicillin and related antibiotics

(betalactams) by means of cutaneous tests (prick and intradermal). Allergic reactions to betalactams are the most common cause of

severe adverse drug reactions and there is an increasing prevalence in the population. DAP is supplied to Italy, UK and The Netherlands.

Chief Executive Officer’s Review

Specific allergy immunotherapy is expected to become a global market of approximately $2-3 billion by 2020, with very few

companies well placed to take advantage of this market opportunity. I am confident that with our highly competent team, coupled

with our ultra-short, aluminium free allergy vaccines, we are well positioned to be one of these companies.

At a commercial level, we have once again been the best performing company in our competitive European markets, with an

evolution index of 107 (where every unit above 100 represents 1% growth above the market’s growth) and sales growth of 11%

in constant currency. This strong organic growth and market penetration highlights our focus on ensuring three important building

blocks for the business:

a) We have the right products with our range of short course and ultra-short course, aluminium free allergy vaccines, which are

patient-friendly, save time and are, therefore, highly convenient. Our products are becoming increasingly accepted in all our key

markets and represent a potential, early indicator of the fast penetration that our products could have in the US allergy market.

b) We have the right sales teams in place. The team consistently delivers at or above management’s expectations and receives

on-going training to be the best scientific partner for our doctors.

c) We have the right marketing strategies and our messages are well understood by our base of prescribers.

With Pollinex Quattro we have developed an efficient solution to address the seasonal allergy market, with grass, tree and ragweed

being the most predominant allergens. Now that this franchise is in late stage clinical development and has proven to be commercially

successful (in Europe on a named patient basis), our Product Development team is working to expand our product portfolio by

developing an ultra-short franchise in the perennial allergy market, where house dust mite is one of the most important allergens.

We are currently developing Acarovac Quattro, a potential breakthrough ultra-short course treatment for house dust mite allergy,

using a similar technological platform to Pollinex Quattro (allergoid + microcrystalline tyrosine (MCT) + monophosphoryl lipid A

(MPL)) to replicate the success of our Pollinex Quattro product range.

Last year, we launched Acarovac Plus, a short course allergy product to treat house dust mite allergy, in Spain, which became our

fastest growing product in that country this year. This rapid commercial acceptance, along with the positive results in symptom

reduction scores of more than 50% (as announced in July ), increases our confidence in the market penetration prospects for

Acarovac Quattro.

The activity within our strengthened R&D department has been exceptional. The scientific team has been running our clinical

programmes in Europe and planning the resumption of our clinical activities in the US. Our team has also been working on new and

improved products and has designed a comprehensive programme of clinical trials to continue the development of our innovative

product portfolio.

Another significant project has been the work done with MCT which is a depot/adjuvant system used in our products with the

potential to be used in other vaccines. Depot adjuvants are used in vaccines to act as a carrier for the antigen, enabling presentation

to the immune system over an extended period of time, therefore maximising the immune response before the body clears the

antigen. MCT is a patented depot adjuvant formulation of the biodegradable amino acid tyrosine that combines the optimal drug

stability profile of our short course vaccine delivery with extensive safety data consistent with its natural origin. MCT has been

designed to provide defined particle size and structure along with a strong antigen binding capacity to enhance its use as a powerful

immune system potentiator.

We have invested in our Medical Department which continues to provide support for our entire product range in all commercial

markets but has also been handling the new body of regulation in the pharmacovigilance area, while our back office departments –

Supply Operations, Quality Control, Quality Assurance – have ensured the Company has remained compliant and maintained high

standards of reliability.

Immunotherapy is expected to be the fastest growing segment in the allergic rhinitis treatment market, estimated at $12 billion by

2016 (Visiongain). It is expected that over the next seven years, the immunotherapy market will more than double its size, growing

at a compound annual growth rate of around 11%. The key driver of this growth will be the development of the US registered

products market, where three oral vaccines were launched last year. Now that we have resumed our clinical programme in the US,

we have the potential to be the first seasonal SCIT allergy vaccine to reach the US market, which is predominantly a SCIT market.

This puts Allergy Therapeutics in a privileged position to become a global leading provider of allergy solutions, as shown by Pollinex

Quattro Grass.

Growth in the European allergy market is expected to be relatively flat in the coming year but with the continued momentum across

the Company’s activities, the outlook is very positive and we expect to continue to increase our market share into the next year

delivering improved top line growth. The Company will continue its plan to consolidate its position in the European markets as well

as progressing its clinical development programme within the Therapieallergene-Verordnung (TAV) framework in Germany.

Finally, we are very excited by the opportunity in the US market. We have made good progress in appointing a contract research

organisation (CRO) and during the next year plan to advance rapidly to the Phase III challenge chamber study for MATA MPL Grass,

keeping us on our time-line of submitting a BLA during 2018. This would be a transformational opportunity for the company.

We are a thriving company with a healthy product pipeline with an on-going mission to improve the lives of millions of allergy

sufferers worldwide.

Manuel Llobet

CEO

18 September 2015

1 Roger, A., Depreux, N., Jurgens Y., Heath M, Garcia G., Skinner M, A novel and well tolerated mite allergoid subcutaneous immunotherapy: Evidence of clinical and immunologic

efficacy. Immunity, Inflammation and Disease, 2014; 2 (2); 92-98

Key Performance Indicators

Strategic objective

Maximise revenue

KPI

Revenue at constant exchange rate

(Total revenue measured at a constant
budgeted foreign exchange rate)

£m

Analysis

Revenue at budgeted exchange rate has grown
satisfactorily compared to the two prior years

Strategic objective

Maximise funds available from operational
activities for investment in R&D and other
value adding projects

KPI

EBITDA excluding R&D

(Profit before interest, tax, depreciation,
amortisation and research and
development expenditure)

Analysis

EBITDA has been impacted in the current year
by a £1.1m charge on the revaluation of US$
denominated cash deposits. Excluding this
charge, the group would have reported
an EBITDA excluding R&D of £6.3m

Strategic objective

Maximise the number of countries into
which we sell our products

KPI

Number of countries into which we operate

(Countries in which we have a distributor,
agent or direct sales force)

Analysis

No new markets were entered in the current year.

The group continues to look for suitable markets
into which it can expand

£m

s
e
i
r
t
n
u
o
c

f
o

o
N

Revenue at Constant Exchange Rate

45.4m

40.3m

40.9m

2013

2014

2015

*GBP: EUR exchange rate 1.20

EBITDA Excluding R & D

5.6m

5.2m

4.5m

2013

2014

2015

Number of Countries in Which We Operate

20 Countries

18 Countries

2013

2014

2015

Research and
Development
Report

Research and Development Report

Clinical studies

The US Clinical Development of Subcutaneous Immunotherapies (SCIT)

In 2014, protocols detailing four studies were submitted to the FDA to progress the Grass MATA MPL2 clinical development

programme. Over the course of 2015 we have followed the requirements of the FDA’s Center for Biologics Evaluation and Research

(CBER) to progress the product to Biological Licence Application (BLA) submission by 2018.

September 2015 marked the beginning of a new phase of clinical evaluation for Grass MATA MPL following an Investigational New

Drug (IND) application filed in July 2015. Our studies involve the use of two mobile Environmental Exposure Chambers (mEEC®)

located in New Jersey and Cincinnati.

Results for the first two studies are planned to be available for a Phase III study to begin in September 2016.

European Clinical Development of Subcutaneous Immunotherapies (SCIT)

Clinical evaluation of Pollinex Quattro products toward licensure is being undertaken as part of the Therapieallergene-Verordnung

(TAV) regulatory framework. In 2015, this included a Pollinex Quattro Birch dose ranging study following Clinical Trial Approval (CTA)

granted by the Paul Ehrlich Institute (PEI) and AGES (Agentur Gesundheit Ernährungssicherheit).

The study uses a Conjunctival Provocation Test (CPT) to determine optimal response for four different doses of vaccine. This

includes our current commercial dose previously verified as efficacious in a prior dose finding study.

Acarovac Plus – Next Generation Products for Dust Mite Immunotherapy

Acarovac Plus is being developed as one of the Company’s new generation of products to address the perennial allergy market with

innovative and short-course therapies. The novel, single vial, modified mite allergoid has undergone further clinical development

showing positive results. The results build on the 2014 publication in Immunity, Inflammation and Disease3 and have been submitted

for publication in the above Journal4.

Further to the efficacy noted for Acarovac Plus, Allergy Therapeutics is developing Acarovac Quattro, an ultra-short course therapy

utilising the adjuvant monophosphoryl lipid A (MPL), which is used in the Company’s successful Pollinex Quattro product range.

Scientific Developments

2015 has seen a number of Allergy Therapeutics’ key studies published in high-profile scientific journals.

Of significant note was a featured article in the World Allergy Journal5 aimed at better understanding the molecular fingerprint of

the leading causes of allergy. In addition, Bell et al infers mechanisms of adjuvant interactions with active products, which support

the synergistic effects of Micro Crystalline Tyrosine (MCT) and MPL. Through collaborative studies with field experts in influenza

and malaria the application of MCT use in infectious disease therapy has been investigated and initial findings published shortly to

be published7,8. Other research papers in preparation include assessment of the metabolic fate of depot adjuvants9 and development

of our probiotics platform.

Allergomics – we know what’s in our products

The term allergomics has been created to indicate the standardisation and characterisation of the allergens within more than 100

diagnostic extracts. This initiative has enabled a level of compliance required for diagnostic supply, which some of our competitors

have not followed, that could result in increased market share. This work includes an assessment of allergens at the molecular level

and has resulted in the first of several related publications being approved5.

MCT is a unique patented formulation6 for use as a depot immunomodulator in allergy and non-allergy therapeutic applications.

The MCT particles are formulated to create defined particle morphology and size for binding allergens, antigens, polysaccharides

and lipids. The urgent and unmet need for new vaccine adjuvants for infectious diseases has led to research with renowned

scientists and field experts within organisations including; Public Health England (PHE), The Jenner Institute, Oxford University

and the University of Zurich.

Within the last 12 months, proof of concept immunogenicity studies have been completed supporting MCT use as a depot

immunomodulator in each application7,8. Additional, comparative investigations of MCT and aluminium adjuvant metabolism revealed

that the aluminium-containing adjuvant was localised at the dose site, providing insight into the dissociation and distribution of

aluminium hydroxide particulates after subcutaneous administration in the rat model and providing lessons learned for optimisation

of depot immunomodulators in future9.

Synergies with MCT and MPL in our Pollinex Quattro franchise

A key study was accepted for publication in The Journal of Inorganic Biochemistry10, which provides insight into the role of MCT

for use in existing and future therapeutic development. The study determines molecular mechanisms of adjuvant adsorption that

underpin the quality and efficacy of products including the current Pollinex Quattro technology platform. The report goes on to

highlight the potential of MCT as an alternative ‘delivery’ adjuvant in infectious disease models.

Probiotics

The beneficial effects of our probiotic range have been further investigated in 2015, with the portfolio tailored towards indications

within the broader remit in prevention management of allergic disease. In collaboration with Winclove Probiotics B.V., we describe

the data used to support the design of a new probiotic formulation (Syngut™) for supplementation in people suffering from food

intolerance. 11

2Grass MATA MPL is the working name used for the Pollinex Quattro Grass product formulation for use in the U.S

3A novel and well tolerated mite allergoid subcutaneous immunotherapy: evidence of clinical and immunologic efficacy. Roger, A;

Depreux, M; Jurgens, Y; Heath, MD; Garcia, G and Skinner MA, Immunity, Inflammation and Disease, Volume 2, Issue 2, pages 92–98, August 2014

4An observational, post-authorisation follow-up study of the safety, tolerability, satisfaction and effectiveness of Acarovac Plus: a modified,

mite-allergoid subcutaneous immunotherapy, Roger A., Depreux N., Jurgens Y., Heath MD., Garcia, G., & Skinner, MA.

5Molecular, proteomic and immunological parameters of allergens provide inclusion criteria for new candidates within established grass and

tree homologous groups, Heath MD, Collis J, Batten TN, Hutchings JW, Swan NJ and Skinner MA. WAO. 2015. (8:21)

6Patent “PROCESS FOR PREPARING VACCINE COMPOSITION.” Publication No. WO/2012/143732; Skinner MA, Packer DT, Hewings SJ, Poland R

7Testing microcrystalline tyrosine (MCT) as adjuvant for vaccine against malaria (P. vivax), G. Cabral de Miranda, A. El-Turabi, M. A. Skinner,

S. Hewings, A. C. Gnomes, E. Montoya Diaz, A. Reyes Sandoval, M. F. Bachmann, ECI 2015, Vienna

8Testing microcrystalline tyrosine (MCT) as adjuvant for vaccine against Influenza, B. Hallis, P. Luton, S. Hewings, Bullimore, M. Heath and Skinner MA

9Localisation kinetics of aluminium Hydroxide after subcutaneous injection in a Rat model, Heath, MD., Hewings, SJ., Kramer, MF.,

Skinner, MA, Submitted to Journal of Bioanalysis

10The Adsorption of Allergoids and 3-O-desacyl-4’-monophosphoryl lipid A (MPL®) to Microcrystalline Tyrosine (MCT) in Formulations for

use in Allergy Immunotherapy, Bell AJ., Heath MD., Hewings SJ. and Skinner MA. Journal of Inorganic Biochemistry – Online ahead of print.

11In vitro evidence for efficacy in food intolerance for the multispecies probiotic formulation Ecologic® Tolerance (Syngut™).

Besseling- van der Vaart*, MD. Heath, F. Guagnini and MF. Kramer. Paper in preparation.

Financial Review

The following section should be read in conjunction with the financial statements and related notes on pages 50 to 103.

Overview

The results for the twelve months to 30 June 2015 demonstrate continuing profitability despite difficult market conditions

and continued investment in clinical studies, with an operating profit of £0.7 million (2014: £1.2 million). Operating profit includes

a non-cash charge of £1.1m for the revaluation at the balance sheet date of US dollar cash deposits held for the US clinical studies.

Operating profit before this charge was £1.8m (2014: £1.2m), a 51% improvement. During the year investment in clinical studies

was maintained at £1.3 million (2014: £1.5 million). The acquisition of the Alerpharma group for €3.8m plus deferred consideration,

expected to be around €0.2m, took place in June 2015 (note 29). The Alerpharma group added revenue of £0.2m and no profit,

for the period consolidated.

