The partner of choice for self-care products Venture Life Group plc Annual Report & Accounts 2017 V e n t u r e L i f e G r o u p p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 “2017hasseenourstrategycontinuetodeliverwith another yearofgoodgrowthforVentureLife,withthe Groupincreasing bothrevenuesandprofit.TheCompanyhasdelivereda12% revenuegrowth,resultinginacceleratingprofitabilitybyvirtue oftheGroup’soperatingleverage,anEBITDAprofitof£1.9 million, andthefirsttimethegrouphasreportedaprofitbeforetaxof £0.1million.” Jerry Randall — Chief Executive Officer Our mission Wearecommittedtoprovidinginnovativeandefficaciousproducts forthe self-caremarketforpeoplewhowanttoliveahealthierlife. See pages 8 and 9 for more information Our vision Tobecomeakeytrustedgloballeaderinself-careproductsthrough ourknowledge,expertiseandcapability.Throughsustainableorganic growth and strategic acquisitions, we will continue to access the significantlong-termpotentialoftheself-caremarket. See pages 6 and 7 for more information Strategic report 1 Highlights 2017 2 At a Glance 4 Chair’s Statement 6 Business Model 8 Market Review 10 Our Strategy 11 Key Performance Indicators 12 Chief Executive Officer’s Statement 17 Development and Manufacturing 18 Principal Risks and Uncertainties 20 Financial Review Corporate governance Financial statements 22 Directors and Advisers 24 Statement of Corporate Governance 26 Directors’ Report 28 Remuneration Report 32 Statement of Directors’ Responsibilities 33 38 39 40 41 42 Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Statements 70 Parent Company Balance Sheet 71 72 Parent Company Statement of Changes in Equity Notes to the Parent Company Balance Sheet IBC Shareholder Information Highlights 2017 Financial Commercial • Revenue of £16.1 million, a 12% increase • Ten new long-term distribution agreements • Gross margin up from 38% to 40% signed on key brands • EBITDA increase from £0.8 million to £1.9 million • Maiden profit before tax for the Group of £0.1 million • Seven new international markets signed for UltraDEX brand, including France, Italy, Sweden, Denmark, Norway and Finland in the EU • Cash positive in second half of year • Record in-store sales levels of Lubatti skincare • Revenue in second half 6% up on first half brand in Chinese market Revenue (£m) +12% 9.1 7.2 16.1 14.3 2014 2015 2016 2017 Gross margin (%) 40% 37 33 38 40 2014 2015 2016 2017 EBITDA profit (£m) +134% 1.9 0.8 (0.4) (0.6) 2014 2015 2016 2017 • Seven new product launches in new territories, including India • CE mark approval granted for two new products developed in-house • Widest distribution of UltraDEX in UK market for over five years • New deals in Poland and Romania signed Q1 2018 to distribute Procto-eze Plus range UltraDEX brand 7 new international markets See page 13 for more information Lubatti brand in China Record in-store sales levels See page 14 for more information New territories, including India 7 new product launches See page 15 for more information For more information visit: www.venture-life.com Annual Report & Accounts 2017 — Venture Life Group plc 1 Strategic report At a Glance Significant growth potential Self-care market As an international consumer self-care company, we create value for shareholders by developing, manufacturing and commercialising products for the self-care market. What we do Venture Life develops, manufactures and distributes products for the self-care market. These are non-drug products that consumers buy without prescription to help lead a healthier life. There is a growing demand for self-care products due to an ageing population. People are living longer and taking more interest and responsibility for their health, with an increased focus on preventative wellness. This approach of increased personal responsibility can deliver improved health and well-being in the short, medium and long term for individuals. Business model Based on a vertically integrated approach, we either acquire or develop in-house self-care products, that are manufactured in our factory; these are then distributed either directly to customers or through global distribution partnerships. Acquire or develop Manufacture (own brands and customer brands) Distribute B2B Sustainable profitability Read more on our business model page 6 Our brands Venture Life has its own portfolio of self-care brands, which are sold without prescription through pharmacies and other retailers. They address a wide range of healthcare issues from oral healthcare, women’s intimate health, neurology, cardiovascular and dermatology. Many of our products have intellectual property including trademarks, patents, clinical evidence proving efficacy as well as formulation and manufacturing expertise. Being a non-drug company means faster regulatory routes to market and lower regulatory costs. Distribution International Our international business follows a B2B model. We partner our own brands with reputable pharmaceutical or healthcare partners around the world, focusing on key markets. Our partners have local market expertise and the partner covers all in-market costs, so we have no exposure to funding, sales and marketing costs. UK Within the UK, the acquisition of the UltraDEX brand has given us direct access to the UK retail market including key retailers such as Boots, Tesco and Amazon. In the UK this direct route earns us higher revenues per unit, and we invest this extra money in UK consumer marketing to support the products. Partners 90+ Markets worldwide 44 Read more on development and manufacturing page 17 2 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report Key milestones 2010 Venture Life co-founded by Jerry Randall and Sharon Collins 2014 Acquisition of Biokosmes Srl, an Italian development and manufacturing business; year of IPO 2015 30-year exclusive agreement with Gialen Group Co. Ltd to sell skincare products in China 2016 Acquisition of Periproducts Ltd, including UltraDEX brand 2017 FDA OTC drug manufacturing compliance for the US market Our strategy We want to become a leading global self-care branded products business. With our own expertise in development, manufacturing and international distribution, growth will come from the following: Revenue growth from existing and new distribution partners Revenue growth from developing innovative products 0.5 2013 Profit growth through improving margins 14.3 16.1 Revenue growth from product acquisition 7.2 9.1 2014 2015 2016 2017 Key partners Map key Countries where products sold or partnered Countries where key deals signed/ products launched in 2017 Countries where no products sold or partnered Italian R&D and Manufacturing Facility UK Head Office and Commercial Annual Report & Accounts 2017 — Venture Life Group plc 3 Strategic report Chair’s Statement Another significant year of growth 2017 saw another significant year for the Venture Life Group, achieving record revenues of £16.1 million, up 12% over 2016, an increase in EBITDA and our first profit before tax of £0.1million. 2017 saw another significant year for the Venture Life Group, achieving record revenues of £16.1 million, up 12% over 2016, an increase in EBITDA and our first profit before tax of £0.1 million. This result was delivered purely from organic growth within the business, as we expanded the international reach of our products and consolidated the UltraDEX product range in the UK. UltraDEX had its first full year of ownership in the Group and we saw good growth in the revenues of that brand, with an increase of 13% in UK points of distribution and new international partners being appointed. The UltraDEX acquisition is now fully integrated into the Group and contributing to the underlying profitability and growth of the business. We are actively searching for similar opportunities to integrate into our business. As well as increased revenue and increased EBITDA, we also achieved our first pre-tax profit. The latter is a key milestone in the development of the Group, as we progress to become sustainably profitable and cash generative with positive earnings. As we look across our business and products, it is clear that our expertise and many of our products are suited to the general self-care market, of which the ageing population are a significant subset. Products such as UltraDEX are used by people of all ages but sit in the significant and growing self-care space. Read more on the Market Review on pages 8 and 9 The self-care market is growing as the population both expands and lives longer, and this is putting extreme strain on healthcare funding globally. As a result, consumers are expected to take more responsibility and seek treatment for many non-critical ailments. This is usually through the pharmacy and grocery multiples. Self-care is characterised where a patient will: • Select the product themselves (although this may be on the advice of a healthcare practitioner) • Pay for the product themselves • Take the product home and treat themselves As well as increased revenue and increased EBITDA, we also achieved our first pre-tax profit. The latter is a key milestone in the development of the Group, as we progress to become sustainably profitable, cash generative, and with earnings.” Dr Lynn Drummond Non-Executive Chair Summary • Record revenues of £16.1 million, +12% • Record EBITDA £1.9 million, +134% • Achieved first pre-tax profit of £0.1 million 4 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report Self-care does not require the intervention of a healthcare practitioner and is not reimbursed or dispensed on a prescription. As a result, pricing is controlled by the pharmacy and not subject to price reductions that reimbursed products are regularly seeing from bodies such as NICE in the UK. Revenue growth +12% The over 50s comprise a significant proportion of this self-care audience. They generally have much higher disposable income and own the majority of financial assets, and hence can afford to pay for healthcare. However, an increasing awareness globally of the need for each of us to take personal responsibility for our own healthcare is bringing many younger people into this market. Dermatology and oral care are significant sectors in this space, and Venture Life has strong expertise in both. Whilst we continue to target the ageing population with our products, we see significant opportunity in the wider self-care space, where our technical expertise in development, manufacturing and regulatory can combine with our global commercial expertise in the pharmacy channel to deliver self-care products around the globe for all ages. We have seen the continued pace of organic growth across the whole Group this year, with UltraDEX contributing a full year’s performance, and the first deals from some of our new products such as Myco Clear™. The Group still has significant operational leverage and capacity through which it can exploit increasing revenues to drive incremental gross profit to the bottom line. This strategy, along with carefully selected acquisitions, will fuel the Group’s continued profitable growth. We were delighted to welcome Adrian Crockett to the Board in 2017 as our Chief Financial Officer. Adrian brings a wealth of experience from the pharmaceutical sector, through his previous roles with GSK, Novartis and latterly Abbott Diabetes. We are already feeling the positive impact of Adrian’s influence in the Group. We have seen a strong start to 2018, and look forward to the rest of the year with confidence. Venture Life is fast becoming your partner of choice for self-care products.” Dr Lynn Drummond Non-Executive Chair 21 March 2018 Annual Report & Accounts 2017 — Venture Life Group plc 5 Strategic report Business Model Our vertically integrated model We innovate, develop, manufacture and market self-care products globally. We have a 5,500m2 manufacturing facility north of Milan, Italy, where a dedicated team has the expertise to innovate and develop products. These products are then manufactured in-house and sold to a network of international partners and to key retailers in the UK market. Acquisition M&A is one of the key drivers for the growth of the business. The acquisition of the UltraDEX brand in 2016 illustrates how we can use our manufacturing capabilities to manufacture in-house, develop new products, improve margins, increase distribution through our commercial team and internationalise the brand in a short space of time. Intellectual property Many of our products have intellectual property including trademarks, patents, and clinical evidence proving efficacy as well as formulation and manufacturing expertise. Being a non-drug company means faster regulatory routes to market and lower regulatory costs. Customer We foster and nurture our customer partnerships both with new and existing customers, so we can maximise the commercial opportunities and secure increased customer order growth. Research & Development Either by acquiring existing brands, developing our own brands or developing new product or line extensions for our customers’ own brands, having our own in-house R&D “research and development” means: • Using the same development team to design and innovate products quickly and efficiently • Our ability to react quickly to changing market needs • Bringing incremental revenues and margin to the business Innovation, Agility & Technical Expertise Having a fully integrated business means we can have the agility to move fast to market to capitalise on the growing consumer trends and develop innovative new self-care products. Manufacturing We have invested in the manufacturing facility, including specific additions to our existing filling and warehousing capabilities. Our manufacturing strengths include: • 5,500m2 facility in Italy • 130,000 units per day capacity • 6 turbo mixers • US FDA OTC drug compliance and international certification including EU, Far East, Brazil and Middle East • Significant under utilised capacity and hence operating leverage Quality Control & Excellent Customer Service Quality and customer service are paramount. Our manufacturing business “Biokosmes” was founded in 1983 and retains many long-term customers, which is testament to the quality of product and service. 6 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report We have invested in the operational capacity of the Group over the last three years, and now have increased operational leverage through which to exploit revenue growth.” Sustainably profitable • Investment into the manufacturing facility to support the Group’s overall revenue growth and increase manufacturing capabilities • Focus on own brands provides opportunity for margin expansion and shareholder return • Growing revenues drives additional gross margin through a fixed cost base, delivering accelerating profitability – “operating leverage” • Existing and new partners growing in-market revenues Annual Report & Accounts 2017 — Venture Life Group plc 7 Distribution (B2B) In the UK, we distribute directly to pharmacy and grocery multiples. Internationally, we distribute through pharmaceutical partners via product distribution agreements – 44 countries worldwide. Our commercial strengths mean: • Strong presence in our home market with UltraDEX brand • Rapid geographical expansion into key markets • Partnering with reputable partners who are responsible for sales and marketing in that market Commercial Expertise & Capital Light Distribution Model The commercial team have decades of experience in partnering healthcare products around the globe. The international distribution partners are responsible for sales, marketing, distribution and promotion throughout the life of the agreement, so we have a de-risked, capital light distribution model. Read more on our strategy page 10 Strategic report Market Review Understanding trends and opportunities We create value for shareholders with our expertise and agility in being able to identify, develop and manufacture for growing market segments. The ever-increasing demand for self-care and preventative wellness is driven by a growing population living longer. The ageing population is a big driver of the self-care market in which Venture Life operates. Ageing population growth Healthcare budgets The global population of people aged over 45 was 2.1 billion in 2015 and it is expected to grow substantially to reach 3.7 billion by 2050, representing nearly 40% of the total worldwide population.1 Healthcare budgets are under increasing pressure. Cost pressures facing the NHS include a growing and ageing population, the increasing prevalence of chronic conditions across all age groups, and the rising cost of delivering care. This is a global issue. 