Allergy Therapeutics plc
Annual Report
& Accounts
2016
www.allergytherapeutics.com
Contents
Strategic Report
Our Business
2016 Highlights
Chairman’s Statement
Our Performance
Chief Executive Officer’s Review
Current Market Overview
Our Products
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
Company Statement of Changes in Equity
Notes to the Company Balance Sheet
Company Information
Shareholder information
Advisers
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ALLERGY THERAPEUTICS PLC
STRATEGIC REPORT
Allergy Therapeutics is an AIM listed speciality
2016 Highlights
pharmaceutical company.
Key Achievements
Allergy Therapeutics is European-based and focused
•
19% increase in revenue at constant currency to £51.5m
on the treatment and prevention of allergy with
(2015: £43.2m)*
aluminium-free products.
Mission Statement
•
•
12% increase in revenue to £48.5m (2015: £43.2m)
Increased market share in our main European markets to
12% (2015: 10%)
•
Core business excluding R&D shows 11% increase in
Operating Profit to £4.3m (2015: £3.8m)
To create a sustainable, fast-growing and profitable global
•
Ramp up on R&D investment with £16.2m (2015: £3.1m)
specialty pharmaceutical business with a substantial franchise
spent reflecting investment in PQ registration and pipeline
in the allergy sector by developing innovative, patented,
•
Achieved primary endpoint for PQ Birch Phase II Study in
registered therapies for both the treatment and prevention of
Europe and dose selected which will be used in Phase
allergy-related conditions.
III starting in 2017
•
Inconclusive results of Phase II dosing study in the US
for Pollinex Quattro Grass
•
Successfully raised £11.5m (gross) to fund new
product development and organic and inorganic
growth opportunities
•
Acarovac PlusTM one-year study showed statistically
significant improvement for patients
•
Acquisition of Virus Like Particle technology licence for
the development of a potential new injectable vaccine
immunotherapy treatment for allergy sufferers with
peanut as lead project
•
Strong cash balance of £23.4m at year end (2015: £21.2m)
* 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 26.
02
© Allergy Therapeutics plcwww.allergytherapeutics.com Chairman’s Statement
Chairman’s Statement
This year has continued the Group’s progress towards becoming a global provider of allergy solutions through organic growth and
strengthening our product proposition in Europe as well as further research and development for the US market.
The core European business has continued to grow strongly in a flat market, taking market share from our competitors in the
markets where we compete, validating our strong combination of high quality, patient-friendly products and a knowledgeable and
dedicated sales and marketing team.
In the area of research and development the Group has had an overall positive but mixed year with a successful Phase II dose
ranging study for Pollinex Quattro Birch in Germany opening the way for a Phase III trial for the product in Europe which is expected
to start in early 2017. The one-year follow-up study on Acarovac Plus concluded with patients reporting statistically significant
improvements in satisfaction scores for effectiveness and convenience.
As announced in June, the Phase II Pollinex Quattro Grass dose range finding study in the US did not give conclusive evidence of an
optimal dose regime. The study experimented with environmental exposure chambers which, unlike those commonly used in the
US, were mobile in order to optimise the patient recruitment. The Company will perform another dose finding study but with the
design amended to use the method that produced the successful Pollinex Quattro Birch dosing study in Europe, subject to regulatory
approval. This has, put simply, caused a delay to our potential US market entry, yet Pollinex Quattro Grass could still become the first
licensed seasonal subcutaneous immunotherapy (SCIT) allergy vaccine authorised for marketing in the US, and we have the funding
in place to carry out the current, planned Phase III trial. The US market has the potential to be worth $2 billion p.a.1 for immunotherapy
treatments such as the grass vaccine, and we remain focussed on delivering a high quality treatment option into the market.
During the year the Group also raised £11.5m (£11.0m net of costs) with the placing of 41 million ordinary shares to invest in new
product development, strengthen the balance sheet and support accretive acquisitions to accelerate growth.
The global allergy treatment market has seen some turmoil with recent events affecting the competitive market environment in Europe
and the US, which are likely to lead to mid- to long-term benefits for Allergy Therapeutics in terms of potential market share in the US.
The referendum vote in the UK to leave the EU has, during the period, had a short term beneficial financial effect for the business in terms
of the weak currency performance of the sterling against the euro but, as noted in the risks section, the mid and long term impact will
depend on the final agreement between the UK and the rest of the EU on such matters as trade and pharmaceutical regulation.
In June, we welcomed Nick Wykeman to the Group as Finance Director following his prior roles at ICI PLC and Skyepharma PLC.
As announced in March, Ian Postlethwaite stepped down as Finance Director after 14 years of service at Allergy Therapeutics and I
would like to take this opportunity to thank Ian for his significant contribution to the Group.
In conclusion, I would like to thank all Allergy Therapeutics employees for their commitment, dedication and hard work during the
year and we look forward to continued progress in executing our clear strategy.
Peter Jensen
Chairman
23 September 2016
1 Piper Jaffray Update on the AR market, Sept. 2008. Datamonitor
04
© Allergy Therapeutics plcwww.allergytherapeutics.com
Chief Executive Officer’s Review
Chief Executive Officer’s Review
The current allergy immunotherapy market is estimated to be $2.1bn with the potential to reach $3bn2 with changes in the US
market, and it is expected to grow at about 11% per annum until 2020 (Visiongain 2014). Allergy Therapeutics is one of the very few
companies that is well positioned to lead this market and become a global player, with its strong position in its current main European
markets of 12% and the opportunity of a share of the estimated potential US market of $2bn2. In the developed world the way of life
has had a significant influence in the way our immune system responds to different challenges and impacts the occurrence of a wide
variety of allergies. Nowadays, it is estimated that 20% to 30%3 of the population suffer from allergic rhinitis, not to mention the
significant increase in other areas such as food allergies. For patients with moderate to severe symptoms who cannot control these
using symptomatic products, we provide high-quality, patient-friendly, aluminium-free treatment technologies for airborne allergies
that make a difference to patients and their lives.
This year, we have made significant progress towards our long term strategic plans. We are developing the Group in three key areas:
Developing our Group in Europe, our domestic market
This year we have had a record market share gain in our competitive markets, evolving from 10% last year to 12%. In a market that
can be considered broadly flat, this means that we have outperformed the market by 20 points. The market share gains have come
across all our key markets reaching a growth, year on year, of 19% in constant currency (12% after the impact of exchange rate
fluctuations). In absolute terms, the main contributors to this growth have been the German, Austrian and UK markets as well as the
Spanish market, where we have successfully completed the integration of Alerpharma which we acquired in 2015.
This impressive penetration is due to two key factors which are: 1) excellent products, offering our patients convenient solutions
through our unique concept of short and ultra-short course, aluminium free treatments and 2) excellently trained, committed and
motivated sales teams implementing the right, professional, and ethical commercial strategies.
We want to accelerate market penetration by leveraging these two factors and so have been improving our commercial
infrastructure. We aim to be market leaders in the SCIT allergy segment by 2020.
In May, we announced positive top-line results from the Group’s European PQBirch 204 Phase II study, a multi-centre, double-blind,
placebo-controlled study designed to explore the safety and response of different cumulative doses of Birch Modified Allergen
Tyrosine adsorbed and MPL® (POLLINEX® Quattro Birch) for birch pollen induced seasonal allergic rhinitis. The study randomised
371 patients into six cumulative dosing regimens plus a placebo, evaluating the change in total symptom score (TSS) following a
conjunctival provocation test (CPT) with the aim of identifying a recommended dose for Phase III development.
The results summary of the PQBirch 204 Phase II study programme was as follows:
•
The primary endpoint, to demonstrate a statistically significant (p<0.01) dose-response for the 5000 standardised units (SU) to
27300 SU, was met. This enables prediction of the dose to enter Phase III development
•
The study demonstrated a statistically significant (p<0.01) dose-response for the 5000 standardised units (SU) to 27300SU
dose range studied
•
The dose-response closely followed and extended the findings of the previous dose-response study (PQBirch203), which
studied doses from 600SU to 13600SU
•
PQBirch continues to be well-tolerated and no safety concerns were reported in any treatment arm. There was no significant
relationship between any adverse drug reaction exhibited and the respective dosage of allergoid
• Overall, adherence to the dosing regimens was approximately 94% with no relevant differences between treatment arms
The Group has reviewed the Phase II data and selected a dose which will be used in the Phase III PQ Birch field study which is
expected to start in 2017 and will be performed in Europe.
2 Piper Jaffray Update on the AR market, Sept. 2008. Datamonitor. Current $3bn potential includes all medical costs.
3 Jacobs, 2011
06
© Allergy Therapeutics plcwww.allergytherapeutics.com In June, we announced findings from the exploratory US Phase II dose-ranging study (G204) for the US Grass MATA MPL clinical
development programme. The results did not determine a recommended dose for the Phase III trial. A further dose range finding
study will be implemented prior to proceeding into the planned pivotal Phase III study.
Based on the successful dose response data identified in the Phase II G203 study for the same US Grass MATA MPL programme,
the G204 trial was designed to explore higher dose regimens using the novel technology of the mEEC (mobile environmental
exposure chamber) and optimise the recommended dose before starting the pivotal Phase III trial (G306) to be performed in the US.
In contrast to the G203 study, the dose range finding data with the mEEC did not allow the Group to recommend an optimised
dose regime to take into Phase III studies for the US. Consequently, and subject to regulatory approval, we will undertake a further
dose-ranging study, reconfiguring the study design by employing the same successful and less expensive European dose-finding trial
design with a fixed conjunctival provocation test (CPT) which provided robust results for the optimisation of the Group’s marketed
subcutaneous birch pollen product, Pollinex® Quattro Birch (PQBirch). As previously disclosed, it is anticipated that the cost of this
additional study can readily be met from the Company’s available funds. The next dose range finding study is planned to start in 2017.
Allergy Therapeutics will await the outcome of discussions with the FDA, scheduled later in 2016, before progressing into a new
Phase II trial.
As an R&D company, we understand that inconclusive results are, occasionally, part of the process which allow us to better
understand our products; what works well and not so well and, therefore, make the right decisions before entering into a final
Phase III trial.
Advancing our new product pipeline to boost our addressable market.
In November 2015, we successfully completed an oversubscribed equity issue to reinforce our pipeline and provide the Company
with more flexibility to pursue commercial opportunities, whether organic or acquisitive. As a result of this fundraising, we have put in
place several important projects:
Acarovac Quattro
The Company is developing a state-of-the-art product in the perennial segment of the market utilising our highly successful Pollinex
Quattro technological platform for house dust mite, the most important allergen in this segment. The Directors believe this product
will be best-in-class, using the short course concept based on Allergoid + MCT + the adjuvant MPL. In a market testing initiative, we
launched Acarovac Plus™ in Spain two years ago as a named patient product based on Allergoid + MCT but without the adjuvant. The
product is developing well and we recently announced the publication of a one-year follow-up study of patients using Acarovac Plus™
in the peer review journal Immunotherapy. Patients reported statistically significant improvements in satisfaction scores after one
year in relation to overall effectiveness and convenience of the treatment.
Polyvac Peanut
Food allergy is a significant and strategically important new area for the Group with peanut allergy treatments alone being an $8
billion4 p.a. addressable market globally. The Group has been working on proof of concept studies using the acquired Virus Like
Particles (VLP) technology licence in the development of Polyvac Peanut, a new injectable vaccine immunotherapy treatment for
allergy sufferers. The proof of concept work is progressing well.
Growth Acceleration
The Group is keen to increase significantly its market share to a level where it can invest significant amounts on R&D over the long
term while continuing to improve its margins. The current portfolio is predominantly subcutaneous and the Group aims to be the
leader in this segment of the market by 2020, reaching a market share of about 20%. The return on the investment in sales and
marketing can be seen in the very strong growth and gain in market share.
4 The Journal of Allergy and Clinical Immunology 2016. 1% of US population. EACCI Food Allergy and Anaphylaxis Guidelines
Group 2016 0.2% of Western European Population. Management estimate of annual treatment of USD2,000
07
© Allergy Therapeutics plcwww.allergytherapeutics.com The Company’s science department has been focused on supporting our clinical programs and also developing technologies that
make a difference. Examples of this are the Allergomics project, MCT, Adjuvant Systems, seven published papers and 20 posters to
improve understanding of immunotherapy.
The supply operations team has done a fantastic job providing unparalleled level of care, with more than 99% of our orders
completed on time and supporting the Group with outstanding customer service from beginning to end. This is a clear indication of
the team’s priorities which are putting patients first and total commitment with the highest quality standards.
Outlook
The Group’s management team expects revenue for 2017 to show continued growth rates subject to a stable euro/ sterling exchange
rate, with the investment in sales driving increased market share. The cost of goods is likely to increase roughly in line with revenue.
Overheads are likely to increase significantly, reflecting the investment in organic growth. Research and development costs for the
year are expected to be substantially less in aggregate than 2016, with only the much smaller tolerability and dosing trial for the US
market, subject to regulatory approval, and with Europe experiencing a similar level of investment.
The allergy immunotherapy sector continues to undergo significant change and within this context our established and innovative
product base continues to gain traction. We have taken a significant step forward in our strategy to become a global leading player
in the SCIT market, which would have been impossible without the effort, dedication and commitment of our whole team. We
look forward to the future with confidence in continued growth given our strong and expanded European presence, future product
development pipeline and geographic expansion opportunities.
Manuel Llobet
CEO
23 September 2016
08
© Allergy Therapeutics plcwww.allergytherapeutics.com Current Market Overview
Current Market Overview
The Group continues to maintain a strong presence in Europe
Austria
with established operations in significant markets including
The size of the market in Austria is approximately €21 million
Germany, Italy, Spain, Austria, Switzerland, The Netherlands and
(industry data collected by notary, MAT June 2016) growing at
the United Kingdom.
around 3% in the last year. The market is becoming increasingly
In markets where the Group does not have a direct sales
space. Growth of around 2- 3% is expected over the next
presence, products are often sold through distribution partners.
few years, with the right strategies in place paving the way to
The most important distributor markets for the Group are
continue current success which led to growth of close to 25%
competitive with new companies and products entering the
Canada, the Czech and Slovak Republics, South Korea and more
in the past year.
recently, Greece and the Baltics.