Revenue

Despite weak allergy vaccine markets in Europe, revenue at constant currency* was 11% better at £46.6 million

(2014: £42.0 million). This can be seen in the table below:

2015

Germany

£m

27.1

2.9

30.0

2.5

32.5

27.1

2.2

29.4

Revenue

Add rebates

Gross revenue

Adjustment to retranslate at prior
year foreign exchange rate

Gross revenue at constant currency*

Revenue

Adjustment to retranslate at prior
year foreign exchange rate

Revenue at constant currency*

2015

Other

£m

2015

2014

Total

Germany

£m

16.1

1.1

17.2

16.1

1.2

17.2

43.2

2.9

46.1

3.6

49.7

43.2

3.4

46.6

2014

Other

£m

16.2

2014

Total

£m

42.0

3.8

45.8

25.8

3.8

29.6

16.2

45.8

25.8

16.2

42.0

25.8

16.2

42.0

* Constant currency uses prior year weighted average exchange rates to translate current year foreign currency denominated revenue to give a year on year

comparison excluding the effects of foreign exchange movements.

Despite a weaker EUR: GBP weighted average exchange rate during the year compared to the prior year, revenue increased by

3% to £43.2 million (2014: £42.0 million). The weighted average EUR: GBP exchange rate in the year was 1.27 compared to 1.17

in the previous year; the weaker Euro negatively impacted revenue by £3.4 million. The Group has continued to grow its revenue

in markets outside Germany in order to reduce its reliance on the German market, but, with the company’s strong performance

in Germany this year, revenue from Germany grew from 61% of the total reported revenue to 63%, although it is still significantly

lower than that reported in 2009 of 73%. The key flagship product Pollinex Quattro, which accounts for 49% of total sales, grew

very well in the year at a constant currency growth rate of 7.5%. In addition to the sale of allergy vaccines, the Group has continued

to look to increase its revenue from other products, which includes probiotic sales. Total sales from other products contributed

£3.2 million for the year ended 30 June 2015 (2014: £3.0 million).

Revenue in Germany grew well in the year with revenue at constant currency increasing to £29.4 million (2014: £25.8 million); an

increase of 14%. During the year, the Group was subject to the full rebate charge in Germany. In the prior year, the rebate charge in

H1 was 16% of sales, reducing to 6% in January 2014, before finally being set at a new on-going level of 7% in April 2014.

© Allergy Therapeutics plcwww.allergytherapeutics.com
On 23 February 2015, the Company received notification that The Federal Office for Economics and Export (“BAFA”) had made a

decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December

2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company

recognised revenue of €1.4 million (£1.1 million) against this exemption in the year ended 30 June 2013. All other preliminary

exemptions (granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the

Company has lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30

June 2015, no provision has been recognised for the repayment of the rebate refund. This position will be kept under review.

In Spain (excluding the newly acquired Alerpharma S.A.) and Italy, sales at constant currency increased by 8%, which is a strong result

given the weak market during the year. Similarly, Austria showed strong growth in sales of 10% in the year at constant currency.

Gross Profit

Despite the increased sales, tight management of manufacturing helped minimise increases in cost of sales to £12.2 million (2014:

£12.0 million). This, together with the revenue increase of £1.3 million, increased the gross margin percentage by 30 basis points to

71.8%, leading to a gross profit of £31.1 million (2014: £30.0 million).

Operating Expenses

Total overheads are £1.5 million higher against the prior year at £30.4 million (2014: £28.9 million). Distribution costs, which are

mainly European sales and marketing costs, were positively impacted by a weaker Euro, decreasing by £0.8 million to £17.1 million

(2014: £17.9 million). However, administration expenses increased to £10.2 million (2014: £8.0 million), an increase of £2.2 million

on the prior year. The major driver behind this increase was foreign exchange; the company booking a non-cash loss of £1.1m on

its US dollar cash deposits due to the weakening dollar netted with a small gain on the fair valuation of Euro assets of £0.4 million

(2014: £0.7 million). The remainder of the increase was due to increased support costs on the Company’s IT systems to comply with

new German banking requirements, acquisition fees relating to the Alerpharma purchase and staff employment costs. Further work

relating to the dose ranging study for Pollinex Quattro Birch continued during the year as well as the commencement of the US

study programme, and these were the main factors behind the year’s R&D costs of £3.1 million (2014: £3.0 million).

Tax

The current year tax charge is predominately made up of the reversal of the brought forward deferred tax asset, on the assumption

that in future years the Company will be loss making as a result of increased investments in the US clinical program, and provisions

for tax in the Italian and German subsidiaries. The tax charge in the prior year relates mainly to the Italian subsidiary.

Balance Sheet

Property, plant and equipment increased by £1.8 million to £8.8 million as a result of the acquisition of Alerpharma. Excluding

this, the depreciation charge for the period equalled new equipment purchases. Goodwill increased to £3.0 million with the

acquisition of Alerpharma (2014: £2.5 million), whilst other intangible assets have risen by £0.7 million, again mainly as a result

of the Alerpharma purchase.

Total current assets excluding cash have increased by £0.4 million to £12.6 million (2014: £12.2 million). This is mainly due to

an increase in fair value of derivative financial instruments.

Retirement benefit obligations, which relate solely to the German pension scheme, increased to £6.8 million (2014: £6.4 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, increasing slightly, with a reported inflow of £2.5 million (2014: £2.3 million).

In March 2015, 94,117,650 new ordinary shares of 0.1 pence each (“Ordinary Shares”) were placed with institutional and other

investors raising proceeds of £20.8 million before expenses; £20.0 million to the Company after expenses. The net proceeds of the

placing will be used to fund the clinical development of Pollinex Quattro Grass through to a BLA to obtain FDA regulatory approval

in the US. Pollinex Quattro Grass could become the first licensed seasonal SCIT allergy vaccine authorised for marketing in the US,

where the value of the market is estimated at $2 billion.

At the same time, the convertible loan notes which were issued by the Company on 30 March 2012, to CFR International SpA,

were converted into 41,674,938 new Ordinary Shares (the “Conversion Shares”) at 9.7 pence per Ordinary Share.

The Group had no debt on its balance sheet at the close of the financial year other than the loans acquired as a result of

the Alerpharma acquisition (£1.7 million). The annual overdraft had been fully repaid in November 2014 and has been renewed

for a further 12 months to cover the seasonal funding requirements over the summer of 2015.

The Directors believe that the Group will have adequate facilities for the foreseeable future and accordingly they continue

to adopt the going concern basis in preparing the full year results.

Ian Postlethwaite

Finance Director

18 September 2015

Principal Risks and Uncertainties

The Board has overall responsibility for the Group’s system of risk management.

In common with many pharmaceutical companies the Group faces a number of risks and uncertainties. Internal controls are in place

to help identify, manage and mitigate these risks. The main risks have been identified as follows:

Commercial successful products risk

Continued development of viable new products and their successful registration and marketing is key to the success of the Group

and is a costly and lengthy process. Rationale for new product development may indicate potential; however following significant

investment there is no guarantee that a product will be commercially successful.

The key opportunities for the Group are developing and commercialising Pollinex Grass in the US, the PEI market authorisation for

Pollinex Quattro Grass in Germany and to continue to increase our market share across Europe.

Product liability risk

Despite extensive product testing prior to market launch, products may produce unanticipated adverse side effects that may

hinder their marketability. The Group may be insufficiently covered for any potential litigation which in some cases can potentially

be open-ended. The Group’s manufacturing facilities and those of some of its suppliers are subject to regulatory requirements

and there is a risk that such facilities may not comply with such requirements. The Group maintains product liability insurance

and ensures systems and processes relating to the manufacture of its products are compliant and regularly reviewed. It has a

Pharmacovigilance team in place to monitor and address any safety issues arising.

Intellectual property risk

Group patents may be challenged at any time and any unsuccessful defence may cause the Group to lose protection for its

products and subsequently affect further development and sales. The Group is reliant on some intellectual property owned

by external stakeholders that, if lost, could hinder the commercialisation of some of it products. The Group has internal and

external patent experts. Internal controls are in place to avoid disclosure of patentable material and to protect existing patents.

Arrangements are also in place to notify the Group of any infringements of our intellectual property which it would defend robustly.

Economic risks

A high level of risk is attached to the research, development and commercialisation of innovative drugs. The Group ensures that

business cases are scrutinised before Board approval and that any increases in costs are justified. Key suppliers may be unable

to execute contractual requirements that hamper product development and/or the route to markets, but the Group maintains

appropriate measures to protect its supply chains. The Group may be unable to attract partners or licensees on favourable terms

or recruit the right staff to help develop and market its products. Approximately 63% (2014: 61%) of Group sales are made in

Germany and therefore Group results are sensitive to German legislation and government policies, and performance of the German

market. To mitigate this risk, the Group continues to expand its revenue outside Germany.

Pharmaceutical products are subject to far greater controls on price in certain markets than other products in the marketplace.

Some governments intervene directly in setting price levels and rebates paid into public sick funds, especially with an increasing

aged population in developed countries. The Group cannot accurately predict when, where and how such controls and restrictions

may be altered, either to its benefit or detriment, but it does conduct regular reviews of pricing and reimbursement levels and

assessments of healthcare reforms on pricing.

Financial risks

Adequate funding may not be available to the Group, either through reserves or external partners for the advancement of clinical trials,

manufacturing and marketing. Failure to obtain further funding may lead to postponement or cancellation of programmes. The Board

actively reviews the financial requirements of the Group on a regular basis in order to ensure that adequate funding is available.

the UK and therefore the Group is exposed to volatility in exchange rate fluctuations. The Group monitors exchange rates regularly

and implements hedges to mitigate such risks.

Note 24 in the Notes to the Financial Statements gives details of the Group’s objectives and policies for risk management of

financial instruments.

Clinical and regulatory risk

The Group operates in a highly regulated environment for the testing, manufacture and supply of its products. Compliance with

clinical and regulatory requirements within the EU affects 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 to comply with regulations and/or products

have to be withdrawn, reducing revenues and/or increasing costs. Regulatory authorities such as the FDA are increasingly focussed

on the benefit/risk of pharmaceutical products and safety data making it more onerous to obtain regulatory approval. Compliance

systems are in place to ensure all clinical, manufacturing and marketing activities comply with regulations in the EU and other

territories. Standard operating procedures are maintained to ensure compliance with good manufacturing practice. The Group

strictly monitors new industry regulations and engages with key Regulatory Authorities to inform the Group’s strategic direction and

identify factors likely to affect the future development, performance and position of the Group’s business.

Internal controls

The internal control system is designed to manage rather than eliminate risk, but.it can only provide reasonable and not absolute

assurance against material misstatement or loss. Internal controls are designed for the safeguarding of assets, the maintenance

of proper accounting records, the reliability of financial information, compliance with appropriate legislation, regulation and best

practice and the identification and management of business risk. The Group has an internal audit function, reporting directly to the

Audit Committee, which carries out periodic reviews of the Group’s subsidiaries. The Group also has a budgeting and reporting

system in place, with results compared to annual budgets and half-yearly forecasts using variance analysis.

The Strategic Report, as set out on pages 2 to 29 has been approved by the Board

On behalf of the Board

Ian Postlethwaite

Company Secretary

Board of Directors

Peter Jensen

Non-Executive Chairman

Manuel Llobet

Chief Executive Officer

Appointed to the Board in October 2010 and appointed

Manuel joined the Group in July 2009 following the

Non-Executive Chairman on 1 January 2011.

successful refinancing in which Azure Ventures Limited

was the main investor.

As Non-Executive Chairman, Peter is responsible for

leadership of the Board by ensuring clear company strategy,

Prior to this appointment, Manuel was the Principal Consultant

board effectiveness, good corporate governance and effective

for Biohealth LLC and CEO of International Operations of

communication with shareholders.

the Weinstein family’s group of companies. Manuel was

Peter held a number of senior roles in his 21 years with

family’s group of pharmaceutical companies in 20 countries.

responsible for international development of the Weinstein

SmithKline-Beecham. Between 1992 and 1998 he was

Chairman of Consumer Healthcare Europe and between

Mr Llobet has over ten years’ experience working in the

1998 and 2001 he held the position of President of

pharmaceutical industry, primarily in South America, and

Worldwide Supply Operations, based in Philadelphia.

has served as Executive Director of Corporación Drokasa

where he was responsible for a US$25 million AAA-rated

Since leaving SmithKline-Beecham at the time of the merger

bond issue to finance the group’s expansion plans; CEO of

with Glaxo, Peter has held a number of non-executive director

Laboratorios Andrómaco, where he led the group to an IPO

and chairman roles for various public and private companies.

on the Santiago Stock Exchange; and Business Development

These include Domino Printing Sciences plc, Newmarket

Manager for Laboratorio Chile. Manuel participated in the

Racecourses Limited, Glenmorangie plc, Genetix Group plc

Executive Program at the Graduate Business School of

and Celsis International plc.

Stanford University and has an MBA from IESE, Universidad

de Navarra in Barcelona. Manuel also has degrees in

In addition to his role at Allergy Therapeutics, Peter is

Industrial Business Management and Chemical Engineering

currently Chairman of Nottingham Racecourse Limited,

from Universitat Ramon Llull in Barcelona.

Screendragon Limited, The Home of Horseracing Trust

Limited and The British Sporting Art Trust and is a director

As Chief Executive Officer, Manuel is responsible for the

of The Osborne Studio Gallery Limited.

executive management of Group operations, investor

relations, and implementation of the Board’s collective

Peter chairs the Nomination Committee and is also

decisions overseeing all operational aspects of the

a member of the Audit Committee.

Group and directing the long-term strategy.

Finance Director

Stephen Smith

Non-Executive Director

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 Member

Investments (1997 - 2002), a UK private equity house,

of the Institute for Turnaround. Since 1995, he has operated

undertaking the roles of Chief Executive Officer with AFS,

as an independent executive, Non-Executive Director and

one of the largest independent finance houses in the UK,

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. At AFS he raised £379 million

years as Group Finance Director of a quoted hotel company.

of funding for the business through a syndicated bank

line, the issuance of commercial paper and a securitisation

Stephen chairs the Audit and Remuneration Committees, is a

of finance assets. He is a Fellow of the Chartered

member of the Nomination Committee which he chaired until

Association of Certified Accountants and is non-executive

1 January 2011 and is the Senior Non-Executive Director.

Deputy Chairman of Shoreham Port, and Chairman of the

Remuneration Committee.

As Finance Director, Ian is responsible for Group financial

reporting and control, tax, finance systems and internal

audit. Ian is also the Company Secretary, a position he

has held since 2004.

