LIFE SCIENCES ANNUAL REPORT FO R TH E YE AR TO 3 1 MARCH 2023 OUR GROUP’S MISSION Enhancing patients’ lives through the development of pioneering innovative cardiovascular medical devices using Elast-Eon™, the world leading long-term implantable biostable polyurethane, through licensing, contract manufacturing and developing next generation medical devices. BOARD OF DIRECTORS AND ADVISORS ...................................................................................... 2 STRATEGIC REPORT CHAIRMAN’S STATEMENT ...................................................................................................................... 4 GROUP MANAGING DIRECTOR’S REPORT ................................................................................... 7 STRATEGY .....................................................................................................................................................11 OUR PEOPLE ...............................................................................................................................................12 DIRECTORS ..................................................................................................................................................15 SECTION 172(1) STATEMENT .............................................................................................................18 FINANCIAL REVIEW ................................................................................................................................20 PRINCIPAL RISKS AND UNCERTAINTIES .....................................................................................24 GOVERNANCE CORPORATE GOVERNANCE STATEMENT ..................................................................................28 AUDIT COMMITTEE REPORT ..............................................................................................................34 DIRECTORS’ REMUNERATION REPORT ......................................................................................36 CONSOLIDATED FINANCIAL STATEMENTS REPORT OF THE DIRECTORS ............................................................................................................40 DIRECTORS’ RESPONSIBILITIES STATEMENT ..........................................................................42 INDEPENDENT AUDITOR’S REPORT .............................................................................................43 CONSOLIDATED INCOME STATEMENT ........................................................................................54 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ..................................................55 CONSOLIDATED CASH FLOW STATEMENT ................................................................................56 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...................................................57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................................58 PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY STATEMENT OF FINANCIAL POSITION ...........................................84 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY ............................................85 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS .....................................86 LETTER TO SHAREHOLDERS ............................................................................................................92 NOTICE OF THE ANNUAL GENERAL MEETING ......................................................................96 OUR GROUP’S VISION To position Elast-Eon to de-risk the future of all animal-based cardiovascular medical devices. BOARD OF DIRECTORS AND ADVISORS DIRECTORS W Brown – Executive Chairman C Stretton – Group Managing Director I Anthony – Director of Vascular R&D, Quality, Clinical and Regulatory Affairs L Smith – Chief Financial Officer J McKenna – Director of Clinical Marketing I Ardill – Non-Executive Director G Berg – Non-Executive Director J Ely – Non-Executive Director NOMINATED ADVISER AND STOCKBROKER Cenkos Securities plc 6,7,8 Tokenhouse Yard London EC2R 7AS LAWYERS Davidson Chalmers Stewart 163 Bath Street Glasgow G2 4SQ COMPANY SECRETARY K M Full FCCA REGISTERED OFFICE Davidson Chalmers Stewart 163 Bath Street Glasgow G2 4SQ HEAD OFFICE 2 Drummond Crescent Irvine Ayrshire KA11 5AN web: www.rualifesciences.com email: info@rualifesciences.com Burness Paull LLP 50 Lothian Road Festival Square Edinburgh EH3 9WJ REGISTRARS Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA INDEPENDENT AUDITOR Grant Thornton UK LLP Statutory Auditor Chartered Accountants 110 Queen Street Glasgow G1 3BX Registered in Scotland, Company No. SC170071 Financial statements will be circulated to Shareholders and copies of the announcement will be made available from the Company’s registered office. Dealings permitted on Alternative Investment Market (AIM) of the London Stock Exchange. 2 RUA Life Sciences plc STRATEGIC REPORT STRATEGIC REPORT CHAIRMAN’S STATEMENT “RUA has a portfolio of four businesses, all of which have made good progress during the period. The mature businesses of Biomaterials and Contract Manufacture are growing revenue and generating attractive net margins and the development business segments of Vascular and Structural Heart have made good regulatory and technological progress respectively on relatively low levels of investment”. On behalf of the Board, I am pleased to present the Company’s results for the year ended 31 March 2023. TRADING FOR YEAR Trading during the period was positive with strong revenue growth of 34% year on year resulting in revenue for the year of £2,179k (2022: £1,625k). We have continued to invest in the growth and development of the business as demonstrated by the 26% increase in the average in employee numbers from 38 last year to 48 in the current year. Despite this investment in people during the development stages of the Group, it is pleasing that Group loss before tax reduced marginally from £2,360k to £2,322k. At the post tax level, the reduction in loss was greater as R&D tax credits increased. Cash was tightly controlled with total cash burn of £1,479k resulting in a halving of cash balances from £2,963k to £1,484k. OUR PORTFOLIO The RUA Group has a portfolio of four medical device businesses and during the year, we changed the basis of reporting on these businesses as part of a review of segmental reporting and analysis. The four businesses are Biomaterials, Contract Manufacture, Vascular and Structural Heart. The Group Managing Director’s Report provides detailed analysis on each of the businesses, but I am pleased to set out below the key valuation metrics and opportunities for the constituent parts. RUA Biomaterials is the owner of our biostable polymer technology being exploited through a licensing model. Revenues for the year amounted to £554k (2022: £487k) and due to the limited costs associated with the business it enjoys an operating profit margin of 89% (2022: 86%) and contributed £493k (2022: £418k) to the Group operating loss. RUA considers the cash flows from the business segment as a “growing perpetuity” which at a discount rate of 12% and growth rate of 5% would value this business segment at around £7 million. 4 RUA Life Sciences plc XXXXX STRATEGIC REPORT CHAIRMAN’S STATEMENT RUA Contract Manufacture was acquired as part of the £2.45million acquisition of RUA Medical in April 2020. During the year the business grew revenues strongly to £1,625k (2022: 1,138k) and has an operating margin of 49% (2022: 39%) contributing £794k (2022: 447k) to the Group operating loss. New and existing customers are actively reviewing projects with RUA that could double the current scale of the business over a two-year period. The purchase of RUA Contract Manufacture represents a multiple of contribution of around 3 times which is proving to be attractive when compared to revenue multiples of 7 times paid in the sector. Given the growth opportunities available to the business and the potential for multiple expansion, the contract manufacturing business has the potential to add significant value. Subsequent to the financial year end we announced that the Group had undertaken a reorganisation of its R&D development activities with the hive down of the vascular graft business to RUA Vascular Limited (a 100% subsidiary of the Company) and the hive down of the heart valve business to RUA Structural Heart Limited (also a 100% subsidiary). RUA Vascular is the business unit developing the large bore vascular graft range. This part of the business disappointed by failing to meet the KPI’s set for it at the start of the period. The pre-sub process with the FDA took much longer than expected with more detailed agreements not just on clinical evaluation but additional data on pre- clinical work. As a result, there have been further delays to the commencement of studies and the resultant impact on completion and application for approvals. Despite this set back, a review of the project demonstrates how much has been achieved to date with the development of the polymerically sealed graft range, a regulatory pathway agreed with regulators, pilot scale commercial manufacturing established, and agreement reached to ensure global distribution. These not inconsiderable achievements have been done on a relatively small budget with investment of around £4.4million. Further investment will be required for RUA Vascular to reach its potential, including the clinical trials agreed with the FDA as part of the pre-sub 510k process, and plans to facilitate this funding are being explored. As part of the review of the holding values for RUA Vascular, financial forecasts have been prepared. This demonstrates that the pilot plant has the capacity to generate revenues of over £6 million and a net contribution of over 70%. Valuation metrics in the vascular graft sector would appear to be based on revenue multiples. Comparative transactions have been at revenue multiples of 4 and above. Applying these multiples to RUA Vascular based on pilot plant capacity values the business at £25 million representing an EBITDA multiple of 5.4 times. After factoring in the anticipated costs of completing the project, the Internal Rate of Return is a very attractive 43%. RUA Structural Heart, the business unit developing next generation heart valves and materials is estimated to have had around £3.1million of investment since the business was restarted in financial year 2019. The key objective for the period was to evaluate heart valve leaflet material and compare the performance of 100% polymeric valves with a novel composite developed by the Group. The computational modelling of the composite material at the design stage suggested that its mechanical properties would be ideal for heart valve leaflets and that there should not be a risk of delamination. The team within the Structural Heart business segment has very recently achieved the initial milestones set for the composite material. We are delighted to report that after 200 million cycles the material shows no signs of delamination and cut edges remain unchanged as a result of flex fatigue testing undertaken in house. From a performance perspective, the composite material is very thin and flexible and little energy is required to open a valve and once opened does not restrict blood flow with a good EOA (Effective Orifice Area). Comparing the EOA with published data on Annual Report & Accounts 2023 5 STRATEGIC REPORT GROWING SHAREHOLDER VALUE BY: International growth from Licensing and Contract Manufacturing businesses - RUA Biomaterials, and RUA Contract Manufacture; Product development and launches of RUA Vascular’s graft pipeline; Product Innovation from RUA Structural Heart’s polymeric heart valve technology platform CONCLUSION RUA has a portfolio of four businesses, all of which have made good substantial progress during the period. The mature businesses are growing revenue and generating attractive operating margins and the development business segments of Vascular and Structural Heart have made good regulatory and technological progress respectively on relatively low levels of investment. The stability of Biomaterials coupled with the long term contractual but growth opportunities of Contract Manufacture more than support the valuation of the Group and still provide attractive upside. The developing businesses of Vascular and Structural Heart both require further investment to achieve their considerable potential and funding options are currently being explored to provide this investment. The progress of Structural Heart over the past year has more than compensated for the delay to the Vascular clinical trial. WILLIAM BROWN Chairman 25 July 2023 CHAIRMAN’S STATEMENT current biological valves suggests that the EOA of the RUA design is up to two times greater for equivalent valve size. Testing has also demonstrated that the properties of the composite restrict crack propagation. 100% polymeric valves rely in part on the leaflet design to reduce stress and operate within the performance window of the polymer, meaning that the polymer would not work in all designs. The composite material retains the blood contacting properties of Elast-EonTM but is significantly stronger. Suture retention testing shows the composite is highly resistant to pull through. Given these properties the RUA composite may be appropriate for valve designs that 100% polymer would not be appropriate for, allowing a like for like swap of RUA composite for the biological tissue used in currently marketed designs. This creates the opportunity for RUA Structural Heart to become a supplier of heart valve leaflets to other companies to incorporate in current designs. The opportunity to broaden the business model for the Structural Heart business not only increases the potential value of the business unit but reduces the timeframe to be able to realise this value. The Structural Heart business has always had the potential to generate substantial value for the Group but with recent developments has increased the chances of achieving its potential. The major medical device companies have always been prepared to buy in novel technology and we believe we are getting much closer to having a commercialisable offering. 6 RUA Life Sciences plc STRATEGIC REPORT GROUP MANAGING DIRECTOR’S REPORT “This period has seen continuing sales growth from our two highly profitable and cash generative business units, RUA Biomaterials and RUA Contract Manufacture, which underpin current Group valuation. We have continued to de-risk the regulatory process and formalised the route to market for RUA Vascular’s large bore graft range, and identified additional positive properties within RUA Structural Heart’s polymeric heart valve technology platform”. SALES PERFORMANCE HAS SURPASSED EXPECTATIONS Contract manufacturing and polymer licensing business units are performing ahead of expectations. Total revenue of £2,179,000 (2022: £1,625,000) represents an increase of 34% over the same period in the previous year (2022: 6%). The strategic changes that we made to business processes and working practices during the period have transitioned the business from a narrowly focused contract developer and manufacturer to a fully-fledged medical device manufacturing business that is focused on bringing our pipeline products to market. Key to this is our continuing investment and commitment to Research and Development activities, with R&D spend increasing 19% to £1,072,000 (2022: £903,000). Loss before tax for the period has decreased marginally to £2,322,000 (2022: £2,360,000) as a result of increased growth from our two cash generative businesses. RUA BIOMATERIALS The Group’s platform technology is based upon Elast-Eon, and RUA Biomaterials owns all the Elast-Eon IP, and licenses use of Elast-Eon to medical device companies. Elast-Eon has been proven to have all of the characteristics necessary for a long-term implantable biomaterial, and has been the enabling technology behind over 8 million life-sustaining devices over the last 15 years. Elast-Eon polymer licence and royalty income of £554,000 (£2022: £487,000) represents growth of 14% during the period. This increased uptake is due to successfully promoting the Elast-Eon polymer as a world leading material to the medical device industry. RUA Biomaterials is akin to an annuity business, and maintains a high operating profit margin (89%) (2022: 86%), since its only real outlays are IP costs. The Group continues to use the Elast-Eon polymer within its vascular and heart valve product pipelines, with the aim of improving device performance and eliminating the risks of animal-derived material in cardiovascular devices. Annual Report & Accounts 2023 7 STRATEGIC REPORT GROUP MANAGING DIRECTOR’S REPORT RUA CONTRACT MANUFACTURE Third party contract manufacturing revenue surpassed expectations by increasing 43% to £1,625,000 (2022: £1,138,000). This was due to our continued focus on quality and delivery leading to increased demand from existing customers and the onboarding of a new global medical technology company and resultant long term manufacturing and supply contract. Significant process efficiencies and effective cost control measures have been realised during the period, resulting in an attractive operating profit margin of 49% (2022: 39%) 100% on-time-in-full (OTIF) service levels were maintained during the entire period, and a recent customer satisfaction survey scored an average of 98%, which reflects the organisation’s commitment to quality and service. All business development activities during the period have focused on long term high value strategic opportunities, and significant headway has been made with plans to increase Original Equipment Manufacturer (OEM) customer demand to create a high growth business. As well as onboarding the new global medical technology customer during the period, an opportunity pipeline with Request for Quote (RFQ) values of c£2m in annualised revenue over the next 2-3 years is in place. RUA VASCULAR RUA Vascular is focused on the $1billion global vascular graft market, where polyester vascular grafts have been available on the market for over 50 years with little innovation. Many of these grafts contain animal-derived sealants. RUA Vascular’s Elast-Eon-enabled products for open surgical repair are an innovative solution addressing the many risks associated with animal-derived tissue (supply chain constraints, cross-species contamination, environmental concerns, and ethical/patient choice). With a growing acceptance in the surgical community of an inevitable switch away from animal-sourced products, RUA Vascular has a real opportunity to become a significant player in the open surgical graft market. During this period, all R&D efforts have been focused on the first launch from the vascular pipeline, a large bore straight graft, which will also be the enabler for the development of more complex products in the vascular graft portfolio. Whilst the regulatory pathway was being addressed, we also took the opportunity to further improve the product and significant progress has been made on product development activities, as well as the necessary precursor activities required for market launch. Data collection on the large bore graft continues with in-vivo and in-vitro trials, which has provided a level of certainty around graft design, bench performance and biocompatibility. A number of pre-submissions, or Q-subs, have allowed interactive discussions between the Group and FDA to determine the regulatory path to approval in the US, which will increase the certainty of market clearance through the less onerous 510K route. During these discussions, a Good Laboratory Practice (GLP) in-vivo study design and a clinical trial design was agreed for demonstration of the safety and efficacy of Elast- Eon as a graft sealant, and which aligns with the FDA’s expectations. The clinical trial is a performance goal study rather than a complex randomised trial, and will involve 121 patients, with a primary end point at 6 months post operation to study graft performance, safety, and clinical efficacy. With the trial being non-blinded, we will have sight of early clinical results well before the end point. Recruitment of the first patient is anticipated in 2024, with regulatory submissions planned to allow entry into the US market upon completion. The data generated in the trial will be utilised to support further marketing applications in multiple geographic regions including Europe. Significant work has been completed on manufacturing process refinements and efficiencies of the existing pilot production line. Manufacturing methodology has ensured consistent batch to batch sealing of the graft by machines, eliminating the use of toxic chemicals used during the manufacturing process. Initial production capacity plans indicate that this pilot line is capable of meeting the volumes and margins required for the launch of the large bore vascular grafts. The new facility purchased in November 2021 to accommodate a high output cleanroom facility to support scale up 8 RUA Life Sciences plc STRATEGIC REPORT manufacturing of the vascular graft range and associated support functions, will further allow for future growth but will require further investment. To be a leading player in the vascular graft market, it was felt that a route to market would be much more efficient and cost effective through a distribution model where existing and experienced sales teams would be leveraged. The Group was therefore delighted to sign an agreement in January 2023 with Corcym, a global medical device company focused on the structural heart area, which provides a clear path to a global market for the range of large bore vascular grafts. Corcym have an excellent sales network in place, currently selling to cardiothoracic surgeons in over 100 countries, and RUA Vascular’s grafts are complementary to their existing product portfolio. To allow Corcym the necessary flexibility to maximise market penetration, a novel pricing model was agreed whereby rather than agree specific price points by territory, the partnership ethos of the agreement will see RUA and Corcym share the gross principal margin achieved on global sales on a 50:50 basis. This agreement validates not only the design benefits of RUA’s product offering but also the regulatory pathway that has been adopted, and first revenues through the Corcym sales outlet are expected upon clearance to market from the FDA. In parallel with the Corcym distribution route to market, interest continues to be strong for OEM component supply of the RUA vascular graft to be used as part of another device. These additional opportunities are also being advanced and discussions will continue within the coming year. RUA STRUCTURAL HEART Through incorporation of Elast-Eon polymer technology into a novel leaflet system, the Group believes both valve failure and the need for lifetime anticoagulant treatment (associated with currently marketed aortic heart valves) will be avoided. Alternative leaflet material is becoming much more important to the industry, and polymeric valves are being talked about as the future. The heart valve market is dominated by a small number of very large companies, but much of the recent innovation in the sector has been undertaken by start-ups. RUA recognises that a route to market which involves a partnership/ license for future regulatory testing, clinical trial and launch to be more realistic than seeking to compete directly. A second route to market, namely OEM component supply of the proprietary composite material to major Heart Valve companies as a replacement for biologic material in their transcatheter aortic valves, has also been identified during the period. This strategy of seeking to “own” the leaflet material of choice may allow faster commercialisation with revenues generated during the customer development phase. During the current period, two heart valve programmes were running in parallel – one with a 100% polymer leaflet and the other a textile polymer composite leaflet. Both designs have been developed, tested and de-risked to a stage where the design which ensured the most resilient and appropriate technology, and greatest potential, was prioritised. Our chosen lead design was the textile polymer composite leaflet, which is very thin and flexible, yet demonstrates tear resistance many times greater than a simple polymeric sheet, whilst retaining the blood contacting properties of Elast-Eon. The valve manufacturing process has been refined, and valves of sufficient quality have been produced that are able to withstand durability testing via an Accelerated Wear Tester (where the valve is subjected to accelerated conditions as if it had been implanted in a heart). Hydro dynamic performance (which replicates conditions within the heart) has also been very promising, with low opening and closing pressure gradients and orifice areas. Fatigue testing capability has now been brought in-house, and a major milestone of c200 million cycles has been achieved without any indication of delamination or change to the structure of the material. Testing of the lead designs (valve and leaflet) will be further advanced and, if benefits are demonstrated as anticipated, following on, proof of concept in vivo trials to assess functionality, durability, thrombosis and calcification deposition. Novel IP on valve design and method of manufacture has also been created. Annual Report & Accounts 2023 9 STRATEGIC REPORT GROUP MANAGING DIRECTORS REPORT QUALITY MANAGEMENT SYSTEM OUTLOOK The Group extended scope of its ISO 13485:2016 certification in support of its Quality Management System (QMS) to include the entire Group of companies and to meet Medical Device Manufacturer requirements. This is the second year in a row that no non-conformities were noted during the ISO 13485 audit by our Notified Body, which reflects the increasing expertise within the Quality department. Electronic QMS software implementation has begun which will enable the business to operate a modern, efficient and compliant QMS to support future business growth. Continuing sales growth from our two highly profitable and cash generative business units have exceeded expectations, and our two pre- revenue business units continue to de-risk the regulatory process and make good technological progress. A clear route to market has been agreed for RUA Vascular’s large bore graft upon market clearance via Corcym, and we are progressing additionality within our polymeric heart valve technology platform. We have worked hard to build the solid foundations required by a fully fledged medical device manufacturing business, and to empower staff within the business with the necessary experience, knowledge and skillsets to help deliver on RUA’s ambitious plans. The Group looks forward to continuing to maximise revenues, alongside further product development, in the coming year, and ultimately delivering on our strategy to disrupt the cardiovascular market with innovative products and grow shareholder value. CAROLINE STRETTON Group Managing Director 25 July 2023 10 RUA Life Sciences plc STRATEGY The mission of the Group is to enhance patients’ lives through the development of pioneering innovative cardiovascular medical devices using Elast-Eon™, the world leading long-term implantable biostable polyurethane. This is being undertaken through: International growth via licensing Elast-Eon™ to third parties through RUA Biomaterials Developing and launching a range of Elast-Eon™ sealed vascular grafts through RUA Vascular Developing innovative Elast-Eon™ leaflet polymeric heart valve and leaflet technology through RUA Structural Heart International growth