Switzerland
Germany is the Group’s main market, generating
The allergy vaccine market in Switzerland has grown by 10% to
approximately 59% of the Group’s revenue in the 12 months
nearly €15 million this year (industry data collected by notary,
ending 30 June 2016.
MAT June 2016). This growth was mostly driven by a supply
issue of one of our competitors. Continued alignment to EU
The total allergic rhinitis market is estimated to be $12 billion
regulations for specific immunotherapy (SIT) products and
(Visiongain 2014). Allergy immunotherapy is the fastest growing
diagnostics has the potential to generate new opportunities
segment in the allergic rhinitis market and is expected to grow
especially for the Group due to our aluminium-free product
11% yearly to 2020 compared with just 3% for the total allergy
portfolio and sensitivity in the Swiss market towards aluminium-
rhinitis market. (Visiongain 2014).
free preparations.
Germany
Spain
Germany is the single largest allergy immunotherapy market in
Total market sales in Spain are an estimated €75 million per
Europe, worth over €380 million in gross sales (Insight Health,
annum (AIMFA, 2016), with continuous low single-digit growth
MAT June 2016). The market is expected to remain roughly flat
over the past two years. Growth in this market is driven
for the next two years with only small growth predicted (around
primarily by the allergoid immunotherapy segment which will
1% annually). The market is increasingly influenced by the
allow the Group to be in a leading position and achieve growth
German TAV (Therapy Allergy Ordinance) which we consider to
in the coming years. Spain continues to be a large, valuable
be an opportunity for Allergy Therapeutics to demonstrate the
market, with approximately 150,000 patients a year estimated
high standard and efficacy of its products, specifically Pollinex
to receive immunotherapy. Injectable immunotherapy products
Quattro. The Group outperformed the market by 16% (MAT
of modified allergen remain the treatment of choice for Spanish
June 2016 – Insight Health) with the highest growth of the five
physicians in this treatment category.
main competitors in the German market. Germany remains a
key focus for the Group as it is the largest market in Europe.
Alerpharma S.A., which was purchased last year by the Group,
Italy
has maintained a broad product range under Group ownership,
including a specialised franchise for an olive vaccine, one of the
The total Italian allergy immunotherapy market is estimated to
most important allergens in southern Europe. Management
be worth €30 million in sales per year (Databank, 2016). The
has fully integrated the acquisition and it is operating now as a
market contracted around 18% in the past year due to patients
strong business with the potential to lead the Spanish market.
being 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, the Group’s management team believe that
there remains a significant opportunity to continue to grow the
business in this important market, driven by the launch two
years ago of a line of synbiotic products as immunomodulators
of the allergic response. The synbiotic market in Italy is one of
the most important in Europe.
10
© Allergy Therapeutics plcwww.allergytherapeutics.com Major Markets
Germany
Italy
Austria
Spain
Switzerland
The Netherlands
UK & Export market
Czech Republic & Slovakia
Canada
South Korea
11
© Allergy Therapeutics plcwww.allergytherapeutics.com United Kingdom
The UK is an important market due to its potential for future growth for the Group. The management team believes that the
market size is currently £4m per annum. 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. This strong position in the UK should allow the Group to profit from this potential growth. Pollinex is the only
subcutaneous pollen immunotherapy product currently registered in the UK.
The Netherlands
The total market size in The Netherlands was around €12m last year (IMS MAT June 2016). The market has been declining since
January 2014, when insurance companies decided to reimburse only registered products. That policy, which impacted approximately
50% of the product in the market, has resulted in a reduced market size. ALK and Allergy Therapeutics are the main companies
operating in the Dutch market. The rest of the companies have been reduced to a marginal role in this market. The Group remains,
for the second year, the only allergy company showing growth in the Dutch market with year-on-year growth in revenue of 24% in
local currency.
Developments into New Markets
This year has seen efforts by the Group to secure product registration in several new non-EU markets including Serbia, Belarus
and Macedonia. Growth in non-EU markets is seen as an important step to help the Group’s double digit growth target, expanding
into new markets. The Group will continue its efforts in the following years to expand its footprint in emerging markets, especially
through continuing registering in non-EU Eastern European countries and South East Asian ones through licensing deals.
Recent Developments in US Market
Three sublingual immunotherapy (SLIT) products were recommended for licence approval in the US in 2014. These are the first
allergy vaccine medicinal products to receive market authorisation from the FDA. Allergy Therapeutics’ further exploration of the
opportunities for SCIT product Pollinex Quattro in the US has begun with the Grass MATA MPL which has a fully developed dossier
and planned route to market. Following this, the Group has plans to develop and trial the tree and ragweed products.
During the past few months, some of our peers delivered negative news from their commercial and development portfolios.
These recent market developments could prove beneficial to the Group in the mid to long term and the Directors believe
market awareness has become heightened about the importance of Allergy Therapeutics’ position in the allergy immunotherapy
marketplace and its points of differentiation.
SCIT products offer a number of advantages over SLIT products and are more aligned to the current allergist immunotherapy
practice in the US. Allergic Rhinitis (AR) affects around 25% of the North American population (c.85 million (Datamonitor,
Epidemiology, March 2011)), so the total market size for allergy vaccine products is potentially very large. The moderate to severe
allergy market segment where the Group operates, management estimates to be about 3-5% of the AR market. The Group
completed a Phase I study evaluating tolerability which demonstrated safety of two new doses and supported the further testing of
efficacy in the G204 study.
The outcome of the Phase II dose-ranging study (G204) trial did not reveal a recommended dose for the Phase III trial that was
planned for later this year. Our goal to be the first allergy immunotherapy company to launch a subcutaneous grass product in the
US remains unchanged. To achieve this, a further dose range finding study will now be run before the planned Phase III study in
2018. The cost of the trial is not expected to be material given that it will use, subject to agreement, the conjunctival provocation
method rather than mobile chambers.
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, Poland and South Korea as well as recently in
Greece and the Baltic countries.
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© Allergy Therapeutics plcwww.allergytherapeutics.com Our Products
Our Products
The Group sells a wide range of aluminium-free allergy vaccines and diagnostics. The majority of revenue arises from sales of
allergy vaccines. The Group sells both injectable and sublingual (oral) 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 and TA Gräser Top. Our extensive range of well-characterised
diagnostics includes 82 diagnostics in Germany with marketing authorisations and specialised allergens for other markets.
According to the current opinion of expert immunologists, immunoglobulin E (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) adsorbed allergoids, an
improved extract allergen that has been modified in order to lower its allergenicity while maintaining most of 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 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.
Synbiotics
Synbiotics are special formulations of prebiotics and probiotics. Synbiotics act as bio-immunomodulators of the immunologic
response. In June 2012, the Group launched three new synbiotic products (Kallergen-Th, ATI-Prob and Pollagen) across Spain and
Italy. Since then, Austria and Germany have also been added. In 2013, the Group launched a further new synbiotic product, Syngut,
specifically designed for food and lactose intolerance. The products contain specific combinations of Lactobacilli and Bifidobacteria.
Between 2015 and 2016 two further products were launched in line with the WAO guidelines for atopic dermatitis prevention: our
first synbiotic in drops, Kallergen Baby for the prevention of atopic dermatitis in children from 0 to 3 years old and Kallergen Mamy
for pregnant women with high risk of atopic disease. In 2016, the Group began its first NIS study for lactose intolerance with 50
patients at S. Martino Hospital, Genova, Italy.
14
© Allergy Therapeutics plcwww.allergytherapeutics.com 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. Clinical
evaluation has been completed demonstrating excellent patient tolerability and serological analyses consistent with a favourable shift in
Th1/Th2 balance compared with an unmodified version of the product and have recently published a one-year follow-up study with Dr.
Albert Roger, Director of the Allergy Unit at Hospital Universitari Germans Trias i Pujol, Barcelona, Spain.
Penicillin Diagnostics
DAP is a product for exclusive use in the diagnosis of type I, or immediate hypersensitivity to benzyl penicillin and related antibiotics (beta
lactams) by means of cutaneous tests (prick and intradermal). Allergic reactions to beta lactams are the most common cause of severe
adverse drug reactions and there is an increasing prevalence in the population. DAP is supplied to Italy, the UK and The Netherlands.
15
© Allergy Therapeutics plcwww.allergytherapeutics.com Key Performance Indicators
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 excluding R&D has recovered to a level
above that recorded in 2014, helped in part by
exchange gains on USD deposits of £2.4m (2015:
loss of £1.1m)
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
The group is not currently actively operating in the
LATAM market however new European markets
have been introduced.
Revenue at Constant Exchange Rate*
2014
2015
2016
EBITDA Excluding R&D
2014
2015
2016
Operational markets
50
40
30
20
10
0
6
5.8
5.6
5.4
5.2
5
0
20
15
£m
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.
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10N
2014
2015
2016
* 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.
18
© Allergy Therapeutics plcwww.allergytherapeutics.com
19
© Allergy Therapeutics plcwww.allergytherapeutics.com 20
© Allergy Therapeutics plcwww.allergytherapeutics.com Research and Development Report
Research and Development Report
Clinical studies
The US Clinical Development of Subcutaneous Immunotherapies (SCIT)
Over the course of 2015, the Group has followed the requirements of the FDA’s Center for Biologics Evaluation and Research
(CBER) to advance the product to Biological Licence Application (BLA) submission by 2020.
In September 2015, the Group successfully undertook a safety study (G102) of two new higher doses of the Grass MATA MPL,
which enabled the start of the Phase II dose exploration study (G204) in November 2015. The G204 was a pioneering study using for
the first time two mobile environmental exposure chambers (mEECs) to challenge grass allergic people with a constant high level
of pollen, recording their symptoms on a hand held computer. This study was completed on time with 258 randomised patients. No
serious drug-related adverse events or severe systemic events occurred. The expected swellings at the injection sites were seen
which increased with the increasing dose. A similar dose effect was seen for the changes in IgE. However, no dose effect was seen
with the primary outcome variable.
The Group is taking advantage of the chance to carry out another dose selection study (G205) using the successful conjunctival
provocation test (CPT). It will be performed, subject to approval, in Europe, starting in 2017 with a planned end of Phase II meeting
with the FDA in 2018. Results for these two studies are planned to be available to enable, subject to approval and successful
outcomes, a Phase III study (G306) to start to randomise patients in 2018.
European Clinical Development of Subcutaneous Immunotherapies (SCIT)
Clinical evaluation of Pollinex Quattro (PQ) products toward licensure is being undertaken as part of the German TAV
(Therapieallergene-Verordnung) regulatory framework. The dose selection study (PQBirch 204) was started in September 2015 and
completed successfully in April 2016. There were no serious adverse events and no severe systemic adverse events. The dose
selection study showed a good dose response curve allowing discussions to proceed with the German regulatory authorities to
seek permission to move into the Phase III field study PQBirch 301.
Acarovac Plus and Acarovac MPL – 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 with MCT has undergone further clinical
development and showed positive results. The results build on the 2014 publication in Immunity, Inflammation and Disease5 and
have now been published6. A series of tolerability studies have been initiated this year in which MPL has been added to Acarovac
and new dose regimens are being tested. The adjuvant monophosphoryl lipid A (MPL) is used in the Company’s successful PQ
product range.
Polyvac
The peanut VLP adjuvanted specific immunotherapy Polyvac is being developed according to plan. Research is at a development
phase but important milestones have been achieved this year. A review of E. coli expression system and plasmids for use indicate
they appear consistent with those expression systems used in licensure of existing EU and US recombinant products. Allergens for
use in formulation have been identified and small-scale production and VLP association studies are encouraging.
Synbiotics
Research is underway exploring two of the current products, Kallergen Th and SynGut™. The Kallergen study is progressing using a
double blind, parallel group, randomised study to determine the clinical efficacy and safety of Kallergen Th oral synbiotic compared
with placebo in patients with atopic dermatitis. The SynGut™ study due to start this year is an observational study which will
evaluate the efficacy and tolerability of SynGut™ oral synbiotic in patients with lactose intolerance.
5 A 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
6 An 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.
22
© Allergy Therapeutics plcwww.allergytherapeutics.com Scientific Developments
MCT vs Alum ADME research
A new study considering the elimination kinetics of aluminium in a small preclinical model, based upon a typical long-course
allergen-specific subcutaneous immunotherapy dose, has been published in the Journal of Bioanalysis.This key milestone
publication presents a quantitative assessment of the impact of aluminium exposure and its propensity to accumulate in the body,
highlighting 49% retention of aluminium observed at dose sites 180 days after administration. Extrapolation of the data to humans
predicted retention of aluminium for up to 37 years, highlighted the need for further research and understanding of the impact of
aluminium localisation kinetics after long-course subcutaneous exposure.
Bencard Adjuvant Systems
The Group is working on adjuvant systems such as MCT as a depot and to enhance immunogenicity of different vaccines. Studies
have been run with leading UK institutions such as Porton Down and The University of Oxford to test these adjuvant systems in
vaccines such as flu and malaria. The Group was granted a UK patent for the process in 2015 and has also applied for a similar
European patent.
Bencard Atlas on Allergomics by Allergy Therapeutics
Immunotherapy products to treat allergic rhinitis are complex medicines that contain multiple allergens in order to desensitise
patients to a target allergen. The R&D teams within Allergy Therapeutics are experts in developing advanced scientific techniques to
standardise and characterise these complex mixtures. Building upon this research, 2016 saw the release of the inaugural “Bencard
Atlas on Allergomics by Allergy Therapeutics”. This atlas contains not only detailed epidemiological data on various allergens such
as location, seasonality and incidence rate, but also detailed allergomic analysis of products produced by Allergy Therapeutics,
illustrating the major and minor allergens present that assist in desensitising patients. Following a successful launch at EAACI 2016
in Vienna, collaborations with key thought leaders in allergy are planned for an update to the atlas with a view to it becoming the
“reference guide” in allergy.