Thomas Lander, M.D.

Non-Executive Director

Jean-Yves Pavée

Non-Executive Director

Dr. Thomas Lander, M.D. is board certified in internal

Jean-Yves joined the Board in November 2014. He is the

medicine and diabetology and, moreover, has a strong

nominated director of CFR Pharmaceuticals following its

scientific background in oncology and immunology with

acquisition by Abbott Laboratories Inc. and the Senior Vice

a special emphasis on immunotherapy. He trained at the

President, Developed Markets, for Abbott’s Established

Technical University and the Institute for Immunology,

Products Division. He was appointed to his current role

Munich, Germany. He has spent more than 25 years in senior

at Abbott in July 2013. Previously, he served as Divisional

executive positions in R&D with the pharmaceutical industry

Vice President, EMEA East and Division Vice President,

including Boehringer Ingelheim, Novo Nordisk, Bristol-Myers-

Pharmaceuticals, Europe South. He joined Abbott in 1992.

Squibb and GlaxoWellcome (GlaxoSmithKline) before joining

Merck KGaA (Merck Serono) as Executive Vice President,

Global Clinical R&D and Chief Medical Officer in 2003.

In 2006 he made a move to the biotech industry as managing

director of CureVac GmbH, Tuebingen. Since 2009, Dr.

Lander has been working as a strategic consultant and also

a non-executive director for several European pharmaceutical

and biotech companies.

Thomas sits on the Remuneration Committee.

F
n
a
n
c
a

R
e
v
i
e
w

Corporate Governance

The Board

The Board is led by the Chairman, who is non-executive, and comprises the Chief Executive Officer, the Finance Director, and three

other Non-Executive Directors. Biographical details of all Board members are shown on pages 32 to 34. The roles of Chairman and

Chief Executive Officer are separate. The Directors feel that given the current size of the Group, the roles of Company Secretary

and Finance Director are not deemed necessary to be separated. All Directors have direct access to the services and advice of the

Company Secretary and to external independent professional advice at the expense of the Group.

Directors at year end

Date of Appointment

Attendance at meetings 2014-15

Peter Jensen

Chairman

Stephen Smith

Non-Executive Director and
Senior Independent Director

October 2010

September 2004

Thomas Lander

Non-Executive Director

May 2012

Jean-Yves Pavée

Non-Executive Director

November 2014

Manuel Llobet

Chief Executive Officer

Ian Postlethwaite

Finance Director

July 2009

July 2004

*Attendance is limited owing to his being appointed on 18 November 2014 and for personal reasons

The dates of appointment above refer to appointment as Directors of Allergy Therapeutics plc.

14/14

13/14

2/9*

14/14

We are not required to and do not fully comply with the UK Corporate Governance Code. However, we have reported on our

Corporate Governance arrangements by drawing upon best practice available, including those aspects of the UK Corporate Governance

Code we consider to be relevant to the Group and best practice. The Group is subject to the city code on Takeover and Mergers.

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.

The Audit Committee comprised Stephen Smith (Chairman) and Peter Jensen. The Audit Committee meets at least twice each year

and is responsible for ensuring that the financial performance of the Group is properly reported and monitored, meeting with the

Auditor, reviewing the reports from the Auditor relating to the financial statements and monitoring the internal control function.

The Remuneration Committee comprised Stephen Smith (Chairman) and Thomas Lander. The Remuneration Committee reviews

the compensation policy and strategy for the Group as a whole and the scale and structure of the executive Directors’ remuneration

packages including the terms of their service contracts. No Director takes part in the discussion of his own remuneration.

This Committee is also responsible for the grant of shares under the Group’s Long Term Incentive Plan.

The Nomination Committee comprised Peter Jensen (Chairman) and Stephen Smith. The Committee held one meeting during the

past financial year. The Nominations Committee’s principal purpose is to consider the composition and size of the Board and its

Committees as well as Board refreshment and board and senior management succession planning.

Full details of Directors’ remuneration and a statement of the Group’s remuneration policy are set out in the Directors’

Remuneration Report on pages 44 to 46.

The Group maintains a policy of open dialogue with all shareholders to ensure that the objectives of the Group are understood.

The Chief Executive Officer and the Finance Director make regular presentations to shareholders and discuss any areas of concern

and meet regularly with analysts and major shareholders to provide information about the Group. The Chief Executive Officer and

Finance Director had a number of meetings with shareholders and analysts during the financial year.

Press releases, general information on the Group and investor information are available to be accessed via the Group’s website,

www.allergytherapeutics.com.

Engagement of auditor for the supply of non-audit services

It is the Group’s policy that it will only engage the Group’s auditor to supply other professional services to the Group and its

subsidiary undertakings if it is satisfied that all the usual conditions of engagement and benchmarks are met. Any agreement to

purchase services costing more than £10,000 per engagement must have the prior approval of the Audit Committee.

In determining the policy, the Audit Committee has taken into account relevant ethical guidance regarding the provision of non-audit

services by the external audit firm and does not agree to the auditor providing a service if, having regard to the ethical guidance, the

result is that the external auditor audits its own work, the external auditor makes management decisions for the Group, a mutuality

of interest is created or the external auditor is put in the role of advocate for the Group.

Report of the Directors

The Directors present their Annual Report and the audited financial statements for the 12 months ended 30 June 2015. The financial

statements are for Allergy Therapeutics plc (the “Company”) and its subsidiary companies (together, the “Group”).

The Strategic Report

The strategic report is on pages 2 to 29. The Directors consider that the Annual Report and Accounts, taken as a whole are fair,

balanced and understandable. In reaching this conclusion the Board discussed the Strategic Report at their September 2015 Board

meeting. The Board meets at least 11 times a year and the Directors are sufficiently well informed to be able to make such a judgement.

Key Performance Indicators

Key performance indicators are outlined in the Strategic Report on page 18.

Corporate Governance

Details of the Company’s Corporate Governance can be found on pages 36 to 37.

Risk Management

The Group’s exposure to Risk is set out on page 28 to 29 (principal risks and uncertainties) and in note 24 (Financial Risk Management).

Results & Dividend

The profit for the year after taxation was £0.1 million (2014: £0.7 million). The results for the year are set out on page 51 and are

dealt with in more detail in the Financial Review.

Given the amount invested in research and development in the prior years the parent company has negative distributable reserves

and is unable to declare a dividend (2014: nil).

Directors

The current Directors of the Company and their biographical details are given on pages 32 to 34. The details of the Directors

service contracts and their interests in the share capital of the Company at 30 June 2015 are disclosed in the Director’s

Remuneration Report on pages 44 to 46. All the Directors served for the whole of the financial year with the exception of

Jean-Yves Pavée who was appointed on 18 November 2014 and Alejandro Weinstein who resigned on 8 October 2014.

Directors’ indemnity

The Directors and officers of the Company are insured against any claims arising against them for any wrongful act in their capacity

as a Director, officer or employee of the Group, subject to the terms and conditions of the policy.

Substantial shareholders

On 30 June 2015 the Company has been notified of the following voting rights

Shareholder

Number of Ordinary shares % of voting rights and issued share capital

CFR International SPA & Associated Holding

Southern Fox Investments

Invesco Perpetual

Odey Asset Management

240,584,571

125,183,783

30,685,209

28,968,205

44.0%

22.9%

5.6%

5.3%

During the period between 30 June 2015 and 18 September 2015, the Company did not receive any notifications under chapter 5 of

the Disclosure and Transparency Act.

Annual General Meeting

The notice convening and giving details of the Annual General Meeting of the Group accompanies this report.

The Group employed 373 people at the year-end and is committed to achieving equality of opportunity in all employment practices.

A thorough review of all employees is performed annually to identify and promote areas that require development and growth;

feedback is encouraged and sought. Staff are motivated by performance related incentives, which help to attract and retain the

right people, and are encouraged to achieve business targets through market-rate pay, discretionary performance based bonuses

and long term incentive programmes. The Board is committed to retaining staff as a high priority for the Group and implementing

well balanced, challenging incentives makes this possible. Training and development appropriate to individual and business needs is

offered and remuneration for professional development is considered on a case by case basis.

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters

affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and

informal meetings and email updates. Family friendly employment policies conform to statutory requirements and flexible working

practices are adopted where viable.

Employment policies

The Group implements equality of opportunity in all of its employment practices, policies and procedures. Employees are highly valued

and their rights and dignity are respected. The Group practices equal treatment of all staff and potential staff irrespective of their race,

creed, colour, sexual orientation, nationality, ethnic origin, religion, disability, age, gender or marital status. The equal opportunities

section of the Staff Handbook covers all permanent and temporary employees, job applicants, agency staff, consultants and contractors.

Equal opportunities

The Group is committed to providing equal opportunities in employment irrespective of background, age, sexual orientation, religion,

gender, nationality, marital status or disability. Our aim is to attract the best people in the industry and we believe in maximising

every employee’s potential. The Group does not tolerate any harassment or discrimination.

Disabled people

The Group, in considering applications for employment from disabled people, seeks to ensure that fair consideration is given to

the abilities and aptitudes of the applicant while having regard to the requirements of the job for which he or she has applied.

Employees who become unable to carry out the requirements of the job for which they have been employed are given individual

consideration and, depending on the nature, severity and duration of the disability may be considered for alternative work.

Research and development

The Group will continue its policy of investment in research and development, with the focus being in Germany where major allergy

vaccines, if not already registered, require further clinical evidence. In accordance with International Financial Reporting Standards

(IFRS), during the year the Group expensed to the income statement £3.1 million (2014: £3.0 million) on research and development.

Further details on the Group’s research and development are included in the Strategic Report Review on pages 2 to 29.

Going concern

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set

out in the Strategic Report on pages 2 to 29. The financial position of the Group, its cash flows, liquidity position and borrowing

facilities are also described in the Finance Director’s Financial Review on pages 24 to 26.

In addition, Note 24 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its

financial risk management objectives, details of its financial instruments and its exposures to foreign currency risk, interest rate risk

and liquidity risk.

After making appropriate enquiries, which included a review of the annual budget, considering the cash flow requirements for the

foreseeable future, noting the new bank facility, and the effects of sales and foreign exchange sensitivities on the Group’s funding plans,

the Directors continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable

have considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

Market value of land and buildings

All freehold properties are stated at market value. The Group’s policy is that a full revaluation is carried out every five years with

an interim valuation carried out in the third year after each full valuation. In the intervening years the directors review the carrying

values of the freehold land and buildings to ensure that there have been no material variations.

Strategic report

The strategic report on pages 2 to 29 contains information on future developments and post balance sheet events

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Strategic Report and the Director’s Report and the financial statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have

to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by

the European Union and have elected to prepare the parent company financial statements in accordance with United Kingdom

Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law the

directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs

and profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to:

•

select suitable accounting policies and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;

•

state whether applicable IFRSs and 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.

The Directors confirm that in so far as each Director is aware:

•

there is no relevant audit information of which the Group’s auditor is unaware; and

the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves

aware of any relevant audit information and to establish that the auditor are aware of that information.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s

website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

Auditor

Grant Thornton UK LLP offer themselves for reappointment as Auditor in accordance with section 489 of the Companies Act 2006.

A resolution for their reappointment is to be proposed at the forthcoming Annual General Meeting.

By order of the Board on 18 September 2015

Ian Postlethwaite

Company Secretary

Directors’ Remuneration Report

Unaudited information

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

Remuneration policy

Member since

Attendance at meetings 2014-2015

November 2004

May 2012

4/4

The Committee’s policy is to set remuneration packages for Executive Directors that are competitive with the market, allowing the

Group to attract, motivate and retain executives of the highest calibre. Remuneration packages are designed to reward executives

for performance via annual bonus payments and awards of share-related compensation, which together constitute a potentially

significant proportion of the total remuneration opportunity.

The remuneration of Executive Directors comprises the following elements:

(i) Basic salary

Basic salary is reviewed annually as at 1 October, taking into account personal performance, and benchmarked against a comparator

group.

(ii) Taxable benefits

Taxable benefits represent the provision of a car allowance and private medical insurance.

(iii) Share options

No share options were granted in the year. The share options granted to individual Executive Directors to date are disclosed later

in this report and comprise grants made in prior years under previous approved and unapproved option schemes. Share options

previously granted by Allergy Therapeutics (Holdings) Limited were surrendered on 5 October 2004 for share options in Allergy

Therapeutics plc, on substantially the same terms.

(iv) Long Term Incentive Plan

During the year ended 30 June 2015 provisional shares were awarded to directors and senior management under the Allergy

Therapeutics plc 2013 Long Term Incentive Plan, subject to performance criteria being met. Major shareholders were consulted on

the new plan which was approved by the Board on 20 March 2013. The new plan is aligned with the Group’s performance (share

price and profitability) rather than solely on share price performance compared to a group of other companies which was the test

applied in the 2005 LTIP Plan. The distribution of shares under the 2013 Plan is conditional on the Group’s performance over the

3-year Plan cycle for each award. The number of provisional shares awarded to Executive Directors under the Plans is shown in the

Directors’ LTIP and share options table.

(v) Bonus

The Group operates a performance-related cash bonus scheme for executive directors based upon individual performance and

achievement of personal and corporate objectives. Annual bonus payments are capped under service contracts at 60% for Manuel

Llobet and 30% for Ian Postlethwaite. The bonuses are determined and agreed by the Remuneration Committee in September each

year for the preceding financial year.

The UK Company operates a defined-contribution personal pension scheme and currently makes pension contributions in respect of

all executive directors.