through RUA Contract Manufacture; becoming a centre of excellence for designing, developing and manufacturing Elast-Eon™ based medical devices, whilst continuing to serve and expand its current OEM customer base RUA Life Sciences will seek to maximise shareholder value by growing each business to achieve attractive levels of profitability or disposing of business areas if the valuations are attractive. Annual Report & Accounts 2023 11 STRATEGIC REPORT OUR PEOPLE OUR GROUP’S CORE VALUES Innovation, Agility, Integrity, Quality and Collaboration “We believe that the most successful businesses are ones that embrace the employee experience and protect employee wellbeing. Our 5 core values are a big part of how the entire business works internally, and with its customers, to develop new, market leading products. These allow us to deliver service to the highest standards and create an environment where innovation can flourish”. Highlights in the current year: • Introduced a range of initiatives to maintain employee wellbeing, including a Mental Health First Aid (MHFA) Team to provide guidance and support to staff • Employee net promoter score of 88% (2022: 85%), which demonstrated that employees were engaged, and held a strong belief in the vision and values of the Company • Maintained Living Wage and Good Business Charter accreditations • Commenced an Innovate UK Knowledge Transfer Partnership KTP award programme with the University of Strathclyde 12 RUA Life Sciences plc STRATEGIC REPORT OUR CULTURE HEALTH AND SAFETY The entire organisation is involved in creating a positive culture, to ensure everyone feels included in driving toward the company’s business goals. The Group is committed to building a successful team and has upskilled and empowered staff within the business with the necessary experience, knowledge and skillsets to help deliver on RUA’s ambitious plans. WELLBEING The Group continues to be a Living Wage employer. Proper remuneration ensures we directly invest in the health and wellbeing of our employees and improve their quality of life, which promotes a more productive business since we have a happier, more motivated, and loyal workforce. We are committed to maintaining a working environment which supports the mental wellbeing of its staff. This includes promoting a culture of mental wellbeing amongst colleagues and offering support for staff who, for any reason, may be suffering from mental ill-health. A Mental Health First Aid (MHFA) Team is responsible for maintaining an open-door policy for staff to approach them to discuss concerns with their own mental health and to provide guidance on how to manage symptoms. The Group seeks to eliminate the stigma associated with mental health by promoting an inclusive approach to all employees, regardless of their health. We also have a positive attitude to menopause/ perimenopause and are working proactively to support individuals experiencing the menopause. The Group has created an environment where individuals feel confident enough to raise issues about their symptoms and ask for support and adjustments at work. We are committed to ensuring that conditions in the workplace do not make menopausal symptoms worse and that appropriate adjustments and support are put in place. The Group is committed to ensuring that the highest reasonably practicable standards of health and safety are achieved in all Group operations. It is our aim to promote and maintain a high standard of health and safety by: • Meeting the Health and Safety at Work Act 1974 and Management for Health and Safety at Work Regulations 1999 • Providing and maintaining a safe place of work, safe systems of work, safe equipment and a healthy and safe working environment • Understanding and ensuring compliance with health and safety and; industry, regulatory and other requirements that apply to our activities. • Ensuring we are taking the appropriate protective and preventative measures • Being fully committed to the prevention of injury and ill-health to employees, sub- contractors, the public or visitors, whilst striving to improve health and safety performance • hazards, Identifying risk assessments and reducing risks to as low as possible undertaking • Developing and maintaining systems and procedures to ensure that all equipment and premises are safe and do not adversely affect health • Consulting employees and promoting the awareness of health and safety standards, and encouraging health and safety best practice throughout our organisation • Raising awareness, encouraging participation and training employees in health and safety matters to ensure employees and others are assured of a safe and healthy working environment • Ensuring all persons working on or behalf of the group comply with Health and Safety policies and actively contribute towards improving safety in every aspect of their work. Annual Report & Accounts 2023 13 STRATEGIC REPORT OUR PEOPLE WORKING ENVIRONMENT The business continues to practice lean manufacturing methodologies to help refine operations to deliver better savings and faster development cycles. Our 6S/lean champions hold a formally recognised 6S professional qualification. Our Industry 4.0 digital transformation continues, with new digital technology introduced to support financial control, HR and quality systems. ENGAGING OUR PEOPLE Our recent annual employee survey output was an employee net promoter score of 88% (2022: 85%), which demonstrated that employees were engaged, held a strong belief in the vision and values of the Group, and that these values encourage the right working environment. The Group has aligned with ‘Fair Work First’, which aims to promote fairness, equality and opportunity in Scotland, helping to create greater economic success and sustainable, inclusive growth. ATTRACTING, RECRUITING AND KEEPING TALENT The Innovate UK Knowledge Transfer Partnership KTP award programme with the University of Strathclyde commenced in May 2022, and is progressing well. New polymer science and engineering knowledge and skills have been introduced into the business, as well as enabling access to academic networks and specialist equipment. This support has enabled significant progress on the Heart Valve development project, and additional polymer expertise has assisted with our understanding of Elast-Eon properties. The Group’s successful Development of the Young Workforce (DYW) programme is going from strength to strength. In partnership with Skills Development Scotland, we have active modern and graduate apprenticeship programmes in place with employees (ten per cent. of our staff are currently benefitting from these schemes). We have also entered the third year of our Intern programme, which allows a University undergraduate student to gain first- hand workplace experience in the business. Employee attrition rate is 16% (2022: 5%), and we have a number of employee incentivisation plans in place to increase retention, including cost of living payments, private health care, and Electric Vehicle salary sacrifice schemes. We address gender bias and inequality by creating an inclusive workplace that is guided by our Core values each day, with a 32%:68% female to male employee split, and gender pay gap of 12% (mean) and 0% (median - difference between the midpoints in the ranges of hourly earnings of men and women). RUA continues to strive to create a balanced, experienced team within every tier of the business. ENVIRONMENTAL More than 190 countries adopted a landmark agreement recently at the COP 15 biodiversity summit that included a pledge to protect 30% of the world’s land and oceans by 2030. The Group recognises this and continues to strive to align its business practices with the United Nations 2030 Sustainable Development Goals as a blueprint to achieving a more sustainable future. Key to our environmental strategy is our proprietary polymer, Elast-Eon. Most heart valves and large bore vascular grafts on the market today contain animal tissue, as a result of compromises being made due to the lack of suitable biomaterials during the technological creation of the cardiovascular industry in the 1970s and 1980s. As well as cross species contamination and continuity of supply risks associated with using animal by products, there is the growing environmental risk of breeding livestock for medical purposes, including generation of significant greenhouse gases, and consumption of crops, freshwater, and fertilisers. We are therefore setting up Elast-Eon to de-risk the future of all animal based cardiovascular medical devices. As our activities and operations can also impact on the environment either directly or indirectly, our aim is to carry out our business in an environmentally responsible manner and minimise our impact through internal efficiency, minimising production of process waste and minimising our use of natural resources. CAROLINE STRETTON Group Managing Director 25 July 2023 14 RUA Life Sciences plc STRATEGIC REPORT DIRECTORS The Company is managed by the Board of Directors which, at 31 March 2023, comprised of five Executive (William Brown, Caroline Stretton, Iain Anthony, Lachlan Smith and John McKenna) and three Non-Executive Directors. The Non-Executive Directors (Ian Ardill, John Ely and Geoff Berg) are considered independent. William (Bill) Brown (Chairman). Bill was appointed to the Board on 21 October 2011 and became Chairman on 3 July 2012. Bill is a Chartered Accountant with over 35 years’ experience in advising and investing in high growth smaller companies. He has floated several companies and has significant experience in fund raisings, corporate deals and restructurings. He launched the first dedicated fund for AIM and was instrumental in the growth and internationalisation of AIM as a member and Chairman of the AIM Advisory Committee. He joined the Board in late 2011 and, having conducted a strategic review, and developed a strategy to monetise the core technology. Bill provides leadership and direction to the Board, facilitates the operations and deliberations of the Board and acts as principal liaison between the Board and the Executive and assumes responsibility for the strategic direction of the company. Key Areas of Expertise: Strategy, corporate governance, corporate finance, financial management, investor relations, international business risk management. Annual Report & Accounts 2023 15 STRATEGIC REPORT DIRECTORS Caroline Stretton (Group Managing Director). Caroline is a graduate of the University of Strathclyde, and holds a PhD in Pure and Applied Chemistry. Caroline joined RUA Medical in 2018 from prosthetic hand manufacturer, Touch Bionics, where she was a key member of the Leadership Team responsible for Global Manufacturing, Operations, Quality and Customer Support. Touch Bionics was sold to Icelandic Orthotic and Prosthetic manufacturer Ossur in 2016. Between 1994 and 2013, Caroline was employed by a number of medical device and pharmaceutical companies in a variety of roles, most notably Teva Pharmaceuticals, Ocutec and Mpathy Medical, a surgical medical device company which achieved a multi-million pound exit to Danish surgical medical device manufacturer Coloplast in 2010. Caroline joined the Board of RUA Life Sciences on 18 January 2021. Key Areas of Expertise: Manufacturing & operations, product development, quality assurance, regulatory affairs, project management office, strategic planning, Environmental, Social & Governance. Iain Anthony (Director of Vascular R&D, Quality, Clinical and Regulatory Affairs). Iain brings a wealth of relevant cardiovascular medical device experience to the company, with over 15 years’ experience in the medical device industry in both commercial and NHS settings. He was recruited from the Swiss based MedAlliance where he was Director Pre-Clinical / Clinical Regulatory Affairs focusing on development and approval of drug coated coronary and peripheral angioplasty balloons. Prior to this Iain was Head of Clinical Affairs at Terumo Aortic where he developed his knowledge and experience of the global vascular graft business. Iain is a graduate of Glasgow University and has a BSc in Genetics, he also has a PhD from the University of Edinburgh in Neurovirology and Neuopathology. Iain has over 40 peer reviewed publications across a multitude of medical disciplines. Iain joined the Board of RUA Life Sciences on 31 March 2022. Key Areas of Expertise: Medical device market, international market development, product development, clinical and regulatory affairs, strategic planning Lachlan Smith (Group Chief Financial Officer). Lachlan is a Fellow of the ACCA with over 20 years’ experience in accounting and finance across multiple sectors, with the last 14 years spent in leadership roles. Prior to joining RUA Life Sciences Lachlan served as Finance Director at high growth technology companies Silver Cloud Smarter Technology and Equator where he played a key role in developing strong financial systems and internal controls. While at Silver Cloud Lachlan played a crucial role in helping the business navigate the impact of COVID-19 and preparing the company to emerge in a strong position including assisting the business transition towards new growth opportunities. Furthermore Lachlan played a key role during multiple rounds of fundraising during the pandemic. Lachlan joined the Board of RUA Life Sciences on 31 March 2022. Key Areas of Expertise: Financial management, accounting, strategy development and strategic leadership, digital transformation, corporate finance, corporate governance. John McKenna (Director of Clinical Marketing). John is a leading marketing expert in the field of cardiovascular devices. With over 30 years’ experience in cardiothoracic surgery, he has helped develop and launched a number of successful devices, including heart valves, large vessel grafts and stents. John has worked for a number of leading medical companies, including Pfizer, Vascutek (Terumo) and CryoLife, and has contacts with both leading heart surgeons and senior executives at the major device companies. John re-joined the Board in late 2016, and has helped develop the product strategy based on his analysis of competing products and current market need from the industry. He has established European-wide distribution networks for medical devices and OEM supply agreements, particularly in heart valve related products. Key Areas of Expertise: Medical device market, sales management, market development, international sales, product launch. 16 RUA Life Sciences plc STRATEGIC REPORT Ian Ardill (Non-Executive Director). Ian has over 25 years’ experience in senior financial positions, with the majority of that time being spent in medical devices and pharmaceuticals. He is currently CFO of Rhythmn AI Ltd and managing Director of Causeway Finance Associates Limited, a Life Sciences consultancy, which he founded in 2017. Previously, he was Chief Financial Officer of Diurnal Group plc, which he joined in April 2015 ahead of the company’s successful IPO on AIM in December 2015. Prior to that, Ian was Chief Financial Officer of two other listed companies. With Lombard Medical Technologies plc, from 2012 to 2015, he led the company financially through the late stages of FDA pre-market approval and the commencement of US commercial operations. On the financing front, he managed a £22 million fundraising on AIM and the company’s IPO on NASDAQ raising $55 million. With Biocompatibles International plc, from 2003 to 2011, he played a leading role in transforming the company from a loss-making to a profitable enterprise with sales of £33 million. He also managed the company’s sale to BTG Plc in 2011 for £177 million and two returns of capital to shareholders totalling £23 million. Ian is a graduate of Warwick University and qualified as a Chartered Accountant with Grant Thornton. Key Areas of Expertise: Life Sciences (particularly medical devices), public companies, finance and accounting, corporate finance, corporate governance, investor relations. John Ely (Non-Executive Director). John is a recognised expert in cardiovascular devices and spent 7 years at FDA, where he was responsible for a team that approved cardiovascular medical devices, including heart valves. In industry, he has successfully managed the process of obtaining pre-market approvals for 6 heart valves, including both tissue and mechanical valves. He has also led research and development, regulatory and quality assurance teams at Baxter International Inc., Edwards Lifesciences Corporation and On-X Life Technologies, Inc. John has authored over 25 scientific papers and is the named inventor on 3 US patents. He was previously engaged as an expert witness in the area of heart valve design and development process, giving him an intimate knowledge of the Group’s heart valve project. Key Areas of Expertise: Medical device market, market development, product development, regulatory affairs, strategic planning. Geoff Berg (Non-Executive Director). Geoff was formerly a consultant heart surgeon at the Golden Jubilee Hospital in Glasgow where he specialised in surgical treatment of valvular heart disease and was recognised as one of the leading surgeons in mitral valve repair and replacement. He has authored a number of scientific papers on the treatment of heart disease and conducted studies into the long term performance of replacement heart valves. He has been involved in the early stage development of a number of cardiovascular devices, including a stentless animal tissue heart valve, and the launch of the only biological valved conduit. He is a recognised authority on stentless aortic valve surgery and has co-authored papers on stentless versus stented aortic valve insertions. Key Areas of Expertise: Surgical practices, heart valve development, regulatory affairs, clinical research. Annual Report & Accounts 2023 17 STRATEGIC REPORT SECTION 172(1) STATEMENT FOR THE YEAR ENDED 31 MARCH 2023 Section 172 of the Companies Act 2006 requires each of our Directors to act in a way that they consider, in good faith, would most likely promote RUA’s long-term success for the benefit of its shareholders and other stakeholders. In doing this, section 172 requires our Directors to have regard, amongst other matters, to the: a) Likely consequences of any decisions in the long term. b) Interests of the company’s employees. c) Need to foster the company’s business relationships with suppliers, customers and others. d) Impact of the company’s operations on the community and environment. e) Desirability of the company maintaining a reputation for high standards of business conduct, behaving ethically and transparently. f) Need to act fairly between members of the company. Our Board gains an understanding of stakeholder issues and, during the year, discharged its section 172 duty by factoring the matters highlighted (a) to (f), into Board discussions and decision- making process. The Directors also have regard to other factors which they consider relevant to the decision being made, acknowledging that every decision made will not necessarily result in a positive outcome for all stakeholders. However, by considering our vision and values, together with our strategic priorities and having a process in place for decision-making, the Board aims to make sure that all decisions are consistent and well-considered. This approach ensures that we continue to serve and support the people who rely on our products and services. It also supports our strategy to pivot to sustainable and profitable growth. SHAREHOLDERS The primary mechanism for engaging with shareholders is through the Company’s AGM and also through the annual cycle of investor meetings and webinar presentations held alongside the publication of the Group’s financial results for the half year and full year. Further information is disclosed in the Corporate Governance Statement. 18 RUA Life Sciences plc STRATEGIC REPORT Modern slavery is a crime and a violation of fundamental human rights. It takes various forms, such as slavery, servitude, forced and compulsory labour and human trafficking, all of which have in common the deprivation of a person’s liberty by another in order to exploit them for personal or commercial gain. We have a zero-tolerance approach to modern slavery and we are committed to acting ethically and with integrity in all our business dealings and relationships and to implementing and enforcing effective systems and controls to ensure modern slavery is not taking place anywhere in our own business or in any of our supply chains. We are also committed to ensuring there is transparency in our own business and in our approach to tackling modern slavery throughout our supply chains. We expect the same high standards from all of our contractors, suppliers and other business partners, and as part of our contracting processes, we include specific prohibitions against the use of forced, compulsory or trafficked labour, or anyone held in slavery or servitude, whether adults or children, and we expect that our suppliers will hold their own suppliers to the same high standards. SOCIAL, PEOPLE AND ENVIRONMENTAL Our employees, our community and the environment form a key stakeholder group with whom we engage on a daily basis. Pages 12 to 14 further detail the extent of the work undertaken in relation to social, people and environment. NON-FINANCIAL INFORMATION STATEMENT The information below is provided to help our stakeholders understand our position in relation to key non-financial matters including, where appropriate, the relevant policies and processes we operate. CUSTOMERS AND SUPPLIERS RUA operations ensures continuing focus on quality and delivery of customer products. The partnership structure between RUA’s Contract Manufacture business unit and its customers continues to deepen and strengthen. It is our policy to conduct all of our business in an honest and ethical manner. We take a zero- tolerance approach to bribery and corruption and are committed to acting professionally, fairly and with integrity in all our business dealings and relationships wherever we operate, and implementing and enforcing effective systems to counter bribery. We will uphold all laws relevant to countering bribery and corruption; we remain bound by the laws of the UK, including the Bribery Act 2010, in respect of our conduct both at home and abroad. HUMAN RIGHTS We are committed to ensuring that we comply with our legal obligations as well as communicating these to individuals who work for or on behalf of us. We comply with all relevant UK and devolved legislation in relation to labour in the workplace. We implement our obligations under the law through our policies, which are available to all employees within our ‘Employee Handbook’, which is also regularly checked for legal compliance. We also comply by giving all of our employees’ a Statement of Particulars of Employment. Annual Report & Accounts 2023 19 STRATEGIC REPORT FINANCIAL REVIEW REVENUE £1,625,000 Revenue for the contract manufacture division increased to £1,625,000 (2022: £1,138,000). £554,000 Revenue from royalty income from Biomaterials increased to £554,000 (2022: £487,000) £2,179,000 Reported Group revenues for the year ended 31 March 2023 increased to £2,179,000 compared to £1,625,000 for the year ended 31 March 2022. 20 RUA Life Sciences plc STRATEGIC REPORT RESEARCH AND DEVELOPMENT COSTS During the year, the Group expensed through the income statement £1,072,000 (2022: £903,000) of research costs relating to the Vascular Graft and Heart Valve programmes. IMPAIRMENT CHARGE NET FINANCE COSTS No impairment charge has been made on any of the Group’s assets following impairment reviews on the carrying amounts of the Group’s cash- generating units. Key assumptions such as the amount and timing of future cash flow growth and the achievement of future development milestones, support the carrying values of the intangible assets. Further information on the key assumptions used is disclosed in Note 10. GENERAL AND ADMINISTRATIVE EXPENSES Administrative expenses have increased during the year to £4,169,000 (2022: £3,776,000 ), these figures include amortisation & depreciation charges of £358,000 (2022: £312,000), the research and development costs noted above and the share based payment charges noted below. SHARE-BASED PAYMENT CHARGES The non-cash charge for the year decreased to £102,000 (2022: £145,000) as additional share option awards were withdrawn from three executives leaving the company and granted to new hires within the executive team. Finance expenses have increased during the year to £16,000 (2022: £8,000). LOSSES BEFORE TAXATION Losses before taxation from business operations for the year were £2,322,000 (2022: £2,360,000). LOSS PER SHARE Basic and diluted loss per share for the year was 9.03 pence (2022: 9.32 pence). TAXATION The Group claims research and development tax credits each year and, since it is currently loss making, elects to surrender these tax credits for a cash rebate. The amount is included within the taxation line of the consolidated income statement in respect of amounts received and receivable for the surrender of research and development expenditure amounting to £319,000 (2022: £293,000). The Group has not recognised any tax assets in respect of trading losses arising in the current financial year or accumulated losses in previous financial years. Annual Report & Accounts 2023 21 STRATEGIC REPORT FINANCIAL REVIEW CASHFLOW Year end cash and short-term deposit balances were £1,484,000 were (2022: £2,963,000). Operating cash outflows from operations amounted to £1,146,000 (2022: £2,353,000) During the year, capital expenditure was £449,000 (2022: £904,000). FINANCIAL POSITION Net assets as at 31 March 2023 were £4,683,000 (2022: £6,584,000) of which cash and cash equivalents amounted to £1,484,000 (2022: £2,963,000). Intangible assets (not including Goodwill) reduced to £470,000 (2022: £521,000) due to the amortisation charge of £51,000. DIVIDENDS No dividends have been proposed for the year ended 31 March 2023 (2022: £nil). KEY PERFORMANCE INDICATORS At this stage of the Group’s development, the nonfinancial key performance indicators focus around two areas: • • the progression of our Elast-Eon sealed Vascular grafts into clinical trials; and the development of our Polymeric Heart Valve and composite leaflet material. The financial key performance indicators focus on five areas: • Group revenues • Control of operating expenses • Research and development expenditure • Pre-tax results • Cash and short-term deposit balances These are further discussed within the Group Managing Director’s Report on pages 7 to 10: 22 RUA Life Sciences plc STRATEGIC REPORT MEASURING OUR PERFORMANCE GROUP REVENUES (£M’S) The Group measures revenue as a key financial metric to assess the progress of its commercial activities. 2021 1.5 2022 1.6 2023 2.2 OPERATING EXP (£M’S) The Group considers control of operating expenses as a key performance indicator to monitor and optimize cost management, ensuring efficient allocation of resources. 2021 3.1 2022 3.8 2023 4.2 R&D SPEND (£M’S) 2021 0.5 2022 0.9 2023 1.1 Research and Development expenditure is a critical KPI for the company to evaluate its investment in innovation and technological advancements, driving future growth and competitiveness. PRE TAX LOSS (£M’S) The Group’s pre tax loss measures the overall financial performance of its commercial and operating activities during the period. 