Diurnal Group plc
Annual Report 2016

Plain-text annual report

(cid:100)(cid:346)e spec(cid:349)alt(cid:455) p(cid:346)ar(cid:373)aceu(cid:415)cal co(cid:373)pan(cid:455) tar(cid:336)e(cid:415)n(cid:336) pa(cid:415)ent needs (cid:349)n c(cid:346)ron(cid:349)c endocr(cid:349)ne d(cid:349)seases Diurnal Group plc Annual Report and Accounts 2016 Contents Strategic Report Hi(cid:336)hli(cid:336)hts Chairman’s statement (cid:115)ision(cid:853) strate(cid:336)(cid:455)(cid:853) markets and products (cid:75)pera(cid:415)onal re(cid:448)iew (cid:38)inancial re(cid:448)iew Governance Board of directors (cid:24)irectors’ report Corporate (cid:336)o(cid:448)ernance report Remunera(cid:415)on report Financial Statements Independent auditors’ report Consolidated income statement Consolidated statement of comprehensi(cid:448)e income Consolidated (cid:271)alance sheet 1 2 (cid:1008) (cid:1012) 10 Consolidated statement of chan(cid:336)es in e(cid:395)uit(cid:455) Consolidated cash (cid:327)ow statement (cid:69)otes to the consolidated (cid:302)nancial statements 12 1(cid:1008) 1(cid:1012) 21 Compan(cid:455) (cid:271)alance sheet Compan(cid:455) statement of chan(cid:336)es in e(cid:395)uit(cid:455) Compan(cid:455) cash (cid:327)ow statement (cid:69)otes to the compan(cid:455) (cid:302)nancial statements (cid:94)hareholder informa(cid:415)on (cid:4)nnual General (cid:68)ee(cid:415)ng (cid:69)o(cid:415)ce of annual (cid:336)eneral mee(cid:415)n(cid:336) 25 26 26 2(cid:1011) 2(cid:1012) 2(cid:1013) (cid:1007)0 (cid:1008)6 (cid:1008)(cid:1011) (cid:1008)(cid:1012) (cid:1008)(cid:1013) 51 52 Strategic Report Governance Financial Statements Highlights (cid:75)pera(cid:415)onal o(cid:448)er(cid:448)iew • Primary endpoint met in European pivotal study of Infacort® in paediatric Adrenal Insu(cid:312)ciency(cid:856) • (cid:38)irst pa(cid:415)ent treated in t(cid:346)e (cid:18)ompany(cid:859)s European P(cid:346)ase III trial of (cid:18)(cid:346)ronocort® in (cid:18)on(cid:336)enital Adrenal (cid:44)yperplasia(cid:853) follo(cid:449)in(cid:336) t(cid:346)e period end(cid:856) • (cid:38)irst pa(cid:415)ents treated in t(cid:346)e (cid:18)ompany(cid:859)s European open(cid:882)la(cid:271)el safety e(cid:454)tension studies of Infacort® in paediatric Adrenal Insu(cid:312)ciency and (cid:18)(cid:346)ronocort® in (cid:18)on(cid:336)enital Adrenal (cid:44)yperplasia(cid:856) • Ini(cid:415)al Pu(cid:271)lic (cid:75)(cid:299)erin(cid:336) on t(cid:346)e Alterna(cid:415)ve Investment (cid:68)ar(cid:364)et (cid:894)(cid:862)AI(cid:68)(cid:863)(cid:895) of t(cid:346)e (cid:62)ondon (cid:94)toc(cid:364) E(cid:454)c(cid:346)an(cid:336)e in (cid:24)ecem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:853) raisin(cid:336) (cid:940)(cid:1007)(cid:1004)m (cid:271)efore e(cid:454)penses via a placin(cid:336) of ne(cid:449) ordinary s(cid:346)ares and a conver(cid:415)(cid:271)le loan(cid:856) • (cid:94)tren(cid:336)t(cid:346)enin(cid:336) of t(cid:346)e (cid:17)oard (cid:449)it(cid:346) t(cid:346)e appointment of Peter Allen as (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:18)(cid:346)airman and (cid:58)o(cid:346)n (cid:39)oddard as (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:24)irector(cid:856) (cid:38)inancial o(cid:448)er(cid:448)iew • (cid:75)pera(cid:415)n(cid:336) loss of (cid:940)(cid:1011)(cid:856)(cid:1004)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009) (cid:1005)(cid:1007) mont(cid:346)s(cid:855) (cid:940)(cid:1007)(cid:856)(cid:1004)m(cid:895) re(cid:327)ec(cid:415)n(cid:336) investment in increased clinical and development ac(cid:415)vi(cid:415)es to(cid:336)et(cid:346)er (cid:449)it(cid:346) investment in over(cid:346)eads to support t(cid:346)e an(cid:415)cipated (cid:336)ro(cid:449)t(cid:346) and development of t(cid:346)e (cid:271)usiness and includin(cid:336) (cid:940)(cid:1005)(cid:856)(cid:1009)m of one(cid:882)o(cid:299)(cid:853) s(cid:346)are op(cid:415)on related and non(cid:882)cas(cid:346) e(cid:454)penses(cid:856) • (cid:44)eld to maturity (cid:302)nancial assets(cid:853) cas(cid:346) and cas(cid:346) e(cid:395)uivalents at (cid:1007)(cid:1004) (cid:58)une (cid:1006)(cid:1004)(cid:1005)(cid:1010) of (cid:940)(cid:1007)(cid:1004)(cid:856)(cid:1005)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1010)(cid:856)(cid:1005)m(cid:895) follo(cid:449)in(cid:336) t(cid:346)e successful AI(cid:68) IP(cid:75) and fundraisin(cid:336)(cid:856) • (cid:69)et assets of (cid:940)(cid:1006)(cid:1009)(cid:856)(cid:1013)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1010)(cid:856)(cid:1004)m(cid:895)(cid:856) • (cid:69)et cas(cid:346) used in opera(cid:415)n(cid:336) ac(cid:415)vi(cid:415)es (cid:449)as (cid:940)(cid:1009)(cid:856)(cid:1005)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009) (cid:1005)(cid:1007) mont(cid:346)s(cid:855) (cid:940)(cid:1006)(cid:856)(cid:1013)m(cid:895)(cid:856) Diurnal Group plc Annual Report and Accounts 2016 1 Chairman’s statement (cid:862)It is (cid:24)iurnal’s am(cid:271)i(cid:415)on to de(cid:448)elop a product franchise that can treat pa(cid:415)ents with all forms of cor(cid:415)sol de(cid:302)cienc(cid:455).(cid:863) I am pleased to provide my inau(cid:336)ural (cid:18)(cid:346)airman(cid:859)s statement and t(cid:346)e (cid:302)rst for (cid:24)iurnal (cid:39)roup plc as a pu(cid:271)lic company(cid:856) (cid:100)(cid:346)is (cid:302)nancial year (cid:346)as (cid:271)een transforma(cid:415)onal as (cid:449)e e(cid:454)ecuted our Ini(cid:415)al Pu(cid:271)lic (cid:75)(cid:299)erin(cid:336) (cid:894)IP(cid:75)(cid:895)(cid:853) providin(cid:336) t(cid:346)e (cid:39)roup (cid:449)it(cid:346) t(cid:346)e capital to accelerate product development to (cid:271)rin(cid:336) our novel products to mar(cid:364)et(cid:856) I am e(cid:454)cited to (cid:271)e part of (cid:24)iurnal (cid:449)it(cid:346) its entrepreneurial and pa(cid:415)ent(cid:882)centric approac(cid:346)(cid:853) com(cid:271)ined (cid:449)it(cid:346) its interna(cid:415)onal net(cid:449)or(cid:364) of e(cid:454)perts(cid:853) (cid:449)(cid:346)ic(cid:346) (cid:346)ave ena(cid:271)led t(cid:346)e development of a (cid:271)alanced late(cid:882)sta(cid:336)e por(cid:414)olio of prospects and provide a solid pla(cid:414)orm from (cid:449)(cid:346)ic(cid:346) (cid:449)e can con(cid:302)dently (cid:271)uild a proprietary endocrinolo(cid:336)y franc(cid:346)ise(cid:856) (cid:24)iurnal aims to develop and commercialise products to address unmet pa(cid:415)ent needs in c(cid:346)ronic endocrine (cid:894)(cid:346)ormonal(cid:895) diseases(cid:853) typically (cid:449)(cid:346)ere t(cid:346)ere is eit(cid:346)er no licensed medicine or (cid:449)(cid:346)ere current treatment does not su(cid:312)ciently improve t(cid:346)e pa(cid:415)ents(cid:859) (cid:346)ealt(cid:346)(cid:856) (cid:24)iurnal (cid:346)as iden(cid:415)(cid:302)ed a num(cid:271)er of suc(cid:346) needs (cid:449)it(cid:346)in t(cid:346)e (cid:302)eld of endocrinolo(cid:336)y(cid:853) (cid:449)(cid:346)ic(cid:346) t(cid:346)e (cid:39)roup (cid:271)elieves represents a mul(cid:415)(cid:882)(cid:271)illion dollar com(cid:271)ined mar(cid:364)et opportunity(cid:856) (cid:100)(cid:346)e (cid:39)roup intends to address t(cid:346)ese mar(cid:364)et opportuni(cid:415)es t(cid:346)rou(cid:336)(cid:346) t(cid:346)e development of its late(cid:882)sta(cid:336)e pipeline(cid:853) (cid:271)y (cid:302)nalisin(cid:336) its commercialisa(cid:415)on plans in Europe(cid:853) to (cid:271)e follo(cid:449)ed (cid:271)y t(cid:346)e (cid:104)(cid:94)(cid:853) t(cid:346)rou(cid:336)(cid:346) development of its early(cid:882) sta(cid:336)e pipeline and(cid:853) lon(cid:336)er(cid:882)term(cid:853) t(cid:346)rou(cid:336)(cid:346) in(cid:882)licensin(cid:336) and ac(cid:395)uisi(cid:415)ons(cid:856) In (cid:24)ecem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:853) (cid:24)iurnal successfully completed an Ini(cid:415)al Pu(cid:271)lic (cid:75)(cid:299)erin(cid:336) (cid:894)IP(cid:75)(cid:895) on t(cid:346)e Alterna(cid:415)ve Investment (cid:68)ar(cid:364)et (cid:894)AI(cid:68)(cid:895) of t(cid:346)e (cid:62)ondon (cid:94)toc(cid:364) E(cid:454)c(cid:346)an(cid:336)e(cid:853) raisin(cid:336) (cid:940)(cid:1007)(cid:1004)m from ne(cid:449) and e(cid:454)is(cid:415)n(cid:336)(cid:853) lon(cid:336)(cid:882)term investors(cid:856) (cid:100)(cid:346)ese monies ena(cid:271)le t(cid:346)e (cid:39)roup to con(cid:415)nue to pursue its vision of (cid:271)ecomin(cid:336) a (cid:449)orld(cid:882) leadin(cid:336) endocrinolo(cid:336)y speciality p(cid:346)armaceu(cid:415)cal (cid:336)roup(cid:856) In t(cid:346)e near term(cid:853) fundin(cid:336) from t(cid:346)e IP(cid:75) allo(cid:449)s (cid:24)iurnal to maintain t(cid:346)e momentum (cid:271)e(cid:346)ind its late(cid:882)sta(cid:336)e development pro(cid:336)rammes for treatments tar(cid:336)e(cid:415)n(cid:336) indica(cid:415)ons of cor(cid:415)sol de(cid:302)ciency(cid:856) (cid:18)or(cid:415)sol is an essen(cid:415)al (cid:346)ormone for (cid:346)ealt(cid:346) in re(cid:336)ula(cid:415)n(cid:336) meta(cid:271)olism(cid:853) (cid:336)ro(cid:449)t(cid:346)(cid:853) fer(cid:415)lity and t(cid:346)e response to stress(cid:856) It is (cid:24)iurnal(cid:859)s am(cid:271)i(cid:415)on to develop a product franc(cid:346)ise t(cid:346)at can treat pa(cid:415)ents (cid:449)it(cid:346) all forms of cor(cid:415)sol de(cid:302)ciency(cid:856) (cid:24)iurnal an(cid:415)cipates its (cid:302)rst mar(cid:364)et aut(cid:346)orisa(cid:415)on in Europe to(cid:449)ards t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856) 2 Strategic Report Governance Financial Statements I am pleased (cid:449)it(cid:346) t(cid:346)e si(cid:336)ni(cid:302)cant clinical development pro(cid:336)ress in t(cid:346)e (cid:39)roup(cid:859)s late(cid:882)sta(cid:336)e pipeline products durin(cid:336) t(cid:346)e year(cid:853) (cid:449)it(cid:346) (cid:18)(cid:346)ronocort® commencin(cid:336) a pivotal P(cid:346)ase III clinical trial in Europe and Infacort® repor(cid:415)n(cid:336) posi(cid:415)ve (cid:346)eadline data from a pivotal P(cid:346)ase III clinical trial also in Europe(cid:856) Infacort® (cid:346)as t(cid:346)e poten(cid:415)al to (cid:271)e t(cid:346)e (cid:302)rst licensed treatment in Europe for Adrenal Insu(cid:312)ciency (cid:894)AI(cid:895) (cid:894)includin(cid:336) (cid:18)on(cid:336)enital Adrenal (cid:44)ypoplasia (cid:894)(cid:18)A(cid:44)(cid:895)(cid:895) speci(cid:302)cally desi(cid:336)ned for use in c(cid:346)ildren under si(cid:454) years of a(cid:336)e(cid:856) (cid:18)(cid:346)ronocort® (cid:346)as t(cid:346)e poten(cid:415)al to (cid:271)e t(cid:346)e (cid:302)rst product candidate for adults (cid:449)it(cid:346) (cid:18)A(cid:44) to mimic t(cid:346)e natural cor(cid:415)sol circadian r(cid:346)yt(cid:346)m(cid:853) t(cid:346)erefore improvin(cid:336) disease control(cid:856) In t(cid:346)e (cid:104)(cid:94)(cid:853) Infacort® and (cid:18)(cid:346)ronocort® are e(cid:454)pected to commence P(cid:346)ase III clinical development in (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856) (cid:24)urin(cid:336) t(cid:346)e period(cid:853) (cid:24)iurnal en(cid:346)anced its (cid:17)oard (cid:449)it(cid:346) t(cid:346)e appointment of (cid:58)o(cid:346)n (cid:39)oddard as (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:24)irector and (cid:18)(cid:346)airman of t(cid:346)e Audit (cid:18)ommi(cid:425)ee(cid:856) (cid:58)o(cid:346)n(cid:859)s e(cid:454)tensive (cid:302)nancial(cid:853) accoun(cid:415)n(cid:336)(cid:853) strate(cid:336)ic plannin(cid:336) and (cid:271)usiness development e(cid:454)perience in t(cid:346)e (cid:336)lo(cid:271)al p(cid:346)armaceu(cid:415)cals industry (cid:449)ill (cid:271)e invalua(cid:271)le as (cid:449)e em(cid:271)ar(cid:364) on our ne(cid:454)t sta(cid:336)e of (cid:336)ro(cid:449)t(cid:346)(cid:856) (cid:24)iurnal also con(cid:415)nues to develop its earlier(cid:882)sta(cid:336)e pipeline(cid:853) (cid:449)it(cid:346) t(cid:346)e (cid:39)roup o(cid:271)tainin(cid:336) t(cid:346)e ri(cid:336)(cid:346)ts to t(cid:346)e orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)on for an oli(cid:336)onucleo(cid:415)de t(cid:346)erapy for t(cid:346)e poten(cid:415)al treatment of (cid:18)us(cid:346)in(cid:336)(cid:859)s (cid:24)isease (cid:894)cor(cid:415)sol e(cid:454)cess(cid:895) in (cid:68)ay (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) In addi(cid:415)on(cid:853) (cid:24)iurnal(cid:859)s oral na(cid:415)ve testosterone product is sc(cid:346)eduled to enter (cid:346)uman clinical trials imminently(cid:856) (cid:100)(cid:346)e (cid:17)oard (cid:449)ill con(cid:415)nue to monitor t(cid:346)e poten(cid:415)al e(cid:299)ects of t(cid:346)e (cid:1006)(cid:1007) (cid:58)une (cid:1006)(cid:1004)(cid:1005)(cid:1010) (cid:104)(cid:60) referendum result on t(cid:346)e (cid:39)roup(cid:859)s (cid:271)usiness and in par(cid:415)cular any impact on t(cid:346)e re(cid:336)ulatory frame(cid:449)or(cid:364) for p(cid:346)armaceu(cid:415)cal product development(cid:853) approval and commercialisa(cid:415)on(cid:856) I (cid:449)ould li(cid:364)e to t(cid:346)an(cid:364) our employees for t(cid:346)eir con(cid:415)nued support and (cid:346)ard (cid:449)or(cid:364) in drivin(cid:336) t(cid:346)e (cid:18)ompany(cid:859)s pro(cid:336)ress to(cid:449)ards commercialisin(cid:336) t(cid:346)e (cid:39)roup(cid:859)s (cid:302)rst products(cid:856) (cid:24)espite t(cid:346)e distrac(cid:415)on of t(cid:346)e IP(cid:75)(cid:853) t(cid:346)e (cid:39)roup(cid:859)s late(cid:882)sta(cid:336)e products(cid:853) Infacort® and (cid:18)(cid:346)ronocort®(cid:853) con(cid:415)nued to pro(cid:336)ress accordin(cid:336) to plan in Europe and (cid:449)e are (cid:449)or(cid:364)in(cid:336) (cid:449)it(cid:346) t(cid:346)e (cid:38)(cid:24)A to desi(cid:336)n t(cid:346)e op(cid:415)mal clinical pat(cid:346)(cid:449)ay to(cid:449)ards re(cid:336)ulatory approval in t(cid:346)e (cid:104)(cid:94)(cid:856) I (cid:449)ould also li(cid:364)e to t(cid:346)an(cid:364) my fello(cid:449) (cid:17)oard mem(cid:271)ers for t(cid:346)e pro(cid:336)ress made t(cid:346)is year in formula(cid:415)n(cid:336) t(cid:346)e founda(cid:415)ons of a strate(cid:336)y t(cid:346)at (cid:449)ill ensure con(cid:415)nued and sustaina(cid:271)le (cid:336)ro(cid:449)t(cid:346) from our pipeline(cid:856) (cid:38)inally(cid:853) I (cid:449)ould li(cid:364)e to t(cid:346)an(cid:364) our s(cid:346)are(cid:346)olders for t(cid:346)eir con(cid:415)nued support as (cid:24)iurnal aims to ma(cid:364)e a real di(cid:299)erence to pa(cid:415)ents (cid:449)it(cid:346)out e(cid:299)ec(cid:415)ve treatment op(cid:415)ons for c(cid:346)ronic endocrine diseases(cid:856) Peter Allen Chairman 11 October 2016 Diurnal Group plc Annual Report and Accounts 2016 3 Vision, strategy, markets and products Our markets Our Vision (cid:100)o (cid:271)ecome t(cid:346)e (cid:449)orld(cid:859)s leadin(cid:336) endocrinolo(cid:336)y specialty p(cid:346)arma company(cid:856) Our strategy (cid:100)o complete t(cid:346)e development of our late(cid:882)sta(cid:336)e (cid:862)Adrenal (cid:38)ranc(cid:346)ise(cid:863) and to commercialise t(cid:346)ese products in Europe and t(cid:346)e (cid:104)(cid:94)(cid:856) • • • • (cid:18)omplete P(cid:346)ase III trials for Infacort® and (cid:18)(cid:346)ronocort® in (cid:271)ot(cid:346) Europe and t(cid:346)e (cid:104)(cid:94)(cid:856) (cid:24)rive revenues from Infacort® and (cid:18)(cid:346)ronocort® in Europe (cid:894)approval of (cid:271)ot(cid:346) products an(cid:415)cipated in Europe (cid:271)y (cid:89)(cid:1008) (cid:1006)(cid:1004)(cid:1005)(cid:1012) and in t(cid:346)e (cid:104)(cid:94) (cid:271)y (cid:89)(cid:1008) (cid:1006)(cid:1004)(cid:1006)(cid:1005)(cid:895)(cid:856) Ini(cid:415)ate commercialisa(cid:415)on of Infacort® in Europe and t(cid:346)e (cid:104)(cid:94)(cid:856) E(cid:454)pand t(cid:346)e (cid:39)roup(cid:859)s commercial capa(cid:271)ility (cid:449)it(cid:346) (cid:18)(cid:346)ronocort® in Europe and t(cid:346)e (cid:104)(cid:94)(cid:856) • (cid:62)icense to rest of (cid:449)orld(cid:856) (cid:62)on(cid:336)er(cid:882)term(cid:853) to con(cid:415)nue our product por(cid:414)olio e(cid:454)pansion and diversi(cid:302)ca(cid:415)on t(cid:346)rou(cid:336)(cid:346) pipeline (cid:90)(cid:920)(cid:24)(cid:853) in(cid:882)licensin(cid:336) and ac(cid:395)uisi(cid:415)ons to tar(cid:336)et c(cid:346)ronic non(cid:882)dia(cid:271)e(cid:415)c endocrine diseases (cid:449)(cid:346)ere pa(cid:415)ent needs are not (cid:271)ein(cid:336) met sa(cid:415)sfactorily (cid:271)y current treatments and to accelerate our interna(cid:415)onal posi(cid:415)on(cid:856) • • (cid:100)a(cid:364)e advanta(cid:336)e of poten(cid:415)al or(cid:336)anic (cid:336)ro(cid:449)t(cid:346) opportuni(cid:415)es t(cid:346)rou(cid:336)(cid:346) t(cid:346)e indica(cid:415)on e(cid:454)pansion of our lead products and t(cid:346)e con(cid:415)nued development of our early sta(cid:336)e pipeline in t(cid:346)e areas of (cid:346)ypo(cid:336)onadism and (cid:346)ypot(cid:346)yroidism and (cid:18)us(cid:346)in(cid:336)(cid:859)s (cid:24)isease(cid:856) Evaluate strate(cid:336)ic opportuni(cid:415)es for poten(cid:415)al ac(cid:395)uisi(cid:415)ons of(cid:853) or com(cid:271)ina(cid:415)ons (cid:449)it(cid:346)(cid:853) ot(cid:346)er mar(cid:364)et par(cid:415)cipants (cid:449)(cid:346)ere t(cid:346)ese (cid:449)ould accelerate or add value to t(cid:346)e e(cid:454)is(cid:415)n(cid:336) plan(cid:856) 4 Congenital Adrenal Hyperplasia • • • • • An orp(cid:346)an condi(cid:415)on usually caused (cid:271)y de(cid:302)ciency of t(cid:346)e en(cid:460)yme (cid:1006)(cid:1005)(cid:882)(cid:346)ydro(cid:454)ylase(cid:853) re(cid:395)uired to produce t(cid:346)e adrenal steroid (cid:346)ormone(cid:853) cor(cid:415)sol(cid:856) (cid:100)(cid:346)e (cid:271)loc(cid:364) in t(cid:346)e cor(cid:415)sol produc(cid:415)on pat(cid:346)(cid:449)ay causes t(cid:346)e over(cid:882) produc(cid:415)on of male steroid (cid:346)ormones (cid:894)andro(cid:336)ens(cid:895)(cid:853) (cid:449)(cid:346)ic(cid:346) are precursors to cor(cid:415)sol(cid:856) (cid:100)(cid:346)e condi(cid:415)on is con(cid:336)enital (cid:894)in(cid:346)erited at (cid:271)irt(cid:346)(cid:895) and a(cid:299)ects (cid:271)ot(cid:346) se(cid:454)es(cid:856) (cid:100)(cid:346)e cor(cid:415)sol de(cid:302)ciency and over(cid:882)produc(cid:415)on of male se(cid:454) (cid:346)ormones can lead to increased mortality(cid:853) infer(cid:415)lity and severe development defects includin(cid:336) am(cid:271)i(cid:336)uous (cid:336)enitalia(cid:853) premature (cid:894)precocious(cid:895) se(cid:454)ual development and s(cid:346)ort stature(cid:856) (cid:94)u(cid:299)erers(cid:853) even if treated(cid:853) remain at ris(cid:364) of deat(cid:346) t(cid:346)rou(cid:336)(cid:346) an adrenal crisis(cid:856) (cid:100)(cid:346)e condi(cid:415)on is es(cid:415)mated to a(cid:299)ect a total of appro(cid:454)imately (cid:1011)(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004) pa(cid:415)ents in Europe (cid:894)(cid:1009)(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:895) and t(cid:346)e (cid:104)(cid:94) (cid:894)(cid:1006)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:895)(cid:853) (cid:449)it(cid:346) appro(cid:454)imately (cid:1008)(cid:1004)(cid:1009)(cid:853)(cid:1004)(cid:1004)(cid:1004) in t(cid:346)e rest of t(cid:346)e (cid:449)orld(cid:856) (cid:100)(cid:346)e E(cid:104) and (cid:104)(cid:94) mar(cid:364)ets are es(cid:415)mated to (cid:271)e (cid:449)ort(cid:346) a com(cid:271)ined (cid:936)(cid:1004)(cid:856)(cid:1009)(cid:271)n annually(cid:856) (cid:18)urrent t(cid:346)erapy for (cid:18)A(cid:44) uses a com(cid:271)ina(cid:415)on of (cid:336)eneric steroids (cid:894)(cid:346)ydrocor(cid:415)sone(cid:853) de(cid:454)amet(cid:346)asone and prednisolone(cid:895) and(cid:853) at (cid:271)est(cid:853) t(cid:346)ese ade(cid:395)uately treat appro(cid:454)imately one t(cid:346)ird of (cid:18)A(cid:44) pa(cid:415)ents(cid:856) (cid:75)t(cid:346)er t(cid:346)erapies (cid:271)ein(cid:336) developed are e(cid:454)perimental only and not e(cid:454)pected to receive approval in t(cid:346)e s(cid:346)ort(cid:882)term(cid:856) Strategic Report Governance Financial Statements Microcrystalline core Hydrocor(cid:2)sone layer Seal coat Taste-masking coat Adrenal (cid:47)nsu(cid:312)ciency Hypogonadism • • • • • • An orp(cid:346)an condi(cid:415)on t(cid:346)at results from a de(cid:302)ciency of cor(cid:415)sol secre(cid:415)on from t(cid:346)e adrenal (cid:336)land(cid:856) Primary AI results from diseases of t(cid:346)e adrenal (cid:336)land and secondary AI from pituitary diseases (cid:449)(cid:346)ere t(cid:346)ere is a failure of s(cid:415)mula(cid:415)on of t(cid:346)e adrenal(cid:856) In primary AI t(cid:346)e most common condi(cid:415)on is Addison(cid:859)s disease(cid:853) typically due to auto(cid:882)immune destruc(cid:415)on in t(cid:346)e (cid:449)estern (cid:449)orld and fre(cid:395)uently caused (cid:271)y tu(cid:271)erculosis in t(cid:346)e developin(cid:336) (cid:449)orld(cid:856) Addison(cid:859)s disease is es(cid:415)mated to a(cid:299)ect appro(cid:454)imately (cid:1010)(cid:1008)(cid:853)(cid:1004)(cid:1004)(cid:1004) su(cid:299)erers in Europe and (cid:1005)(cid:1010)(cid:853)(cid:1004)(cid:1004)(cid:1004) in t(cid:346)e (cid:104)(cid:94) (cid:449)it(cid:346) appro(cid:454)imately (cid:1011)(cid:1008)(cid:1010)(cid:853)(cid:1004)(cid:1004)(cid:1004) su(cid:299)erers in t(cid:346)e rest of t(cid:346)e (cid:449)orld(cid:856) In secondary AI (cid:894)(cid:346)ypopituitarism(cid:895)(cid:853) t(cid:346)e most common condi(cid:415)ons are (cid:271)eni(cid:336)n pituitary tumours or con(cid:336)enital disease in c(cid:346)ildren(cid:856) (cid:44)ypopituitarism is es(cid:415)mated to a(cid:299)ect appro(cid:454)imately (cid:1006)(cid:1007)(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004) su(cid:299)erers in Europe and (cid:1005)(cid:1004)(cid:1011)(cid:853)(cid:1004)(cid:1004)(cid:1004) in t(cid:346)e (cid:104)(cid:94) (cid:449)it(cid:346) appro(cid:454)imately (cid:1007)(cid:853)(cid:1004)(cid:1005)(cid:1009)(cid:853)(cid:1004)(cid:1004)(cid:1004) su(cid:299)erers in t(cid:346)e rest of t(cid:346)e (cid:449)orld(cid:856) (cid:100)(cid:346)e E(cid:104) and (cid:104)(cid:94) mar(cid:364)ets are es(cid:415)mated to (cid:271)e (cid:449)ort(cid:346) a com(cid:271)ined (cid:936)(cid:1006)(cid:856)(cid:1013)(cid:271)n annually(cid:856) (cid:18)urrent t(cid:346)erapy for AI includes a modi(cid:302)ed(cid:882)release formula(cid:415)on of (cid:346)ydrocor(cid:415)sone approved in Europe (cid:894)(cid:271)ut only availa(cid:271)le in certain European countries(cid:895) (cid:271)ased on its p(cid:346)armaco(cid:364)ine(cid:415)c pro(cid:302)le and (cid:449)(cid:346)ic(cid:346) does not provide a release pro(cid:302)le mimic(cid:364)in(cid:336) t(cid:346)e natural circadian r(cid:346)yt(cid:346)m of cor(cid:415)sol(cid:856) • • • • • • (cid:90)esults from failure of t(cid:346)e testes (cid:894)primary (cid:336)onadal failure(cid:895) or from failure of s(cid:415)mula(cid:415)on (cid:271)y t(cid:346)e pituitary (cid:894)secondary (cid:346)ypo(cid:336)onadism(cid:895)(cid:856) In primary (cid:346)ypo(cid:336)onadism(cid:853) failure of t(cid:346)e testes can (cid:271)e con(cid:336)enital (cid:894)in(cid:346)erited(cid:895) or ac(cid:395)uired durin(cid:336) life due to a variety of causes (cid:894)failure of t(cid:346)e testes to descend into t(cid:346)e scrotum(cid:853) in(cid:327)amma(cid:415)on due to infec(cid:415)ons suc(cid:346) as mumps(cid:853) c(cid:346)emot(cid:346)erapy or radiot(cid:346)erapy a(cid:299)ec(cid:415)n(cid:336) t(cid:346)e testes(cid:853) and follo(cid:449)in(cid:336) removal of t(cid:346)e testes for tes(cid:415)cular tumours(cid:895)(cid:856) (cid:94)econdary (cid:346)ypo(cid:336)onadism usually results from a (cid:271)eni(cid:336)n tumour of t(cid:346)e pituitary (cid:336)land t(cid:346)at causes (cid:346)ypopituitarism and may occasionally (cid:271)e con(cid:336)enital(cid:856) Prevalence es(cid:415)mates vary drama(cid:415)cally(cid:856) (cid:18)lear(cid:882)cut (cid:346)ypo(cid:336)onadism in youn(cid:336) men occurs in appro(cid:454)imately one per cent(cid:856) of t(cid:346)e popula(cid:415)on(cid:856) As testosterone falls (cid:449)it(cid:346) a(cid:336)in(cid:336) and in t(cid:346)e o(cid:271)ese(cid:853) prevalence ran(cid:336)es from (cid:1005)(cid:1006)(cid:1081) to (cid:1009)(cid:1004)(cid:1081) as a(cid:336)e increases(cid:856) (cid:100)(cid:346)e classical (cid:346)ypo(cid:336)onadism mar(cid:364)et in t(cid:346)e E(cid:104) and (cid:104)(cid:94) is primarily driven (cid:271)y topical formula(cid:415)ons(cid:853) (cid:449)(cid:346)ic(cid:346) t(cid:346)e (cid:24)irectors currently es(cid:415)mate to (cid:271)e of a value of (cid:936)(cid:1009)(cid:856)(cid:1012) (cid:271)illion in (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) (cid:100)reatment is testosterone replacement t(cid:346)erapy via intramuscular in(cid:361)ec(cid:415)ons(cid:853) testosterone patc(cid:346)es and testosterone (cid:336)els(cid:856) (cid:100)(cid:346)ere is some controversy over t(cid:346)e ris(cid:364)s and (cid:271)ene(cid:302)ts in replacin(cid:336) testosterone in older men (cid:894)includin(cid:336) t(cid:346)e poten(cid:415)al for cardiovascular disease(cid:895) and t(cid:346)e (cid:39)roup is focused on developin(cid:336) testosterone replacement for men (cid:449)it(cid:346) clearly(cid:882)de(cid:302)ned (cid:346)ypo(cid:336)onadism accordin(cid:336) to current clinical (cid:336)uidelines(cid:856) Diurnal Group plc Annual Report and Accounts 2016 5 Vision, strategy, markets and products con(cid:415)nued Our markets con(cid:415)nued Cost effec(cid:2)ve treatment May improve pa(cid:2)ent outcomes Improved drug treatments Overall benefits of chronotherapy Be(cid:3)er pa(cid:2)ent adherence Improved bioavailability Poten(cid:2)al for reduced side-effects Hypothyroidism Cushing’s Syndrome/Disease • • • • • (cid:44)ypot(cid:346)yroidism(cid:853) caused (cid:271)y a(cid:271)normal levels of t(cid:346)yro(cid:454)ine (cid:894)(cid:100)(cid:1008)(cid:895) and triiodot(cid:346)yronine (cid:894)(cid:100)(cid:1007)(cid:895) in t(cid:346)e (cid:271)lood stream(cid:856) Primary (cid:346)ypot(cid:346)yroidism can (cid:271)e a result of dysfunc(cid:415)on of t(cid:346)e t(cid:346)yroid (cid:336)land(cid:853) (cid:449)it(cid:346) t(cid:346)e most common cause (cid:271)ein(cid:336) autoimmune destruc(cid:415)on of t(cid:346)e t(cid:346)yroid (cid:336)land(cid:856) (cid:62)ess commonly secondary (cid:346)ypot(cid:346)yroidism can (cid:271)e a result of failure of t(cid:346)e pituitary(cid:853) (cid:449)(cid:346)ic(cid:346) s(cid:415)mulates t(cid:346)e t(cid:346)yroid(cid:856) (cid:100)(cid:346)e most common causes are (cid:271)eni(cid:336)n pituitary tumours or sur(cid:336)ery(cid:856) (cid:90)arely(cid:853) (cid:346)ypot(cid:346)yroidism can (cid:271)e con(cid:336)enital (cid:894)in(cid:346)erited(cid:895) and t(cid:346)is can (cid:271)e (cid:271)ot(cid:346) primary and secondary(cid:856) (cid:44)ypot(cid:346)yroidism can occur at any a(cid:336)e(cid:853) (cid:271)ut is more fre(cid:395)uent in t(cid:346)e elderly(cid:853) and it is es(cid:415)mated t(cid:346)at up to (cid:1009)(cid:1081) of people over (cid:1010)(cid:1004) years of a(cid:336)e are (cid:346)ypot(cid:346)yroid (cid:449)it(cid:346) an es(cid:415)mated mar(cid:364)et si(cid:460)e for pa(cid:415)ents (cid:449)(cid:346)o do not respond to (cid:100)(cid:1008) replacement t(cid:346)erapy alone (cid:894)(cid:100)(cid:1008) non(cid:882)responders(cid:895) of (cid:936)(cid:1004)(cid:856)(cid:1011) (cid:271)illion per annum (cid:449)orld(cid:449)ide(cid:856) • • • • • (cid:90)esults from e(cid:454)cess cor(cid:415)sol produc(cid:415)on eit(cid:346)er as a result of a tumour in t(cid:346)e adrenal (cid:336)land (cid:894)(cid:18)us(cid:346)in(cid:336)(cid:859)s syndrome(cid:895) or from e(cid:454)cess s(cid:415)mula(cid:415)on (cid:271)y (cid:271)eni(cid:336)n tumours of t(cid:346)e pituitary (cid:336)land (cid:894)(cid:18)us(cid:346)in(cid:336)(cid:859)s disease(cid:895)(cid:856) Ini(cid:415)al treatment is sur(cid:336)ery(cid:853) (cid:271)ut up to (cid:1007)(cid:1009) per cent of pa(cid:415)ents (cid:449)it(cid:346) (cid:18)us(cid:346)in(cid:336)(cid:859)s disease re(cid:395)uire lon(cid:336)(cid:882)term medical t(cid:346)erapy as sur(cid:336)ery is not successful(cid:856) (cid:100)(cid:346)ere is an es(cid:415)mated dru(cid:336)(cid:882)treata(cid:271)le prevalence of appro(cid:454)imately (cid:1012)(cid:853)(cid:1010)(cid:1004)(cid:1004) su(cid:299)erers