Service Contracts of Current Directors

Executive Directors

Manuel Llobet

Ian Postlethwaite

Non-Executive Directors

Peter Jensen

Thomas Lander

Stephen Smith

Jean-Yves Pavée

Date of contract

11 June 2009

7 May 2002

Date of contract

1 October 2010

2 May 2012

5 October 2004

18 November 2014

Notice period

12 months

Notice period

6 months

3 months

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

257,500

106,613

10,314

Ian Postlethwaite

167,910

27,384

10,610

Peter Jensen

Thomas Lander

Stephen Smith1

Jean-Yves Pavée2

Alejandro Weinstein3

75,000

38,000

14,800

9,500

Year ended 30 June 2014

Fees

Total

Pension

Total

Pension

374,427

38,655

301,947

34,026

205,904

24,903

203,457

16,183

75,000

1,323

39,323

27,700

42,500

25,333

9,500

65,833

36,167

36,542

36,167

Totals

562,710

133,997

20,924

54,356

771,987

63,558

680,113

50,209

1 Stephen Smith’s fee payments are split between SRS Business Enterprises Limited and himself.

2 Fees payable to Abbott Laboratories Inc.

3 Alejandro Weinstein resigned as a Director on 18 October 2014

LTIPs
held at
1 July 2014

LTIPs
granted in
the year

LTIP’s
vested in
the year

LTIPs
lapsed in
the year

LTIPs
held at
30 June 2015

Subscription
price (pence)

Exercise
date from

Expiry
date

Executive
Directors

Manuel Llobet

3,190,000

845,000

Ian Postlethwaite

163,5001

1,595,000

422,500

Totals

4,948,500

1,267,500

1Share options

4,035,000

163,5001

18.5 18/10/2009

18/10/2019

2,017,500

6,216,000

At 30 June 2015 the London Stock Exchange mid-market value of shares was 21.87 pence per share. The range of mid-market

values during the period from 1 July 2014 to 30 June 2015 was 14.87 pence to 21.87 pence per share.

The Directors who held office at the end of the financial year had the following interests in the ordinary shares of the Company:

Name

Ordinary Shares

Options & LTIPs

Ordinary Shares

Options & LTIPs

At beginning of year:

At end of year:

3,125,000

3,190,000

3,125,000

4,035,000

1,360,000

1,758,500

1,360,000

2,181,000

120,000

776,513

120,000

776,513

Manuel Llobet1

Ian Postlethwaite

Peter Jensen

Thomas Lander

Jean-Yves Pavée

Stephen Smith

1 Includes shares held by Wild Indigo.

Stephen Smith

Chairman, Remuneration Committee

18 September 2015

Nominations Committee Report

The Nominations Committee during the year comprised Peter Jensen (Chairman), Stephen Smith and Alejandro Weinstein (resigned

18 October 2014). The Nominations Committee was established in September 2009 and held one meeting in the past financial

year. Its principal purpose is to consider and review proposals for the composition and size of the Board, its Committees and Senior

Executives as well as refreshment and succession planning.

Members

Peter Jensen

Stephen Smith

Member since

October 2010

September 2009

Attendance at meetings 2014-15

1/1

When proposing appointments of directors, the Committee considers the skills, knowledge and experience that a candidate

possesses compared to the skill sets and experience of the Board as it currently stands.

The Group considers the independence of Non-Executive Directors of paramount importance, being a cornerstone of good

corporate governance; as a result the Committee periodically reviews the independence of its Non-Executive Directors. Its review

is based on independence as defined in the UK Corporate Governance Code which is not binding on an AIM listed company against

the practicalities for an AIM Company. The Group draws upon best practice available, including those aspects of the UK Corporate

Governance Code it is considered to be relevant to the Group and best practice.

The Board having reviewed of the independence of the Board last year continue to regard Mr Stephen Smith as an independent

Non- Executive Director. During the review it was noted that his term of office was over 9 years, contrary to the UK Corporate

Governance Code. His contribution in the capacity as Chairman of the Audit Committee, and his experience, integrity and strength

of character continues to make a major contribution to the Board. Mr Stephen Smith now no longer holds any share options, which

lapsed in 2014. Mr Thomas Lander is the other independent Non-Executive Director.

The Board now consists of four Non-Executive Directors, with three (including the Chairman) being independent

and two Executive Directors.

Peter Jensen

Chairman, Nominations Committee

18 September 2015

Independent Auditor’s Report to the Members of Allergy Therapeutics plc (Group)

We have audited the group financial statements of Allergy Therapeutics plc for the year ended 30 June 2015 which comprise

the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the

consolidated statement of changes in equity, the consolidated cash flow statement and the related notes. The financial reporting

framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as

adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume

responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or

for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ Responsibilities Statement set out on page 42, the directors are responsible for the

preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit

and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing

(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’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 Financial Reporting Council’s

website at www.frc.org.uk/auditscopeukprivate.

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 2015 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.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the group financial

statements are prepared is consistent with the group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report

to you if, in our opinion:

•

certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Other matter

We have reported separately on the parent company financial statements of Allergy Therapeutics plc for the year ended 30 June 2015.

Christian Heeger

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Gatwick

18 September 2015

Year to
30 June

2015

£’000

2015

£’000

Year to
30 June

2014

£’000

(7,986)

(2,963)

Note

(10,218)

(3,121)

43,230

(12,179)

31,051

(17,060)

(13,339)

725

147

(218)

654

(546)

108

0.02p

Revenue

Cost of sales

Gross profit

Sales, marketing and distribution costs

Administration expenses – other

Research and development costs

Administration expenses

Other income

Operating profit

Finance income

Finance expense

Profit before tax

Income tax

Profit for the period

Earnings per share

Basic (pence per share)

Diluted (pence per share)

Year to
30 June

2014

£’000

41,955

(11,951)

30,004

(17,922)

(10,949)

1,209

170

(295)

1,084

(343)

741

0.16p

Note

Profit for the period

Items that will not be reclassified
subsequently to profit or loss:

Remeasurement of net defined benefit liability

Remeasurement of investments –
retirement benefit assets

Items that will be reclassified
subsequently to profit or loss:

Exchange differences on translation
of foreign operations

Total comprehensive (loss)/profit

Year to
30 June

2015

£’000

108

(932)

(119)

(935)

Year to
30 June

2014

£’000

741

(271)

(10)

(191)

269

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

Total current liabilities

Net current assets

Non-current liabilities

Retirement benefit obligations

Deferred taxation liability

Non-current provisions

Other non-current liabilities

Long term borrowings

Total non-current liabilities

Total liabilities

Net assets

Equity

Capital and reserves

Issued share capital

Share premium

Merger reserve – shares issued by subsidiary

Reserve – EBT

Reserve – share based payments

Reserve – convertible loan notes

Revaluation reserve

Foreign exchange reserve

Retained earnings

Total equity

Note

30 June
2015
£’000

30 June
2014
£’000

8,750

2,980

2,020

3,160

7,030

2,480

1,291

3,212

174

16,910

14,187

5,060

6,747

21,199

783

33,789

50,699

(7,169)

(251)

(7,420)

26,369

5,368

6,469

2,029

345

14,211

28,398

(6,425)

(49)

(6,474)

7,737

(6,755)

(6,418)

(298)

(211)

(113)

(1,433)

(8,810)

(16,230)

34,469

556

91,463

40,128

591

1,178

(140)

(99,374)

34,469

(136)

(222)

(73)

(6,849)

(13,323)

15,075

420

67,716

40,128

465

3,652

1,178

(21)

(98,530)

15,075

These financial statements were approved by the Board of Directors on 18 September 2015 and were signed on its behalf by

Manuel Llobet

Chief Executive Officer

Ian Postlethwaite

Finance Director

Registered number: 05141592

Consolidated Statement of Changes in Equity

At 30 June 2013

Exchange differences on translation of foreign operations

Remeasurement of net defined benefit liability

Remeasurement of investments – retirement benefit assets

Total other comprehensive income

Profit for the period after tax

Total comprehensive income

Transactions with
shareholders - convertible loan note

Share based payments

Shares issued

Transfer of lapsed options to retained earnings

Issued
Capital

Share
premium

Merger reserve
– shares issued
by subsidiary

Reserve -
shares held in
EBT

£’000

420

£’000

67,716

£’000

40,128

£’000

Reserve - share
based payment

£’000

679

184

(398)

Reserve –
convertible
loan note

£’000

3,652

At 30 June 2014

420

67,716

40,128

465

3,652

1,178

Exchange differences on translation of foreign operations

Remeasurement of net defined benefit liability

Remeasurement of investments – retirement benefit assets

Total other comprehensive income

Profit for the period after tax

Total comprehensive income

Transactions with
shareholders - convertible loan note

Conversion of loan note to equity

Share based payments

Shares issued

Transfer of lapsed options to retained earnings

3,832

19,915

At 30 June 2015

556

91,463

40,128

406

(280)

591

(3,652)

Revaluation
reserve

Foreign
exchange reserve

Retained
earnings

Total equity

£’000

1,178

£’000

170

(191)

(21)

(119)

£’000

(99,339)

(271)

(10)

(281)

741

460

(49)

398

£’000

14,671

(191)

(271)

(10)

(472)

741

269

(49)

184

(98,530)

15,075

(932)

(924)

108

(816)

(86)

(222)

280

(119)

(932)

(1,043)

108

(935)

(86)

406

20,009

1,178

(140)

(99,374)

34,469

Cash flows from operating activities

Profit before tax

Adjustments for:

Finance income

Finance expense

Non cash movements on defined benefit pension plan

Depreciation and amortisation

Charge for share based payments

Movement in fair valuation of derivative financial instruments

Disposal of intangible assets and property, plant and equipment

(Increase)/ decrease in trade and other receivables

(Increase) in inventories

Increase/ (decrease) in trade and other payables

Net cash generated by operations

Interest paid

Income tax

Net cash generated by operating activities

Cash flows from investing activities

Interest received

Investments

Acquisition of Alerpharma Group

Cash acquired on acquisition of Alerpharma Group

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 (net of issue costs)

Net cash generated by financing activities

Net increase 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

Note

15,16

Year to 30 June

2015

£’000

2014

£’000

654

1,084

(147)

218

290

1,293

406

(438)

(448)

(424)

1,079

2,483

(304)

(174)

2,005

(275)

(2,653)

1,301

(13)

(1,091)

(2,666)

20,079

19,418

(248)

2,029

21,199

(170)

295

160

1,287

184

(669)

1,689

(625)

(911)

2,325

(102)

(50)

2,173

(281)

(22)

(898)

(1,130)

1,043

(78)

1,064

2,029

1. BASIS OF PREPARATION

Allergy Therapeutics is a specialty pharmaceutical company focused on allergy vaccination.

The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)

in issue as adopted by the European Union (‘EU’).

Allergy Therapeutics plc is the Group’s parent company. The Company is a limited liability company incorporated and domiciled in

England. The address of Allergy Therapeutics plc’s registered office and its principal place of business is Dominion Way, Worthing,

West Sussex and its shares are listed on the Alternative Investment Market (AIM).

The consolidated financial statements for the year ended 30 June 2015 (including comparatives) have been prepared under the

historical cost convention except for land and buildings and derivative financial instruments which have been measured at fair value.

They were approved and authorised for issue by the Board of Directors on 18 September 2015.

New standards adopted

There are no IFRS or IAS interpretations that are effective for the first time in this financial period that have had a material

impact on the Group.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early

adopted by the Group in the 30 June 2015 financial statements

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing

standards have been published but are not yet effective. Not all of these have yet been adopted by the EU. The Group has not

adopted any of these pronouncements early. The new standards, amendments and interpretations that are expected to be

relevant to the Group’s financial statements are as follows:

IFRS 9 Financial Instruments (effective 1 January 2018)

This IFRS replaces IAS39 and addresses the usefulness for users of financial statements by simplifying the classification

and measurement requirements for financial instruments. Management are currently assessing the detailed impact

on the Group’s financial statements.

IFRS 15 Revenue from Contracts with Customers (issued in May 2014 and effective 1 January 2018)

IFRS 15 supersedes current revenue recognition guidance including IAS 18, Revenue, and specifies how and when entities

recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant

disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

Management anticipate that the above pronouncements will be adopted in the Group’s financial statements in line with the

effective dates stated above. Management are 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.

Going concern

For the year ended 30 June 2015, and for the sixth year in succession, the Group has reported an operating profit and an

operating cash inflow. Operating profit in the period was £0.7 million (2014: £1.2 million); net cash from operations was

£2.5 million (2014: £2.3 million).

These projections include assumptions on the trading performance of the operating business and the continued availability of the

existing overdraft facilities. After making appropriate enquiries, which included a review of the annual budget, by considering the cash

flow requirements for the foreseeable future and the effects of sales and other sensitivities on the Group’s funding plans, the Directors

continue to believe that the Group will have adequate resources to continue in operational existence for the foreseeable future and

accordingly have applied the going concern principle in drawing up the financial statements. In reaching this view, the Directors have

considered and prioritised the actions that could be taken to offset the impact of any shortfall in operating performance.

2. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have

been consistently applied to all years presented unless otherwise stated.

Consolidation

The Group’s financial statements consolidate those of the parent company and all of its subsidiaries drawn up to 30 June 2015.

The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and

has the ability to affect those returns through its power over the subsidiary.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated on the

date control ceases.

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated

except for unrealised losses if they show evidence of impairment.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with

those used in the Group.

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to

obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred

and the equity interests issued by the Group, which includes the fair value of any liability arising from a contingent consideration

arrangement. Acquisition costs are expensed as incurred.

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they

have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities

assumed are measured at their acquisition-date fair values.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair

value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-

date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets.

If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain

purchase) is recognised in profit or loss immediately.

Goodwill

Goodwill arising from business combinations is the difference between the fair value of the consideration paid and the fair value

of the assets and liabilities and contingent liabilities acquired. It is initially recognised as an intangible asset at cost and is subject

to impairment testing on an annual basis or more frequently if circumstances indicate that the asset may have been impaired.

Details of impairment testing are described in the accounting policies.

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy

the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair

value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated

amortisation and accumulated impairment losses. Intangible assets are amortised over their useful economic life as follows

Trade names

Customer relationships

Know-how and patents

Distribution agreements

Externally acquired intangible assets

15 years

5 years

10 years

15 years/ period of contract

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are

carried at cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets are amortised over their useful economic life as below and assessed for impairment whenever there is an

indication that the intangible asset may be impaired. The amortisation period and the amortisation method for intangible assets is

reviewed at least at each financial year end.

Computer software

Other intangibles

7 years

15 years

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is

accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

The amortisation expense on intangible assets is recognised in income statement in the expense category consistent with the

function of the intangible asset.

Internally generated intangible assets

An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if,

and only if, all of the following have been demonstrated:

•

the technical feasibility of completing the intangible asset so that it will be available for use or sale

the intention to complete the intangible asset and use or sell it

the ability to use or sell the intangible asset

how the intangible asset will generate probable future economic benefits

the availability of adequate technical, financial and other resources to complete the development

and to use or sell the intangible asset

•

the ability to measure reliably the expenditure attributable to the intangible asset during its development

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date

when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be

recognised, research and development expenditure is charged to the income statement in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and

accumulated impairment losses. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and

condition necessary for it to be capable of operating in the manner intended by management.