2021 1.6 2022 2.4 2023 2.3 CASH (£M’S) 2021 6.3 2022 3.0 2023 1.5 Since the ongoing Vascular and Structural Heart commercialisation activities still require further investment and the business is not yet generating positive cash flows, the remaining cash balance is considered a key metric. LACHLAN SMITH Group Chief Financial Officer 25 July 2023 Annual Report & Accounts 2023 23 STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES PRINCIPAL RISKS AND UNCERTAINTIES While risk can never be fully eliminated, RUA Life Sciences’ approach to risk management aims to mitigate risk to an acceptable level to execute the Group’s strategy and create value for all stakeholders. The Board has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This included an assessment of the likelihood and impact of each risk identified, and the mitigating actions being, or to be, taken. Risk levels are modified to reflect the current view of the relative significance of each risk. Roles and Responsibilities The Board: • Has overall responsibility for corporate strategy, governance, performance, internal controls and Risk Management Framework. • Sets the Group’s risk appetite and ensures appropriate risk management and internal control systems are in place to enable a robust assessment of the principal risks. • Ensures effective processes exist to manage the principal risks and takes a balanced view of those risks against RUA Life Sciences’ strategy and risk appetite. • Sets the “tone from the top” and the culture for managing risk. • Sets strategic priorities in light of the Group’s risk profile. • Challenges the content of the risk register. The Audit committee: • Conducts an annual review and reports to the Board on the effectiveness of the Group’s risk management and internal control systems • Ensures compliance with financial and reporting legislation, rules and regulations and ensuring the Annual Report is fair, balanced and understandable. The Executive Team: • Manages the business and delivery of the Group’s strategy. • Is the central risk team to establish and facilitate the risk management process across the Group to provide risk information for management oversight and decision making. • Manages the principal risks appropriately to operate within the Group’s risk appetite. • Assigns senior business representatives (Risk Champions) for each category and function to take a lead role in the identification of risk and updating the risk register for senior management oversight. The principal risks and uncertainties identified are detailed in this section. Additional risks and uncertainties to the Group, including those that are not currently known or that the Group currently deems immaterial, may individually or cumulatively also have a material effect on the Group’s business, results of operations and/or financial condition. CONFLICT IN UKRAINE We do not have any customers or suppliers in Ukraine or Russia, and are therefore not currently experiencing any material disruption to our operations but continue to closely monitor the evolving situation and will develop appropriate response plans if required. POLITICAL AND ECONOMIC INSTABILITY We face risks in relation to political and economic instability associated with the UK having left the European Union, including potential changes to the legal framework applicable to our business (arising from the removal of retained EU law under the new Brexit Freedoms Bill). Currently, the majority of sales are to US based customers and little impact has been seen to date, however additional customs checks are resulting in delays on delivery of capital equipment and this risk is mitigated by seeking to place purchase orders in a timely basis. 24 RUA Life Sciences plc STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES Risk Potential Impact Mitigation Customer Concentration Risk Movement • Income shortfall • Reduced profitability • Failure to maintain competitive advantage • Second long-term manufacturing contract secured, and opportunity pipeline in place which has the potential to double existing revenues over 2-3 years • Business continuity plans for manufacturing and production facilities, inventory management and our key supply chain to maintain capability to respond rapidly and appropriately to any event. • Processes to monitor, manage and provide assurance to raw material supply-based risk. Failure to deliver effective Business Strategy & Transformation Risk Movement Innovation & IP Risk Movement • Revenue • Development and launch of new products to secure new customers underperformance and drive future growth • • Loss of competitive advantage Impact on market capitalisation • Detailed planning has been undertaken with external regulatory consultants, staff and Board to identify key actions, resource requirements, links between company-wide activities • Revenue • Strong pipeline of new products to provide growth and differentiation • • underperformance Loss of competitive advantage Impact on market capitalisation • Reputation loss • Strong business planning • Effective alignment of corporate and operational strategy • Appropriate IP protection, confidentiality and licensing agreements in place to secure our portfolio People & HR Risk Movement • • Loss of key staff • Remuneration and benefits, including long-term incentives, being Loss of technical skills • Disruption to business performance reviewed and designed to be competitive and attract, motivate and incentivise key personnel. • Investment in training and development to attract talented people. • Positive staff satisfaction survey 2022 – 88% Regulatory, Quality & Clinical • Inability to supply our products Risk Movement • Delay in product • Allocation of sufficiently experienced internal and external resource to support the regulatory approval of products, including any extensions to other markets launches • • Increased costs Loss of Value • Commitment to open and transparent engagement with Regulators to ensure global compliance; training programmes to ensure compliance with regulatory requirements • Utilisation of presub process with FDA to ensure early engagement on product development plans and acceptance of regulatory data • Monitoring development project high level risks at both a project team and Board level Finance & Internal Controls Risk Movement • Financial Loss • Maintenance of an infrastructure of systems, policies and reports to • Liquidity loss • Disruption to business operations ensure discipline and oversight on liquidity matters, including specific treasury and debt-related issues and control of expenditure to maximise cash runway • The funding strategy is approved annually by the Board and includes maintaining appropriate levels of working capital FOREIGN EXCHANGE RISK The Group is exposed to translation and transaction foreign exchange risk. The majority of RUA Biomaterials sales are to customers in the United States and these sales are priced and invoiced in US$. The majority of RUA Contract Manufacture sales are also to the United States but the invoices are raised in GBP. The Group policy is to try to match currency income with currency expenditure as far as possible, in order to minimise currency exposures. Annual Report & Accounts 2023 25 STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES DOLLAR CASH BALANCE AT THE YEAR END The extent to which the Group has residual financial assets in foreign currencies (US$) at the financial year end is set out below. Foreign exchange differences on retranslation of these assets and liabilities are taken to profit or loss of the Group. 2023 Asset US$ Balance GB£ Value US Dollar Bank Account $669,221 £542,296 2022 Asset US$ Balance GB£ Value US Dollar Bank Account $214,158 £163,001 INTEREST RATE RISK The Group finances its operations through retained cash reserves, and seeks to strike a balance between liquidity and maximising the return on funds. Cash holdings are regularly reviewed by the Board. The interest rate exposure of the financial assets and liabilities of the Group as at 31 March 2023 is shown in the table below. Interest rate risks are not hedged. If the interest rates to which the Group is exposed had increased by 1%, the reported loss after taxation would not have been materially different to that reported. Financial assets Cash and cash equivalents Trade and other receivables Interest rate Floating GB£000 Zero GB£000 Total GB£000 1,484 – 1,484 – 588 588 1,484 588 2,072 Financial liabilities Liabilities at amortised cost – – 980 980 980 980 26 RUA Life Sciences plc GOVERNANCE GOVERNANCE CORPORATE GOVERNANCE STATEMENT As Chairman of the Board it is my responsibility to ensure that the Group has both effective corporate governance and Board leadership. In accordance with the requirement for all AIM quoted companies to adopt a corporate governance code, RUA Life Sciences has adopted the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”). This report follows the structure of these guidelines and explains how we have applied the guidance. The Board considers that the Group complies with the QCA Code in most respects and where we deviate from the expectations set by the QCA I have clearly explained within this report. The Board believes that corporate governance is not a destination in itself but a journey. As the Group develops and grows, the systems and processes will evolve and change but our commitment to being transparent and open with all of our stakeholders will not change. The QCA code provides a framework to allow the Board to better communicate to our shareholders. QCA PRINCIPLES Deliver Growth 1. Establish a strategy and business model which promote long-term value for shareholders The strategic objective is to drive value for shareholders over the medium term by developing a range of medical devices which are enabled by incorporating RUA Life Sciences’ world class biomaterial, Elast-Eon™, into the design. The Board recognises that developing medical devices can be both costly and time consuming. The business is currently undertaking investment in developing its own range of medical devices. As the product development progresses, more of the development tasks have been brought in house reducing the reliance on third party partnerships. All of the devices being developed are seeking to limit market risk by developing replacements for current device technology that have the advantages of Elast- Eon™ but will not require surgical training as surgical procedures will remain the same. In order to monitor progress against the strategy, a reorganisation of financial reporting was undertaken to better analyse the business segments and the value to the Group. 2. Seek to understand and meet shareholder needs and expectations As mentioned above, RUA Life Sciences is currently developing new medical devices incorporating our world class biomaterial, Elast-Eon™. The focus of the Board is on the successful development of these products and the Board understands that shareholders expect capital growth from the execution of this clearly defined strategy. Relationships with our shareholders are important to us and we seek to provide effective communications through our Interim and Annual Reports along with Regulatory News Service announcements. We also use the Group’s website, www.RUAlifesciences.com, for information on products and technology. RUA encourages two-way communication with both its institutional and private investors and responds promptly to all queries received both by telephone and by email. The Chairman, Group Managing Director and Chief Financial Officer talk to and meet with the Group’s major shareholders and ensure their views are communicated fully to the Board. This process is further enabled by our Nomad/broker, Cenkos, which organises presentations to existing and potential investors and updates the Board on feedback and any changes to shareholders views and expectations. The Nomad/broker is regularly briefed on developments to enable research notes to reflect the current status of the Group. RUA has also engaged with a third-party research organisation, Equity Development, to publish financial analysis on the Group. Members of the Board make themselves available to shareholders to answer any questions particularly relevant to their particular area of expertise. The Annual General Meeting (“AGM”) is an important opportunity to meet with the Company’s private shareholders. All the Directors attend the AGM and are available to meet shareholders individually or as a group, listen to their views and answer questions. For each resolution the number of proxy votes received for, against or withheld is disclosed to all attendees. The results for the AGM are subsequently published on the Group’s corporate website. At the 2022 AGM, held in person since COVID restrictions were lifted, all resolutions were passed unanimously at the meeting and proxy votes were in excess of 94% in favour of all resolutions. 28 RUA Life Sciences plc GOVERNANCE 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success With the acquisition of RUA Medical in 2020, the business of RUA Life Sciences has grown substantially and now has employees, premises, and regulated processes. The Board recognises that its long-term success depends upon the efforts of its employees and maintaining strong relationships with its customers, suppliers and regulators. To monitor all these relationships, a balanced score card system is in operation and monitored by the Board. The key stakeholder however is the patient whose life is dependent on a RUA Life Sciences device. Only by serving the patient first, and by demanding quality in all areas of the business, will RUA Life Sciences be a long-term success. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation On pages 24 to 26 of this Annual Report and Accounts, the key risks to the business are identified and how these are mitigated, in addition to the change in the identified risk over the last reporting period. The Board is responsible for reviewing and evaluating risk and the Executive Directors meet at least monthly to review ongoing trading issues, discuss performance and any new risks associated with ongoing product development. An ISO accredited Quality Management system (ISO 13485) is in place for the entire Group which is subject to external audit and during the period the Group successfully extended its areas of registration. The Board has formalised the review and reporting of the main internal controls within the business. During the year, the Directors continued to review and address identified risks within the key risk factors facing the Group. These areas included regulatory, research and development, commercial, human resources, and information technology. The Board will continue to review the system of internal controls within the Group. The Board of Directors is responsible for the Group’s system of financial controls. However, it should be recognised that such a system can provide only reasonable and not absolute assurance against material misstatement or loss. The principal elements of the system include: • A clearly defined structure which delegates authority, responsibility and accountability. • A comprehensive system for reporting financial results. Actual results are measured monthly against budget which together with a commentary on variances and other unusual items allows the Board to monitor the Group’s performance on a regular basis. • A comprehensive annual planning and budgeting programme. • A revision of annual forecasts on a periodic basis. There is no independent internal audit function. The Directors believe that such a function would not be cost effective given the current size of the Group, but they will continue to monitor the situation as the Group goes forward. The Board has reviewed the effectiveness of the system of internal controls as outlined above and considers the Group has an established system which the Directors believe to be appropriate to the business. As part of the evolution of systems and controls, a digital transformation programme is being undertaken which has systemised the control of expenditure through purchase order systems and reconciliations Maintain a Dynamic Management Framework 5. Maintain the Board as a well-functioning, balanced team led by the Chair. The Company is controlled by the Board. In the year to 31 March 2023, the Board was led by the Chairman, William Brown. The Group Managing Director, Caroline Stretton had executive responsibility for running the Group’s business and implementing strategy. All Directors receive regular and timely information regarding the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of Board meetings. All Directors have direct access to the advice and services of the Company Secretary and are able to take independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. Annual Report & Accounts 2023 29 GOVERNANCE CORPORATE GOVERNANCE STATEMENT The Board comprises five Executive Directors and three Non-Executive Directors. The Board considers that all Non-Executive Directors bring an independent judgement to bear. The Non- Executive Directors are much more active than is normally expected and participate closely in new product development activities. The Board has a formal schedule of matters reserved to it and is supported by the Audit, Remuneration and Nominations Committees. The Schedule of Matters Reserved and Committee Terms of Reference are available on the Group’s website. 6. Ensure that between them the Directors have the necessary up-to-date experience, skills, and capabilities The Board recognises that it is healthy for membership of the Board to be periodically refreshed. Half of the Board has been appointed during the last two years; Caroline Stretton and Ian Ardill were appointed in January 2021, Lachlan Smith, and Iain Anthony in March 2022. Two Non-Executive directors have served for five years and one for two years. The Nominations Committee is chaired by the Company’s Chairman. Meetings are arranged as necessary. The Committee is responsible for nominating candidates (both Executive and Non-Executive) for the approval of the Board to fill vacancies or appoint additional persons to the Board. RUA Life Sciences believes that a well-managed business must continuously look to improve the quality and skill sets of the team. All Directors receive induction on joining the Board covering the Group’s operations, goals and strategy, and their responsibilities as directors of the Company. The Company supports the Directors in developing their knowledge and capabilities. The Board has established a procedure for Directors in the furtherance of their duties to take independent professional advice, if necessary, at the Company’s expense. All Directors are subject to election by shareholders at the first opportunity after their appointment. In accordance with the Company’s Articles of Association, all Directors are required to retire by rotation and shall be eligible for re- election. The terms and conditions of appointment of the Non-Executive Directors are available for inspection upon request. The terms of reference of the Nominations Committee have been placed on the Company’s website. The Company Secretary supports the Chairman in addressing the training and development needs of the Directors. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement The Board undertook an evaluation process to consider Board performance which was conducted by a self-assessment during FY22 by the Chairman assisted by the Company Secretary. This process identified the needs discussed in item 6 above and resulted in the action points so described. The Board recognised the need to enhance its skills and experience and improved the position through the appointment of Lachlan Smith and Iain Anthony in March 2022. 30 RUA Life Sciences plc GOVERNANCE John McKenna, an Executive Director, has responsibility for advising on design inputs to new product development, establishing a sales and marketing network and managing Key Opinion Leaders. The Non-Executive Directors are all willing to engage with shareholders should they have a concern that is not resolved through the normal channels. John Ely, a Non-Executive Director, provides advice for the design and oversight of the regulatory process for the Company’s Heart Valve project. Geoff Berg, a Non-Executive Director, provides advice on surgical matters regarding the design and ultimate implantation of the Company’s devices; and chairs the Remuneration Committee. Ian Ardill, a Non-Executive Director provides financial and public company expertise and chairs the Audit Committee. The Board delegates authority to three committees to assist in meeting its business objectives while ensuring a sound system of internal control and risk management. The committees meet independently of Board meetings. Annual Report & Accounts 2023 31 8. Promote a corporate culture that is based on ethical values and behaviours RUA Life Sciences operates in the medical device field where human life is dependent upon its products. As such, sound ethical values and behaviours are not only an asset to the Group, but a requirement under the regulatory standards under which its products are required to be designed, tested and manufactured. The platform on which corporate culture is based is “The patient is the most important stakeholder”. RUA Life Sciences is still a small Group, so the actions of its Executives are highly visible and reflect directly upon the Group. The Group operates through a number of partnerships, and it seeks to work with other businesses that portray similar business ethics and values and have the capabilities of operating under strict regulatory environments. The S172 report on pages 18 to 19 further details some of the work undertaken in relation to culture, ethics and stakeholder engagement. 9. Maintain governance structures and processes that are fit for purpose and support good decision making by the Board William Brown, as Chairman, is responsible for leading an effective board, fostering a good corporate governance culture and ensuring appropriate strategic focus and direction. Caroline Stretton, as Group Managing Director, has overall responsibility for day-to-day management of the Group’s business as well as responsibility for implementation of business strategy. Lachlan Smith, as Chief Financial Officer, has overall responsibility for establishing and leading the finance function of the Group, and ensuring alignment with all group strategies and compliance with all relevant regulation and standards. Iain Anthony, as Director of Vascular R&D, Quality, Clinical and Regulatory Affairs, has overall responsibility for the clinical, quality and regulatory affairs functions of the group, as well as responsibility for product development of patches and grafts. GOVERNANCE CORPORATE GOVERNANCE STATEMENT AUDIT COMMITTEE REMUNERATION COMMITTEE The objective of the Committee is to provide oversight and governance to the Group’s financial reports, its internal controls and processes in place, its risk management systems and the appointment of and relationship with the external auditor. The Audit Committee is chaired by Ian Ardill and consists of the three Non-Executive Directors. The Executive Directors attend by invitation. It meets a minimum of two times per year and at least once a year with the external auditors present. Its role is to monitor the integrity of the Group financial statements, including the Annual and Interim Reports, review the significant accounting policies and financial reporting judgements contained therein and provide updates and recommendations to the Board. It is also responsible for reviewing and evaluating the adequacy of internal control and risk management processes. The terms of reference for the Audit Committee can be found at www.RUAlifesciences.com. The report of the Remuneration Committee is set out on page 36 to 38. The aim of the Remuneration Committee is to ensure that shareholder and management interests are aligned. The Remuneration Committee consists of the three Non-Executive Directors. It is chaired by Geoff Berg and meets as required during the year. The Committee determines the remuneration and benefits of the Executive Directors. The remuneration of Non-Executive Directors is determined by the Board within the limits set by the Company’s Articles of Association. The Chairman is invited to attend meetings of the Committee but is not involved in any decisions relating to his own remuneration. The Committee keeps itself informed of all relevant developments and best practice in the field of remuneration and seeks advice from external advisers when it considers it appropriate. A more detailed terms of reference for the Remuneration Committee can be found at www. RUAlifesciences.com. NOMINATIONS COMMITTEE The primary purpose of the Committee is to lead the process for Board appointments and to make recommendations for maintaining an appropriate balance of skills on the Board. The Nominations Committee is chaired by the Chairman and consists of the three Non-Executive Directors. The Committee meets as necessary to fulfil its responsibilities and meet its objective. Its role is to review the structure size and composition of the Board, consider succession planning, review performance of the Directors and the Board as a whole and identify candidates for new Board positions. The terms of reference for the Nominations Committee can be found at www.RUAlifesciences.com. Membership of the Committees is as follows: Director William Brown Ian Ardill Geoff Berg John Ely Audit Committee Remuneration Committee Nominations Committee n/a Chair Member Member n/a Member Chair Member Chair Member Member Member 32 RUA Life Sciences plc GOVERNANCE The following table sets out the member attendance at Board and Committee meetings during the year ended 31 March 2023: Director William Brown John McKenna Geoff Berg John Ely Ian Ardill Caroline Stretton Lachlan Smith Iain Anthony Number of Meetings Attended Board Audit Remuneration Nominations 5/6 6/6 4/6 5/6 6/6 6/6 6/6 6/6 – – 2/2 2/2 2/2 – – – – – 5/5 5/5 5/5 – – – – – – – – – – – The Chairman regularly meets with investors after results announcements have been made and at other shareholder participant events. The Company also meets regularly with the Group’s Nomad/broker and discusses any shareholder feedback – the Board is briefed accordingly. All Directors attend the Annual General Meeting and engage both formally and informally with shareholders during and after the meeting. The results of voting at the AGM is communicated to shareholders via RNS and on the Group’s website. The Chairman makes presentations to institutional shareholders and analysts each year immediately following the release of interim and full year results. WILLIAM BROWN Chairman 25 July 2023 The schedule of matters reserved for the Boards decision continue to include: 1. Setting strategy 2. Capital structure 3. Financial reporting and controls 4. Borrowing powers 5. Acquisitions and disposals 6. Shareholder resolutions and circulars 7. Board composition 8. Remuneration policies 9. Corporate governance 10. Capital markets compliance BUILD TRUST 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Board believes that corporate governance is more than just a set of guidelines; rather it is a framework which underpins the core values for running the business in which we all believe. The Board has formal responsibilities and agendas and three sub-committees; in addition, strong informal relations are maintained between Executive and Non-Executive Directors. Non- Executive Directors meet with other business partners and give advice and assistance between meetings. Board dinners are held from time to time to provide opportunities for broader discussions. Annual Report & Accounts 2023 33 GOVERNANCE AUDIT COMMITTEE REPORT The Audit Committee has an important role to play in effective reporting to our stakeholders and ensuring high standards of quality and effectiveness in the external audit process. The committee provides a separate report on its activities focusing on matters relevant to RUA Life Sciences plc and the work of the committee during the year. MEMBERSHIP The Audit Committee comprises the Non- Executive Directors and is chaired by Ian Ardill. MAIN ACTIVITIES The committee supports the Board in carrying out its responsibilities in relation to financial reporting, risk management and assessing internal controls. The committee also oversees the relationship with the external auditor including the effectiveness of the external audit and the provision of non-audit services by the external auditor. MEETINGS The committee meets at least twice and met formally on two occasions during the 2022/23 financial year: • To consider: • • • • including impairment the 2021/22 audit findings of the external auditors testing, internal control recommendations improvements, concern auditor audit considerations, independence and rotation of audit partners and staff; going fees, for the review of judgements exercised and sensitivities applied in: the calculation of the fair value of share based payments; impairment reviews; going concern cash flow forecasts and: the non-capitalisation of development costs; the final 2021/22 report and accounts and to recommend its approval to the Board, and; the progress made on bringing in-house of the group’s accounting function. • To consider the 2022/23 interim report including the consideration of going concern and to recommend its approval to the Board. 