3.4 3.8 4.3 1.8 1.3 1.0 2.0 2.0 2.1 1.4 1.4 1.4 ) s n o i l l i b ( l n o i t a u p o P 5 4 3 2 1 0 2017 2030 0-9 10-24 25-59 60+ 2050 80+ Data source: United Nations (2017). World Population Prospects: the 2017 Revision Impact £4.3bn 66% Net deficit of NHS bodies and NHS trusts in 2015-16 Percentage of NHS trusts in deficit in 2015-16 Impact • Increased demand for products that will help maintain good health • Increased focus from healthcare systems on prevention and early diagnosis • Global growth in the self-care market • Expected that regular use of self-care and over-the-counter “OTC” products will begin as early as the age of 452 Our response • We have the expertise and knowledge to develop, manufacture and distribute self-care products and become a key global market leader in this space • Active acquisition strategy for self-care brands, allowing us to bring manufacturing in-house if applicable, and commercialise these brands internationally • Growth in self-care market Our response • Our vertically integrated model means we can be quick to market • We have the agility to meet market demands • We have the agility to respond to market trends/demands 10m In 2012, the number of over 65’s in the UK surpassed 10 million for the first time £14.9bn Savings the NHS needs to make by 2020–21 1 www.helpage.org/global-agewatch/population-ageing-data/ 2 www.helpage.org/global-agewatch/population-ageing-data/ country-ageing/data?country=China country-ageing/data?country=China 8 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report Agile in responding to market demand With our expertise in research and development, we are in a strong position to quickly respond to market demands in the self-care sector. We are experts in the medical device field and this is evident with our 2017 product launches. New product launches in 2017 include: Myco Clear™ • Topical medical device for fungal nail infections (registered medical device) • Substantial market in both Europe and US • Improves the appearance of the nail and treats the condition • Patent application submitted in 2017 • First partner signed in 2017 – fast to market Procto-eze Plus Wipes™ • New extension to the Procto-eze Plus range, indicated for relieving symptoms of haemorrhoids • On-the-go cleansing wipes developed to soothe the area of discomfort • Complete management and routine range offering – cream, cleanser and wipes • First partner signed in 2017 – fast to market Rosa calma™ • Topical treatment for rosacea • Affecting up to 10% of the general population, occurring mostly in middle-aged people • Provides a long-term solution to a long-term problem Annual Report & Accounts 2017 — Venture Life Group plc 9 27.46% • Range of three products – cream, cleanser and serum (registered medical device) Self-medication market3 To help ease the pressure on GPs, governments are encouraging consumers towards more self-medication and promoting the role of the pharmacist. With people living longer, the growth of self-care and OTC products will continue, as consumers are encouraged to take proactive involvement in managing minor ailments and making themselves less reliant on the health funders for help. Self-medication market annual change 2014-15 Source: Association of the European Self-Medication Industry – Market Data 2.27% 4.33% 5.18% 6.67% 7.26% 8.74% 9.46% 14.88% UK USA Norway France Germany Turkey Spain Japan Australia Impact • Continued global growth in this sector • Growth in the self-care sector with increased demand for over-the-counter ‘’OTC” products Our response • We have long-term exclusive agreements with global partners. With their local expertise of the pharmacy market, we can maximise the market opportunity and produce sustainable revenue growth +4.7% Global growth of +4.7% in OTC category4 3 Association of the European Self-Medication Industry – Market Data 4 www.nielsen.com/us/en/insights/news/2010/self-help-and-the-rise- of-otc-medications.html Strategic report Strategic report Our Strategy Sustained growth 2017 has seen our strategy deliver with another year of good growth for Venture Life, with the Group increasing both revenues and profit. Revenue growth from product acquisitions Achievements in 2017 • UltraDEX partnered in seven new markets • UltraDEX revenue increased in 2017 by 24%, versus 2016 Revenue growth from existing and new distribution partners Achievements in 2017 • Growth in China with Lubatti skincare brand: 237% increase in sell out in 2017 versus 2016 • New partners appointed, new products launched in market Profit growth through ‘increased throughput’ Achievements in 2017 • Units produced through our factory in 2017 were up 17% versus 2016 • First year of positive profit before tax as a result of leveraging a predominantly fixed cost base Revenue growth from developing innovative products Achievements in 2017 • New revenues generated in 2017 from Myco Clear which was developed in-house • Three new Venture Life Group branded products launched in 2017, as well as many new products for customers 10 Venture Life plc — Annual Report & Accounts 2017 Key Performance Indicators Measuring our performance The Group uses a number of different key performance indicators (KPIs) across the business to facilitate performance management, including a combination of financial and operational KPIs and the principal financial KPIs that are shown below: Revenue growth +12% +57% Gross margin 40% 38% EBITDA £1.9m £0.8m 16.1 14.3 37 33 38 40 9.1 7.2 1.9 0.8 (0.4) (0.6) 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 Description: Growth in revenue between reporting periods. Description: Revenue less the cost of sale, expressed as a % of revenue. Comment: This increase is partly led by new international markets signed for the UltraDEX brand. Comment: Excluding lease accounting changes, gross margin remained consistent year-on-year. Description: Earnings before interest, tax, depreciation, amortisation and share-based payment charges and exceptional costs. Comment: An increase in business activity in the year at higher margins leveraged the existing cost base, which increased at a much lower rate. EPS (1.00) (3.76) Adjusted EPS 0.66 (1.28) (1.00) (3.76) 0.66 (1.28) (5.12) (6.01) (3.06) (3.57) 2014 2015 2016 2017 2014 2015 2016 2017 Description: Earnings (“LAT” – loss after tax) per share (pence). Description: LAT/PAT adjusted for amortisation and share-payments, per share (pence). Comment: Improved business performance and a move to pre-tax profitability has driven an improved EPS and adjusted EPS. Comment: Improved business performance and a move to pre-tax profitability has improved EPS and adjusted EPS. Annual Report & Accounts 2017 — Venture Life Group plc 11 Strategic report Chief Executive Officer’s Statement A year of strong progress The Group finished the year with its highest level of turnover and profitability in its history, demonstrating the continued strong organic growth from the Group’s portfolio. The Group finished the year with its highest level of turnover and profitability in its history, demonstrating the continued strong organic growth from the Group’s portfolio. Revenues finished the year at £16.1 million, up 12% from last year, and we also reported our first profit before tax of £0.1 million. EBITDA of £1.9 million is reported for the year, and this figure includes an amount of £0.5 million arising from the adoption of new accounting requirements for long-term leases arrangements, principally rent, as discussed in more detail in the Financial Report. However, on a like-for-like basis, ignoring this change, EBITDA would have been reported as £1.4 million, which is an increase of over 70% from the previous year. This change in accounting for long-term leases has minimal effect on the profit before tax. We also achieved our first pre-tax profit as a Group of £0.1 million (2016: loss of £1.1million), marking the progression of our business to becoming sustainably profitable going forward. We have a significant level of long-term consistent repeat purchasing from our customers, such that we have a very stable underlying consolidated level of repeat business. This gives strength and stability to our business, and allows us to continually build on top of these strong foundations of revenue and cash flow. The increase in profitability in 2017 has been created through organic growth across our business, which is then driven through the operational leverage we have within the Group. With our cost base essentially fixed, increasing revenues deliver more gross margin, the majority of which falls to the bottom line, as the Group moves to its long standing goal of being sustainably profitable. In 2017, although we have seen this increasing profitability delivered from purely organic growth, our strategy continues to include acquisitions that can add revenues and profits to our business as we saw in 2016 with the acquisition of UltraDEX. Further, we have delivered this organic revenue growth with little contribution from the three most recently developed products (Myco Clear™, Rosa calma™ and Photo ALL™), which will only begin significant commercialisation in 2018/2019, as the clinical trials for marketing purposes are expected to complete this year or early next year. As we have set out previously, the Group has built an operation that has the capacity to accommodate significantly increased revenues without the need to increase the fixed cost base. By fully utilising our existing buildings at Biokosmes, we are now able to double the 2017 volumes. We achieved our first pre-tax profit as a Group, marking the progression of our business to becoming sustainably profitable going forward.” Jerry Randall Chief Executive Officer Summary • First pre-tax profit as a Group of £0.1 million • Increase in profitability in 2017 has been created through organic growth across our business into a fixed cost base • Active international expansion of the UltraDEX range since acquisition • New medical devices developed for onychomycosis and rosacea – a strong fit to our self-care product portfolio • Continued sales growth in China 12 Venture Life plc — Annual Report & Accounts 2017 Strategic report UltraDEX® case study UltraDEX is a product range for the treatment of halitosis (bad breath). The product is supported by strong clinical data and has been on the market for 20 years. Although UltraDEX was well established in the UK, it had limited international exposure. Since the acquisition in March 2016, we have successfully partnered in key international markets and this is continuing as we move into 2018. A considerable amount has been achieved within a short time frame and this illustrates our ability to quickly increase the distribution of our acquired brands, a model that we will continue through future acquisitions. 2017 highlights include: • International expansion • Seven new international markets including France, Italy, Sweden, Denmark, Norway and Finland in the EU in 2017 alone • New marketing campaign implemented across the UK • TV advertising, advertising on the London Underground, branded cups in coffee shops • Innovation – new packaging re-design and new 1 litre size • UK Growth – 2017 gross sales grew at the fastest rate since 2011 • Pharmacy channel delivered the first year-on-year growth since 2012 • New accounts won – Moto service stations, Road Chef, Day Lewis pharmacies amongst others Annual Report & Accounts 2017 — Venture Life Group plc 13 Strategic report Chief Executive Officer’s Statement continued Above and beyond this, we have the capacity to increase the footprint of the production buildings on the current site to the extent of more than doubling capacity again. Our products The Group develops and commercialises a wide range of products registered as either medical devices, food supplements or cosmetics for a broad range of customers globally. Some of these are sold under the Group’s own brand names, and some are sold under our customer’s own brand names. The extent of the input to the process from the customer will often determine the level of margin earned by the Group. For example, where the Group owns the intellectual property associated with the product (such as brand, patent, clinical data, manufacturing formulation and method) the gross margin earned is expected to be higher. There are situations where even though Venture Life owns significant IP (notably formulation, clinical data and/or patent) around the products, selling under a customers’ own brand name may deliver greater sales velocity and absolute sales compared to using our own brand name, and in these situations we may choose to sell under the customer’s own brand name in order to maximise profit and value for the Group for that product. UltraDEX UltraDEX has continued to deliver on the promises we made at the time of its acquisition in 2016, with the brand contributing significantly to the Group’s revenue and profit growth. Total revenue from the brand in 2017 was £3.4 million, an increase of 24% over 2016 and profitability increased in 2017 to £1.1 million, more than four times the profitability when we acquired the brand. We have seen the continued expansion of the brand in the UK during 2017 which will contribute to revenue growth in 2018. We have had the opportunity to re-establish the relationship with all the key customers, as well as some new customers and as a result, we have seen an increase in-store listings during 2017 of over 13%, to almost 15,000 points of distribution. This includes our first into the significant convenience store market with Moto service stations and Road Chef post period end. Internationally, we have been very active in the expansion of the UltraDEX range. Since acquisition we have appointed long-term distribution partners in nine countries with appointments in seven new markets during 2017. The UltraDEX range is now present in a total of 12 countries, including four of the big five EU countries. Our H2 revenues included first shipments to UltraDEX partners in France and Italy, and they will be launching the products during Q1 2018. China case study Sales out of China Sales In January 2015, Venture Life announced an exclusive 30-year distribution agreement with Gialen Group Co. Ltd. Gialen sells 14 luxury skincare products under the Lubatti brand. Fast forward to 2017, there are now over 2,100 Gialen stores across mainland China and the Lubatti brand is seeing strong year-on-year sales orders. • Record in-store sales levels in 2017 • More than 400,000 consumers shop daily in Gialen stores across mainland China y r a u n a J l i r p A l y u J 2016 r e b o t c O y r a u n a J l i r p A l y u J 2017 r e b o t c O 14 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report We have continued to broaden the intellectual property estate for UltraDEX, with patents being granted for the innovative UltraDEX Sensitive range in the EU, Australia, Mexico, South Africa and Indonesia, which add to the existing patent grants in the USA, New Zealand and Japan. This product launched in some new UK retailers including Sainsbury’s in H2 2017. During 2017, we went through a brand revitalisation and also launched larger pack sizes, to offer more value to loyal customers of the brand. We launched 1 litre packs in two mouthwash varieties. We are already seeing the benefit of this innovation, as in 2017 we saw the volume of UltraDEX mouthwash sold growing in the UK. This type of innovation is key to brand development and adds longevity; moving forward we will continue to introduce innovation to this brand in 2018 and beyond, as well as growing its geographic presence globally. Other oral care products We have extensive expertise in the oral care area, and aside from our UltraDEX brand, our Biokosmes facility has developed and produced a series of products, registered as both medical devices and cosmetics, in the oral care sector since 2000, for a number of customers, who market these products under their own brands. This is a resilient area that has seen consistent growth for many years with revenues (excluding our UltraDEX brand) of £5.5 million in 2017 (2016: £5.3 million). The Group’s expertise in the development and manufacture of medical devices has enabled it to bring innovation through new product