Published Work during the period
1
A novel microcrystalline tyrosine adsorbed, mite-allergoid subcutaneous immunotherapy: 1-year follow-up report.
Roger A, Depreux N, Jurgens Y, Serra AT, Heath MD, Garcia G and Skinner MA.
Immunotherapy (Epub ahead of print) DOI: 10.2217/imt-2016-0068.
2
Analysis of aluminium in rat following administration of allergen immunotherapy using either aluminium or microcrystalline-tyrosine-based adjuvants.
McDougall SA, Heath MD, Kramer MF and Skinner MA.
Bioanalysis. 2016 Mar; 8(6):547-56.
3
Molecular, proteomic and immunological parameters of allergens provide inclusion criteria for new candidates within established grass and tree homologous groups.
Heath MD, Collis JC, Batten TN, Hutchings JW, Swan NJ, Skinner MA.
World Allergy Organ J. 2015 8:21
4
Induction of Bronchial Tolerance after 1 cycle of Monophosphoryl-A-Adjuvanted Specific Immunotherapy in Children with Grass Pollen Allergies.
Rosewich M, Girod K, Zielen S, Schubert R and Schulze J
Allergy Asthma Immunol Res. 2016 8: 257-263
5
In vitro evidence for efficacy in food intolerance for the multispecies probiotic formulation Ecologic® Tolerance (Syngut™).
Besseling - van der Vaart, I, Heath, M, Guagnini, F, Kramer, M.
Beneficial Microbes 2015 13:1-8
6
The grass pollen season 2014 in Vienna: A pilot study combining phenology, aerobiology and symptom data.
Kmenta,M., Bastl,K., Kramer,M.F., Hewings,S.J., Mwange,J., Zetter,R., Berger,U.
Sci Total Environ. 2016 Jun 14 [Epub ahead of print]
7
The 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 152 (2015) 147-153
23
© Allergy Therapeutics plcwww.allergytherapeutics.com Financial Review
Financial Review
The following section should be read in conjunction with the financial statements and related Notes on pages 52 to 107.
Overview
The results for the twelve months to 30 June 2016 demonstrate continuing profitability of the core business before R&D expense,
with an operating profit excluding R&D of £4.3 million (2015: £3.8 million). Including R&D expense of £16.2 million (2015: £3.1
million), the Group reported an operating loss of £12.0 million (2015: profit £0.7 million). The operating loss includes a non-cash
charge of £2.0 million in relation to the fair valuation of forward exchange contracts and a non-cash credit of £2.4 million for the
revaluation at the balance sheet date of US dollar cash deposits. The increased investment in clinical studies was due to the
commencement of trials related to the US programme and the European Birch Dosing Study. The Alerpharma group acquired in
June 2015 added revenue of £1.7 million (2015: £0.2 million) and a loss after tax of £0.6 million (2015: £nil). The Alerpharma loss
included charges relating to the restructuring of the Spanish operations. The net loss after tax for the period was £13.1m (2015:
profit of £0.1m)
Revenue
Despite a weaker weighted average euro exchange rate against sterling during the year compared to the prior year, revenue
increased by 12% to £48.5 million (2015: £43.2 million). The weighted average euro exchange rate in the year was €1.36=£1
compared to €1.27 in the previous year; the weaker euro negatively impacted revenue by £3.0 million. Although the vaccine markets
in Europe did not grow significantly, revenue at constant currency* was 19% higher at £51.5 million (2015: £43.2 million) as shown
in the table below:
The Group has continued to grow its revenue in markets outside Germany in order to diversify the reliance on any one market.
Revenue from Germany was 59% (2015: 63%) of total reported revenue. The key flagship product Pollinex Quattro, which accounts
for 45% of total sales, grew strongly in the year at a double digit constant currency growth rate. In addition to the sale of allergy
vaccines, the Group has continued to look to increase its revenue from other products, including synbiotics. Total sales from other
products contributed £3.6 million for the year ended 30 June 2016 (2015: £3.2 million).
Revenue in Germany grew well in the year with revenue at constant currency increasing to £30.5 million (2015: £27.1 million); an
increase of 13%.
All the main European markets exhibited double digit sales growth at constant currency with Spain (excluding Alerpharma) showing
35%; The Netherlands 22%; Austria 25%, Italy 17% and Germany 13%.
2016
Germany
2016
Other
2016
Total
2015
Germany
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*
£m
28.5
3.9
32.4
2.4
34.8
28.5
2.1
30.6
£m
20.0
-
20.0
0.9
20.9
20.0
0.9
20.9
£m
48.5
3.9
52.4
3.3
55.7
48.5
3.0
51.5
2015
Other
£m
16.1
-
16.1
16.1
16.1
2015
Total
£m
43.2
2.9
46.1
46.1
43.2
£m
27.1
2.9
30.0
30.0
27.1
27.1
16.1
43.2
*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.
26
© Allergy Therapeutics plcwww.allergytherapeutics.com Gross Profit
With the increased sales, cost of sales rose to £14.1 million (2015: £12.2 million). The gross margin was 71% (2015: 72%), leading
to a gross profit of £34.4 million (2015: £31.1 million). At constant currency, the gross margin would have risen to 73%.
Operating Expenses
Total overheads are £16.1 million higher against the prior year at £46.5 million (2015: £30.4 million) due to R&D expenditure which
increased by £13.1m to £16.2 million (2015: £3.1 million) mainly in relation to the US Grass and European PQBirch dose studies
undertaken during the year.
Sales, marketing and distribution costs which were mainly continental European, increased by £3.1 million to £20.2 million (2015: £17.1
million) as the Group invested in improving its marketing and sales infrastructure. Administration expenses fell slightly to £10.1 million
(2015: £10.2 million), The major driver behind this decrease was foreign exchange; the Company booking a non-cash gain of £2.4m on its
US dollar cash deposits due to the weakening pound. (2015: £1.1 million loss). There was also a loss on the re-valuation of euro assets
of £2 million (2015: £0.4 million gain). 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.
Following the year end, $10.6m of the cash balance was converted to sterling to reduce income statement volatility.
Tax
The current year tax charge is predominately made up of provisions for tax in the Italian and German subsidiaries. The tax charge in the
prior year relates mainly to the reversal of brought forward deferred tax assets.
Balance Sheet
Property, plant and equipment increased by £0.9 million to £9.7 million as a result of exchange rate fluctuations and investment in new
manufacturing plant. Goodwill increased to £3.3 million due solely to the stronger euro exchange rate at the balance sheet date (2015:
£3.0 million), whilst other intangible assets have risen by £0.1 million, with an increase due to foreign exchange changes mostly offsetting
the amortisation charge for the year.
Total current assets, excluding cash, have increased by £1.6 million to £14.2 million (2015: £12.6 million). The fair value of derivative
financial instruments changed from an asset of £0.8 million in 2015 to a liability of £1.2m in 2016 as the euro strengthened following the
EU referendum vote shortly before the year end. Inventory increased by £1.0 million as the Group prepares for increased sales of its
products in the coming year. Trade debtors have increased (mainly in Germany and Italy) reflecting the increased sales in those regions.
Cash and cash at hand increased to £23.4m from £21.2m in 2015.
Retirement benefit obligations, which relate solely to the German pension scheme, increased to £10.2 million (2015: £6.8 million). The
increase in the liability was mainly driven by a fall in the discount rate and the euro/sterling exchange rate.
Net cash used in operations amounted to £11.8 million (2015: £3.1 million cash generated) due primarily to the significant investment in
the year in the R&D programme.
Financing
In November 2015, 41,005,500 new ordinary shares of 0.1 pence each (“Ordinary Shares”) were placed with institutional and other
investors raising proceeds of £11.5 million before expenses (£11.0 million net) to be used to fund various projects and opportunities.
The Group’s debt on its balance sheet relates to Spain and consists of the loans acquired as a result of the Alerpharma acquisition (£1.7
million) and a new loan facility (£1.7 million) arranged to fund development of products in the Spanish market. The overdraft facility was
unused at 30 June 2016 but has been renewed for a further 12 months to cover seasonal funding requirements.
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.
27
© Allergy Therapeutics plcwww.allergytherapeutics.com Other matters
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 at that time) 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 2016, no provision has been
recognised for the repayment of the rebate refund of €1.4 million (£1.2 million). This position will be kept under review.
Nicolas Wykeman
Finance Director
23 September 2016
28
© Allergy Therapeutics plcwww.allergytherapeutics.com Principal Risks and Uncertainties
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.
In order to mitigate this risk, the Group is developing and commercialising Pollinex Grass in the US, seeking the PEI market
authorisation for Pollinex Quattro Grass in Germany and continuing to increase market share across Europe as well as developing
new markets to spread risk.
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 59% (2015: 63%) of Group sales are made in
Germany and therefore Group results are particularly 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.
30
© Allergy Therapeutics plcwww.allergytherapeutics.com European Union Referendum risks
The referendum in the UK to leave the EU could pose a significant risk for the Group. In the short term the referendum outcome
has and may continue to impact exchange rates and investor confidence. The medium term risk impact is not clear given the
uncertain nature of the future arrangements between the UK and the rest of the EU. Significant potential areas of risk are
regulatory, fiscal and financial. The Group mitigation in relation to currencies is noted under Financial Risks. In relation to other
aspects of this risk, the Group has considered at a high level the potential effects. The Group does have in place a high-level
contingency plan but will only carry out detailed evaluation and planning once future arrangements become clearer.
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.
A majority of the Group’s sales are denominated in euros whilst the manufacturing and most corporate administration costs are in
the UK and therefore the Group is exposed to volatility in exchange rate fluctuations. The Group monitors exchange rates regularly
and implements hedges to mitigate 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. The Group maintains
good relations with the small number of specialised suppliers for its raw materials for its products.
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 31 has been approved by the Board
On behalf of the Board
Nicolas Wykeman
Director
31
© Allergy Therapeutics plcwww.allergytherapeutics.com Board of Directors
Board of Directors
Peter Jensen
Non-Executive Chairman
Manuel Llobet
Chief Executive Officer
Appointed to the Board in October 2010 and appointed Non-
Manuel joined the Group in July 2009 following the
Executive Chairman on 1 January 2011.
successful refinancing in which Azure Ventures Limited was
As Non-Executive Chairman, Peter is responsible for
the main investor.
leadership of the Board by ensuring clear company strategy,
Prior to this appointment, Manuel was the Principal
board effectiveness, good corporate governance and effective
Consultant for Biohealth LLC and CEO of International
communication with shareholders.
Operations of the Weinstein family’s group of companies.
Manuel was responsible for international development of
Peter held a number of senior roles in his 21 years with
the Weinstein family’s group of pharmaceutical companies
SmithKline-Beecham. Between 1992 and 1998 he was
in 20 countries.
Chairman of Consumer Healthcare Europe and between 1998
and 2001 he held the position of President of Worldwide
Manuel has over ten years’ experience working in the
Supply Operations, based in Philadelphia.
pharmaceutical industry, primarily in South America, and has
served as Executive Director of Corporación Drokasa where
Since leaving SmithKline-Beecham at the time of the merger
he was responsible for a US$25 million AAA-rated bond issue
with Glaxo, Peter has held a number of non-executive
to finance the group’s expansion plans; CEO of Laboratorios
Director and chairman roles for various public and private
Andrómaco, where he led the group to an IPO on the Santiago
companies. These include Domino Printing Sciences plc,
Stock Exchange; and Business Development Manager for
Newmarket Racecourses Limited, Glenmorangie plc, Genetix
Laboratorio Chile. Manuel participated in the Executive
Group plc and Celsis International plc.
Program at the Graduate Business School of Stanford
University and has an MBA from IESE, Universidad de Navarra
In addition to his role at Allergy Therapeutics, Peter is
in Barcelona. Manuel also has degrees in Industrial Business
currently Chairman of Nottingham Racecourse Limited,
Management and Chemical Engineering from Universitat
Screendragon Limited, The Home of Horseracing Trust
Ramon Llull in Barcelona.
Limited and The British Sporting Art Trust.
Peter chairs the Nomination Committee and is also a member
executive management of Group operations, investor
of the Audit Committee.
relations, and implementation of the Board’s collective
As Chief Executive Officer, Manuel is responsible for the
decisions overseeing all operational aspects of the Group and
directing the long-term strategy.
34
© Allergy Therapeutics plcwww.allergytherapeutics.com Nicolas Wykeman
Finance Director
Stephen Smith
Non-Executive Director
Nicolas joined Allergy Therapeutics on 9th June 2016 as Finance
Stephen Smith is a Chartered Management Accountant, Fellow
Director. Nicolas was most recently at Skyepharma PLC until
of the Association of Corporate Treasurers and Member of the
August 2015 where he was the Group Financial Controller for six
Institute for Turnaround. Since 1995, he has operated as an
years. Prior to that, he had also worked at Quest International
independent executive, Non-Executive Director and interim
(a part of ICI PLC) as the Group Financial Controller (Special
manager (CRO/CEO/COO/FD) on an international basis. Up to
Projects), following six years at Deloitte & Touche.
1995 Stephen held various senior financial positions in UK based
Nicolas has a BSc (Hons) in Economics and is a qualified
Treasurer of The Rank Organisation and three years as Group
accountant, being a member of the Institute of Chartered
Finance Director of a quoted hotel company.
international public companies including six years as Group
Accountants of England and Wales
As Finance Director, Nick is responsible for Group financial
member of the Nomination Committee which he chaired until 1
reporting and control, tax, finance systems and internal audit.
January 2011 and is the Senior Non-Executive Director.
Stephen chairs the Audit and Remuneration Committees, is a
35
© Allergy Therapeutics plcwww.allergytherapeutics.com
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,
Jean- Yves sits on the Nomination Committee
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.