in Europe and (cid:1009)(cid:853)(cid:1009)(cid:1004)(cid:1004) in t(cid:346)e (cid:104)(cid:94) (cid:894)(cid:24)atamonitor (cid:90)eport(cid:895)(cid:856) It is most common in adults(cid:853) (cid:271)et(cid:449)een t(cid:346)e a(cid:336)es of (cid:1006)(cid:1004) and (cid:1009)(cid:1004) years old and it a(cid:299)ects (cid:449)omen more fre(cid:395)uently t(cid:346)an men(cid:856) (cid:100)(cid:346)e (cid:18)ompany es(cid:415)mates t(cid:346)e mar(cid:364)et opportunity to (cid:271)e in t(cid:346)e re(cid:336)ion of (cid:936)(cid:1004)(cid:856)(cid:1009) (cid:271)illion per annum (cid:449)orld(cid:449)ide(cid:856) 6 Strategic Report Governance Financial Statements Our product por(cid:414)olio Our late-stage “Adrenal Franchise” INFACORT® CHRONOCORT® • • An immediate(cid:882)release (cid:346)ydrocor(cid:415)sone prepara(cid:415)on tar(cid:336)e(cid:415)n(cid:336) Adrenal Insu(cid:312)ciency (cid:894)includin(cid:336) (cid:18)on(cid:336)enital Adrenal (cid:44)yperplasia(cid:895) in c(cid:346)ildren under si(cid:454) years of a(cid:336)e in Europe and si(cid:454)teen years of a(cid:336)e in t(cid:346)e (cid:104)(cid:94)(cid:856) • • A modi(cid:302)ed(cid:882)release (cid:346)ydrocor(cid:415)sone prepara(cid:415)on tar(cid:336)e(cid:415)n(cid:336) (cid:18)on(cid:336)enital Adrenal (cid:44)yperplasia in adult pa(cid:415)ents(cid:856) (cid:18)ommenced a European P(cid:346)ase III clinical trial in (cid:38)e(cid:271)ruary (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) (cid:94)uccessfully completed a European P(cid:346)ase III clinical trial in (cid:58)uly (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) • (cid:18)ommencin(cid:336) a (cid:104)(cid:94) P(cid:346)ase III clinical trial in (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856) • (cid:75)n trac(cid:364) to su(cid:271)mit t(cid:346)e re(cid:336)ulatory dossier to t(cid:346)e E(cid:68)A around t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:853) (cid:449)it(cid:346) mar(cid:364)et aut(cid:346)orisa(cid:415)on an(cid:415)cipated in late (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856) • (cid:18)ommencin(cid:336) t(cid:346)e (cid:104)(cid:94) re(cid:336)istra(cid:415)on pro(cid:336)ramme in (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) Our early stage pipeline Microcrystalline core Hydrocor(cid:2)sone layer Delayed-release coat NATIVE ORAL TESTOSTERONE TRI4COMBITM • • • • A replacement treatment for pa(cid:415)ents su(cid:299)erin(cid:336) from (cid:346)ypo(cid:336)onadism(cid:856) (cid:18)ommencin(cid:336) a proof of concept study in male (cid:346)ypo(cid:336)onadal pa(cid:415)ents in late (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) RHEUMACORT® A delayed(cid:853) immediate(cid:882)release formula(cid:415)on of (cid:346)ydrocor(cid:415)sone desi(cid:336)ned to (cid:346)elp control cyto(cid:364)ines(cid:853) developed usin(cid:336) t(cid:346)e same formula(cid:415)on tec(cid:346)nolo(cid:336)y applied in (cid:18)(cid:346)ronocort®(cid:856) (cid:90)evie(cid:449)in(cid:336) suita(cid:271)le clinical proof of concept opportuni(cid:415)es (cid:449)(cid:346)ere (cid:90)(cid:346)eumacort® may (cid:346)ave t(cid:346)e poten(cid:415)al to improve in(cid:327)ammatory disease control (cid:449)it(cid:346) a lo(cid:449)er ris(cid:364) of side(cid:882) e(cid:299)ects(cid:856) • • • • A p(cid:346)ysiolo(cid:336)ical com(cid:271)ina(cid:415)on t(cid:346)erapy of (cid:100)(cid:1007) and (cid:100)(cid:1008) (cid:346)ormones for pa(cid:415)ents su(cid:299)erin(cid:336) from (cid:346)ypot(cid:346)yroidism(cid:856) (cid:18)ompleted ini(cid:415)al formula(cid:415)on development to ena(cid:271)le selec(cid:415)on of a suita(cid:271)le tec(cid:346)nolo(cid:336)y to (cid:336)enerate ne(cid:449) formula(cid:415)ons of t(cid:346)e (cid:346)ormones (cid:100)(cid:1008) and (cid:100)(cid:1007)(cid:853) (cid:449)(cid:346)ic(cid:346) (cid:449)ill allo(cid:449) t(cid:346)e replacement of t(cid:346)e normal p(cid:346)ysiolo(cid:336)ical ra(cid:415)o of (cid:100)(cid:1008) to (cid:100)(cid:1007) to (cid:271)e tested in t(cid:346)e clinic(cid:856) CUSHING’S OLIGONUCLEOTIDE THERAPY (cid:94)(cid:346)ort interferin(cid:336) (cid:90)(cid:69)A oli(cid:336)onucleo(cid:415)de t(cid:346)erapy for pa(cid:415)ent su(cid:299)erin(cid:336) from adrenocor(cid:415)cotropin(cid:882)dependent (cid:18)us(cid:346)in(cid:336)(cid:859)s syndrome(cid:856) Pre(cid:882)clinical sta(cid:336)e (cid:449)it(cid:346) clinical development plan in t(cid:346)e process of (cid:271)ein(cid:336) esta(cid:271)lis(cid:346)ed to map pat(cid:346)(cid:449)ay to (cid:302)rst in (cid:346)uman trials(cid:856) Diurnal Group plc Annual Report and Accounts 2016 7 Opera(cid:415)onal revie(cid:449) (cid:862)(cid:24)iurnal is well posi(cid:415)oned to de(cid:448)elop its late(cid:882)sta(cid:336)e pipeline to market authorisa(cid:415)on and ini(cid:415)ate commercialisa(cid:415)on ac(cid:415)(cid:448)i(cid:415)es towards buildin(cid:336) a proprietar(cid:455) endocrinolo(cid:336)(cid:455) franchise.(cid:863) (cid:100)(cid:346)e (cid:302)nancial year to (cid:58)une (cid:1006)(cid:1004)(cid:1005)(cid:1010) (cid:346)as seen si(cid:336)ni(cid:302)cant transforma(cid:415)on in our aspira(cid:415)on to (cid:271)ecome a revenue (cid:336)enera(cid:415)n(cid:336) endocrinolo(cid:336)y specialty p(cid:346)armaceu(cid:415)cal company(cid:856) (cid:116)e successfully completed a (cid:940)(cid:1007)(cid:1004)m IP(cid:75) on AI(cid:68) in (cid:24)ecem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:853) providin(cid:336) t(cid:346)e (cid:39)roup (cid:449)it(cid:346) t(cid:346)e resources to develop our novel(cid:853) (cid:346)i(cid:336)(cid:346) (cid:395)uality(cid:853) patent protected products (cid:271)y focussin(cid:336) on comple(cid:415)n(cid:336) t(cid:346)e development of Infacort® in Europe and t(cid:346)e (cid:104)(cid:94)(cid:854) o(cid:271)tainin(cid:336) mar(cid:364)et aut(cid:346)orisa(cid:415)on in Europe for Infacort® and (cid:336)enera(cid:415)n(cid:336) (cid:302)rst revenues(cid:854) comple(cid:415)n(cid:336) t(cid:346)e development of (cid:18)(cid:346)ronocort® in Europe and commencin(cid:336) development in t(cid:346)e (cid:104)(cid:94)(cid:854) and commencin(cid:336) t(cid:346)e construc(cid:415)on of (cid:24)iurnal(cid:859)s commercial capa(cid:271)ility in Europe(cid:856) As a (cid:395)uoted company(cid:853) t(cid:346)e IP(cid:75) on AI(cid:68) also provides addi(cid:415)onal currency for future development (cid:271)y providin(cid:336) poten(cid:415)al access to development capital to pro(cid:336)ress its current and future pipeline and ena(cid:271)lin(cid:336) it to e(cid:454)pand (cid:449)it(cid:346)in its c(cid:346)osen specialist endocrine t(cid:346)erapy areas(cid:856) (cid:94)i(cid:336)ni(cid:302)cant clinical pro(cid:336)ress towards buildin(cid:336) a proprietar(cid:455) endocrinolo(cid:336)(cid:455) franchise Infacort® Infacort® is (cid:24)iurnal(cid:859)s most clinically advanced product and is t(cid:346)e (cid:302)rst prepara(cid:415)on of (cid:346)ydrocor(cid:415)sone (cid:894)t(cid:346)e synt(cid:346)e(cid:415)c version of cor(cid:415)sol(cid:895) speci(cid:302)cally desi(cid:336)ned for use in c(cid:346)ildren su(cid:299)erin(cid:336) from adrenal insu(cid:312)ciency (cid:894)AI(cid:895)(cid:853) includin(cid:336) t(cid:346)e related disease(cid:853) (cid:18)on(cid:336)enital Adrenal (cid:44)yperplasia (cid:894)(cid:18)A(cid:44)(cid:895)(cid:856) (cid:18)urrently t(cid:346)ere is no licensed (cid:346)ydrocor(cid:415)sone prepara(cid:415)on in Europe or t(cid:346)e (cid:104)(cid:94) speci(cid:302)cally desi(cid:336)ned to treat t(cid:346)ese youn(cid:336) pa(cid:415)ents(cid:856) Infacort® is on tar(cid:336)et to (cid:271)e t(cid:346)e (cid:302)rst p(cid:346)armaceu(cid:415)cally de(cid:302)ned dose and consistent formula(cid:415)on of (cid:346)ydrocor(cid:415)sone desi(cid:336)ned speci(cid:302)cally for c(cid:346)ildren(cid:856) (cid:100)(cid:346)e patented(cid:853) immediate(cid:882)release oral product (cid:346)as (cid:271)een desi(cid:336)ned to meet t(cid:346)e dosin(cid:336) needs of c(cid:346)ildren and is manufactured usin(cid:336) commercially proven tec(cid:346)nolo(cid:336)y in paediatric accepta(cid:271)le doses in order to (cid:336)ive ma(cid:454)imum (cid:327)e(cid:454)i(cid:271)ility to clinicians in tailorin(cid:336) treatment to c(cid:346)ildren as t(cid:346)ey develop and (cid:336)ro(cid:449)(cid:856) (cid:18)urrently(cid:853) p(cid:346)armacists o(cid:332)en compound (cid:894)(cid:336)rind(cid:895) (cid:346)ydrocor(cid:415)sone ta(cid:271)lets to a (cid:302)ne po(cid:449)der and recons(cid:415)tute it in individual capsules or sac(cid:346)ets to ac(cid:346)ieve t(cid:346)e lo(cid:449)er doses re(cid:395)uired for c(cid:346)ildren(cid:856) (cid:18)ompoundin(cid:336) is not a licensed met(cid:346)od of producin(cid:336) medicines(cid:854) it can (cid:271)e (cid:346)i(cid:336)(cid:346)ly varia(cid:271)le and may result in inaccurate dosin(cid:336) to pa(cid:415)ents(cid:856) Post year and a(cid:346)ead of sc(cid:346)edule in (cid:58)uly (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:853) (cid:24)iurnal announced posi(cid:415)ve (cid:346)eadline data from t(cid:346)e pivotal P(cid:346)ase III clinical trial for Infacort® in Europe for paediatric AI(cid:856) AI (cid:894)and (cid:18)A(cid:44)(cid:895) is iden(cid:415)(cid:302)ed as a rare disease in Europe (cid:449)(cid:346)ere t(cid:346)ere are es(cid:415)mated to (cid:271)e appro(cid:454)imately (cid:1008)(cid:853)(cid:1004)(cid:1004)(cid:1004) su(cid:299)erers youn(cid:336)er t(cid:346)an t(cid:346)e a(cid:336)e of si(cid:454)(cid:856) (cid:62)e(cid:332) untreated(cid:853) t(cid:346)e disease is associated (cid:449)it(cid:346) si(cid:336)ni(cid:302)cant mor(cid:271)idity(cid:856) (cid:100)(cid:346)e P(cid:346)ase III study (cid:449)as desi(cid:336)ned in a(cid:336)reement (cid:449)it(cid:346) t(cid:346)e European (cid:68)edicines A(cid:336)ency (cid:894)E(cid:68)A(cid:895) and conducted in a total of (cid:1006)(cid:1008) su(cid:271)(cid:361)ects (cid:271)efore t(cid:346)eir si(cid:454)t(cid:346) (cid:271)irt(cid:346)day(cid:853) re(cid:395)uirin(cid:336) replacement t(cid:346)erapy for AI due to (cid:18)A(cid:44)(cid:853) primary adrenal failure or (cid:346)ypopituitarism(cid:856) Ini(cid:415)al analysis of t(cid:346)e results con(cid:302)rms t(cid:346)at t(cid:346)e study met its primary endpoint(cid:853) demonstra(cid:415)n(cid:336) a sta(cid:415)s(cid:415)cally si(cid:336)ni(cid:302)cant (cid:894)p(cid:1092)(cid:1004)(cid:856)(cid:1004)(cid:1004)(cid:1004)(cid:1005)(cid:895) increase in cor(cid:415)sol values follo(cid:449)in(cid:336) administra(cid:415)on of Infacort® compared to t(cid:346)e pre(cid:882)dose values(cid:856) (cid:69)o serious adverse events (cid:449)ere reported(cid:856) A full evalua(cid:415)on of t(cid:346)e data (cid:346)as (cid:271)een completed(cid:856) In (cid:68)arc(cid:346) (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:853) t(cid:346)e (cid:302)rst pa(cid:415)ent (cid:449)as treated in t(cid:346)e (cid:39)roup(cid:859)s European open(cid:882)la(cid:271)el safety e(cid:454)tension trial of lon(cid:336) term safety and (cid:271)ioc(cid:346)emical disease control of Infacort® in neonates(cid:853) infants and c(cid:346)ildren (cid:449)it(cid:346) (cid:18)A(cid:44) and AI(cid:853) previously enrolled in t(cid:346)e (cid:39)roup(cid:859)s pivotal Infacort® P(cid:346)ase III re(cid:336)istra(cid:415)on trial(cid:856) Chronocort® (cid:24)iurnal announced t(cid:346)at t(cid:346)e (cid:302)rst pa(cid:415)ent (cid:449)as dosed (cid:449)it(cid:346) its second late(cid:882)sta(cid:336)e product(cid:853) (cid:18)(cid:346)ronocort®(cid:853) in t(cid:346)e pivotal P(cid:346)ase III clinical trial in Europe for adults (cid:449)it(cid:346) (cid:18)A(cid:44) in (cid:38)e(cid:271)ruary (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) (cid:18)(cid:346)ronocort provides a dru(cid:336)(cid:882)release pro(cid:302)le t(cid:346)at t(cid:346)e (cid:39)roup (cid:271)elieves mimics t(cid:346)e (cid:271)ody(cid:859)s natural cor(cid:415)sol circadian r(cid:346)yt(cid:346)m(cid:853) (cid:449)(cid:346)ic(cid:346) current t(cid:346)erapy is una(cid:271)le to replicate(cid:853) and (cid:449)ill improve disease control for adults (cid:449)it(cid:346) (cid:18)A(cid:44)(cid:856) (cid:18)linical data (cid:346)ave s(cid:346)o(cid:449)n t(cid:346)at appro(cid:454)imately t(cid:449)o t(cid:346)irds of (cid:18)A(cid:44) pa(cid:415)ents are es(cid:415)mated to (cid:346)ave poor disease control(cid:856) (cid:18)A(cid:44) su(cid:299)erers(cid:853) even if treated(cid:853) remain at ris(cid:364) of deat(cid:346) t(cid:346)rou(cid:336)(cid:346) an adrenal crisis(cid:853) su(cid:299)er from (cid:346)i(cid:336)(cid:346) mor(cid:271)idity and a poor (cid:395)uality of life(cid:856) (cid:100)(cid:346)e condi(cid:415)on 8 Strategic Report Governance Financial Statements is es(cid:415)mated to a(cid:299)ect appro(cid:454)imately (cid:1009)(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004) pa(cid:415)ents in Europe and (cid:1006)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) pa(cid:415)ents in t(cid:346)e (cid:104)(cid:94)(cid:853) (cid:449)it(cid:346) appro(cid:454)imately (cid:1008)(cid:1004)(cid:1009)(cid:853)(cid:1004)(cid:1004)(cid:1004) pa(cid:415)ents in t(cid:346)e rest of t(cid:346)e (cid:449)orld(cid:856) (cid:100)(cid:346)e P(cid:346)ase III trial is desi(cid:336)ned to study up to (cid:1005)(cid:1005)(cid:1004) pa(cid:415)ents in an open(cid:882) la(cid:271)el si(cid:454) mont(cid:346) protocol(cid:856) Enrolled pa(cid:415)ents currently treated (cid:449)it(cid:346) a sin(cid:336)le or com(cid:271)ina(cid:415)on of (cid:336)eneric steroids (cid:894)standard(cid:882)of(cid:882)care(cid:895) (cid:449)ill (cid:271)e randomised to (cid:18)(cid:346)ronocort® on a t(cid:449)ice daily (cid:862)toot(cid:346)(cid:271)rus(cid:346)(cid:863) re(cid:336)imen or (cid:449)ill con(cid:415)nue on t(cid:346)eir standard(cid:882)of(cid:882)care re(cid:336)imen(cid:856) (cid:38)ollo(cid:449)in(cid:336) discussions (cid:449)it(cid:346) t(cid:346)e E(cid:68)A(cid:853) t(cid:346)e primary endpoint of t(cid:346)e trial is t(cid:346)e control of andro(cid:336)ens (cid:894)se(cid:454) (cid:346)ormones(cid:895) on t(cid:346)e same or lo(cid:449)er total daily dose of steroid (cid:449)(cid:346)en treated (cid:449)it(cid:346) (cid:18)(cid:346)ronocort® compared to standard(cid:882)of(cid:882)care treatment(cid:856) (cid:100)(cid:346)is primary endpoint is iden(cid:415)cal to t(cid:346)e previous successful P(cid:346)ase II clinical trial for (cid:18)(cid:346)ronocort® for (cid:449)(cid:346)ic(cid:346) data (cid:449)ere released in (cid:1006)(cid:1004)(cid:1005)(cid:1008)(cid:856) (cid:94)econdary endpoints (cid:449)ill include an assessment of fa(cid:415)(cid:336)ue levels and t(cid:346)e rela(cid:415)ve e(cid:299)ect of (cid:18)(cid:346)ronocort® on (cid:271)ody mass inde(cid:454) and (cid:271)one turnover(cid:853) all of (cid:449)(cid:346)ic(cid:346) are indica(cid:415)ve of clinical (cid:271)ene(cid:302)ts(cid:856) (cid:100)(cid:346)e trial is sc(cid:346)eduled to complete in early (cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:853) implyin(cid:336) a poten(cid:415)al mar(cid:364)et aut(cid:346)orisa(cid:415)on in Europe could (cid:271)e fort(cid:346)comin(cid:336) around t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:856) In Au(cid:336)ust (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:853) t(cid:346)e (cid:302)rst pa(cid:415)ent (cid:449)as treated in t(cid:346)e (cid:39)roup(cid:859)s European open(cid:882)la(cid:271)el safety e(cid:454)tension trial of lon(cid:336) term safety(cid:853) e(cid:312)cacy and tolera(cid:271)ility of (cid:18)(cid:346)ronocort® in pa(cid:415)ents (cid:449)it(cid:346) (cid:18)A(cid:44)(cid:853) previously enrolled in t(cid:346)e (cid:39)roup(cid:859)s pivotal (cid:18)(cid:346)ronocort® P(cid:346)ase III re(cid:336)istra(cid:415)on trial(cid:856) In Au(cid:336)ust (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:853) (cid:24)iurnal e(cid:454)tended its e(cid:454)is(cid:415)n(cid:336) (cid:18)oopera(cid:415)ve (cid:90)esearc(cid:346) and (cid:24)evelopment A(cid:336)reement (cid:894)(cid:18)(cid:90)A(cid:24)A(cid:895) (cid:449)it(cid:346) t(cid:346)e (cid:69)a(cid:415)onal Ins(cid:415)tutes of (cid:44)ealt(cid:346) (cid:894)(cid:69)I(cid:44)(cid:895)(cid:853) (cid:68)aryland(cid:853) (cid:104)(cid:94) un(cid:415)l (cid:58)une (cid:1006)(cid:1004)(cid:1006)(cid:1005)(cid:856) (cid:100)(cid:346)e e(cid:454)tension (cid:449)ill support t(cid:346)e P(cid:346)ase III clinical trial of (cid:18)(cid:346)ronocort® for t(cid:346)e treatment of (cid:18)A(cid:44) in (cid:271)ot(cid:346) t(cid:346)e (cid:104)(cid:94) and Europe(cid:856) (cid:24)iurnal successfully colla(cid:271)orated (cid:449)it(cid:346) t(cid:346)e (cid:69)I(cid:44) to complete t(cid:346)e P(cid:346)ase II clinical trial of (cid:18)(cid:346)ronocort®(cid:856) Prelaunch ac(cid:415)(cid:448)i(cid:415)es (cid:100)(cid:346)e E(cid:68)A (cid:346)as already approved a Paediatric Inves(cid:415)(cid:336)a(cid:415)on Plan (cid:894)PIP(cid:895) for Infacort®(cid:853) se(cid:427)n(cid:336) out t(cid:346)e re(cid:336)ulatory pat(cid:346)(cid:449)ay to mar(cid:364)et aut(cid:346)orisa(cid:415)on via t(cid:346)e Paediatric (cid:104)se (cid:68)ar(cid:364)e(cid:415)n(cid:336) Aut(cid:346)orisa(cid:415)on (cid:894)P(cid:104)(cid:68)A(cid:895) route(cid:853) a(cid:299)ordin(cid:336) (cid:1005)(cid:1004) years data e(cid:454)clusivity from t(cid:346)e date of mar(cid:364)et aut(cid:346)orisa(cid:415)on(cid:856) (cid:24)iurnal is on trac(cid:364) to su(cid:271)mit t(cid:346)is re(cid:336)ulatory dossier to t(cid:346)e E(cid:68)A around t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856) If approved(cid:853) Infacort® (cid:346)as t(cid:346)e poten(cid:415)al to (cid:271)e t(cid:346)e (cid:302)rst licensed treatment in Europe for AI (cid:894)includin(cid:336) (cid:18)A(cid:44)(cid:895) speci(cid:302)cally desi(cid:336)ned for use in c(cid:346)ildren(cid:856) (cid:24)iurnal an(cid:415)cipates mar(cid:364)et aut(cid:346)orisa(cid:415)on in late (cid:1006)(cid:1004)(cid:1005)(cid:1011) and is developin(cid:336) launc(cid:346) plans to ensure a prompt mar(cid:364)et introduc(cid:415)on in t(cid:346)e event t(cid:346)at t(cid:346)e product receives approval(cid:856) (cid:28)(cid:454)tensi(cid:448)e patent protec(cid:415)on (cid:24)iurnal con(cid:415)nues to protect its product candidates t(cid:346)rou(cid:336)(cid:346) an e(cid:454)tensive patent por(cid:414)olio(cid:853) (cid:271)ene(cid:302)(cid:427)n(cid:336) from a num(cid:271)er of (cid:336)ranted or pendin(cid:336) patents in (cid:364)ey (cid:361)urisdic(cid:415)ons(cid:856) (cid:24)urin(cid:336) t(cid:346)e period(cid:853) (cid:18)(cid:346)ronocort® (cid:449)as (cid:336)ranted orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)on in t(cid:346)e treatment of AI (cid:271)y t(cid:346)e (cid:104)(cid:94) (cid:38)ood and (cid:24)ru(cid:336) Administra(cid:415)on (cid:894)(cid:38)(cid:24)A(cid:895) in (cid:94)eptem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) (cid:100)(cid:346)is is furt(cid:346)er to (cid:18)(cid:346)ronocort®(cid:859)s orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)on for t(cid:346)e treatment of (cid:18)A(cid:44)(cid:853) (cid:336)ranted (cid:271)y t(cid:346)e (cid:38)(cid:24)A in (cid:68)arc(cid:346) (cid:1006)(cid:1004)(cid:1005)(cid:1009) and Infacort®(cid:859)s orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)on in t(cid:346)e treatment of paediatric AI(cid:853) (cid:336)ranted (cid:271)y t(cid:346)e (cid:38)(cid:24)A in (cid:68)ay (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) (cid:100)(cid:346)ese orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)ons(cid:853) to(cid:336)et(cid:346)er (cid:449)it(cid:346) t(cid:346)e P(cid:104)(cid:68)A(cid:853) mean Infacort® and (cid:18)(cid:346)ronocort® (cid:346)ave t(cid:346)e poten(cid:415)al to (cid:271)e (cid:336)ranted mar(cid:364)et and data e(cid:454)clusivity for (cid:1005)(cid:1004) years in Europe and seven years in t(cid:346)e (cid:104)(cid:94) post mar(cid:364)et aut(cid:346)orisa(cid:415)on(cid:856) (cid:28)arl(cid:455)(cid:882)sta(cid:336)e pipeline (cid:24)iurnal plans to use its cor(cid:415)sol replacement o(cid:299)erin(cid:336) to (cid:271)uild a stron(cid:336) pla(cid:414)orm in underserved diseases of cor(cid:415)sol de(cid:302)ciency and t(cid:346)en e(cid:454)pand into endocrine disease areas suc(cid:346) as t(cid:346)ose associated (cid:449)it(cid:346) t(cid:346)e t(cid:346)yroid(cid:853) (cid:336)onads and pituitary(cid:856) (cid:18)on(cid:415)nued product development is e(cid:454)pected to come from (cid:18)(cid:346)ronocort® line e(cid:454)tensions aimin(cid:336) to address addi(cid:415)onal cor(cid:415)sol de(cid:302)ciency indica(cid:415)on(cid:894)s(cid:895) and from t(cid:346)e (cid:39)roup(cid:859)s earlier(cid:882)sta(cid:336)e pipeline of endocrinolo(cid:336)y product candidates(cid:856) (cid:100)(cid:346)ese earlier(cid:882)sta(cid:336)e candidates currently include a na(cid:415)ve oral testosterone for t(cid:346)e treatment of male (cid:346)ypo(cid:336)onadism(cid:854) and (cid:100)ri(cid:1008)(cid:18)om(cid:271)i(cid:929)(cid:853) a novel formula(cid:415)on to treat (cid:346)ypot(cid:346)yroidism(cid:856) (cid:24)iurnal (cid:346)as successfully completed pre(cid:882)clinical studies of its na(cid:415)ve oral testosterone replacement and e(cid:454)pects to ini(cid:415)ate a proof(cid:882)of(cid:882) concept study in (cid:346)uman (cid:346)ypo(cid:336)onadal pa(cid:415)ents imminently(cid:856) (cid:24)iurnal demonstrated its a(cid:271)ility to iden(cid:415)fy poten(cid:415)al endocrine t(cid:346)erapies (cid:449)it(cid:346) one suc(cid:346) pipeline ac(cid:395)uisi(cid:415)on durin(cid:336) t(cid:346)e period (cid:449)it(cid:346) t(cid:346)e (cid:39)roup o(cid:271)tainin(cid:336) t(cid:346)e ri(cid:336)(cid:346)ts(cid:853) from t(cid:346)e (cid:104)niversity of (cid:94)(cid:346)e(cid:312)eld (cid:894)(cid:104)(cid:60)(cid:895)(cid:853) to t(cid:346)e orp(cid:346)an dru(cid:336) desi(cid:336)na(cid:415)on for an oli(cid:336)onucleo(cid:415)de t(cid:346)erapy for t(cid:346)e poten(cid:415)al treatment of (cid:18)us(cid:346)in(cid:336)(cid:859)s (cid:24)isease (cid:894)cor(cid:415)sol e(cid:454)cess(cid:895)(cid:856) (cid:18)us(cid:346)in(cid:336)(cid:859)s (cid:24)isease is o(cid:332)en treated (cid:271)y t(cid:346)e same clinicians t(cid:346)at treat diseases of cor(cid:415)sol de(cid:302)ciency(cid:853) t(cid:346)ere(cid:271)y levera(cid:336)in(cid:336) (cid:24)iurnal(cid:859)s net(cid:449)or(cid:364) in line (cid:449)it(cid:346) t(cid:346)e (cid:39)roup(cid:859)s commercialisa(cid:415)on strate(cid:336)y(cid:856) Outlook (cid:24)iurnal is (cid:449)ell posi(cid:415)oned to develop its late(cid:882)sta(cid:336)e pipeline to mar(cid:364)et aut(cid:346)orisa(cid:415)on and ini(cid:415)ate commercialisa(cid:415)on ac(cid:415)vi(cid:415)es to(cid:449)ards (cid:271)uildin(cid:336) a proprietary endocrinolo(cid:336)y franc(cid:346)ise(cid:856) In Europe(cid:853) Infacort® (cid:346)as t(cid:346)e poten(cid:415)al to (cid:271)e t(cid:346)e (cid:302)rst licensed treatment for AI (cid:894)includin(cid:336) (cid:18)A(cid:44)(cid:895) speci(cid:302)cally desi(cid:336)ned for use in c(cid:346)ildren under si(cid:454) years of a(cid:336)e(cid:856) A full evalua(cid:415)on of t(cid:346)e P(cid:346)ase III data (cid:346)as (cid:271)een completed(cid:856) (cid:24)iurnal is on trac(cid:364) to su(cid:271)mit a re(cid:336)ulatory dossier to t(cid:346)e E(cid:68)A around t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1010) and is op(cid:415)mis(cid:415)c t(cid:346)at it may receive mar(cid:364)et aut(cid:346)orisa(cid:415)on in late (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:856) Prelaunc(cid:346) plannin(cid:336) is under(cid:449)ay to e(cid:299)ect a rapid transi(cid:415)on to a commercial or(cid:336)anisa(cid:415)on(cid:856) In t(cid:346)e (cid:104)(cid:94)(cid:853) follo(cid:449)in(cid:336) (cid:38)(cid:24)A feed(cid:271)ac(cid:364)(cid:853) (cid:24)iurnal (cid:449)ill (cid:271)e commencin(cid:336) t(cid:346)e (cid:104)(cid:94) re(cid:336)istra(cid:415)on pro(cid:336)ramme for Infacort® in (cid:1006)(cid:1004)(cid:1005)(cid:1011) and an(cid:415)cipates mar(cid:364)et aut(cid:346)orisa(cid:415)on in t(cid:346)e (cid:104)(cid:94) in (cid:1006)(cid:1004)(cid:1005)(cid:1013) (cid:894)previously t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:895)(cid:856) (cid:18)(cid:346)ronocort® (cid:346)as t(cid:346)e poten(cid:415)al to (cid:271)e t(cid:346)e (cid:302)rst product candidate for adults (cid:449)it(cid:346) (cid:18)A(cid:44) to mimic t(cid:346)e natural cor(cid:415)sol circadian r(cid:346)yt(cid:346)m(cid:853) t(cid:346)erefore improvin(cid:336) disease control(cid:856) In Europe(cid:853) (cid:24)iurnal e(cid:454)pects to report (cid:346)eadline data from t(cid:346)e P(cid:346)ase III clinical trial in Europe for adults (cid:449)it(cid:346) (cid:18)A(cid:44) in early (cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:853) implyin(cid:336) a poten(cid:415)al mar(cid:364)et aut(cid:346)orisa(cid:415)on in Europe could (cid:271)e fort(cid:346)comin(cid:336) around t(cid:346)e end of (cid:1006)(cid:1004)(cid:1005)(cid:1012)(cid:856) In t(cid:346)e (cid:104)(cid:94)(cid:853) t(cid:346)e (cid:39)roup con(cid:415)nues its dialo(cid:336)ue (cid:449)it(cid:346) t(cid:346)e (cid:38)(cid:24)A on t(cid:346)e P(cid:346)ase III clinical trial desi(cid:336)n and e(cid:454)pects to (cid:346)ave an update in early (cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:853) (cid:449)it(cid:346) t(cid:346)e inten(cid:415)on to commence t(cid:346)e study later t(cid:346)at year and an(cid:415)cipates mar(cid:364)et aut(cid:346)orisa(cid:415)on in t(cid:346)e (cid:104)(cid:94) in (cid:1006)(cid:1004)(cid:1006)(cid:1005) (cid:894)previously t(cid:346)e end of (cid:1006)(cid:1004)(cid:1006)(cid:1005)(cid:895)(cid:856) Mar(cid:415)n (cid:116)hitaker Chief (cid:28)(cid:454)ecu(cid:415)(cid:448)e O(cid:312)cer 11 October 2016 Diurnal Group plc Annual Report and Accounts 2016 9 Financial revie(cid:449) (cid:862)(cid:69)et cash (cid:336)enerated b(cid:455) (cid:302)nancin(cid:336) was (cid:940)2(cid:1013).1m re(cid:327)ec(cid:415)n(cid:336) the net proceeds of the IPO and the con(cid:448)er(cid:415)ble loan.