Amortisation of all intangible assets is calculated on a straight line basis over the useful economic life using the following annual rates:

Manufacturing know-how

Non-competing know-how

Other intangibles

15 years

4 years

15 years

These periods were selected to reflect the assets’ useful economic lives to the Group.

The cost of amortising intangible assets is included within administration expenses in the consolidated income statement.

Segmental reporting

The Group’s operating segments are market based and are reported in a manner consistent with the internal reporting provided to

the Group’s Chief Operating Decision Maker (CODM) who has been identified as the Executive Directors. The CODM is responsible

for allocating resources and assessing the performance of the operating segments.

In identifying its operating segments, management follow the Group’s revenue lines which represent the main geographical

markets within which the Group operates. These operating segments are managed separately as each requires different local

expertise, regulatory knowledge and a specialised marketing approach. Each market based operating segment is engaged in

production, marketing and selling within a particular economic environment that is different from that in segments operating in

other economic environments. All inter-segment transfers are carried out at arm’s length prices.

Foreign currency translation

Functional and presentational currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic

environment in which the entity operates (the functional currency). The Group’s presentational currency is Sterling, which is also the

functional currency of the Group’s parent.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation, at

reporting period end exchange rates, of monetary assets and liabilities denominated in foreign currencies, are recognised in the

income statement. Non-monetary items are carried at historical cost or translated using the exchange rate at the date of the

transaction or a weighted average rate as an approximation where this is not materially different.

Foreign operations

In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than

Sterling are translated into Sterling upon consolidation. The functional currency of the entities in the Group has remained

unchanged during the reporting period.

On consolidation, assets and liabilities have been translated into Sterling at the closing rate at the reporting date. Goodwill and fair

value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and

translated into Sterling at the closing rate. Income and expenses have been translated into Sterling at the weighted average rate

over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognised in the

currency translation reserve in equity.

Revenue recognition

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and

services provided, net of statutory rebates paid in Germany and excluding value added tax. Revenue is recognised upon the

performance of services or transfer of risk to the customer.

Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied:

•

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, which is generally when

the customer has physically received the goods.

•

the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective

control over the goods sold which is again when the customer has physically received the goods.

the amount of revenue can be measured reliably.

it is probable that the economic benefits associated with the transaction will flow to the Group, and

the costs incurred or to be incurred in respect of the transaction can be measured reliably.

•

Where the Group provides services to new distributors, which mainly include marketing and customer information, in exchange for

an up-front lump sum fee, revenue is recognised in line with these services being delivered. Services are fair valued and pro-rated

to agree to the total fee receivable. Where there is an on-going responsibility to provide services, the balance relating to those

services is recognised in future periods as the service is performed.

Part of the Group’s overseas sales are made through distributors and agents.

Arrangements for sales through distributors

For all distributor arrangements, the distributor is invoiced at the time of delivery and title to the product passes upon full and final

settlement of the invoice to which the delivery relates. The distributor has full discretion over the setting of the final selling price to

the end customer and is responsible for all customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are transferred to the distributor at the point of

delivery and therefore revenue is recognised at this point in accordance with IAS 18.

Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group, this

deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied. In these

instances the deferred consideration is accrued at a discounted value at the point of delivery.

Arrangements for sales through agents

For all agreements with agents, the agent places orders with the Group, and goods are then shipped to them. The Group however, holds

title to these products until they are sold on to a third party. The selling price to the end user is set by the relevant Government body and

the agent receives a fixed percentage of this selling price. The agent notifies the Group monthly on stock levels and this is reconciled to

a statement which generates an invoice for payment by the agent. The Group is responsible for any customer returns of product.

It is considered that the significant risks and rewards of ownership of the product are not transferred from the Group until the

agent has sold the product to a third party and therefore revenue on these sales is recognised only at this point by the Group in

accordance with IAS 18.16.

Statutory Rebates

In Germany, Pharmaceutical companies are required to pay a manufacturer’s rebate to the government as a contribution to the cost

of medicines paid for by the State and private health funds. This is similar to a sales tax and the rebate is therefore treated as a

deduction from revenue in accordance with IAS18.8.

Rebates have been in the region of 6% (inclusive of VAT). However, in 2010 the German government increased the rate to 16%.

In certain circumstances, companies could apply for an exemption from the rebate increase, for limited periods at a time. If the

application for the exemption is successful, a preliminary exemption is normally granted to be converted to a final exemption at a

later date when audited financial statements are available.

subsequently confirmed as final.

Revenue is recognised initially net of the full rebate, as at that stage it is not considered probable that any refund of the rebate will

be received. When the preliminary exemption is granted, it is considered probable, based on our past experience, that the rebate

refund will be received. Therefore, as it is probable that the economic benefits will flow to Allergy Therapeutics Plc, in accordance

with IAS 18.14(d), revenue is adjusted at that time.

As of April 2014, the Rebate has been set at 7%.

Expenditure recognition

Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin.

Property, plant and equipment

The Group policy is that all freehold properties will be subject to a full revaluation at least every five years with an interim valuation

carried out in accordance with IAS 16 in the third year after each valuation.

Revaluations are performed by independent qualified and experienced valuers who have adequate local knowledge in the country in

which the property is situated. In the intervening years between independent revaluations, the directors review the carrying values

of the freehold land and buildings and adjustments are made if the carrying values differ significantly from their respective fair values.

Increases in the carrying value from revaluations are recognised in other comprehensive income and accumulated in equity under

the heading of revaluation reserve unless this reverses a revaluation decrease on some asset previously recognised in the income

statement, in which case it is first credited to the income statement to that extent. When an item of property, plant and equipment is

revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying

amount of the asset. The amount of the adjustment arising on the restatement or elimination of accumulated depreciation forms

part of the increase or decrease in carrying amount. Decreases in the carrying values arising from revaluations are first offset against

increases from earlier revaluations in respect of the same assets and are thereafter charged to the income statement.

Other plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses.

Provision for depreciation of all PPE assets of the Group (except land) is made over their estimated useful lives, on a straight line

basis principally using the following annual rates:

Freehold buildings

Computer equipment

Motor vehicles

Fixtures and fittings

Plant and machinery

33 years

3 – 7 years

4 years

5 – 15 years

Residual values and useful lives are reviewed annually and amended as necessary. Assets are reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount of the PPE may not be recoverable. An asset’s carrying

amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds the higher of the asset’s fair

value less costs to sell or value in use.

Depreciation charges are included in either administration expenses or manufacturing overhead expenses when arriving at operating

profit in the income statement.

The Group’s goodwill, other intangible assets, freehold land and buildings and plant & equipment are subject to impairment testing.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash

flows (cash generating units). Goodwill is allocated to those cash generating units that are expected to benefit from synergies of the

related business combination and represent the lowest level within the Group at which management controls the related cash flows.

Individual assets or cash generating units that include goodwill or intangible assets with an indefinite useful life or those not yet

available for use are tested for impairment at least annually. All other individual assets or cash generating units are tested for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the assets or cash generating units carrying amount exceeds its

recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value

in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash generating units, to which

goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged

pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for

indications that an impairment loss previously recognised may no longer exist.

Inventories

Inventory is carried at the lower of cost or net realisable value. The costs of raw materials, consumables, work in progress and finished

goods are measured by means of weighted average cost using standard costing techniques. Cost of finished goods and work in

progress comprises direct production costs such as raw materials, consumables, utilities and labour, and production overheads such

as employee costs, depreciation, maintenance and indirect factory costs. Standard costs are reviewed regularly in order to ensure

relevant measures of utilisation, production lead time and appropriate levels of manufacturing expense are reflected in the standards.

Net realisable value is calculated based on the selling price in the normal course of business less any costs to sell.

Research & Development Investment Credits

Investment credits are directly related to the Group’s qualifying research and development expenditure and have a monetary value

that is independent of the Group’s tax liability. Such investment credits are dealt with in other income in the income statement.

Leases

A finance lease exists where the economic ownership of a leased asset is transferred to the lessee because the lessee bears

substantially all the risks and rewards of ownership of the leased asset. All other leases are operating leases.

Operating lease rentals are charged to the income statement over the term of the lease. There are no finance leases.

Financial assets

Financial assets consist of cash, trade and other receivables and derivative financial instruments. Financial assets are assigned to

their different categories by management on initial recognition, depending on the contractual arrangements.

Cash and trade and other receivables are denominated as loans and receivables and these are measured at amortised cost using

the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial.

Financial derivatives are designated at FVTPL (fair value through profit and loss) upon initial recognition.

Cash and cash equivalents comprise cash on hand, demand deposits and overdrafts, together with other short-term, highly liquid

investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

receivables are initially recognised at fair value, including transaction costs, with the exception of ‘fair value through profit and loss’

and subsequently at amortised cost, with any changes going through the income statement. Where securities are designated as

‘fair value through profit and loss’ gains and losses arising from changes in fair value are included in net profit or loss for the period.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and

substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at

each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

Financial liabilities

The Group’s financial liabilities include borrowings, trade and other payables, contingent liabilities and derivative financial instruments.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest

related charges are recognised as an expense in ‘Finance expense” in the income statement.

Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective

interest method. Contingent consideration on business combinations is recognised initially at their fair value and subsequently

measured at FVTPL.

Borrowings comprise secured bank borrowings, and are initially recognised at the fair value of the consideration received net

of issue costs associated with the borrowings. After initial recognition, interest-bearing loans and borrowings are subsequently

measured at amortised cost using the effective interest rate method.

Convertible loan notes

Convertible loan notes are regarded as compound instruments consisting of a liability component and an equity component. At

the date of issue the fair value of the liability component is estimated using a discount rate for an equivalent liability without the

conversion feature. The difference between the proceeds of issue of the convertible loan note and the fair value assigned to liability

component, representing the embedded option to convert the liability into equity of the Group, is included in equity.

Derivative financial instruments

The Group uses interest rate swaps, Euro forward contracts and Euro exchange swaps to manage the exposure to changes in

interest and translation rates and these are classified as derivative financial instruments. All derivative financial instruments are

initially measured at fair value on acquisition and are subsequently restated to fair value at each reporting date. Any change in the

fair value of the instruments is recognised in either administration expenses (Foreign exchange contracts) or finance expenses (note

9) in the income statement.

Equity

Equity comprises the following:

•

“Issued capital” represents the nominal value of equity shares that have been issued.

“Share premium” represents the excess over nominal value of the fair value of consideration

received for equity shares, net of expenses of the share issue.

•

“Merger reserve” represents the excess over nominal value of the fair value of consideration received

for equity shares issued on acquisition of subsidiaries, net of expenses of the share issue.

•

“Reserve - Shares held in EBT” represents the shares acquired by a trust set up for the benefit of the Group’s employees.

These shares are deducted from shareholders funds at the cost that the shares were acquired. The net proceeds received

from the issue of these shares through the exercise of options are also recognised through this reserve.

•

“Reserve - share based payments” represents equity-settled share-based employee remuneration

until such share options are exercised.

“Reserve - convertible loan notes” represents the equity component of consideration

received for convertible loan notes, net of expenses.

•

“Revaluation reserve” represents the revaluations of investment assets and land and buildings.

“Foreign exchange reserve” represents the foreign currency translation differences that have occurred

since the transition date. Exchange differences prior to this date are included within retained earnings.

•

“Retained earnings” represents retained profits and losses.

Equity is any contract which evidences a residual interest in the assets of the Group after deducting all its liabilities.

Income taxes

Current income tax assets and liabilities comprise those obligations to fiscal authorities in the countries in which the Group carries

out its operations. They are calculated according to the tax rates and tax laws applicable to the fiscal period and the country to

which they relate that have been enacted or substantially enacted by the end of the reporting period. All changes to current tax

liabilities are recognised as a component of tax expense in the income statement.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on

the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is neither provided

on the initial recognition of goodwill nor on the initial recognition of an asset or liability unless the related transaction is a business

combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not

provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in

the foreseeable future. Tax losses available to be carried forward as well as other income tax credits to the Group are assessed for

recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable

that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred

tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they

are enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except

where they relate to items that are charged or credited directly to other comprehensive income (such as the revaluation of

land and buildings) or equity, in which case the related deferred tax is also charged or credited directly to other

comprehensive income or equity, respectively.

Defined contribution pension scheme

Payments to defined contribution schemes are charged as an expense to the income statement as they fall due in the expense

category consistent with the function of the employee to which they relate.

Defined benefit pension scheme

Plan assets are measured at fair values. Defined benefit obligations are measured on an actuarial basis using the projected unit

credit method and are discounted at appropriate high quality corporate bond rates that have terms to maturity approximating to the

terms of the related liability. Interest expense or income is calculated on the net defined benefit liability (asset) by applying

the discount rate to the net defined benefit liability (asset). Past service cost is recognised in the income statement in

the period when the plan is amended.

Remeasurements are recognised in the balance sheet immediately with a charge or credit to other comprehensive income

in the periods in which they occur. The related deferred tax is shown with other deferred tax balances. A surplus is recognised

only to the extent that it is recoverable by the Group.

the income statement. Interest on the scheme liabilities and the expected return on scheme assets are included in other finance costs.

Short-term employee benefits, including holiday entitlement are included in current pension and other employee obligations, within

trade and other payables, at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

Investments

Investments relate to long-term insurance policies. In accordance with IAS19 these cannot be directly deducted from the German

pension obligation. These are recognised as a separate asset, rather than as a deduction in determining the defined benefit liability.

Interest income is recognised through the income statement. They are held at fair value with any gains or losses on remeasurement

charged or credited to other comprehensive income.

Provisions

Provisions are recognised when the present obligations arising from legal or constructive obligations resulting from past events,

will probably lead to an outflow of economic resources from the Group which can be estimated reliably.

Provisions are measured at the present value of the estimated expenditure required to settle the present obligation,

based on the most reliable evidence available at the balance sheet date.

All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Share based employee compensation

The Group operates equity-settled share based compensation plans for remuneration of its employees comprising

Long Term Incentive Plan (LTIP) schemes.

All employee services received in exchange for the grant of any share based compensation are measured at their fair values. These

are indirectly determined by reference to the share option or shares awarded. Their value is appraised at the grant date and excludes

the impact of any non-market vesting conditions (e.g. profitability or sales growth targets). The fair value of LTIP shares, which have

market conditions attached, includes an adjustment based on the probability of the shares vesting at the end of the vesting period.