34 RUA Life Sciences plc The external auditors, Company Secretary and certain Executive Directors also attended the meetings at the invitation of the committee chairman. The Committee met with the external auditors on one occasion without the Executive Directors or Management present. A further meeting was held immediately post the year end in which the external auditors presented their plan for the 2022/23 audit. This will be reported on in next year’s Audit Committee Report. FINANCIAL REPORTING The committee has recently concluded that the Annual Report and Financial Statements for the year ended 31st March 2023, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s business model, strategy and performance. The committee reviewed the process for preparing the Annual Report. This process included the following key elements: • Monitoring of the integrity of the financial statements and other information provided to shareholders to ensure they represented a clear and accurate assessment of the Group’s financial performance and position. • Review of matters of accounting judgement and the underlying rationale in each case including specifically: impairment reviews of assets acquired in the April 2020 business combination and of investments in subsidiaries, development capitalisation expenditure, and the calculation of share based payment charges. Where appropriate the committee reviewed papers prepared by management and agreed with the accounting treatment. product of • • • Review of significant accounting policies. Review of a paper outlining the business plan and cash forecast as the basis of the going concern assessment. the The committee full year reviewed announcement (and the half-year results announcement at the relevant time), Annual Report and financial statements and considered reports from the external auditors identifying the accounting or judgmental issues requiring its attention. GOVERNANCE The principal elements of the system include: • • • • A clearly defined structure which delegates authority, responsibility and accountability. A comprehensive system for reporting financial results. Actual results are measured monthly against budget which together with a commentary on variances and other unusual items allows the Board to monitor the Group’s performance on a regular basis. A comprehensive annual planning and budgeting programme. A revision of annual forecasts on a periodic basis. There is no independent internal audit function. The Directors believe that such a function would not be cost effective given the current size of the Group but they will continue to monitor the situation as the Group goes forward. The Board has reviewed the effectiveness of the system of internal controls as outlined above and considers the Group has an established system which the Directors believe to be appropriate to the business. OVERVIEW The committee considers that it has acted in accordance with its responsibilities. The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the committee. IAN ARDILL Chairman of Audit Committee 25 July 2023 The committee also reviewed the Strategic Report and concluded that it presented a fair, balanced and understandable addition to the Annual Report. EXTERNAL AUDIT The external Audit Partner and team were changed ahead of the audit of the 2022/23 financial year in accordance with regulatory requirements on rotation of audit partners and staff. In the year ended 31 March 2023 there were no fees for non-audit services (2022: £20k). The committee was satisfied with the quality of the audit, the degree of challenge and review of the report and accounts. RISK MANAGEMENT AND INTERNAL CONTROL During the previous financial year (2021/22), the Directors commissioned an updated risk review exercise and the Committee considered and approved Management’s risk framework proposal as the basis for a detailed review of the risks facing the Group and the available mitigating actions. The full risk review and register was presented to the Board during the 2022/23 financial year. Risks were identified, categorised, graded, allocated ownership and mitigating actions recorded. These categories included: Branding, Reputation, Trust, Marketing, Sales and Distribution; Business Strategy & Transformation; Corporate; Finance & Internal Controls; Health & Safety; Infrastructure & Facilities; Innovation & IP; IT, Data Management & Digital Transformation; Operations; People & HR, and; Quality, Regulatory & Clinical. The risk review process is a key part of the Group’s day to day operations and updates on the tracked risks and mitigating actions are reported at each Board meeting, with particular focus given to a particular key risk. The Committee plans to perform a further review of risks during the 2023/24 financial year. The Board of Directors is responsible for the Group’s system of financial controls and both the Committee and the Board will continue to review the system of internal controls within the Group. However, it should be recognised that such a system can provide only reasonable and not absolute assurance against material misstatement or loss. Annual Report & Accounts 2023 35 GOVERNANCE DIRECTORS’ REMUNERATION REPORT This report covers the financial year ended 31 March 2023. The Company is not required by either the AIM Listing Rules or the Companies Act 2006 to produce a separate director’s remuneration policy and report although AIM companies are required to report and disclose certain information on directors pay under AIM Rule 19 and pursuant to s412 of the Companies Act 2006. The Company is a member of the QCA and has provided the information below as recommended by the QCA as part of its commitment to transparency and good corporate governance. RESPONSIBILITIES The Remuneration Committee is Chaired by Geoff Berg and comprises the Non-Executive Directors. The Committee is responsible for setting the remuneration packages for Executive Directors as well as approving, where appropriate, the remuneration of senior staff. The Committee sets incentive schemes for the Executive Directors and general staff in order to align their interests with those of the shareholders and to encourage the strategic development of the business. EXECUTIVE REMUNERATION POLICY The Company’s aim is to attract, retain and incentivise the Executive Directors, senior management and staff in a manner in line with good market practice and good corporate governance. The Committee endeavours to offer competitive remuneration packages to meet these objectives taking into account a number of factors including the salaries, benefits and incentives available at comparable companies or on advice of specialist advice from executive search consultants for new recruits. The remuneration packages for the Executive Directors were entered into on 11 June 2018; or the date of their appointment if later. Remuneration packages are reviewed each year to ensure that they are in line with the Group’s business objectives. No Director participates in decisions about their own remuneration package. The main components in determining pay are as follows: BASIC SALARY/FEES AND BENEFITS The basic annual salary is subject to an annual review, which takes into account the performance of the Group and the individual as well as market factors. Benefits comprise the provision of a death in service insurance scheme and pension contribution. In the year to 31 March 2022, there were a number of changes to roles and responsibilities, time commitments and the completion of a phased benchmarking exercise. For the year to 31 March 2023, there were no such revisions and the Executive Directors received a salary increase in line with the general award to all staff. The annual basic salaries of the Executive Directors as at 31 March 2023 are as follows: 2023 2022 William Brown Full Time £242,420 £230,000 John McKenna Part Time (86 days minimum) £73,780 £70,000 Caroline Stretton Full Time £158,100 £150,000 Iain Anthony Full Time £126,480 £120,000 Lachlan Smith Full Time £126,480 £120,000 ANNUAL PERFORMANCE RELATED BONUS Historically there has been no formal bonus scheme for the Executive Directors. During the year to 31 March 2023, the Committee agreed a bonus plan that could have paid out up to 10% of salary. The bonus was set on specific objectives and milestones with an emphasis on progressing the regulatory pathway of the vascular graft range. Although many achievements were made, the trigger point was not met and as a result no bonus award has been made. PENSIONS Executive Directors receive pension contributions of 10% of salary to a stakeholder or money purchase scheme. 36 RUA Life Sciences plc GOVERNANCE SHARE OPTIONS SCHEME Share options are granted to encourage Directors and key employees to deliver sustained, long term growth. During FY2019, we implemented an EMI approved Share Option Plan consistent with the Plan described in the Placing and Open Offer Circular issued during the year and approved by shareholders at general meeting. In December 2019 a further unapproved plan was set up for the benefit of Non-Executive Directors. A further award of EMI options was made in February 2021 to key personnel of RUA Medical Devices Ltd. The following vesting conditions apply to all these pre 2023 share options: 20 per cent. after the expiry of 3 years from the date of grant, 30 per cent. on the receipt by the Company of a regulatory approval for any of its products and 50 per cent. on the share price reaching at least £3.00. New options were awarded to two Executive Directors who had been appointed to the Board at the end of the previous financial year. The vesting terms described above had been criticised by certain proxy engagement advisers and as such the terms of the latest options issued were revised to better meet these recommendations. The exercise price of the Options is 44.5 pence per share, representing the closing mid-market price per Ordinary Share on the day preceding the award of the options. The key vesting terms are that the options may not be exercised before the third anniversary of grant. In addition, performance conditions apply such that 50% of the Options may only be exercised if the Company has received regulatory approval for at least one medical device and the company continues to exploit one such device. The performance condition for the balance of the Options is based on total shareholder return with full vesting achieved at 50% annualised return and a minimum of the median performance of the constituents of the FTSE AIM index. Options Granted Lachlan Smith Iain Anthony 2023 2022 120,000 120,000 – – Options lapsed in the year were as follows: Options Lapsed David Richmond (retired 31 August 2021) 2023 2022 – 120,000 No share options were exercised in the year. DIRECTORS INTEREST IN SHARE OPTIONS The emoluments of the Directors of the parent Company for the year in accordance with the basis of preparation were as follows: William Brown John McKenna John Ely Geoff Berg Caroline Stretton Lachlan Smith Iain Anthony Date of grant Number Exercise price 8 June 2019 1,121,072 8 June 2019 469,531 2 December 2019 120,000 2 December 2019 120,000 30.00p 30.00p 92.50p 92.50p Expiry date 8 June 2028 8 June 2028 2 December 2029 2 December 2029 5 February 2021 135,000 155.00p 8 June 2028 13 December 2022 120,000 13 December 2022 120,000 44.50p 44.50p 12 December 2032 12 December 2032 Annual Report & Accounts 2023 37 GOVERNANCE DIRECTORS’ REMUNERATION REPORT DIRECTORS’ EMOLUMENTS The emoluments of the Directors of the parent Company for the year in accordance with the basis of preparation were as follows: Salary & fees £ Share-based payments £ Pension contributions £ Private medical care £ 2023 Total £ 2022 Total £ Parent Executive W Brown 242,420 29,596 24,242 D Richmond (retired 31 August 2021) – C Stretton J McKenna L Smith I Anthony Non-Executive G Berg J Ely I Ardill 158,100 73,780 126,480 126,480 37,944 42,834 37,944 – 39,604 12,396 3,000 3,000 13,728 13,728 – – 15,678 – 12,390 12,648 – – – 322 – 215 – 131 160 – – – 296,580 301,345 – 87,084 213,597 191,234 86,176 90,248 142,001 142,288 – – 51,672 56,562 37,944 49,728 49,573 36,000 845,982 115,052 64,958 828 1,026,820 805,212 DIRECTORS’ SERVICE CONTRACTS The details of the service contracts in relation to the Executive Directors and letters of appointment in relation to the Non-Executive Directors are: Director Position William Brown Chairman John McKenna Director of Marketing Unexpired Term None None Notice Period 12 months 12 months Ian Ardill Non-Executive Director 6 months (first three year term) 1 month Geoff Berg Non-Executive Director 11 months (second three year term) 3 months John Ely Non-Executive Director 11 months (second three year term) 3 months Caroline Stretton Group Managing Director Iain Anthony Director of Vascular R&D, Quality, Clinical and Regulatory Affairs Lachlan Smith Group Chief Financial Officer None None None 12 months 6 months 6 months DIRECTORS’ INTERESTS IN SHARES The Directors’ interests in the Ordinary Shares of the Company at the end of the period were: 31 March 2023 31 March 2022 569,149 569,149 35,452 25,018 4,167 19,341 35,452 25,018 4,167 – W Brown J McKenna G Berg J Ely L Smith On behalf of the Board G BERG Chairman of the Remuneration Committee 25 July 2023 38 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS REPORT OF THE DIRECTORS GOING CONCERN The Board has to consider that the Going Concern principle is appropriate for the preparation of these accounts. At 31 March 2023, the Group had cash and cash equivalents of £1.48m (2022: £2.96m) and, as at the date of signing these Financial Statements, the cash balance was £0.9m. RUA Life Sciences has two cash-generative units (RUA Biomaterials and RUA Contract Manufacture). These cash- generating units provide a healthy Gross Margin (89% and 49%), and contributions to Group operating loss were £493,000 and £794,000. The Group has two cash-consuming units (RUA Vascular and RUA Structural Heart), and both these units require further investment before commercialisation and cash generation can be achieved. The investment will chiefly be for a GLP animal study and Human Clinical Trials for RUA Vascular. The Board anticipates the requirement for additional funding over the course of the financial year as the internal cash generation will not cover the additional investment required. The Board has considered the current cash position, reviewed budgets and profit and cash flow forecasts over the going concern period (to October 2024) along with sensitivity analyses and made appropriate enquiries. The Board has concluded that further financing is required and has taken advice from the Company’s Nomad and Broker on the current state of the equity market and the chances of a successful fundraise. The Board has formed a judgement at the time of approving the financial statements that the Group will have access to adequate resources, including new financing, to continue in operational existence for the period of the going concern assessment. If finance is not successful, which management see as unlikely, management have a number of mitigating actions which can be taken. There is a level of uncertainty around the ability of management to implement the mitigations during the going concern period, for this reason management have concluded a material uncertainty is appropriate. For this reason, the Board considers that the adoption of the going concern basis in preparing the consolidated financial statements is appropriate. The Financial Statements have been prepared on a going concern basis and do not include the adjustments that would result if the Group was unable to continue as a going concern. Due to the factors described above, specifically the uncertainty around the ability to raise new financing and the ability to implement mitigating actions, a material uncertainty exists, which may cast significant doubt on the Group and the Company’s ability to continue as a going concern. RESEARCH AND DEVELOPMENT ACTIVITIES Investing in research and development programmes delivers product innovation and manufacturing improvements within RUA Life Sciences plc. Expenditure on research and development in the period amounted to £1.1 million (2022: £0.9 million), of which £1.1million was expensed to the consolidated income statement as it does not meet the requirements for capitalisation under IAS38. POST STATEMENT OF FINANCIAL POSITION EVENTS Post balance sheet events and the future developments of the Group are detailed in the Chairman’s Statement on pages 4 to 6. DIRECTORS AND THEIR INTERESTS At 31 March 2023 the Executive Chairman of the Group was W Brown, the Executive Directors were C Stretton, J McKenna, I Anthony and L Smith. The Non-Executive Directors were G Berg, J Ely and I Ardill. At each Annual General Meeting any Director who has been appointed by the Board since the last annual general meeting, or any Director for whom it is their third annual general meeting since being elected or re-elected, should be proposed for election or re-election. As such John Ely and Geoff Berg are due for re-election. 40 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS The interests of the Directors at 31 March 2023 and 31 March 2022 in the ordinary share capital of the Company (all beneficially held) were as follows: W Brown J McKenna G Berg L Smith J Ely 31 March 2023 Number of shares 31 March 2022 Number of shares 569,149 569,149 35,452 25,018 19,341 4,167 35,452 25,018 – 4,167 SUBSTANTIAL SHAREHOLDERS With the exception of the following shareholdings, the Directors have not been advised of any individual interest or group of interests held by persons acting together which at 1 April 2023 exceeded 3% of the Company’s issued share capital: AJ Bell, stockbrokers Dowgate Capital Hargreaves Lansdown, stockbrokers Mr David Richmond Interactive Investor Mr Clive Titcomb Charles Stanley Amati Global Investors HSDL, stockbrokers Number of shares 2,244,793 2,233,529 1,754,788 1,533,334 1,360,012 1,050,000 834,334 795,586 795,555 % 10.12% 10.07% 7.91% 6.91% 6.13% 4.73% 3.76% 3.59% 3.59% INFORMATION CONTAINED WITHIN THE STRATEGIC REPORT The Directors have taken the option to include disclosures in relation to financial risk and dividends within the Strategic Report on pages 24 to 26 as these are deemed to have strategic importance to the Group. DIRECTORS’ LIABILITY INSURANCE The Group maintains Directors and Officers liability insurance which gives appropriate cover against legal action that may be brought against them. ANNUAL GENERAL MEETING The notice convening the Annual General Meeting for 11.00am on Tuesday, 22 August 2023 at Gailes Hotel, Marine Drive, Ayrshire, KA11 5AEis set out on pages 96 to 98. An explanation of certain business to be considered and voted on at the AGM is set out on pages 92 to 95. INDEPENDENT AUDITOR In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of Grant Thornton UK LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting. William Brown Chairman RUA Life Sciences plc Company number SC170071 25 July 2023 Annual Report & Accounts 2023 41 CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing the Strategic Report and Directors’ Report, the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Law including FRS 101 “Reduced Disclosure Framework”) and to prepare the Group financial statements in accordance with UK-adopted International Accounting Standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • state whether applicable UK Accounting Standards and UK-adopted International Accounting 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 Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • • so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. BY ORDER OF THE BOARD: William Brown Chairman 25 July 2023 42 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF RUA LIFE SCIENCES PLC OPINION Our opinion on the financial statements is unmodified We have audited the financial statements of RUA Life Sciences plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2023, which comprise the Consolidated income statement, the Consolidated statement of financial position, the Consolidated cash flow statement, the Consolidated statement of changes in equity, notes to the Consolidated financial statements, including a summary of significant accounting policies, the Parent Company Statement of financial position, the Parent Company Statement of Changes in Equity and notes to the Parent Company financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK-adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice). 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 31 March 2023 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. MATERIAL UNCERTAINTY RELATED TO GOING CONCERN We draw attention to note 1 in the financial statements, which indicates the requirement for the Group and parent company to obtain additional funding in order to be able to meet their future obligations and hence their ability to continue as a going concern. As stated in note 1, these events or conditions, along with the other matters as set forth in note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group and parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of management’s assessment of the entity’s ability to continue as a going concern Our evaluation of the directors’ assessment of the Group’s and the parent company’s ability to continue to adopt the going concern basis of accounting included: • • Obtaining and assessing management’s evaluation of going concern assumptions and supporting information, including budgets and cash flow forecasts, for a period up to 31 October 2024, as well as sensitivity analyses covering reasonably possible downside and reverse stress test scenarios; Challenging the key assumptions in the forecasts, sensitivities, historical accuracy for forecasts and the scope of scenario planning undertaken given current social and economic conditions in the UK and globally; Annual Report & Accounts 2023 43 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (CONTINUED) • • • • • Obtaining an understanding of financing arrangements in place, management’s assessment of their adequacy and plans to manage these; Challenging management’s assessment of what reasonably possible assumptions would cause the business to run out of funding and testing and assessing management’s mitigations to be applied if the assumptions occurred; Assessing the historical accuracy of the forecasts prepared by management by comparing the prior year forecasts to actuals and understanding the reasons for any significant variances to inform sensitivities to be reviewed by the engagement team; Engaging internal specialists to review the conclusions drawn from testing performed and the appropriateness of the going concern assumption; and Examining the disclosures concerning the basis of preparation of the financial statements and assessing the appropriateness of the use of going concern in preparing the financial statements. Our responsibilities We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Group or the parent company to cease to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. OUR APPROACH TO THE AUDIT Overview of our audit approach Overall materiality: Materiality Key audit matters Group: £116,000, which represents 5% of the Group’s loss before taxation. Parent company: £87,000, which represents 5% of the parent company’s loss before taxation. Key audit matters were identified as: • • Impairment of goodwill and other intangible assets (same as previous year); Impairment of investments in subsidiaries (same as previous year); and Scoping • Going concern (new). Our auditor’s report for the year ended 31 March 2022 included no key audit matters that have not been reported as key audit matters in our current year’s report. We performed audits of the financial statements of RUA Life Sciences plc and of the financial information of its only significant component using component materiality (full-scope audit procedures). We performed analytical procedures on the four dormant subsidiaries. There were no changes in scope from the prior year. In total, our audit procedures covered 100% of the Group’s net assets, 100% of the Group’s revenue and 100% of the Group’s loss before taxation. 44 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Description Audit response KAM Disclosures Our results In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. High Potential financial statement impact Fraud in revenue recognition Impairment of investments in subsidiaries (parent company only) Impairment of goodwill and other intangible assets Management override of controls Accuracy of share-based payment expense Low Low Extent of management judgement High Key audit matter Significant risk Annual Report & Accounts 2023 45 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (CONTINUED) Key Audit Matter – Group How our scope addressed the matter – Group Impairment of goodwill and other intangible assets In responding to the key audit matter, we performed the following audit procedures: identified impairment of goodwill and other We intangible assets as one of the most significant assessed risks of material misstatement due to error. The goodwill in respect of the RUA Medical Devices Limited is subject to an annual impairment review under International Accounting Standard (‘IAS’) 36 ‘Intangible Assets’. Goodwill and other assets are allocated by the Group to individual cash generating units (‘CGUs’) on the basis of the Group’s operations. The Group’s segmental reporting has changed during the year to allocate the business to more segments than was previously the case. There is management judgement in the allocation of goodwill and other assets to the new CGUs, and as such it could be subject to management bias. impairment review Furthermore, management’s assessment of the potential impairment of goodwill and other assets that are subject to an incorporates significant judgements. This includes the selection of assumptions such as the timing and extent of future profits and cash flows, the relevant CGUs and an estimate of their values in use, future growth rates and application of an appropriate discount rate that are all subject to management bias. • • • • • • • Obtained management’s assessment and conclusion on CGUs identified, and assessed whether this has been undertaken correctly in accordance with the requirements of IAS 36; Assessed the allocation of the Group’s cash flows and assets between the CGUs for appropriateness and consistency with our understanding of the business; Obtained management’s assessment and conclusion on the impairment review. Examined the impairment review performed by management, considered the underlying assumptions and sensitivities within the model, robustly challenging them and corroborating explanations received from management to relevant support or with individuals outside of the finance team; Engaged our internal valuations experts to assess the appropriateness of certain key assumptions, particularly the discount rate applied to the cash flows; Evaluated the sensitivity analysis performed to determine whether a reasonably possible change in assumptions would trigger an impairment; Assessed the historical accuracy of the forecasts prepared by management by comparing the prior year forecasts to actuals and understanding the reasons for any significant variances to inform sensitivities to be tested by the engagement team; and Assessed the relevant accounting policies and disclosures to determine whether they are compliant with the financial reporting framework, including IAS 36. Relevant disclosures in the Annual Report and Accounts for the year to 31 March 2023 Our results • • • Financial statements: Note 2.8, Summary of significant accounting policies, Impairment testing of goodwill, other intangible assets and property, plant and equipment Financial statements: Note 2.19, Use of accounting estimates and judgements Financial statements: Note 10, Goodwill; Note 11, Other Intangible assets Based on our audit work, we have not obtained evidence of material misstatement in respect of impairment of goodwill and other intangible assets. 