36
© Allergy Therapeutics plcwww.allergytherapeutics.com Corporate Governance
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 34 to 36. The roles of Chairman and
Chief Executive Officer are separate. 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 2015-16
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
Nicolas Wykeman
Finance Director
*Appointed 9 June 2016
July 2009
June 2016
The dates of appointment above refer to appointment as Directors of Allergy Therapeutics plc.
16/16
16/16
16/16
11/16
16/16
1/2*
The Group does not comply with UK Corporate Governance Code but 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 Group is subject
to the city code on Takeover and Mergers and the Market Abuse Regulations.
In March 2016 the Board undertook a Board Evaluation exercise conducted by an external consultant, which is not a requirement
under the AIM rules. The exercise reinforced the effectiveness of the Board, its composition and the Directors’ skill base. The
exercise suggested a number of operational improvements to assist in its operation including the appointment of a standalone
Company Secretary and Non-Executive Director succession planning. The Board is continuing to review the recommendations.
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
audit committee held two meetings during the year, attended by both members.
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), Stephen Smith and Jean-Yves Pavée. 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 46 to 48.
38
© Allergy Therapeutics plcwww.allergytherapeutics.com Shareholder relations
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.
39
© Allergy Therapeutics plcwww.allergytherapeutics.com Report of the Directors
Report of the Directors
The Directors present their Annual Report and the audited financial statements for the 12 months ended 30 June 2016. 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 31. 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 2016 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 38 to 39.
Risk Management
The Group’s exposure to Risk is set out on page 30 to 31 (Principal Risks and Uncertainties) and in note 24 (Financial Risk Management).
Results & Dividend
The loss for the year after taxation was £13.1 million (2015: £0.1 million profit). The results for the year are set out on page 53 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 (2015: nil).
Directors
The current Directors of the Company and their biographical details are given on pages 34 to 36. The details of the Directors service
contracts and their interests in the share capital of the Company at 30 June 2016 are disclosed in the Director’s Remuneration
Report on pages 46 to 48. All the Directors served for the whole of the financial year with the exception of Nicolas Wykeman who
was appointed on 9 June 2016 and Ian Postlethwaite who resigned on 10 June 2016.
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 2016 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
Odey Asset Management
Invesco Perpetual Asset Management
Blackrock Investment Management
240,584,571
127,283,783
43,747,523
34,110,209
19,000,000
40.84%
21.60%
7.43%
5.79%
3.22%
During the period between 30 June 2016 and 23 September 2016, 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.
42
© Allergy Therapeutics plcwww.allergytherapeutics.com
Employees
The Group employed 440 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 £16.2 million (2015 £3.1 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 31.
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 31. 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 26 to 28. 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 renewed overdraft 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 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.
43
© Allergy Therapeutics plcwww.allergytherapeutics.com Strategic report
The strategic report on pages 2 to 31 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 Directors’ 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) including FRS101 “Reduced Disclosure Framework”. 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 23 September 2016
Nicolas Wykeman
Director
44
© Allergy Therapeutics plcwww.allergytherapeutics.com Directors’ Remuneration Report
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
November 2004
May 2012
Attendance at meetings 2015-2016
4/4
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
During the year two awards under the Long Term Incentive Plans vested and were converted into low cost share options. The
share options granted to individual Executive Directors to date which were outstanding at 30 June 2016 are disclosed later in
this report and comprise grants made in prior years under previous approved and unapproved option schemes. No directors
exercised options during the year.
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
There were no awards to Directors and senior management during the year ended 30 June 2016 under the Allergy
Therapeutics plc 2013 Long Term Incentive Plan.
Major shareholders were consulted on the plan which was approved by the Board on 20 March 2013. The 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.
During the year two Long Term Incentive Plans were vested and converted into low cost share options.
46
© Allergy Therapeutics plcwww.allergytherapeutics.com (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 Nicolas Wykeman. The bonuses are determined and agreed by the Remuneration Committee in
September each year for the preceding financial year.
(vi) Pension arrangements
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
Nicolas Wykeman
Non-Executive Directors
Peter Jensen
Thomas Lander
Date of contract
11 June 2009
9 June 2016
Date of contract
1 October 2010
2 May 2012
Stephen Smith
5 October 2004
Jean-Yves Pavée
18 November 2014
Directors’ remuneration (audited information)
Details of remuneration of those who served as Directors during the financial year are set out below.
Notice period
12 months
6 months
Notice period
6 months
3 months
3 months
3 months
Basic
Salary
Bonus
for the year
Taxable
benefits
£
£
£
Manuel Llobet
264,550
93,334
10,200
Nicolas Wykeman1
Peter Jensen
Thomas Lander
Stephen Smith2
Jean-Yves Pavée3
-
75,000
38,000
14,800
-
-
-
-
-
-
-
-
-
-
-
£
-
-
-
-
-
75,000
38,000
27,700
42,500
37,667
37,667
Fees
Total
Pension6
Total
Pension6
Year ended 30 June 2015
£
£
£
£
368,084
39,878
374,427
38,655
-
-
-
-
-
-
75,000
39,323
42,500
25,333
-
-
-
-
-
Ian Postlethwaite4
165,679
27,654
10,389
Alejandro Weinstein5
-
-
-
-
-
203,722
16,213
205,904
24,903
-
-
9,500
-
Totals
558,029
120,988
20,589
65,367
764,973
56,091
771,987
63,558
1 Nicolas Wykeman was appointed on 9 June 2016
2 Stephen Smith’s fee payments are split between SRS Business Enterprises Limited and himself.
3 Fees payable to Abbott Laboratories Inc.
4 Ian Postlethwaite resigned as a Director on 10 June 2016
5 Alejandro Weinstein resigned as a Director on 18 October 2014
6 Pension contributions are in respect of a defined contribution scheme
47
© Allergy Therapeutics plcwww.allergytherapeutics.com LTIPs and share options for directors who held office during the financial year
Share
Options/
LTIPs held at
1 July 2015
LTIPs vested
in the year
(converted to
share options)
Share
Options
/LTIP‘s lapsed
in the year
Share
Options/
LTIPs held
at 30 June
2016
Subscription
price (pence)
Exercise
date from
Expiry
date
Executive Directors
Manuel Llobet
4,035,000
(1,529,024)
(815,976)
1,690,000
Ian Postlethwaite
163,500*
2,017,500
624,024*
905,000*
-
-
-
-
624,024*
905,000*
163,500*
(764,512)
(1,252,988)
-
312,012*
452,500*
-
-
312,012*
452,500*
Totals
6,216,000
-
(2,068,964)
4,147,036
*Share options
-
0.001
0.001
-
-
25/11/2015
25/11/2018
10/3/2016
10/3/2018
18.25
18/10/2009
10/06/2017
-
0.001
0.001
-
-
10/3/2016
10/06/2017
10/3/2016
10/06/2017
At 30 June 2016 the London Stock Exchange mid-market value of shares was 18.5 pence per share. The range of mid-market
values during the period from 1 July 2015 to 30 June 2016 was 23.5pence to 18.5 pence per share.
The Directors that held office during the financial year had the following interests in the ordinary shares of the Company:
Name
Manuel Llobet1
Nicolas Wykeman
Peter Jensen
Thomas Lander
Jean-Yves Pavée
Stephen Smith
Ian Postlethwaite3
At beginning of year:
At end of year:
Ordinary Shares
Options & LTIPs
Ordinary Shares
Options & LTIPs
3,125,000
4,035,000
3,175,000
3,219,024
-
120,000
-
-
776,513
1,360,000
-
-
-
-
-
2,181,000
-
120,000
-
-
776,513
1,360,000
-
-
-
-
-
928,0122
1 Includes shares held by Wild Indigo
2 Share Options
3 Resigned 10 June 2016
Stephen Smith
Chairman, Remuneration Committee
23 September 2016
48
© Allergy Therapeutics plcwww.allergytherapeutics.com
Nominations Committee Report
Nominations Committee Report
The Nominations Committee during the year comprised Peter Jensen (Chairman), Stephen Smith and Jean-Yves Pavée. The
Nominations Committee held two meetings 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
Jean–Yves Pavée
Member since
Attendance at meetings 2015-2016
October 2010
September 2009
April 2016
2/2
2/2
2/2
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
23 September 2016
50
© Allergy Therapeutics plcwww.allergytherapeutics.com Financial Statements
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 2016 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 Statement of Directors’ Responsibilities set out on page 44, 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 2016 and of its loss 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 2016.
Jonathan Maile
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Gatwick
23 September 2016
52
© Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Income Statement for the year ended 30 June 2016
Year to
30 June
Year to
30 June
Year to
30 June
Year to
30 June
2016
£’000
2016
£’000
2015
£’000
2015
£’000
Revenue
Cost of sales
Gross profit
Sales, marketing and distribution costs
Administration expenses – other
Research and development costs
Administration expenses
Other income
Operating (loss)/profit
Finance income
Finance expense
(Loss)/ Profit before tax
Income tax
(Loss)/ Profit for the period
(Loss)/ Earnings per share
Basic (pence per share)
Diluted (pence per share)
(10,218)
(3,121)
(10,094)
(16,223)
Note
3
8
10
9
5
11
13
48,509
(14,070)
34,439
(20,223)
(26,317)
150
(11,951)
180
(293)
(12,064)
(1,008)
(13,072)
(2.29p)
(2.29p)
43,230
(12,179)
31,051
(17,060)
(13,339)
73
725
147
(218)
654
(546)
108
0.02p
0.02p
53
© Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Statement of Comprehensive Income for the year ended 30 June 2016
(Loss)/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
Deferred tax– freehold land and buildings
Revaluation gains – freehold land and buildings
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translation of foreign operations
Total comprehensive loss
Note
26
17
12
16
Year to
30 June
2016
£’000
(13,072)
(1,688)
(16)
(43)
119
(744)
(15,444)
Year to
30 June
2015
£’000
108
(932)
8
-
-
(119)
(935)
54
© Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Balance Sheet
Assets
Non-current assets
Property, plant and equipment
Intangible assets – goodwill
Intangible assets – other
Investments – retirement benefit asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Current borrowings
Derivative financial instruments
Total current liabilities
Net current assets
Non-current liabilities
Retirement benefit obligations
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
Revaluation reserve
Foreign exchange reserve
Retained earnings
Total equity
Note
16
14
15
17
18
19
20
24
21
22
24
26
12
23
21
22
27
30 June 2016
£’000
30 June 2015
£’000
9,667
3,271
2,084
4,045
19,067
7,692
6,514
23,406
-
37,612
56,679
(11,045)
(295)
(1,180)
(12,520)
25,092
(10,174)
(334)
(257)
-
(3,070)
(13,835)
(26,355)
30,324
599
102,392
40,128
-
741
1,254
(884)
(113,906)
30,324
8,750
2,980
2,020
3,160
16,910
6,747
5,060
21,199
783
33,789
50,699
(7,169)
(251)
-
(7,420)
26,369
(6,755)
(298)
(211)
(113)
(1,433)
(8,810)
(16,230)
34,469
556
91,463
40,128
67
591
1,178
(140)
(99,374)
34,469
These financial statements were approved by the Board of Directors and authorised for issue on 23 September 2016 and signed on
its behalf by
Manuel Llobet
Chief Executive Officer
Nicolas Wykeman
Finance Director
Registered number: 05141592
55
© Allergy Therapeutics plcwww.allergytherapeutics.com
Consolidated Statement of Changes in Equity
At 30 June 2014
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
Share issue costs
Transfer of lapsed options to retained earnings
Issued
Capital
Share
premium
£’000
420
£’000
67,716
Merger reserve -
shares issued
by subsidiary
Reserve -
shares held
in EBT
£’000
40,128
£’000
67
Reserve - share
based payment
£’000
465
Reserve –
convertible
loan note
£’000
3,652
£’000
1,178
Revaluation
Foreign
reserve
exchange reserve
Total equity
-
-
-
-
-
-
-
42
-
94
-
-
-
-
-
-
-
-
-
3,832
-
20,909
(994)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At 30 June 2015
556
91,463
40,128
67
Exchange differences on translation of foreign operations
Remeasurement of net defined benefit liability
Deferred tax (Land and buildings)
Valuation gain taken to equity (Land and Buildings)
Remeasurement of investments – retirement benefit assets
Total other comprehensive income
Loss for the period after tax
Total comprehensive income
Share based payments
Shares issued
Share issue costs
Transfer of lapsed options to retained earnings
Transfer of EBT reserve to retained earnings
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43
11,441
-
-
-
(512)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At 30 June 2016
599
102,392
40,128
-
-
-
-
-
-
-
-
-
-
-
-
(67)
-
56
Retained
earnings
£’000
(98,530)
(932)
-
8
(924)
108
(816)
(86)
(222)
-
-
-
-
-
-
-
-
-
280
(99,374)
(1,688)
(16)
(1,704)
(13,072)
(14,776)
177
67
£’000
(21)
(119)
(119)
(119)
(140)
(744)
(744)
(744)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
£’000
15,075
(119)
(932)
8
(1,043)
108
(935)
(86)
406
21,003
(994)
34,469
(744)
(1,688)
(43)
119
(16)
(2,372)
(13,072)
(15,444)
327
11,484
(512)
-
-
-
-
1,254
(884)
(113,906)
30,324
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
406
(280)
591
327
(177)
741
(3,652)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,178
(43)
119
76
76
© Allergy Therapeutics plcwww.allergytherapeutics.com At 30 June 2015
556
91,463
40,128
67
At 30 June 2014
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
Share issue costs
Transfer of lapsed options to retained earnings
Exchange differences on translation of foreign operations
Remeasurement of net defined benefit liability
Deferred tax (Land and buildings)
Valuation gain taken to equity (Land and Buildings)
Remeasurement of investments – retirement benefit assets
Total other comprehensive income
Loss for the period after tax
Total comprehensive income
Share based payments
Shares issued
Share issue costs
Transfer of lapsed options to retained earnings
Transfer of EBT reserve to retained earnings
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42
94
3,832
20,909
(994)
43
11,441
(512)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At 30 June 2016
599
102,392
40,128
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(67)
Issued
Capital
Share
premium
£’000
420
£’000
67,716
Merger reserve -
Reserve -
shares issued
shares held
by subsidiary
£’000
40,128
in EBT
£’000
67
Reserve - share
based payment
£’000
465
Reserve –
convertible
loan note
£’000
3,652
-
-
-
-
-
-
-
-
406
-
-
(280)
591
-
-
-
-
-
-
-
-
327
-
-
(177)
-
741
-
-
-
-
-
-
-
(3,652)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Revaluation
reserve
Foreign
exchange reserve
£’000
1,178
-
-
-
-
-
-
-
-
-
-
-
-
1,178
-
-
(43)
119
-
76
-
76
-
-
-
-
-
£’000
(21)
(119)
-
-
(119)
-
(119)
-
-
-
-
-
-
(140)
(744)
-
-
-
-
(744)
-
(744)
-
-
-
-
-
Retained
earnings
£’000
(98,530)
-
(932)
8
(924)
108
(816)
(86)
(222)
-
-
-
280
(99,374)
-
(1,688)
-
-
(16)
(1,704)
(13,072)
(14,776)
-
-
-
177
67
Total equity
£’000
15,075
(119)
(932)
8
(1,043)
108
(935)
(86)
-
406
21,003
(994)
-
34,469
(744)
(1,688)
(43)
119
(16)
(2,372)
(13,072)
(15,444)
327
11,484
(512)
-
-
1,254
(884)
(113,906)
30,324
57
© Allergy Therapeutics plcwww.allergytherapeutics.com Consolidated Cash Flow Statement
Cash flows from operating activities
(Loss)/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
Foreign exchange revaluation on US dollar cash deposits
(Increase) in trade and other receivables
(Increase) in inventories
(Decrease) / increase in trade and other payables
Net cash (used)/ generated by operations
Bank loan fees and interest paid
Income tax
Net cash (used)/ 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)
Repayment of borrowings
Proceeds from borrowings
Net cash generated by financing activities
Net (decrease)/ 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
58
Note
10
9
15,16
Year to
30 June
2016
Year to
30 June
2015
As restated
£’000
£’000
(12,064)
654
(180)
293
295
1,666
327
1,963
(2,394)
(368)
(585)
(497)
(11,544)
(388)
93
(11,839)
-
(260)
-
-
-
(1,232)
(1,492)
10,967
(86)
1,658
12,539
(792)
2,999
21,199
23,406
(147)
218
290
1,293
406
(438)
1,118
(448)
(424)
1,079
3,601
(304)
(174)
3,123
65
(275)
(2,653)
1,301
(13)
(1,091)
(2,666)
20,079
-
-
20,079
20,536
(1,366)
2,029
21,199
23,406
21,199
-
-
23,406
21,199
© Allergy Therapeutics plcwww.allergytherapeutics.com Notes to the Financial Statements
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’) and with those parts of the Companies Act 2006 that are relevant to the Group preparing
its accounts in accordance with EU adopted IFRS.