Details of the LTIP schemes and the conditions applying to each scheme are disclosed in Note 28 (Share Based Payments) on page 91.

All share based compensation is ultimately recognised as an expense in the consolidated income statement with a corresponding

credit to the share based payments reserve. If vesting periods or other vesting conditions apply, the expense is allocated over

the vesting period, based on the best available estimate of the number of share options expected to vest. Non market vesting

conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are

subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates.

No adjustment to expense recognised in prior periods is made if fewer share options ultimately are vested than estimated, however

the expensed value of these lapsed shares is transferred from the share based payment reserve to retained earnings.

Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, up to the nominal value

of the shares issued are allocated to share capital with any excess being recorded as share premium.

Employee Benefit Trust

The financial statements include the assets and liabilities of a trust set up for the benefit of the Group’s employees. The employee

benefit trust has acquired shares in the Company and these are deducted from the shareholders’ funds on the balance sheet at the

cost of acquisition less proceeds on disposal.

Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements

and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior

experience, but actual results may differ from the amounts included in the financial statements. Information about such

judgements and estimation is contained in the accounting policies and/or the notes to the financial statements and the

key areas are summarised below:

Judgements in applying accounting policies

a) Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the project concerned.

Capitalisation of the costs will be made only where there is evidence that an economic benefit will accrue to

the Group. To date no development costs have been capitalised and all costs have been expensed in the income statement

as research and development costs, £3.1 million (2014: £3.0 million)

b) Where the Group sells to distributors at initially low margin and there is further consideration receivable by the group,

this deferred consideration forms part of the fair valuation of consideration receivable by the Group for goods supplied.

In these instances the deferred consideration is accrued at a discounted value at the point of delivery.

The directors considered the following points in applying this accounting treatment:

Although a significant portion of the sales price is received upon a further sale to an end customer, substantially all the risks and

rewards of ownership are passed to the distributor when the goods are shipped, and the distributor is acting as principal (not

merely as agent) when arranging to resell the goods. The directors have reached this conclusion because;

i. The group does not have any continued managerial involvement in the distributor’s onward sale of goods;

ii. The distributor does not have the right to return any goods.

More information on the reasoning behind the treatment of sales to distributors can be found in the ‘Sale of goods’

accounting policy description.

Land and buildings are carried at valuation and are re-valued every 2-3 years. The last revaluation of the Italian freehold property

took place in June 2013 (see note 16). The directors do not consider the current carrying value to be materially different to the

fair value, based on their experience of the local market and enquiries of local valuers. Therefore no impairment provision for this

asset is required. The next external valuation will take place in the year to 30 June 2016. The Freehold property in Spain was

revalued in June 2015 (see note 16). The directors do not consider an impairment provision to be required.

The Group had been awarded a provisional exemption to the increased rebate charge in Germany for the period July to

December 2012. Revenue of £1.1 million (equivalent of €1.4 million) was recognised in the year ended 30 June 2013 in relation

to this exemption and the refund was subsequently collected. In February 2015, the provisional exemption was withdrawn.

The group has lodged an appeal and, following legal advice, believe that the exemption will be re-instated. While the Group is

confident that the exemption will be confirmed, there is a possibility that this will not happen. If the exemption is not confirmed

then the Group will ultimately have to repay €1.4 million (£1.0 million) with a corresponding impact on net income and net assets.

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 62) and Note 16).

b) Estimates of future profitability are required for the decision whether or not to carry forward a deferred tax asset. (Note 12).

c) Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit to which

the goodwill has been allocated. This value in use calculation requires an estimation of the future cash flows expected to

arise from the cash generating unit and a suitable discount rate in order to calculate the present value.

Inventory standard costs are reviewed regularly in order to ensure relevant measures of utilisation, production lead

time and appropriate levels of manufacturing expense are reflected in the standards.

In relation to the accrued additional revenue due from distributors referred to in the Judgements section (point (b) above);

there is some uncertainty that the additional revenue will crystallise as it is dependent on a further sale by the distributor.

The directors consider that the additional consideration can be measured reliably because it is based on a fixed list price,

and our past experience indicates that the distributor will sell the vaccines. The directors have assessed that the accrued

consideration of £0.1 million is recoverable and will crystallise in future periods and has been carried forward in

prepayments and accrued income (2014: £0.2m).

The Group operates equity-settled share based compensation plans for remuneration of its employees comprising Long

Term Incentive Plan (LTIP) schemes. As explained on page 66, employee services received in exchange for the grant of any

share based compensation are measured at their fair values and expensed over the vesting period. The fair value of this

compensation is dependent on whether the provisional share awards will ultimately vest, which in turn is dependent on future

events which are uncertain. The directors use their judgment and experience of previous awards to estimate the probability

that the awards will vest, which impacts the fair valuation of the compensation.

3. REVENUE

An analysis of revenue by category is set out in the table below:

Sale of goods

Rendering of services

2015

£’000

43,205

43,230

2014

£’000

41,871

41,955

Rendering of services relates to the supply of services to a new distributor to assist them in setting up operations in their territory.

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 Rest of World.

Revenue
from External
Customers

Inter Segment
Revenue

Total Segment
Revenue

Revenue
from External
Customers

Inter Segment
Revenue

Total Segment
Revenue

2015

£’000

27,137

5,997

33,134

6,888

1,054

2,154

2015

£’000

22,900

43,230

22,900

2015

£’000

27,137

5,997

33,134

6,888

23,954

2,154

66,130

2014

£’000

25,782

5,902

31,684

6,718

927

2,626

2014

£’000

34,890

41,955

34,890

2014

£’000

25,782

5,902

31,684

6,718

35,817

2,626

76,845

Revenue by segment

Central Europe

Germany

Other

Southern Europe

Rest of World

designed for the immunological treatment of the allergic condition.

Rest of World revenues include sales through distributors and agents in several markets including Czech and Slovak Republics,

Canada and South Korea. These include rendering of services revenues (note 3). Inter-segment revenues represent sales of product

from the UK to the operating subsidiaries. The price is set on an arms-length basis which is eliminated on consolidation.

The CODM also reviews revenue by segment on a budgeted constant currency basis, to provide relevant year on year comparisons.

The following revenue table is based on a budget currency rate of € 1.20: £1.00 which was the rate used in the 2015 budget.

Revenue
from External
Customers

Central Europe

Germany

Other

Southern Europe

Other

2015

£’000

28,719

6,193

34,911

7,290

1,054

2,158

45,413

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

EBITDA by segment

Allocated EBITDA

Central Europe

Southern Europe

Allocated EBITDA

Depreciation and amortisation

Operating profit

Finance income

Finance expense

Profit before tax

2015

£’000

139

143

1,011

1,293

2015

£’000

(452)

(93)

2,562

2,017

(1,293)

724

147

(218)

653

2014

£’000

25,198

5,545

30,743

6,565

927

2,626

40,861

2014

£’000

154

105

1,028

1,287

2014

£’000

(810)

(236)

3,542

2,496

(1,287)

1,209

170

(295)

1,084

Central Europe

Southern Europe

Inter-segment assets

Inter-segment investments

Total assets per Balance Sheet

2015

£’000

8,692

5,450

58,809

72,951

(2,691)

(19,561)

50,699

2014

£’000

8,489

3,608

37,626

49,723

(2,572)

(18,753)

28,398

Included within Central Europe are non-current assets to the value of £2,980,000 (2014: £2,480,000) relating to Goodwill and within

Southern Europe assets to the value of £1,608,000 (2014: £1,085,000) relating to freehold land and buildings.

Total liabilities by segment

Central Europe

Southern Europe

Inter-segment liabilities

Total liabilities per Balance Sheet

2015

£’000

(9,779)

(4,164)

(4,874)

(18,817)

2,587

(16,230)

2014

£’000

(9,932)

(1,861)

(4,101)

(15,894)

2,571

(13,323)

Profit for the period has been arrived at after charging/ (crediting):

(Gain) on fair valuation of foreign exchange forward contracts

(Gain)/ loss on foreign exchange forward contracts matured in the year

Loss on revaluation of US dollar denominated cash deposits

Other foreign exchange loss/(gain)

Acquisition costs of new subsidiary (note 29)

Depreciation and amortisation:

Depreciation of property plant and equipment (note 16)

Amortisation of intangible assets (note 15)

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

2015

£’000

(438)

(618)

1,118

919

205

1,053

240

3,121

701

537

2014

£’000

(656)

(548)

1,006

281

2,963

726

584

Share based payment expense (note 28)

406

184

6. REMUNERATION OF KEY MANAGEMENT PERSONNEL

Salaries and short-term employee benefits

Social security costs

Post-employment benefits – defined contribution plans

Share based payment

2015

£’000

772

923

1,011

2014

£’000

680

799

847

Key management personnel are considered to be the Directors and full details of their remuneration are set out in the information

included in the Director’s Remuneration table on page 45 and forms part of the financial statements.

Wages and salaries

Social security costs

Share based payments

Pension costs – defined benefit plans

Pension costs – defined contribution plans

2015

£’000

16,116

2,407

406

220

329

2014

£’000

15,497

2,264

184

262

237

19,478

18,444

The average number of employees during the period (including executive directors) was made up as follows:

2015

126

139

361

2015

£’000

2015

£’000

191

218

2015

£’000

147

2014

116

138

347

2014

£’000

2014

£’000

(13)

206

295

2014

£’000

170

R & D, marketing and administration

Sales

Production

8. OTHER INCOME

Net monetary value of above the line R&D tax credit

9. FINANCE EXPENSE

Interest on borrowing facility

Change in fair value of derivative financial instrument

Net interest expenses on defined benefit liability

Other interest and charges

10. FINANCE INCOME

Bank interest

Interest on investment assets

Other finance income

Other finance income relates to the unwinding of the discount on accrued revenue.

Current Tax:

Prior period tax

Overseas tax

Deferred tax
– current year
– reduction in carrying amount of deferred tax asset

Tax charge for the period

2015

£’000

248

137

385

(13)
174

546

The tax charge assessed for the period is higher than the standard rate of corporation tax as applied in the respective trading

domains where the Group operates. The differences are explained below:

Profit for the period before tax

Profit for period multiplied by the respective standard rate of
corporation tax applicable in each domain (average 20.75%).

Effects of:

Disallowable adjustments

Movements in unrecognised deferred tax

Adjustment of taxes for prior periods

Adjustment for different tax rates

Gross up of R&D expenditure credit

Deferred tax - reduction in carrying amount of deferred tax asset
- change in tax rate

Tax charge for the period

12. DEFERRED TAX

Recognised deferred tax liability

2015

£’000

654

136

104

(154)

248

372

174
-

546

Tax value
of carried
forward
losses

Tax value of
accelerated
capital
allowances

Acquisition of
Teomed AG

Tax value of
Alerpharma
SA losses

Acquisition of
Alerpharma
SA

At 1 July 2014

Amount credited to the
income statement

Recognised on acquisition

Exchange differences

£’000

600

(145)

£’000

(426)

(29)

£’000

(136)

(7)

At 30 June 2015

455

(455)

(130)

£’000

207

(375)

2014

£’000

110

219

329

14
-

343

2014

£’000

1,084

244

200

(268)

110

317

-
26

343

Total

£’000

(161)

(168)

(7)

(298)

Tax value of
accelerated capital
allowances

Acquisition of Teomed
AG

£’000

671

(71)

600

£’000

(471)

(426)

£’000

(159)

(136)

Total

£’000

(14)

At 1 July 2013

Amount credited to the
income statement

Exchange differences

At 30 June 2014

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. Deferred tax assets, in respect of losses, are recognised up to the value of the fixed asset liability as the nature of the asset

& liability is such that they unwind at the same time.

During the year a deferred tax liability of £207,000 arose in respect of Alerpharma SA related to the other intangible assets acquired

(note 15) and £168,000 in respect of land and buildings. This is partially offset by a deferred tax asset of £207,000 relating to the tax

value of its carried forward losses.

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 & equipment

R&D expenditure credit

Current Assets

Stock

Derivative financial instruments

Non Current Liabilities

Pension and other employee obligations

Share options

Unused tax losses

Total

2015

£’000

662

(960)

(298)

2014

£’000

600

(562)

2015

2014

Deferred tax assets

£’000

345

157

1,185

145

12,701

14,634

418

1,057

12,778

14,467

against future profits. No net deferred tax asset has been recognised in respect of unutilised tax losses. Substantially all the tax

losses have no fixed expiry date.

The main UK corporation tax rate is to change from 21% to 20% with effect from 1 April 2015. The recognised and unrecognised

deferred tax assets have been calculated at 20%, being the rate enacted at 30 June 2015.

13. 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

Ordinary shares to be issued on conversion of loan note (Note 27)

Ordinary shares

Weighted average number of shares for the period

Potentially dilutive share options

Weighted average number of shares for diluted earnings per share

Basic earnings per share (pence)

Diluted earnings per share (pence)

14. GOODWILL

At 1 July

Addition

Exchange difference

At 30 June

2015

£’000

108

‘000

409,867

135,981

545,848

475,197

23,045

498,242

0.02p

2015

£’000

2,480

637

(137)

2,980

2014

£’000

741

‘000

409,867

41,675

451,542

19,965

471,507

0.16p

2014

£’000

2,560

(80)

2,480

following:

Germany

Spain

Total

2015

£’000

2,343

637

2,980

2014

£’000

2,480

Apart from the considerations described in determining the value in use of the CGU described below, 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.

Germany

The recoverable amount for the Germany 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 12.7% discount rate (2014: 12.7%) 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.

Spain

The addition to goodwill arose on the acquisition of Alerpharma Group SA in June 2015. The recoverable amount for the Spain

CGU above was determined based on a value-in-use calculation, covering a detailed ten-year forecast of future cash flows using

budgeted projections assuming a 17% 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 0% for the ten 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.