46 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS Key Audit Matter – Parent Company Impairment of investments in subsidiaries We identified impairment of investments in subsidiaries as one of the most significant assessed risks of material misstatement due to error. The carrying value of the investment in RMD in the parent company financial statements requires an impairment assessment given the delays in the vascular graft range revenues and some uncertainty in this area, including lower than forecast revenues and increased associated costs with the regulatory delay. Management’s assessment of the potential impairment incorporates significant judgements in assumptions such as the timing and extent of future profits and cash flows and an estimate of their values in use, future growth rates and application of an appropriate discount rate that are all subject to management bias. How our scope addressed the matter – Parent Company In responding to the key audit matter, we performed the following audit procedures: • • • • • Obtained management’s assessment and conclusion on the impairment review. Examined the impairment review performed by management, considered the underlying assumptions and sensitivities within the model, robustly challenging them and corroborating explanations received from management to relevant support or with individuals outside of the finance team; Engaged our internal valuations experts to assess the appropriateness of certain key assumptions, particularly the discount rate applied to the cash flows; Evaluated the sensitivity analysis performed to determine whether a reasonably possible change in assumptions would trigger an impairment; Assessed the historical accuracy of the forecasts prepared by management by comparing the prior year forecasts to actuals and understanding the reasons for any significant variances to inform sensitivities to be tested by the engagement team; and Assessed the relevant accounting policies and disclosures to consider whether they are in accordance with the financial reporting framework, including IAS 36. Relevant disclosures in the Annual Report and Accounts for the year to 31 March 2023 Our results • Financial statements: Note 1, Accounting policies Based on our audit work, we have not obtained evidence of material misstatement in respect of impairment of investments in subsidiaries. Annual Report & Accounts 2023 47 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (CONTINUED) OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Materiality was determined as follows: Materiality measure Group Parent company Materiality for financial statements as a whole Materiality threshold Significant judgements made by auditor in determining materiality We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We use materiality in determining the nature, timing and extent of our audit work. £116,000, which is 5% of the Group’s loss before taxation. £87,000, which is 5% of the parent company’s loss before taxation. In determining materiality, we made the following significant judgements: In determining materiality, we made the following significant judgements • We considered loss before taxation to be the most appropriate benchmark given the Group’s main focus is the development of a new product, and all research and development costs are expensed through profit or loss, as the Group does not yet have regulatory approval for the product. As such, we believe that a key measure of the Group’s performance and the area of most interest to users is how it manages this expenditure. • We considered 5% to be an appropriate measurement percentage due to the size and scale of the Group and the complexity of its operations. Materiality for the current year is lower than the level that we determined for the year ended 31 March 2022 to reflect the change in benchmark used from the prior year. The benchmark was changed in the year due to the engagement team determining that loss before taxation was more reflective of the Group’s current operations and of more interest to users. • We considered loss before taxation to be the most appropriate benchmark given the Group’s main focus is the development of a new product, and all research and development costs are expensed through profit or loss, as the Group does not yet have regulatory approval for the product. As such, we believe that a key measure of the Group’s performance and the area of most interest to users is how it manages this expenditure. • We considered 5% to be an appropriate measurement percentage due to the size and the scale of the parent company and the complexity of its operations. Materiality for the current year is lower than the level that we determined for the year ended 31 March 2022 to reflect the change in benchmark used from the prior year. The benchmark was changed in the year due to the engagement team determining that loss before taxation was more reflective of the parent company’s current operations and of more interest to users. Performance materiality used to drive the extent of our testing We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. 48 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS Materiality measure Group Parent company Performance materiality threshold £87,000, which is 75% of financial statement materiality. £65,250, which statement materiality. is 75% of financial Significant judgements made by auditor in determining performance materiality In determining performance materiality, we made the following significant judgements: • the strength of the control environment the and our experience auditing financial statements of the Group, including limited misstatements identified in previous audits. effect of the In determining performance materiality, we made following significant judgements: the • the strength control of the environment and our experience auditing the financial statements of the parent company including the effect of limited misstatements identified in previous audits. Specific materiality We determine specific materiality for one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Specific materiality We determined a lower level of specific materiality for the following areas: We determined a lower level of specific materiality for the following areas: Communication of misstatements to the Audit Committee Threshold for communication • Transactions with related parties that are not Group entities. • Transactions with related parties that are not Group entities. We determine a threshold for reporting unadjusted differences to the Audit Committee. £5,800 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £4,350 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality – Group Overall materiality – Parent company Loss before taxation £2.3m PM £87,000, 75% FSM £116,000, 5% Loss before taxation £1.7m PM £65,250, 75% FSM £87,000, 5% TFPUM £29,000, 25% TFPUM £21,750, 25% FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements Annual Report & Accounts 2023 49 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (CONTINUED) AN OVERVIEW OF THE SCOPE OF OUR AUDIT We performed a risk-based audit that requires an understanding of the Group’s and the parent company’s business and in particular matters related to: Understanding the Group, its components, and their environments, including Group-wide controls We obtained an understanding of the Group and its environment, including Group-wide controls as follows: • • The Group’s accounting process is structured around the centralised Group finance function based at the Group’s head office in Irvine, UK. The Group has two trading entities, being the parent company RUA Life Sciences plc, and a subsidiary, RUA Medical Devices Limited. There are also four dormant subsidiaries. All entities in the Group are registered in the UK. Identifying significant components • We identified and evaluated the components to assess their significance and to determine the planned audit response based on both quantitative and qualitative factors. We determined significance as a percentage of the Group’s revenue and the Group’s loss before taxation. We identified RUA Life Sciences plc and RUA Medical Devices Limited as the only individually significant components. Type of work to be performed on financial information of parent and other components (including how it addressed the key audit matters) Based on our assessment of the Group as above, we focused our Group audit scope on the two components that were determined to be individually financially significant, as follows: • • • • We performed an audit of the financial information using component materiality (full-scope audit procedures) on the financial statements of the components determined to be significant; specifically, RUA Life Sciences plc and RUA Medical Devices Ltd, the only trading subsidiary. At the Group level we also tested the consolidation process and carried out analytical procedures on the financial information of the remaining four dormant subsidiaries to obtain assurance that there were no significant risks of material misstatement of the aggregated financial information of those remaining components. At the Group level we performed an evaluation of the group’s internal control environment, including its IT systems and controls. We identified impairment of goodwill and other intangible assets and impairment of investments in subsidiaries as key audit matters and the procedures performed in respect of these have been included in the key audit matters section of our report. Performance of our audit • • • All audit procedures were performed by the Group engagement team, there were no component auditors involved in the performance of the audit. The audit was performed partly on site and partly remote. We have tailored our audit response accordingly with all audit work undertaken by the Group engagement team. In assessing the risk of material misstatement of the Group financial statements, we considered the transactions undertaken by each entity and therefore where the focus of our work was required. Changes in approach from previous period • Our overall scope of the audit has not changed from the prior year. Audit approach No. of components % coverage total assets % coverage revenue % coverage LBT Full-scope audit Analytical procedures 2 4 100 - 100 - 100 - 50 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS OTHER INFORMATION The other information comprises the information included in the Annual Report and Accounts for the year to 31 March 2023, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the Annual Report and Accounts for the year to 31 March 2023. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED In our opinion, based on the work undertaken in the course of the audit: • • the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements. MATTER ON WHICH WE ARE REQUIRED TO REPORT UNDER THE COMPANIES ACT 2006 In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the report of the directors. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. RESPONSIBILITIES OF DIRECTORS As explained more fully in the directors’ responsibilities statement set out on page 42, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Annual Report & Accounts 2023 51 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (CONTINUED) AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below: • • We obtained an understanding of the legal and regulatory frameworks applicable to the parent company and the Group and the industry in which they operate through our general commercial and sector experience. We determined that the following laws and regulations were most significant: UK-adopted international accounting standards, the Companies Act 2006, the AIM Rules for Companies, the Quoted Companies Alliance Corporate Governance Code and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial statements, including regulations related to the manufacture, distribution and use of medical materials and products by relevant authorities in certain jurisdictions. We obtained an understanding of the applicable legal and regulatory frameworks and how the parent company and the Group are complying with those legal and regulatory frameworks by making enquiries of management, those responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through an inspection of board meeting minutes and legal and professional fees incurred during the year. We enquired of management and the Audit Committee whether they had knowledge of actual, suspected or alleged fraud. We enquired of management and the Audit Committee whether they were aware of any instances of non- compliance with laws and regulations. • We assessed the susceptibility of the parent company’s and the Group’s financial statements to material misstatement, including how fraud might occur by evaluating management’s incentives and opportunities for manipulation of the financial statements. Audit procedures performed by the engagement team included: - identifying and assessing the design and implementation of controls management has in place to prevent and detect fraud; - challenging assumptions and judgements made by management in making its significant accounting estimates; - identifying and testing journal entries, in particular any large or unusual journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements; and - completing audit procedures to conclude on the compliance of disclosures in the Annual Report and Accounts with applicable financial reporting requirements. • These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error, as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely we would become aware of it; • The engagement partner’s assessment of the appropriateness of the collective competence and capabilities of the engagement team included consideration of the team’s: - Understanding of, and practical experience with, audit engagements of a similar nature and complexity, through appropriate training and participation; - Knowledge of the industry in which the Group and parent company operate; and - Understanding of the legal and regulatory requirements applicable to the Group and parent company. 52 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS • The communications within the engagement team in respect of non-compliance with laws and regulations and fraud included the potential for fraud in revenue recognition through manual journal entries and also through areas of key estimation or where management judgement is required; • In assessing the potential risk of material misstatement, we obtained an understanding of: - The operations of the Group and parent company, including its revenue streams and objectives, in order to understand the classes of transactions, account balances, expected disclosures and risk areas that were most susceptible to material misstatement; and - The Group and parent company’s control environment, including the adequacy of the controls in place to mitigate the risks identified. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. James Andersen Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Glasgow Date Annual Report & Accounts 2023 53 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT Revenue Cost of sales Gross profit Other income Administrative expenses Operating loss Net finance expense Loss before taxation Taxation Loss from continuing operations attributable to owners of the parent company Loss attributable to owners of the parent company Loss per share Basic & Diluted (GB Pence per share) Year ended 31 March 2023 GB£000 Year ended 31 March 2022 GB£000 Notes 2,179 (388) 1,791 72 (4,169) (2,306) (16) (2,322) 319 (2,003) (2,003) 1,625 (267) 1,358 66 (3,776) (2,352) (8) (2,360) 293 (2,067) (2,067) (9.03) (9.32) 5 7 8 9 The notes on pages 58 to 82 form part of these financial statements. There was no other comprehensive income for 2023 (2022: £Nil). 54 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION Assets Non current assets Goodwill Other intangible assets Property, plant and equipment Total non current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity & liabilities Equity Issued capital Share premium Other reserve Capital redemption reserve Profit and loss account Total equity attributable to equity holders of the parent Liabilities Non–current liabilities Borrowings Lease liabilities Deferred tax Other liabilities Total non–current liabilities Current liabilities Borrowings Lease liabilities Trade and other payables Other liabilities Total current liabilities Total liabilities Total equity and liabilities Year ended 31 March 2023 GB£000 Year ended 31 March 2022 GB£000 Notes 10 11 12 14 15 16 17 17 18 18/19 20 21 18 18/19 21 301 470 2,739 3,510 2,407 81 588 1,484 2,153 5,663 1,109 11,729 (1,450) 11,840 (18,545) 4,683 165 200 85 116 566 29 81 255 49 414 980 5,663 301 521 2,597 3,419 4,207 124 1,120 2,963 4,207 7,626 1,109 11,729 (1,552) 11,840 (16,542) 6,584 199 83 75 174 531 23 39 410 39 511 1,042 7,626 The consolidated financial statements were approved by the Board on 25 July 2023 and were signed on its behalf by W Brown, Chairman L Smith, Group CFO Company number SC170071 The notes on pages 58 to 82 form part of these financial statements. Annual Report & Accounts 2023 55 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT Cash flows from operating activities Group loss after tax Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment Share–based payments Interest expense Tax credit in year Decrease / (Increase) in trade and other receivables Decrease / (Increase) in inventories Taxation received Decrease in trade and other payables Net cash flow from operating activities Cash flows from investing activities Purchase of property plant and equipment Interest paid Net cash flow from investing activities Cash flows from financing activities Proceeds from borrowing Repayment of borrowings and leasing liabilities Net cash flow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year The notes on pages 58 to 82 form part of these financial statements. Year ended 31 March 2023 GB£000 Year ended 31 March 2022 GB£000 (2,003) (2,067) 51 307 102 16 (319) 327 43 533 (203) (1,146) (449) (28) (477) 229 (97) 132 (1,491) 2,963 12 1,484 53 259 145 17 (293) (53) (39) 87 (453) (2,353) (904) (8) (912) – (66) (66) (3,331) 6,294 – 2,963 56 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Issued share capital GB£000 Share premium GB£000 Other reserve GB£000 Capital redemption reserve GB£000 Balance at 31 March 2021 12,949 11,729 (1,697) Share–based payments Buyback of deferred shares Transactions with owners – (11,840) (11,840) Total comprehensive loss for the year – – – – – 145 – 145 – – – 11,840 11,840 Profit and loss account GB£000 (14,475) – – – Total equity GB£000 8,506 145 145 – (2,067) (2,067) Balance at 31 March 2022 1,109 11,729 (1,552) 11,840 (16,542) 6,584 Share–based payments Transactions with owners Total comprehensive loss for the year – – – – – – 102 102 – – – – – – 102 102 (2,003) (2,003) Balance at 31 March 2023 1,109 11,729 (1,450) 11,840 (18,545) 4,683 The notes on pages 58 to 82 form part of these financial statements. Annual Report & Accounts 2023 57 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION General information RUA Life Sciences plc is the ultimate parent company of the Group, whose principal activities comprise exploiting the value of its IP & know–how, medical device contract manufacturing and development of cardiovascular devices. RUA Life Sciences plc is incorporated and domiciled in the UK and its registered office is c/o Davidson Chalmers Stewart LLP, 163 Bath Street, Glasgow, G2 4SQ. Basis of preparation The Consolidated financial statements are for the year ended 31 March 2023. They have been prepared in compliance with UK–adopted International Accounting Standards. The Consolidated financial statements have been prepared under the historical cost convention, with the exception of fair value adjustments made in connection with the acquisition of RUA Medical. The accounting policies remain unchanged from the previous year. Going concern The Board has to consider that the Going Concern principle is appropriate for the preparation of these accounts. At 31 March 2023, the Group had cash and cash equivalents of £1.48m (2022: £2.96m) and, as at the date of signing these Financial Statements, the cash balance was £0.9m. RUA Life Sciences has two cash-generative units (RUA Biomaterials and RUA Contract Manufacture). These cash- generating units provide a healthy Gross Margin (89% and 49%), and contributions to Group operating loss were £493,000 and £794,000. The Group has two cash-consuming units (RUA Vascular and RUA Structural Heart), and both these units require further investment before commercialisation and cash generation can be achieved. The investment will chiefly be for a GLP animal study and Human Clinical Trials for RUA Vascular. The Board anticipates the requirement for additional funding over the course of the financial year as the internal cash generation will not cover the additional investment required. The Board has considered the current cash position, reviewed budgets and profit and cash flow forecasts over the going concern period (to October 2024) along with sensitivity analyses and made appropriate enquiries. The Board has concluded that further financing is required and has taken advice from the Company’s Nomad and Broker on the current state of the equity market and the chances of a successful fundraise. The Board has formed a judgement at the time of approving the financial statements that the Group will have access to adequate resources, including new financing, to continue in operational existence for the period of the going concern assessment. If finance is not successful, which management see as unlikely, management have a number of mitigating actions which can be taken. There is a level of uncertainty around the ability of management to implement the mitigations during the going concern period, for this reason management have concluded a material uncertainty is appropriate. For this reason, the Board considers that the adoption of the going concern basis in preparing the consolidated financial statements is appropriate. The Financial Statements have been prepared on a going concern basis and do not include the adjustments that would result if the Group was unable to continue as a going concern. Due to the factors described above, specifically the uncertainty around the ability to raise new financing and the ability to implement mitigating actions, a material uncertainty exists, which may cast significant doubt on the Group and the Company’s ability to continue as a going concern. Changes in accounting policies Standards, amendments and interpretations to existing standards that are not yet effective At the date of authorisation of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. None of these new standards, amendments and interpretations, based on an initial analysis are expected to have a significant impact on the Group’s financial statements based on current agreements in place and activity. 58 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES 2.1 Basis of consolidation The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre–existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value to the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are considered. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Inter–company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Where considered appropriate, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. 2.2 Revenue IFRS 15 “Revenue from Contracts with Customers” establishes a principles-based approach to recognising revenue only when performance obligations are satisfied, and control of the related goods or services is transferred. It addresses items such as the nature, amount, timing and uncertainty of revenue, and cash flows arising from contracts with customers. IFRS 15 applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers except those in the scope of other standards. • Step 1 – Identify the contract(s) with a customer • Step 2 – Identify the performance obligations in the contract • Step 3 – Determine the transaction price • Step 4 – Allocate the transaction price to the performance obligations in the contract • Step 5 – Recognise revenue when (or as) the entity satisfies a performance obligation The Group principally satisfies its performance obligations at a point in time. Ad hoc revenue is recognised relating to performance obligations satisfied over time. Therefore, the accounting for revenue under IFRS 15 does not represent a substantive change for recognising revenue from sales to customers. Revenue is recognised either at a point in time when control passes to the customer or over time as the Group satisfies performance obligations by transferring the promised good or services and depending on the nature of the goods or service being provided. Annual Report & Accounts 2023 59 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer, excluding VAT and trade discounts, as follows: (a) Royalty revenues: Royalty revenues are recognised as earned in accordance with returns and notifications received from customers. In the event that subsequent adjustments to royalties are identified they are recognised in the period in which they are identified. (b) Contract Manufacture: Income from contract manufacture sales are generally recognised at the date of dispatch unless contractual terms with customers state that risk and title pass on delivery of goods, in which case revenue is recognised on delivery. For income derived from custom products that may entail engineering, revenue is recognised as performance obligations are satisfied over time. 2.3 Defined contribution pension plans Payments to defined contribution pension plans are recognised as an expense when employees have rendered services entitling them to the contributions. 