(cid:863) Opera(cid:415)n(cid:336) income and e(cid:454)penses (cid:75)pera(cid:415)n(cid:336) e(cid:454)penses are in a (cid:336)ro(cid:449)t(cid:346) p(cid:346)ase(cid:853) re(cid:327)ec(cid:415)n(cid:336) t(cid:346)e increased clinical and development ac(cid:415)vi(cid:415)es to(cid:336)et(cid:346)er (cid:449)it(cid:346) investment in over(cid:346)eads includin(cid:336) (cid:346)eadcount and (cid:271)usiness infrastructure to support t(cid:346)e an(cid:415)cipated (cid:336)ro(cid:449)t(cid:346) and development of t(cid:346)e (cid:271)usiness in t(cid:346)e comin(cid:336) periods(cid:856) (cid:90)esearc(cid:346) and development e(cid:454)penditure for t(cid:346)e year (cid:449)as (cid:940)(cid:1007)(cid:856)(cid:1013)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1006)(cid:856)(cid:1006)m(cid:895)(cid:856) (cid:75)f t(cid:346)is (cid:940)(cid:1005)(cid:856)(cid:1011)m increase in e(cid:454)penditure (cid:940)(cid:1004)(cid:856)(cid:1006)m (cid:449)as as a result of t(cid:346)e (cid:302)rst (cid:415)me accoun(cid:415)n(cid:336) for s(cid:346)are op(cid:415)ons and a furt(cid:346)er (cid:940)(cid:1004)(cid:856)(cid:1007)m (cid:449)as as a result of t(cid:346)e crea(cid:415)on of a na(cid:415)onal insurance accrual for (cid:346)istorical s(cid:346)are op(cid:415)on a(cid:449)ards(cid:856) E(cid:454)penditure on product development and clinical costs increased in t(cid:346)e period as t(cid:346)e (cid:39)roup(cid:859)s (cid:18)(cid:346)ronocort® product entered a P(cid:346)ase III clinical trial in Europe and prepared for a (cid:104)(cid:94) trial and its na(cid:415)ve oral testosterone product prepared to commence its (cid:346)uman proof(cid:882)of(cid:882)concept trial in (cid:346)ypo(cid:336)onadal pa(cid:415)ents(cid:856) (cid:94)ta(cid:299) related e(cid:454)penditure also increased as a result of t(cid:346)e implementa(cid:415)on of a ne(cid:449) remunera(cid:415)on policy(cid:856) Administra(cid:415)ve e(cid:454)penses for t(cid:346)e year (cid:449)ere (cid:940)(cid:1007)(cid:856)(cid:1005)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1005)(cid:856)(cid:1004)m(cid:895)(cid:856) (cid:75)f t(cid:346)is (cid:940)(cid:1006)(cid:856)(cid:1005)m increase in e(cid:454)penditure(cid:853) (cid:940)(cid:1004)(cid:856)(cid:1010)m (cid:449)as t(cid:346)e one(cid:882) o(cid:299) IP(cid:75) costs(cid:853) (cid:940)(cid:1004)(cid:856)(cid:1007)m (cid:449)as as a result of t(cid:346)e (cid:302)rst (cid:415)me accoun(cid:415)n(cid:336) for s(cid:346)are op(cid:415)ons and a furt(cid:346)er (cid:940)(cid:1004)(cid:856)(cid:1005)m (cid:449)as as a result of t(cid:346)e crea(cid:415)on of a na(cid:415)onal insurance accrual for (cid:346)istorical s(cid:346)are op(cid:415)on a(cid:449)ards(cid:856) (cid:100)(cid:346)e remainin(cid:336) increase resulted from t(cid:346)e appointment of ne(cid:449) sta(cid:299)(cid:853) t(cid:346)e implementa(cid:415)on of a ne(cid:449) remunera(cid:415)on policy and pu(cid:271)lic company costs(cid:856) In addi(cid:415)on to t(cid:346)e IP(cid:75) costs of (cid:940)(cid:1004)(cid:856)(cid:1010)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)nil(cid:895)(cid:856) A furt(cid:346)er (cid:940)(cid:1004)(cid:856)(cid:1012)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)nil(cid:895) of fees paid in connec(cid:415)on (cid:449)it(cid:346) t(cid:346)e fundraisin(cid:336) are s(cid:346)o(cid:449)n as a deduc(cid:415)on from s(cid:346)are premium and (cid:940)(cid:1009)(cid:1013)(cid:364) and (cid:940)(cid:1006)(cid:1012)(cid:364) (cid:346)ave (cid:271)een c(cid:346)ar(cid:336)ed a(cid:336)ainst t(cid:346)e conver(cid:415)(cid:271)le loan lia(cid:271)ility and its e(cid:395)uity component respec(cid:415)vely(cid:856) (cid:75)pera(cid:415)n(cid:336) income in t(cid:346)e prior period represents funds receiva(cid:271)le from a European (cid:18)ommission (cid:336)rant suppor(cid:415)n(cid:336) t(cid:346)e European development of t(cid:346)e (cid:39)roup(cid:859)s Infacort® product(cid:856) Opera(cid:415)n(cid:336) loss (cid:75)pera(cid:415)n(cid:336) loss for t(cid:346)e period increased to (cid:940)(cid:1011)(cid:856)(cid:1004)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1007)(cid:856)(cid:1004)m(cid:895)(cid:856) (cid:38)inancial income and e(cid:454)pense (cid:38)inancial income in t(cid:346)e period (cid:449)as (cid:940)(cid:1010)(cid:1007)(cid:364) (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1012)(cid:364)(cid:895)(cid:853) due to t(cid:346)e (cid:346)i(cid:336)(cid:346)er avera(cid:336)e cas(cid:346) (cid:271)alances durin(cid:336) t(cid:346)e year(cid:853) a(cid:332)er t(cid:346)e IP(cid:75) fundraisin(cid:336) and conver(cid:415)(cid:271)le loan (cid:302)nancin(cid:336)(cid:856) (cid:38)inancial e(cid:454)pense for t(cid:346)e period (cid:449)as (cid:940)(cid:1005)(cid:1007)(cid:1007)(cid:364) (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1008)(cid:1005)(cid:364)(cid:895)(cid:853) (cid:271)ein(cid:336) t(cid:346)e (cid:302)nancial e(cid:454)pense of t(cid:346)e conver(cid:415)(cid:271)le loan(cid:856) (cid:69)o interest is paya(cid:271)le in cas(cid:346) on t(cid:346)is loan(cid:853) t(cid:346)e (cid:302)nancial e(cid:454)pense represen(cid:415)n(cid:336) t(cid:346)e e(cid:299)ec(cid:415)ve interest re(cid:395)uired under accoun(cid:415)n(cid:336) standards to c(cid:346)ar(cid:336)e t(cid:346)e transac(cid:415)on costs and e(cid:395)uity element of t(cid:346)e loan to t(cid:346)e income statement over t(cid:346)e term of t(cid:346)e loan(cid:856) (cid:100)(cid:346)e (cid:39)roup (cid:346)ad interest (cid:271)earin(cid:336) conver(cid:415)(cid:271)le loans outstandin(cid:336) for t(cid:449)o mont(cid:346)s of t(cid:346)e compara(cid:415)ve period(cid:853) (cid:271)efore t(cid:346)ey (cid:449)ere converted into e(cid:395)uity(cid:853) (cid:449)(cid:346)ilst t(cid:346)e ne(cid:449) conver(cid:415)(cid:271)le loan (cid:449)as outstandin(cid:336) for over si(cid:454) mont(cid:346)s of t(cid:346)e (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:876)(cid:1005)(cid:1010) (cid:302)nancial year(cid:856) (cid:62)oss on ordinar(cid:455) ac(cid:415)(cid:448)i(cid:415)es before ta(cid:454) (cid:62)oss (cid:271)efore ta(cid:454) for t(cid:346)e period (cid:449)as (cid:940)(cid:1011)(cid:856)(cid:1005)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1007)(cid:856)(cid:1004)m(cid:895)(cid:856) Tax (cid:100)(cid:346)e (cid:39)roup (cid:346)as not reco(cid:336)nised any deferred ta(cid:454) assets in respect of tradin(cid:336) losses arisin(cid:336) in eit(cid:346)er t(cid:346)e current (cid:302)nancial period or accumulated losses in previous (cid:302)nancial years(cid:856) (cid:100)(cid:346)e ta(cid:454) credits reco(cid:336)nised in t(cid:346)e (cid:302)nancial periods ended (cid:1007)(cid:1004) (cid:58)une (cid:1006)(cid:1004)(cid:1005)(cid:1010) and (cid:1006)(cid:1004)(cid:1005)(cid:1009) represent t(cid:346)e receipt of (cid:90)esearc(cid:346) (cid:920) (cid:24)evelopment ta(cid:454) credits rela(cid:415)n(cid:336) to t(cid:346)eir respec(cid:415)ve prior periods(cid:859) ac(cid:415)vi(cid:415)es(cid:856) (cid:28)arnin(cid:336)s per share (cid:62)oss per s(cid:346)are (cid:449)as (cid:1005)(cid:1009)(cid:856)(cid:1004) pence (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:1012)(cid:856)(cid:1009) pence(cid:895)(cid:856) (cid:62)oss per s(cid:346)are (cid:346)as increased due to t(cid:346)e (cid:346)i(cid:336)(cid:346)er opera(cid:415)n(cid:336) costs e(cid:454)plained a(cid:271)ove(cid:856) 10 Strategic Report Governance Financial Statements Building a life-long “Adrenal Franchise” Life-long 0 2 Infacort® 6 12 18 YEARS Chronocort® Chronocort® Licensed & measured dosing Matching circadian rhythms Note: Diurnal expects further clinical studies will be required for regulatory approval of Chronocort in the age range 6 – 18 years Principal risks and uncertain(cid:415)es (cid:100)(cid:346)e principal ris(cid:364)s and uncertain(cid:415)es facin(cid:336) t(cid:346)e (cid:39)roup are set out in t(cid:346)e (cid:24)irectors(cid:859) (cid:90)eport on pa(cid:336)e (cid:1005)(cid:1010)(cid:856) Ian Ardill Chief Financial O(cid:312)cer 11 October 2016 Cash (cid:327)ow (cid:69)et cas(cid:346) used in opera(cid:415)n(cid:336) ac(cid:415)vi(cid:415)es (cid:449)as (cid:940)(cid:1009)(cid:856)(cid:1005)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1006)(cid:856)(cid:1013)m(cid:895)(cid:853) driven (cid:271)y t(cid:346)e increased loss for t(cid:346)e period(cid:856) (cid:69)et cas(cid:346) used in inves(cid:415)n(cid:336) ac(cid:415)vi(cid:415)es (cid:449)as (cid:940)(cid:1005)(cid:1008)(cid:856)(cid:1004)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)nil(cid:895) (cid:271)ein(cid:336) t(cid:346)e investment of funds into one year cas(cid:346) deposits(cid:856) (cid:69)et cas(cid:346) (cid:336)enerated (cid:271)y (cid:302)nancin(cid:336) (cid:449)as (cid:940)(cid:1006)(cid:1013)(cid:856)(cid:1005)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1012)(cid:856)(cid:1004)m(cid:895) re(cid:327)ec(cid:415)n(cid:336) t(cid:346)e net proceeds of t(cid:346)e issue of s(cid:346)ares in t(cid:346)e IP(cid:75) of (cid:940)(cid:1006)(cid:1008)(cid:856)(cid:1009)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1012)(cid:856)(cid:1004)m from a private fundraisin(cid:336)(cid:895) to(cid:336)et(cid:346)er (cid:449)it(cid:346) (cid:940)(cid:1008)(cid:856)(cid:1010)m (cid:894)(cid:1005)(cid:1007) mont(cid:346)s (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)nil(cid:895) of funds received from t(cid:346)e conver(cid:415)(cid:271)le loan(cid:856) Balance sheet (cid:100)otal assets increased to (cid:940)(cid:1007)(cid:1004)(cid:856)(cid:1011)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1010)(cid:856)(cid:1009)m(cid:895)(cid:853) re(cid:327)ec(cid:415)n(cid:336) t(cid:346)e increase in cas(cid:346) and cas(cid:346) e(cid:395)uivalents arisin(cid:336) from t(cid:346)e issue of ordinary s(cid:346)ares and t(cid:346)e conver(cid:415)(cid:271)le loan(cid:853) o(cid:299)set (cid:271)y t(cid:346)e opera(cid:415)n(cid:336) cas(cid:346) ou(cid:414)lo(cid:449) for t(cid:346)e period(cid:856) (cid:44)eld to maturity (cid:302)nancial assets (cid:449)ere (cid:940)(cid:1005)(cid:1008)(cid:856)(cid:1004)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)nil(cid:895) and cas(cid:346) and cas(cid:346) e(cid:395)uivalents (cid:449)ere (cid:940)(cid:1005)(cid:1010)(cid:856)(cid:1005)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1010)(cid:856)(cid:1005)m(cid:895)(cid:856) (cid:100)otal lia(cid:271)ili(cid:415)es increased to (cid:940)(cid:1008)(cid:856)(cid:1011)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1004)(cid:856)(cid:1008)m(cid:895)(cid:853) re(cid:327)ec(cid:415)n(cid:336) t(cid:346)e (cid:940)(cid:1007)(cid:856)(cid:1006)m lia(cid:271)ility component of t(cid:346)e conver(cid:415)(cid:271)le loan (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1006)(cid:1008)(cid:364) of ot(cid:346)er loans(cid:895)(cid:853) to(cid:336)et(cid:346)er (cid:449)it(cid:346) trade and ot(cid:346)er paya(cid:271)les of (cid:940)(cid:1005)(cid:856)(cid:1009)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1004)(cid:856)(cid:1008)m(cid:895)(cid:853) (cid:449)(cid:346)ic(cid:346) increased due to accruals for clinical costs(cid:853) (cid:271)onuses and employer(cid:859)s na(cid:415)onal insurance on non(cid:882)ta(cid:454) (cid:271)ene(cid:302)cial s(cid:346)are op(cid:415)ons(cid:856) (cid:69)et assets (cid:449)ere (cid:940)(cid:1006)(cid:1009)(cid:856)(cid:1013)m (cid:894)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:855) (cid:940)(cid:1010)(cid:856)(cid:1004)m(cid:895)(cid:856) Compara(cid:415)(cid:448)e informa(cid:415)on (cid:100)(cid:346)e (cid:39)roup (cid:346)as applied t(cid:346)e principles of reverse ac(cid:395)uisi(cid:415)on accoun(cid:415)n(cid:336) under I(cid:38)(cid:90)(cid:94) (cid:1007) (cid:858)(cid:17)usiness (cid:18)om(cid:271)ina(cid:415)ons(cid:859) in t(cid:346)e presenta(cid:415)on of consolidated s(cid:346)are(cid:346)olders(cid:859) e(cid:395)uity for compara(cid:415)ve periods(cid:856) (cid:100)(cid:346)ese compara(cid:415)ve periods s(cid:346)o(cid:449) t(cid:346)e results of t(cid:346)e accoun(cid:415)n(cid:336) ac(cid:395)uirer (cid:894)(cid:24)iurnal (cid:62)imited(cid:895) alon(cid:336) (cid:449)it(cid:346) t(cid:346)e s(cid:346)are capital structure of t(cid:346)e parent company (cid:894)(cid:24)iurnal (cid:39)roup plc(cid:895)(cid:856) As a result(cid:853) t(cid:346)e consolidated s(cid:346)are capital and s(cid:346)are premium presented for compara(cid:415)ve periods is t(cid:346)at (cid:449)(cid:346)ic(cid:346) (cid:449)as in e(cid:454)istence immediately follo(cid:449)in(cid:336) t(cid:346)e s(cid:346)are for s(cid:346)are e(cid:454)c(cid:346)an(cid:336)e (cid:449)(cid:346)ic(cid:346) occurred on (cid:1005) (cid:24)ecem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:853) and (cid:449)(cid:346)ic(cid:346) is e(cid:454)plained furt(cid:346)er in note (cid:1006) to t(cid:346)e (cid:302)nancial statements(cid:856) Diurnal Group plc Annual Report and Accounts 2016 11 Board of directors Peter Allen, BA ACA (cid:69)on(cid:882)(cid:28)xecu(cid:415)(cid:448)e Chairman Peter Allen is (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:18)(cid:346)airman of t(cid:346)e (cid:17)oard of (cid:24)irectors of (cid:24)iurnal and (cid:361)oined t(cid:346)e (cid:39)roup in (cid:58)uly (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) Peter (cid:346)as over (cid:1006)(cid:1004) years(cid:859) e(cid:454)perience in senior (cid:271)oard posi(cid:415)ons in a (cid:449)ide por(cid:414)olio of (cid:346)ealt(cid:346)care companies(cid:856) (cid:44)e is currently (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:18)(cid:346)airman of AI(cid:68)(cid:882)(cid:395)uoted Advanced (cid:68)edical (cid:94)olu(cid:415)ons plc(cid:853) main mar(cid:364)et(cid:882)(cid:395)uoted (cid:38)uture plc(cid:853) AI(cid:68)(cid:882)(cid:395)uoted (cid:18)lini(cid:336)en plc(cid:853) as (cid:449)ell as privately o(cid:449)ned (cid:75)(cid:454)ford (cid:69)anopore (cid:100)ec(cid:346)nolo(cid:336)ies (cid:62)td(cid:856) Previously(cid:853) Peter (cid:449)as (cid:18)(cid:346)airman and interim (cid:18)(cid:346)ief E(cid:454)ecu(cid:415)ve (cid:75)(cid:312)cer of Pro(cid:94)tra(cid:364)an (cid:39)roup Plc and spent t(cid:346)ree years as (cid:18)(cid:346)airman of Pro(cid:454)ima(cid:336)en (cid:39)roup Plc (cid:894)no(cid:449) Pro(cid:454)ima(cid:336)en (cid:39)roup (cid:62)imited(cid:895)(cid:856) Prior to t(cid:346)is(cid:853) (cid:346)e (cid:449)as (cid:18)(cid:346)ief (cid:38)inancial (cid:75)(cid:312)cer of (cid:18)elltec(cid:346) (cid:39)roup plc (cid:271)et(cid:449)een (cid:1005)(cid:1013)(cid:1013)(cid:1006) and (cid:1006)(cid:1004)(cid:1004)(cid:1008)(cid:856) In addi(cid:415)on to mana(cid:336)in(cid:336) (cid:18)elltec(cid:346)(cid:859)s (cid:327)ota(cid:415)on process in (cid:1005)(cid:1013)(cid:1013)(cid:1007)(cid:853) Peter played a (cid:364)ey role in several strate(cid:336)ic ac(cid:395)uisi(cid:415)ons(cid:853) includin(cid:336) (cid:18)(cid:346)iroscience (cid:39)roup plc(cid:853) (cid:68)edeva plc and (cid:75)(cid:454)ford (cid:39)lycosciences plc(cid:856) In (cid:1006)(cid:1004)(cid:1004)(cid:1007)(cid:853) Peter (cid:449)as also appointed (cid:24)eputy (cid:18)(cid:346)ief E(cid:454)ecu(cid:415)ve (cid:75)(cid:312)cer of (cid:18)elltec(cid:346) un(cid:415)l t(cid:346)e (cid:18)ompany (cid:449)as sold to (cid:104)(cid:18)(cid:17) in (cid:1006)(cid:1004)(cid:1004)(cid:1008)(cid:856) Peter is a (cid:395)uali(cid:302)ed c(cid:346)artered accountant (cid:271)y (cid:271)ac(cid:364)(cid:336)round and (cid:346)as a (cid:361)oint de(cid:336)ree in Accountancy and (cid:62)a(cid:449)(cid:856) Mar(cid:415)n (cid:116)hitaker, BSc PhD Chief (cid:28)xecu(cid:415)(cid:448)e O(cid:312)cer (cid:68)ar(cid:415)n (cid:116)(cid:346)ita(cid:364)er is (cid:18)(cid:346)ief E(cid:454)ecu(cid:415)ve (cid:75)(cid:312)cer of (cid:24)iurnal (cid:449)it(cid:346) overall responsi(cid:271)ility for deliverin(cid:336) t(cid:346)e (cid:39)roup(cid:859)s commercial o(cid:271)(cid:361)ec(cid:415)ves(cid:856) (cid:68)ar(cid:415)n (cid:361)oined t(cid:346)e (cid:39)roup in (cid:58)anuary (cid:1006)(cid:1004)(cid:1004)(cid:1012) and (cid:346)as over (cid:1005)(cid:1012) years(cid:859) e(cid:454)perience in t(cid:346)e p(cid:346)armaceu(cid:415)cal industry and (cid:346)as led t(cid:346)e (cid:24)iurnal team to pro(cid:336)ress t(cid:346)e (cid:18)ompany(cid:859)s lead products(cid:853) (cid:18)(cid:346)ronocort® and Infacort®(cid:853) into pivotal P(cid:346)ase III clinical trials(cid:856) (cid:68)ar(cid:415)n is also (cid:24)irector of (cid:24)(cid:1007) P(cid:346)arma (cid:62)imited (cid:449)(cid:346)ic(cid:346) (cid:346)as successfully commercialised Plenac(cid:346)ol®(cid:853) a (cid:346)i(cid:336)(cid:346) dose (cid:115)itamin (cid:24) product prescri(cid:271)ed in t(cid:346)e (cid:104)(cid:60)(cid:856) Previously(cid:853) (cid:68)ar(cid:415)n (cid:449)or(cid:364)ed for (cid:38)usion IP plc (cid:449)it(cid:346) responsi(cid:271)ility for commercialisin(cid:336) researc(cid:346) from t(cid:346)e (cid:68)edical (cid:94)c(cid:346)ool at t(cid:346)e (cid:104)niversity of (cid:94)(cid:346)e(cid:312)eld(cid:856) Prior to t(cid:346)is(cid:853) (cid:68)ar(cid:415)n (cid:449)as (cid:75)pera(cid:415)ons (cid:24)irector of (cid:18)ri(cid:415)cal P(cid:346)armaceu(cid:415)cals (cid:62)imited(cid:853) a venture capital(cid:882)(cid:271)ac(cid:364)ed dru(cid:336) delivery company spun out of t(cid:346)e (cid:104)niversity of (cid:69)o(cid:427)n(cid:336)(cid:346)am developin(cid:336) lon(cid:336)(cid:882)ac(cid:415)n(cid:336) (cid:336)ro(cid:449)t(cid:346) (cid:346)ormone products(cid:856) (cid:68)ar(cid:415)n (cid:346)as a P(cid:346)(cid:24) in P(cid:346)armaceu(cid:415)cal (cid:94)cience from t(cid:346)e (cid:104)niversity of (cid:69)o(cid:427)n(cid:336)(cid:346)am and a (cid:17)(cid:94)c (cid:894)(cid:44)ons(cid:895) in (cid:17)ioc(cid:346)emistry from (cid:17)ristol (cid:104)niversity(cid:856) (cid:68)ar(cid:415)n also spent a year (cid:449)or(cid:364)in(cid:336) for t(cid:346)e p(cid:346)armaceu(cid:415)cal company(cid:853) P(cid:302)(cid:460)er(cid:853) in (cid:94)and(cid:449)ic(cid:346) (cid:894)(cid:104)(cid:60)(cid:895)(cid:856) Ian Ardill, BSc ACA Chief (cid:38)inancial O(cid:312)cer and Compan(cid:455) (cid:94)ecretar(cid:455) Ian Ardill is (cid:18)(cid:346)ief (cid:38)inancial (cid:75)(cid:312)cer of (cid:24)iurnal and (cid:361)oined t(cid:346)e (cid:39)roup in April (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) Ian (cid:346)as over (cid:1006)(cid:1004) years(cid:859) e(cid:454)perience in senior (cid:302)nancial posi(cid:415)ons(cid:856) (cid:17)efore (cid:361)oinin(cid:336) t(cid:346)e (cid:39)roup(cid:853) Ian (cid:449)as (cid:18)(cid:38)(cid:75) of t(cid:449)o listed companies(cid:855) (cid:17)iocompa(cid:415)(cid:271)les Interna(cid:415)onal plc for over si(cid:454) years and (cid:62)om(cid:271)ard (cid:68)edical (cid:100)ec(cid:346)nolo(cid:336)ies plc for over t(cid:346)ree years(cid:856) At (cid:17)iocompa(cid:415)(cid:271)les(cid:853) Ian played a leadin(cid:336) role in transformin(cid:336) t(cid:346)e company from a loss(cid:882)ma(cid:364)in(cid:336) to a pro(cid:302)ta(cid:271)le enterprise (cid:449)it(cid:346) sales of (cid:940)(cid:1007)(cid:1007) million(cid:856) (cid:44)e also mana(cid:336)ed t(cid:346)e successful (cid:940)(cid:1005)(cid:1011)(cid:1011) million sale of t(cid:346)e (cid:271)usiness to (cid:17)(cid:100)(cid:39) Plc in (cid:1006)(cid:1004)(cid:1005)(cid:1005) and t(cid:449)o returns of capital to s(cid:346)are(cid:346)olders totallin(cid:336) (cid:940)(cid:1006)(cid:1007) million(cid:856) In addi(cid:415)on(cid:853) Ian (cid:449)as responsi(cid:271)le for t(cid:346)e implementa(cid:415)on of (cid:17)iocompa(cid:415)(cid:271)les(cid:859) dividend pro(cid:336)ramme(cid:856) At (cid:62)om(cid:271)ard (cid:68)edical(cid:853) Ian led t(cid:346)e company (cid:302)nancially t(cid:346)rou(cid:336)(cid:346) t(cid:346)e late sta(cid:336)es of (cid:38)(cid:24)A pre(cid:882)mar(cid:364)et approval and t(cid:346)e commencement of (cid:104)(cid:94) commercial opera(cid:415)ons(cid:856) (cid:75)n t(cid:346)e (cid:302)nancin(cid:336) front(cid:853) (cid:346)e mana(cid:336)ed a (cid:940)(cid:1006)(cid:1006) million AI(cid:68) fundraisin(cid:336) and t(cid:346)e company(cid:859)s (cid:936)(cid:1009)(cid:1009) million (cid:69)A(cid:94)(cid:24)A(cid:89) IP(cid:75)(cid:853) involvin(cid:336) t(cid:346)e cancella(cid:415)on of admission to tradin(cid:336) on AI(cid:68) and a re(cid:882)domicile(cid:856) Ian (cid:346)as also (cid:449)or(cid:364)ed at (cid:69)ovar(cid:415)s P(cid:346)armaceu(cid:415)cals(cid:853) t(cid:346)e (cid:18)ompass (cid:39)roup(cid:853) (cid:69)(cid:44)A Interna(cid:415)onal and (cid:39)rant (cid:100)(cid:346)ornton(cid:856) Ian is a (cid:395)uali(cid:302)ed c(cid:346)artered accountant(cid:856) Richard Ross, MBBS MD FRCP Chief (cid:94)cien(cid:415)(cid:302)c O(cid:312)cer (cid:90)ic(cid:346)ard (cid:90)oss is a foundin(cid:336) (cid:24)irector of (cid:24)iurnal and (cid:18)(cid:346)ief (cid:94)cien(cid:415)(cid:302)c (cid:75)(cid:312)cer and is contracted to perform (cid:449)or(cid:364) for t(cid:346)e (cid:39)roup (cid:271)y t(cid:346)e (cid:104)niversity pursuant to t(cid:346)e terms of a secondment a(cid:336)reement and a researc(cid:346) a(cid:336)reement(cid:856) (cid:44)e is a Professor of (cid:18)linical Endocrinolo(cid:336)y and (cid:44)ead of t(cid:346)e Academic (cid:104)nit of (cid:24)ia(cid:271)etes(cid:853) Endocrinolo(cid:336)y and (cid:68)eta(cid:271)olism at t(cid:346)e (cid:104)niversity of (cid:94)(cid:346)e(cid:312)eld and (cid:449)as previously a (cid:94)enior (cid:62)ecturer at (cid:94)t(cid:856) (cid:17)art(cid:346)olome(cid:449)(cid:859)s (cid:44)ospital(cid:853) (cid:62)ondon(cid:856) (cid:90)ic(cid:346)ard(cid:859)s primary researc(cid:346) interest is pituitary and adrenal disease (cid:449)it(cid:346) a par(cid:415)cular focus on (cid:346)ormone replacement(cid:856) (cid:44)is researc(cid:346) (cid:346)as yielded over (cid:1006)(cid:1004)(cid:1004) papers(cid:853) more t(cid:346)an (cid:1007)(cid:1004) (cid:336)ranted patents and pu(cid:271)lica(cid:415)ons in (cid:69)ature (cid:68)edicine(cid:853) (cid:69)ature (cid:90)evie(cid:449)s Endocrinolo(cid:336)y(cid:853) (cid:69)ature (cid:39)ene(cid:415)cs(cid:853) (cid:100)(cid:346)e (cid:62)ancet(cid:853) (cid:100)(cid:346)e (cid:17)(cid:68)(cid:58) and P(cid:69)A(cid:94)(cid:856) (cid:44)e (cid:346)as (cid:271)een a mem(cid:271)er of t(cid:346)e editorial (cid:271)oards of (cid:18)linical Endocrinolo(cid:336)y and t(cid:346)e (cid:58)ournal of (cid:18)linical Endocrinolo(cid:336)y and (cid:68)eta(cid:271)olism and served as an elected mem(cid:271)er of t(cid:346)e e(cid:454)ecu(cid:415)ve commi(cid:425)ees for t(cid:346)e European (cid:94)ociety of Endocrinolo(cid:336)y (cid:894)(cid:100)reasurer(cid:895)(cid:853) t(cid:346)e (cid:94)ociety for Endocrinolo(cid:336)y and (cid:39)ro(cid:449)t(cid:346) (cid:44)ormone (cid:90)esearc(cid:346) (cid:94)ociety(cid:856) 12 Strategic Report Governance Financial Statements Sam (cid:116)illiams, MA PhD (cid:69)on(cid:882)(cid:28)xecu(cid:415)(cid:448)e (cid:24)irector(cid:853) Board representa(cid:415)(cid:448)e of IP Group plc (cid:94)am (cid:116)illiams (cid:346)as (cid:1005)(cid:1012) years(cid:859) e(cid:454)perience in t(cid:346)e (cid:271)iotec(cid:346)nolo(cid:336)y industry(cid:853) (cid:271)ot(cid:346) as a top(cid:882)ran(cid:364)ed e(cid:395)uity analyst in t(cid:346)e (cid:18)ity and(cid:853) su(cid:271)se(cid:395)uently(cid:853) as an entrepreneur and (cid:18)(cid:346)ief E(cid:454)ecu(cid:415)ve(cid:856) (cid:38)rom (cid:1006)(cid:1004)(cid:1004)(cid:1006) to (cid:1006)(cid:1004)(cid:1004)(cid:1011) (cid:346)e (cid:449)or(cid:364)ed at (cid:62)e(cid:346)man (cid:17)rot(cid:346)ers (cid:449)(cid:346)ere (cid:346)e (cid:449)as ran(cid:364)ed t(cid:346)e num(cid:271)er one European (cid:271)iotec(cid:346)nolo(cid:336)y e(cid:395)uity analyst (cid:271)y Ins(cid:415)tu(cid:415)onal Investor ma(cid:336)a(cid:460)ine t(cid:346)ree years in a ro(cid:449)(cid:856) (cid:94)am le(cid:332) (cid:62)e(cid:346)man (cid:17)rot(cid:346)ers in (cid:1006)(cid:1004)(cid:1004)(cid:1011) to esta(cid:271)lis(cid:346) (cid:68)odern (cid:17)iosciences (cid:894)(cid:68)(cid:17)(cid:94)(cid:895)(cid:853) a dru(cid:336) discovery company focused on novel treatments for autoimmune and in(cid:327)ammatory condi(cid:415)ons(cid:856) (cid:68)(cid:17)(cid:94)(cid:859) lead product is in clinical studies for t(cid:346)e treatment of r(cid:346)eumatoid art(cid:346)ri(cid:415)s and is t(cid:346)e su(cid:271)(cid:361)ect of a (cid:940)(cid:1005)(cid:1011)(cid:1010)m op(cid:415)on and licensin(cid:336) a(cid:336)reement (cid:449)it(cid:346) (cid:58)anssen (cid:17)iotec(cid:346) Inc(cid:856) (cid:894)(cid:58)(cid:920)(cid:58)(cid:895)(cid:853) si(cid:336)ned in (cid:69)ovem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1008)(cid:856) As (cid:449)ell as (cid:271)ein(cid:336) (cid:18)E(cid:75) of (cid:68)(cid:17)(cid:94)(cid:853) (cid:94)am oversees t(cid:346)e (cid:271)iotec(cid:346)nolo(cid:336)y por(cid:414)olio of t(cid:346)e (cid:38)(cid:100)(cid:94)E (cid:1006)(cid:1009)(cid:1004) company(cid:853) IP (cid:39)roup plc(cid:853) and sits on its E(cid:454)ecu(cid:415)ve (cid:18)ommi(cid:425)ee(cid:856) (cid:44)e is a (cid:271)oard mem(cid:271)er of t(cid:346)e (cid:104)(cid:60) (cid:17)ioIndustry Associa(cid:415)on (cid:894)(cid:17)IA(cid:895)(cid:853) a non(cid:882)e(cid:454)ecu(cid:415)ve director of (cid:24)iurnal (cid:39)roup plc and (cid:18)(cid:1008)(cid:121) (cid:24)iscovery (cid:44)oldin(cid:336)s Plc(cid:853) and serves on t(cid:346)e (cid:100)ransla(cid:415)onal A(cid:449)ards Advisory (cid:18)ommi(cid:425)ee of t(cid:346)e (cid:17)ri(cid:415)s(cid:346) (cid:44)eart (cid:38)ounda(cid:415)on (cid:894)(cid:17)(cid:44)(cid:38)(cid:895)(cid:856) (cid:94)am (cid:346)as a P(cid:346)(cid:24) from (cid:18)am(cid:271)rid(cid:336)e (cid:104)niversity and an (cid:68)A in Pure and Applied (cid:17)iolo(cid:336)y from (cid:75)(cid:454)ford (cid:104)niversity(cid:856) (cid:94)am (cid:449)as appointed to t(cid:346)e (cid:17)oard of (cid:24)iurnal (cid:271)y IP(cid:39) in (cid:75)cto(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1008)(cid:856) John Goddard, BA FCA MCT Independent (cid:69)on(cid:882)(cid:28)xecu(cid:415)(cid:448)e (cid:24)irector (cid:58)o(cid:346)n (cid:39)oddard (cid:346)as (cid:346)ad a dis(cid:415)n(cid:336)uis(cid:346)ed career in t(cid:346)e (cid:336)lo(cid:271)al p(cid:346)armaceu(cid:415)cal industry(cid:853) t(cid:346)e ma(cid:361)ority of (cid:449)(cid:346)ic(cid:346) (cid:449)as (cid:449)it(cid:346) Astra(cid:127)eneca(cid:853) (cid:449)(cid:346)ere (cid:346)e (cid:449)as ul(cid:415)mately (cid:44)ead of (cid:39)roup (cid:94)trate(cid:336)ic Plannin(cid:336) and (cid:17)usiness (cid:24)evelopment(cid:856) Prior to (cid:346)is re(cid:415)rement from Astra(cid:127)eneca in (cid:1006)(cid:1004)(cid:1005)(cid:1004)(cid:853) (cid:346)e (cid:449)as responsi(cid:271)le for a (cid:1005)(cid:1004)(cid:1004) stron(cid:336) (cid:336)lo(cid:271)al team focused on (cid:68)(cid:920)A and licensin(cid:336)(cid:853) (cid:449)(cid:346)ic(cid:346) completed around (cid:1011)(cid:1009) transac(cid:415)ons in four years includin(cid:336) several ac(cid:395)uisi(cid:415)ons(cid:853) in(cid:882)licensin(cid:336) and out(cid:882)licensin(cid:336) of compounds and disposals(cid:856) (cid:62)a(cid:425)erly(cid:853) (cid:68)r(cid:856) (cid:39)oddard (cid:271)ecame (cid:18)(cid:346)airman of t(cid:449)o Astra(cid:127)eneca su(cid:271)sidiaries(cid:853) Ap(cid:415)um (cid:75)ncolo(cid:336)y in t(cid:346)e (cid:104)(cid:94) and Astratec(cid:346) in (cid:94)(cid:449)eden(cid:856) (cid:44)e is currently a (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:24)irector of (cid:75)(cid:454)ford P(cid:346)armascience plc and Intas P(cid:346)armaceu(cid:415)cals (cid:62)imited(cid:856) (cid:58)o(cid:346)n is a (cid:38)ello(cid:449) of t(cid:346)e Ins(cid:415)tute of (cid:18)(cid:346)artered Accountants and a (cid:68)em(cid:271)er of t(cid:346)e Associa(cid:415)on of (cid:18)orporate (cid:100)reasurers(cid:856) (cid:58)o(cid:346)n (cid:361)oined t(cid:346)e (cid:39)roup in (cid:69)ovem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) Alan Raymond, BSc PhD (cid:69)on(cid:882)(cid:28)xecu(cid:415)(cid:448)e (cid:24)irector(cid:853) Board representa(cid:415)(cid:448)e of (cid:38)inance (cid:116)ales Alan (cid:90)aymond is an industry veteran (cid:449)it(cid:346) over (cid:1007)(cid:1004) years of interna(cid:415)onal mar(cid:364)e(cid:415)n(cid:336) and (cid:336)eneral mana(cid:336)ement e(cid:454)perience (cid:449)it(cid:346)in t(cid:346)e p(cid:346)armaceu(cid:415)cal and (cid:271)iomedical industry(cid:856) Alan (cid:449)as appointed to t(cid:346)e (cid:271)oard of (cid:24)iurnal (cid:62)imited (cid:271)y (cid:38)inance (cid:116)ales in April (cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:856) (cid:68)ost recently(cid:853) Alan (cid:449)as t(cid:346)e (cid:94)ales and (cid:68)ar(cid:364)e(cid:415)n(cid:336) (cid:24)irector at Aesica P(cid:346)armaceu(cid:415)cals (cid:62)td(cid:856) Aesica (cid:449)as su(cid:271)se(cid:395)uently ac(cid:395)uired (cid:271)y (cid:18)onsort (cid:68)edical plc in (cid:94)eptem(cid:271)er (cid:1006)(cid:1004)(cid:1005)(cid:1008)(cid:856) (cid:24)urin(cid:336) (cid:346)is career(cid:853) Alan pro(cid:336)ressed t(cid:346)rou(cid:336)(cid:346) senior e(cid:454)ecu(cid:415)ve and mar(cid:364)e(cid:415)n(cid:336) roles in (cid:17)anner P(cid:346)armacaps(cid:853) (cid:90)P (cid:94)c(cid:346)erer(cid:853) (cid:90)ec(cid:364)i(cid:425) and (cid:18)olman(cid:853) Eli (cid:62)illy(cid:853) and (cid:68)(cid:94)(cid:24)(cid:853) (cid:449)it(cid:346)in t(cid:346)e (cid:104)(cid:60)(cid:853) (cid:69)et(cid:346)erlands and Australia(cid:856) Alan is currently (cid:69)on(cid:882)E(cid:454)ecu(cid:415)ve (cid:18)(cid:346)airman of AniP(cid:75)(cid:18) (cid:62)td(cid:853) a developer and mar(cid:364)eter of veterinary dia(cid:336)nos(cid:415)c devices and a (cid:69)on(cid:882)e(cid:454)ecu(cid:415)ve (cid:24)irector of A(cid:24)(cid:18) (cid:17)iotec(cid:346)nolo(cid:336)y (cid:62)td a contract developer and manufacturer of an(cid:415)(cid:271)ody(cid:882)dru(cid:336) con(cid:361)u(cid:336)ates(cid:856) Prior to (cid:346)is industrial career(cid:853) Alan (cid:449)as a postdoctoral researc(cid:346)er in t(cid:346)e (cid:18)ardiot(cid:346)oracic (cid:90)esearc(cid:346) Ins(cid:415)tute (cid:894)(cid:62)ondon(cid:895) and (cid:346)e (cid:346)olds a P(cid:346)(cid:24) in Inverte(cid:271)rate (cid:69)euro(cid:271)iolo(cid:336)y from (cid:94)t(cid:856) Andre(cid:449)s (cid:104)niversity(cid:856) Diurnal Group plc Annual Report and Accounts 2016 13 Directors’ report The Directors present their report and the audited consolidated financial statements for the year ended 30 June 2016. Principal ac(cid:2)vity The Group’s principal ac(cid:2)vity is in specialty pharmaceu(cid:2)cals, targe(cid:2)ng pa(cid:2)ent needs in chronic endocrine (hormonal) diseases. Further details about the principal ac(cid:2)vity of the Group is set out in the Strategic Report. The Company’s principal ac(cid:2)vity is to act as the parent company for the Group. Business review and future development A review of the Group’s business and performance and its future development is given in the Chairman’s Report, the CEO’s Review and the Financial Review in the Strategic Report. The Board’s strategy is to complete the development of its late-stage products and to bring these to market by building a direct sales and marke(cid:2)ng func(cid:2)on in Europe and the US. Its longer-term strategy is to con(cid:2)nue product por(cid:3)olio expansion through both pipeline R&D, in-licensing and acquisi(cid:2)ons to target chronic non-diabe(cid:2)c endocrine diseases where there are pa(cid:2)ent needs that the Directors believe are not being met sa(cid:2)sfactorily by current treatments. The Group aims to be a “go-to” market par(cid:2)cipant for companies looking to out-license future endocrine products through development of a leading posi(cid:2)on in endocrinology with a targeted specialist sales force. Key performance indicators The Board is in the process of iden(cid:2)fying the most appropriate key performance indicators with which to monitor performance. Results The results for the financial year are set out on page 26 of the financial statements and highlighted in the Strategic Report. Significant shareholdings At 11 October 2016 the Company has been no(cid:2)fied of the following interests of 3% or more of the issued ordinary share capital of the Company: Name of Holder IP Group plc Finance Wales plc Invesco Limited Oceanwood Capital Management LLP Sarum Investment SICAV Plc ––––––––––––– ––––––––––––– Number of shares 23,808,100 11,534,888 6,527,777 3,472,222 % of Issued shares 45.6% 22.1% 12.5% 6.7% 1,576,500 ––––––––––––– ––––––––––––– 3.0% Directors The Directors of the Company are as follows and their details are set out on pages 12 and 13. All Directors served with effect from admission of the Company’s shares to trading on AIM on 24 December 2015 and throughout the remainder of the financial year and subsequently to the date of signing of the financial statements. Name ––––––––––––––––––––– Peter Allen Mar(cid:2)n Whitaker Ian Ardill Richard Ross John Goddard Alan Raymond Sam Williams Title ––––––––––––––––––––––– Non-execu(cid:2)ve Chairman Chief Execu(cid:2)ve Officer Chief Financial Officer Chief Scien(cid:2)fic Officer Non-execu(cid:2)ve Director Non-execu(cid:2)ve Director Non-execu(cid:2)ve Director 14 Strategic Report Governance Financial Statements Directors’ interests The interests of the Directors in the ordinary share capital of the Company are as follows: ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 11 Oct 2016 30 Jun 2016 30 Jun 2015 30 Jun 2015 Restated for the effect of the share exchange Name Execu(cid:2)ve Mar(cid:2)n Whitaker Ian Ardill Richard Ross Non-execu(cid:2)ve Peter Allen John Goddard Alan Raymond1 Sam Williams2,3 Ordinary shares of £0.05 each in Diurnal Group plc Ordinary shares of £0.05 each in Diurnal Group plc Ordinary shares of £0.05 each in Diurnal Group plc Ordinary shares of £1.00 each in Diurnal Limited 11,111 13,888 11,111 13,888 – – – – 1,553,944 1,553,944 1,547,000 3,094 34,722 6,944 13,888 34,722 6,944 13,888 – – – – – – 37,500 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 37,500 37,500 – Diurnal Limited was acquired by Diurnal Group plc in a share exchange on 1 December 2015. Diurnal Limited shareholders received 500 ordinary shares of £0.05 in Diurnal Group plc for each ordinary share of £1.00 in Diurnal Limited. The June 2015 shareholdings are shown for compara(cid:2)ve purposes. 