Manufacturing
and non-
competing
know-how

Distribution
agreements
(Switzerland)

Trade
names
(Spain)

Customer
relationships
(Spain)

Know-
how and
patents
(Spain)

Other
intangibles

Computer
software

Total

£’000

Cost

At 1 July 2013

4,650

996

Additions

Disposals

Foreign exchange

At 30 June 2014

Additions

Acquired assets

Disposals

Foreign exchange

At 30 June 2015

Amortisation

At 1 July 2013

Disposals

Charge for the year

Foreign exchange

At 30 June 2014

Disposals

Charge for the year

Foreign exchange

At 30 June 2015

Net book value

At 1 July 2013

At 30 June 2014

At 30 June 2015

(200)

4,450

(348)

4,120

4,650

(200)

4,450

(348)

4,102

(52)

944

976

199

(10)

257

322

797

687

654

372

237

220

372

237

220

372

237

220

1,109

2,094

8,849

(229)

(18)

878

(55)

(4)

882

256

(81)

(43)

272

(310)

(313)

2,226

8,498

147

855

(55)

(66)

(386)

2.252

9,059

1,027

1,623

7,499

(229)

(17)

827

(4)

(5)

(81)

167

(36)

(310)

281

(263)

1,673

7,207

152

(60)

(4)

240

(404)

850

1,765

7,039

471

553

487

1,350

1,291

2,020

The class of Intangible Assets “Distribution agreements” arose from the acquisition of the Swiss Subsidiary, Teomed AG on 1 July 2010.

These distribution agreements represent the present value of the future cash flows expected to arise from the agreements

and are amortised over a period of fifteen years.

Trade names, customer relationships, know-how and patent (Spain) assets were recognised at fair value upon the

acquisition of Alerpharma S.A.

Other intangibles relate to trademarks and licences.

Plant &
machinery

Fixtures
& fittings

Motor
vehicles

Computer
equipment

Freehold land
& buildings

Total

£’000

Cost or valuation

At 1 July 2013

Additions

Foreign exchange

Disposals

7,999

4,989

365

(12)

(51)

238

(45)

(97)

At 30 June 2014

8,301

5,085

Additions

Acquired assets

Foreign exchange

Disposals

476

256

(16)

(5)

171

(70)

At 30 June 2015

9,012

5,205

Depreciation

At 1 July 2013

Charge for the year

Foreign exchange

Disposals

4,212

3,468

430

(9)

(51)

228

(32)

(97)

At 30 June 2014

4,582

3,567

Charge for the year

Foreign exchange

Disposals

459

(9)

236

(61)

At 30 June 2015

5,032

3,743

Net book value

At 1 July 2013

At 30 June 2014

3,787

3,719

1,521

1,518

At 30 June 2015

3,980

1,462

(4)

(20)

(4)

(20)

3,009

1,207

17,240

203

(42)

(70)

(77)

812

(176)

(222)

3,100

1,130

17,654

369

(69)

1,607

(134)

1,034

1,889

(289)

(20)

3,412

2,603

20,268

2,187

303

(22)

(70)

2,398

312

(64)

2,646

822

702

766

(5)

9,903

1,006

(63)

(222)

10,624

1,053

(139)

(20)

11,518

1,207

1,085

7,337

7,030

2,521

8,750

Note 22 provides details of the assets secured against the Group’s bank borrowings.

Freehold land and buildings relates to the Group’s office and warehouse building in Milan, Italy and the Alerpharma manufacturing

and office facility in Madrid, Spain. The building in Italy was revalued in April 2013 by independent valuers. This property is carried at

fair value and is classified as level 3 in the hierarchy of financial assets.

The Madrid premises were acquired on the acquisition of Alerpharma in June 2015 with a fair valuation of £1,607,000. The valuation

was carried out by independent valuers and the fair valuation is classified as level 3 in the hierarchy of financial assets. The valuation

applied related to a percentage discount to allow for the fact that the valuation reflected the current age of the building. The

unobservable input relates to the percentage applied for this reduction in value. If the age reduction discount were to increase by

10% then the valuation of the building would reduce by £155,000. The net book value at acquisition was £937,000.

The reconciliation of the carrying amounts of land and buildings non-financial assets classified within level 3 is as follows:

Balance at 1 July 2014

Loss recognised in income statement

– depreciation of buildings

Loss recognised in other comprehensive income

– exchange differences on translating foreign operations

Fair value on acquisition of new subsidiary

Balance at 30 June 2015

Spain

£’000

Italy

£’000

1,085

Total

£’000

1,085

(42)

1,607

(129)

914

(129)

1,607

2,521

The Italian 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.

A valuation of the Land and Buildings was carried out in April 2013 by independent valuers using the market method. The value

of the property was calculated taking into account the sale prices achieved by other properties similar to the one in question as

regards size, location, type, use quality, construction features etc. Land and buildings were revalued to fair value at 30 June 2013

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. Management do not consider that the fair value as at 30 June 2015 is significantly different to the

carrying value, based on the latest valuation, knowledge of the local market and enquiries of local experts.

If the cost basis was used, the carrying amounts of the Italian revalued land and buildings would be £1 (the carrying value of the

asset at the point the subsidiary was first consolidated). 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.

17. INVESTMENTS

The Group carries an insurance policy which is designed to contribute towards the obligation in respect of the German defined

benefit pension scheme (see note 26) It is a right to reimbursement and does not meet the definition of a qualifying insurance policy

under IAS19.8. It is valued at fair value by the pension scheme administrators (SLPM) each year. SLPM value the insurance policies

according to contractual arrangements (equivalent to cash surrender values). This is classified as level 2 in the fair value hierarchy.

At 1 July

Additions

Finance income

Remeasurement of investment

(Loss) on foreign exchange

2015

£’000

3,212

275

(417)

3,160

2014

£’000

3,059

281

(10)

(217)

3,212

Raw materials and consumables

Work in progress

Finished goods

The value of inventories measured at fair value less cost to sell was £334,000 (2014: £162,000).

19. TRADE AND OTHER RECEIVABLES

Trade receivables

Other receivables

VAT

Prepayments and accrued revenue

2015

£’000

1,675

2,937

2,135

6,747

2015

£’000

3,087

860

140

973

5,060

2014

£’000

1,854

3,144

1,471

6,469

2014

£’000

2,756

1,261

158

1,193

5,368

Accrued revenue (£143,000) relates to deferred consideration receivable from customers (2014: £212,000)

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, £47,000 of trade

receivables was found to be impaired and none 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 brought forward

Foreign exchange adjustments

Charge for the year

Utilised

Balance carried forward

2015

£’000

194

(25)

216

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past

due but not impaired is as follows:

The 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

2015

£’000

568

589

184

1,424

2014

£’000

109

(11)

113

(17)

194

2014

£’000

626

161

905

Cash at bank and in hand

21. TRADE AND OTHER PAYABLES

Due within one year

Trade payables

Social security and other taxes

Other creditors

Accrued expenses and deferred income

Due after one year

Trade payables

Deferred consideration

2015

£’000

21,199

2015

£’000

2,819

513

332

3,505

7,169

2015

£’000

113

2014

£’000

2,029

2014

£’000

2,464

591

290

3,080

6,425

2014

£’000

Total trade and other payables

7,282

6,498

The deferred consideration due after one year relates to an amount payable for the acquisition of the Alerpharma group. The

deferred consideration is contingent on the future financial performance of the Alerpharma Group. It is not possible to calculate

exactly how much will be payable but the group does not expect it to exceed £460,000. The actual amount provided is the Group’s

best estimation of the amount payable, discounted at the weighted average cost of capital of the Spanish CGU (17%).

22. BORROWINGS

Due within one year

Convertible loan note

Bank Loans

Due in more than one year

Bank Loans

2015

£’000

251

2015

£’000

1,433

2014

£’000

2014

£’000

© Allergy Therapeutics plcwww.allergytherapeutics.com
There is an overdraft facility provided by The Royal Bank of Scotland Plc which has a variable limit during the year up to a maximum

of £7 million. Interest on the overdraft is at the bank’s base rate plus a fixed margin of 2.50%. 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 overdraft

facility is due for renewal in May 2016.

The Convertible loan notes were issued in April 2012 (Note 27) and converted into equity in March 2015. The convertible loan note

liability in 2014 related to the interest payable over the next year.

As part of the acquisition of Alerpharma SA, the group acquired loans totalling €2,386,000 (£1,684,000). The loans are secured by

way of a charge on land and buildings owned by Alerpharma Group SA.

Interest rate

3 month Euribor + 0.55%

1 month Euribor + 5.0%

12 month Euribor + 2.5%

Interest Free

Capital Repayments Due

1-5 Years

£’000

>5 Years

£’000

411

131

380

1,004

182

122

429

<1Year

£’000

103

251

Bank Inter (1)

Bank Inter (2)

Santander

Tecnoalcala

23. 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 accrued into this reserve for each employee. When the employee leaves the company the accrued amount is

paid as a deferred salary payment.

At 1 July

Additions

Utilisation

Foreign exchange movement

24. FINANCIAL INSTRUMENTS

Risk management

2015

£’000

222

(9)

(27)

211

2014

£’000

300

(89)

(17)

222

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.

Capital

Total equity

Borrowings

Overall financing

2015

£’000

34,469

1,684

36,153

2014

£’000

15,075

15,124

Capital-to-overall financing ratio

0.95

1.00

There is no requirement by external parties to comply with any capital ratios.

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

Financial liabilities

Current

2015

£’000

25,429

783

26,212

2014

£’000

6,203

345

6,548

At amortised cost (including borrowings and payables)

(3,915)

(2,660)

Non current

At amortised cost (including borrowings and payables)

(1,757)

(5,672)

(295)

(2,955)

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 of these instruments is calculated by reference to observable market rates (spot rate versus forward rates for matching

maturity dates) and supported by counterparty confirmation. Within the fair value hierarchy, this financial derivative is classified as level 2.

Euro forward contracts (including Euro exchange swaps)

The Group has Euro forward contracts with its bank that are arranged for the sale of €16,976,000 to purchase GBP at an average

blended rate of 1.3195 for dates from July 2015 until May 2016.

Credit/(Charge) to administration expenses in the Income Statement

Euro forward contacts - held for trading

Euro forward contracts - matured in the period

Credit/(Charge) to finance expense in the Income Statement

Interest rate swap - held for trading

Interest rate swap – charges in the period

2015

£’000

438

618

1,056

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

2015

£’000

783

2014

£’000

656

(42)

614

(13)

2014

£’000

345

The net profit at fair value of financial instruments through the income statement is £438,000 (2014 gain: £669,000).

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 has commenced its clinical programme in the US and hence holds funds in US Dollars to settle future costs

The Group carries bank balances in the following currencies:

2015

£’000

148

2,286

18,617

147

2014

£’000

129

1,793

21,199

2,029

Sterling

Euro

US dollars

Canadian dollars

Swiss franc

Argentinean peso

© Allergy Therapeutics plcwww.allergytherapeutics.com
Foreign currency denominated financial assets and liabilities, translated into Sterling at closing rates, are as follows:

2015

2014

Sterling

£’000

965

(1,800)

(835)

Euro

£’000

5,837

(1,042)

4,795

Other

£’000

18,973

(426)

18,547

Sterling

£’000

466

(1,494)

(1,028)

(1,757)

(73)

Euro

£’000

5,275

(755)

4,520

(222)

Other

£’000

807

(411)

396

Current

Financial assets

Financial liabilities

Short term exposure

Non- current

Financial liabilities

Long term exposure

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 2014, a 10% movement was also used.

If Sterling had strengthened against the Euro by

Effect on net results for the year

Effect on other comprehensive income

Effect on equity

If Sterling had weakened against the Euro by

Effect on net results for the year

Effect on other comprehensive income

Effect on equity

Interest rate risk

2015

£’000

10%

(256)

(181)

(437)

10%

313

221

534

2014

£’000

10%

1,882

(270)

1,612

10%

(2,152)

328

(1,824)

The Group finances its operations through operating cashflow, equity fundraising and overdraft facilities. Interest is charged at a

floating rate on the overdraft facility. The overdraft facility is tailored in a way to give flexibility to the Group. This flexibility provides

the Group with a higher level of the facility in the low sales season and allows it to pay down the facility 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 not

feasible to illustrate the results were the interest rates to fall by 1%.

The sensitivities 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.

Equity

Credit risk

2015

£’000

+ 1%

(6)

2015

£’000

- 1%

n/a

2014

£’000

+ 1%

2014

£’000

- 1%

n/a

Credit risk refers to the risk that 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 carrying value of the debtor.

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. Credit risk on assets derived from Financial derivatives are also

considered to be small as the counterparties are all substantial banks with high credit ratings. The maximum exposure is the asset

recognised.

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 22) is due for renewal in May 2016. As at 30 June 2015 the Group’s

contractual maturities are summarised as follows:

Current liabilities

Borrowing facility

Convertible loan note - interest and other charges

Trade payables

Other short term liabilities

Derivatives

Non-current liabilities

Borrowing facility

Other long term liabilities

2015

£’000

Within 6
months

135

3,017

4,152

7,304

2015

£’000

2015

£’000

6 to 12
months

135

2015

£’000

2014

£’000

Within 6
months

2014

£’000

6 to 12
months

2,611

3,763

6,423

2014

£’000

2014

£’000

1 to 5 years

Later than
5 years

1 to 5 years

Later than 5
years

1,079

324

1,403

520

295

The following payments are due to be made on operating lease commitments:

Within one year

Two to five years

Over five years

Land & buildings

Other

Total

2015

£’000

636

1,793

840

3,269

2014

£’000

745

2,013

1,203

3,961

2015

£’000

319

314

633

2014

£’000

339

307

646

2015

£’000

955

2,107

840

3,902

2014

£’000

1,084

2,320

1,203

4,607

Of the operating lease commitments for the land and buildings of £3,270,000 (2014: £3,961,000), £2,376,000 relates to the UK

premises (2014: £3,254,000). The production facility accounts for £2,118,000 (2014: £2,868,000) of this commitment and expires

in December 2023. Premises in Spain account for £103,000 (2014: £145,000) expiring in 2020 and in Germany for £81,000 (2014:

£276,000) expiring in December 2015.

Of the other commitments, £400,000 (2014: £492,000) relates to leased vehicles all expiring within 5 years.

26. RETIREMENT BENEFIT OBLIGATIONS

Defined contribution scheme

The Group operates a defined contribution pension scheme for certain employees in the UK. The assets of the scheme are held

separately from those of the Group in an independently administered fund. The amount charged against the profits represents the

contributions payable under the scheme in respect of the accounting period totalling £329,000 (2014: £237,000).