development in this area, as well as support our key customers. These products are now sold to a number of customers, across many territories, and include products for aphthous ulcers, oral mucositis and dry mouth. Lubatti (China) We have continued to see growth in China from this skincare brand during 2017, with revenues of £0.5 million (2016: £0.4 million). Sales out of the Lubatti range through our partner Gialen, have grown consistently during 2017 with monthly sales in December 2017 over three times higher than monthly sales in January 2017. Gialen now have over 2,100 stores in China, and they have launched the range in all eight regions. We are hopeful this level of sales growth will continue to deliver growing revenues for Venture Life from this range. The brand is well received by the Chinese consumer and some clear ‘hero’ products are emerging, which lead the brand forward. Importantly, we have already received significant orders in 2018 which are ahead of our expectations. Other brands We have a number of other key brands in the portfolio: • NeuroAge™ – food supplement indicated for short-term memory loss and cognitive function. Sold in six countries and recently registered in the new market, Canada. • Myco Clear™ – indicated for the management of onychomycosis (fungal nail infection), which can leave the toes or fingernails discoloured and uneven. Registered during 2017 in the EU and the subject of a patent application, this innovative product deals with both the aesthetic issue surrounding the condition, as well as the underlying cause. Having successfully completed a preliminary aesthetic evaluation demonstrating the improvement in appearance of the nail through use of the product, we are currently conducting a further clinical study, demonstrating the efficacy on the underlying fungus that we have already seen at an in vitro level. We already have partners in four markets for this. • Rosa calma™ – a range of three topical products that treats this inflammatory skin condition; rosacea affects up to 10% of the population, occurring mostly in middle-aged people. This innovative range, which is undergoing further studies for marketing purposes, provides a unique long-term safe treatment regime for patients suffering from this condition. • Procto-eze™ Plus – an innovative range of medical devices and cosmetics for the treatment of haemorrhoids. Already partnered in 12 countries, this product offers a unique treatment regime for the patient. Organic growth in product revenues is delivered year-on-year by: • Our existing partners growing their in-country revenues, and hence buying more product from us • Venture Life partnering products into new or existing countries, either with existing partners or new partners globally • Venture Life developing new brands, which are in turn offered to existing partners by way of line extensions In addition, we will continue to identify and assess selective acquisition opportunities, which, like UltraDEX, we believe can be integrated effectively into our operations and can enhance earnings and deliver growth in shareholder value. Operations The Group now has 100 employees in total throughout the business. Venture Life is a fully integrated business for the development, manufacture and commercialisation of self-care products. The UK operation employs 18 people at its UK head office, and manages finance, business Annual Report & Accounts 2017 — Venture Life Group plc 15 Strategic report Chief Executive Officer’s Statement continued Operations continued development and partner management for the Venture Life Brands, both in the UK and internationally. The Italian operation employs 82 people, and houses development, production, procurement, technical, regulatory, customer services/support, business development and administration. The production facility comprises 56 staff operating across all functions, primarily divided between bulk manufacture and filling/packing. In 2017, we produced 21 million units of product in the plant which included 7 million sachets. We are conscious as our business grows we need to ensure sufficient capacity for growth, and we currently have a two-stage plan to more than double the existing capacity within our existing buildings, and then over the following 3-5 years increase our building footprint on our current site, which will increase capacity again. The fixed nature of the cost base in the business means that incremental revenue generates additional gross margin, the majority of which flows to the bottom line. This was seen in 2017 as the growing revenues drove more gross margin through to the profitability level, helping the Group to report significant growth in EBITDA and its first profit before tax. The production facility in Italy has all the necessary approvals and accreditations to manufacture products regulated as medical devices and cosmetics, for many of the countries around the world, including EU, North America, Brazil, MENA and the Far East. In 2017, the facility had a successful inspection from the US FDA, which allows the facility to manufacture products as OTC drug category for US or for sale in US. This can include products with compounds regulated as OTC drugs in the USA, such as fluoride. This additional certification is a great opportunity for us to offer this service to our existing and new customers. We relocated to our new head office in Bracknell without any significant increase in cost base. This comfortably accommodates our existing UK operation and allows for future growth. Outlook Recent new projects with a number of our customers, including Menarini and Alliance, are testament to the capabilities and value offered by our business and team. These customers look to work more and more with us, as we deliver innovation through to first class product delivery, in the highly technical area of product development and manufacture, especially in the area of medical devices. We are delighted that this year our collaboration with Menarini will see the completion of a suite of 27 new products developed for international commercialisation, which will begin in 2018. We continue to screen and review a number of acquisition opportunities, and fully expect to continue to add acquired assets to our operating platform in the coming months and years, in the same way that we have accommodated UltraDEX successfully. 16 Venture Life Group plc — Annual Report & Accounts 2017 We continue to fulfil our promise to deliver increasing profitability, now at the pre-tax level also, and hence demonstrate that our business model possesses the operational leverage that we planned. This model will continue to deliver accelerating profits and cash flow as we continue to grow revenues, and a key focus for us in 2018 is to ensure this is clearly communicated to the market, so that shareholders and investors alike understand the current strong, low risk position of the Group and the consolidated underlying business that we have. We believe this will translate into strong sustainable profit and cash flow growth, generating value for shareholders. Through delivering these results and positive communication to the market, we are very hopeful that the share price will begin to reflect the true underlying value of the business and its prospects. We are comfortable with the level of debt in the business and comfortable that we have the resources to deal with both the interest and capital elements. The most imminent capital repayment is the £1.9 million UKBN convertible bond which is due to be repaid, if not converted in March 2019. We are already in discussions to defer this convertible bond or refinance with debt in the event we choose not to repay the capital from our funds, but instead retain them in the business for funding more growth. We have used this debt to finance the growth of the business and now the business is starting to generate the cash resulting from this investment. The net debt to EBITDA multiple sat at 3.5 times at 31 December 2017, but we expect this to fall significantly during 2018, to much closer to 2, as the business generates more profit and cash flow without incurring any organic growth in debt. Our employees have been carefully chosen and are absolutely core to the performance and growth plans of the business. Their hard work, enthusiasm, loyalty and dedication are key to being able to deliver our products to our customers around the globe. I would like to thank everyone in the business for being part of the Venture Life story. Also, thank you to all our customers and suppliers alike, who continue to trust and support our business. We have started 2018 well with our KPIs looking strong and in line with our expectations. The current order book in Q1 is strong with some customers’ order patterns already ahead of where we thought they would be by this time. We look forward to 2018 with confidence as the business goes from strength to strength. We would like to thank all our shareholders for their ongoing support of the Board and our business, and I look forward to updating the shareholders on our progress further this year. Jerry Randall Chief Executive Officer 21 March 2018 Strategic report Development and Manufacturing Q A& With Gianluca Braguti, Development and Manufacturing Director 2017 highlights • Successful FDA inspection which allows the facility to manufacture over-the-counter “OTC” drug products for the US market. almost double production capacity even further without having to build new buildings. We still then have space to increase this further in the future with new buildings on our existing site. • 21 million finished products manufactured in 2017 What has been the highlight of 2017? • Two new products registered, Myco Clear and Rosa calma • Technical team strengthened When was Biokosmes, the development and manufacturing business of Venture Life Group founded? I founded Biokosmes over 30 years ago. Having graduated as a pharmacist, I worked in the Milano University Research and Development department researching cosmetic applications before setting up my own laboratory to produce products for my father’s chemist shop based in Lecco, north of Milan. In 1990, I started developing formulations for Italian cosmetic brands and started contract manufacturing. The business has grown considerably – we are now specialists in developing medical devices and have gained approvals from regulatory authorities around the world, including USA, Europe and the Far East. In 2014, we joined the Venture Life Group and we’ve seen year-on-year growth ever since. What is the current capacity at the manufacturing facility? We have a 5,500m2 facility north of Milan. We have a 130,000 unit per day capacity with six turbo mixers, ten filling and packaging lines. This year we are going to relocate some of our warehousing off-site to enable us to add additional packaging lines. This means we can In addition to achieving the record revenue of €15.8 million in 2017 for the Italian business, a key highlight has to be the successful FDA inspection which allows the facility to manufacture over-the-counter “OTC” drug products for the US market. We had to pass a rigorous compliance process and gaining certification is a testament to our high quality facility and the high calibre team we have in place. It also means a significant new growth opportunity with our existing and potential new partners and it also enables us to develop our own products for the US market. What has been key to the continued growth as part of the Venture Life Group? I think our agility and expertise in the market is a key factor. We use effective regulatory strategies to minimise cost and time to market and we are established as experts in developing medical devices. Also, key to our growth is fostering and nurturing our customer partnerships, both with new and existing customers, so we can maximise the commercial opportunities and secure increased customer order growth. We strive to be “the partner of choice” in whatever aspect we do. How is 2018 looking so far? Very good. Our order book so far for H1 2018 is ahead of the prior year and we’ve secured additional business from existing customers with the launch of new product ranges. This combined with increased manufacturing capacity and new customers, I’m confident we’ll deliver a strong year of growth. Units capacity Bulk manufacturing capacity % 100% 80% 60% 40% 20% 0% 2017 2018 Capacity with 2018 capex plan Capacity with future capex 100% 80% 60% 40% 20% 0% Spare capacity (kg) Manufactured volumes (kg) 2017 2018 Annual Report & Accounts 2017 — Venture Life Group plc 17 Strategic report Principal Risks and Uncertainties Venture Life Group plc is a business that relies on revenues generated by its distribution partners for international product sales, and from providing Development and Manufacturing services to customers. With the recent acquisition of UltraDEX, the Group will also be relying on its own UK-based sales and marketing operations to generate product sales. There are a number of risks and uncertainties which, if they were to materialise, could have an effect on the Group’s trading performance and future prospects. The risks that the Group believe could materially and negatively affect the Group’s ability to achieve its commercial objectives are summarised below: Non-financial risks Reduction in demand for products The Group’s product distribution agreements generally give market exclusivity to its distribution partners for a period of five or ten years. Whilst such agreements impose minimum annual purchase obligations, if any of the Group’s partners fails to meet its minimum purchase obligations, the Group’s expected revenues and profits could be negatively affected. Such negative impact would continue until either the partner is able to meet its minimum purchase obligations or until the Group is able to find an alternative commercial partner for that market. Customer-specific risk A significant proportion of revenue from our Development and Manufacturing business is derived from a relatively small number of customers. The percentage of this segment’s total revenue generated by its top five customers in the years ended 31 December 2015, 2016 and 2017 was 59%, 56% and 50% respectively. The loss of any customer or group of customers which represents a significant proportion of revenue could have a negative impact on the Group’s operating results and cash flow. Delay in regulatory approval Supply chain risk Adverse foreign exchange movements affecting profitability The Group’s products are primarily approved for use as food supplements, medical devices, and functional cosmetics that, in certain regions including Europe, require pre-market notification but not pre-market authorisation or approval by the relevant authorities. In other regions of the world where the Group either has distribution agreements in place or is actively seeking to establish them, the procedure for registering and having products authorised may differ from that in Europe. Other jurisdictions may require more lengthy registration and authorisation processes and the Group will be relying on its distribution partners to carry out this work in a timely manner. This in turn may lead to delays in product launches in certain territories but the Group works closely with its partners to support them through the process. The Group relies extensively on third parties for many of its activities, including raw material supply, logistics, distribution and sales of its products. The Group is therefore at risk of under-performance by third parties, exploitation by third parties of the Group’s commercial dependence and by unforeseen interruptions to third parties’ businesses. To mitigate this risk, the Group works with a variety of vendors and aims not to be over-reliant on any one particular vendor. The Group is very reliant on its Development and Manufacturing business for supply of products and there is a risk of supply chain interruption as a consequence of events such as fire or flooding. The Group mitigates this risk by observing its own Health and Safety policies, as well as by taking practical measures such as the installation and maintenance of a fire alert and fire prevention system in its factory. Prior to the acquisition of UltraDEX in March 2016, the Group’s revenues were primarily denominated in Euros and, in the case of Gialen in China, in Chinese renminbi. Following the acquisition of UltraDEX, the Group’s revenues are now denominated in Euros, Chinese renminbi and sterling. However, the Group’s presentational currency is sterling and therefore the reported revenues will depend on exchange rates prevailing during the relevant financial period. The majority of the Group’s cost of sales are denominated in Euros and 82% of the Group’s revenues are denominated in Euros. The Group is therefore not unduly exposed to adverse movements in the Euro/ sterling exchange rate in relation to its gross profit. The Group’s administrative expenses arising in Italy represent a material component of overall Group administrative expenses. These expenses are denominated in Euros and when reported on a consolidated basis, they will be reported in the Group’s presentational currency of sterling. Consequently, there may be variability in the presented expenses caused by variability in the sterling/Euro exchange rate. The Group actively monitors the principal foreign exchange rates and will adopt hedging strategies when it is felt to be appropriate. The Group also anticipates presenting its financial results on a constant currency basis to enable shareholders to compare the performance of the Group between reporting periods with the impact on reported results of strengthening or weakening sterling eliminated. 