1. Director nominated by the Finance Wales plc shareholders under a rela(cid:2)onship agreement with the Company while the shareholding exceeds 10%. Finance Wales plc holding is 11,534,888 shares. 2. Director nominated by the IP Group plc shareholders under a rela(cid:2)onship agreement with the Company while the shareholding exceeds 10%. IP Group plc holding is 23,808,100 shares. 3. Held beneficially via IP2IPO Nominees Limited which is the registered holder. Employees The Group is commi(cid:6)ed to promo(cid:2)ng equal opportuni(cid:2)es in employment. Its employees and job applicants will receive equal treatment regardless of age, disability, gender reassignment, marital or civil partner status, pregnancy or maternity, race, colour, na(cid:2)onality, ethnic or na(cid:2)onal origin, religion or belief, sex or sexual orienta(cid:2)on. The Execu(cid:2)ve Directors regularly engage with employees to seek their views and provide briefings and presenta(cid:2)ons on key developments and strategy. Employees are encouraged to offer sugges(cid:2)ons and views, and to raise queries with the Directors and senior managers. To aid in reten(cid:2)on, a benefits package encompassing death in service and medical insurance, together with a contributory pension scheme, is offered to all employees, in addi(cid:2)on to salary. A discre(cid:2)onary bonus scheme and a long term incen(cid:2)ve programme are also available. Research and development During the year, the Group incurred £3.9m (13 months 2015: £2.2m) in the con(cid:2)nuing development of its product por(cid:3)olio. These costs were expensed in accordance with the Company’s accoun(cid:2)ng policy. Further details on the ac(cid:2)vi(cid:2)es and nature of this expense are contained in the Opera(cid:2)onal review on page 8 and the Financial review on page 10. Poli(cid:2)cal and charitable dona(cid:2)ons The Group made charitable dona(cid:2)ons during the year of £7k (13 months 2015 £nil). No poli(cid:2)cal dona(cid:2)ons were made in either period. Financial instruments Informa(cid:2)on about the use of financial instruments by the Group and its subsidiaries is given in note 19 to the financial statements. Events a(cid:4)er the repor(cid:2)ng date There were no significant events since the balance sheet date. Diurnal Group plc Annual Report and Accounts 2016 15 Directors’ report con(cid:2)nued Principal risks and uncertain(cid:2)es Diurnal considers strategic, opera(cid:2)onal and financial risks and iden(cid:2)fies ac(cid:2)ons to mi(cid:2)gate these risks. Broadly, risks facing the Group are categorised into the following categories, with significant risks including: The Company being at the development stage. The Group is a development stage biopharmaceu(cid:2)cal group and has a limited opera(cid:2)ng history, has incurred losses since incorpora(cid:2)on and an(cid:2)cipates that it will con(cid:2)nue to incur losses for the foreseeable future. • • • The available funding required to support the business through to profitability and cash genera(cid:2)on may be insufficient or unavailable on acceptable terms. Inadequate financial resources could have an adverse impact on the Group’s business. The Group also faces risks rela(cid:2)ng to the development, manufacturing feasibility and scale-up, pre-clinical and clinical tes(cid:2)ng of its products. Clinical trials are expensive, (cid:2)me consuming, difficult to design and implement and involve uncertain outcomes. The Group depends on the success of a limited number of products which are s(cid:2)ll in pre-clinical or clinical development. Failure of one or more product may affect its financial performance. Commercialisa(cid:2)on and growth strategy. The Group has never commercialised a product candidate and it may lack the necessary exper(cid:2)se, personnel and resources to commercialise successfully any of its product candidates that receive regulatory approval on its own or together with suitable partners. • • The pharmaceu(cid:2)cal industry is compe(cid:2)(cid:2)ve and rapidly changing, which may result in compe(cid:2)tors commercialising products before or more successfully than the Group, the Group not successfully compe(cid:2)ng with compe(cid:2)tors’ products or the Group’s products not gaining market acceptance. Successful commercialisa(cid:2)on of the Group’s product requires achieving commercial scale manufacturing capability in a (cid:2)mely and efficient manner and to which governmental authori(cid:2)es and health insurers establish adequate coverage, reimbursement levels and pricing policies. Reliance on third par(cid:2)es. The Group relies on third par(cid:2)es to conduct pre-clinical and clinical trials and to manufacture its products and if such third par(cid:2)es perform in an unsa(cid:2)sfactory manner, there may be an adverse effect on the Group’s business. • • Product development is subject to significant regula(cid:2)on over clinical trials and manufacturing. The facili(cid:2)es on which the Group relies may not con(cid:2)nue to meet regulatory requirements or may not be able to meet supply demands. The Group faces the risk of insolvency or change in business direc(cid:2)on of its counterpar(cid:2)es along with those around the misappropria(cid:2)on or disclosure of intellectual property and trade secrets. Intellectual property. The Group seeks to protect its products and technology trough patents, Orphan Drug status and the development of clinical data. • • • Ineffec(cid:2)ve intellectual property rights for its technologies, products or any future products may restrict the ability to compete effec(cid:2)vely and have an adverse effect on the business. Third party claims of intellectual property infringement may expose the Group to substan(cid:2)al liability or prevent or delay its development and commercialisa(cid:2)on efforts. The Group may be involved in li(cid:2)ga(cid:2)on to protect or enforce its patents, which could be expensive, (cid:2)me-consuming and unsuccessful. Government and regulatory. The Group operates in a highly regulated industry. • • • Once one or more of the Group’s product candidates obtains regulatory approval, the Group will be subject to ongoing obliga(cid:2)ons and con(cid:2)nued regulatory requirements, which may result in significant addi(cid:2)onal expense. Orphan drug designa(cid:2)on may not ensure that the Group will enjoy market exclusivity in a par(cid:2)cular market and, if the Group fails to obtain or maintain orphan drug status for its product candidates, it may be subject to earlier compe(cid:2)(cid:2)on and its poten(cid:2)al revenues may be adversely affected. Exis(cid:2)ng and future legisla(cid:2)on may increase the difficulty and cost involved in the Group obtaining regulatory approval for, and commercialising, its product candidates and may affect the prices that the Group may set for them. Other opera(cid:2)onal. The Group’s future development and prospects depend to a significant degree on the experience, performance and con(cid:2)nued service of its senior management team and the ability to a(cid:6)ract and retain suitably skilled and qualified people. As the Group expands, management may need to devote (cid:2)me to managing growth, diver(cid:2)ng focus from day to day ac(cid:2)vi(cid:2)es. Any failure in financial, opera(cid:2)onal and management informa(cid:2)on systems may result in a loss of control and adversely impact the Group’s ability to operate effec(cid:2)vely and to fulfil its contractual obliga(cid:2)ons. Following the IPO, the company holds a significant cash balance, which is subject to fraud, credit and liquidity risks. The Board has adopted a policy of dual approval for all payments made by the company; in rela(cid:2)on to credit risk, has set a minimum credit ra(cid:2)ng of A-, together with a maximum exposure of £8m to an individual counterparty; and in rela(cid:2)on to liquidity risk, reviews cash flow forecasts and holds cash in immediate access and term deposits to a maximum term of 12 months. 16 Strategic Report Governance Financial Statements Directors’ responsibili(cid:2)es The directors are responsible for preparing the Strategic Report, the Directors' Report and the group and parent company financial statements in accordance with applicable law and regula(cid:2)ons. Company law requires the directors to prepare group and parent company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accoun(cid:2)ng Standards and applicable law (UK Generally Accepted Accoun(cid:2)ng Prac(cid:2)ce), including FRS 101 Reduced Disclosure Framework. Under company law the directors must not approve the financial statements unless they are sa(cid:2)sfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accoun(cid:2)ng policies and then apply them consistently; • • make judgements and es(cid:2)mates that are reasonable and prudent; • • for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the parent company financial statements, state whether applicable UK Accoun(cid:2)ng Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will con(cid:2)nue in business. • The directors are responsible for keeping adequate accoun(cid:2)ng records that are sufficient to show and explain the parent company's transac(cid:2)ons and disclose with reasonable accuracy at any (cid:2)me the financial posi(cid:2)on of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregulari(cid:2)es. Statement of Directors regarding disclosure of informa(cid:2)on to auditors Each Director, whose name and func(cid:2)on is listed in the Directors’ Report confirms that: • • so far as the Director is aware, there is no relevant audit informa(cid:2)on of which the Group’s auditors are unaware; and the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit informa(cid:2)on and to establish that the Group’s auditors are aware of that informa(cid:2)on. This confirma(cid:2)on is given and should be interpreted in accordance with the provisions of Sec(cid:2)on 418 of the Companies Act 2006. Going concern The financial posi(cid:2)on of the Group is described in the Financial Review. The Board has considered the applicability of the going concern basis in the prepara(cid:2)on of the financial statements. This included the review of internal budgets and financial results and a review of cash flow forecasts for the 12 month period following the date of signing the financial statements. The Directors have a reasonable expecta(cid:2)on that the Company and the Group have adequate resources to con(cid:2)nue in opera(cid:2)on for the foreseeable future. For this reason they have adopted the going concern basis in the prepara(cid:2)on of the financial statements. Independent Auditor KPMG LLP has expressed its willingness to con(cid:2)nue in office as auditor and a resolu(cid:2)on to reappoint it will be proposed at the forthcoming Annual General Mee(cid:2)ng. Annual General Mee(cid:2)ng The Annual General Mee(cid:2)ng of the Company will be held at the offices of FTI Consul(cid:2)ng LLP, 200 Aldersgate, Aldersgate Street, London EC1A 4HD on Wednesday 23 November 2016 at 11.00 a.m. Full details of the business to be transacted at the AGM can be found in the No(cid:2)ce of Annual General Mee(cid:2)ng on page 52 of this report. On behalf of the Board Ian Ardill Company Secretary 11 October 2016 Diurnal Group plc Annual Report and Accounts 2016 17 Corporate governance report Introduc(cid:2)on As a company listed on the Alterna(cid:2)ve Investment Market of the London Stock Exchange, Diurnal Group plc is not required to comply with the requirements of the UK Corporate Governance Code. However, the Board seeks to follow best prac(cid:2)ce in corporate governance to the extent appropriate to the Company’s size, nature and stage of development and in accordance with the regulatory framework that applies to AIM companies. The Board seeks to apply the principles and provisions of the QCA corporate governance code for small and mid-sized companies where it is appropriate to do so to support the governance framework. The Company was incorporated on 28 October 2015 and its shares were admi(cid:6)ed to trading on AIM on 24 December 2015. The Board The Board comprises seven Directors; three execu(cid:2)ve Directors and four non-execu(cid:2)ve Directors, each bringing a different experience and background. Two of non-execu(cid:2)ve Directors are considered by the Directors to be independent for the purposes of the QCA corporate governance code, Peter Allen and John Goddard. Whilst Peter Allen has been the Group’s non-execu(cid:2)ve chairman since July 2015, he had no associa(cid:2)on with, and was independent from, the Group at the (cid:2)me of his appointment and, as such, the Directors consider that he sa(cid:2)sfies the independence criteria set out in the QCA corporate governance code. Peter Allen is the Chairman and Mar(cid:2)n Whitaker is the Chief Execu(cid:2)ve Officer, each with clearly defined responsibili(cid:2)es. Peter Allen operates in a non-execu(cid:2)ve capacity. The Chairman leads the Board and is responsible for organising the business of the Board, ensuring its effec(cid:2)veness and se(cid:7)ng its agenda. The Chairman has no involvement in the day-today management of the Company. The Chairman facilitates the effec(cid:2)ve contribu(cid:2)on of Non-execu(cid:2)ve Directors and construc(cid:2)ve rela(cid:2)ons between Execu(cid:2)ve and Non-execu(cid:2)ve Directors, ensures Directors receive accurate, (cid:2)mely and clear informa(cid:2)on and that effec(cid:2)ve communica(cid:2)on occurs with ins(cid:2)tu(cid:2)onal shareholders. The Board meets regularly and at least six (cid:2)mes in the year to consider strategy, performance and the framework of internal controls. There is a formal schedule of ma(cid:6)ers reserved for decision by the Board in place, which includes strategic ma(cid:6)ers such as the formula(cid:2)on and implementa(cid:2)on of strategy, the approval of annual budgets, the review of the Group’s performance and prospects, the approval of the financial statements, dividends and significant changes in accoun(cid:2)ng prac(cid:2)ces and key commercial ma(cid:6)ers, such as decisions to be taken on whether to take forward or to cancel a scien(cid:2)fic project. All Directors receive appropriate and (cid:2)mely informa(cid:2)on, as expected under the QCA Corporate Governance Code and all Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that the Board procedures are followed and that applicable rules and regula(cid:2)ons are complied with. In addi(cid:2)on, the Directors are able to obtain independent professional advice in the furtherance of their du(cid:2)es, if necessary, at the Company’s expense. Each Director has a duty to avoid situa(cid:2)ons in which he has or can have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company. The Board requires each Director to declare to the Board the nature and extent of any direct or indirect interest in a proposed transac(cid:2)on or arrangement with the Company and the Company Secretary maintains a register of Directors’ other interests. The Board has power to authorise any poten(cid:2)ally conflic(cid:2)ng interests that are disclosed by a Director. Directors are required to no(cid:2)fy the Company Secretary when any poten(cid:2)al conflict of interest arises. A(cid:6)endance at Board and Commi(cid:6)ee mee(cid:2)ngs over the course of the 2015/16 financial year was as follows: –––––––––––––––––– –––––––––––––––––– –––––––––––––––––– –––––––––––––––––– Board Audit Commi(cid:3)ee Remunera(cid:2)on Commi(cid:3)ee Nomina(cid:2)on Commi(cid:3)ee –––––––––––––––––– –––––––––––––––––– –––––––––––––––––– –––––––––––––––––– Mee(cid:2)ngs A(cid:3)ended Mee(cid:2)ngs A(cid:3)ended Mee(cid:2)ngs A(cid:3)ended Mee(cid:2)ngs A(cid:3)ended 8 8 8 8 5 8 8 8 8 8 4 8 – – – 1 1 1 – – – 1 1 1 – – – 4 2 5 – – – 4 1 5 – – – 0 0 0 – – – 0 0 0 8 –––––––– –––––––– 8 1 –––––––– –––––––– 0 5 –––––––– –––––––– 5 0 –––––––– –––––––– 0 The table summarises the formal, scheduled mee(cid:2)ngs which fell during the year in Diurnal Group plc since incorpora(cid:2)on on 28 October 2015 and before that date, in Diurnal Limited. The analysis does not include the IPO-related structural and procedural mee(cid:2)ngs. Execu(cid:2)ve Mar(cid:2)n Whitaker Ian Ardill Richard Ross Non-execu(cid:2)ve Peter Allen John Goddard Alan Raymond Sam Williams 18 Strategic Report Governance Financial Statements Board Performance Evalua(cid:2)on Each Director is subject to elec(cid:2)on by shareholders at each Annual General Mee(cid:2)ng. Given the short period of (cid:2)me since the Company’s admission to AIM, the Board has not yet established a process for evalua(cid:2)ng the performance of the Board, the commi(cid:6)ees and of the Directors. It plans to do so in the 2016/17 financial year. Board Commi(cid:3)ees The Board has established Audit, Remunera(cid:2)on and Nomina(cid:2)on Commi(cid:6)ees, each with wri(cid:6)en terms of reference. If the need should arise, the Board may set up addi(cid:2)onal commi(cid:6)ees, as appropriate. Audit Commi(cid:3)ee including the Audit Commi(cid:3)ee Report The Audit Commi(cid:6)ee has responsibility for, among other things, the monitoring of the financial integrity of the financial statements of the Group and the involvement of the Group’s auditors in that process. It focuses, in par(cid:2)cular, on compliance with accoun(cid:2)ng policies and ensuring that an effec(cid:2)ve system of audit and financial control is maintained, including considering the scope of the annual audit and the extent of the non-audit work undertaken by external auditors and advising on the appointment of external auditors. The ul(cid:2)mate responsibility for reviewing and approving the annual report and accounts and the half yearly reports remains with the Board. The Audit Commi(cid:6)ee will meet at least three (cid:2)mes a year at the appropriate (cid:2)mes in the financial repor(cid:2)ng and audit cycle and at such other (cid:2)mes as may be deemed necessary. The terms of reference of the Audit Commi(cid:6)ee cover such issues as membership and the frequency of mee(cid:2)ngs, together with requirements of any quorum for, and the right to a(cid:6)end, mee(cid:2)ngs. The responsibili(cid:2)es of the Audit Commi(cid:6)ee covered in its terms of reference include the following: external audit, financial repor(cid:2)ng, internal controls and risk management. The terms of reference also set out the authority of the commi(cid:6)ee to carry out its responsibili(cid:2)es. The Audit Commi(cid:6)ee met once during 2015/16, to review the 2015/16 Interim Results prior to their submission for approval to the full Board. In this mee(cid:2)ng, the Commi(cid:6)ee considered the accoun(cid:2)ng for the share transac(cid:2)ons in the Company, the treatment of the costs of the IPO, the principles of reverse acquisi(cid:2)on accoun(cid:2)ng in rela(cid:2)on to the group restructure, the accoun(cid:2)ng for the share based payments and for the conver(cid:2)ble loan. A mee(cid:2)ng to consider the Audit Strategy and Plan for the 2015/16 Final Results occurred just a(cid:8)er the close of the financial year. Any non-audit services that are to be provided by the external auditors are reviewed in order to safeguard auditor objec(cid:2)vity and independence. The Commi(cid:6)ee considered the external auditor’s procedures to safeguard independence and objec(cid:2)vity and the Commi(cid:6)ee confirms that the non-audit services earned by the external auditor for work performed in rela(cid:2)on to and prior to the IPO are not considered to have impaired its objec(cid:2)vity and independence. The external auditor has the opportunity during the Audit Commi(cid:6)ee mee(cid:2)ngs to meet privately with commi(cid:6)ee members in the absence of execu(cid:2)ve management. In prepara(cid:2)on for the IPO, the Board considered a review of risks facing the Group, together with management’s assessment of the risks and mi(cid:2)ga(cid:2)on steps. Since the IPO, the Audit Commi(cid:6)ee is responsible for reviewing the Company’s procedures for the iden(cid:2)fica(cid:2)on, assessment, management and repor(cid:2)ng of risks. The Company has a whistleblowing policy, in which staff may no(cid:2)fy management or Non-execu(cid:2)ve Directors of any concerns regarding suspected wrongdoing or dangers at work. The Audit Commi(cid:6)ee comprises four members, who are all Non-Execu(cid:2)ve Directors: John Goddard (Chairman), Peter Allen, Alan Raymond and Sam Williams. Peter Allen and John Goddard are qualified chartered accountants and have significant experience gained in senior financial management posi(cid:2)ons and as Non-execu(cid:2)ve Directors and Audit Commi(cid:6)ee members and chairmen. Remunera(cid:2)on Commi(cid:3)ee The Remunera(cid:2)on Commi(cid:6)ee has responsibility for determina(cid:2)on of specific remunera(cid:2)on packages for each of the Execu(cid:2)ve Directors and certain senior execu(cid:2)ves of the Group, including pension rights and any compensa(cid:2)on payments, and recommending and monitoring the level and structure of remunera(cid:2)on for senior management, and the implementa(cid:2)on of share incen(cid:2)ve, or other performance-related schemes. It meets at least twice a year and at such other (cid:2)mes as may be deemed necessary. The Remunera(cid:2)on Commi(cid:6)ee also generates an annual remunera(cid:2)on report to be approved by the members of the Company at the annual general mee(cid:2)ng. The responsibili(cid:2)es of the Remunera(cid:2)on Commi(cid:6)ee covered in its terms of reference include the following: determining and monitoring policy on and se(cid:7)ng levels of remunera(cid:2)on, termina(cid:2)on, performance-related pay, pension arrangements, repor(cid:2)ng and disclosure, share incen(cid:2)ve plans and remunera(cid:2)on consultants. The terms of reference also set out the repor(cid:2)ng responsibili(cid:2)es and the authority of the commi(cid:6)ee to carry out its responsibili(cid:2)es. The Remunera(cid:2)on Commi(cid:6)ee comprises four members, all of whom are Non-Execu(cid:2)ve Directors: Alan Raymond (Chairman), John Goddard, Peter Allen and Sam Williams. Nomina(cid:2)on Commi(cid:3)ee The Nomina(cid:2)on Commi(cid:6)ee is responsible for considering and making recommenda(cid:2)ons to the Board in respect of appointments to the Board, the Board commi(cid:6)ees and the chairmanship of the Board commi(cid:6)ees. It is also responsible for keeping the structure, size and composi(cid:2)on of the Board under regular review, and for making recommenda(cid:2)ons to the Board with regard to any changes necessary, taking into account the skills and exper(cid:2)se that will be needed on the Board in the future. The Nomina(cid:2)on Commi(cid:6)ee’s terms of reference deal Diurnal Group plc Annual Report and Accounts 2016 19 Corporate governance report con(cid:2)nued with such things as membership, quorum and repor(cid:2)ng responsibili(cid:2)es. The Nomina(cid:2)on Commi(cid:6)ee intends to meet at least once a year and at such other (cid:2)mes as may be deemed necessary. The Nomina(cid:2)on Commi(cid:6)ee comprises four members, all of whom are Non-Execu(cid:2)ve Directors: Peter Allen (Chairman), John Goddard, Alan Raymond and Sam Williams. Share Dealing Code The Company has adopted a code on dealings in rela(cid:2)on to the securi(cid:2)es of the Group. The Company shall require the Directors and other relevant employees of the Group to comply with the Share Dealing Code and takes proper and reasonable steps to secure their compliance. Bribery Act 2010 The Company has adopted an an(cid:2)-bribery and corrup(cid:2)on policy following a review its opera(cid:2)onal procedures in the light of the Bribery Act and has implemented appropriate procedures. Internal Controls The Board has overall responsibility for ensuring that the Group maintains a system of internal control to provide reasonable assurance that the Group’s assets are safeguarded and that the shareholders’ investments are protected. The system includes internal controls covering financial, opera(cid:2)onal and regulatory compliance areas, together with risk management. The principal risks and uncertain(cid:2)es for the Group are set out on page 16 of this Annual Report. The Group maintains a risk register, which is reviewed and updated