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 comparative figures for the 12 months ended 30 June 2015 in the cash flow statement have been restated to properly reflect
the treatment of the foreign exchange differences on the Group’s US dollar cash deposits. Whilst the net cash generated by
operations has increased by £1.1m to £3.6m, there is no overall change in the total net movement on cash and cash equivalents for
the year (£19.2m). The effects of exchange rates on cash and cash equivalents has decreased by £1.1m to £1.4m.
The consolidated financial statements for the year ended 30 June 2016 (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 23 September 2016.
New standards adopted
With effect from 1 July 2015, the Company has prepared its individual company financial statements in accordance with Financial
Reporting Standard (FRS) 101 – Reduced disclosure framework. The application of FRS 101 has not had a significant impact on the
Company. There is no impact on the Group consolidated financial statements which will continue to be prepared under International
Financial Reporting Standards (IFRS).
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 2016 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 IAS 39 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.
IFRS 16 Leases (effective 1 January 2019)
IFRS 16 removes the current distinction between an operating and finance lease, introducing consistent requirements for all leases
similar to the current finance lease accounting.
59
© Allergy Therapeutics plcwww.allergytherapeutics.com 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
Operating loss in the period was £12.0 million (2015: profit £0.7 million); net cash outflow from operations was £11.5 million (2015:
inflow £3.6 million). The primary cause of the operating loss and cash outflow is the increased R&D expenditure which has been
funded from the 2015 share placing which raised £20.0 million for the US R&D programme. Excluding R&D the Group would have
reported an operating profit of £4.3 million (2015: £3.8 million). The Directors do not consider the current operating loss to be a
cause for concern.
The Group has prepared detailed budgets, including cash flow projections, for the period to 30 September 2017. 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 2016. 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
60
© Allergy Therapeutics plcwww.allergytherapeutics.com 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 as part of a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy
the definition of an asset and be identifiable. 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
15 years
5 years
10 years
15 years/ period of contract
Externally acquired intangible assets
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 the consolidated income statement in the expense
category consistent with the function of the intangible asset in either administration costs or marketing and distribution costs.
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
61
© Allergy Therapeutics plcwww.allergytherapeutics.com 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 consolidated 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
Consolidated 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.
62
© Allergy Therapeutics plcwww.allergytherapeutics.com 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 which approximates to actual rates. Exchange differences are charged or credited to other
comprehensive income (OCI) and recognised in the currency translation reserve in equity. OCI includes those items which would
be reclassified to profit or loss and those items which would not be reclassified to profit or loss.
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.
63
© Allergy Therapeutics plcwww.allergytherapeutics.com 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.
Allergy Therapeutics plc has been successful in obtaining preliminary exemptions up to 30 June 2012, which have been
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 Consolidated Income statement upon utilisation of the service or at the date of their origin.
Property, plant and equipment (PPE)
The Group policy is that all freehold properties will be subject to a full revaluation with sufficient regularity so that the carrying
amount and the fair value are not materially different.
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 consolidated 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 consolidated income statement.
64
© Allergy Therapeutics plcwww.allergytherapeutics.com 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
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 cost of sales when arriving at operating profit in the
consolidated income statement.
Impairment
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. The 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.
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© Allergy Therapeutics plcwww.allergytherapeutics.com 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 consolidated 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 at bank and in hand, 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 with maturities of three months or less from inception that are readily convertible into known amounts of cash and
which are subject to an insignificant risk of changes in value.
All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument and loans and
receivables are initially recognised at fair value, including transaction costs, with the exception of ‘fair value through profit and loss’
and subsequently at amortised cost, with any changes going through the consolidated 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 reporting period 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 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 consolidated 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.
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© Allergy Therapeutics plcwww.allergytherapeutics.com Derivative financial instruments
The Group uses 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
consolidated 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 of the parent company 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 asset/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 and laws that are expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the balance sheet date.
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© Allergy Therapeutics plcwww.allergytherapeutics.com 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 current service cost, past service cost and costs from settlements and curtailments are charged against administrative
expenses in the income statement. Interest on the scheme liabilities and the expected return on scheme assets are included in
other finance costs.
Other employee benefits
Short term
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.
Long term
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. The provision is undiscounted as it is not
possible to accurately estimate when this liability might fall due, and the value would not be materially different if it were discounted.
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 consolidated income statement. They are held at fair value with any gains or losses on
remeasurement charged or credited to other comprehensive income.
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© Allergy Therapeutics plcwww.allergytherapeutics.com 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 96.
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 (EBT)
The financial statements include the assets and liabilities of a trust set up for the benefit of the Group’s employees. The EBT has
acquired shares in the Company and these are deducted from total equity on the balance sheet at the cost of acquisition less
proceeds on disposal.
The balance in the EBT reserve brought forward from the prior year relates to the historic purchase and disposal of Company shares.
No transactions have passed through the EBT since 2009. There are no shares currently held by the EBT. The remaining balance on the
reserve was transferred to retained earnings at the reporting date.
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© Allergy Therapeutics plcwww.allergytherapeutics.com Use of accounting estimates and judgements
Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and
estimates are based on management’s best knowledge of the relevant facts and circumstances, 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. Costs expensed in the year amounted to £16.2 million (2015: £3.1 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)
ii)
The group does not have any continued managerial involvement in the distributor’s onward sale of goods;
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.
c)
Land and buildings are carried at valuation and are re-valued with sufficient regularity so that the carrying amount and the fair
value are not materially different. The Italian freehold property was revalued in June 2016 by independent valuers (see Note
16). The Italian freehold property was revalued to fair value at the reporting date based on this valuation. The freehold property
in Spain was revalued in June 2015 (see Note 16). The Directors do not consider an impairment provision to be required in
respect of the freehold property in Spain.
d)
The Group had been awarded a provisional exemption to the increased statutory rebate charge in Germany for the period July
to December 2012 by BAFA. 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 from the German authorities was subsequently collected. In February 2015,
the provisional exemption was withdrawn by BAFA. 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 (£1.2
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 65) and Note 16).
b)
c)
Estimates of future profitability are required for the decision whether or not to carry forward a deferred tax asset. (Note 12).
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.
d)
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.
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© Allergy Therapeutics plcwww.allergytherapeutics.com
e)
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 (2015: £0.1m).
f)
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 69, 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
2016
£’000
48,468
41
48,509
2015
£’000
43,205
25
43,230
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 and Rest of World.
For all material regions that have been aggregated, management consider that they share similar economic characteristics. They are
also similar in respect of the products sold; types of customer; distribution channels; and regulatory environments.
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Revenue by segment
Revenue from
External Customers
Central Europe
Germany
Other
Southern Europe
Italy
Spain
Other
UK
Rest of World
2016
£’000
28,484
6,688
35,172
4,741
4,590
229
9,560
1,856
1,921
Inter
Segment
Revenue
2016
£’000
17,862
48,509
17,862
Total
Segment
Revenue
Revenue
from External
Customers
Inter Segment
Revenue
Total Segment
Revenue
2016
£’000
28,484
6,688
35,172
4,741
4,590
229
9,560
19,718
1,921
66,371
2015
£’000
27,137
5,997
33,134
4,593
2,295
-
6,888
1,054
2,154
2015
£’000
22,900
43,230
22,900
2015
£’000
27,137
5,997
33,134
4,593
2,295
-
6,888
23,954
2,154
66,130
Revenues from external customers in all segments are derived principally from the sale of a range of pharmaceutical products
designed for the immunological treatment of the allergic condition.
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 € 1.40: £1.00 which was the rate used in the 2016 budget.
Revenue
from External
Customers
Revenue
from External
Customers
2016
£’000
27,699
6,439
34,138
9,302
1,851
1,921
2015
£’000
28,719
6,193
34,912
7,290
1,053
2,158
47,212
45,413
Central Europe
Germany
Other
Southern Europe
UK
Other
The Group has no customers which individually account for 10% or more of the Group’s revenue.
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© Allergy Therapeutics plcwww.allergytherapeutics.com Depreciation and amortisation by segment
Central Europe
Southern Europe
UK
EBITDA by segment
Allocated EBITDA
Central Europe
Southern Europe
UK
Allocated EBITDA
Depreciation and amortisation
Operating (loss)/ profit
Finance income
Finance expense
Profit before tax
Total assets by segment
Central Europe
Southern Europe
UK
Inter-segment assets
Inter-segment investments
Total assets per Balance Sheet
2016
£’000
167
404
1,095
1,666
2016
£’000
407
(325)
(10,367)
(10,285)
2015
£’000
139
143
1,011
1,293
2015
£’000
(452)
(93)
2,563
2,018
(1,666)
(1,293)
(11,951)
180
(293)
(12,064)
2016
£’000
12,119
7,627
59,585
79,331
(2,432)
725
147
(218)
654
2015
£’000
8,692
5,450
58,809
72,951
(2,691)
(20,220)
(19,561)
56,679
50,699
Included within Central Europe are non-current assets to the value of £2,523,000 (2015: £2,343,000) relating to Goodwill and within
Southern Europe assets to the value of £2,942,000 (2015: £2,521,000) relating to freehold land and buildings. There were no material
additions (excluding foreign exchange differences) to non-current assets in any country except the UK where non-current asset
additions totalled £1,433,000.
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© Allergy Therapeutics plcwww.allergytherapeutics.com Total liabilities by segment
Central Europe
Southern Europe
UK
Inter-segment liabilities
Total liabilities per Balance Sheet
5. (LOSS)/PROFIT BEFORE TAX
Profit for the period has been arrived at after charging/ (crediting):
Loss/ (gain) on fair valuation of foreign exchange forward contracts
(Gain) on foreign exchange forward contracts matured in the year
(Gain)/ loss on revaluation of US dollar denominated cash deposits
Other foreign exchange (gain)/loss
2016
£’000
(14,956)
(6,658)
(7,119)
2015
£’000
(9,779)
(4,164)
(4,874)
(28,733)
(18,817)
2,378
2,587
(26,355)
(16,230)
2016
£’000
1,963
(519)
(2,394)
(749)
2015
£’000
(438)
(618)
1,118
919
Acquisition costs of new subsidiary (Note 29)
84
205
Depreciation and amortisation:
Depreciation of property plant and equipment (Note 16)
Amortisation of intangible assets (Note 15)
1,426
240
1,053
240
Research and development
16,223
3,121
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
Audit related assurance
Tax compliance services
Tax advisory services
695
606
42
90
10
17
15
701
537
22
78
12
-
4
Share based payment expense (Note 28)
327
406
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© Allergy Therapeutics plcwww.allergytherapeutics.com 6. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Salaries and short-term employee benefits
Social security costs
Post-employment benefits – defined contribution plans
Under accrual of bonuses
Share based payment
2016
£’000
765
87
56
908
26
59
993
2015
£’000
772
87
64
923
-
88
1,011
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 47 and forms part of the financial statements.