2.4 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using actual costing techniques. The cost of finished goods comprises raw materials, third party manufacturing costs and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. In arriving at net realisable value, provision is made for any obsolete or damaged inventories. 2.5 Interest Interest income is the interest earned on cash or cash equivalents held with the Group’s bankers and recognised within the period earned, accrued on a time basis by reference to the principal outstanding and at the effective rate applicable. 2.6 Intangible assets Intangible assets are stated at historic cost or capitalised at fair value at time of acquisition, less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis over the deemed useful life of an asset and is applied to the cost less any residual value. The asset classes are amortised on a straight-line basis over the following periods: Patents and Trademarks - 20 years Know how - 5 years Customer related - 5 years (upon asset being available to be utilised/exploited) Technology Related - 10 years Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. 2.7 Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in profit or loss. The gain or loss arising from the sale or revaluation of held for sale assets is included in “other income” or “other expense” in the Consolidated income statement. 60 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) 2.8 Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash–generating units). As a result some assets are tested individually for impairment and some are tested at a cash–generating unit level. Goodwill is allocated to those cash– generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within the group at which management monitors goodwill. Individual assets or cash–generating units that include goodwill or intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash–generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets or cash–generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. 2.9 Property, plant and equipment Property, plant and equipment is stated at historical cost, less accumulated depreciation. The Group has entered into a number of Plant and Machinery and leaseback arrangements for which the associated right-of-use assets are classified as Plant and Machinery (Leased). Plant and Machinery (Leased) is measured at cost, less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of the Plant and Machinery (Leased) includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the Consolidated Income Statement. Depreciation is provided at annual rates calculated to write off the cost less residual value of each asset over its expected useful life as follows: Land & buildings - Land & buildings – 50 years - Property improvements – 20% reducing balance Plant & Machinery – Plant & Machinery - 10 years – Plant & Machinery (Leased) - 10 years Office equipment - Office equipment – 15% reducing balance - Computer equipment – 3-4 years The directors consider the value of land included within land & buildings to be insignificant. 2.10 Financial assets Financial assets held by the group comprise cash, loans and receivables. Financial assets are assigned to a category by management on initial recognition, depending on the purpose for which they were acquired. The Group has adopted the simplified model for trade receivables allowable under IFRS 9 “Financial Instruments”. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade receivables are measured at transaction price with all other Financial assets initially recognised at fair value plus transaction costs. Annual Report & Accounts 2023 61 CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Financial assets are measured at amortised cost when both of the following conditions are met: • • The financial asset is held within the business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specific dates to cash flows that are solely payments of principal and interest on the principal amount owing. The Group has a relatively small number of customers and therefore the assessment of impairment of trade receivables is done on a customer–by–customer basis, based on historical impairments and cash collection history, as well as a review of lifetime expected credit losses that are estimated based on historical loss rates for the relevant country where the customer is domiciled, adjusted where evidence is available that different rates are likely to apply in the future. This is based on changes to the expected insolvency rates in the relevant countries. An assessment for impairment is undertaken at least at each date of the statement of financial position. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. Cash and cash equivalents comprise cash on hand and demand deposits together with other short–term, highly liquid investments that are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value. 2.11 Financial liabilities Financial liabilities fall into the following category: Financial liabilities at amortised cost. Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Financial liabilities at amortised cost (trade payables and accruals) are subsequently recorded at amortised cost using the effective interest method, with interest related charges recognised as an expense in finance cost in the income statement. Finance charges are charged to the income statement on an accrual’s basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 2.12 Taxation Current tax is the tax currently payable based on taxable profit for the accounting period. Deferred taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. 62 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. Tax which relates to items recognised in other comprehensive income is recognised in other comprehensive income. 2.13 R&D Tax Credits R&D tax credits are recognised once the R&D tax credits have been calculated and the tax return for the relevant year submitted to HMRC. 2.14 Equity Equity comprises the following: • • • “Issued capital” represents the nominal value of equity shares. “Share premium” represents the excess over nominal value of the fair value of cash consideration received for equity shares, net of expenses of the share issue. “Other reserve” represents the difference arising on consolidation between the nominal value of RUA Life Sciences Plc shares issued (£3,206,884) and the nominal value of RUA Biomaterials Ltd (formerly AorTech Europe Ltd) shares acquired (£1,001,884) and the associated share premium account (£201,857) in the company. This acquisition was prior to the transition to IFRS. Also included in other reserve is the credit entry when recognising Share Based Payment expense. • • “Profit and loss account” represents retained profits and losses. “Capital redemption reserve” represents the difference arising between the nominal value of the shares and the proceeds of the fresh issue of shares on the company buy back of its deferred shares during the 2022 financial year. 2.15 Share-based Payments Share options The Group operates Share Option Plans for its employees and directors. All employee services received in exchange for the grant of any share–based compensation are measured at their fair values. The fair value is appraised at the grant date and excludes the impact of any non–market vesting conditions (e.g. profitability and remaining an employee of the Company over a specified time period). Share based compensation is recognised as an expense in the Consolidated income statement with a corresponding credit to equity. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non–market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised. The grant of any share–based payment is measured at its fair value using the Black Scholes Option Pricing Model (BSOPM). The fair value of the share options is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share–based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium. Annual Report & Accounts 2023 63 CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) 2.16 Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency) which is the UK on the basis of where the cost base of the business is. The Company’s functional currency is Sterling and the Group’s presentational currency is Sterling. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non–monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non–monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in profit or loss in the period in which they arise. Exchange differences on non–monetary items are recognised in other comprehensive income to the extent that they relate to a gain or loss on that non–monetary item taken to other comprehensive income, otherwise such gains and losses are recognised in profit or loss. 2.17 Grant Income Government grants are recognised at their fair value in the Consolidated income statement within Other income over the same period as the costs to which the grants relate, and is only recognised when there is reasonable assurance that the performance conditions attaching to the grant are met. 2.18 Leases Any contract entered into, which contains an identified asset, whose use the Group has the right to direct throughout the period of the lease, and the right to obtain substantially all of the economic benefits from, is accounted for as a lease. At the lease commencement date, the Group recognises a right–of–use leased asset and a lease liability on the balance sheet. The lease liability is measured at the present value of the total lease payments due, discounted using the interest rate implicit in the lease if readily available, or at the Group’s incremental borrowing rate. The right–of–use asset is measured at cost, being the lease liability, plus any initial direct costs incurred by the Group, or lease payments made in advance of the commencement date. Right–of–use assets are depreciated on a straight–line basis to the end of the lease term. The Group assesses the right–of–use asset for impairment when such indicators exist. Lease liabilities are remeasured to reflect any reassessment or modification of the lease – when the lease liability is remeasured, the corresponding adjustment is reflected in the right–of–use leased asset, or in the Consolidated Statement of Comprehensive Income if the asset is already reduced to zero. 2.19 Use of accounting estimates and judgements The preparation of the Group financial statements in conformity with IFRSs requires Management to make estimates assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the year. Actual results may vary from the estimates used to produce these financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Key judgements are as follows: Research and development IAS 38 Intangible Assets requires management to differentiate between research and the development phase of R&D activities and their related costs. In accordance with IAS 38, an intangible asset arising from development shall be recognised if, and only, if, an entity can demonstrate certain criteria. The Board continually monitor its activities against the prescribed criteria to determine the point in which the Group would enter the development phase of its activities. The Group is currently in the phases of formulation, design and evaluation of its products and therefore management are confident that the relevant projects are in the research phase. As a result, any expenditure arising from R&D activities are expensed in the Consolidated income statement. 64 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Deferred taxation The Group has accumulated tax losses of £18,525 million (2022: £16,543 million). IAS 12 requires that a deferred tax asset relating to unused tax losses is carried forward to the extent that future taxable profits will be available. The company is in an investment phase, expecting to have increased expenditure on R&D and business development over the next three years which will increase the tax losses. After the investment period the Board expects the Company to generate healthy profits but it is difficult at this stage to reliably estimate the period over which profits may arise in the future. The Board has therefore determined to not recognise the asset at the reporting date. This approach does not affect the future availability of the tax losses for offset against future profits. Impairment In carrying out impairment reviews of intangible assets and goodwill, a number of significant assumptions have to be made when preparing cash flow projections. Sources of estimation uncertainty: a) Impairment: In carrying out impairment reviews, a number of significant assumptions have to be made when preparing cashflow projections to determine the value in use of the asset or cash-generating unit (CGU). These include the success and timing of regulatory approval for the vascular graft range, future rate of market growth, discount rates, the market demand for the products acquired and the future profitability of acquired businesses or products. If actual results differ or changes in expectations arise, impairment charges may be required which would adversely impact the statutory results. Further information, can be found in notes 10 and 11. b) Estimates as to fair value of share–based payments and the likelihood of vesting (see note 2.15). c) Estimates as to the inputs to the share option valuation models underlying the share-based payment charge, as disclosed in Note 6. 3. SEGMENTAL REPORTING The principal activity of the RUA Life Sciences Group comprises exploiting the value of its IP & know–how, medical device contract manufacturing and development of cardiovascular devices. Following the acquisition of RUA Medical Devices Ltd and an internal organisation and reporting review, the Board has decided the business will report by business unit segments, namely royalty and license income (Biomaterials), Contract Manufacture, product development (Vascular) and product innovation (Structural Heart), rather than trading entities, which is consistent with both how the business will be managed and reported internally in the future. The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Chief Operating Decision Maker (considered to be the executive chairman of the board) to assess performance and make strategic decisions about the allocation of resources. A brief description of the segments of the business is as follows: • Biomaterials – Licensor of Elast–Eon polymers to the medical device industry. • Contract Manufacture – End–to–end contract developer and manufacturer of medical devices and implantable fabric specialist. • Vascular – Development and commercialisation of the Group’s Elast–Eon sealed Vascular Graft products. • Structural Heart – Development of the Group’s tri leaflet polymeric heart valves. Operating results which cannot be allocated to an individual segment are recorded as central and unallocated. Annual Report & Accounts 2023 65 CONSOLIDATED FINANCIAL STATEMENTS 3. SEGMENTAL REPORTING (CONTINUED) Segment Analysis 2023 Consolidated group revenues from external customers Contributions to group operating loss Depreciation Amortisation of intangible assets Segment assets Segment liabilities Intangible assets – goodwill Other intangible assets Additions to non–current assets Segment Analysis 2022 Consolidated group revenues from external customers Contributions to group operating loss Depreciation Amortisation of intangible assets Segment assets Segment liabilities Intangible assets – goodwill Other intangible assets Additions to non–current assets 554 493 – – 487 418 – – Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 1,625 – – – 2,179 (1,201) (488) (1,905) (2,307) 794 139 43 93 – 305 1,406 1,268 – – – – 165 301 259 – 632 – 139 433 16 – 156 31 – – – 59 8 2,528 152 – 72 16 307 51 5,663 980 301 470 449 Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 1,138 – – – 1,625 (1,083) (492) (1,642) (2,352) 447 135 43 68 – 294 1,735 1,099 – – – – 184 301 302 17 410 – 139 345 8 – 173 30 – – 156 48 11 4,325 418 – 79 387 259 54 7,626 1,042 301 520 905 Restatement of Segment Analysis to 31 March 2022 is as follows: The Group’s revenue for 2023 is segmented as follows: Analysis of revenue by income stream Contract Design & Manufacture of Medical Devices Royalty revenue Total Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 – 554 554 1,625 – 1,625 – – – – – – – – – 1,625 554 2,179 66 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 3. SEGMENTAL REPORTING (CONTINUED) Analysis of revenue by geographical location Switzerland UK Italy USA Israel Total Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 168 – – 338 48 554 – (1) 15 1,611 – 1,625 – – – – – – – – – – – – – – – – – – 168 (1) 15 1,949 48 2,179 Restatement of Analysis of revenue by income stream to 31 March 2022 is as follows: Analysis of revenue by income stream Contract Design & Manufacture of Medical Devices Royalty revenue Total Analysis of revenue by geographical location Switzerland UK Italy USA Israel Total Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 – 487 487 1,138 – 1,138 – – – – – – – – – 1,128 487 1,625 Biomaterials GB£000 Contract Manufacture GB£000 Vascular GB£000 Structural Heart GB£000 Central and unallocated GB£000 Total GB£000 148 – – 285 54 487 – 21 23 1,094 – 1,138 – – – – – – – – – – – – – – – – – – 148 21 23 1,379 54 1,625 The operating loss of £2,306,000 (2022: £2,352,000), and loss on continuing operations before taxation of £2,322,000 (2022: £2,360,000) is all derived from the United Kingdom. All of the Group’s non–current assets are held in the United Kingdom. The Group receives more than 10% of its revenue from a single customer. Revenues from one customer of the Group’s royalty revenue represents 16% of the Group’s total revenues (2022: 1 customer, 18%). Revenues from one customer of the Group’s Contract Manufacturing revenue segment represents 67% of the Group’s total revenues (2022: 67%). Annual Report & Accounts 2023 67 CONSOLIDATED FINANCIAL STATEMENTS 4. EMPLOYEES The average monthly number of persons (including Directors) employed by the Group during the year was: Directors Administration/Management Production & Medical Textiles Research & Development Quality The aggregate remuneration, including Directors, comprised: Wages and salaries Social security costs Pension contributions Share based payment (credit)/expenses (note 6) Total costs Directors’ remuneration comprised: Emoluments for qualifying services 2023 Numbers 2022 Numbers 8 6 19 9 6 48 2023 GB£000 2,018 221 116 102 2,457 1,027 6 10 10 7 5 38 2022 GB£000 1,708 181 86 145 2,120 805 The key management personnel whose remuneration is included in the table above for the current year comprise five Executive and three Non–Executive Directors. Please see the Report of the Remuneration Committee on page 38 for full details of Directors’ emoluments. The highest paid Director’s total emoluments were £296,580 (2022: £301,345). The Company made contributions of £64,958 (2022: £45,084) into Directors pensions in the year ended 31 March 2023. The number of directors who received pension contributions was 4 (2022: 3). 68 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 2023 Total GB£000 2022 Total GB£000 23 140 402 67 63 379 1,072 1,527 41 102 358 (5) 9 159 497 290 87 254 911 1,075 33 145 313 3 4,169 3,776 5. EXPENSE BY NATURE The administrative expenses charge by nature is as follows: Advertising, conferences and exhibitions IT, telecoms and office costs Legal, professional and consultancy fees Other expenses Patent and IP costs Premises and establishment costs Research and development costs Staff costs, recruitment and other HR Travelling, subsistence and entertaining Share–based payment expense (Note 6) Depreciation & Amortisation charge (Note 11/12) Bad debt expense Total administrative expenses 6. SHARE–BASED PAYMENTS Director and Employee Share Option Plans The Group established a Share Option Plan, as an approved EMI plan, in June 2018 for the benefit of senior executives (including Executive directors) and in December 2019 established a Share Option Plan, as an unapproved plan, for the benefit of Non–Executive Directors. Share options are granted under these plans to Directors to encourage them to deliver sustained, long-term growth. Under the plans, participants are granted options which only vest if certain performance standards are met. Participation in the plans is at the discretion of the board and no individual has a contractual right to participate in the plans or to receive any guaranteed benefits. The amount of options that will vest depends on the following performance conditions being satisfied: • After the expiry of the period 3 years from the date of grant, 20% • On receipt by the Company of a CE Mark or FDA approval (this change having recently been approved by the Board, in order to address an inconsistency between options granted under the EMI and the unapproved plan, with the EMI scheme previously quoting CE Mark approval only) for any of its products, 30% and • On the closing middle market quotation of the Company’s ordinary shares as derived from AIM Appendix to the Daily Official List of the London Stock Exchange being at least £3.00 for 10 consecutive days on which trading takes place on the AIM Market of the London Stock Exchange, 50%. A number of EMI options were granted in February 2021 to employees of RUA Medical Devices Limited, with the same vesting terms as those stated above. A number of EMI options were granted in December 2022 to directors of RUA Life Sciences, with the vesting terms stated below. The fair value of the options granted is reflected as share–based payment in the Consolidated income statement of the group, and credited to other reserves. Annual Report & Accounts 2023 69 CONSOLIDATED FINANCIAL STATEMENTS 6. SHARE–BASED PAYMENTS (CONTINUED) The amount of options that will vest depends on the following performance conditions being satisfied: • As to 50% of the Option Shares (the “Total Return Option Shares”), on any day when the Company has achieved a total return for its shareholders (in percentage terms) in the period from the Grant Date at least equal to the median total shareholder return of the constituents of the FTSE AIM Index (in percentage terms) (the “Minimum Return”) over the same period, PROVIDED THAT, where the Minimum Return on that day is less than a compound total shareholder return of 50% per annum over the same period • As to the other 50% of the Option Shares, upon the Company achieving both of the following strategic objectives, the Company having achieved regulatory approval for at least one medical device; and the Company continuing to commercially exploit one of such approved devices. All share options lapse on the tenth anniversary of the date of grant unless exercised and if no event occurs to cause it to lapse earlier in accordance with the scheme rules. The exercise price for each option share granted is as follows: 2019 – £0.300 2020 – £0.925 2021 – £1.550 2023 – £0.445 Summary of number options granted under the plans: Options at start of financial year Granted during the year Exercised or lapsed during the year Options at the end of the financial year 2023 2022 2,160,603 2,280,603 240,000 – (120,000) (120,000) 2,280,603 2,160,603 The 120,000 Options lapsed in the year relate to Options granted in FY21 to Eilidh Callan, Alan Hamilton and Matthew Litton who have left the group. Fair Value of options granted The assessed fair value at the grant date of the various options granted have been determined using the Black Scholes Option Pricing Model (‘BSOPM’), with the results as follows: Year of Grant FY2020 FY2021 FY2023 Fair Value £0.78 £1.40 £0.39 The BSOPM takes into account the exercise price, the term of the option, the impact of dilution (where material), the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk– free interest rate for the term of the option. 