annually. Each poten(cid:2)al risk across the Group will be assessed against the likelihood of occurrence and the impact on the business, should the risk be realised. The Board has established, maintains and is responsible for assessing and reviewing the effec(cid:2)veness of the Group’s system of internal control. Some of the key features of the internal control procedures are as described below. • • • Each year, the Board approves the annual budget and performance is monitored against budget, with relevant ac(cid:2)on being taken throughout the year. Expenditure is regulated by the budgetary process together with authorisa(cid:2)on levels and for expenditure exceeding a certain level, Board approval is required. In addi(cid:2)on to the expenditure authorisa(cid:2)on control, other financial controls operate around the payroll and payment processes and the monthly accoun(cid:2)ng cycle, including the review and reconcilia(cid:2)on of certain accounts. Segrega(cid:2)on of du(cid:2)es and dual signature controls exist where appropriate and prac(cid:2)cable. The external auditors provide a supplementary, independent perspec(cid:2)ve on those areas of the internal control system which they assess in the course of their work. Their findings are reported to the Board via the Audit Commi(cid:6)ee. Investor rela(cid:2)ons The Board encourages communica(cid:2)ons with all shareholders. There is regular dialogue with major, ins(cid:2)tu(cid:2)onal shareholders, usually a(cid:8)er the announcement of half year and full year results. Presenta(cid:2)ons are made to analysts at those (cid:2)mes to present the Group’s results; these presenta(cid:2)ons being webcast and made available on the Company’s website. This assists with the promo(cid:2)on of knowledge of the Group in the investment marketplace and with the exis(cid:2)ng shareholders. The process also helps the Directors to understand the needs and expecta(cid:2)ons of shareholders. The Directors use the Annual Report and financial statements and the Annual General Mee(cid:2)ng as opportuni(cid:2)es to engage with its private investors in addi(cid:2)on to its ins(cid:2)tu(cid:2)onal investors. The Board believes that the Annual General Mee(cid:2)ng offers an excellent opportunity to communicate directly with shareholders. This year’s Annual General Mee(cid:2)ng will be held on 23 November 2016 and details of the resolu(cid:2)ons to be proposed at the mee(cid:2)ng can be found in the No(cid:2)ce of Mee(cid:2)ng at the end of this Annual Report. Stakeholder and social responsibili(cid:2)es The Board believes that good corporate governance encompasses assessing the Company’s impact on and contribu(cid:2)on to society, its community and the environment. The Board recognises its responsibili(cid:2)es to shareholders and also to other stakeholders, such as employees, customers and suppliers and to the pa(cid:2)ents who will ul(cid:2)mately benefit from its products. On behalf of the Board Peter Allen Chairman 11 October 2016 20 Strategic Report Governance Financial Statements Remunera(cid:2)on report Introduc(cid:2)on Companies with securi(cid:2)es traded on the London Stock Exchange’s AIM market are not required to comply with the disclosure requirements of Directors’ Remunera(cid:2)on Report Regula(cid:2)ons 2002 or to comply with the UKLA Lis(cid:2)ng Rules and disclosure provisions under Schedule 8 of the Companies Act 2006. However, the Remunera(cid:2)on Commi(cid:6)ee is commi(cid:6)ed to maintaining high standards of corporate governance and disclosure and has taken steps to comply with best prac(cid:2)ce in so far as it can be applied prac(cid:2)cally given the size, stage of development and resources of the Group. The following disclosures are provided on an unaudited voluntary basis and a resolu(cid:2)on to approve the Remunera(cid:2)on Report will be presented to shareholders at the Annual General Mee(cid:2)ng. The Remunera(cid:2)on Report is unaudited except for the Directors’ remunera(cid:2)on table which is subject to audit. Remunera(cid:2)on Commi(cid:3)ee The Remunera(cid:2)on Commi(cid:6)ee consists of Alan Raymond (Chairman), Peter Allen, John Goddard and Sam Williams. All members of the Commi(cid:6)ee are Non-execu(cid:2)ve Directors, of whom Peter Allen and John Goddard are considered by the Board to be independent. The Remunera(cid:2)on Commi(cid:6)ee has responsibility for the following: • • • • • • determining and monitoring remunera(cid:2)on policy; determina(cid:2)on of specific remunera(cid:2)on packages for each of the Execu(cid:2)ve Directors and certain senior execu(cid:2)ves of the Group, including pension rights and any compensa(cid:2)on payments; recommending and monitoring the level and structure of remunera(cid:2)on for senior management; implemen(cid:2)ng share incen(cid:2)ve or other performance-related schemes; repor(cid:2)ng and disclosure of remunera(cid:2)on; and the use of remunera(cid:2)on consultants. Between Diurnal Limited, pre IPO, and Diurnal Group plc, post IPO, there were five Remunera(cid:2)on Commi(cid:6)ee mee(cid:2)ngs during the year. Policy on remunera(cid:2)on of Execu(cid:2)ve Directors It is the Group’s policy to provide remunera(cid:2)on packages that are compe(cid:2)(cid:2)ve with those of other companies of a similar size, complexity and stage of development. The Group recognises the benefits of performance related remunera(cid:2)on and both the awards of share op(cid:2)ons and annual bonuses are linked to various performance measures. Components of the remunera(cid:2)on package The principal components of Execu(cid:2)ve Directors’ remunera(cid:2)on packages are basic salary, a performance related bonus, medium- and long- term incen(cid:2)ves in the form of share op(cid:2)ons, pension contribu(cid:2)ons and other benefits. The policy in rela(cid:2)on to each of these components, and the key terms of the various incen(cid:2)ve and benefit programmes are explained further below. Basic salary Base salaries are reviewed annually, with the level of increases for Execu(cid:2)ve Directors taking account of the increases awarded to the workforce as a whole, as well as a considera(cid:2)on of the performance of the Group and the individual, skill set and experience and external indicators such as salaries in comparable companies and infla(cid:2)on. No annual review increase occurred in July 2016. At the (cid:2)me of the IPO, the Remunera(cid:2)on Commi(cid:6)ee performed a benchmarking of Execu(cid:2)ve and Non-execu(cid:2)ve Director remunera(cid:2)on and considers that the salary levels of the Execu(cid:2)ve Directors are currently posi(cid:2)oned below mid-market levels. The Commi(cid:6)ee considered this appropriate at this rela(cid:2)vely early stage in the Group’s development, however, it intends to increase salaries to a mid-market posi(cid:2)on subject to the Group entering its commercialisa(cid:2)on phase within two years of the Company’s admission to AIM. Performance-related bonus From the start of the 2015/16 financial year, the annual bonus for Execu(cid:2)ve Directors was payable in cash up to a specified target bonus level and, if relevant, in the form of “deferred share awards” in rela(cid:2)on to the por(cid:2)on of any bonus in excess of such target bonus level. Deferred share awards will be awarded under the deferred share award feature of the Long Term Incen(cid:2)ve Plan. From the start of the 2016/17 financial year, any annual bonus for Execu(cid:2)ve Directors is payable in cash and deferred share awards under the following propor(cid:2)ons: CEO 50% cash, 50% deferred share awards; CFO 67% cash, 33% deferred share awards. The number of Ordinary Shares comprised within deferred share awards will be set on grant to equal such number equal in value to the por(cid:2)on of the bonus being deferred, adjusted as necessary to neutralise the cost of exercise where awards are structured as nominal cost op(cid:2)ons. Such deferred share awards to Execu(cid:2)ve Directors will ordinarily vest a(cid:8)er one year, subject only to con(cid:2)nued employment. Annual bonuses are payable at the sole discre(cid:2)on of the Remunera(cid:2)on Commi(cid:6)ee and are currently capped at 100% of salary for the Chief Execu(cid:2)ve Officer and 70% of salary for the Chief Financial Officer. The Commi(cid:6)ee set performance targets for the annual bonus plan at the start of each financial year. In reflec(cid:2)on of performance in the 2015/16 financial year, Execu(cid:2)ve Directors’ bonus achievement has been agreed as 100% by the Commi(cid:6)ee. Mar(cid:2)n Whitaker (CEO) will receive a total bonus of 100% of salary, payable 50% in cash and 50% in deferred shares and Diurnal Group plc Annual Report and Accounts 2016 21 Remunera(cid:2)on report con(cid:2)nued Ian Ardill (CFO) will receive a total bonus of 70% of salary, payable 50% in cash and 20% in deferred shares. The performance criteria for 2015/16 included financing, development programme and personnel recruitment milestones. For 2016/17, they include clinical (lead programmes and pipeline) and commercial milestones and have plan and stretch components. Long term incen(cid:2)ve plan (LTIP) It is currently intended that the primary long-term incen(cid:2)ve arrangement for Execu(cid:2)ve Directors and selected senior managers will be delivered in the form of “performance share awards” under the performance share award feature of the LTIP. Awards will ordinarily be granted on an annual basis, shortly following announcement of the annual results. In the normal course of events, such performance share awards under the LTIP will vest three years from award, or upon the assessment of performance condi(cid:2)ons, if later, subject to the par(cid:2)cipant’s con(cid:2)nued service and to the extent to which performance condi(cid:2)ons specified for the awards are sa(cid:2)sfied. Such awards are currently planned equal in value to up to 100% of base salary for Mar(cid:2)n Whitaker and up to 75% of salary for Ian Ardill (adjusted as necessary to neutralise the cost of exercise where the awards are structured as nominal cost op(cid:2)ons). The first performance share awards to Execu(cid:2)ve Directors under the LTIP will be made following the announcement of the Group’s annual results for the financial year ending 30 June 2016 up to such level. Selected senior managers and, at the Remunera(cid:2)on Commi(cid:6)ee’s discre(cid:2)on, other employees will also par(cid:2)cipate in the performance share award element of the LTIP. Pension arrangements Pension is to be provided either via a contribu(cid:2)on into the Company’s defined contribu(cid:2)on plan, which is in the process of being established, or via a cash supplement. The level of pension for the Execu(cid:2)ve Directors is 10% of basic salary. Other benefits Other benefits for Execu(cid:2)ve Directors include life assurance, private medical insurance and the benefit of income protec(cid:2)on insurance. Policies and guidelines Recovery and withholding provisions may be operated at the discre(cid:2)on of the Remunera(cid:2)on Commi(cid:6)ee in respect of awards granted under the annual bonus plan and the LTIP in certain circumstances, (including where there has been a misstatement of accounts, an error in assessing any applicable performance condi(cid:2)on or in the event of misconduct on the part of the par(cid:2)cipant. The Company has adopted formal shareholding guidelines in order to encourage Execu(cid:2)ve Directors to build or maintain a shareholding in the Company equivalent in value to no less than 100% of salary. If an Execu(cid:2)ve Director does not meet the guideline, he will be expected to retain at least half of the shares ves(cid:2)ng (net of those sold to fund exercise price and taxa(cid:2)on liabili(cid:2)es) under the Company’s discre(cid:2)onary share based employee incen(cid:2)ve schemes un(cid:2)l the guideline is met. Directors’ service contracts The Company’s policy is for Execu(cid:2)ve Directors to have contracts of employment with an indefinite term providing for a maximum of one year’s no(cid:2)ce and for Non-execu(cid:2)ve Directors to be engaged on le(cid:6)ers of appointment with an indefinite term providing for a maximum of three months’ no(cid:2)ce. All Directors will re(cid:2)re at the Company’s first Annual General Mee(cid:2)ng, to be held on 23 November 2016, and are proposed for re-elec(cid:2)on. This is due to a conflict in the Ar(cid:2)cles with the more normal requirement for one third of Directors to re(cid:2)re by rota(cid:2)on and be subject to re-elec(cid:2)on at an Annual General Mee(cid:2)ng at intervals of no more than three years. A resolu(cid:2)on to amend the Ar(cid:2)cles to remove this conflict will be made at the 2016 Annual General Mee(cid:2)ng. If passed, at each subsequent Annual General Mee(cid:2)ng of the Company, one-third of the Directors shall re(cid:2)re from office by rota(cid:2)on subject to all Directors being subject to re-elec(cid:2)on at intervals of no more than three years. 22 Strategic Report Governance Financial Statements Details of current Directors’ service contracts and le(cid:6)ers of appointment are as follows: Name Execu(cid:2)ve Mar(cid:2)n Whitaker Ian Ardill Richard Ross1 Non-execu(cid:2)ve Peter Allen John Goddard Alan Raymond2 Sam Williams3 ––––––––––––– ––––––––––––– Date of Appointment No(cid:2)ce Period 21 Dec 2015 12 months 21 Dec 2015 21 Dec 2015 6 months 3 months 21 Dec 2015 21 Dec 2015 21 Dec 2015 3 months 3 months 3 months 21 Dec 2015 ––––––––––––– ––––––––––––– 3 months 1. Richard Ross is employed by the University of Sheffield. A secondment agreement and a research agreement with the University cover his ac(cid:2)vi(cid:2)es for the Group in addi(cid:2)on to his Director's service agreement. 2. Director nominated by the Finance Wales plc shareholders under a rela(cid:2)onship agreement with the Company while the shareholding exceeds 10%. 3. Director nominated by the IP Group plc shareholders under a rela(cid:2)onship agreement with the Company while the shareholding exceeds 10%. Directors’ remunera(cid:2)on (audited) The remunera(cid:2)on of the Directors who held office during the periods ended 30 June 2016 and 2015 were as follows: –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Bonus £000 Benefits £000 Total emoluments 12 months 2015/16 £000 Pension contribu(cid:2)ons 12 months 2015/16 £000 Total emoluments 13 months 2014/15 £000 Pension contribu(cid:2)ons 13 months 2014/15 £000 Name Execu(cid:2)ve Mar(cid:2)n Whitaker Ian Ardill1 Richard Ross2 Non-execu(cid:2)ve Peter Allen3 John Goddard4 Alan Raymond1,7 Sam Williams5 Basic salary and fees £000 160 130 – 45 10 29 15 80 65 – – – – – – – – – – – – 240 195 – 45 10 29 15 8 7 – – – – – 120 25 – – – 3 – – – – – – – – –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 148 534 145 389 15 – – Directors’ emoluments include emoluments due to the directors of Diurnal Group plc. 2014 amounts represent emoluments paid to the current directors of the historic group and are presented for compara(cid:2)ve purposes. 1. Appointed to Diurnal Limited 22 April 2015. 2. Employed by the University of Sheffield and no emoluments paid. A secondment agreement and a research agreement with the University cover his ac(cid:2)vi(cid:2)es for the Group in addi(cid:2)on to his Director's service agreement. 3. Appointed to Diurnal Limited 1 July 2015. Current annual fee £50,000. 4. Appointed 6 November 2015. Part of John Goddard's annual fee for the three years from joining is payable in shares via a share award granted on 12 April 2016. Current cash annual fee £15,000. 5. Director’s fee paid to IP Group plc. Director nominated by the IP Group plc shareholders under a rela(cid:2)onship agreement with the Company while the shareholding exceeds 10%. Current annual fee £28,800. 6. Bonus figures represent the bonus payable in cash in rela(cid:2)on to the 2015/16 financial year. Deferred share awards will be made following the issue of the Annual Report in October 2016. These will be made based on the following values which will be adjusted as necessary to neutralise the cost of exercise as nominal cost op(cid:2)ons: Mar(cid:2)n Whitaker (£80k) and Ian Ardill (£26k). 7. Current annual fee £28,800. Diurnal Group plc Annual Report and Accounts 2016 23 Remunera(cid:2)on report con(cid:2)nued Directors’ share op(cid:2)ons and awards Directors holding office at 30 June 2016 had the following op(cid:2)ons outstanding over ordinary shares: –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Exercise price At 1 Jul 2015 Granted in the year Exercised Lapsed At 30 Jun 2016 Latest ves(cid:2)ng date Date of grant/award Execu(cid:2)ve Mar(cid:2)n Whitaker 1 Jul 2008 Op(cid:2)on grant 1 Dec 2008 Op(cid:2)on grant 17 Feb 2010 Op(cid:2)on grant 20 Jul 2011 Op(cid:2)on grant 22 Aug 2012 Op(cid:2)on grant 11 Sep 2015 Op(cid:2)on grant £0.4377 Ian Ardill 11 Sep 2015 Op(cid:2)on grant £0.4377 Richard Ross 1 Jul 2008 Op(cid:2)on grant 22 Aug 2012 Op(cid:2)on grant 23 Sep 2015 Op(cid:2)on grant £0.002 £0.002 £0.002 Non-execu(cid:2)ve Peter Allen 23 Sep 2015 Op(cid:2)on grant 12 Apr 2016 Op(cid:2)on grant £0.002 £0.002 John Goddard 12 Apr 2016 Share award1 £0.05 £0.002 £0.002 £0.002 £0.002 £0.002 44,500 55,000 75,000 50,000 200,000 – – – – – – – – – – – – – – – 44,500 55,000 75,000 50,000 200,000 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 424,500 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 862,000 157,000 – – – – – – 862,000 157,000 1,019,000 330,000 330,000 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 330,000 1,349,000 495,000 919,500 330,000 330,000 Vested Vested Vested Vested Vested 11 Sep 2018 11 Sep 2018 Vested Vested 23 Sep 2018 104,421 173,421 32,374 32,374 24 Dec 2018 24 Dec 2018 – – – – – – – – – – – – – – – – – – 495,000 495,000 330,000 330,000 104,421 173,421 32,374 32,374 – 69,000 – – 69,000 23 Sep 2018 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– – – – – – – – – – – –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 1. The Share awards made to John Goddard are exercisable as follows: 10,791 on 24 Jun 2017, 10,791 on 24 Dec 2017 and 10,792 on 24 Dec 2018. Historical share op(cid:2)ons granted prior to the Company's incorpora(cid:2)on on 28 October 2015, by Diurnal Limited, have been exchanged into op(cid:2)ons of Diurnal Group plc and are shown in the table above as if they always had been op(cid:2)ons of Diurnal Group plc. All share op(cid:2)ons have a ten year life. On behalf of the Board Alan Raymond Remunera(cid:2)on Commi(cid:4)ee Chairman 11 October 2016 24 Strategic Report Governance Financial Statements Independent auditor’s report to the members of Diurnal Group plc We have audited the financial statements of Diurnal Group plc for the year ended 30 June 2016 set out on pages 26 to 50. The financial repor(cid:2)ng framework that has been applied in the prepara(cid:2)on of the group financial statements is applicable law and Interna(cid:2)onal Financial Repor(cid:2)ng Standards (IFRSs) as adopted by the EU. The financial repor(cid:2)ng framework that has been applied in the prepara(cid:2)on of the parent company financial statements is applicable law and UK Accoun(cid:2)ng Standards (UK Generally Accepted Accoun(cid:2)ng Prac(cid:2)ce) including FRS101 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 ma(cid:6)ers we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permi(cid:6)ed 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. Respec(cid:2)ve responsibili(cid:2)es of directors and auditor As explained more fully in the Directors’ Responsibili(cid:2)es Statement set out on page 17, the directors are responsible for the prepara(cid:2)on of the financial statements and for being sa(cid:2)sfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and Interna(cid:2)onal Standards on Audi(cid:2)ng (UK and Ireland). Those standards require us to comply with the Audi(cid:2)ng Prac(cid:2)ces Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A descrip(cid:2)on of the scope of an audit of financial statements is provided on the Financial Repor(cid:2)ng Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2016 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accoun(cid:2)ng Prac(cid:2)ce; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other ma(cid:3)er prescribed by the Companies Act 2006 In our opinion the informa(cid:2)on given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Ma(cid:3)ers on which we are required to report by excep(cid:2)on We have nothing to report in respect of the following ma(cid:6)ers where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accoun(cid:2)ng 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 accoun(cid:2)ng records and returns; or • • certain disclosures of directors’ remunera(cid:2)on specified by law are not made; or • we have not received all the informa(cid:2)on and explana(cid:2)on we require for our audit. David Morri(cid:3) (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Sovereign Square Sovereign Street Leeds LS1 4DA United Kingdom 11 October 2016 Diurnal Group plc Annual Report and Accounts 2016 25 ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 (3,886) (3,106) (2,227) (1,000) – 241 ––––––––––––– ––––––––––––– (2,986) (6,992) 63 8 (133) (41) ––––––––––––– ––––––––––––– (3,019) (7,062) 491 81 ––––––––––––– ––––––––––––– (2,938) ––––––––––––– ––––––––––––– (6,571) (15.0) (8.5) ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 (6,571) ––––––––––––– ––––––––––––– (2,938) Consolidated income statement for the year ended 30 June 2016 Research and development expenditure Administra(cid:2)ve expenses Other opera(cid:2)ng income Opera(cid:2)ng loss Financial income Financial expense Loss before tax Taxa(cid:2)on Loss for the period Basic and diluted loss per share (pence per share) All ac(cid:2)vi(cid:2)es relate to con(cid:2)nuing opera(cid:2)ons. Note 4 6 7 8 9 Consolidated statement of comprehensive income for the year ended 30 June 2016 Loss for the period 26 Strategic Report Governance Financial Statements Consolidated balance sheet as at 30 June 2016 Non-current assets Intangible assets Property, plant and equipment Current assets Trade and other receivables Held to maturity financial assets Cash and cash equivalents Total assets Current liabili(cid:2)es Loans and borrowings Trade and other payables Non-current liabili(cid:2)es Loans and borrowings Total liabili(cid:2)es Net assets Equity Share capital Share premium Consolida(cid:2)on reserve Other reserve Retained earnings Total equity Note 10 11 12 13 14 16 15 16 17 ––––––––––––– ––––––––––––– 2016 £000 2015 £000 6 10 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 5 15 3 9 530 14,000 376 – 16,114 30,644 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 30,653 ––––––––––––– ––––––––––––– 6,464 6,073 6,449 – (24) (1,480) (399) ––––––––––––– ––––––––––––– (423) ––––––––––––– ––––––––––––– (1,480) – – (3,239) (3,239) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (423) ––––––––––––– ––––––––––––– (4,719) ––––––––––––– ––––––––––––– 25,934 6,041 2,610 23,632 (2,943) 1,458 15,351 – (2,943) – (6,367) ––––––––––––– ––––––––––––– 1,177 25,934 ––––––––––––– ––––––––––––– 6,041 These financial statements were approved by the Board of Directors on 11 October 2016 and were signed on its behalf by: Ian Ardill Director Company registered number: 09846650 Diurnal Group plc Annual Report and Accounts 2016 27 Consolidated statement of changes in equity for the year ended 30 June 2016 Balance at 27 May 2014 Loss for the period and total comprehensive loss for the period Equity se(cid:6)led share based payment transac(cid:2)ons Reduc(cid:2)on of Capital Contribu(cid:2)ons by owners1 Total transac(cid:2)ons with owners recorded directly in equity Balance at 30 June 2015 Loss for the period and total comprehensive loss for the period Equity se(cid:6)led share based payment transac(cid:2)ons Reduc(cid:2)on of Capital Issue of shares for cash Costs charged against share premium Equity component of conver(cid:2)ble loan Issue expenses of conver(cid:2)ble loan Repurchase of deferred shares Total transac(cid:2)ons with owners recorded directly in equity Balance at 30 June 2016 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Share Capital £000 Share Premium £000 Consolida(cid:2)on Reserve £000 Other Reserve £000 Retained Earnings £000 Total £000 (322) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (11,824) (3,849) 15,351 – – (2,938) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (2,938) – – – – – – – – – – – – 20 400 20 400 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– – – – 8,881 8,881 (2,943) – – – – 420 (6,367) 8,881 9,301 6,041 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– – – 15,351 (6,571) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (6,571) – – – – – (12,107) 884 – – – – – 24,465 (833) – – – – – – – – – – – – 1,486 (28) 490 12,107 – – – – 490 – 25,349 (833) 1,486 (28) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– – 1,518 – (1,518) – (12,741) 23,632 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (2,943) 23,632 25,934 1,458 1,177 2,610 1,458 14,115 26,464 – – Loss for the period is the only cons(cid:2)tuent of total comprehensive loss for each period so the period amounts are shown in the same line in the consolidated statement of changes in equity. 1. Contribu(cid:2)ons by owners relate to shares issued by Diurnal Limited prior to the incorpora(cid:2)on of Diurnal Group plc. Under the principles of reverse acquisi(cid:2)on accoun(cid:2)ng this is taken to consolida(cid:2)on reserve in the consolidated financial statements. 