18 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report Financial risks Financial risk management The Group seeks to minimise its exposure to financial risk through issue of its own equity instruments and debt to fund operating and investing activities. Where it is necessary to utilise debt funding, the terms of the financing are reviewed against future cash flow expectations to ensure that there are sufficient resources for the Group to meet its obligations under the financing arrangements. Further details relating to the Group’s exposure to financial instrument risks are provided in note 3.14. Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and to minimise potential adverse effects on the Group’s financial performance. Market risk Credit risk Liquidity risk Risk Management is carried out by management under policies approved by the Directors. Management identifies and evaluates financial risks in close cooperation with the Group’s operating segments. The Directors provide principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, non-derivative financial instruments and investment of excess liquidity. Market risk is the risk of loss that may arise from changes in-market factors such as interest rates and foreign exchange rates. The Group monitors market risk factors and regularly reviewing business forecasts to assess the impact of changes in market conditions. Credit risk is the financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligation. Credit risk arises from the Group’s cash and cash equivalents and receivables balances. The Group mitigates this risk by requiring upfront payments from new orders with new customers and monitoring the composition of the Group’s monthly debtor book. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the Group’s prudent liquidity risk management and implies maintaining sufficient cash reserves. Management monitors rolling forecasts of the Group’s liquidity and cash and cash equivalents on the basis of expected cash flow. Capital risk management The Group’s capital structure is comprised of shareholders’ equity, debt in the form of loan notes issued to the vendors of Biokosmes, a three year convertible bond issued to part-fund the acquisition of Periproducts, invoice financing and unsecured commercial debt. Brexit Risk The Group’s objective when managing capital is to maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long-term. The capital structure of the Group is managed and adjusted to reflect changes in economic conditions. The Group funds its expenditures on commitments from existing cash and cash equivalent balances, primarily received from issuances of shareholders equity and loan arrangements, some of which are linked to equity. There are no externally imposed capital requirements. Financing decisions are made by the Directors based on forecasts of the expected timing and level of capital and operating expenditure required to meet the Group’s commitments and development plans. The Group has operations in the UK and Italy. In the event of Brexit there may be some implications for the Group arising. At the moment there is limited clarity on the exact impact on UK-based businesses that trade internationally. The significant proportion of the Groups operations (approximately 80% by revenue, and people) is based in Italy so will not be affected by Brexit. In fact with the majority of our operations based in the EU, Venture Life is more immune to the potential implications of Brexit compared to most UK businesses. The main issue that may affect the Group could relate to import duties on products manufactured outside of the UK, but imported into the UK for sale. Approximately 80% of the Group’s revenues are invoiced or shipped out of Italy, in Euros, and therefore do not come into the UK and would not be subject to any import tariffs. The remaining 20% currently represents the sales of UltraDEX which is manufactured in our plant in Italy, then imported to the UK and sold to customers. Its possible that these imports could be subject to import duties, which would increase the cost of these items that we sell in the UK, reducing gross margins on the product. As we manufacture these products ourselves, we already have good gross margins on the products with which to absorb these increases. However if these increases become particularly onerous, we have in place already secondary suppliers in the UK who would be able to produce the goods at a better price than that if import duties were imposed, thus maintaining our margins on these products. Annual Report & Accounts 2017 — Venture Life Group plc 19 Strategic report Financial Review Continued revenue growth in 2017 We achieved our first pre-tax profit as a Group, marking the progression of our business to becoming sustainably profitable going forward. 2017 saw another significant year for the Venture Life Group, achieving record revenues of £16.1 million up 12% from 2016. The strong performance of our UltraDEX brand growing 24% year-on-year along with our existing brands and Development and Manufacturing businesses helped drive increasing revenues, achieved through a mixture of new and existing partnerships. The year also celebrated the Group’s first profit before tax of £0.1 million. Statement of Comprehensive Income The Group reported 2017 revenues of £16.1 million, an increase of 12% over the £14.3 million reported in 2016. The increase includes a full 12 months of the UltraDEX brand, which we acquired in March 2016. The Brands segment, which includes the UltraDEX brand, increased revenues by 20% to £4.5 million (2016: £3.8 million). Of the total Brands revenue in 2017, £2.8 million was generated by UltraDEX sales with UK retailers, and new UltraDEX deals signed in Scandinavia, France and Italy added a further £0.6 million. Our Development and Manufacturing business, where we sell under customers brands, reported revenues (including intercompany sales) of £13.8 million, an increase of 22%. The Euro strengthened capital significantly against sterling in 2017 – the average exchange rate during 2017 was EUR:GBP 1.15 compared to EUR:GBP 1.23 during 2016. This has increased reported revenue and administrative costs where a large element of these are in Euros. The overall impact of the changes in foreign currency rates had a limited effect on the reported profit after tax of the Group. The change in foreign exchange in the year gave a higher revenue offset by higher costs, and a foreign exchange charge resulting from the revaluation of the Group’s Euro loan notes. So far in 2018 the Euro has remained relatively close to the closing rate of 2017. The Brands business was enhanced in the current year with the addition of a full trading year of the UltraDEX brand. A change in product mix of the Brands business slightly reduced the gross margin to 52% (2016: 54%). Our Development and Manufacturing business (excluding intercompany) generated an improved gross margin of 36% in 2017 (2016: 33%), which reflects contracts held with existing and new customers and the adoption of the new lease accounting standard. Higher revenue and gross profit of this unit was generated with minimal increase in local currency administrative expenses in the year. Administrative costs (pre-exceptional items) increased marginally in 2017 to £6.0 million (2016: £5.8 million). This reflects the focus of the Group on cost control with the backdrop of increasing revenues. Revenues finished the year at £16.1 million, up 12% from last year, and also recorded its first profit before tax.” Adrian Crockett Chief Financial Officer Summary • Record revenues • 12% year-on-year revenue increase • Gross margin percentage increased to 40% • Maiden year of “Profit before tax” • Good organic growth 20 Venture Life Group plc — Annual Report & Accounts 2017 Strategic report Operating profit totalled £0.6 million (2016: loss of £0.5 million) with the first reported profit before tax for the Group of £0.1 million (2016: loss of £1.1 million). Loss after tax was £0.4 million (2016: loss of £1.4 million). These translated into an adjusted profit per share of 0.7 pence (2016: adjusted loss per share of 1.3 pence), with the improvement in business performance generating enhanced shareholder value. The number of shares in issue at 31 December 2017 was 36,837,106 (31 December 2016: 36,837,106). Statement of Financial Position Property, plant and equipment increased as a result of investment of £0.3 million (2016: £0.2 million) in new equipment in the Development and Manufacturing business and lease accounting changes during the year. The net working capital balance at 31 December 2017 increased from 31 December 2016 due to the increased activity in the year as well as the addition of the UltraDEX brand business. Total assets of £31.3 million at 31 December 2017 were £4.0 million higher than at 31 December 2016, largely owing to the lease accounting changes and the related additional right-of-use lease assets. Cash and debt Cash and cash equivalents at the year end totalled £1.4 million (2016: £2.0 million) and was £0.1million higher than 30 June 2017. Net cash outflow during 2017 amounted to £0.6 million with the reduction in cash balances accounted for as follows: • Operating cash flow before movements in working capital – inflow of £1.3 million • Tax paid – outflow of £0.7 million • Net movement in working capital – outflow of £0.6 million • • Investment in manufacturing facility – outflow of £0.3 million Investment in intangible assets – outflow of £0.6 million • Net movement in interest-bearing borrowings – inflow of £0.3 million Net debt levels, before finance lease obligations, increased from £6.0 million at 30 June 2017 to £6.3 million at 31 December 2017 (31 December 2016: £5.1 million). The Group is financed by a range of instruments including convertible bonds, vendor loan notes and other interest bearing debt of varying maturities comprising invoice financing, unsecured bank loans and deferred consideration. As highlighted earlier in this report, we are comfortable with the level of debt in the business which is being used to finance growth and investment. The Directors have prepared detailed forecasts looking beyond 12 months from the date of these financial statements and expect to move to profitability in the foreseeable future. The most imminent capital repayment is the £1.9 million UKBN convertible bond which is due to be repaid, if not converted in March 2019. We are already in discussions to either defer or refinance with debt this convertible bond and consequently fully expect this to be confirmed in the foreseeable future. Forecasts assume the convertible bond is refinanced rather than repaid from existing funds. Accounting developments New standards, amendments and interpretations issued and adopted During the period the Group elected to adopt IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’ with effect from 1 January 2017. Under IFRS15 management performed a full review of all Group revenue contracts to assess the impact of the new accounting standard. There were no changes to the accounts as a result of IFRS15. Management performed a full review of all lease contracts of the Group to assess the Group’s leasing obligations in line with the guidance of IFRS16. The new Standard has been applied retrospectively without restatement, with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained earnings at 1 January 2017. The impact to Venture Life Group was as follows: • £486,000 improvement of EBITDA • £465,000 extra depreciation • £42,000 extra finance cost. This has a minimal impact on profit after tax but moves the lease charges of Biokosmes (the Development and Manufacturing facility) to depreciation and finance costs instead of across cost of sales and administration costs. Further details of the adoption of IFRS16 are included in note 29. Right-of-use assets capitalised onto the balance sheet increased by £3,676,000 and lease liabilities of £3,696,000 were recorded. Amortisation was also reviewed and the useful lives of the Group’s intangible assets revisited. This resulted in the re-assessed future estimated life of the acquired customer relationships, patents and trademarks from Biokosmes and Periproducts – re-assessed to 10 years future life from 1 January 2017, updated from the former 5 years from acquisition. The impact for Group in 2017 is £397,000 lower amortisation and better reflects the utilisation of these long-term assets. Dividend The Group paid a dividend in 2017 of 0.04 pence per share (2016: 0.04 pence per share) and is recommending a dividend of 0.04 pence per share be paid to shareholders in 2018. Adrian Crockett Chief Financial Officer 21 March 2018 Annual Report & Accounts 2017 — Venture Life Group plc 21 Strategic report Corporate governance Directors and Advisers An experienced team 6 5 8 3 2 4 1 7 1 Dr Lynn Drummond Non-Executive Chair Lynn joined Venture Life as Non-Executive Chair in November 2013. Lynn has been Non-Executive Chairman of Infirst Healthcare Limited since early 2013 and is also a Non-Executive Director of RPC Group plc. Previously Lynn spent 16 years at Rothschild in London, most recently as a Managing Director within the investment banking division, with a particular focus on transactions within the healthcare sector. Prior to Rothschild, Lynn worked in the Cabinet Office in London as Private Secretary to the Chief Scientific Adviser. Lynn holds a Bachelor of Science Degree in Chemistry from the University of Glasgow and a PhD in Biochemistry from the University of London. She is also a Fellow of the Royal Society of Chemistry and a Fellow of the Royal Society of Edinburgh. Lynn chairs the Group’s Nomination Committee and is a member of the Audit and Risk and Remuneration Committees. 2 Jerry Randall Chief Executive Officer Jerry co-founded Venture Life in 2010. From 2000 to 2009, Jerry was CFO and co-founder of Sinclair Pharma plc, an AIM listed international specialty pharma business, now listed on the AIM market in London. Sinclair was founded in August 2000 when Jerry completed the management buy-in. Jerry was also on the Board of Silence Therapeutics plc, an AIM listed biotech development business, from 2008 to 2013. Initially a Non-Executive Director, Jerry became a Non-Executive Chairman in 2010 and moved to Executive Chairman in 2012. Jerry enjoyed a career initially in corporate finance and was involved in buy-ins and acted as adviser to both private and quoted companies between 1993 and 2000, in capacities as nominated adviser and in practice with KPMG. 22 Venture Life Group plc — Annual Report & Accounts 2017 Jerry has been involved in a number of flotations and transactions on the Official List, Unlisted Securities Market and AIM, as well as raising private equity. He qualified as a chartered accountant with KPMG in 1990. 3 Sharon Collins Commercial Director Sharon co-founded Venture Life in 2010. Sharon has almost 20 years’ experience within the healthcare industry, predominantly in marketing, international sales and business development roles. She worked for a leading dental manufacturer for seven years and launched many products during this time. Sharon worked for Sinclair Pharmaceuticals for five years within the International Business Development field. She qualified from Lancaster University in 1996 with a degree in Marketing and gained her MBA (with Distinction) in 2003. 