70 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 6. SHARE–BASED PAYMENTS (CONTINUED) The inputs into the Black-Scholes models for the options granted were as follows: Share price at date of grant Exercise price Fair value at date of grant Expected volatility Expected life Risk-free rate Expected dividends 2023 £0.470 £0.445 £0.390 78.02% 2021 £1.705 £1.550 £1.400 81.82% 2020 £0.985 £0.925 £0.780 75.84% 2019 £0.400 £0.300 £0.330 75.84% 10 years 10 years 10 years 10 years 3.35% Nil 0.54% Nil 1.10% Nil 1.52% Nil 7. LOSS BEFORE TAXATION Loss before taxation has been arrived at after charging : Foreign exchange differences Depreciation of property, plant and equipment Amortisation of intangible assets Employee benefits expense: Employee costs (Note 4) Audit and non–audit services: Audit of the Accounts of the Group 8. INCOME TAX EXPENSE 2023 GB£000 2022 GB£000 (12) 290 51 (11) 259 54 2,457 2,120 94 68 The tax assessed for the year differs from the standard rate of corporation tax as applied in the respective trading domains where the Group operates. The differences are explained below: Loss for the year before tax Loss for year multiplied by the respective standard rate of corporation tax applicable (19%) Fixed asset differences Expenses not deductible for tax purposes Income not taxable for tax purposes Adjustment to tax charge in respect of previous periods* Movement in deferred tax not recognised** Actual tax credit 2023 GB£000 (2,323) (441) 5 33 (2) (329) 425 (319) 2022 GB£000 (2,360) (448) (34) 16 (1) (207) 381 (293) Annual Report & Accounts 2023 71 CONSOLIDATED FINANCIAL STATEMENTS 2023 GB£000 2022 GB£000 Current tax: Adjustment in respect of prior periods (329) (205) Deferred tax: Origination and reversal of temporary differences Adjustment in respect of prior periods Effect of tax rate change on opening balance Tax credit per Consolidated Income Statement 10 – – (293) (116) (2) 30 (293) Unrelieved tax losses remain available to offset against future taxable profits. These losses have not been recognised as deferred tax assets within the financial statements as there is a lack of certainty regarding the timing and scale of future profits to allow the losses to be utilised. Losses carried forward in the UK total £9,743,000 – the tax effect after taking account of losses offset against unrecognised fixed asset temporary differences as per note 20 is £2,251,000 (2022 – £8,558,000 – tax effect £1,851,000). An unprovided deferred tax asset in respect of share options totals £130,000 (2022: £5,104,000). The increase to the rate of corporation tax from 19% to 25% was announced in the March 2021 budget and substantively enacted on 24 May 2021, and therefore 25% was the prevailing rate at the balance sheet date. The effective rate of tax is 13.7%. *This relates to R&D tax relief. ** In the prior year this line was disaggregated, this has been updated in the current year to make it clearer to the reader on the financial statements what the items relate to. 9. LOSS PER SHARE Loss for the year attributable to equity shareholders Basic and diluted loss per share From continuing operations attributable to ordinary equity holders of the company (GB pence per share) Weighted average number of shares Issued ordinary shares at start of the year Issued ordinary shares at end of the year Weighted average number of shares in issue for the year (used for calculating basic loss per share) 2023 GB£000 (2,003) 2022 GB£000 (2,067) (9.03) (9.32) 22,184,798 22,184,797 22,184,798 22,184,798 22,184,798 22,184,798 10. GOODWILL The Goodwill arising on the acquisition of RUA Medical Devices Limited and is attributable to the Contract Manufacturing CGU, is as follows: Gross carrying amount Balance at 31 March 2022 Impairment Balance at 31 March 2023 72 RUA Life Sciences plc 2023 GB£000 301 – 301 CONSOLIDATED FINANCIAL STATEMENTS 10. GOODWILL (CONTINUED) Impairment review An impairment review of the Group’s intangible and tangible non–current assets was conducted at 31 March 2023. Impairment tests are mandatory for CGUs containing goodwill acquired in a business combination. Impairment tests for other CGUs are carried out when an indication of impairment is considered to exist. Goodwill relates to the acquisition of RUA Medical Devices Ltd, which was acquired by the Group in the year ending 31 March 2021. For the purpose of annual impairment testing, goodwill is allocated to RUA Contract Manufacture which is a single cash generating unit and is compared to its recoverable amount and we are satisfied that no impairment is required. The recoverable amount has been based on value in use, by reference to the budgets and projected cash flows for the CGU over a five–year period. Revenue growth rates average 24.9% over the five-year forecast, reflecting revenue from new contracts for medical device manufacturing as outlined in the Chairman’s statement, with future cash flows discounted at a rate of 16.2% (2022: 16.2%) referencing the discount rate used for the independent valuation of the intangibles at acquisition. Cash flows beyond the five–year period are extrapolated using a 2.0% growth rate. Impairment calculations are sensitive to changes in the assumptions around trading performance and discount rate. Reasonable sensitivities have been applied to these assumptions as two separate scenarios, being 1. Scenario 1 1.1. An increase in the discount rate of 10.8 percentage points and 1.2. increase in working capital requirements by 3 percentage points 2. Scenario 2 2.1. A shortfall in revenue of 50% against a failure to onboard additional forecasted manufacturing contracts 2.2. No movement in working capital requirements and 2.3. A reduced discount rate of 11.5% In both scenarios there remained significant headroom against the carrying value of the goodwill held. Annual Report & Accounts 2023 73 CONSOLIDATED FINANCIAL STATEMENTS 11. OTHER INTANGIBLE ASSETS Development costs GB£000 Intellectual property GB£000 Customer Related (CM) GB£000 Technology Based (CM) GB£000 Total GB£000 Gross carrying amount At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Amortisation and impairment At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2022 At 31 March 2023 337 – 337 – 337 334 3 337 – 337 – – 3,325 – 3,325 – 3,325 3,099 7 3,106 8 3,114 219 211 247 – 247 – 247 29 29 58 29 87 189 160 141 – 141 – 141 14 14 28 14 42 113 99 4,050 – 4,050 – 4,050 3,476 53 3,529 51 3,580 521 470 (1) Intellectual Property: Intellectual property includes patents and trademarks which are amortised on a straight line basis over their useful economic lives of 20 years, The carryingvalue of patents and trademarks within at 31 March 2023 is £80,000 (2022: £88,000). The amortisation charge for the period is £8,000 (2022: £7,000) and the cumulative amortisation is £3,114,000 (2022: £3,106,000). Know-how relating to the RUA Vascular CGU is also included under Intellectual Property at cost and will be amortised over 5 years from the commencement of revenue derived from the sale of devices following the exploitation of the know-how. The carrying valueof know how held in intellectual property at 31 March 2023 is £139,000 (2022: £139,000). The Group has yet to commercialise the intangible asset and has therefore not incurred any amortisation. The Know How allocated to RUA Vascular as a cash generating unit is subject to annual impairment testing until such time as revenues commence and then amortised over 5 years. The recoverable amount has been based on value in use, by reference to the budgets and projected cash flows for the CGU over a five-year period. Commercial revenues are expected to commence in FY 2027 with YOY growth to FY 2028 estimated at 86%, with future cash flows discounted at a rate of 20% to reflect the risk profile. Working capital requirements are estimated at 4%. Cash flows beyond the five-year period are extrapolated using a 2% growth rate. Impairment calculations are sensitive to changes in the assumptions around trading performance and discount rate. Reasonable sensitivities have been applied to these assumptions as two separate scenarios, being Reasonable sensitivities have been applied to these assumptions as two separate scenarios, in both scenarios there remained significant headroom against the carrying value of the intangible asset held. 74 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 11. OTHER INTANGIBLE ASSETS (CONTINUED) The Directors have considered the sensitivity of the key assumptions, including the discount rate, and have concluded that any possible changes that may be reasonably contemplated in these key assumptions would not result in the value in use falling below the carrying value of goodwill, intangibles and plant, property and equipment, given the headroom available. The directors believe the only indication to impairment would be derived from failure to achieve FDA clearance. The following intangible assets were recognised on acquisition of RUA Medical Devices Ltd and are allocated to the contract Manufacturing CGU (2) Customer Related The excess earnings approach was used to value this intangible asset on acquisition of RUA Medical Devices Ltd, with the value of the contract being the sum of the present value of projected cash flow in excess of returns on contributory assets over the lives of the relationship. Customer related intangible assets are amortised over 8.5 years (3) Technology based The Group’s technology-based asset was valued on acquisition of RUA Medical devcies Ltd by means of the royalty savings (relief from royalty) method of the income approach. Under the premise, it is assumed that a company, without a similar intangible asset would license the right to use technology, and pay a royalty related to turnover achieved in this industry. Technology based intangible assets are amortised over 10 years. See impairment section of Goodwill note 10 for impairment considerations for other intangible assets, including the intangible asset held within intellectual property associated with RUA Contract Manufacturing. 12. PROPERTY, PLANT AND EQUIPMENT Land & Buildings GB£000 Assets Under Construction GB£000 Plant & Machinery GB£000 Office Equipment GB£000 Motor Vehicles GB£000 Total GB£000 Cost At 31 March 2021 Additions for the year Disposals At 31 March 2022 Additions for the year At 31 March 2023 Depreciation At 31 March 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2022 At 31 March 2023 944 391 – 1,335 – 1,335 58 62 120 60 180 1,215 1,155 – – – – 142 142 – – – – – 142 1,114 500 – 1,614 291 1,905 112 175 287 222 509 1,327 1,396 63 16 – 79 16 95 18 15 33 17 50 46 45 28 – (3) 25 – 25 9 7 16 8 24 9 1 2,149 907 (3) 3,053 449 3,502 197 259 456 307 763 2,597 2,739 Annual Report & Accounts 2023 75 CONSOLIDATED FINANCIAL STATEMENTS 12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Included in the net carrying amount of property plant and equipment are right-of-use assets as follows: Cost At 31 March 2021 Disposals At 31 March 2022 Additions for the year At 31 March 2023 Depreciation At 31 March 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2022 At 31 March 2023 Plant & Machinery (Leased) GB£000 Motor Vehicles GB£000 Total GB£000 162 – 162 229 391 7 16 23 25 48 139 343 28 (3) 25 – 25 9 7 16 8 24 9 1 190 (3) 187 229 416 16 23 39 33 72 148 344 See notes 10 and 11 for impairment considerations for property, plant and equipment. 13. FINANCIAL INSTRUMENTS Risk management The Group’s financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables. These arise directly from the Group’s operations, and it is the Group’s policy that no trading in financial instruments shall be undertaken. The Groups Risk Management Framework outlines the Group’s objectives, policies and procedures for measuring and managing risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. . 76 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 13. FINANCIAL INSTRUMENTS (CONTINUED) Categories of financial instrument Financial assets at amortised cost – loans and receivables Cash and cash equivalents Trade and other receivables Financial liabilities Liabilities at amortised cost 2023 GB£000 2022 Restated GB£000 1,484 422 1,906 722 722 2,963 532 3,495 679 679 Maturity profile of financial liabilities The undiscounted maturity analysis of the carrying amount of the Group’s financial liabilities at 31 March 2023 is as follows: Less than six months GB£000 Later than six months and not later than one year GB£000 Later than one year and not later than two years GB£000 Later than three years and not later than four years GB£000 Greater than five years GB£000 (318) 15 (303) (70) 16 (54) (256) 56 (200) (134) 32 (102) (85) 22 (63) Total GB£000 (863) 141 (722) Repayments Finance Charges Present Value The financial statements for 2022 contained a misstatement relating to the overstatement of both Trade and other receivables and Liabilities at amortised cost. This resulted in a restatement of trade and other receivables as at 31 March 2022 from £1,120,000 to £532,000 and a restatement of Liabilities at amortised cost as at 31 March 2022 from £1,042,000 to £679,000. These adjustments were identified in the current year and the restatement had no impact on prior period income or expenditure. Annual Report & Accounts 2023 77 CONSOLIDATED FINANCIAL STATEMENTS 13. FINANCIAL INSTRUMENTS (CONTINUED) Trade and other receivables Trade and other receivables per 2022 statements Less prepayments Less tax credit due Less other receivables 2022 Restatement Liabilities at amortised cost Liabilities at amortised cost per 2022 statements Less taxes due Less deferred tax Less deferred grant Less other liabilities 2022 Restatement Foreign currency risk GB£000 1,120 (315) (205) (68) 532 GB£000 1,122 (60) (76) (214) 80 679 Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group seeks to transact the majority of its business in its reporting currency (£Sterling). However, many customers and suppliers are outside the UK and a proportion of these transact with the Group in US Dollars and Euros. For that reason, the Group operates current bank accounts in US Dollars and Euros as well as in its reporting currency. To the maximum extent possible receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of funds translated to or from the reporting currency. Cash flow projections are used to plan for those occasions when funds will need to be translated into different currencies so that exchange rate risk is minimised. If the exchange rate between Sterling and the Dollar had been 10% higher/lower at the reporting date the effect on profit and equity would have been approximately £32,000 (2022: £34,000) higher/lower and £5,000 (2022: £4,000) higher/lower respectively Cash balances are carried within the Group in bank accounts, which comprise the following currency holdings: Sterling Euros US dollars 2023 GB£000 941 1 542 1,484 2022 GB£000 2,799 1 163 2,963 The Group holds the majority of its cash balances in a mixture of Sterling’ and US dollars. As the Group reports in Sterling, there is translation risk in respect of US dollar balances. Based on year-end balances held in USD, a 10% adverse movement in the $ / £ exchange rate would have had a £49,300, adverse impact on net assets and expenses (2022: £14,818). 78 RUA Life Sciences plc CONSOLIDATED FINANCIAL STATEMENTS 13. FINANCIAL INSTRUMENTS (CONTINUED) Interest rate risk The Group finances most of its operations through equity fundraising, although some capital purchases in its subsidiary have been financed with HP and bank loans, on fixed rate terms. (See note 18). The following cash balances and are held at floating bank interest rates: Cash and cash equivalents Sensitivity analysis 2023 GB£000 1,484 1,484 2022 GB£000 2,963 2,963 A rise or fall of interest rates over the year of 1% would have a minimal adverse impact on the results, given the current low bank interest rates being offered on deposit account. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk, the Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk in the case of both the cash and short-term deposits is the value of the outstanding amount. Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its future obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet its expected cash requirements. The Group currently holds cash balances and short-term deposits in Sterling and US dollars. These balances provide funding for the Group’s trading activities. There is no material difference between the fair values and the book values of these financial instruments. 14. INVENTORIES Inventories consist of the following: Raw materials Work in progress 2023 GB£000 2022 GB£000 48 33 81 40 84 124 The cost of inventories recognised as an expense and included in cost of goods sold amounted to £79K (2022: £58K). Amounts provided against inventory £nil (2022: £nil). Annual Report & Accounts 2023 79 CONSOLIDATED FINANCIAL STATEMENTS 15. TRADE AND OTHER RECEIVABLES Current Trade receivables – gross Allowance for credit losses Trade receivables net Other receivables Tax credit due Prepayments and accrued income 2023 GB£000 2022 GB£000 175 – 175 34 – 379 588 221 (5) 216 83 205 616 1,120 Included in the above is £247,333 (2022: £273,670) of accrued income which relates to royalty revenues not billed until after the period end but which related to royalties earned pre-year end. In accordance with IFRS 9, trade and other receivables are recognised and carried at their anticipated realisable value, which implies that a provision for a loss allowance on lifetime expected credit losses of the receivables is recognised. A provision for loss allowance for expected credit losses is performed at each reporting date and is based on a multifactor and holistic analysis depending on several assumptions taken. The Group considers reasonable and supportable information that is available without undue cost or effort and that is relevant for the assessment of credit risk with regard to customer. The Group’s trade and other receivables are all current and not overdue. Payment terms apply to amounts owed by the customers for contract manufacturing sales, typically this is within 30 days. Historically, invoices are normally paid on or around the due date and this is the established operating cycle under IFRS 9, as a result the loss given default is deemed to be a negligible timing difference. The Group has had no historical losses on trade and other receivables during this period. As long as the customer continues to settle invoices on a monthly basis in line with what has been established practice, there are no indications of a significant increase in credit risk, and therefore deemed there to be an insignificant probability of default. Therefore, it is not considered necessary to provide for any loss allowance on credit losses. Of the trade receivables balance at the end of the year £116,000 (2022: £155,000) was due from the Group’s largest customer. There is one (2022: one) other customer who represents more than 5% of the total balance of trade receivables. 16. CASH AND CASH EQUIVALENTS Cash at bank and in hand 17. SHARE CAPITAL Ordinary shares of 5 pence each In issue at 1 April 2022 Issue of shares In issue at 31 March 2023 80 RUA Life Sciences plc Shares Number 22,184,798 – 22,184,798 2023 GB£000 1,484 1,484 2022 GB£000 2,963 2,963 Nominal Value GB£000 Premium net of costs GB£000 1,109 – 1,109 11,729 – Total GB£000 12,838 – 11,729 12,838 CONSOLIDATED FINANCIAL STATEMENTS 18. BORROWINGS Current Bank loans Lease liabilities Non–current Bank loans Lease liabilities Repayable in less than 6 months Repayable in 7 to 12 months Repayable in 1 to 5 years Repayable after 5 years Total 2023 GB£000 2022 GB£000 29 81 110 165 200 365 23 39 62 198 83 281 Bank loans GB£000 Lease liabilities GB£000 Total GB£000 14 15 102 63 194 41 40 200 – 281 55 55 302 62 475 £158,078 of bank loans is secured 1. on the property at 2 Drummond Crescent, Irvine, Ayrshire and 2. A bond and floating charge over the Group’s assets. Secured bank loans carry a variable rate of interest, which were between 3.1% and 6.1%. £35,038 of bank loans is an unsecured government support loan. Unsecured bank loans carry an effective rate of interest at 9%. The lease liabilities are secured by the related underlying assets. Lease borrowings carry a fixed rate of interest, which were between 4.0% and 9.6%. 19. LEASES Lease liabilities are presented in the statement of financial position as follows: Current Non–current 2023 GB£000 2022 GB£000 81 200 281 39 83 122 The Group has a lease for one motor vehicle and five items of machinery. With the exception of short–term leases and leases of low–value underlying assets, each lease is reflected in the statement of financial position as a right–of–use asset and a lease liability. The Group classifies its right–of–use assets in a consistent manner to its property, plant and equipment (see note 12). The interest charge for the year for right–of–use assets was £16,685 (2022: £7,287). The Group is prohibited from selling or pledging the underlying leased asset as security. The Group must also insure and maintain the underlying asset in accordance with the lease contract. Annual Report & Accounts 2023 81 CONSOLIDATED FINANCIAL STATEMENTS 20. DEFERRED TAX Deferred tax arising from temporary differences and unused tax losses are summarised as follows: Fixed asset temporary differences GB£000 Short term temporary differences GB£000 Losses and other deductions GB£000 Total GB£000 Deferred tax liability at 1 April 2021 Origination and reversal of temporary timing differences Effect of tax rate changes on opening balance Adjustments in respect of prior periods Deferred tax liability at 31 March 2022 365 10 – – 375 – – – – – (290) – – – (290) 75 10 – – 85 21. TRADE AND OTHER PAYABLES Current liabilities Trade payables Other payables Accruals and deferred income 2023 GB£000 2022 GB£000 43 8 204 255 185 74 151 410 Deferred grant income is included within other liabilities in the Consolidated statement of financial position. £49,000 (2022: £39,000) is included in current liabilities and £116,000 (2022: £174,000) included in Non-current Liabilities. 22. CONTINGENT LIABILITIES There were no contingent liabilities at 31 March 2023 or at 31 March 2022. 23. RELATED PARTY TRANSACTIONS Related party transaction disclosures are included within the Report of the Remuneration Committee. 82 RUA Life Sciences plc PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY STATEMENT OF FINANCIAL POSITION Asset Fixed assets Intangible assets Tangible assets Investment in subsidiary undertakings Total fixed assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity Issued capital Share premium Other Reserve Capital redemption reserve Profit and loss account Total equity attributable to equity holders of the parent Liabilities Current liabilities Trade and other payables Total current liabilities Total liabilities Notes 31 March 2023 GB£000 31 March 2022 GB£000 2 3 5 6 8 7 72 147 2,235 2,454 2,253 1,192 3,445 79 166 2,244 2,489 2,370 2,755 5,125 5,899 7,614 1,109 11,729 554 11,840 1,109 11,729 452 11,840 (19,557) (17,779) 5,675 7,351 224 224 224 263 263 263 Total Equity and liabilities 5,899 7,614 The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company’s loss for the year ended 31 March 2023 was £1,778,000 (2022: loss of £1,560,000). The parent company financial statements were approved by the Board on 25 July 2022 and were signed on its behalf by: W Brown, Chairman L Smith, Group CFO Company number SC170071 The notes on pages 88 to 90 form part of these financial statements. 84 RUA Life Sciences plc PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY STATEMENT OF CHANGES IN EQUITY Capital redemption reserve GB£000 Other reserve GB£000 Profit and loss account GB£000 Total shareholders’ fund GB£000 At 31 March 2021 Share-based payments Buyback of deferred shares Transactions with owners Total comprehensive loss for the year Share capital GB£000 Share premium GB£000 12,949 11,729 – (11,840) (11,840) – – – – – – – 11,840 11,840 – At 31 March 2022 1,109 11,729 11,840 Share-based payments Buyback of deferred shares Transactions with owners Total comprehensive loss for the year – – – – – – – – – – – – 307 145 – 145 – 452 102 – 102 (16,219) 8,766 – – – 145 – 145 (1,560) (1,560) (17,779) 7,351 – – – 102 – 102 – (1,778) (1,778) At 31 March 2023 1,109 11,729 11,840 554 (19,557) 5,675 The notes on pages 88 to 90 form part of these financial statements. Annual Report & Accounts 2023 85 PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Statement of compliance The financial statements were prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’. The Company has elected to adopt the standard for the year ended 31 March 2023. All of the policies applied in preparation of the parent company financial statements are consistent with the applied to the Group financial statements as described on pages 58 to 82. Therefore we have not repeated the polices here, but have included any additional accounting polices which are relevant to the parent company financial statements. Basis of preparation The Company meets the definition of a qualifying entity under FRS 101. The financial statements have therefore been prepared in accordance with FRS 101 as issued by the Financial Reporting Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to financial instruments, capital management, presentation of a cash flow statement, share-based payments, fair value measurements, comparative reconciliations for tangible and intangible assets, standards not yet effective, related party transactions with other wholly owned members of the Group and key management personnel compensation. Equivalent disclosures are, where required, given in the Group accounts of RUA Life Sciences plc. The Group accounts of RUA Life Sciences plc are available to the public. The financial statements have been prepared on the historical cost basis. Going concern RUA Life Sciences company going concern has been assessed within the wider RUA Life Sciences Group going concern position. The group going concern assessment (as disclosed in the Group accounts) is as follows: The Board has to consider that the Going Concern principle is appropriate for the preparation of these accounts. At 31 March 2023, the Group had cash and cash equivalents of £1.48m (2022: £2.96m) and, as at the date of signing these Financial Statements, the cash balance was £0.9m. RUA Life Sciences has two cash-generative units (RUA Biomaterials and RUA Contract Manufacture). These cash- generating units provide a healthy Gross Margin (89% and 49%), and contributions to Group operating loss were £493,000 and £794,000. The Group has two cash-consuming units (RUA Vascular and RUA Structural Heart), and both these units require further investment before commercialisation and cash generation can be achieved. The investment will chiefly be for a GLP animal study and Human Clinical Trials for RUA Vascular. The Board anticipates the requirement for additional funding over the course of the financial year as the internal cash generation will not cover the additional investment required. The Board has considered the current cash position, reviewed budgets and profit and cash flow forecasts over the going concern period (to October 2024) along with sensitivity analyses and made appropriate enquiries. The Board has concluded that further financing is required and has taken advice from the Company’s Nomad and Broker on the current state of the equity market and the chances of a successful fundraise. The Board has formed a judgement at the time of approving the financial statements that the Group will have access to adequate resources, including new financing, to continue in operational existence for the period of the going concern assessment. If finance is not successful, which management see as unlikely, management have a number of mitigating actions which can be taken. There is a level of uncertainty around the ability of management to implement the mitigations during the going concern period, for this reason management have concluded a material uncertainty is appropriate. For this reason, the Board considers that the adoption of the going concern basis in preparing the consolidated financial statements is appropriate. The Financial Statements have been prepared on a going concern basis and do not include the adjustments that would result if the Group was unable to continue as a going concern. Due to the factors described above, specifically the uncertainty around the ability to raise new financing and the ability to implement mitigating actions, a material uncertainty exists, which may cast significant doubt on the Group and the Company’s ability to continue as a going concern. 86 RUA Life Sciences plc PARENT COMPANY FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES (CONTINUED) Use of accounting estimates and judgements Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements and the key areas are summarised below: Sources of estimation uncertainty Amortisation rates are based on estimates of the useful lives and residual values of the assets involved. Investments Investments held as fixed assets are stated at cost less provision for impairment. In the opinion of the Directors the value of such investments is not less than that shown at the balance sheet date. Deferred tax Deferred tax is recognised (on an undiscounted basis) on all temporary differences where the transactions or events that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date. Share-based payments Share options The Group operates a Share Option Plan for its employees. Options awarded to employees and directors of any subsidiary companies are recorded in the relevant subsidiary accounts as a charge to the profit and loss account and a corresponding entry to ‘other reserves’. In the parent company accounts the cost is treated as an additional cost of investment in the parent company accounts. The cost is calculated using the Black Scholes Option Pricing Model ‘BSOPM’ as outlined below. The grant of any share-based payment is measured at its fair value using the BSOPM. The fair value of the share options is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium. Debtors The amounts owed by Group undertakings are in respect of intercompany loans. The Company uses its cash to fund the operations of its subsidiaries until such a time that the subsidiaries are in a position to return the monies to Group. These loans are interest free and have no fixed repayment date, all loans are repayable on demand. Tangible Fixed Assets Tangible Fixed Assets is stated at historical cost, less accumulated depreciation. The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in profit and loss. Annual Report & Accounts 2023 87 PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED) 1. ACCOUNTING POLICIES (CONTINUED) Depreciation is provided at annual rates calculated to write off the cost less residual value of each asset over its expected useful life: Plant and machinery – 10 years Computer equipment – 3 years 2. INTANGIBLE ASSETS Cost At 31 March 2022 Additions for the year At 31 March 2023 Amortisation At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2022 At 31 March 2023 3. TANGIBLE ASSETS Cost At 31 March 2022 Additions for the year Disposals in the year At 31 March 2023 Depreciation At 31 March 2022 Charge for the year On disposals At 31 March 2023 Net book value At 31 March 2022 At 31 March 2023 88 RUA Life Sciences plc Intellectual property GB£000 Development costs GB£000 Total GB£000 4,929 – 4,929 4,850 7 4,857 79 72 330 – 330 330 – 330 – – 5,259 – 5,259 5,180 7 5,187 79 72 Plant & Machinery GB£000 Computer equipment GB£000 Total GB£000 171 – – 171 7 17 – 24 164 147 6 – – 6 4 2 – 6 2 – 177 – – 177 11 19 – 30 166 147 PARENT COMPANY FINANCIAL STATEMENTS 4. DIRECTORS AND EMPLOYEES The average monthly number of persons (including Directors) employed by the Company during the year was: Directors Non-executive directors Total The aggregate remuneration comprised: Wages and salaries Social security costs Pension contributions Share based payments Total costs 2023 Numbers 2022 Numbers 5 3 8 4 3 7 2023 GB£000 2022 GB£000 846 103 65 111 642 73 33 92 1,125 840 The Directors are the only employees of the parent company. Disclosure of their emoluments is given in the Report of the Remuneration Committee on page 38. 