28 Strategic Report Governance Financial Statements Consolidated cash flow statement for the year ended 30 June 2016 Cash flows from opera(cid:2)ng ac(cid:2)vi(cid:2)es Loss for the period Adjustments for: Deprecia(cid:2)on, amor(cid:2)sa(cid:2)on and impairment Share-based payment Financial income Finance expenses Taxa(cid:2)on Increase in trade and other receivables Increase in trade and other payables Cash flow used in opera(cid:2)ons Interest paid Tax received Net cash used in opera(cid:2)ng ac(cid:2)vi(cid:2)es Cash flows from inves(cid:2)ng ac(cid:2)vi(cid:2)es Addi(cid:2)ons of property, plant and equipment Purchases of held to maturity financial assets Interest received Net cash (used in)/from inves(cid:2)ng ac(cid:2)vi(cid:2)es Cash flows from financing ac(cid:2)vi(cid:2)es Net proceeds from issue of share capital Repayment of borrowings Net proceeds from issue of borrowings Net cash generated by financing ac(cid:2)vi(cid:2)es Net increase in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period Note 18 6 7 8 8 ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 (6,571) (2,938) 6 490 (63) 133 (491) (135) 7 20 (8) 41 (81) (261) 1,081 284 ––––––––––––– ––––––––––––– (2,936) (5,550) – (1) 491 81 ––––––––––––– ––––––––––––– (2,856) ––––––––––––– ––––––––––––– (5,059) – (14,000) (5) – 44 (13,956) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 8 3 24,516 (24) 8,000 (25) – 7,975 4,564 29,056 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 10,041 5,122 6,073 951 ––––––––––––– ––––––––––––– 16,114 ––––––––––––– ––––––––––––– 6,073 Diurnal Group plc Annual Report and Accounts 2016 29 Notes to the consolidated financial statements General informa(cid:2)on 1 Diurnal Group plc (‘the Company’) and its subsidiary (together ‘the Group’) are a clinical stage specialty pharmaceu(cid:2)cal business targe(cid:2)ng pa(cid:2)ent needs in chronic endocrine (hormonal) diseases which the Company believes are currently not met sa(cid:2)sfactorily by exis(cid:2)ng treatments. It has iden(cid:2)fied a number of specialist endocrinology market opportuni(cid:2)es in Europe and the US that are together es(cid:2)mated to be worth more than $11bn per annum. The Company is a public limited company incorporated and domiciled in the UK. Its registered number is 09846650. The address of its registered office is Cardiff Medicentre, Heath Park, Cardiff, CF14 4UJ and its primary and sole lis(cid:2)ng is on the Alterna(cid:2)ve Investments Market (AIM). The Company was incorporated as Project Dime Limited on 28 October 2015 and reregistered as a public company and changed its name to Diurnal Group plc on 4 December 2015. On 21 December 2015 the Company published its AIM Admission Document following its successful £30m fundraising. Its ordinary shares of 5 pence each were admi(cid:6)ed to trading on the AIM market on 24 December 2015. The Company issued 17,603,759 shares at a price of £1.44 per share to raise £25.3m before expenses and received £4.7m before expenses under a conver(cid:2)ble loan from IP2IPO Limited, one of its shareholders. Total expenses of the IPO and fundraising were £1.5m, of which £0.8m were directly a(cid:6)ributable to the issue of the new shares and have been charged to the Share Premium account. £59k and £28k have been charged against the conver(cid:2)ble loan liability and its equity component respec(cid:2)vely. The balance of £0.6m has been charged to the Consolidated Income Statement and included within administra(cid:2)ve expenses in the period ended 30 June 2016. To facilitate the IPO, the Company was incorporated on 28 October 2015 and acquired the en(cid:2)re issued share capital of Diurnal Limited under a share for share exchange on 1 December 2015. The Company has applied the principles of reverse acquisi(cid:2)on accoun(cid:2)ng in the prepara(cid:2)on of the consolidated financial informa(cid:2)on. Significant accoun(cid:2)ng policies and basis of prepara(cid:2)on Significant accoun(cid:2)ng policies 2 2.1 The accoun(cid:2)ng policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. Foreign currency Transac(cid:2)ons in foreign currencies are translated to the Group’s func(cid:2)onal currency at the foreign exchange rate ruling at the date of the transac(cid:2)on. Monetary assets and liabili(cid:2)es denominated in foreign currencies at the balance sheet date are retranslated to the func(cid:2)onal currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on transla(cid:2)on are recognised in the income statement. Non-monetary assets and liabili(cid:2)es that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transac(cid:2)on. Non-monetary assets and liabili(cid:2)es denominated in foreign currencies that are stated at fair value are retranslated to the func(cid:2)onal currency at foreign exchange rates ruling at the dates the fair value was determined. Classifica(cid:2)on of financial instruments issued by the Company Following the adop(cid:2)on of IAS 32, financial instruments issued by the Company are treated as equity only to the extent that they meet the following two condi(cid:2)ons: (a) they include no contractual obliga(cid:2)ons upon the company to deliver cash or other financial assets or to exchange financial assets or financial liabili(cid:2)es with another party under condi(cid:2)ons that are poten(cid:2)ally unfavourable to the company; and (b) where the instrument will or may be se(cid:6)led in the company’s own equity instruments, it is either a non-deriva(cid:2)ve that includes no obliga(cid:2)on to deliver a variable number of the company’s own equity instruments or is a deriva(cid:2)ve that will be se(cid:6)led by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this defini(cid:2)on is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in rela(cid:2)on to those shares. Where a financial instrument that contains both equity and financial liability components exists these components are separated and accounted for individually under the above policy. The liability component is fair valued using appropriate valua(cid:2)on assump(cid:2)ons and the remaining amount is deemed to be the equity component. Non-deriva(cid:2)ve financial instruments Non-deriva(cid:2)ve financial instruments comprise investments in equity and debt securi(cid:2)es, trade and other receivables, held to maturity financial assets, cash and cash equivalents, loans and borrowings, and trade and other payables. Trade and other receivables Trade and other receivables are recognised ini(cid:2)ally at fair value. Subsequent to ini(cid:2)al recogni(cid:2)on they are measured at amor(cid:2)sed cost using the effec(cid:2)ve interest method, less any impairment losses. 30 Strategic Report Governance Financial Statements Trade and other payables Trade and other payables are recognised ini(cid:2)ally at fair value. Subsequent to ini(cid:2)al recogni(cid:2)on they are measured at amor(cid:2)sed cost using the effec(cid:2)ve interest method. Held to maturity financial assets Held to maturity financial assets comprise term deposits with an original maturity of more than three months. Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and term deposits with an original maturity of less than three months. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised ini(cid:2)ally at fair value less a(cid:6)ributable transac(cid:2)on costs. Subsequent to ini(cid:2)al recogni(cid:2)on, interest-bearing borrowings are stated at amor(cid:2)sed cost using the effec(cid:2)ve interest method, less any impairment losses. Intangible assets Research and development Expenditure on research ac(cid:2)vi(cid:2)es is recognised as an expense in the period in which it is incurred. Development expenditure is capitalised as an intangible asset only if the following condi(cid:2)ons are met: • • • • • an asset is created that can be iden(cid:2)fied; it is probable that the asset created will generate future economic benefit; the development cost of the asset can be measured reliably; it meets the company’s criteria for technical and commercial feasibility; and sufficient resources are available to meet the development to either sell or use as an asset The Group’s ac(cid:2)vi(cid:2)es are not considered to meet all of the condi(cid:2)ons above and therefore all related expenditure has been recognised as an expense in the income statement; there has been no capitalisa(cid:2)on of research and development costs. Expenditure in rela(cid:2)on to patents registra(cid:2)on and renewal of current patents are also expensed in the income statement. Patents acquired or licensed from third par(cid:2)es of patents are capitalised as intangible assets and are stated at cost less accumulated amor(cid:2)sa(cid:2)on and less accumulated impairment losses. Amor(cid:2)sa(cid:2)on Amor(cid:2)sa(cid:2)on is charged to the income statement on a straight-line basis over the es(cid:2)mated useful lives of the patents. Patent assets are amor(cid:2)sed from the date they are available for use. The es(cid:2)mated useful lives are as follows: Patents and licences 10 years Property, plant and equipment Property, plant and equipment are stated at cost less accumulated deprecia(cid:2)on. Cost comprises the purchase price plus any incidental costs of acquisi(cid:2)on and commissioning. Deprecia(cid:2)on is calculated to write-off the cost, less residual value, in equal annual instalments over their es(cid:2)mated useful lives as follows: Equipment 3 years The residual value, if not insignificant, is reassessed annually. Expenses Financing income and expenses Financing expenses comprise interest payable and finance charges on shares classified as liabili(cid:2)es. Financing income comprise interest receivable on funds invested and dividend income. Interest income and interest payable is recognised in profit or loss as it accrues, using the effec(cid:2)ve interest method. Dividend income is recognised in the income statement on the date the en(cid:2)ty’s right to receive payments is established. Taxa(cid:2)on Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substan(cid:2)vely enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. UK R&D Tax Credits that are payable to the company are recognised on a cash received basis. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be u(cid:2)lised. Diurnal Group plc Annual Report and Accounts 2016 31 Notes to the consolidated financial statements con(cid:2)nued Employee benefits Share-based payments In accordance with IFRS 2 ‘Share-based Payment’, share op(cid:2)ons are measured at fair value at their grant date. The fair value for the majority of the op(cid:2)ons is calculated using the Black-Scholes formula and charged to the Income Statement on a straight-line basis over the expected ves(cid:2)ng period. At each year end date, the Company revises its es(cid:2)mate of the number of op(cid:2)ons that are expected to become exercisable. This es(cid:2)mate is not revised according to es(cid:2)mates of changes in market based condi(cid:2)ons. A deemed grant date of the first day of the financial year in which performance must be achieved is assumed, in order to account for share awards under the deferred share element of the annual bonus scheme. Where the Company grants op(cid:2)ons over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-se(cid:6)led share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. Amounts recharged to the subsidiary are recognised as a reduc(cid:2)on in the cost of investment in subsidiary. If the amount recharged exceeds the increase in the cost of investment the excess is recognised as a dividend. Post re(cid:2)rement benefits The Group is in the process of establishing a defined contribu(cid:2)on pension scheme. Contribu(cid:2)ons to the personal pension scheme will be expensed as they fall due. Ahead of the establishment of the pension scheme, the Group has created a accrual for contribu(cid:2)ons that were payable in the period. Provisions A provision is recognised in the balance sheet when the Group has a present legal or construc(cid:2)ve obliga(cid:2)on as a result of a past event that can be reliably measured and it is probable that an ou(cid:3)low of economic benefits will be required to se(cid:6)le the obliga(cid:2)on. In addi(cid:2)on to the pension contribu(cid:2)on provision, the Group has created a provision for the employer na(cid:2)onal insurance contribu(cid:2)ons due on share-based payments that are not HMRC tax advantaged. Opera(cid:2)ng income Grant income is in rela(cid:2)on to government grants and is recognised when there is reasonable assurance that the physical payment will be received and the a(cid:6)ached condi(cid:2)ons have been complied with. When the grant relates to an expense item, it is recognised as other opera(cid:2)ng income on a systema(cid:2)c basis over the (cid:2)me periods that the costs, which it is intended to compensate, are expensed. Basis of prepara(cid:2)on 2.2 The financial informa(cid:2)on has been prepared in accordance with Interna(cid:2)onal Financial Repor(cid:2)ng Standards (IFRS) as adopted by the European Union, IFRIC interpreta(cid:2)ons and the Companies Act 2006. The financial informa(cid:2)on contained in these financial statements have been prepared under the historical cost conven(cid:2)on, and on a going concern basis. The accoun(cid:2)ng policies used in the financial informa(cid:2)on are consistent with those set out in the AIM Admission document dated 21 December 2015. The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their adop(cid:2)on is not expected to have a material effect on the financial statements unless otherwise indicated: • • • • • • • IFRS 9 Financial Instruments (effec(cid:2)ve date to be confirmed). IFRS 14 Regulatory Deferral Accounts (effec(cid:2)ve date to be confirmed). IFRS 15 Revenue from Contract with Customers (effec(cid:2)ve date to be confirmed). Clarifica(cid:2)on of Acceptable Methods of Deprecia(cid:2)on and Amor(cid:2)sa(cid:2)on – Amendments to IAS 16 and IAS 38 (effec(cid:2)ve date to be confirmed). Equity Method in Separate Financial Statements – Amendments to IAS 27 (effec(cid:2)ve date to be confirmed). Annual Improvements to IFRSs – 2012-2014 Cycle (effec(cid:2)ve date to be confirmed). Disclosure Ini(cid:2)a(cid:2)ve – Amendments to IAS 1 (effec(cid:2)ve date to be confirmed). The prepara(cid:2)on of financial informa(cid:2)on in conformity with IFRS requires management to make es(cid:2)mates and assump(cid:2)ons that affect the reported amounts of assets and liabili(cid:2)es at the date of the financial statements and the reported amounts of revenues and expenses during the repor(cid:2)ng period. Although these es(cid:2)mates are based on management’s best knowledge of the amount, event or ac(cid:2)ons, actual events ul(cid:2)mately may differ from those es(cid:2)mates. Cri(cid:2)cal accoun(cid:2)ng judgements and key sources of es(cid:2)ma(cid:2)on uncertainty 2.3 In the applica(cid:2)on of the company’s accoun(cid:2)ng policies, which are described in Note 2.1, management is required to make judgements, es(cid:2)mates and assump(cid:2)ons about the carrying amounts of assets and liabili(cid:2)es that are not readily apparent from other sources. The es(cid:2)mates and underlying assump(cid:2)ons are reviewed on an ongoing basis. Revisions to accoun(cid:2)ng es(cid:2)mates are recognised in the period in which the es(cid:2)mate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 32 Strategic Report Governance Financial Statements The cri(cid:2)cal accoun(cid:2)ng judgements relate to the share op(cid:2)ons and deferred share bonus awards, which are described in Note 18 and to the conver(cid:2)ble loan, which is described in Note 16; the key judgement being the discount rate, assumed at 8%. The fair value of financial instruments that are not traded in an ac(cid:2)ve market is determined by using valua(cid:2)on techniques. The Group has used a binomial model and makes assump(cid:2)ons that are based on market condi(cid:2)ons exis(cid:2)ng at each statement of financial posi(cid:2)on date. These comprise level 2 financial instruments. Capitalisa(cid:2)on of development costs Capitalisa(cid:2)on of development costs requires analysis of the technical feasibility and commercial viability of the project concerned. Capitalisa(cid:2)on of the costs will only be made where there is evidence that an economic benefit will flow to the company. To date no development costs have been capitalised and all costs have been expenses to the income statement as research and development expenditure. Deferred tax assets Es(cid:2)mates of future profitability are required for the decision whether or not to create a deferred tax asset. To date no deferred tax assets have been recognised. Going concern 2.4 At 30 June 2016, the Group had cash resources (being cash and cash equivalents and held to maturity financial assets) of £30.1m and the only external debt consists of a conver(cid:2)ble loan with a face value of £4.7m, repayable or conver(cid:2)ble by 24 December 2020 or as otherwise agreed between the par(cid:2)es. A(cid:8)er making enquiries and taking into account management’s es(cid:2)mate of future expenditure, the directors have a reasonable expecta(cid:2)on that the Group will have adequate financial resources to con(cid:2)nue in opera(cid:2)on for the foreseeable future. Summary of impact of Group restructure and Ini(cid:2)al Public Offering 2.5 On 24 December 2015, the Company listed its shares on AIM. In prepara(cid:2)on for this Ini(cid:2)al Public Offering (‘IPO’) the Group was restructured. The restructure has impacted a number of the current year and compara(cid:2)ve primary financial statements and notes. For the consolidated financial statements of the Group, prepared under IFRS, the principles of reverse acquisi(cid:2)on accoun(cid:2)ng under IFRS 3 ‘Business Combina(cid:2)ons’ have been applied. The steps to restructure the Group had the effect of Diurnal Group plc being inserted above Diurnal Limited as the holder of the Diurnal Limited share capital. By applying the principles of reverse acquisi(cid:2)on accoun(cid:2)ng, the Group is presented as if Diurnal Group plc has always owned Diurnal Limited. The compara(cid:2)ve Income Statement and Balance Sheet are presented in line with the previously presented Diurnal Limited posi(cid:2)on. The compara(cid:2)ve and current year consolidated reserves of the Group are adjusted to reflect the statutory share capital and share premium of Diurnal Group plc as if it had always existed, adjusted for movements in the underlying Diurnal Limited share capital and reserves un(cid:2)l the share for share exchange. The steps taken to restructure the Group are explained in more detail in the Group Reorganisa(cid:2)on sec(cid:2)on below. The impact on the primary consolidated financial statements is as follows: • • Equity reflects the capital structure of Diurnal Group plc. As part of the restructuring of the Group and the IPO, a number of shares in Diurnal Group plc were issued in exchange for cash. The premium arising on the issue of shares is allocated to share premium. A consolida(cid:2)on reserve was created and reflects the difference between the Diurnal Group plc reserves at the balance sheet date as reflected in the opening reserves at the start of the compara(cid:2)ve period (28 May 2014) and the equity of Diurnal Limited at the same date. Fees associated with the IPO are allocated to share premium and the Consolidated Income Statement depending on the nature of the costs. Group reorganisa(cid:2)on Prior to IPO the Group undertook a reorganisa(cid:2)on in prepara(cid:2)on for the transac(cid:2)on. The effect of this reorganisa(cid:2)on was to insert a new ul(cid:2)mate parent company, Diurnal Group plc, into the Group. This company acquired the en(cid:2)re issued share capital of Diurnal Limited, as summarised below. Diurnal Group plc became the ul(cid:2)mate parent company of the Group by acquiring Diurnal Limited in exchange for the issue of new shares. The key steps of the process were as follows: • • On incorpora(cid:2)on on 28 October 2015, 1 Ordinary share of £1 was allo(cid:6)ed and issued. On 1 December 2015, a number of further changes to the share capital occurred: – – a share subdivision whereby the ordinary share of £1 each was subdivided into 2 Ordinary shares of 50 pence each; in accordance with the terms of a share for share exchange agreement, the allotment and issue of 30,267,498 ordinary shares of 50 pence each and 4,395,000 B shares of 5 pence each in considera(cid:2)on for the en(cid:2)re issued share capital of Diurnal Limited. Following the conclusion of this share for share exchange, which involved nil cash considera(cid:2)on, Diurnal Limited became a wholly owned subsidiary undertaking of the Company; the nominal value of the 30,267,498 ordinary shares of 50 pence were reduced to 10 pence. – Diurnal Group plc Annual Report and Accounts 2016 33 Notes to the consolidated financial statements con(cid:2)nued • • On 23 December 2015, 83,038 ordinary shares of 10 pence each were allo(cid:6)ed and issued to the Enterprise Investment Scheme investors par(cid:2)cipa(cid:2)ng in the IPO placing of shares. On 24 December, 30,350,538 ordinary shares of 10 pence each were subdivided and reclassified into 30,350,538 ordinary shares of 5 pence each and 30,350,538 deferred share of 5 pence each. Therea(cid:8)er, a number of further changes to the share capital occurred, which were condi(cid:2)onal upon and immediately prior to admission of the Company’s shares to trading on AIM and simultaneous with each other: – – the conversion of 4,339,500 B shares of 5 pence each into 4,339,500 ordinary shares of 5 pence each; the reduc(cid:2)on of the Company’s share capital by £1,517,526.90 represen(cid:2)ng the aggregate nominal value of the 30,350,538 deferred share of 5 pence each, as a result of the transfer of the deferred shares to the Company for nil considera(cid:2)on and their subsequent cancella(cid:2)on; the allotment and issue of 17,520,721 ordinary shares of 5 pence each to investors par(cid:2)cipa(cid:2)ng in the IPO placing of shares. – Segmental informa(cid:2)on 3 The Board regularly reviews the Company’s performance and balance sheet posi(cid:2)on for its opera(cid:2)ons and receives financial informa(cid:2)on for the group as a whole. As a consequence the Group has one reportable segment, which is Clinical Development. Segmental profit is measured at opera(cid:2)ng loss level, as shown on the face of the Income Statement. As there is only one reportable segment whose losses, expenses, assets, liabili(cid:2)es and cash flows are measured and reported on a basis consistent with the financial statements, no addi(cid:2)onal numerical disclosures are necessary. Expenses and auditor’s remunera(cid:2)on 4 Loss for the year is a(cid:8)er charging: Deprecia(cid:2)on Amor(cid:2)sa(cid:2)on Research & development expenditure Auditor's remunera(cid:2)on – fees payable to Company auditor for the audit of the parent company and consolidated financial statements – audi(cid:2)ng the accounts of the subsidiary pursuant to legisla(cid:2)on – repor(cid:2)ng under Companies Act sec(cid:2)on 92 on the conversion to a public limited company Other services – transac(cid:2)on services fees in rela(cid:2)on to the IPO – tax fees in rela(cid:2)on to the IPO Total auditor's remunera(cid:2)on ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 2 4 3 4 3,886 2,227 ––––––––––––– ––––––––––––– 19 5 2 103 – 3 – – 27 – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 156 3 A number of one-off, share op(cid:2)on related and non-cash items, totalling £1.5m, are analysed in the following table: Research and development expenditure IFRS2 equity se(cid:6)led share based payment transac(cid:2)ons – non-cash 188 – ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 Employer NIC provision on unapproved share op(cid:2)ons – ini(cid:2)al recogni(cid:2)on of historical liability Administra(cid:2)ve expenses Expenses of the ini(cid:2)al public offering – one-off IFRS2 equity se(cid:6)led share based payment transac(cid:2)ons – non-cash Employer NIC provision on unapproved share op(cid:2)ons – ini(cid:2)al recogni(cid:2)on of historical liability 34 258 446 119 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 623 302 – 20 ––––––––––––– ––––––––––––– 1,044 ––––––––––––– ––––––––––––– 20 – – – Strategic Report Governance Financial Statements Staff costs 5 The average number of persons employed by the Group (including Execu(cid:2)ve and Non-execu(cid:2)ve Directors) during the year, analysed by category, was as follows: Research & Development Administra(cid:2)on Non-execu(cid:2)ve Directors Their aggregate remunera(cid:2)on comprised: The aggregate remunera(cid:2)on, including Non-execu(cid:2)ve Directors, comprised: Wages and salaries Non-execu(cid:2)ve Director fees Social security Pension Other benefits Share based payments (see note 18) 1 5 2 7 4 8 4 12 ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 Number 12 months ended 30 Jun 2016 Number 4 4 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 723 99 97 27 7 328 31 39 – – 490 1,443 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 20 418 Details of Director's remunera(cid:2)on and the highest paid director can be found in the Remunera(cid:2)on Report. Key management personnel comprise only the Directors of the Company. 6 Finance income Interest receivable on cash and cash equivalents and term deposits Total finance income 7 Finance expenses Total interest payable on loans Total interest expenses on financial liabili(cid:2)es measured at amor(cid:2)sed cost Total fair value losses on deriva(cid:2)ve financial liabili(cid:2)es Total finance expense ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 63 63 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 133 – – 133 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 8 8 1 34 6 41 Diurnal Group plc Annual Report and Accounts 2016 35 Notes to the consolidated financial statements con(cid:2)nued 8 Taxa(cid:2)on Current tax – current year Tax credit charge for the period ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 (491) (81) ––––––––––––– ––––––––––––– (81) ––––––––––––– ––––––––––––– (491) The tax credits assessed for the periods ended 30 June 2015 and 2016 relate en(cid:2)rely to R&D tax credit relief. Reconcilia(cid:2)on of total tax expense: ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 £000 12 months ended 30 Jun 2016 £000 The tax assessed for the year varies from the small company rate of corpora(cid:2)on tax as explained below Loss on ordinary ac(cid:2)vi(cid:2)es before tax Tax at the standard rate of UK corpora(cid:2)on tax rate of 20% (2014/15: 20%) Research and development tax credit Non-deduc(cid:2)ble expenses Current year losses for which no deferred tax asset was recognised Tax credit for the period (7,062) (3,019) ––––––––––––– ––––––––––––– (604) (1,412) (491) 104 (81) 41 1,308 563 ––––––––––––– ––––––––––––– (81) ––––––––––––– ––––––––––––– (491) The company has approximately £11.8m of trading losses carried forward at 30 June 2016 (2015: approximately £5.3m) for which no deferred tax asset has been recognised due to the uncertainty of availability of future taxable profits. The es(cid:2)mated value of the deferred tax asset not recognised, measured at a standard tax rate of 20% is £2.4m (2015: £1.1m at 20%). A reduc(cid:2)on in the UK corpora(cid:2)on tax rate from 21% to 20% (effec(cid:2)ve from 1 April 2015) was substan(cid:2)vely enacted on 2 July 2013. Further reduc(cid:2)ons from 20% to 19% from 1 April 2017 and 18% from 1 April 2020 were substan(cid:2)vely enacted on 26 October 2015. 9 Loss per share Loss for the period (£000) Weighted average number of shares (000) Basic and diluted loss per share (pence per share) ––––––––––––– ––––––––––––– 13 months ended 30 Jun 2015 12 months ended 30 Jun 2016 (6,571) (2,938) 43,746 34,607 ––––––––––––– ––––––––––––– (8.5) ––––––––––––– ––––––––––––– (15.0) The diluted loss per share is iden(cid:2)cal to the basic loss per share in all periods, as poten(cid:2)ally dilu(cid:2)ve shares are not treated as such since they would reduce the loss per share. 36 Strategic Report Governance Financial Statements ––––––––––––– Patents and licences £000 39 ––––––––––––– ––––––––––––– ––––––––––––– 25 ––––––––––––– 4 29 ––––––––––––– ––––––––––––– – 39 – 39 4 33 14 10 ––––––––––––– ––––––––––––– ––––––––––––– 6 ––––––––––––– Equipment £000 9 ––––––––––––– 5 14 ––––––––––––– ––––––––––––– – 14 6 3 9 2 3 5 ––––––––––––– ––––––––––––– ––––––––––––– 11 ––––––––––––– ––––––––––––– ––––––––––––– 3 10 Intangible assets Cost Balance at 28 May 2014 Addi(cid:2)ons Balance at 30 June 2015 Addi(cid:2)ons Balance 30 June 2016 Amor(cid:2)sa(cid:2)on Balance at 28 May 2014 Charge for the period Balance at 30 June 2015 Charge for the period Balance at 30 June 2016 Net book value At 28 May 2014 At 30 June 2015 At 30 June 2016 11 Property, plant and equipment Cost Balance at 28 May 2014 Addi(cid:2)ons Balance at 30 June 2015 Addi(cid:2)ons Balance 30 June 2016 Deprecia(cid:2)on Balance at 28 May 2014 Charge for the period Balance at 30 June 2015 Charge for the period Balance at 30 June 2016 Net book value At 28 May 2014 At 30 June 2015 At 30 June 2016 Diurnal Group plc Annual Report and Accounts 2016 37 Notes to the consolidated financial statements con(cid:2)nued 12 Trade and other receivables VAT recoverable Prepayments Other debtors 13 Held to maturity financial assets Bank term deposits ––––––––––––– ––––––––––––– 2016 £000 2015 £000 37 345 48 77 148 251 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 376 530 ––––––––––––– ––––––––––––– 2016 £000 2015 £000 14,000 ––––––––––––– ––––––––––––– – The effec(cid:2)ve interest rate on bank deposits was 1.05% and these deposits had a weighted average maturity of 11 months. The Group’s treasury policy requires that deposits are held with financial ins(cid:2)tu(cid:2)ons having a minimum credit ra(cid:2)ng of A- (from Moody’s S&P or Fitch), that individual counterparty exposure is no more than £8m and that the maximum term is 12 months. The Group’s deposits are in line with this policy. 14 Cash and cash equivalents Cash at bank and on hand ––––––––––––– ––––––––––––– 2016 £000 2015 £000 16,114 ––––––––––––– ––––––––––––– 6,073 The Group holds its cash and cash equivalents with its clearing bank and in a AAA rated Liquidity fund providing same day access to its cash. The Group’s treasury policy is summarised in Note 19. Although the Liquidity fund balance exceeds the £8m counterparty limit, the Board is sa(cid:2)sfied that the individual counterparty risk within the fund is significantly below this amount. 