7. EMPLOYEES (including Directors)
Wages and salaries
Social security costs
Share based payments
Pension costs – defined benefit plans
Pension costs – defined contribution plans
The average number of employees during the period (including Executive Directors) was made up as follows:
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
Net interest expenses on defined benefit liability
Other interest and charges
2016
£’000
18,560
2,980
327
251
341
2015
£’000
16,116
2,407
406
220
329
22,459
19,478
2016
2015
150
119
158
427
2016
£’000
150
2016
£’000
57
171
65
293
126
96
139
361
2015
£’000
73
2015
£’000
27
191
-
218
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© Allergy Therapeutics plcwww.allergytherapeutics.com 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.
11. INCOME TAX EXPENSE
Current Tax:
Prior period overseas tax
Overseas tax
Deferred tax
– current year
– reduction in carrying amount of deferred tax asset
Tax charge for the period
2016
£’000
90
50
40
180
2015
£’000
22
82
43
147
2016
£’000
2015
£’000
574
489
1,063
(55)
-
1,008
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:
(Loss) / Profit for the period before tax
2016
£’000
(12,064)
2015
£’000
654
(Loss) / Profit for period multiplied by the respective standard rate of corporation tax
applicable in each domain (average 20.0%).(2015: average 20.75%)
(2,413)
136
Effects of:
Disallowable adjustments
Movements in unrecognised deferred tax
Adjustment of taxes for prior periods
Adjustment for different tax rates
Relief for shares acquired by employees & Directors
Gross up of R&D expenditure credit
Deferred tax - reduction in carrying amount of deferred tax asset
Tax charge for the period
76
370
2,499
574
41
(71)
8
1,008
-
1,008
104
(154)
248
34
-
4
372
174
546
© Allergy Therapeutics plcwww.allergytherapeutics.com 12. DEFERRED TAX
Recognised deferred tax liability
Tax value
of carried
forward
losses
Tax value of
accelerated
capital
allowances
Acquisition of
Teomed AG
Italy
Freehold
property
Tax value of
Alerpharma
SA losses
Acquisition of
Alerpharma SA
Total
At 1 July 2015
Amount (charged)
/ credited to the
income statement
Transfer from
revaluation reserve
Exchange
differences
£’000
455
(52)
-
-
£’000
(455)
52
-
-
At 30 June 2016
403
(403)
£’000
(130)
15
-
(24)
(139)
£’000
-
-
(43)
-
(43)
£’000
207
-
-
36
243
£’000
£’000
(375)
(298)
45
60
-
(43)
(65)
(53)
(395)
(334)
Tax value
of carried
forward
losses
Tax value of
accelerated
capital
allowances
Acquisition of
Teomed AG
Italy
Freehold
property
Tax value of
Alerpharma
SA losses
Acquisition of
Alerpharma SA
Total
£’000
£’000
£’000
£’000
£’000
At 1 July 2014
Amount credited
to the income
statement
Recognised on
acquisition
Exchange
differences
£’000
600
(145)
-
-
£’000
(426)
(29)
-
-
(136)
13
-
(7)
At 30 June 2015
455
(455)
(130)
-
-
-
-
-
-
-
207
-
-
-
38
(161)
(375)
(168)
-
(7)
207
(375)
(298)
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 prior 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 was partially offset by a deferred tax asset of £207,000 relating
to the tax value of its carried forward losses.
The deferred tax liability in respect of the Italian freehold property relates to the revaluation of this property.
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© Allergy Therapeutics plcwww.allergytherapeutics.com The following is the analysis of the deferred tax balances after offset for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
Unrecognised deferred tax
Non Current Assets
Property, plant and equipment
R&D expenditure credit
Current Assets
Stock
Derivative financial instruments
Current Liabilities
Derivative financial instruments
Non Current Liabilities
Pension and other employee obligations
Share options
Unused tax losses
Total
2016
£’000
646
(980)
(334)
2015
£’000
662
(960)
(298)
2016
Deferred
tax assets
£’000
2015
Deferred
tax assets
£’000
61
74
202
-
212
2,021
122
13,778
16,470
59
42
345
157
-
1,185
145
12,701
14,634
As at 30 June 2016 the Group had approximately £76m of unutilised tax losses (2015: approximately £67m) available for offset 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 20% to 19% with effect from 1 April 2017 & to 18% from 1 April 2020. The
recognised and unrecognised deferred tax assets have been calculated at 18%, being the rate enacted at 30 June 2016 and expected
to apply when the asset is realised or the liability is settled.
The draft finance bill announced a further reduction to the rate to 17% from 1 April 2020. The estimated impact of the
potential further reduction in the tax rate from 1 April 2020 on the unrecognised net deferred tax assets & liabilities is a net
reduction in the asset of £0.9m.
78
© Allergy Therapeutics plcwww.allergytherapeutics.com 13. EARNINGS PER SHARE
(Loss)/ Profit after tax attributable to equity shareholders
Issued ordinary shares at start of the period
Ordinary shares issued in the period
Issued ordinary shares at end of the period
Weighted average number of ordinary shares for the period
Potentially dilutive share options
Weighted average number of ordinary shares for diluted earnings per share
Basic earnings per ordinary share/(loss) (pence)
Diluted earnings per ordinary share/(loss) (pence)
2016
£’000
(13,072)
Shares
‘000
545,848
43,311
589,159
570,344
-
570,344
(2.29p)
(2.29p)
2015
£’000
108
Shares
‘000
409,867
135,981
545,848
475,197
23,045
498,242
0.02p
0.02p
The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of
reducing the loss per share and is therefore not dilutive under the terms of IAS 33.
Weighted average number of ordinary shares in issue
Potentially dilutive share options
Weighted average number of diluted ordinary shares
14. GOODWILL
At 1 July
Addition
Exchange difference
At 30 June
2016
Number
Of Shares
570,344
18,885
589,229
2016
£’000
2,980
-
291
3,271
2015
Number
Of Shares
475,197
23,045
498,242
2015
£’000
2,480
637
(137)
2,980
79
© Allergy Therapeutics plcwww.allergytherapeutics.com For the purposes of impairment testing of goodwill, the Directors recognise the Group’s Cash Generating Units (“CGU”) to be
the following:
Germany
Spain
Total
2016
£’000
2,523
748
3,271
2015
£’000
2,343
637
2,980
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 reasonably possible changes that would necessitate changes in its key estimates.
There are no reasonably 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 17.4% discount rate (2015: 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 (2015: 17%) 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 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.
80
© Allergy Therapeutics plcwww.allergytherapeutics.com 15. INTANGIBLE ASSETS
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
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Cost
At 1 July 2014
4,450
944
Additions
Acquired assets
Disposals
Foreign exchange
At 30 June 2015
Additions
Disposals
Foreign exchange
At 30 June 2016
Amortisation
-
18
-
(348)
4,120
-
-
458
4,578
-
-
-
-
-
-
372
237
220
-
-
-
-
-
-
372
237
220
-
-
-
-
-
-
-
-
-
878
2,226
8,498
55
8
(55)
(4)
882
-
-
154
92
-
-
147
855
(55)
(66)
(386)
2,252
9,059
126
-
92
126
-
822
-
-
-
32
976
-
-
118
1,094
372
237
220
1,036
2,470
10,007
At 1 July 2014
4,450
257
Disposals
Charge for
the year
Foreign exchange
At 30 June 2015
Disposals
Charge for the
year
Foreign exchange
At 30 June 2016
Net book value
At 1 July 2014
At 30 June 2015
At 30 June 2016
-
-
(348)
4,102
-
-
455
4,557
-
18
21
-
56
9
322
-
34
39
395
687
654
699
-
-
-
-
-
-
20
-
20
-
372
352
-
-
-
-
-
-
39
-
39
-
237
198
-
-
-
-
-
-
18
-
18
-
220
202
827
1,673
7,207
(4)
32
(5)
-
152
(60)
850
1,765
-
28
61
-
101
89
(4)
240
(404)
7,039
-
240
644
939
1,955
7,923
51
32
97
553
487
515
1,291
2,020
2,084
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.
81
© Allergy Therapeutics plcwww.allergytherapeutics.com 16. PROPERTY, PLANT AND EQUIPMENT
Plant &
machinery
Fixtures &
fittings
Motor
vehicles
Computer
equipment
Freehold land &
buildings
£’000
£’000
£’000
£’000
£’000
8,301
5,085
476
256
(16)
(5)
171
18
(70)
1
38
18
-
-
(20)
3,100
369
8
(69)
4
1,130
-
1,607
(134)
-
Total
£’000
17,654
1,034
1,889
(289)
(20)
Cost or valuation
At 1 July 2014
Additions
Acquired assets
Foreign exchange
Disposals
At 30 June 2015
9,012
5,205
36
3,412
2,603
20,268
Revaluation
Additions
Foreign exchange
Disposals
-
722
61
(3)
-
562
98
(2)
-
-
-
-
-
433
105
-
(27)
-
447
-
(27)
1,717
711
(5)
At 30 June 2016
9,792
5,863
36
3,950
3,023
22,664
Depreciation
At 1 July 2014
Charge for the year
Foreign exchange
Disposals
At 30 June 2015
Charge for the year
Revaluation
Foreign exchange
Disposals
4,582
3,567
459
(9)
-
5,032
549
-
15
(3)
237
(61)
-
3,743
264
-
83
(2)
32
3
-
(20)
15
7
-
-
-
2,398
312
(64)
-
2,646
476
-
91
-
At 30 June 2016
5,593
4,088
22
3,213
45
42
(5)
-
82
131
(146)
14
-
81
10,624
1,053
(139)
(20)
11,518
1,427
(146)
203
(5)
12,997
Net book value
At 1 July 2014
At 30 June 2015
3,719
3,980
1,518
1,462
At 30 June 2016
4,199
1,775
6
21
14
702
766
737
1,085
2,521
7,030
8,750
2,942
9,667
Note 22 provides details of the assets secured against the Group’s bank borrowings.
82
© Allergy Therapeutics plcwww.allergytherapeutics.com 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 June 2016 by independent valuers
based on an open market valuation. This property is carried at fair value and is classified as level 3 in the fair value hierarchy.
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 fair value hierarchy. The
valuation was performed using the depreciated cost replacement method (adjusted for reduction in value due to age). The
age reduction 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 2015
Loss recognised in income statement
– depreciation of buildings
Loss recognised in other comprehensive income
– exchange differences on translating foreign operations
Gain recognised in other comprehensive income
– revaluation of Italy freehold land and buildings
Balance at 30 June 2016
Spain
£’000
1,607
(81)
272
-
1,798
Italy
£’000
914
(50)
161
119
1,144
Total
£’000
2,521
(131)
433
119
2,942
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 Italian land and buildings was carried out in June 2016 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. The valuers used an equivalent value
of €1,600 (£1,327) per m2. This compares to a range of prices from €1,400 per m2 to €2,100 per m2 observed by the valuers.
Land and buildings were revalued to fair value at 30 June 2016 based on this valuation. Management do not consider that the
fair value as at 30 June 2016 for the Spain land and buildings 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.
83
© Allergy Therapeutics plcwww.allergytherapeutics.com 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
Profit/(loss) on foreign exchange
18. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods
2016
£’000
3,160
260
50
(16)
591
4,045
2016
£’000
1,604
3,142
2,946
7,692
2015
£’000
3,212
275
82
8
(417)
3,160
2015
£’000
1,675
2,937
2,135
6,747
The value of inventories measured at fair value less cost to sell was £425,000 (2015: £334,000).
The movement in the value of inventories measured at fair value less cost to sell during the year gave rise to a charge of
£91,000 which was expensed to the consolidated income statement.
19. TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
VAT
Prepayments and accrued revenue
2016
£’000
4,678
428
352
1,056
6,514
2015
£’000
3,087
860
140
973
5,060
Accrued revenue of £59,000 relates to deferred consideration receivable from customers (2015: £143,000)
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,
£151,000 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.
84
© Allergy Therapeutics plcwww.allergytherapeutics.com Bad and doubtful debt provision
Balance brought forward
Foreign exchange adjustments
Charge for the year
Balance carried forward
2016
£’000
216
54
151
421
2015
£’000
194
(25)
47
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
20. CASH AND CASH IN HAND
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
Deferred consideration
2016
£’000
1,764
215
102
133
2,214
2016
£’000
23,406
2016
£’000
3,110
1,428
139
6,368
11,045
2016
£’000
-
-
2015
£’000
568
589
184
83
1,424
2015
£’000
21,199
2015
£’000
2,819
513
332
3,505
7,169
2015
£’000
113
113
Total trade and other payables
11,045
7,282
The deferred consideration due after one year related to an amount payable for the acquisition of the Alerpharma group. This
was settled within the current year.
85
© Allergy Therapeutics plcwww.allergytherapeutics.com
22. BORROWINGS
Due within one year
Bank Loans
Due in more than one year
Bank Loans
2016
£’000
295
295
2016
£’000
3,070
3,070
2015
£’000
251
251
2015
£’000
1,433
1,433
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 2017. The overdraft was unused at 30 June 2016 (2015: Nil).
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
Bank Inter (1)
Bank Inter (2)
Santander (1)
Tecnoalcala
Santander (2)
Fixed rate of 2.5%
Capital Repayments Due
<1Year
£’000
1-5 Years
£’000
>5 Years
£’000
121
39
111
24
-
295
442
154
460
97
1,054
2,207
-
182
28
48
605
863
During the year, Allergy Therapeutics Iberica SL took out a new loan with Santander for €2m at a fixed rate of 2.5% for a term of 7
years with a 2-year capital repayment delay. A warranty with regard to this new loan was provided by Allergy Therapeutics plc.
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
At 30 June
2016
Total
£’000
211
27
(19)
38
257
2015
Total
£’000
222
25
(9)
(27)
211
The provision is undiscounted as it is not possible to accurately estimate when this liability might fall due, and the value would
not be materially different if it were discounted.