4 Gianluca Braguti Manufacturing Director Gianluca joined the Board in March 2014 following the acquisition by Venture Life of Biokosmes, the company he founded. Gianluca began his career working in his father’s pharmacy and then, after he graduated as a pharmacist, continued working for several years in the Milano University cosmetic Research and Development department researching cosmetic applications for raw materials used in different fields. In 1990 he started developing formulations for Italian cosmetic brands mainly in the perfumery and pharmacy area and started his experience in contract manufacturing business, Biokosmes. In 1999 Biokosmes started developing and manufacturing medical devices, selling predominantly in Europe. In 2002 Biokosmes passed its first FDA inspection, and started exporting its products to the US. 5 Adrian Crockett Chief Financial Officer Adrian has significant financial management experience in the healthcare industry. Prior to joining Venture Life, he was Finance Director of Abbott Diabetes Care Ltd, a division of the US healthcare company, Abbott labs, and before this Group Finance Director at PAREXEL. Previously, he served as Finance Director R&D at GSK and as Head of Business Planning & Analysis at Novartis Vaccines & Diagnostics. Before this he held senior financial management roles at Chiron corporation (prior to acquisition by Novartis), and Powderject pharmaceuticals (prior to acquisition by Chiron). Adrian completed his accountancy training at Andersen Consulting (now Accenture). Adrian has a BAcc honours degree in accountancy from The University of Dundee and is a Chartered Management Accountant. 6 Peter Shepherd Company Secretary Peter joined the Venture Life Group in December 2014 and manages the operational finances as Group Financial Controller. Peter provides Company secretarial support to the Board and assists the Board with finance matters as required. Peter started his career with the actuarial team of PwC in 1999 as an already ACCA qualified accountant. In 2005 he moved to work with Vodafone PLC in the corporate treasury team and subsequently for Expro International Group, a $1 billion revenue oil services company, initially within the Group finance function and latterly heading up the finance team of the Norway division, representing 10% of the Expro International Group. 7 John Sylvester Non-Executive Director John Sylvester joined the Venture Life Board in November 2013. John is currently the corporate development officer at BTG plc, following the £177 million acquisition of Biocompatibles by BTG. John joined Biocompatibles in 2005, taking responsibility for marketing, sales and business development, and was appointed to the Board as an Executive Director in the same year. His career covers a series of senior commercial roles for Rio Tinto Zinc plc, ICI plc and English China Clays plc where he was Managing Director prior to the acquisition by Imetal for £756 million. Immediately before Biocompatibles John was with Baxter Healthcare working out of their European HQ in Zurich where he was VP of Marketing for their European Medication delivery business, a $750 million portfolio spanning both drugs and medical devices. John chairs the Group’s Remuneration Committee and is a member of the Audit and Risk and Nomination Committees. 8 Peter Bream Non-Executive Director Peter Bream joined Venture Life in February 2016. Formerly the Group Finance Director of Alcontrol Laboratories, Peter has over 20 years in international business including as a CFO of public companies in the pharmaceuticals, engineering and chemical sectors. Peter has a degree in Engineering and Management from Cambridge University and is a Chartered Accountant. Peter chairs the Group’s Audit and Risk Committee and is a member of the Remuneration and Nomination Committees. Directors Dr Lynn Drummond Non-Executive Chair Jerry Randall Chief Executive Officer Sharon Collins Commercial Director Adrian Crockett Chief Financial Officer Gianluca Braguti Manufacturing Director John Sylvester Non-Executive Director Peter Bream Non-Executive Director Registered Office Venture House, 2 Arlington Square, Bracknell, Berkshire RG12 1WA www.venture-life.com Company Secretary Peter Shepherd Company number 05651130 Nominated Adviser and Broker Northland Capital Partner Limited 60 Gresham Street, London EC2V 7BB Joint Broker Turner Pope Investments Limited 1st Floor, 5 Old Bailey, London EC4M 7BA Auditor Grant Thornton UK LLP Benham 5 Southampton Science Park Southampton Hampshire SO16 7QJ Solicitors Simmons & Simmons LLP CityPoint, One Ropemaker Street, London EC2Y 9SS Registrars Link Asset Services, PXS, 34 Beckenham Road Beckenham, Kent BR3 4TU Principal Bankers NatWest Commercial Banking 30 Market Place, Newbury, Berkshire RG14 5AG HSBC Bank plc Home Counties Business Banking Centre 1st Floor, Sunningdale, The Belfry Business Park, Colonial Way, Watford WD24 4WH Annual Report & Accounts 2017 — Venture Life Group plc 23 Corporate governance Statement of Corporate Governance Introduction The Audit and Risk Committee The Audit and Risk Committee is chaired by Peter Bream. The other members of the Committee are John Sylvester and Lynn Drummond. The Committee has responsibility for considering all matters relating to financial controls and reporting, internal and external audits, the scope and results of the audits, the independence and objectivity of the auditor and keeping under review the effectiveness of the Company’s internal controls and risk management. The Audit and Risk Committee is expected to meet at least twice a year. The Remuneration Committee The Remuneration Committee is chaired by John Sylvester. Lynn Drummond and Peter Bream are the other members of the Committee. The Committee has responsibility for making recommendations to the Board on the Company’s policy for remuneration of Senior Executives, for reviewing the performance of Executive Directors and senior management and for determining, within agreed terms of reference, specific remuneration packages for each of the Executive Directors and members of senior management, including pensions rights, any compensation payments and the implementation of executive incentive schemes. The Remuneration Committee meets at least once a year. Further details of Directors’ remuneration are disclosed in the Directors’ Remuneration Report. The Nomination Committee The Nomination Committee is chaired by Lynn Drummond with John Sylvester and Peter Bream as the other members of the Committee. The Committee has responsibility for considering the size, structure and composition of the Board, and the retirement and appointment of Directors, and will make appropriate recommendations to the Board about these matters. The Nomination Committee is expected to meet at least once a year. Internal control and risk management The Board has ultimate responsibility for the systems of risk management and internal control maintained by the Group and for reviewing its effectiveness. The Board’s approach is designed to manage rather than eliminate risk and can provide only reasonable and not absolute assurance against material misstatement or loss. It operates with principles and procedures designed to achieve the accountability and control appropriate to the business. The Board is accountable to the Group’s shareholders for good corporate governance and it is the objective of the Board to attain a high standard of corporate governance. As an AIM-quoted company, full compliance with The UK Corporate Governance Code (the “Code”) is not a formal obligation. The Company has not sought to comply with the full provisions of the Code, however it has sought to adopt the provisions that are appropriate to its size and organisation and establish frameworks for the achievement of this objective. This statement sets out the corporate governance procedures that are in place. The Board The Board of Venture Life Group plc comprises of three Non-Executive Directors, one of whom chairs the Board, and four Executive Directors. The roles of Chairman and Chief Executive Officer are distinct and are held by different people to ensure a clear division of responsibility. The role of the Non-Executive Directors is to bring valuable judgement and insight to Board deliberations and decisions. The Non-Executive Directors are experienced and influential individuals whose blend of skills and business experience contributes to the proper functioning of the Board and its Committees, ensuring that matters are fully debated and that no individual or group dominates the Board’s decision-making processes. All Directors have access to the advice and services of the Company Secretary and are able in the course of their duties, if necessary, to take independent professional advice at the Company’s expense. Committees have access to such resources as they are required to fulfil their duties. The Board receives regular reports detailing the progress of the Group’s business, the Group’s financial position and projections, as well as business development activities and operational issues, together with any other material deemed necessary for the Board to discharge its duties. The Chairman is primarily responsible for the effective operation and chairing of the Board and for ensuring that it receives appropriate information to make informed judgements. The Board has a formal schedule of matters reserved to it for decision, but otherwise delegates specific responsibilities to Committees, as described below. The terms of reference of the Committees are available on request from the Company Secretary. The Board is responsible for decisions, and the review and approval of key policies and decisions in respect of business strategy and operations, Board appointments, budgets, items of substantial investment and acquisitions. Board Committees The Board has established an Audit and Risk Committee, a Nomination Committee and a Remuneration Committee with written terms of delegated responsibilities for each. 24 Venture Life Group plc — Annual Report & Accounts 2017 Corporate governance The Group does not consider it necessary to have an internal audit function due to the small size of the administrative function. Instead there is a detailed Director review and authorisation of agreements and transactions. A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. The Group’s results, compared with the budget, are reported to the Board on a regular basis and discussed in detail. The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis. The principal features of the Group’s internal control system are as follows: • an organisational structure is in place with clearly drawn lines of accountability and delegation of authority; • Group employees are required to adhere to specified codes of conduct, policies and procedures; • financial results and key operational and financial performance indicators are reported regularly throughout the year and variances from plans and budgets are investigated and reported; • financial control protocols are in place to safeguard the assets and maintain proper accounting records; and • risk management is monitored on an ongoing basis to identify, quantify and manage risks facing the Group. Shareholder relations Venture Life aims to ensure a timely, open, comprehensive and consistent flow of information to investors and the financial community as a whole. By this approach we aim to help investors understand the Group’s strategic objectives, its activities and the progress it makes. Shareholders are welcome to attend the Group’s Annual General Meeting (“AGM”), where they have the opportunity to meet the Board. All shareholders will have at least 21 days’ notice of the AGM at which the Directors will be available to discuss aspects of the Group’s performance and answer questions from shareholders. The Company also meets with its institutional shareholders and analysts as appropriate and uses the AGM to further encourage communication with shareholders. In addition, the Company uses the Annual Report and Accounts, Interim Statement and website to disseminate information to shareholders. The 2018 AGM will be held on 23 May 2018 and a Notice of Annual General Meeting can be found enclosed with this report. Dr Lynn Drummond Non-Executive Chair 21 March 2018 Attendance at Board meetings and Committees The Directors attended the following Board meetings and Committee meetings during the year: Director Dr Lynn Drummond John Sylvester Peter Bream Jerry Randall Sharon Collins Adrian Crockett1 Gianluca Braguti Total meetings held in the year 1 appointed 6 March 2017. 2 by invitation. Board Audit Remuneration 6/6 5/6 6/6 6/6 6/6 5/6 5/6 6 3/3 3/3 3/3 2/32 — — — 3 1/1 1/1 1/1 1/12 — — — 1 Under the Articles of Association all Directors must offer themselves for re-election at least once every three years. One-third of the Directors shall retire by rotation at every Annual General Meeting. All Directors who retire by rotation are eligible for re-appointment. Annual Report & Accounts 2017 — Venture Life Group plc 25 Corporate governance Directors’ Report General matters New product development Details of the Group’s new product development programmes can be found on page 15. The accounting treatment in respect of costs incurred in carrying out the new product development programmes can be found in note 3.8 to the financial statements. Political donations The Group made no political donations in the year under review (2016: £nil). Dividends The Directors recommend the payment of a dividend of 0.04 pence per share (2016: 0.04 pence per share) payable 22 June 2018. Directors The following Directors held office during the year and up to the date of this report: Dr Lynn Drummond Non-Executive Chair Jerry Randall Chief Executive Officer Sharon Collins Commercial Director Gianluca Braguti Manufacturing Director John Sylvester Non-Executive Director Peter Bream Non-Executive Director Adrian Crockett Chief Financial Officer (appointed 6 March 2017) Information on Directors’ remuneration, share options, long-term executive plans, pension contributions and benefits is set out in the Remuneration Report on pages 28 to 31. Qualifying third-party indemnity provision is in place for the benefit of all Directors of the Company. External directorships It is the Group’s policy that its Directors may take up other directorships provided that such appointments do not conflict with their employment with the Group. Individuals may retain any remuneration received from such services. External directorships held by the Directors who are in office as at the date of this report are detailed below: Dr Lynn Drummond is a Director of RPC Group plc. John Sylvester is a Director of Biocompatibles International Limited, Biocompatibles UK Limited, and Provensis Limited. Jerry Randall is a Director of Avantis UK Limited. Gianluca Braguti is a Director of Immobiliare Cremasca di Parati Lucia e C. S.a.s. (“socio accomandante”), Farmacia S. Francesco dei dott. Braguti A. – L.G. S.n.c. (“socio amministratore”), Biogenico Worldwide S.r.l, Biokosmes Immobiliare Srl, and Grafco2 Srl. Peter Bream is a Director of Abramis Limited. The Directors submit their report and the financial statements of Venture Life Group plc for the year ended 31 December 2017. Venture Life Group plc is a public limited company quoted on AIM, incorporated and domiciled in the United Kingdom. It has subsidiary companies in the United Kingdom and Italy. Results The profit before tax for the year ended 31 December 2017 was £0.1 million (2016: loss of £1.1 million). The detailed results for the year and the financial position at 31 December 2017 are shown in the Consolidated Statement of Comprehensive Income on page 38 and the Consolidated Statement of Financial Position on page 39. Principal activities The principal activities of Venture Life Group plc and its subsidiaries are the development and commercialisation of healthcare products, including oral care products, food supplements, medical devices and dermo-cosmetics for the ageing population, the development and commercialisation of cosmetic products, and the manufacturing of a range of topical products for the healthcare and cosmetic sectors. Business review and future developments There are a number of items required to be included in the Directors’ Report, which are covered elsewhere in this report. The following are covered in the Strategic Report: • financial risk and management objectives and policies Going concern The Directors have prepared detailed forecasts and cash flows looking beyond 12 months from the date of these financial statements. With the acquisition of UltraDEX and evidence of growth in the Group’s Brands business and continued growth in the Development and Manufacturing business, the Directors expect the Group to move to overall profitability in the foreseeable future. In developing these forecasts the Directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period, together with the current performance and prospects of the Group’s operating segments. The most imminent capital repayment is the £1.9 million UKBN convertible bond which is due to be repaid, if not converted in March 2019. The Directors are already in discussions to either defer or refinance with debt this convertible bond and consequently fully expect this to be confirmed in the foreseeable future. Forecasts assume the convertible bond is refinanced rather than repaid from existing funds. On the basis of the above projections, the Directors are confident that the Company and its Group have sufficient working capital to honour all of its obligations to creditors as and when they fall due. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements. 26 Venture Life Group plc — Annual Report & Accounts 2017 Corporate governance Directors share interests The Directors in office at 31 December 2017 and their interests in the shares of the Company were as follows: Director Title Jerry Randall1 Chief Executive Officer Gianluca Braguti Manufacturing Director Sharon Collins Commercial Director Lynn Drummond Non-Executive Chair John Sylvester Non-Executive Director Peter Bream Non-Executive Director Number of 0.3p ordinary shares held at 31 December 2017 Number of 0.3p ordinary shares held share capital at 31 December 2016 % of issued % of issued share capital 3,931,129 7,085,459 1,582,417 18,365 10,000 25,000 10.7% 19.2% 4.3% 0.05% 0.03% 0.07% 3,931,129 7,085,459 1,582,417 18,365 10,000 — 10.7% 19.2% 4.3% 0.05% 0.03% — 1 Includes indirect holdings. Share capital As at 31 December 2017, the authorised and issued share capital of the Company was: The Board also recognises that a safe, secure and healthy working environment contributes to productivity and improved performance. Number of ordinary 0.3p shares Amount £ Environment Issued and fully paid up 36,837,106 110,511 The average market price of the Company’s ordinary shares at close of business on 29 December 2017 was 43 pence. The maximum share price during the period was 86 pence (18 May 2017) and the minimum price was 43 pence per share (29 December 2017). Substantial share interests At 21 March 2018, the Company had been advised or is aware of the following interests, held directly or indirectly, of 3% or more in the Company’s issued share capital: Number of shares 7,085,459 4,400,892 % holding 19.2% 12.0% 3,931,129 10.7% The Group is conscious of its responsibilities in respect of the environment and follows a Group-wide environmental policy. The Group disposes of its waste products through regulated channels using reputable agents. Principal risks and uncertainties A summary of the principal risks and uncertainties and financial risk management objectives and policies are set out on pages 18 and 19. Statement as to disclosure of information to the auditor The Directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors have confirmed that they 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 it has been communicated to the auditor. 3,523,143 9.6% Auditor 2,927,077 2,733,900 1,582,417 8.0% 7.4% 4.3% Grant Thornton UK LLP have expressed their willingness to continue in office. In accordance with Section 489 (4) of the Companies Act 2006, a resolution to re-appoint Grant Thornton UK LLP as auditor will be proposed at the forthcoming AGM. 1,531,369 4.2% 2018 Annual General Meeting Gianluca Braguti J O Hambro Jerry Randall and associated holdings Aviva plc and its subsidiaries Dr Michael Flynn and associated holdings Quilter Cheviot Limited Sharon Collins Anthony Ahearne and associated holdings Employees The Group is committed to providing equal opportunities in employment. All job applicants and employees receive equal treatment regardless of sex, race, colour, age, nationality or ethnic origin. The motivation of staff and the maintenance of an environment where innovation and team working is encouraged are seen as key objectives by the Board and all employees are given the opportunity to participate in the Company’s share option scheme. We promote internal communication of the Group’s progress by means of regular meetings held with staff where issues are discussed in an open manner. The 2018 AGM will be held on 23 May 2018, the business of which is set out in the Notice of Annual General Meeting enclosed with this report. On behalf of the Board, Jerry Randall Director 21 March 2018 Annual Report & Accounts 2017 — Venture Life Group plc 27 Corporate governance Remuneration Report Remuneration Committee The Company’s Remuneration Committee consists of the Chairman and the two Non-Executive Directors. The Chief Executive Officer is invited to attend meetings of the Committee but no Director is involved in any decisions relating to their own remuneration. None of the Committee has any personal financial interest (other than as shareholders), conflicts of interests arising from cross directorships, or day-to-day involvement in running the business. The Committee is responsible for the consideration and approval of the terms of service, remuneration, bonuses, share options and other benefits of the other Directors. All decisions made are after giving due consideration to the size and nature of the business and the importance of retaining and motivating management. The Committee will meet at least once a year and at other times as appropriate. 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 is appropriate. New Bridge Street were engaged during the financial year to provide independent advice to the Committee in respect of the new Long-Term Incentive Plan. Remuneration policy The Group’s remuneration policy is designed to ensure that the remuneration packages attract, motivate and retain Directors and senior managers of high calibre and to reward them for enhancing value to shareholders. The Company’s policy is that a substantial proportion of the total potential remuneration of the Executive Directors should be performance-related and aligned to performance measures that benefit all shareholders and promote the long-term success of the Company. The performance measurement of the Executive Directors and the determination of their annual remuneration package, including performance targets, are undertaken by the Remuneration Committee. There are four main elements of the remuneration package for Executive Directors and other senior management: • basic annual salary and benefits; • annual bonus payments; • long-term incentives; and • pension arrangements. The remuneration of the Non-Executive Directors comprises only Directors’ fees. 1. Salary Basic salaries are reviewed annually and if revised, the change in salary takes effect from the start of the financial year. 2. Annual bonuses The Board believes that bonuses are an important incentive for Executives to achieve the Group’s objectives, and as such should represent a significant element of the total compensation awards for the Executives. All the Executive Directors currently participate in the same bonus scheme and achievement of bonuses is aligned to the achievement of the Group’s financial targets. The bonus scheme enables Executives to earn a bonus of up to 100% of salary for achieving stretching financial targets and, where appropriate, stretching operational targets, which have been set at a level perceived appropriate to provide the necessary incentives. In the event of over-or under-achievement of the Group financial performance against those targets, appropriate adjustments may be made to the bonus payable. 28 Venture Life Group plc — Annual Report & Accounts 2017 Corporate governance 3. Long-Term Incentive Plan Prior to 2016, the Company used market value share options as its primary Senior Executive incentive arrangement to motivate and retain selected Senior Executives within the Group. Under that arrangement the Directors were granted the following share options: Share option scheme Options as at 31 December 2016 Options granted during the year Options lapsed during the year Options as at 31 December 2017 Date from which first exercisable Expiry date Exercise price Performance conditions Jerry Randall Jerry Randall EMI EMI 705,700 162,187 Jerry Randall Unapproved 483,333 Sharon Collins Sharon Collins EMI EMI 705,700 162,187 Sharon Collins Unapproved 483,333 — — — — — — — — — — — — 705,700 31 Dec 2012 31 Aug 2022 45p Non-market 162,187 1 Jul 2014 4 Nov 2023 41p Non-market 483,333 1 Jul 2014 4 Nov 2023 41p Non-market 705,700 31 Dec 2012 31 Aug 2022 45p Non-market 162,187 1 Jul 2014 4 Nov 2023 41p Non-market 483,333 1 Jul 2014 4 Nov 2023 41p Non-market James Hunter James Hunter EMI EMI 300,000 200,000 — 300,000 — 200,000 — 9 Sep 2014 4 Nov 2023 82p Non-market — 1 Nov 2015 4 Nov 2023 82p Non-market No Directors exercised any options during the year. During 2017, further awards were made under the Company’s Long-Term Incentive Plan (“LTIP” or the “Plan”) as its primary Senior Executive incentive arrangement to replace market value share options. The key terms of the LTIP are as follows: • awards will normally be granted annually and will vest after three years; • awards will normally be structured as nil cost options or conditional awards; • awards will normally be granted annually immediately following the release of the Group’s financial results each year; • the maximum annual value of nominal cost options that can be made to an individual is equivalent to 200% of basic salary at the date of grant; • awards will only normally vest subject to continued service and to the extent that relevant performance targets are met; and • performance targets will normally be based on earnings per share and/or total shareholder return targets. The Remuneration Committee administers the LTIP and the grant of nominal cost options under the LTIP. A summary of the awards made during 2016 and 2017 are set out below: Name Jerry Randall Gianluca Braguti Sharon Collins Adrian Crockett Award One (date of grant: 28 September 2016) Award Two (date of grant: 28 September 2016) Award Three (date of grant: 24 April 2017) 203,390 153,971 135,593 — 492,954 340,183 264,237 226,789 — 831,209 296,302 238,237 197,534 165,525 897,598 A full summary of the performance conditions attached to outstanding awards can be found in note 24. To the extent that these performance conditions are not met at the end of the vesting period, the options will lapse. 4. Pensions The Group contributes to the personal pension plans of certain Executive Directors and employees. Under the scheme, the Group will make direct contributions. The Group recently reached its ‘auto-enrolment staging date’ and is complying with its auto-enrolment obligations in respect of eligible employees. Annual Report & Accounts 2017 — Venture Life Group plc 29 Corporate governance Remuneration Report continued Remuneration Committee continued Directors’ letters of appointment and contracts All Executive Directors (with the exception of Gianluca Braguti who has a five-year fixed term contract) have rolling service contracts with six months’ notice. The Non-Executive Directors do not have service contracts but have letters of appointment. Executive Directors Date of contract Notice period Jerry Randall Sharon Collins 12 December 2013 Gianluca Braguti 27 March 2014 Adrian Crockett 6 March 2017 Six months’ notice to be given by the Executive and 30 days’ by the Company. In the event that the Company terminates the Executive’s employment without cause, then an amount equal to 50% of the employee’s salary is payable by the Company. No notice period. Under the terms of the acquisition agreement signed between the Company and the vendors of Biokosmes, Gianluca Braguti has a contract as Managing Director of Biokosmes for a fixed five-year term until 28 March 2019. In the event that Gianluca Braguti is asked to leave the Group as a Good Leaver he would be entitled to receive his annual salary until 28 March 2019. Six months’ notice to be given by the Executive and 30 days’ by the Company. In the event that the Company terminates the Executive’s employment without cause, then an amount equal to 50% of the employee’s salary is payable by the Company. Non-Executive Directors Date of letter Notice period Lynn Drummond 22 November 2013 Three months John Sylvester 11 November 2013 Three months Peter Bream 17 February 2016 Three months Directors’ remuneration 2017 Salary/fees £ Bonus £ Benefits £ Total £ Pension contributions £ Social security contributions £ Executive Directors Jerry Randall Sharon Collins Adrian Crockett1 Gianluca Braguti2 Non-Executive Directors Lynn Drummond John Sylvester Peter Bream Total 1 Appointed 6 March 2017. 194,670 173,040 119,904 218,207 55,000 27,000 27,000 814,821 — — — — — — — — 18,357 984 1,078 4,043 — — — 213,027 174,024 120,982 222,250 55,000 27,000 27,000 58,401 25,956 17,986 41,896 — — — 30,589 22,884 15,595 19,101 6,466 2,602 2,602 24,462 839,283 144,239 99,839 1,083,361 Total £ 302,017 222,864 154,563 283,247 61,466 29,602 29,602 2 Gianluca Braguti’s salary and fees equates to €240,000 in respect of his role as Managing Director of Biokosmes and €10,000 in respect of his role as a Director of Venture Life Group plc (2016: €240,000 and €10,000 respectively), translated at average exchange rate over the period. The Executive Directors listed above at the reporting date are considered to be key management of the Group. 30 Venture Life Group plc — Annual Report & Accounts 2017 Corporate governance Directors’ remuneration 2016 Salary/fees £ Bonus £ Benefits £ Total £ Pension contributions £ Social security contributions £ Executive Directors Jerry Randall Sharon Collins James Hunter1 Gianluca Braguti2 Non-Executive Directors Lynn Drummond John Sylvester Ian Mackinnon3 Peter Bream4 185,400 164,800 135,788 202,510 55,000 27,000 3,600 23,435 55,620 49,440 — 60,767 — — — — 17,294 912 2,149 3,412 — — — — 258,314 215,152 137,937 266,689 55,000 27,000 3,600 23,435 55,620 24,720 19,828 38,898 — — — — 36,642 28,859 17,931 17,137 6,750 2,886 497 2,244 Total £ 350,576 268,731 175,696 322,724 61,750 29,886 4,097 25,679 Total 797,533 165,827 23,767 987,127 139,066 112,946 1,239,139 1 Resigned on 30 November 2016. 2 Gianluca Braguti’s salary and fees equates to €240,000 in respect of his role as Managing Director of Biokosmes and €10,000 in respect of his role as a Director of Venture Life Group plc (2015: €240,000 and €10,000 respectively), translated at average exchange rate over the period. 3 Resigned 17 February 2016. 4 Appointed 17 February 2016. The Executive Directors listed above at the reporting date are considered to be key management of the Group. Share options The Company currently issues share options to staff to reward performance, to encourage loyalty and to enable valued employees to share in the success of the Company. In setting up the share option schemes, the Remuneration Committee took into account the recommendations of shareholder bodies on the number of options to issue, the criteria for vesting and the desirability of granting share options to Executive and Non-Executive Directors. All employees are generally eligible to receive share options under the Company’s EMI or Unapproved share option scheme after three months’ service. Option awards for employees are recommended by the Executive Directors and approved by the Remuneration Committee. Other benefits Some benefits, such as private medical insurance, are available to all Executive Directors and certain other employees. Death in service benefit is provided to all Executive Directors and employees. Non-Executive Directors The Non-Executive Directors have entered into letters of engagement with the Company, with the Board determining the fees paid to the Non-Executive Directors. Non-Executive Directors do not participate in the Group’s pension or bonus schemes in their capacity as Non-Executive Directors. The appointments can be terminated upon three months’ notice being given by either party. On behalf of the Board, John Sylvester Chairman of the Remuneration Committee 21 March 2018 Annual Report & Accounts 2017 — Venture Life Group plc 31 Corporate governance Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, Directors’ Report, and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the EU and have elected to prepare Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. 