15 Trade and other payables Trade payables Other tax and social security Accrued expenses and deferred income 16 Loans and borrowings Current loans and borrowings Other current loans Non-current loans and borrowings Conver(cid:2)ble Loans Total loans and borrowings 38 ––––––––––––– ––––––––––––– 2016 £000 2015 £000 235 36 274 26 1,209 99 ––––––––––––– ––––––––––––– 1,480 ––––––––––––– ––––––––––––– 399 ––––––––––––– ––––––––––––– 2016 £000 – 2015 £000 24 – ––––––––––––– ––––––––––––– 3,239 ––––––––––––– ––––––––––––– 3,239 ––––––––––––– ––––––––––––– 24 Strategic Report Governance Financial Statements IP Group conver(cid:2)ble loan On 24 December 2015 the Company received £4.7m from IP2IPO Limited, a wholly owned subsidiary of IP Group plc under a conver(cid:2)ble loan agreement. The conver(cid:2)ble loan facility is interest-free and unsecured with a maturity date of 24 December 2020 (or such other date as the par(cid:2)es may agree) at which point the Company may either repay the principal amount outstanding in full or convert such amount into non-vo(cid:2)ng shares at a lower nominal value to that of the Ordinary Shares to ensure that IP2IPO Limited did not have control of the Company. IP2IPO Limited may convert the principal outstanding in whole or in parts exceeding £0.1m into ordinary shares calculated at the IPO share price of £1.44 per share condi(cid:2)onal on it not having control of the Company resul(cid:2)ng from the conversion. The conver(cid:2)ble loan note is a compound financial instrument containing a host financial liability and an equity component as there is a contractual obliga(cid:2)on to deliver a fixed number of shares at the IPO price if the loan note is converted. Liability component on ini(cid:2)al recogni(cid:2)on at 31 December 2015 3,106 – At 30 June 2016, the amount outstanding comprised: Face value of conver(cid:2)ble loan issued on 24 December 2015 Equity Component Issue costs rela(cid:2)ng to the liability element Accrued interest Liability component at 31 December 2015 Less amount included in current liabili(cid:2)es Included in non-current liabili(cid:2)es 17 Share capital 52,210,759 ordinary shares of £0.05 each 30,267,498 ordinary shares of £0.50 each 4,339,500 B shares of £0.05 each 2015 £000 – – – 2016 £000 (59) 133 – ––––––––––––– ––––––––––––– 4,651 (1,486) – – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 3,239 – ––––––––––––– ––––––––––––– 3,239 ––––––––––––– ––––––––––––– – ––––––––––––– ––––––––––––– 2016 £000 2015 £000 2,610 – – 15,134 – 217 ––––––––––––– ––––––––––––– 2,610 ––––––––––––– ––––––––––––– 15,351 The Group has applied the principles of reverse acquisi(cid:2)on accoun(cid:2)ng under IFRS 3 ‘Business Combina(cid:2)ons’ in the presenta(cid:2)on of consolidated shareholders’ equity for compara(cid:2)ve periods. These compara(cid:2)ve periods show the results of the accoun(cid:2)ng acquirer (Diurnal Limited) along with the share capital structure of the parent company (Diurnal Group plc). As a result, the consolidated share capital and share premium presented for compara(cid:2)ve periods is that which was in existence immediately following the share for share exchange which occurred on 1 December 2015, and which is explained further in note 2. ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– At 28 October 2015 on incorpora(cid:2)on Share subdivision on 1 December 2015 Issued on 1 December 2015 Share capital reduc(cid:2)on on 1 December 2015 Issued on 23 December 2015 Share split on 24 December 2015 Number of Ordinary Shares 1 1 Number of B Shares – – 30,267,498 4,339,500 – 83,038 – – – – Number of Deferred Shares – – – – – 30,350,538 Total £000 – – 15,351 (12,107) 8 – – Conversion of B shares on 24 December 2015 4,339,500 (4,339,500) – Cancella(cid:2)on of Deferred shares on 24 December 2015 – – (30,350,538) (1,518) Issued on 24 December 2015 At 31 December 2015: Ordinary shares of 5 pence each 17,520,721 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 52,210,759 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 2,610 – – – – 876 The changes in the share capital are described in Note 2 Significant accoun(cid:2)ng policies and basis of prepara(cid:2)on. Diurnal Group plc Annual Report and Accounts 2016 39 Notes to the consolidated financial statements con(cid:2)nued Share based payments 18 At 30 June 2016, the Group had two types of share based payment awards. All outstanding Diurnal Limited awards have been exchanged for equivalent awards in Diurnal Group plc and the numbers and values in this note have been restated to reflect the group reorganisa(cid:2)on and allow for consistency of analysis. Share op(cid:2)ons Share op(cid:2)ons have been issued over (cid:2)me as follows: Diurnal Limited unapproved share op(cid:2)ons Between 2007 and 2012, 1,898,500 share op(cid:2)ons were awarded to four individuals, being Execu(cid:2)ve and Non-execu(cid:2)ve Directors and a consultant. All these op(cid:2)ons vested prior to the AIM IPO. In September 2015, 564,000 share op(cid:2)ons were awarded to three individuals, being Execu(cid:2)ve and Non-execu(cid:2)ve Directors and a consultant. These op(cid:2)ons vest in equal tranches on the first three anniversaries of their grant. No further awards are to be made. Diurnal Limited share op(cid:2)on scheme 1,273,500 share op(cid:2)ons awarded to eight individuals, being employees. These op(cid:2)ons vest in equal tranches on the first three anniversaries of their grant. No further awards are to be made. Diurnal Group plc unapproved share op(cid:2)ons 104,421 share op(cid:2)ons and 32,374 share awards awarded to two individuals, being Non-execu(cid:2)ve Directors to whom commitments had been made prior to the AIM IPO. The op(cid:2)ons vest in equal tranches on the first three anniversaries of the AIM IPO and the awards vest in equal tranches on the 18, 24 and 36 month anniversaries of the AIM IPO. The awards are in lieu of part of the Director’s annual fees. Diurnal Group plc Long Term Incen(cid:2)ve Plan (LTIP) The main scheme for future awards is the Diurnal Group plc Long Term Incen(cid:2)ve Plan (LTIP). The LTIP was established on 21 December 2015 and is a discre(cid:2)onary plan pursuant to which awards may be made in the form of performance share awards, restricted share awards, deferred bonus awards and market value op(cid:2)on awards. Benefits under the LTIP are not pensionable. Eligibility Any employee (including an Execu(cid:2)ve Director) of the Company and its subsidiaries will be eligible to par(cid:2)cipate in the LTIP at the discre(cid:2)on of the Remunera(cid:2)on Commi(cid:6)ee, subject to individual limits and grant (cid:2)ming requirements operated by the Remunera(cid:2)on Commi(cid:6)ee. Performance condi(cid:2)ons The extent of ves(cid:2)ng of any performance share awards or market value op(cid:2)on awards granted will be subject to performance condi(cid:2)ons set by the Remunera(cid:2)on Commi(cid:6)ee. No performance condi(cid:2)ons shall apply in the case of restricted share awards and deferred bonus awards. Ves(cid:2)ng Performance shares awards, restricted share awards and market value op(cid:2)ons normally vest on the third anniversary of grant or, if later, when the Remunera(cid:2)on Commi(cid:6)ee determines the extent to which any performance condi(cid:2)ons have been sa(cid:2)sfied. Deferred bonus awards normally vest on the first anniversary of grant. The Remunera(cid:2)on Commi(cid:6)ee may specify different ves(cid:2)ng periods in rela(cid:2)on to awards granted to par(cid:2)cipants who are not Execu(cid:2)ve Directors. Where awards are granted in the form of op(cid:2)ons, once vested, such op(cid:2)ons will then be exercisable up un(cid:2)l the tenth anniversary of grant (or such shorter period specified by the Remunera(cid:2)on Commi(cid:6)ee at the (cid:2)me of grant) unless they lapse earlier. Shorter exercise periods shall apply in the case of “good leavers” and/or ves(cid:2)ng of awards in connec(cid:2)on with corporate events. IFRS 2 Valua(cid:2)on The fair value of services received in return for share op(cid:2)ons granted are measured by reference to the fair value of share op(cid:2)ons granted. The fair value of the share op(cid:2)ons granted is measured by using a Black Scholes valua(cid:2)on model, using the following inputs: • • • The expected vola(cid:2)lity is based on historical vola(cid:2)lity of a peer group of companies over a relevant period prior to the grants. As the Company’s share price history on AIM increases, it will be combined with the peer group vola(cid:2)lity. The expected life is the average expected period to exercise, which has been taken as five years for share op(cid:2)ons and a shorter period for the share awards. The risk free rate of return is the yield as at the grant date on zero coupon UK government bonds of a term commensurate with the expected life. 40 Strategic Report Governance Financial Statements ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 2016 2016 2016 2016 11 Sep 2015 23 Sep 2015 12 Apr 2016 12 Apr 2016 Share op(cid:2)on Share op(cid:2)on Share op(cid:2)on Share award £0.625 £0.438 65.0% 5 years 0.00% 1.22% £0.392 £0.625 £0.002 65.0% 5 years 0.00% 1.20% £0.623 £1.470 £0.002 67.6% 5 years 0.00% 0.81% £1.468 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 2016 Weighted average exercise price £ 0.002 0.284 – – 2016 Number of op(cid:2)ons 1,898,500 1,974,295 – – 2015 Weighted average exercise price £ 0.002 1,898,500 – – – – – – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 0.146 3,872,795 0.002 1,898,500 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 1,898,500 1,898,500 0.002 0.002 £1.470 £0.050 66.9% 2.7 years 0.00% 0.43% £1.421 32,374 2015 Number of op(cid:2)ons Measurement assump(cid:2)ons are as follows: Financial year ended Deemed grant date Award type Share price Exercise price Expected vola(cid:2)lity Expected op(cid:2)on life Expected dividends Risk free interest rate Fair value per award Outstanding at the beginning of the period Granted during the period Exercised during the period Lapsed during the period Outstanding at the end of the period Exercisable at the end of the period Number of op(cid:2)ons/awards 1,273,500 564,000 104,421 The number and weighted average exercise prices of the share op(cid:2)ons and awards are as follows: Deferred share bonus awards The Group operates a discre(cid:2)onary annual bonus scheme, under which any annual bonus for Execu(cid:2)ve Directors and certain other employees will be paid in cash up to a specified target bonus level and (if relevant) in the form of “deferred share awards” in rela(cid:2)on to the por(cid:2)on of any bonus in excess of such target bonus level. From 2016/17 this will change to a specified mix of cash and deferred share awards by individual. Deferred share awards will be awarded under the deferred share award feature of the LTIP. The number of Ordinary Shares comprised within the deferred share awards will be set on grant to equal such number equal in value to the por(cid:2)on of the bonus being deferred (adjusted as necessary to neutralise the cost of exercise where awards are structured as nominal cost op(cid:2)ons). Such deferred share awards will ordinarily vest a(cid:8)er one year, subject only to con(cid:2)nued employment. The Remunera(cid:2)on Commi(cid:6)ee will set performance targets for the annual bonus plan at the start of each financial year. IFRS 2 Valua(cid:2)on The fair value of services received in return for the deferred share award element of the annual bonus scheme is calculated at the start of the financial year to which the bonus relates, the deemed grant date, rather than at the actual grant date of the deferred share award (a(cid:8)er publica(cid:2)on of the Annual Report rela(cid:2)ng to the bonus year and is measured by reference to the fair value of share op(cid:2)ons granted. The fair value of the share op(cid:2)ons granted is measured by using a Black Scholes valua(cid:2)on model, using the following inputs: • • • The expected vola(cid:2)lity is based on historical vola(cid:2)lity of a peer group of companies over a relevant period prior to the grants. As the Company’s share price history on AIM increases, it will be combined with the peer group vola(cid:2)lity. The expected life is the average expected period to exercise, which has been taken as 34 months. The risk free rate of return is the yield as at the grant date on zero coupon UK government bonds of a term commensurate with the expected life. Diurnal Group plc Annual Report and Accounts 2016 41 Notes to the consolidated financial statements con(cid:2)nued Measurement assump(cid:2)ons are as follows: Financial year ended Deemed grant date Award type Share price Exercise price Expected vola(cid:2)lity Expected op(cid:2)on life Expected dividends Risk free interest rate Fair value per award Deemed number of op(cid:2)ons The total expense recognised for share based payments is as follows: Share op(cid:2)ons Deferred share awards ––––––––––––– 2016 1 Jul 2015 Deferred share bonus £1.440 £0.050 65.1% 3 years 0.00% 0.96% £1.391 90,421 ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 446 20 44 – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 490 20 Financial instruments 19 The Company’s ac(cid:2)vi(cid:2)es expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including foreign currency risk and interest rate risk. This note address each of these ma(cid:6)ers in turn, and also gives details of financial assets and liabili(cid:2)es with a carrying value that is materially different to their fair value and the company’s capital management objec(cid:2)ves. Capital management The Company considers capital to comprise the total equity and reserves of the Company and long term debt financing, including conver(cid:2)ble loans issued. The Company’s objec(cid:2)ves are to manage capital as a primary source of funding in conjunc(cid:2)on with the ability to remain as a going concern. Treasury policy The Company has financed its opera(cid:2)ons by a mixture of shareholders’ funds and other borrowings and loan notes, as required. The Company’s objec(cid:2)ve has been to obtain sufficient funding to meet development ac(cid:2)vi(cid:2)es un(cid:2)l the Company becomes profitable. During the period and for the foreseeable future the Company’s objec(cid:2)ve in using financial instruments is to safeguard the principal for funds held on deposit and to minimise currency risk where appropriate. Interest rate risk The Company has an outstanding interest free conver(cid:2)ble loan at 30 June 2016 with an outstanding principal amount of £4.7m (30 June 2015: £nil) and invests its surplus funds in money market and short-term bank deposits. The Company would review the balance between fixed and floa(cid:2)ng rate debt if it takes on any future debt. Liquidity risk The Company prepares periodic working capital forecasts for the foreseeable future, allowing an assessment of the cash requirements of the Company, to manage liquidity risk. The Company also ensures that sufficient funds are available on 24 hours’ no(cid:2)ce to fund the Company’s immediate needs (see Note 2—Basis of Prepara(cid:2)on). The company finances its opera(cid:2)ons through the issue of equity shares. The company manages its liquidity risk by monitoring exis(cid:2)ng and commi(cid:6)ed funding against forecast requirements (with par(cid:2)cular reference to non-discre(cid:2)onary expenditure). The following are the contractual maturi(cid:2)es of financial liabili(cid:2)es, including es(cid:2)mated interest payments. 42 Strategic Report Governance Financial Statements Trade payables Borrowings1 Trade payables Borrowings 30 Jun 2016 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 1 year or less £000 1 to 2 years £000 2 to 5 years £000 235 235 235 – – Carrying amount £000 3,239 3,474 Carrying amount £000 24 298 Contractual cash flows £000 4,651 4,886 Contractual cash flows £000 24 298 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 30 Jun 2015 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 1 year or less £000 1 to 2 years £000 2 to 5 years £000 274 274 274 – – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– – – – – 4,651 4,651 – – – 235 24 298 > 5 years £000 – > 5 years £000 – – – – – Note 1: The conver(cid:2)ble loan is included in the analysis, assuming repayment at the end of its five year contractual term, although the term can be extended by agreement between the Company and IP2IPO Limited, the lender and the loan could be converted into equity. Currency risk The company manages foreign currency exposure by matching expected currency ou(cid:3)lows with inflows of the same currency to the extent possible. The company would consider hedging instruments if there was considered to be a significant mismatch but this has not proven necessary to date. The following table considers the impact of several changes to the spot £/euro and US Dollar exchange rates of +/– 1%, assuming all other variables remain constant. If these changes were to occur the figures in the table below reflect the impact on loss before tax. ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 1% increase in Euro 1% decrease in Euro 1% increase in US Dollar 1% increase in US Dollar (9) 9 (6) 6 (5) 5 (2) 2 Credit risk The Company is exposed to credit risk from one source, namely its cash investments. The Company minimizes this risk by placing its cash deposits only with established financial ins(cid:2)tu(cid:2)ons with a minimum credit ra(cid:2)ng of A- as defined by the three major credit ra(cid:2)ng agencies. Interest rate risk of financial assets Held to maturity financial assets Fixed rate – GBP Cash and cash equivalents Floa(cid:2)ng rate – GBP Floa(cid:2)ng rate – EUR ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 1.05% 0.50% 0.05% – 0.15% 0.05% Diurnal Group plc Annual Report and Accounts 2016 43 Notes to the consolidated financial statements con(cid:2)nued The following table considers the impact of a change of the sterling interest rate of +/– 1 basis point, assuming all other variables remain constant. If these changes were to occur the figures in the table below reflect the impact on loss before tax. The analysis covers financial instruments subject to variable interest rates and interest receivable only, as the Group’s borrowings have been at fixed rates. ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 1% increase in Sterling interest rate 1% decrease in Sterling interest rate 2 (2) – – Fair values The carrying values of cash and cash equivalents, accounts receivable and accounts payable reasonably approximate their fair values. The compound financial instrument is classified as a level 2 financial instrument. Capital commitments 20 The Group had no material capital commitments at the end of the financial periods. Related party transac(cid:2)ons 21 Transac(cid:2)ons between the company and its subsidiary, which is a related party, have been eliminated on consolida(cid:2)on and are not disclosed in this note. The following transac(cid:2)ons with shareholders: subsidiaries of IP Group plc, Finance Wales Investments Limited, Ridings Early Growth Limited and Sarum Investment SICAV plc) and a company controlled by a former Director of the Group (Silenicus Limited) were recorded, excluding VAT, during the period: ––––––––––––– ––––––––––––– 12 months ended 30 Jun 2016 £000 13 months ended 30 Jun 2015 £000 Purchase of goods and services Silenicus Limited IP Group plc and subsidiaries Finance Wales Investments Limited Ridings Early Growth Limited, Sarum Investment SICAV Plc Simm Investments Limited/Geoff Tucker – 116 12 2 – 26 158 83 4 3 – 2 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 130 276 Purchase of goods and services from related par(cid:2)es comprise management and consul(cid:2)ng services, corporate finance, recruitment, provision of Non-execu(cid:2)ve Director, monitoring fees together with expenses. These were made at arm’s length and on normal commercial trading terms. Compensa(cid:2)on of key management personnel of the Group Key management includes only execu(cid:2)ve and non-execu(cid:2)ve directors and informa(cid:2)on on their share op(cid:2)ons, emoluments, pension benefits and other non-cash benefits can be found in the Remunera(cid:2)on Report. Equity investments in Diurnal Limited before the acquisi(cid:2)on by Diurnal Group plc On 29 July 2014 the following Related Par(cid:2)es received ordinary shares from the conversion of the principal and accrued interest on loan notes held by them: IP Group plc subsidiaries, 2,940 shares for £699,741 of debt; Finance Wales, 2,136 shares for £508,476 of debt; Ridings Early Growth Limited, 91 shares for £21,754 of debt and Richard Ross 44 shares for £10,514 of debt. On 29 July 2014 the following Related Par(cid:2)es received ordinary shares from the conversion of preference shares and accrued dividend on preference shares held by them: IP Group plc subsidiaries, 1,194 shares for £373,132 of preference shares; Finance Wales, 253 shares for £79,139 of preference shares and Ridings Early Growth Limited, 84 shares for £26,379 of preference shares. 44 Strategic Report Governance Financial Statements On 1 August 2014 the following Related Par(cid:2)es purchased the Company’s shares for cash: IP Group plc subsidiaries, 715 ordinary shares and 699 B shares for £665,611; Finance Wales, 938 shares for £293,256 and Ridings Early Growth Limited, 54 shares for £16,883. On 17 December 2014 the following Related Par(cid:2)es purchased the Company’s shares for cash: IP Group plc subsidiaries, 3,573 ordinary shares and 3,692 B shares for £3,888,392; Finance Wales, 4,692 shares for £1,466,907 and Ridings Early Growth Limited, 75 shares for £23,448. On 26 May 2015, the following Related Par(cid:2)es purchased the Company’s shares for cash: IP Group plc subsidiaries, 3,908 ordinary shares for £1,221,797; Finance Wales, 1,864 shares for £582,761 and Sarum Investment SICAV Plc, 340 shares for £106,298. Equity investments in Diurnal Group plc On 24 December 2015 the following Related Par(cid:2)es purchased the Company’s shares for cash: IP Group plc subsidiaries, 5,624,600 ordinary shares for £8,099,424; Finance Wales, 1,388,888 shares for £1,999,999; Richard Ross, 6,944 shares for £9,999; Peter Allen, 34,722 shares for £50,000; John Goddard, 6,944 shares for £9,999; Alan Raymond, 13,888 shares for £19,999; Mar(cid:2)n Whitaker, 11,111 shares for £16,000 and Ian Ardill, 13,888 shares for £19,999. IP Group’s 4,399,500 B shares were also converted into ordinary shares on this date. Conver(cid:2)ble loan agreement IP2IPO Limited, a wholly owned subsidiary of IP Group plc provided the Company with £4,659,588 of debt financing under a conver(cid:2)ble loan agreement. The conver(cid:2)ble loan facility is interest-free and unsecured with a maturity date of 24 December 2020 (or such other date as the par(cid:2)es may agree) at which point the Company may either repay the principal amount outstanding in full or convert such amount into non- vo(cid:2)ng shares at a lower nominal value to that of the Ordinary Shares to ensure that IP2IPO Limited did not have control of the Company. IP2IPO Limited may convert the principal outstanding in whole or in parts exceeding £0.1m into ordinary shares calculated at the IPO share price of £1.44 per share condi(cid:2)onal on it not having control of the Company resul(cid:2)ng from the conversion. Ul(cid:2)mate controlling party 22 The Directors do not believe that there is an ul(cid:2)mate controlling party. Diurnal Group plc Annual Report and Accounts 2016 45 ––––––––––––– 2016 £000 Note C3 C4 13 C5 16 C6 15,351 ––––––––––––– 15,351 ––––––––––––– 136 14,000 15,005 ––––––––––––– 29,141 ––––––––––––– 44,492 ––––––––––––– (98) ––––––––––––– (98) ––––––––––––– (3,239) ––––––––––––– (3,239) ––––––––––––– (3,337) ––––––––––––– ––––––––––––– 41,155 2,610 23,632 1,458 13,455 ––––––––––––– 41,155 ––––––––––––– Company balance sheet as at 30 June 2016 Non-current assets Investments Current assets Trade and other receivables Held to maturity financial assets Cash and cash equivalents Total assets Current liabili(cid:2)es Trade and other payables Non-current liabili(cid:2)es Loans and borrowings Total liabili(cid:2)es Net assets/(liabili(cid:2)es) Equity Share capital Share premium Other reserve Retained earnings Total equity These financial statements were approved by the Board of Directors on 11 October 2016 and were signed on its behalf by: Ian Ardill Director Company registered number: 05237326 46 Strategic Report Governance Financial Statements Company statement of changes in equity for the period ended 30 June 2016 Balance at incorpora(cid:2)on 28 October 2015 – – – – ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Share Capital £000 Share Premium £000 Other Reserve £000 Retained Earnings £000 Total £000 – Loss for the period and total comprehensive loss for the period Equity se(cid:6)led share based payment transac(cid:2)ons Issue of shares for acquisi(cid:2)on Reduc(cid:2)on of Capital Issue of shares for cash Costs charged against share premium Equity component of conver(cid:2)ble loan Issue expenses of conver(cid:2)ble loan Repurchase of deferred shares Total transac(cid:2)ons with owners recorded directly in equity Balance at 30 June 2016 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (533) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (533) – – – – 15,351 (12,107) 884 – – – – – – 24,465 (833) – – – – – – – 1,486 (28) 363 – 12,107 – – – – 363 15,351 – 25,349 (833) 1,486 (28) (1,518) – – 1,518 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– – 2,610 23,632 1,458 13,988 41,688 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 2,610 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 41,155 23,632 13,455 1,458 Loss for the period is the only cons(cid:2)tuent of total comprehensive loss for each period so the period amounts are shown in the same line in the consolidated statement of changes in equity. Diurnal Group plc Annual Report and Accounts 2016 47 ––––––––––––– 8 months ended 30 Jun 2016 £000 Note (533) 363 (23) 133 – ––––––––––––– 98 38 7 ––––––––––––– ––––––––––––– – 38 (14,000) (117) 4 ––––––––––––– (14,113) ––––––––––––– 24,516 4,564 ––––––––––––– 29,080 ––––––––––––– 15,005 – ––––––––––––– 15,005 ––––––––––––– Company cash flow statement for the period ended 30 June 2016 Cash flows from opera(cid:2)ng ac(cid:2)vi(cid:2)es Loss for the period Adjustments for: Share-based payment Financial income Finance expenses Increase in trade and other receivables Increase in trade and other payables Cash flow from opera(cid:2)ng ac(cid:2)vi(cid:2)es Interest paid Net cash used in opera(cid:2)ng ac(cid:2)vi(cid:2)es Cash flows from inves(cid:2)ng ac(cid:2)vi(cid:2)es Purchase of held to maturity financial assets Loan to subsidiary undertaking Interest received Net cash from inves(cid:2)ng ac(cid:2)vi(cid:2)es Cash flows from financing ac(cid:2)vi(cid:2)es Net proceeds from issue of share capital Net proceeds from issue of borrowings Net cash generated by financing ac(cid:2)vi(cid:2)es Net increase in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period 48 Strategic Report Governance Financial Statements Notes to the company financial statements Principal accoun(cid:2)ng policies C1 The separate financial statements of the Company are presented as required by the Companies Act 2006 and in accordance with FRS101 Reduced Disclosure Framework. The principal accoun(cid:2)ng policies adopted are the same as for those set out in the Group’s financial statements. Company results C2 The Company has elected to take the exemp(cid:2)on under sec(cid:2)on 408 of the Companies Act 2006 not to present the parent Company’s statement of comprehensive income. The parent Company’s result for the period ended 30 June 2016 was a loss of £533k. The audit fee for the Company is set out in note 4 of the Group’s financial statements. Investment in subsidiary undertakings C3 On 1 December 2015, the Company acquired 100% of the shares and vo(cid:2)ng rights of Diurnal Limited, a company incorporated and registered in the United Kingdom, by issuing shares of 30,267,498 ordinary shares of 50 pence each and 4,385,000 B shares of 5 pence each. The carrying value of the investment is £15,351k and has not been impaired. Diurnal Limited is engaged in specialty pharmaceu(cid:2)cals. The Company has no other related undertakings. During the current year an impairment review of the investment in and loan to subsidiary was undertaken. No impairment has been made to investments in or loan to the subsidiary undertaking in 2015/16. The fair value of the subsidiary company less costs to sell exceed the combined carrying values of the investment and the loan. Cost At 28 October 2015 Addi(cid:2)ons At 30 June 2016 Impairment At 28 October 2015 At 30 June 2016 Carrying value at 28 October 2015 Carrying value at 30 June 2016 C4 Trade and other receivables Amount owed by subsidiary undertaking VAT recoverable Prepayments Other debtors ––––––––––––– 2016 £000 – 15,351 ––––––––––––– 15,351 ––––––––––––– – – – ––––––––––––– ––––––––––––– ––––––––––––– 15,351 ––––––––––––– ––––––––––––– 2016 £000 117 – 19 – ––––––––––––– 136 ––––––––––––– Diurnal Group plc Annual Report and Accounts 2016 49 Notes to the company financial statements con(cid:2)nued C5 Trade and other payables Trade payables Other tax and social security Accrued expenses and deferred income C6 Share capital 52,210,759 ordinary shares of £0.05 each ––––––––––––– 2016 £000 4 – 94 ––––––––––––– ––––––––––––– 98 ––––––––––––– 2016 £000 2,610 ––––––––––––– Related party transac(cid:2)ons C7 The Company made management recharges to its subsidiary and related party, Diurnal Limited, which totalled £457k during the period. The following transac(cid:2)ons with shareholders of the Group were recorded, excluding VAT, during the period: ––––––––––––– 8 months ended 30 Jun 2016 £000 Purchase of goods and services IP Group plc 60 ––––––––––––– ––––––––––––– 60 Compensa(cid:2)on of key management personnel of the Company Key management includes only execu(cid:2)ve and non-execu(cid:2)ve directors and informa(cid:2)on on their share op(cid:2)ons, emoluments, pension benefits and other non-cash benefits can be found in the Remunera(cid:2)on Report. 