86
© Allergy Therapeutics plcwww.allergytherapeutics.com
24. FINANCIAL INSTRUMENTS
Risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst
maximising the return to 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
2016
£’000
30,324
30,324
3,365
33,689
2015
£’000
34,469
34,469
1,684
36,153
Capital-to-overall financing ratio
0.90
0.95
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
At amortised cost (including borrowings and payables)
Fair value through profit and loss – held for trading
Non current
At amortised cost (including borrowings and payables)
Derivative financial instruments
2016
£’000
28,922
-
28,922
(11,340)
(1,180)
(12,520)
(3,327)
(15,847)
2015
£’000
25,429
783
26,212
(3,915)
-
(3,915)
(1,757)
(5,672)
The Group uses derivative financial instruments to mitigate the effects of exchange rate exposure through the use of forward
exchange contracts.
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 €19,714,000 to purchase GBP at an average
blended rate of 1.2849 for dates from July 2016 until May 2017.
87
© Allergy Therapeutics plcwww.allergytherapeutics.com Analysis of Derivative Financial Instruments
Credit/(Charge) to administration expenses in the Consolidated Income Statement
Euro forward contracts
Euro forward contracts - matured in the period
2016
£’000
(1,963)
519
(1,444)
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
Current liabilities
Derivative financial instruments
- Euro forward contracts
2016
£’000
-
-
(1,180)
(1,180)
2015
£’000
438
618
1,056
2015
£’000
783
783
-
-
The net loss at fair value of financial instruments held at the balance sheet date that has been recorded through the consolidated
income statement is £1,963,000 (2015 gain: £438,000).
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)
and Swiss francs (which is the functional currency of the Swiss 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. Subsequent to the year end, an amount of US$ 10.6m was converted to sterling.
The Group carries bank balances in the following currencies:
2016
£’000
8,423
3,496
11,233
9
245
2015
£’000
148
2,286
18,617
1
147
23,406
21,199
Sterling
Euro
US dollars
Canadian dollars
Swiss franc
88
© Allergy Therapeutics plcwww.allergytherapeutics.com
Foreign currency denominated financial assets and liabilities, translated into sterling at closing rates, are as follows:
Sterling
£’000
9,637
(5,351)
2016
Euro
£’000
7,558
(6,966)
Other
£’000
11,727
(203)
Sterling
£’000
965
(1,800)
2015
Euro
£’000
5,837
(1,042)
Other
£’000
18,973
(426)
Current
Financial assets
Financial liabilities
Short term exposure
4,286
592
11,523
(835)
4,795
18,547
Non- current
Financial liabilities
Long term exposure
-
-
(3,327)
(3,327)
-
-
-
-
(1,757)
(1,757)
-
-
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 2015, 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
2016
£’000
10%
635
(470)
165
10%
(776)
686
(90)
2015
£’000
10%
(256)
(181)
(437)
10%
313
221
534
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.
89
© Allergy Therapeutics plcwww.allergytherapeutics.com Movement in net results for the year
Equity
Credit risk
2016
£’000
+ 1%
(9)
-
(9)
2016
£’000
- 1%
n/a
n/a
n/a
2015
£’000
+ 1%
(6)
-
(6)
2015
£’000
- 1%
n/a
n/a
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.
The credit quality of financial assets that are not past due or impaired are regularly reviewed by Management.
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 2017. As at 30 June 2016 the Group’s contractual maturities
(undiscounted and including interest) are summarised as follows:
Current liabilities
Borrowing facility
Trade payables
Other short term liabilities
Derivatives
Non-current liabilities
Borrowing facility
Other long term liabilities
90
2016
£’000
Within 6
months
159
3,110
7,716
2016
£’000
6 to 12
months
159
-
-
10,985
159
817
11,802
2016
£’000
363
522
2016
£’000
2015
£’000
Within 6
months
135
3,017
4,152
7,304
-
7,304
2015
£’000
2015
£’000
6 to 12
months
135
-
-
135
-
135
2015
£’000
1 to 5 years
Later than 5
years
1 to 5 years
Later than 5
years
2,422
236
2,658
916
-
916
1,079
324
1,403
520
-
520
© Allergy Therapeutics plcwww.allergytherapeutics.com 25. OPERATING LEASE COMMITMENTS
The following payments are due to be made on operating lease commitments:
Land & buildings
2016
£’000
740
2,139
868
3,747
2015
£’000
636
1,793
840
3,269
Other
2016
£’000
462
1,080
99
1,641
2015
£’000
319
314
-
633
Total
2016
£’000
1,202
3,219
967
5,388
2015
£’000
955
2,107
840
3,902
Within one year
Two to five years
Over five years
Of the operating lease commitments for the land and buildings of £3,747,000 (2015: £3,270,000), £2,910,000 relates to the UK
premises (2015: £2,376,000). The production facility accounts for £2,583,000 (2015: £2,118,000) of this commitment and expires
in December 2023. Premises in Spain account for £132,000 (2015: £103,000) expiring in 2020 and in Germany for £316,000 (2015:
£81,000) expiring in June 2017.
Of the other commitments, £1,150,000 (2015: £400,000) relates to leased vehicles all expiring within 5 years and £99,000 relates to
leased vehicles all expiring over 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 £341,000 (2015: £329,000).
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 2016. 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
2016
% pa
1.5
3.5
1.5
2.45
1.45
3.5
Years
19.6
23.7
39.4
44.4
2015
% pa
1.5
3.0
1.5
3.05
2.45
3.0
Years
19.4
23.6
39.2
44.3
91
© Allergy Therapeutics plcwww.allergytherapeutics.com The assets in the scheme and the expected rates of return were as follows:
Fair value of plan assets
Present value of scheme liabilities
Deficit in the scheme
2016
£’000
1,248
(11,422)
(10,174)
2015
£’000
1,045
(7,800)
(6,755)
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 £10.2m (2015: £6.8m). 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 gain on plan assets for the year is £38,000 (2015: loss
£108,000). The pension charge generates an unrecognised deferred tax asset of £2,021,000 (2015: £1,185,000), 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.
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
2016
£’000
2015
£’000
251
220
(26)
197
171
11
110
(1,809)
(1,688)
(3,713)
(5,401)
(39)
230
191
(147)
60
(845)
(932)
(2,781)
(3,713)
Cumulative net movement recognised
(5,401)
(3,713)
92
© Allergy Therapeutics plcwww.allergytherapeutics.com Movement in assets during the year
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
The expected contributions over the forthcoming year are £57,000.
2016
£’000
1,045
185
26
11
17
(36)
1,248
2015
£’000
1,335
(142)
39
(147)
18
(58)
1,045
2016
2015
£’000
£’000
(7,800)
(1,621)
(251)
(197)
(1,699)
110
36
(7,753)
1,027
(220)
(230)
(785)
103
58
(11,422)
(7,800)
93
© Allergy Therapeutics plcwww.allergytherapeutics.com
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 2016:
Changes in the significant actuarial
assumptions
Discount rate
2016
£’000
2016
£’000
2015
£’000
2015
£’000
Increase to
2.45%
Decrease to
0.45%
Increase to
3.45%
Decrease to
1.45%
(Decrease)/ increase in the defined benefit liability
(2,020)
2,484
(1,008)
1,159
Salary Growth rate
Increase to
4.50%
Decrease to
2.50%
Increase to
4.00%
Decrease to
2.00%
Increase/ (decrease) in the defined benefit liability
564
(517)
395
(362)
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
441
(433)
249
(246)
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
478
(475)
281
(282)
27. ISSUED SHARE CAPITAL
Authorised share capital
Ordinary shares of 0.10p each
2016
Shares
2016
£’000
2015
Shares
2015
£’000
1 July and 30 June
790,151,667
790
790,151,667
790
Deferred shares of 0.10p each
1 July and 30 June
9,848,333
10
9,848,333
10
Issued and fully paid
Ordinary shares of 0.10p
At 1 July
545,847,919
546
409,866,831
Issued during the year:
Share options exercised
Conversion of convertible loan
Share placing
At 30 June
94
2,305,089
-
41,005,500
589,158,508
2
-
41
589
188,500
41,674,938
94,117,650
545,847,919
410
-
42
94
546
© Allergy Therapeutics plcwww.allergytherapeutics.com
Issued and fully paid
Deferred shares of 0.10p
At 1 July
Issued during the year
At 30 June
2016
Shares
9,848,333
-
9,848,333
2016
£’000
2015
Shares
2015
£’000
10
-
10
9,848,333
-
9,848,333
10
-
10
Issued share capital
599,006,841
599
555,696,252
556
The deferred shares have no voting rights, dividend rights or value attached to them.
Share options were exercised in the year with proceeds of £2,000 (2015: £34,000).
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).
On 31 March 2015 the convertible loan was repaid and on the same date 41,674,938 shares at a fixed price of 9.7p per share were
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.
On 17 November 2015, 41,005,500 new ordinary shares of 0.1 pence each were placed with institutional and other investors at a fixed
price of 28p per share, raising £11 million net for the purpose of investing in new product development.
95
© Allergy Therapeutics plcwww.allergytherapeutics.com 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.
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 no LTIP grants were awarded.
For the following outstanding share options disclosure, LTIP awards and nil cost options (which have a nil exercise price) have been
disclosed separately to avoid distorting the weighted average exercise price (WAEP):
2016 WAEP
2015 WAEP
Outstanding at the beginning of the year
852,539
0.14
Number
Price (£)
Exercised during the year
Lapsed during the year
Outstanding at the year end
Exercisable at the year end
-
-
852,539
852,539
-
-
0.14
0.14
Number
881,105
(188,500)
159,934
852,539
852,539
Price (£)
0.17
-
0.49
0.14
0.14
None of the above share options were exercised during the year. The weighted average share price at the date of exercise for the
previous year was 22.3p.
The share options outstanding at the end of the year detailed above have a weighted average remaining contractual life of 1.3 years
(2015: 2.3 years) and have the following range of exercise prices:
30 June 2016
30 June 2015
Number
852,239
Number
852,539
Exercise price (p)
6-45
96
© Allergy Therapeutics plcwww.allergytherapeutics.com The movement in nil cost options during the year was as follows:-
Outstanding at the beginning of the year
Converted in the year from LTIPs
Exercised during the year
Outstanding at the year end
Exercisable at the year end
2016
Number
-
8,475,120
(2,305,082)
6,170,038
6,170,038
2015
Number
-
-
-
-
-
For nil cost options exercised during the year, the weighted average share price at the date of exercise was £0.25
(2015: No options exercised)
Outstanding shares provisionally awarded under the Long Term Incentive Plan, with a low cost exercise price, are as follows:
Outstanding at the beginning of the year
Awarded during the year
Converted to options
Forfeited during the year
Outstanding at the year end
2016
Number
2015
Number
22,192,500
19,112,500
-
6,955,000
(8,475,120)
-
(1,854,880)
(3,875,000)
11,862,500
22,192,500
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
Plan cycle
End of plan
Expected
Exercise
grant
(yrs)
cycle
life (yrs)
price (£)
Share
price at
grant (£)
Probability
of meeting
Probability of
awards
vesting
Fair value
Number
performance
-allowing for
(£)
outstanding
tests (%)
expected
leavers (%)
01/10/2014
19/05/2014
3
3
30/06/17
25/03/17*
3
3
0.0000
0.192
0.0000
0.205
36.75
36.75
33.1
33.5
0.070
6,207,500
0.075
5,655,000
*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 2016.
The Group recognised total expenses of £327,000 (2015: £406,000) related to equity-settled share based payment transactions
during the year.
97
© Allergy Therapeutics plcwww.allergytherapeutics.com 29. ACQUISITIONS
In the prior 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 owned the Spanish-based
allergy immunotherapy company Instituto de Immunologia y Alergia, S.A.U. (“Inmunal”). Inmunal was 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.
Legal and professional fees associated with the acquisition recognised during the year amounted to £84,000 (2015: £205,000).
These were shown under administration costs within the consolidated income statement.
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 2016 was €107,426; £89,099 (2015:
€107,426; £75,839).
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.
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 at that time, now £1.2m) 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 2016, no provision has been recognised for the repayment of the rebate refund. This position will be kept under review.
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. Subsequent to this announcement, the Group has been advised that an appeal has been lodged at the EU
Court against this decision. If successful, and the exemptions are determined to be illegal state aid, then the exemption refunds
may have to be repaid. The maximum sum to be repaid would be approximately £5m (including the £1.2m referred to above);
however, the Group considers this to be an unlikely outcome and consequently has not recognised any provision as a result.
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 2016
30 June 2015
£’000
227
£’000
635
Included in the above is £78,000 for on-going factory refurbishments in the UK (2015: £57,000); £106,000 for new plant and
machinery (2015: £406,000) and £43,000 for IT equipment and systems upgrades (2015: £172,000).
98
© Allergy Therapeutics plcwww.allergytherapeutics.com 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 47.
At 30 June 2016, 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 UK
Holding Company
100
Allergy Therapeutics (UK) Ltd UK
Manufacture and sale of
pharmaceutical products
100
Bencard Allergie GmbH Germany
Sale of pharmaceutical products
100
Bencard Allergie (Austria) GmbH Austria
Sale of pharmaceutical products
100
Allergy Therapeutics Italia s.r.l.
Italy
Sale of pharmaceutical products
100
Allergy Therapeutics Iberica S.L.
Spain
Sale of pharmaceutical products
100
Teomed A.G.
Switzerland
Sale of pharmaceutical products
100
Allergy Therapeutics Netherlands BV
Netherlands
Sale of pharmaceutical products
100
Allergy Therapeutics Argentina S.A. Argentina
Marketing of
pharmaceutical products
100
Bencard Allergy Therapeutics
Unipessoal LDA
Alerpharma S.A
Instituto de Immunologia y
Alergia, S.A.U. (“Inmunal”)
Portugal
Sale of pharmaceutical products
100
Spain
Spain
Sale of pharmaceutical products
100
Sale of pharmaceutical products
100
Immunal Unipessoal, Lda.
Portugal
Sale of pharmaceutical products
100
Ordinary and
deferred
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Dimedpharma S.L
Applied Molecular
Development S.A.