Defined benefit scheme

The Group operates a partly funded non-contributory defined benefit pension scheme for certain employees in Germany. The actuarial

valuation was carried out by Swiss Life Pensions Management GmbH at 30 June 2015. The major assumptions used were as follows:

Retail price inflation

Salary increase rate

Rate of pension increase

Discount rate at the beginning of the year

Discount rate at the end of the year

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

2015

% pa

1.5

3.0

1.5

3.05

2.45

3.0

Years

19.4

23.6

39.2

44.3

2014

% pa

1.5

3.0

1.5

3.35

3.05

3.0

Years

19.4

23.4

39.1

44.2

Fair value of plan assets

Present value of scheme liabilities

Deficit in the scheme

Experience (losses)/ gains on plan assets

Experience gains on plan liabilities

2015

£’000

1,045

(7,800)

(6,755)

(147)

2014

£’000

1,335

(7,753)

(6,418)

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 £6,755,000 (2014: £6,418,000). The basis used to determine

the net interest cost is based on the net defined benefit asset or liability and the discount rate as determined by Swiss Life

Pensions Management GmbH using the projected unit credit method. The actual loss on plan assets for the year is £108,000 (2014:

£54,000 return on plan assets). The pension charge generates an unrecognised deferred tax asset of £1,185,000 (2014:£1,057,000),

however this is unrecognised in the Group accounts as there is uncertainty over the recoverability. The insurance contracts that

form the plan assets are valued at fair value (market price) by the pension scheme administrators (SLPM) each year. SLPM

value the insurance policies according to contractual arrangements (equivalent to cash surrender values). This is classified

as level 2 in the fair value hierarchy.

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. See note 17 for further details of these investment assets.

2015

£’000

220

(39)

230

191

(147)

(845)

(932)

(2,781)

(3,713)

2014

£’000

262

(46)

252

206

(367)

(271)

(2,510)

(2,781)

Amounts charged to operating profit

Current service costs

Amounts included in other finance expenses

Interest income on plan assets

Interest on pension scheme liabilities

Net charge

Amounts recognised in other comprehensive income

Actual return less expected return on pension scheme assets

Experience gains arising on scheme liabilities

Changes in assumptions underlying the present value of scheme liabilities

Total amount relating to year

Opening cumulative losses

Remeasurement of net defined liability

Net movement recognised

Balance as at 1 July

Foreign currency differences

Interest income on plan assets

Remeasurement of net defined liability

Contributions from employer

Assets transferred to finance benefits paid

Balance as at 30 June

Movement in liabilities in the year

Balance as at 1 July

Foreign currency differences

Current service costs

Interest cost

Remeasurement of net defined liability

Benefits paid by employer

Benefits paid from assets

Balance as at 30 June

2015

£’000

1,335

(142)

(147)

(58)

1,045

2015

£’000

(7,753)

1,027

(220)

(230)

(785)

103

2014

£’000

1,414

(97)

(55)

1,335

2014

£’000

(7,628)

522

(262)

(252)

(271)

(7,800)

(7,753)

The expected contributions over the forthcoming year are £57,000.

The significant actuarial assumptions for the determination of the defined benefit IAS 19.173(b) obligation are the discount rate,

the salary growth rate and the average life expectancy. The calculation of the net defined benefit liability is sensitive to these

assumptions. The following table summarises the effects of changes in these actuarial assumptions on the defined benefit

liability at 30 June 2015:

Changes in the significant actuarial assumptions

Discount rate

2015

£’000

2015

£’000

2014

£’000

2014

£’000

Increase to
3.45%

Decrease to
1.45%

Increase to
4.05%

Decrease to
2.05%

Increase/ (decrease) in the defined benefit liability

(1,008)

1,159

(1,000)

1,150

Salary Growth rate

Increase to
4.00%

Decrease to
2.00%

Increase to
4.00%

Decrease to
2.00%

Increase/ (decrease) in the defined benefit liability

395

(362)

346

(317)

Average life expectancies of males

Increase of
one year

Decrease of
one year

Increase of one
year

Decrease of
one year

Increase/ (decrease) in the defined benefit liability

249

(246)

221

(218)

Average life expectancies of females

Increase of
one year

Decrease of
one year

Increase of one
year

Decrease of
one year

Increase/ (decrease) in the defined benefit liability

281

(282)

255

(256)

27. ISSUED SHARE CAPITAL

Authorised share capital

Ordinary shares of 0.10p each

2015

£’000

2014

£’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

Issued and fully paid

Ordinary shares of 0.10p

At 1 July

Issued during the year:

Share options exercised

Conversion of convertible loan

Share placing

At 30 June

Issued and fully paid

Deferred shares of 0.10p

At 1 July

Issued during the year

At 30 June

Issued share capital

409,866,831

410

409,866,831

188,500

41,674,938

94,117,650

545,847,919

9,848,333

555,696,252

546

556

409,866,831

9,848,333

419,715,164

790

410

420

The deferred shares have no voting rights, dividend rights or value attached to them.

Share options were exercised in the year with proceeds of £34,000 (2014: Nil).

In April 2012, Allergy Therapeutics plc issued a convertible loan note to a major investor, CFR Pharmaceuticals SA (CFR). The loan

agreement stated that the loan of £4,042,469 would be repaid on 20 April 2014 or an earlier date advised by the note holder (with at

least 15 business days’ notice). On the repayment date, the loan had to be repaid and on the same date the note holder had to purchase

41,674,938 shares at a fixed price of 9.7p per share. Interest is payable at a rate of 3% per annum during the term of the notes.

The Directors concluded that the repayment of the principal and the mandatory investment were linked such that in substance this

represents the conversion of the loan into a fixed number of shares, and hence the loan note was split into a liability and an equity

component. The liability component of £222,000 represented the present value of the interest payments on the loan, with the

balance of £3,820,000 treated as equity.

Before the conversion date of the loan, CFR and Allergy Therapeutics plc mutually agreed to amend the agreement to defer the

repayment date until 31 March 2015. The only substantive effect of this amendment was the agreement to pay further interest of

£135,000 over the remaining period of the loan. This is effectively a loss on the remeasurement of the debt. As this was incurred

with an equity shareholder, it was treated as a transaction with owners and dealt with directly in the statement of changes in equity

(2015: £86,000, 2014: £49,000).

issued to the note holder in accordance with the loan agreement.

On 31 March 2015 94,117,650 new ordinary shares of 0.1 pence each were placed with institutional and other investors at a fixed

price of 22.1p per share, raising £20 million net for the purpose of investing in a number of US clinical studies.

28. 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 performance vesting shares.

The Group has two plans: the initial 2005 Plan and the 2013 Plan. The 2013 LTIP plan was adopted by the Board on 20 March 2013,

the Board having consulted major shareholders. Awards were made under the new 2013 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.

For the 2013 Plan, performance criteria for each award are set by the remuneration committee. The 2013 award is based on share

price performance. An award shall vest at 100% if at the end of the plan cycle the share price has increased by 25% has been

satisfied. If the share price increase is less than 10% then no shares will vest. If the share price increase is between 10% and

25%, share distributions will be on a straight line basis between 25% and 100% of the initial award. 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.

For awards under the 2013 Plan during the years ended 30 June 2014 and 2015, the performance criteria are based on a combination

of share price performance and adjusted earnings growth.

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 Plans 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 current year LTIP grants were provisionally awarded, subject to performance criteria being met, under the 2013 Plan in

October 2014.

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

Exercised during the year

Forfeited during the year

Outstanding at the year end

Exercisable at the year end

2015 WAEP

2014 WAEP

Number

881,105

(188,500)

159,934

852,539

Price (£)

0.17

0.49

0.14

Number

1,152,583

(271,478)

881,105

Price (£)

0.23

0.44

0.17

188,500 options were exercised during the year. The weighted average share price at the date of exercise was 22.3p

(2014: None exercised).

The share options outstanding at the end of the year detailed above have a weighted average remaining contractual life of

2.3 years (2014: 3.3 years) and have the following range of exercise prices:

30 June 2015

30 June 2014

Exercise price (p)

6-45

46-120

Number

852,539

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

Outstanding at the year end

2015

Number

19,112,500

6,955,000

(3,875,000)

22,192,500

Number

852,539

28,566

881,105

2014

Number

17,482,500

6,337,500

(4,707,500)

19,112,500

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, which

is based on historical experience:

Date of
grant

Plan
cycle
(yrs)

End of
plan cycle

Expected
life (yrs)

Exercise
price (£)

Share price
at grant (£)

Probability
of meeting
performance
tests (%)

Probability of awards
vesting - allowing for
expected leavers (%)

Fair value
(£)

Number
outstanding

01/10/2014

19/05/2014

10/05/2013

20/12/2012

30/06/17

25/03/17*

25/03/16*

30/06/15

0.0000

0.192

0.205

0.101

0.118

36.75

33.1

33.5

35.4

36.8

0.070

6,825,000

0.075

6,207,500

0.037

5,515,000

0.043

3,645,000

*Estimated release date of interim results.

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 previously awarded options for 650,000 shares with an exercise

price of £0.124 as payment to a third party advisor which are still outstanding at 30 June 2015.

The Group recognised total expenses of £406,000 (2014: £184,000) related to equity-settled share based payment

transactions during the year.

As part of its strategy to strengthen its sales base outside Germany, on 5 June 2015, Allergy Therapeutics plc acquired 100%

of the issued share capital of Alerpharma SA via a subsidiary. Alerpharma S.A. wholly owns the Spanish-based allergy

immunotherapy company Instituto de Immunologia y Alergia, S.A.U. (“Inmunal”). Inmunal is Alerpharma’s principal operating

subsidiary, and is highly regarded with well-established product lines in immunotherapy vaccines, bacteriological vaccines

and diagnostics and was established in 1989.

The initial consideration for the acquisition of €3.8 million was paid to the vendor in cash at completion, funded from the Company’s

operational cash flows. The total consideration includes a potential earn-out payment based on certain 2016 sales performance

criteria, payable to the vendor in 2017. It is not possible to calculate exactly how much will be payable but the group do not

expect it to exceed €650,000. The Group’s best estimation of the amount payable, is €205,000.

The allocation of the purchase price to the assets and liabilities of Alerpharma S.A at the acquisition date was as follows:

Pre-acquisition
carrying amount

Adjustment
to fair value

Recognised at
acquisition date

Property, plant and equipment

Intangible assets

Total non-current assets

Trade and other receivables

Inventories

Cash and cash equivalents

Total Assets

Trade and other payables

Net deferred taxation asset/ (liability)

Net identifiable assets and liabilities

Goodwill

Cost of acquisition

£’000

1,219

1,245

122

1,301

2,749

(1,952)

387

1,184

£’000

670

830

1,500

(555)

945

£’000

1,889

856

2,745

122

1,301

4,249

(1,952)

(168)

2,129

637

2,766

The cost of acquisition above includes the cash paid £2,653,000 (€3,758,000) plus the discounted future contingent consideration

of £113,000 (€160,000).

The contingent consideration will be determined by the future sales performance of the Alerpharma group and has been classified as

level 3 in the fair valuation hierarchy. The estimated cash outflow before discounting is £145,000 (€205,000) and reflects management’s

estimates of Alerpharma’s sales performance in the 12 months to December 2016. The discount rate used is 17% based on the

Company’s weighted average cost of capital related to the Spanish CGU. The effects on the fair value of risk and uncertainty in

the future cash flow are dealt with by adjusting the estimated cashflow rather than adjusting the discount rate. If Alerpharma’s

sales performance were to be 10% better than expected then the discounted liability would increase by £276,000 (€391,000). If

Alerpharma’s sales performance were to be 5% or more below expectation then the discounted liability would reduce to Nil.

Legal and professional fees associated with the acquisition amounted to £205,000 and were expensed in the year ended 30 June

2015. These were shown under administration costs within the consolidated income statement.

In relation to trade debtors that existed at the acquisition date, there are no balances which are not expected to be collected.

the value of the assembled workforce; and the synergies that can be realised now that Alerpharma is part of an enlarged global group.

The intangible assets, which are recognised at fair value, comprise the following:

i) Trade names

The Company’s marketing-related intangible asset was valued by means of the royalty savings (relief-from-royalty) method of the

income approach. Under this premise, it is assumed that a company, without a similar asset, would license the right to use the

marketing-related intangible asset and pay a royalty related to turnover achieved.

ii) Customer relationships

The Customer related intangible asset was valued using the replacement cost method. At the valuation date, the Company had

existing relationships with a number of doctors in the medical industry. The valuation captures the effort that would be required to

replace such relationships.

iii) Know-how and patents

The technology related intangible asset was valued using the royalty savings (relief-from-royalty) method. Under this premise, it is

assumed that a company, without a similar asset, would license the right to use the technology-based intangible assets and pay a

royalty related to turnover achieved.

The acquisition of Alerpharma S.A took place on 5 June 2015 and as a consequence traded for three weeks as a member of the

Group. It contributed £0.2 million in revenue and £0.0 million of the Group’s operating profit.

30. CONTINGENT LIABILITIES

Allergy Therapeutics (UK) Ltd, a subsidiary of Allergy Therapeutics plc, has given a guarantee in lieu of deposits for leases on cars and

rented office space of Bencard Allergie GmbH. The amount as at 30 June 2015 was €107,426; £75,839 (2014: €107,426; £85,996).

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. in which the liabilities of each entity to the Royal Bank of Scotland

Plc are guaranteed by all the others.

The European Commission has concluded its investigation into whether the exemption of pharmaceutical manufacturers from

the increase in rebates in Germany constitutes state aid. The European Commission has determined that the exemptions do not

constitute state aid, and consequently there is no contingent liability to disclose.

On 23 February 2015, the Company received notification that The Federal Office for Economics and Export (“BAFA”) had made a

decision to reverse their preliminary exemption to the increased manufacturers rebate in Germany for the period July to December

2012. The Company was granted a preliminary exemption to the increased rebate for this period by BAFA in 2013. The Company

recognised revenue of €1.4m (£1.1m) against this exemption in the year ended 30 June 2013. All other preliminary exemptions

(granted for periods up to 30 June 2012) have previously been ratified as final by BAFA. After taking legal advice, the Company has

lodged an appeal against this decision and is confident that the exemption will be re-instated. Therefore, as at 30 June 2015, no

provision has been recognised for the repayment of the rebate refund. This position will be kept under review.

31. 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 2015

30 June 2014

£’000

635

£’000

221

Included in the above is £57,000 for on-going factory refurbishments in the UK (2014: £56,000); £406,000 for new plant and machinery

(2014: £65,000) and £172,000 for IT equipment and systems upgrades (2014: £100,000).

32. RELATED PARTY TRANSACTIONS AND ULTIMATE CONTROL

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 table on page 45.

At 30 June 2015, 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

Pharma Contract Manufacturing Solutions Ltd

Holding Company

Manufacture and sale of
pharmaceutical products

Dormant

Bencard Allergie GmbH

Germany