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 of the Group and of the profit or loss of the Group for that year. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable International Financial Reporting Standards have been followed with respect to the Group financial statements and whether applicable UK accounting standards have been followed with respect to the Company financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group 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 Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Venture Life Group plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 32 Venture Life Group plc — Annual Report & Accounts 2017 Corporate governance Independent Auditor’s Report to the members of Venture Life Group plc Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Venture Life Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2017, which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of cash flows, the Parent company Balance Sheet, the Parent company Statement of Changes in Equity and notes to the 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 International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (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 affairs and of the parent company’s affairs as at 31 December 2017 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounts 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. Who we are reporting to 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. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Overview of our audit approach • Overall materiality: £161,000, which represents 1% of the group’s revenue. • Key audit matters were identified as revenue recognition and management override of controls. • The operations that were subject to full-scope or targeted audit procedures made up 100% of consolidated revenues and 100% of total assets. Annual Report & Accounts 2017 — Venture Life Group plc 33 Financial statements Independent Auditor’s Report continued to the members of Venture Life Group plc Key audit matters The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement. t c a p m i t n e m e t a t s l a i c n a n i f l a i t n e t o P h g H i w o L 1 2 3 4 5 6 7 8 9 10 Employee remuneration 1 2 Related party transactions 3 Trade receivables 4 Operating costs and creditors 5 Share incentives 6 Intangible assets 7 Inventory 8 Going concern 9 Revenue recognition 10 Management override of controls Low High Extent of management judgement Key audit matters are those matters that, in our professional judgment, 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. Key Audit Matters – Group and parent How the matter was addressed in the audit – Group and parent Revenue recognition Revenues of £16.1m have been recognised in the year ended 31 December 2017, arising substantially from the sale of products. Revenue is the most significant item in the consolidated income statement and impacts a number of management’s key performance indicators, and key strategic indicators. There is a risk of incorrect revenue recognition, arising from: • recognition of revenue without entitlement to that revenue; and • revenue is not recognised in accordance with IFRSs as adopted by the European Union. We therefore identified revenue recognition as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: • testing of revenue recognition policies to ascertain whether they were in accordance with IFRS 15 ‘Revenue from contracts with customers’ via testing a sample of individual revenue items during the year and around the year-end, agreeing items selected for testing through to purchase orders and evidence of delivery and payment; and • Corroborating management’s assessment of the five-step criteria included within IFRS 15 by comparing management’s assessment to contracts and determining whether the two were consistent. The group’s accounting policy on revenue is shown in note 3.5 to the financial statements and related disclosures are included in note 5. Key observations • IFRS 15 has been early adopted. Based on our testing the adoption of IFRS 15 has not had a material impact on the financial statements. Note 4 discloses appropriately the impact this has on the accounts. • Our testing did not identify instances where revenue was recognised without entitlement of that revenue. • Our testing did not identify incorrect revenue recognition. 34 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements Key Audit Matters – Group and parent How the matter was addressed in the audit – Group and parent Management override of controls Our audit work included, but was not restricted to: The group financial statements comprise a number of accounting estimates made by management, which leads to a risk that the financial results are influenced through management bias in determining such estimates. We therefore identified management override of controls as a significant risk, which was one of the most significant assessed risks of material misstatement. • Comparison of accounting estimates, judgements and decision made by management to third party and post balance sheet evidence; and • Using data analytics and data interrogation techniques to identify journal entries with increased risk and ensure journals are in accordance with expectations; including corroborating any unusual entries to source documentation; Key observations Based on our audit work, we did not identify any instances of management override of control and we concluded that the accounting estimates in the financial statements were reasonable. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Parent Financial statements as a whole £161,000, which is 1% of total revenues. This benchmark is considered the most appropriate because it is the key driver of the results of the group and is monitored by management. £108,000, which is 5% of earnings before tax. This benchmark is considered the most appropriate because the company is a holding company without revenue, incurring costs for the group. Performance materiality used to drive the extent of our testing Specific materiality Materiality for the current year is higher than the level that we determined for the year ended 31 December 2016 to reflect the improvement in results in the current year. Materiality for the current year is higher than the level that we determined for the year ended 31 December 2016 to reflect the improvement in results in the current year. 75% of financial statement materiality. 75% of financial statement materiality. We determined a lower level of specific materiality for certain areas such as related party transactions and directors’ remuneration. We determined a lower level of specific materiality for certain areas such as related party transactions and directors’ remuneration. Communication of misstatements to the audit committee £8,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £5,000 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 25% 25% 75% 75% Tolerance for potential uncorrected misstatements Performance materiality Annual Report & Accounts 2017 — Venture Life Group plc 35 Financial statements Independent Auditor’s Report continued to the members of Venture Life Group plc An overview of the scope of our audit Our audit approach was based on a thorough understanding of the Group’s and parent’s business and is risk-based. The components of the Group were evaluated by the Group audit team based on a measure of materiality considering each as a percentage of total Group assets, liabilities, revenues and profit before taxes, to assess the significance of the component and to determine the planned audit response. For those components that were evaluated as significant, either a full-scope or targeted audit approach was determined based on their relative materiality to the Group and our assessment of the audit risk. For significant components requiring a full-scope approach, we evaluated controls over the financial reporting systems identified as part of our risk assessment, reviewed the accounts production process and addressed critical accounting matters. We then undertook substantive testing on significant transactions and material account balances. In order to address the audit risks described above as identified during our planning procedures, we performed a full-scope audit of the financial statements of the Parent Company and of the financial information of Venture Life Limited, Periproducts Limited, Lubatti Limited and Biokosmes Srl. The operations that were subject to full-scope or targeted audit procedures made up 100% of consolidated revenues and 100% of total assets. Revenues Total assets Full scope Targeted procedures Analytical procedures Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. 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. In connection with our audit of the financial statements, 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 of the financial statements or a material misstatement of the other information. 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 directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters 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 its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 36 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 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 for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 32, 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. 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. 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. Norman Armstrong BSc FCA Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Southampton 21 March 2018 Annual Report & Accounts 2017 — Venture Life Group plc 37 Financial statements Financial statements Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 Company number 05651130 Revenue Cost of sales Gross profit Administrative expenses Operating expenses Amortisation of intangible assets Total administrative expenses Other income Operating profit/(loss) before exceptional items Exceptional costs Operating profit/(loss) Finance income Finance costs Profit/(loss) before tax Tax Loss for the year Other comprehensive income which will not be subsequently reclassified to the income statement Other comprehensive income which will be subsequently reclassified to the income statement Total comprehensive loss for the year attributable to equity holders of the parent Notes 5 6 7 10 Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 16,052 (9,581) 6,471 (5,431) (521) (5,952) 62 581 — 581 — (518) 63 (430) (367) — 121 (246) 14,280 (8,789) 5,491 (4,979) (862) (5,841) 65 (285) (180) (465) — (644) (1,109) (260) (1,369) — 317 (1,052) All of the loss and the total comprehensive income for the year is attributable to equity holders of the parent. Loss per share Basic and diluted loss per share (pence) Adjusted profit/(loss) per share (pence) Year ended 31 December 2017 Year ended 31 December 2016 12 12 (1.00) 0.66 (3.76) (1.28) 38 Venture Life Group plc — Annual Report & Accounts 2017 Consolidated Statement of Financial Position at 31 December 2017 Company number 05651130 Assets Non-current assets Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Capital and reserves Share capital Share premium account Merger reserve Convertible bond reserve Foreign currency translation reserve Share-based payments reserve Retained earnings Total equity attributable to equity holders of the parent Liabilities Current liabilities Trade and other payables Taxation Interest-bearing borrowings Convertible bond Vendor loan notes Non-current liabilities Interest-bearing borrowings Convertible bond Vendor loan notes Statutory employment provision Deferred tax liability Total liabilities Total equity and liabilities At 31 December At 31 December 2016 £’000 2017 £’000 Note 14 15 16 17 18 19 19 20 21 23 24 25 26 27 21 22 27 21 22 28 11 16,175 5,069 21,244 3,563 5,141 1,361 10,065 31,309 111 13,289 7,656 109 234 497 16,272 1,279 17,551 3,141 4,656 1,998 9,795 27,346 111 13,289 7,656 109 113 409 (7,711) (7,329) 14,185 14,358 4,404 29 1,509 171 71 4,347 195 687 171 54 6,184 5,454 6,243 1,631 1,751 909 406 10,940 17,124 31,309 2,986 1,546 1,700 795 507 7,534 12,988 27,346 The financial statements on pages 38 to 69 were approved and authorised for issue by the Board on 21 March 2018 and signed on its behalf by: Jerry Randall Director Annual Report & Accounts 2017 — Venture Life Group plc 39 Financial statements Consolidated Statement of Changes in Equity for the year ended 31 December 2017 Share capital £’000 Share premium account £’000 Merger reserve £’000 Convertible bond reserve £’000 currency Share-based payments reserve £’000 translation reserve £’000 Retained earnings £’000 Total equity £’000 Foreign Balance at 1 January 2016 103 11,826 7,656 Loss for the year Foreign exchange on translation Total comprehensive expense Issue of share capital Share options charge Issue of convertible bond Dividends Transactions with shareholders — — — 8 — — — 8 — — — 1,463 — — — 1,463 — — — — — — — — Balance at 1 January 2017 111 13,289 7,656 Loss for the year Foreign exchange on translation Total comprehensive expense Share options charge Dividends Transactions with shareholders — — — — — — — — — — — — — — — — — — — — — — — — 109 — 109 109 — — — — — — (204) — 317 317 — — — — — 113 — 121 121 — — — 367 (5,946) 13,802 — — — — 42 — — 42 (1,369) (1,369) — 317 (1,369) (1,052) — — — (14) (14) 1,471 42 109 (14) 1,608 409 (7,329) 14,358 — — — 88 — 88 (367) — (367) — (15) (15) (367) 121 (246) 88 (15) 73 Balance at 31 December 2017 111 13,289 7,656 109 234 497 (7,711) 14,185 40 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements Consolidated Statement of Cash Flows for the year ended 31 December 2017 Cash flow from operating activities Profit/(loss) before tax Finance expense Operating profit/(loss) Adjustments for: – Depreciation of property, plant and equipment – Amortisation of intangible assets – Finance cost – Disposal of capitalised development cost – Leasing obligation repayments (previously in administration costs) – Share-based payment expense Operating cash flow before movements in working capital Tax paid Increase in inventories Increase in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in operating activities Cash flow from investing activities: Acquisition of subsidiary – net cash payment Purchases of property, plant and equipment Expenditure in respect of intangible assets Proceeds on disposal of tangible asset Net cash used in investing activities Cash flow from financing activities: Net proceeds from issuance of ordinary shares Net proceeds from issuance of convertible bond Drawdown of new interest-bearing borrowings Repayment of existing interest-bearing borrowings Dividends paid Net cash from financing activities Net decrease in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 63 518 581 668 521 (285) 165 (486) 88 1,252 (694) (322) (392) 72 (84) — (285) (568) — (853) — — 312 (45) (15) 252 (685) 48 1,998 1,361 (1,109) 644 (465) 176 862 (212) — — 42 403 (251) (263) (251) (95) (457) (4,258) (185) (355) 7 (4,791) 1,471 1,750 1,140 (41) (14) 4,306 (942) 83 2,857 1,998 Annual Report & Accounts 2017 — Venture Life Group plc 41 Financial statements Notes to the Consolidated Statements for the year ended 31 December 2017 1. General information Venture Life Group plc (“the Company”) was incorporated on 12 December 2005 and is domiciled in the UK, with its registered office located at 2 Arlington Square, Downshire Way, Bracknell, RG12 1WA. The Company is the holding company for four wholly-owned UK subsidiaries, one wholly-owned Italian subsidiary, Biokosmes Srl and one wholly-owned Swiss subsidiary PermaPharm AG (together with the Company “the Group”). 