Allergenome S.L.
Spain
Spain
Spain
Sale of pharmaceutical products
100
Sale of pharmaceutical products
100
Research and development
100
Ordinary
Allergenome S.L. is a very small company with insignificant net assets therefore no disclosures have been made regarding non-controlling
interests regarding this company, on the grounds that the information is not material. During the year, the non-controlling interest in
Allergenome S.L. was purchased for a nominal sum. Alerpharma S.A. was successfully merged with the Spanish subsidiary, Allergy
Therapeutics Iberica S.L during the year.
99
© Allergy Therapeutics plcwww.allergytherapeutics.com During the year, Allergy Therapeutics Iberica SL took out a new loan with Santander for €2m at a fixed rate of 2.5% for a term of 7 years
with a 2-year capital repayment delay. A warranty with regard to this new loan was provided by Allergy Therapeutics Plc.During the year,
Group companies entered into the following transactions with related parties that are not members of the Group:
Related Party
Sales of goods
Amounts owed by/(to) related parties
Laboratorios Synthesis S.A.S.
Gynopharm de Venezuela C.A.
Laboratorio Internacional Argentino S.A.
Total
2016
£’000
-
-
-
-
2015
£’000
1
-
41
42
2016
£’000
(73)
(60)
-
(133)
2015
£’000
(73)
(60)
5
(128)
Laboratorios Synthesis S.A.S., Gynopharm de Venezuela C.A. and Laboratorio Internacional Argentino S.A. are wholly-owned
subsidiaries of CFR Pharmaceuticals SA. CFR Pharmaceuticals SA is a major investor in Allergy Therapeutics plc. There is no overall
ultimate controlling party.
Sales of goods to related parties were made on normal commercial terms.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been
made for doubtful debts in respect of the amounts owed by related parties.
There were no transactions between the parent company and Allergenome S.L.
100
© Allergy Therapeutics plcwww.allergytherapeutics.com Independent Auditor’s Report to the Members of Allergy Therapeutics plc (Company)
We have audited the parent company financial statements of Allergy Therapeutics Plc for the year ended 30 June 2016 which comprise
the Company Balance Sheet, Statement of Changes in Equity and the related notes. The financial reporting framework that has been
applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting
Practice) including FRS 101 “Reduced Disclosure Framework”.
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 Statement of Directors’ Responsibilities set out on page 44, the Directors are responsible for the
preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.
org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion the parent company financial statements:
•
•
•
give a true and fair view of the state of the company’s affairs as at 30 June 2016;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
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 financial
statements are prepared is consistent with the parent company 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:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
•
the parent company financial statements are not in agreement with the accounting records and returns; or
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 group financial statements of Allergy Therapeutics Plc for the year ended 30 June 2016.
Jonathan Maile
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Gatwick
23 September 2016
101
© Allergy Therapeutics plcwww.allergytherapeutics.com
Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors: amounts falling due within one year
Total assets
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves – EBT
Other reserves – share based payments
Profit and loss account
Total equity
Note
3
4
5
6
30 June
30 June
2016
£’000
2015
£’000
1,469
1,923
659
2,128
(241)
418
1,887
1,887
599
102,392
-
741
322
2,245
(204)
118
2,041
2,041
556
91,463
67
591
(101,845)
(90,636)
1,887
2,041
These financial statements were approved by the Board of Directors and authorised for issue on 23 September 2016 and were
signed on its behalf by
Manuel Llobet
Chief Executive Officer
Registered number: 05141592
Nicolas Wykeman
Finance Director
102
© Allergy Therapeutics plcwww.allergytherapeutics.com
Statement of Changes in Equity (Company)
Issued
Capital
Share
premium
Reserve -
shares held
in EBT
Reserve -
share based
payment
Reserve –
convertible
loan note
Retained
earnings
£’000
420
£’000
67,716
£’000
67
£’000
465
£’000
£’000
3,652
(70,805)
Total
equity
£’000
1,515
At 30 June 2014
Loss for the period
after tax
Transactions with
shareholders
-Convertible loan note
Conversion of loan
note to equity
Share based payments
Shares issued
Transfer of lapsed
options to
retained earnings
-
-
42
-
94
-
-
-
3,832
-
19,915
-
-
-
-
-
-
-
At 30 June 2015
556
91,463
67
Loss for the period
after tax
Share based payments
-
-
-
-
Shares issued
43
11,441
Share issue costs
Transfer of lapsed
options to retained
earnings
Transfer of EBT
reserve to retained
earnings
-
-
-
(512)
-
-
-
-
-
-
-
(67)
-
-
-
-
406
-
(280)
591
-
327
-
-
(177)
(3,652)
(222)
-
-
-
-
-
-
-
-
-
-
-
-
(19,803)
(19,803)
(86)
-
-
(86)
-
406
20,009
280
-
(90,636)
2,041
(11,453)
(11,453)
-
-
-
177
67
327
11,484
(512)
-
-
At 30 June 2016
599
102,392
-
741
-
(101,845)
1,887
103
© Allergy Therapeutics plcwww.allergytherapeutics.com Notes to Company Balance Sheet
1. ACCOUNTING POLICIES
Basis of preparation
The separate financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101,
‘Reduced Disclosure Framework’ (FRS 101) and the Companies Act 2006. FRS 101 sets out a reduced disclosure framework for
a ‘qualifying entity’ as defined in the standard which addresses the financial reporting requirements and disclosure exemptions
in the individual financial statements of qualifying entities that otherwise apply the recognition, measurement and disclosure
requirements of EU-adopted IFRS.
As permitted by the Companies Act, the separate financial statements have been prepared in accordance with applicable United
Kingdom accounting standards and under the historical cost convention.
These are the first financial statements of the Company prepared in accordance with FRS 101. The Company’s date of transition
to FRS 101 is 30 June 2014. The Company has notified its shareholders in writing about, and they do not object to, the use of the
disclosure exemptions used by the Company in these financial statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to business combinations, financial instruments, capital management, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements of Allergy Therapeutics PLC.
In accordance with section 408 of the Companies Act 2006, no separate income statement has been presented for the Company.
The principal accounting policies adopted in the preparation of this financial information are set out below. These policies have been
consistently applied to all the financial years presented, unless otherwise stated.
Going Concern
The Group has prepared detailed budgets, including cash flow projections, for the period to 30 September 2017. These projections
include assumptions on the trading performance of the operating business and the continued availability of the existing overdraft.
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 and Company 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.
Investments
Investments in shares in subsidiary undertakings are included at cost less any provision for impairment.
Foreign currencies
Transactions in foreign currencies are recorded using an average exchange rate for the period. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses
on translation are included in the profit or loss account.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less, tax.
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© Allergy Therapeutics plcwww.allergytherapeutics.com
Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates and laws that are expected to apply in the periods in which
timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Employee Benefit Trust (EBT)
The financial statements include the assets and liabilities of a trust set up for the benefit of the Group’s employees. The EBT has
acquired shares in the Company and these are deducted from total equity on the balance sheet at the cost of acquisition less
proceeds on disposal.
The balance in the EBT reserve brought forward from the prior year relates to the historic purchase and disposal of Company
shares. No transactions have passed through the EBT since 2009. There are no shares currently held by the EBT. The remaining
balance on the reserve was transferred to retained earnings at the reporting date.
Share based payments
Share based payments made in respect of the Company’s shares to employees of its subsidiaries are reported as an increase
in investment.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where
employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference
to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of
non-market vesting conditions (for example, profitability and sales growth targets).
If vesting periods or non-market based vesting conditions apply, the expense is allocated over the vesting period, based on the best
available estimate of share options expected to vest. Estimates are revised subsequently if there is any indication that the number
of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the
current period.
If market based vesting conditions apply, the expense is allocated over the relevant period, usually the period over which
performance is measured. Vesting assumptions and resulting expenses are fixed at the date of grant, regardless of whether
market conditions are actually met. Any adjustment for options which lapse prior to vesting is recognised in the current period. 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 the profit and loss reserve.
Full details of the Group’s share based payments are set out in Note 28 of the consolidated financial statements.
2. Loss for the financial period
The Company has taken advantage of s.408 of the Companies Act 2006 and has not included its own income statement in these
financial statements. The Company’s loss for the period was £11.5 million loss (2015: £19.8 million loss).
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© Allergy Therapeutics plcwww.allergytherapeutics.com 3. Investments
Cost
Investment brought forward
Additions
Diminution in value
Investment carried forward
Shares in subsidiary
undertaking
£’000
1,923
327
(781)
1,469
The additions relate to share based payments in respect of the Company’s shares to employees of its subsidiaries.
At 30 June 2016 the Company’s subsidiary undertakings were:
Subsidiary
undertaking
Country of incorporation
Principal activity
Allergy Therapeutics
(Holdings) Ltd
Allergy Therapeutics
(UK) Ltd
UK
UK
Holding Company
Manufacture and sale of
pharmaceutical products
Bencard Allergie GmbH
Germany
Sale of pharmaceutical products
Bencard Allergie
(Austria) GmbH
Allergy Therapeutics
Italia s.r.l.
Allergy Therapeutics
Iberica S.L.
Austria
Italy
Spain
Allergy Therapeutics
Netherlands BV
Allergy Therapeutics
Argentina S.A.
Bencard Allergy
Therapeutics Unipessoal
LDA
Teomed A.G.
Switzerland
Sale of pharmaceutical products
Netherlands
Sale of pharmaceutical products
Argentina
Marketing of pharmaceutical
products
Percentage
of
shares held
100
100
100
100
Class of
shares held
Ordinary and
deferred
Ordinary
Ordinary
Ordinary
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Sale of pharmaceutical products
Sale of pharmaceutical products
100
Ordinary
Sale of pharmaceutical products
Portugal
Sale of pharmaceutical products
100
Ordinary
Alerpharma S.A
Spain
Sale of pharmaceutical products
100
Ordinary
Instituto de
Immunologia y Alergia,
S.A.U. (“Inmunal”)
Immunal Unipessoal,
Lda.
Dimedpharma S.L
Applied Molecular
Development S.A.
Allergenome S.L.
Spain
Sale of pharmaceutical products
100
Ordinary
Portugal
Sale of pharmaceutical products
Spain
Spain
Spain
Sale of pharmaceutical products
Sale of pharmaceutical products
Research and development
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Allergy Therapeutics (Holdings) Ltd is fully owned by Allergy Therapeutics plc. All other subsidiary undertakings except Bencard
Allergie (Austria) GmbH and Allergy Therapeutics S.A. are fully owned by Allergy Therapeutics (Holdings) Ltd. Bencard Allergie
(Austria) GmbH is fully owned by Bencard Allergie GmbH.
106
© Allergy Therapeutics plcwww.allergytherapeutics.com During the year, the non-controlling interest in Allergenome S.L. was purchased for a nominal sum. Alerpharma S.A. was
successfully merged with the Spanish subsidiary, Allergy Therapeutics Iberica S.L during the year.
4. Debtors
Amounts falling due within one year
Amount owed by subsidiary undertakings
Prepayments and accrued income
30 June 2016
30 June 2015
£’000
£’000
170
489
659
278
44
322
The amount owed by subsidiary undertakings is stated net of provisions of £100,480,276 (2015: £89,689,092).
5. Creditors – amounts falling due within one year
Accruals
6. Called up share capital
30 June 2016
30 June 2015
£’000
241
241
£’000
204
204
Full details of the Company’s share capital are set out in Note 27 of the consolidated financial statements.
7. Share based payments
Allergy Therapeutics Plc (the Company) does not have any employees. All share based payments are recharged to the respective
Group employing subsidiary. Full details of the Company’s share based payments are set out in Note 28 of the consolidated
financial statements.
8. Directors’ emoluments
Full details of the Company’s Directors’ emoluments are set out in the Directors’ Remuneration Report on pages 46 to 48.
9. Contingent Liabilities
Full details of the Company’s contingent liabilities are set out in Note 30 of the consolidated financial statements.
10. Related party transactions
In accordance with the provisions of FRS101, the Company is exempt from the requirements in IAS 24 (Related party Disclosures)
to disclose related party transactions entered into between members of a group, as all parties to the transactions are wholly owned
by the Company Details of other related party transactions can be found in Note 32 to the Consolidated financial statements
11. FRS101 Transition
There have been no changes to the figures reported in the Company financial statements as a result of the adoption of FRS101.
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© Allergy Therapeutics plcwww.allergytherapeutics.com
Registrars
Capita IRG plc
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Bankers
The Royal Bank of Scotland plc
South East Corporate Centre
Turnpike House
123 High Street
Crawley West Sussex
RH10 1DQ
Public Relations Advisers
Consilium Strategic Communications
41 Lothbury
London
EC2R 7HG
Patent Attorneys
D Young & Co
120 Holborn
London
EC1N 2DY
Trademark Attorneys
Hoffman Eitle
Sardinia House
Sardinia Street
52 Lincoln’s Inn Fields
London
WC2A 3LZ
Arabellastrasse 4
D-811925 München
Germany
Shareholder Information
Registered office
Dominion Way
Worthing
West Sussex
BN14 8SA
Advisers
Nominated Adviser and Broker
Panmure Gordon & Co
1 New Change
London
EC4M 9AT
Auditor
Grant Thornton UK LLP
The Explorer Building
Fleming Way
Manor Royal
Crawley West Sussex
RH10 9GT
Lawyers
Covington and Burling LLP
265 Strand
London
WC2R 1BH
Cooley’s (UK) LLP
Dashwood
69 Old Broad Street
London
EC2M 1QS
Actuary
Swiss Life Pensions Management GmbH
Swiss Life Gruppe
Berliner Strasse 85
80805 München
Germany
108
© Allergy Therapeutics plcwww.allergytherapeutics.com Allergy Therapeutics plc
(Registered Company Number 05141592)
Dominion Way
Worthing
West Sussex
BN14 8SA
Tel: +44 (0)1903 844720
Fax: +44 (0)1903 844726
www.allergytherapeutics.com