50 Strategic Report Governance Financial Statements Shareholder Informa(cid:2)on Company informa(cid:2)on Directors Peter Allen Mar(cid:2)n Whitaker Ian Ardill Richard Ross John Goddard Alan Raymond Sam Williams Chairman Chief Execu(cid:2)ve Officer Chief Financial Officer Chief Scien(cid:2)fic Officer Non-execu(cid:2)ve Director Non-execu(cid:2)ve Director Non-execu(cid:2)ve Director Company Secretary Ian Ardill Registered Number 09846650 Registered Office Diurnal Group plc Cardiff Medicentre Heath Park Cardiff CF14 4UJ Telephone: 02920 682069 Adviser informa(cid:2)on Nominated Adviser and Corporate Broker Numis Securi(cid:2)es Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Public Rela(cid:2)ons Adviser FTI Consul(cid:2)ng 200 Aldersgate Aldersgate Street London EC1A 4HD Legal Adviser Eversheds LLP One Wood Street London EC2V 7WS Website www.diurnal.co.uk Annual General Mee(cid:2)ng To be held at the offices of: FTI Consul(cid:2)ng 200 Aldersgate Aldersgate Street London EC1A 4HD On 23 November 2016 at 11.00 am Registrar Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Independent Auditors KPMG LLP 1 Sovereign Square Sovereign Street Leeds LS1 4DA Principal Banker Na(cid:2)onal Westminster Bank plc 244 Fulwood Road Sheffield S10 3AA Diurnal Group plc Annual Report and Accounts 2016 51 No(cid:2)ce of Annual General Mee(cid:2)ng DIURNAL GROUP PLC (Incorporated in England and Wales with registered number 9846650) No(cid:2)ce is given that the 2016 annual general mee(cid:2)ng of Diurnal Group plc (the “Company”) will be held at the offices of FTI Consul(cid:2)ng LLP, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD on Wednesday 23 November 2016 at 11.00 a.m. for the following purposes: To consider and, if thought fit, to pass the following resolu(cid:2)ons as ordinary resolu(cid:2)ons: 1. 2. 3. 4. 5. 6. 7. 8. 9. To receive and adopt the Company’s audited annual report and accounts and the strategic report and directors’ and auditors’ reports thereon for the year ended 30 June 2016. To reappoint Peter Allen, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint Ian Ardill, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint John Goddard, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint Alan Raymond, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint Richard Ross, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint Mar(cid:2)n Whitaker, who re(cid:2)res as a director of the Company and offers himself for reappointment. To reappoint Sam Williams, who re(cid:2)res as a director of the Company and offers himself for reappointment. To receive and approve the directors’ remunera(cid:2)on report contained within the annual report and accounts for the year ended 30 June 2016. 10. To reappoint KPMG LLP as auditors of the Company from the conclusion of this annual general mee(cid:2)ng un(cid:2)l the conclusion of the next annual general mee(cid:2)ng of the Company at which accounts are laid. 11. To authorise the directors or any audit commi(cid:6)ee of the directors to determine the remunera(cid:2)on of the auditors. 12. That, pursuant to sec(cid:2)on 551 of the Companies Act 2006 (the “Act”), the directors be generally and uncondi(cid:2)onally authorised to allot Relevant Securi(cid:2)es: 12.1 up to a maximum aggregate nominal value of £870,179.30 or, if less, the nominal value of one third of the issued share capital of the Company; and 12.2 comprising equity securi(cid:2)es (as defined in sec(cid:2)on 560(1) of the Act) up to a maximum aggregate nominal value of £1,740,358.60 or, if less, the nominal value of two thirds of the issued share capital of the Company (such amount to be reduced by the nominal amount of any Relevant Securi(cid:2)es allo(cid:6)ed under paragraph 12.1) in connec(cid:2)on with an offer by way of a rights issue or other pre-emp(cid:2)ve offer: 12.2.1 to holders of ordinary shares in the capital of the Company (“Ordinary Shares”) in propor(cid:2)on (as nearly as prac(cid:2)cable) to the respec(cid:2)ve numbers of ordinary shares held by them; and 12.2.2 to holders of other equity securi(cid:2)es in the capital of the Company, as required by the rights of those securi(cid:2)es or, subject to such rights, as the directors otherwise consider necessary, but subject, in each case, to such exclusions, limita(cid:2)ons, restric(cid:2)ons or other arrangements as the directors may deem necessary or expedient in rela(cid:2)on to treasury shares, frac(cid:2)onal en(cid:2)tlements, record dates, legal, regulatory or prac(cid:2)cal problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other ma(cid:6)er, provided that these authori(cid:2)es shall expire at the conclusion of the next annual general mee(cid:2)ng of the Company a(cid:8)er the passing of this resolu(cid:2)on or on 23 February 2018 (whichever is the earlier), save that, in each case, the Company may make an offer or enter into an agreement before the authority expires which would or might require Relevant Securi(cid:2)es to be allo(cid:6)ed and/or transferred a(cid:8)er the authority expires and the directors may allot Relevant Securi(cid:2)es pursuant to any such offer or agreement as if the authority had not expired. In this resolu(cid:2)on, “Relevant Securi(cid:2)es” means shares in the Company or rights to subscribe for or to convert any security into shares in the Company; a reference to the allotment of Relevant Securi(cid:2)es includes the grant of such a right; and a reference to the nominal amount or nominal value of a Relevant Security which is a right to subscribe for or to convert any security into shares in the Company is to the nominal amount or nominal value of the shares which may be allo(cid:6)ed pursuant to that right. These authori(cid:2)es are in subs(cid:2)tu(cid:2)on for all exis(cid:2)ng authori(cid:2)es under sec(cid:2)on 551 of the Act (which, to the extent unused at the date of this resolu(cid:2)on, are revoked with immediate effect). 52 Strategic Report Governance Financial Statements To consider and, if thought fit, to pass the following resolu(cid:2)ons as special resolu(cid:2)ons: 13. That, subject to the passing of resolu(cid:2)on 12 and pursuant to sec(cid:2)on 570 of the Act, the directors be and are generally empowered to allot equity securi(cid:2)es (within the meaning of sec(cid:2)on 560 of the Act) for cash pursuant to the authority granted by resolu(cid:2)on 12 as if sec(cid:2)on 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securi(cid:2)es: 13.1 in connec(cid:2)on with an offer or issue of equity securi(cid:2)es (whether by way of a rights issue, open offer or otherwise): 13.1.1 to holders of Ordinary Shares in propor(cid:2)on (as nearly as prac(cid:2)cable) to the respec(cid:2)ve numbers of Ordinary Shares held by them; and 13.1.2 to holders of other equity securi(cid:2)es in the capital of the Company, as required by the rights of those securi(cid:2)es or, subject to such rights, as the directors otherwise consider necessary, but subject, in each case, to such exclusions or other arrangements as the directors may deem necessary or expedient in rela(cid:2)on to treasury shares, frac(cid:2)onal en(cid:2)tlements, record dates, legal, regulatory or prac(cid:2)cal problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other ma(cid:6)er; and 13.2 otherwise than pursuant to paragraph 13.1 of this resolu(cid:2)on up to an aggregate nominal amount of £261,053.75 (being equivalent to 10 per cent. of the nominal value of the issued share capital of the Company), and this power shall expire at the conclusion of the next annual general mee(cid:2)ng of the Company a(cid:8)er the passing of this resolu(cid:2)on or on 23 February 2018 (whichever is the earlier), save that the Company may make an offer or enter into an agreement before this power expires which would or might require equity securi(cid:2)es to be allo(cid:6)ed for cash a(cid:8)er this power expires and the directors may allot equity securi(cid:2)es for cash pursuant to any such offer or agreement as if this power had not expired. This power is in subs(cid:2)tu(cid:2)on for all exis(cid:2)ng powers under sec(cid:2)on 570 of the Act (which, to the extent unused at the date of this resolu(cid:2)on, are revoked with immediate effect). 14. That, the Company be generally and uncondi(cid:2)onally authorised, pursuant to sec(cid:2)on 701 of the Act, to make market purchases (within the meaning of sec(cid:2)on 693(4) of the Act) of up to 7,826,392 Ordinary Shares (being approximately 14.99 per cent 14.99 per cent of the issued ordinary share capital of the Company) on such terms and in such manner as the directors may from (cid:2)me to (cid:2)me determine, provided that: 14.1 the maximum price which may be paid for each share (exclusive of expenses) shall not be more than the higher of: (1) five per cent, above the average mid-market price of the Ordinary Shares for the five business days before the date on which the contract for the purchase is made, and (2) an amount equal to the higher of the price of the last independent trade and the highest current independent bid as derived from the trading venue where the purchase was carried out; and 14.2 the minimum price which may be paid for each share shall not be less than £0.05 per share, being the nominal value of an Ordinary Share, and this authority shall expire at the conclusion of the next annual general mee(cid:2)ng of the Company a(cid:8)er the passing of this resolu(cid:2)on or on 23 February 2018 (whichever is the earlier), save that the Company may make a contract to purchase its own shares before this authority expires which would or might be executed wholly or partly a(cid:8)er such expiry, and the Company may make a purchase of its own shares in pursuance of such contract as if this authority had not expired. By order of the board Ian Ardill Secretary 11 October 2016 Registered office Cardiff Medicentre Heath Park Cardiff CF14 4UJ Registered in England and Wales No. 09846650 Diurnal Group plc Annual Report and Accounts 2016 53 No(cid:2)ce of Annual General Mee(cid:2)ng con(cid:2)nued Notes En(cid:2)tlement to a(cid:3)end and vote 1. The right to vote at the mee(cid:2)ng is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at close of business on 21 November 2016 (or, if the mee(cid:2)ng is adjourned, on the date which is two working days before the date of the adjourned mee(cid:2)ng) shall be en(cid:2)tled to a(cid:6)end and vote at the mee(cid:2)ng in respect of the number of shares registered in their name at that (cid:2)me. Changes to entries in the register of members a(cid:8)er that (cid:2)me shall be disregarded in determining the rights of any person to a(cid:6)end or vote (and the number of votes they may cast) at the mee(cid:2)ng. 2. A “vote withheld” is not a vote in law, which means that the vote will not be counted in the calcula(cid:2)on of votes “for” or “against” the resolu(cid:2)on. If no vo(cid:2)ng indica(cid:2)on is given, your proxy will vote or abstain from vo(cid:2)ng at his or her discre(cid:2)on. Your proxy will vote (or abstain from vo(cid:2)ng) as he or she thinks fit in rela(cid:2)on to any other ma(cid:6)er which is put before the annual general mee(cid:2)ng. Proxies 3. A shareholder is en(cid:2)tled to appoint another person as his or her proxy to exercise all or any of his or her rights to a(cid:6)end and to speak and vote at the mee(cid:2)ng. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in rela(cid:2)on to the mee(cid:2)ng, provided that each proxy is appointed to exercise the rights a(cid:6)ached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. A proxy may only be appointed in accordance with the procedures set out in notes 3 and 4 below and the notes to the proxy form. The appointment of a proxy will not preclude a shareholder from a(cid:6)ending and vo(cid:2)ng in person at the mee(cid:2)ng. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submi(cid:6)ed by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). A form of proxy is enclosed. When appoin(cid:2)ng more than one proxy, complete a separate proxy form in rela(cid:2)on to each appointment. Addi(cid:2)onal proxy forms may be obtained by contac(cid:2)ng the Company’s registrar, Capita Asset Services, on 0371 664 0300 (Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable interna(cid:2)onal rate. The Company’s registrar is open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales) or the proxy form may be photocopied. State clearly on each proxy form the number of shares in rela(cid:2)on to which the proxy is appointed. To be valid, a proxy form must be completed and signed and sent by post or delivered (during normal business hours only) by hand so as to be received at the offices of the Company’s registrar, Capita Asset Services PXS 1, 34 Beckenham Road, Beckenham BR3 4ZF, no later than 11.00 a.m. on 21 November 2016 (or, if the mee(cid:2)ng is adjourned, no later than 48 hours before the (cid:2)me of any adjourned mee(cid:2)ng). In the case of an individual, a form of proxy must be signed by that individual or his a(cid:6)orney. In the case of a corpora(cid:2)on, a form of proxy must be executed under its common seal or signed on its behalf by its duly authorised officer, a(cid:6)orney or other person authorised to sign. The notes to the proxy form explain how to direct your proxy to vote on each resolu(cid:2)on or to withhold their vote. CREST members who wish to appoint a proxy or proxies for the mee(cid:2)ng (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a vo(cid:2)ng service provider(s), should refer to their CREST sponsor or vo(cid:2)ng service provider(s), who will be able to take the appropriate ac(cid:2)on on their behalf. In order for a proxy appointment or instruc(cid:2)on made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruc(cid:2)on”) must be properly authen(cid:2)cated in accordance with Euroclear UK & Ireland Limited’s specifica(cid:2)ons and must contain the informa(cid:2)on required for such instruc(cid:2)ons, as described in the CREST Manual. The message, regardless of whether it cons(cid:2)tutes the appointment of a proxy or is an amendment to the instruc(cid:2)on given to a previously appointed proxy, must, in order to be valid, be transmi(cid:6)ed so as to be received by Capita Asset Services (ID RA10) no later than 11.00 a.m. on 21 November 2016 (or, if the mee(cid:2)ng is adjourned, no later than 48 hours before the (cid:2)me of any adjourned mee(cid:2)ng). For this purpose, the (cid:2)me of receipt will be taken to be the (cid:2)me (as determined by the (cid:2)mestamp applied to the message by the CREST Applica(cid:2)ons Host) from which Capita Asset Services is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. A(cid:8)er this (cid:2)me, any change of instruc(cid:2)ons to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or vo(cid:2)ng service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any par(cid:2)cular messages. Normal system (cid:2)mings and limita(cid:2)ons will therefore apply in rela(cid:2)on to the input of CREST Proxy Instruc(cid:2)ons. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a vo(cid:2)ng service provider(s), to procure that his or her CREST sponsor or vo(cid:2)ng service provider(s) take(s)) such ac(cid:2)on as shall be necessary to ensure that a message is transmi(cid:6)ed by means of the CREST system by any par(cid:2)cular (cid:2)me. In this connec(cid:2)on, CREST members and, where applicable, their CREST sponsors or vo(cid:2)ng service providers are referred, in par(cid:2)cular, to those sec(cid:2)ons of the CREST Manual concerning prac(cid:2)cal limita(cid:2)ons of the CREST system and (cid:2)mings. The Company may treat a CREST Proxy Instruc(cid:2)on as invalid in the circumstances set out in Regula(cid:2)on 35(5)(a) of the Uncer(cid:2)ficated Securi(cid:2)es Regula(cid:2)ons 2001. 4. 5. 6. 54 Strategic Report Governance Financial Statements Corporate representa(cid:2)ves 7. A shareholder which is a corpora(cid:2)on may authorise one or more persons to act as its representa(cid:2)ve(s) at the mee(cid:2)ng. Each such representa(cid:2)ve may exercise (on behalf of the corpora(cid:2)on) the same powers as the corpora(cid:2)on could exercise if it were an individual shareholder, provided that (where there is more than one representa(cid:2)ve and the vote is otherwise than on a show of hands) they do not do so in rela(cid:2)on to the same shares. Documents available for inspec(cid:2)on 8. The following documents will be available for inspec(cid:2)on during normal business hours at the registered office of the Company from the date of this no(cid:2)ce un(cid:2)l the (cid:2)me of the mee(cid:2)ng. They will also be available for inspec(cid:2)on at the place of the mee(cid:2)ng from at least 15 minutes before the mee(cid:2)ng un(cid:2)l it ends. 8.1 8.2 Copies of the service contracts of the execu(cid:2)ve directors. Copies of the le(cid:6)ers of appointment of the non-execu(cid:2)ve directors. Biographical details of directors 9. Biographical details of all those directors who are offering themselves for reappointment at the mee(cid:2)ng are set out on pages 12 and 13 of the enclosed annual report and accounts. Vo(cid:2)ng rights 10. As at 6.00 p.m. on 11 October 2016, the Company’s issued share capital comprised 52,210,759 ordinary shares of £0.05 each. Each ordinary share carries the right to one vote at a general mee(cid:2)ng of the Company and, therefore, the total number of vo(cid:2)ng rights in the Company as at 6.00 p.m. on 11 October 2016 is 52,210,759. The Company has no treasury shares. Diurnal Group plc Annual Report and Accounts 2016 55 56 Strategic Report Governance Financial Statements Annual General Mee(cid:2)ng FORM OF PROXY DIURNAL GROUP PLC (Incorporated in England and Wales with registered number 9846650) I/We ........................................................................................................................... ................................... (FULL NAME(S) IN BLOCK CAPITALS) Of ............................................................................................................................. ............................................. (ADDRESS IN BLOCK CAPITALS) ............................................................................................................................... ................................................................................................. being (a) member(s) of the above named Company, appoint the Chairman of the mee(cid:2)ng OR the following person*: Name of proxy (* Please refer to Explanatory Note 2) Number of shares in rela(cid:2)on to which the proxy is authorised to act as my/our proxy to exercise all or any of my/our rights to a(cid:6)end, speak and vote in respect of my/our vo(cid:2)ng en(cid:2)tlement on my/our behalf at the annual general mee(cid:2)ng of the Company to be held at the offices of FTI Consul(cid:2)ng LLP, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD on 23 November 2016 at 11.00 a.m. and at any adjournment of the mee(cid:2)ng. Please (cid:2)ck here if this proxy appointment is one of mul(cid:2)ple appointments being made. (For the appointment of more than one proxy, please refer to Explanatory Note 3.) I/We would like my/our proxy to vote on the resolu(cid:2)ons to be proposed at the mee(cid:2)ng as indicated on this form. Unless otherwise instructed, the proxy can vote as he or she chooses or can decide not to vote at all in rela(cid:2)on to any business of the mee(cid:2)ng. Ordinary Resolu(cid:2)ons For Against Vote Withheld 1 2 3 4 5 6 7 8 9 To receive the Company’s annual accounts, strategic report directors’ and auditors’ report for the year ended 30 June 2016 To reappoint Peter Allen as a director of the Company To reappoint Ian Ardill as a director of the Company To reappoint John Goddard as a director of the Company To reappoint Alan Raymond as a director of the Company To reappoint Richard Ross as a director of the Company To reappoint Mar(cid:2)n Whitaker as a director of the Company To reappoint Sam Williams as a director of the Company To receive and approve the directors’ remunera(cid:2)on report contained within the annual report and accounts for the year ended 30 June 2016 10 To reappoint KPMG LLP as auditors of the Company 11 To authorise the directors to determine the remunera(cid:2)on of the auditors 12 To authorise the directors generally and uncondi(cid:2)onally to allot shares pursuant to sec(cid:2)on 551 of the Companies Act 2006 Special Resolu(cid:2)ons 13 To disapply sec(cid:2)on 561 of the Companies Act 2006 generally in rela(cid:2)on to allotments of equity securi(cid:2)es 14 To authorise the directors generally and uncondi(cid:2)onally to make market purchases within the meaning of sec(cid:2)on 693(4) of the Companies Act 2006 (cid:2) Signature (Please refer to Explanatory Notes 7 and 8) Date 2016 Notes 1. 2. 3. 4. 5. 6. 7. 8. 9. You are en(cid:2)tled to appoint one or more proxies of your own choice to exercise all or any of your rights to a(cid:6)end and to speak and vote at the mee(cid:2)ng. A proxy need not be a shareholder of the Company. If you appoint more than one proxy, each proxy must be appointed to exercise the rights a(cid:6)ached to a different share or shares held by you. You can only appoint a proxy in accordance with the procedures set out in these notes and in the notes to the no(cid:2)ce of mee(cid:2)ng. If you wish to appoint the Chairman of the mee(cid:2)ng as your proxy, please leave the space provided blank. If you wish to appoint a proxy other than the Chairman of the mee(cid:2)ng, please insert their full name in the space provided. If you sign and return the form with no name in the space provided, the Chairman of the mee(cid:2)ng will be deemed to be your proxy in respect of your full vo(cid:2)ng en(cid:2)tlement. If you are appoin(cid:2)ng a proxy other than the Chairman of the mee(cid:2)ng and wish the proxy to be appointed in rela(cid:2)on to less than your full vo(cid:2)ng en(cid:2)tlement, please enter in the box next to the name of the proxy the number of shares in rela(cid:2)on to which they are authorised to act as your proxy. If you sign and return the form and leave this box blank, your proxy will be deemed to be authorised to act in respect of your full vo(cid:2)ng en(cid:2)tlement (or if this form of proxy has been issued in respect of a designated account for a shareholder, the full vo(cid:2)ng en(cid:2)tlement for that designated account). To appoint more than one proxy, you will need to complete a separate form in rela(cid:2)on to each appointment. Addi(cid:2)onal forms may be obtained by contac(cid:2)ng the Company’s registrar, Capita Assets Services, on 0371 664 0300 (Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable interna(cid:2)onal rate. The Company’s registrars are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales) or you may photocopy this form. You will need to state clearly on each form the number of shares in rela(cid:2)on to which the proxy is appointed. Please therefore indicate in the box next to the name of the proxy the number of shares in rela(cid:2)on to which they are authorised to act as your proxy. Please also indicate by (cid:2)cking the box provided if the proxy instruc(cid:2)on is one of mul(cid:2)ple instruc(cid:2)ons being given. All forms must be signed and should be returned together in the same envelope. A failure to specify the number of shares each proxy appointment relates to or specifying a number in excess of the number of shares held by you may result in the proxy appointment being invalid. Comple(cid:2)on and return of this form of proxy will not preclude you from a(cid:6)ending and vo(cid:2)ng in person at the mee(cid:2)ng if you wish. If you do a(cid:6)end the mee(cid:2)ng in person, your proxy appointments will automa(cid:2)cally be terminated. If you wish a proxy to make any comments on your behalf, you will need to appoint someone other than the Chairman of the mee(cid:2)ng and give them the relevant instruc(cid:2)ons directly. If you want your proxy to vote in a certain way on the resolu(cid:2)ons specified, please indicate with an “X” in the appropriate box above how you wish your vote to be cast. If you fail to select any of the given op(cid:2)ons, your proxy can vote as he or she chooses or can decide not to vote at all. Your proxy can also do this on any other business which may come before the mee(cid:2)ng, including amendments to resolu(cid:2)ons and any procedural business. The “vote withheld” op(cid:2)on on this form of proxy is provided to enable you to instruct your proxy not to vote on any par(cid:2)cular resolu(cid:2)on. However, a “vote withheld” is not a vote in law and will not be counted in the calcula(cid:2)on of the votes “for” and “against” a resolu(cid:2)on. In the case of an individual, this form of proxy must be signed by that individual or his a(cid:6)orney. In the case of a corpora(cid:2)on, this form of proxy must be executed under its common seal or signed on its behalf by its duly authorised officer, a(cid:6)orney or other person authorised to sign. In the case of joint holders, only one need sign, but the names of all the joint holders must be stated. The vote of the senior joint holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of other joint holders. For this purpose, seniority shall be determined by the order in which the names appear in the register of members in respect of the joint holding. To be valid, this form of proxy (duly signed and together with any power of a(cid:6)orney or other authority under which it is signed) must be sent by post or delivered (during normal business hours only) by hand so as to be received at the offices of the Company’s registrar, Capita Asset Services PXS 1, 34 Beckenham Road, Beckenham BR3 4ZF, no later than 11.00 a.m. on 21 November 2016 (or, if the mee(cid:2)ng is adjourned, no later than 48 hours before the (cid:2)me of any adjourned mee(cid:2)ng). 10. CREST members who wish to appoint a proxy or proxies for the mee(cid:2)ng (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. In order for a proxy appointment or instruc(cid:2)on made using the CREST service to be valid, the appropriate CREST message, regardless of whether it cons(cid:2)tutes the appointment of a proxy or is an amendment to the instruc(cid:2)on given to a previously appointed proxy, must be transmi(cid:6)ed so as to be received by Capita Asset Services (ID RA10) no later than 11.00 a.m. on 21 November 2016 (or, if the mee(cid:2)ng is adjourned, no later than 48 hours before the (cid:2)me of any adjourned mee(cid:2)ng). Please refer to the notes to the no(cid:2)ce of mee(cid:2)ng for further informa(cid:2)on on proxy appointments through CREST. 11. You may not use any electronic address provided in this form of proxy to communicate with the Company for any purposes other than those expressly stated. Printed by Sterling 63 Queen Victoria Street London, EC4N 4UA United Kingdom +44 (0) 20 7634 4900 www.sterlingfp.com Diurnal Group plc Cardi(cid:299) (cid:68)edicentre Heath Park Cardi(cid:299)(cid:853) C(cid:38)1(cid:1008) (cid:1008)(cid:104)(cid:58) (cid:104)nited (cid:60)in(cid:336)dom (cid:1085)(cid:1008)(cid:1008) (cid:894)0(cid:895) (cid:1012)(cid:1011)1 (cid:1011)16 (cid:1012)(cid:1012)(cid:1008)(cid:1012) www.diurnal.co.uk 

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