5. NON-CURRENT ASSET INVESTMENTS Investment in subsidiary undertakings Cost Historical cost RMD Share based payment adjustment (see note 9) Net book value at 31 March Interest in subsidiary undertakings Name of undertaking Country of registration or incorporation Registered office 2023 GB£000 2022 GB£000 2,244 (9) 2,235 2,191 53 2,244 Description of shares held Proportion of nominal value of shares held % (i) RUA Biomaterials Limited Scotland 163 Bath St, Glasgow G2 4SQ Ordinary £1 (ii) RUA Structural Heart Limited Scotland 163 Bath St, Glasgow G2 4SQ Ordinary £1 (iii) RUA Vascular Limited Scotland 163 Bath St, Glasgow G2 4SQ Ordinary £1 (iv) RUA Medical Devices Limited Scotland 163 Bath St, Glasgow G2 4SQ Ordinary £1 (v) Aortech International Limited Scotland 163 Bath St, Glasgow G2 4SQ Ordinary £1 100 100 100 100 100 Annual Report & Accounts 2023 89 PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED) 6. TRADE AND OTHER RECEIVABLES Current Trade receivables – gross Allowance for credit losses Trade receivables Other receivables Amounts owed by Group undertakings Tax credit due Prepayments and accrued income Total administrative expenses Non current Amounts owed by Group undertakings Less: Provision* 2023 GB£000 2022 GB£000 79 – 79 14 1,874 – 286 2,253 49 – 49 25 1,772 205 319 2,370 3,955 (3,955) – 3,955 (3,955) – * A cumulative impairment charge of £3,955,000 as at 31 March 2023 (31 March 2022: £3,955,000) has been made to fully provide against the remaining amount of the inter-company loan account due as at 31 March 2023 to RUA Life Sciences plc by its American subsidiary, AorTech Polymers & Medical Devices, Inc who were in liquidation as of 2014 and remains so at the balance sheet date. 7. TRADE AND OTHER PAYABLES Trade payables Other payables Accruals and deferred income 8. SHARE CAPITAL 2023 GB£000 2022 GB£000 65 2 157 224 113 37 113 263 See Note 17 in the Consolidated financial statements which details the number of shares in issue at each period end and movements in the period. The nominal value of all shares in issue at 31 March 2023 is £1,109,240 (2022: £1,109,240). 9. SHARE-BASED PAYMENTS Director and Employee Share Option Plans See note (6) in group accounts for detail on share-based payments. 10. RELATED PARTY TRANSACTIONS The Company is exempt under the terms of FRS 101.8 from disclosing transactions with its wholly owned subsidiaries. Related party transaction disclosures are included within the Report of the Remuneration Committee in the Group accounts. 90 RUA Life Sciences plc ANNUAL GENERAL MEETING ANNUAL GENERAL MEETING LETTER TO SHAREHOLDERS THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you should consult your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent professional adviser who, if you are taking advice in the United Kingdom, is duly authorised under the Financial Services and Markets Act 2000 or an appropriately authorised independent professional adviser if you are in a territory outside the United Kingdom. If you no longer hold shares in RUA Life Sciences plc, please pass this document to the purchaser or transferee or to the agent who dealt with the sale or transfer to be sent on to the new owner of the shares. RUA LIFE SCIENCES PLC (Incorporated in Scotland SC170071) Registered office C/O Davidson Chalmers Stewart LLP 163 Bath Street Glasgow G2 4SQ 25 July 2023 Dear Shareholder I am writing to give you the details of the 2023 Annual General Meeting to be held at 11.00am on 22 August 2023 at Gailes Hotel, Marine Drive, Irvine, Ayrshire KA11 5AE. The formal notice of AGM is set out on pages 96 to 98 and an explanation of the business is set out below. FORMAT OF THE AGM The AGM will be a physical meeting. The Board encourages all shareholders who are unable to, or do not wish to, attend the AGM in person to vote by proxy. Please see the Notice of AGM set out on pages 96 to 98 for details of how to appoint a proxy and for further important information regarding the appointment of proxies. If you wish to attend the AGM in person, it would assist the Company’s planning if you could please notify the Company in advance by email to kate.full@rualifesciences.com, including your name as shown on the Company’s Register of Members. We will notify shareholders of any significant changes to the AGM arrangements by publishing details on the Company’s website (www.rualifesciences.com) and via a Regulatory Information Service as early as is possible before the date of the meeting. All the resolutions will be voted on by way of a poll and this will ensure that your vote will be counted, even if you are unable to attend in person. Your vote is important to the Company and, whether or not you wish to attend the AGM in person, the Directors strongly recommend you complete and return the Form of Proxy, with your voting instructions, in accordance with the instructions on the Form. The deadline for the receipt of a Proxy Form by the Registrars is 11.00am on 18 August 2023. If you hold your ordinary shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Company’s Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA so that it is received no later than 11.00am on 18 August 2023. 92 RUA Life Sciences plc ANNUAL GENERAL MEETING If you are an institutional investor, you may be able to appoint a proxy electronically via the Proxymity platform, a process which has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 11.00am on 18 August 2023 in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy. If you would like to ask questions about the business of the AGM, please contact us at kate.full@rualifesciences.com. A summary of the questions received, together with our answers, will be published on our website shortly after the AGM has concluded. EXPLANATION OF THE BUSINESS OF THE AGM Resolution 1 – Receipt of the Annual Report and Accounts The Companies Act 2006 requires the directors of a public company to lay before the company in general meeting copies of the directors’ reports, the independent auditors’ report and the audited financial statements of the company in respect of each financial year. In line with best practice, the Directors invite shareholders to receive their reports, the audited accounts and the auditors’ report for the financial year ended 31 March 2023 (the “2023 Annual Report”). Resolution 2 – Approval of the Report of the Remuneration Committee The Company invites shareholders to approve the Report of the Remuneration Committee contained in the 2023 Annual Report. The vote on this Resolution is advisory only and the Directors’ entitlement to remuneration is not conditional on it being passed. Resolutions 3 and 4 – Re-election of Directors The Articles of Association of the Company require that any Director: (i) who has been appointed by the Board since the last annual general meeting of the Company; or (ii) for whom it is the third annual general meeting following the annual general meeting at which he or she was last elected or re- elected, should be proposed for election or re-election respectively. Accordingly, the shareholders are invited to re-elect John Ely and Geoffrey Berg. Biographical details on the Directors are contained in the 2023 Annual Report. Resolution 5 – Re-appointment and remuneration of the Auditor The Company is required to appoint or reappoint auditors at each annual general meeting at which its audited accounts and reports are presented to shareholders. Resolution 5 deals with the re- appointment of Grant Thornton as auditor for the year ending 31 March 2024. As is market practice, the Resolution authorises the Directors to fix the auditor’s fees. Resolution 6 – Authority to allot shares The Directors currently have a general authority to allot new shares in the Company and to grant rights to subscribe for, or convert any securities into, shares. This authority is due to expire at this AGM and the Board would like to renew it to provide the Directors with flexibility to allot new shares and grant rights up until the Company’s next annual general meeting within the limits prescribed by The Investment Association. Annual Report & Accounts 2023 93 ANNUAL GENERAL MEETING LETTER TO SHAREHOLDERS (CONTINUED) The Investment Association’s guidelines on Directors’ allotment authority state that the Association’s members will regard as routine any proposal at a general meeting to seek a general authority to allot an amount up to two-thirds of the existing share capital, provided that any amount in excess of one- third of the existing share capital is applied to fully pre-emptive rights issues only. This Resolution would authorise the Directors to allot (or grant rights over) new shares in the Company: (i) under an open offer or in any situation other than a rights issue up to an aggregate nominal amount of £369,746 (representing approximately 33 per cent. of the Company’s current issued ordinary share capital); and (ii) under a rights issue up to an aggregate nominal amount of £739,492 (representing approximately 66 per cent. of the Company’s current issued ordinary share capital). For the avoidance of doubt, the maximum aggregate nominal amount of shares which may be allotted (or rights that may be granted) under this Resolution is £739,492 (representing approximately 66 per cent. of the Company’s current issued ordinary share capital). Resolutions 7 and 8 – Powers to disapply pre-emption rights These Resolutions would give the Directors powers to allot ordinary shares for cash without first offering those shares to existing shareholders in proportion to their existing holdings. The Resolutions seek powers which reflect the revised Statement of Principles published by the Pre- Emption Group in November 2022 (and endorsed by the Investment Association) (the “Statement of Principles”) which provide that a company may seek power to issue on a non-pre-emptive basis for cash shares in any one year representing: (i) no more than ten per cent. of the company’s issued ordinary share capital; and (ii) no more than an additional ten per cent. of the company’s issued ordinary share capital provided that such additional power is only used in connection with an acquisition or specified capital investment. Accordingly, and in line with best practice, the Board is seeking two separate powers to disapply pre- emption rights. Resolution 7 would permit the Board to allot ordinary shares for cash on a non-pre-emptive basis in connection with a rights issue or similar pre-emptive issue and, otherwise than in connection with any such issue, up to a maximum nominal amount of £110,924 (which represents approximately ten per cent. of the issued share capital of the Company as at 24th July 2023, being the latest practicable date before the publication of this notice) and up to a further nominal amount equal to 20 per cent. of any such allotment if used only for the purposes of making a follow-on offer which the Directors determine to be of a kind contemplated by the Statement of Principles. This Resolution will permit the Board to allot ordinary shares for cash, up to the specified level, in any circumstances (whether or not in connection with an acquisition or specified capital investment). Resolution 8 would give the Board an additional power to allot ordinary shares for cash on a non-pre- emptive basis up to a further maximum nominal amount of £110,924 (again representing approximately ten per cent. of the Company’s current issued ordinary share capital) where this power is used only for the purposes of financing (or refinancing, if such refinancing occurs within 12 months of the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles prior to the date of this notice, and up to a further nominal amount equal to 20 per cent. of any such allotment if used only for the purposes of making a follow-on offer which the Directors determine to be of a kind contemplated by the Statement of Principles. 94 RUA Life Sciences plc ANNUAL GENERAL MEETING The Directors have no present intention of exercising the authority given by these Resolutions. If the Directors were to make a non-pre-emptive issue of equity securities for cash using the powers conferred by Resolutions 7 or 8, the Directors confirm that the Company will comply with the shareholder protections contained in Part 2B of the Statement of Principles regarding how such an issue should be carried out. RECOMMENDATION The Directors believe that the proposals to be voted on at the AGM are in the best interests of the Company and its shareholders as a whole. Accordingly, the Directors unanimously recommend shareholders to vote in favour of the Resolutions, as they intend to do in respect of their beneficial holdings of shares (save in respect of those matters in which they are interested). Yours faithfully WILLIAM BROWN Chairman Annual Report & Accounts 2023 95 ANNUAL GENERAL MEETING NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the twenty-sixth Annual General Meeting of RUA Life Sciences plc will be held at Gailes Hotel, Marine Drive, Irvine, Ayrshire KA11 5AE on 22 August 2023 at 11.00am for the purpose of considering and, if thought fit, passing the following resolutions of which numbers 1 to 6 will be proposed as Ordinary Resolutions and numbers 7 and 8 as Special Resolutions: AS ORDINARY BUSINESS To consider, and if thought fit, pass the following resolutions as Ordinary Resolutions: 1 To receive and adopt the financial statements of the Company for the year ended 31 March 2023 together with the Strategic Report and the Reports of the Directors and Auditor thereon. 2 To approve the Report of the Remuneration Committee for the year ended 31 March 2023. 3 To re-elect as a Director, John Ely, who is retiring by rotation. 4 To re-elect as a Director, Geoffrey Berg, who is retiring by rotation. 5 To re-appoint Grant Thornton UK LLP as auditor of the Company and to authorise the Directors to fix their remuneration. AS SPECIAL BUSINESS To consider, and if thought fit, pass the following resolution as an Ordinary Resolution: 6 That, in substitution for all equivalent authorities and other powers granted to the Directors at the Company’s annual general meeting held on 16 August 2022 but without prejudice to any allotment of shares or grant of rights to subscribe for or convert any security into shares in the Company made or agreed to be made pursuant to such authorities and other powers, in accordance with section 551 of the Companies Act 2006 (the “Act”) the Directors be generally and unconditionally authorised to exercise all powers of the company to allot shares in the Company: 6.1 6.2 up to an aggregate nominal amount of £369,746 (such amount to reduced by the aggregate nominal amount of any equity securities that may be allotted pursuant to paragraph 6.2) of this resolution in excess of £369,746); and comprising equity securities (as defined in section 560 of the Act) up to an aggregate nominal amount of £739,492 (such amount to be reduced by the aggregate nominal amount of any shares allotted or rights granted pursuant to the authority in paragraph 6.1 of this resolution) in connection with an offer by way of a rights issue to holders of ordinary shares in the capital of the Company in proportion (as nearly as may be practicable) to their respective holdings, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, regulatory or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange or any other matter; provided that, unless previously revoked, varied or extended, this authority will expire at whichever is the earlier of the conclusion of the annual general meeting of the company to be held in 2024 or the date falling 15 months from the date of passing this resolution, save that the Company may before such expiry make an offer or agreement which would or might require the allotment of shares in the Company, or the grant of rights to subscribe for or to convert any security into shares in the Company, after such expiry. 96 RUA Life Sciences plc ANNUAL GENERAL MEETING To consider and, if thought fit, pass the following resolutions as Special Resolutions: 7 That, in substitution for all equivalent authorities and other powers granted to the Directors at the Company’s annual general meeting held on 16 August 2022 but without prejudice to any allotment of shares made or agreed to be made pursuant to such authorities and other powers, subject to and conditional upon the passing of Resolution 6 set out in this Notice, in accordance with section 571(1) of the Companies Act 2006 (the “Act”), the Directors be and are hereby empowered pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 (1) of the Act) for cash pursuant to the authority conferred by Resolution 6 set out in this Notice, as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: 7.1 7.2 7.3 7.4 the allotment of equity securities pursuant to the terms of any share scheme for directors and/or employees of the Company and/or its subsidiaries approved by the Directors or by the shareholders of the Company in general meeting; the allotment of equity securities in connection with or pursuant to an offer by way of rights issue, open offer or any other pre-emptive offer in favour of ordinary shareholders and in favour of holders of any other class of equity security in accordance with the rights attached to such class where the equity securities respectively attributable to the interest of such persons on a fixed record date are proportionate (as nearly as may be) to the respective numbers of equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or arrangements as the Directors may deem necessary or expedient to deal with to treasury shares, fractional entitlements, record dates, regulatory or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange or any other matter; the allotment (otherwise than pursuant to paragraphs 7.1 and 7.2 of this resolution) of equity securities having a nominal amount or giving the right to subscribe for or convert into relevant shares having a nominal amount, not exceeding in aggregate £110,924; and the allotment of equity securities, other than pursuant to paragraphs 7.1 to 7.3 above of this resolution, up to an aggregate nominal amount of 20 per cent. of any allotment of equity securities from time to time under paragraph 7.3 above, such authority to be used only for the purposes of making a follow-on offer which the Directors determine to be of a kind contemplated by paragraph 3 of Section 2B of the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice, and such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 6 set out in this Notice but may be previously revoked, varied or extended by special resolution, save that the Company may before such expiry make an offer or agreement which would or might require the allotment of shares in the Company, or the grant of rights to subscribe for or to convert any security into shares in the Company, after such expiry. Annual Report & Accounts 2023 97 ANNUAL GENERAL MEETING NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) 8 That, subject to and conditional upon the passing of Resolution 6 set out in this Notice, without prejudice to any allotment of shares made or agreed to be made pursuant to the authorities and other powers granted to the Directors at the Company’s annual general meeting held on 16 August 2022, in accordance with section 571(1) of the Companies Act 2006 (the “Act”), the Directors be and are hereby empowered pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 (1) of the Act) for cash pursuant to the authority conferred by Resolution 6 set out in this Notice, as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: 8.1 8.2 the allotment of equity securities up to an aggregate nominal amount of £110,924, such authority to be used only for the purpose of financing (or refinancing, if the power is to be exercised within 12 months after the date of the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this Notice of Meeting; and the allotment of equity securities, other than pursuant to paragraph 8.1 above of this resolution, up to an aggregate nominal amount of 20 per cent. of any allotment of equity securities from time to time under paragraph 8.1 above of this resolution such authority to be used only for the purposes of making a follow-on offer which the Directors determine should be of a kind contemplated by paragraph 3 of Section 2B of the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice, and such power shall expire on the revocation or expiry (unless renewed) of the authority conferred on the Directors by Resolution 6 set out in this Notice but may be previously revoked, varied or extended by special resolution, save that the Company may before such expiry make an offer or agreement which would or might require the allotment of shares in the Company, or the grant of rights to subscribe for or to convert any security into shares in the Company, after such expiry. By order of the Board Kate Full Company Secretary 25 July 2023 98 RUA Life Sciences plc ANNUAL GENERAL MEETING IMPORTANT NOTICE REGARDING ATTENDANCE AT THE GENERAL MEETING AND APPOINTMENT OF PROXIES 1 Members will only be entitled to attend and vote at the meeting if they are registered on the Company’s Register of Members at 6:30pm on 18 August 2023. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. If the meeting is adjourned, the time by which a person must be entered on the Register of Members of the Company in order to have the right to attend and vote at the adjourned meeting is 6:00pm two business days prior to the date fixed for the adjourned meeting. Changes to the Register of Members after the relevant times shall be disregarded in determining the rights of any person to attend and vote at the meeting. 2 Any member of the Company who is entitled to attend and vote at the Annual General Meeting may appoint another person or persons (whether a member or not) as their proxy or proxies to attend, speak and vote on their behalf. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share. 3 4 Under the restrictions in force at the date of the notice of this meeting, proxies other than the Chairman of the meeting will not be permitted to attend the AGM in person. If a member is appointing a proxy, they should appoint the Chairman of the meeting as their proxy. Similarly any appointment of a corporate representative should be an appointment of the Chairman of the meeting. Any proxy or corporate representative who is not the Chairman of the meeting will not be permitted to attend the meeting in person. To be valid, Forms of Proxy must be lodged with the Company’s Registrars, Equiniti Limited, Aspect House, Lancing, West Sussex, BN99 6ZL not later than 11.00am on 18 August 2023 or not later than 48 hours (excluding any non-business day) before time appointed for the holding of any adjourned meeting together with any documentation required. In the case of a corporation, the Form of Proxy should be executed under its common seal or signed by a duly authorised officer or attorney of the corporation. Details of how to complete the proxy form are set out in the notes to the proxy form. A vote withheld is not a vote in law which means that the vote will not be counted in the calculation of votes for or against a resolution. If no voting indication is given your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter put before the meeting. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual (available at https://www.euroclear.com/site/public/EUI). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider should refer to their CREST sponsors or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & International Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the Company’s agent, Equiniti Limited (CREST Participant ID RA19), no later than 11.00am on 18 August 2023. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. Annual Report & Accounts 2023 99 ANNUAL GENERAL MEETING NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) CREST members and, where applicable, their CREST sponsor or voting service provider should note that Euroclear UK & International Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. 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 voting service provider, to procure that his CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsor or voting service provider are referred in particular to those sections of the CREST Manual concerning particular limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 5 In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to the Company’s Registrars, Equiniti Limited, Aspect House, Lancing, West Sussex, BN99 6ZL. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Equiniti no later than 11.00am on 18 August 2023. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. To change your proxy instructions simply submit a new proxy appointment. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. If you require a new Form of Proxy please contact to the Company’s Registrars, Equiniti Limited on +44 121 415 7047 between 8.30 am and 5.30 pm, Monday to Friday excluding public holidays in England and Wales. 6 As at noon on 24 July 2023 the Company’s issued share capital comprised 22,184,798 ordinary shares of £0.05 each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at noon on 24 July 2023 is 22,184,798. Voting at this meeting will be on a poll rather than a show of hands. Each ordinary shareholder present at the meeting will be entitled to one vote for every ordinary share registered in his or her name and each proxy or corporate representative will be entitled to one vote for each share which he or she represents. 7 The following documents will be available at the registered office of the Company during normal business hours from the date of this notice until the date of the Annual General Meeting and at the AGM venue from at least 15 minutes prior to and until the end of the AGM: 7.1 a copy of the service agreement for the Executive Directors, 7.2 a copy of the letters of appointment for the Non-Executive Directors, 7.3 the Memorandum and Articles of Association of the Company. 100 RUA Life Sciences plc ANNUAL GENERAL MEETING 8 Any member attending the meeting has the right to ask questions. The Company has also made alternative arrangements for questions to be submitted by members by email. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if: (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. 9 If you have any general queries about the meeting please contact the Company Secretary at kate.full@RUAlifesciences.com or by calling on 01294 317 073. You may not use any electronic address provided either in this notice of meeting or any related documents (including the Form of Proxy) to communicate for any purposes other than those expressly stated. Annual Report & Accounts 2023 101 RUA Life Sciences plc 2 Drummond Crescent Irvine, Ayrshire Scotland UK KA11 5AN info@rualifesciences.com
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