2. Basis of preparation The principal activity of Venture Life Group plc and its subsidiaries is the development and commercialisation of healthcare products, including food supplements, medical devices and dermo-cosmetics for the ageing population, and the manufacture of a range of topical products for the healthcare and cosmetics sectors. The financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the EU, the International Financial Reporting Interpretations Committee (“IFRIC”), interpretations issued by the International Accounting Standards Boards (“IASB”) that are effective or issued and early adopted as at the time of preparing these financial statements, and in accordance with the provisions of the Companies Act 2006 that are relevant to companies that report under IFRSs. The preparation of the Group’s financial statements requires management to exercise its judgements in the process of applying accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.22. 3. Summary of significant accounting policies The principal accounting policies adopted are set out below. 3.1. Going concern The Directors recognise that the Group has reported a loss and cash outflow for the year ended 31 December 2017, as it did in the year ended 31 December 2016. The Directors have prepared detailed financial forecasts and cash flows looking beyond 12 months from the date of these financial statements with the recent acquisition of Periproducts and the growth of the Group’s Brands business expected to enable the Group to move to profitability in the foreseeable future. In developing these forecasts the Directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period, together with the current performance and prospects of the Group’s operating segments. The most imminent capital repayment is the £1.9 million UKBN convertible bond which is due to be repaid, if not converted in March 2019. The Directors are already in discussions to either defer or refinance with debt this convertible bond and consequently fully expect this to be confirmed in the foreseeable future. Forecasts assume the convertible bond is refinanced rather than repaid from existing funds. On the basis of the above projections, the Directors are confident that the Company and its Group have sufficient working capital to honour all of its obligations to creditors as and when they fall due. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements. 3.2. Basis of consolidation The Group financial statements consolidate those of the parent Company and its subsidiaries as of 31 December 2017. All subsidiaries have a reporting date of 31 December. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses between Group companies. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. The Group attributes total comprehensive income or loss of subsidiaries between owners of the parent and the controlling interest based on their respective ownership interests. 3.3. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed including contingent liabilities, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All subsequent changes in the fair value of contingent consideration classed as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised. 42 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 3. Summary of significant accounting policies continued 3.4. Foreign currencies (a) Functional and presentational currency Items included in the financial information of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial information is presented in UK sterling (£), which is the Group’s presentational currency. The functional currency of the Company is also UK sterling (£), which is the currency of the Company’s funding arrangements and operating expenditure. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the average exchange rate of the month. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign exchange gains and losses resulting from such transactions are recognised in profit or loss. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than sterling are translated into sterling upon consolidation. The functional currency of the entities in the Group has remained unchanged during the period. On consolidation, assets and liabilities have been translated into sterling at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are held at historic cost less accumulated impairment losses. Income and expenses have been translated into sterling at the average rate each month over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal. The sterling/Euro exchange rates used in the Interim Financial Statements and the prior reporting period are as follows: Sterling/Euro exchange rates Average exchange rate for the period Exchange rate at the period end 3.5. Revenue recognition Year ended 31 December Year ended 31 December 2017 1.146 1.126 2016 1.234 1.167 Revenue of the Group arises mainly from the sale of goods in both the Brands and Manufacturing and Development segments. To determine whether to recognise revenue, the Group follows a 5-step process: • • Identifying the contract with a customer Identifying the performance obligations • Determining the transaction price • Allocating the transaction price to the performance obligations • Recognising revenue when/as performance obligation(s) are satisfied. The Group typically enters into transactions involving the development and manufacture of the Group’s or customer’s own products. In each case, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. There are neither unsatisfied performance obligations, nor contract assets held by the Group at the balance sheet date. Annual Report & Accounts 2017 — Venture Life Group plc 43 Financial statements Notes to the Consolidated Statements continued for the year ended 31 December 2017 3. Summary of significant accounting policies continued 3.6. Exceptional items Items that are material because of their size or nature, and which are non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group’s underlying performance. 3.7. Property, plant and equipment Equipment is stated at cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis: Office equipment over £500 Fixtures and fittings over £500 Manufacturing plant equipment 25%-50% per annum, straight-line 20%-50% per annum, straight-line 4%-50% per annum, straight-line An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. The assets’ residual values, useful lives and methods of depreciation are all reviewed at each financial year end and adjusted prospectively, if appropriate. Depreciation for the year has been charged to administrative expenses in the Statement of Comprehensive Income. 3.8. Internally-generated development intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated development intangible asset arising from the Group’s product development is recognised if, and only if, the Group can demonstrate all of the following: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • • its intention to complete the intangible asset and use or sell it; its ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • its ability to measure reliably, the expenditure attributable to the intangible asset during its development. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Internally-generated development intangible assets are recognised at cost less accumulated amortisation and provisions for impairment. Amortisation is provided on a straight-line basis over the useful lives of the assets, commencing from the point where the final marketable product is completed, at the following rates: Development costs 20% per annum, straight-line 3.9. Licences and trademarks intangible assets Patents, trademarks and licences are measured at purchase cost less accumulated amortisation and provision for impairment. Amortisation is provided on a straight-line basis over the estimated useful lives of the assets ranging from 5-10 years. Amortisation for the year has been charged to administrative expenses in the Statement of Comprehensive Income. 3.10. Acquired intangible assets The effective life of each new class of intangible asset acquired is determined as follows: Customer relationships – expected cash-generating life of underlying manufacturing contracts. Product formulations – expected cash-generating life of the particular product formulation. The following useful economic lives are applied: Customer relationships: 10 years Product formulations: Trademarks: Patents: 5 years 10 years 10 years 44 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 3. Summary of significant accounting policies continued 3.11. Goodwill Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 3.12 for a description of impairment testing. 3.12. Impairment of tangible and intangible assets At each reporting date, the Group reviews the carrying amounts of its assets, including those acquired in Business Combinations, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset, such as goodwill, with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. The Directors have carried out an impairment review of the Group’s tangible and intangible assets as at the reporting date, as is its normal practice. They have assessed the likely cash flows to be generated by those assets and determined that they are stated at fair value and that consequently no impairment is necessary. See note 14 on intangible assets for further details. 3.13. Inventories Inventories are stated at the lower of historical cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the average cost method. Net realisable value represents the estimated selling prices less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. 3.14. Financial Instruments Financial assets and financial liabilities are recognised in the Group’s Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contracted rights to the cash flows from the financial asset expire or when the contracted rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. Financial assets (a) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the assets are impaired. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Trade and other receivables are classified in the financial instruments note 30 as ‘loans and receivables’. (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits held on call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and cash equivalents are classified in the financial instruments note 30 as ‘loans and receivables’. Financial liabilities and equity (a) Trade and other payables Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the ‘effective interest rate’ to the carrying amount of the liability. Trade and other payables are classified in the financial instruments note 30 as ‘liabilities’. (b) Vendor loan notes The carrying value of the vendor loan notes is determined with reference to the present value of the principal amount of the loan note to be settled in the future, together with the present value of the future interest payments to be made under the terms of the loan note. The equity element of the Group’s vendor loan notes issued in 2014 was not considered material. Annual Report & Accounts 2017 — Venture Life Group plc 45 Financial statements Notes to the Consolidated Statements continued for the year ended 31 December 2017 3. Summary of significant accounting policies continued 3.14. Financial Instruments continued (c) Statutory employment provision Statutory employment provision includes the liability for severance indemnities related to employees of the Group’s Italian subsidiary. The severance indemnity liability arises under Italian law and is calculated with reference to each employee’s length of service, employment category and remuneration. There is no vesting period or funding requirement associated with the liability. The liability recorded at the reporting date is based on the aggregate amount that the employees of the Group’s Italian subsidiary would be entitled to on termination of employment for whatever reason. (d) Convertible bond The carrying value of the convertible bond is determined with reference to the present value of the principal amount of the bond to be settled in the future, together with the present value of the future interest payments to be made under the terms of the loan note. The equity element of the convertible bond has been recognised within shareholders’ funds as a convertible loan note reserve. 3.15. Leases Under IFRS 16, all leases other than short-term and low value leases are recorded in the statement of financial position reflecting the Group’s ‘right-of-use’ assets and lease liabilities. Capitalised right-of-use assets have been valued as the present value of future lease payment obligations, with an equal and opposite lease liability. The assets are written down on a straight-line basis over the term of the lease contract and the lease payments are charged against the lease liability, offset by a finance charge recorded in the income statement for each period. Further details are given in note 29. 3.16. Current and deferred tax The tax expense represents the sum of the tax currently payable and deferred tax. (a) Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. (b) Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the Statement of Financial Position date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 3.17. Employee benefits All employee benefit costs, notably holiday pay, bonuses and contributions to personal pension plans are charged to the Consolidated Statement of Comprehensive Income on an accruals basis. 3.18. Pension contributions The Group contributes to the Group stakeholder pension arrangement or personal pension plans of certain employees. Contributions are charged to the Consolidated Statement of Comprehensive Income as they become payable. 46 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 3. Summary of significant accounting policies continued 3.19. Share-based payments The Company issues equity-settled share-based payments to certain employees and others under which the Group receives services as consideration for those equity instruments in the Company. Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date of equity-settled share-based payments is recognised as an expense in the Group’s Statement of Comprehensive Income over the vesting period on a straight-line basis, based on the Group’s estimate of the number of instruments that will eventually vest with a corresponding adjustment to equity. The expected life used in the valuation is adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations. Non-vesting and market vesting conditions are taken into account when estimating the fair value of the awards at grant date. Service and non-market vesting conditions are taken into account by adjusting the number of share options expected to vest at each reporting date. Options over the Company’s shares granted to employees of subsidiaries are recognised as a capital contribution by the Company to the subsidiaries. When the share options are exercised the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. When an agreement is reached for the settlement of a fixed liability for a fixed number of the Company’s shares (“Fixed for Fixed”) the value of the liability is de-recognised and is recognised in the share-based payments reserve at the date of the agreement. 3.20. Fair value estimation of financial assets and liabilities The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values because of the short-term nature of such assets. 3.21. Equity, reserves and dividend payments Share capital represents the nominal (par) value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Other components of equity include the following reserves: • merger reserve comprising the non-statutory premium arising on shares issued as consideration for acquisition of subsidiaries where merger relief under Section 612 of the Companies Act 2006 applies less subsequent realised losses relating to those acquisitions. • convertible bond reserve arising on the initial valuation of the convertible bond. • share-based payments reserve comprising cumulative amounts charged in respect of employee share-based payment arrangements which have not been settled by means of an award of shares to the employee. • foreign currency translation reserve comprising all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the Group’s presentation currency. Retained earnings includes all current and prior period retained profits and losses. All transactions with owners of the parent are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date. 3.22. Critical accounting estimates and judgements The preparation of these financial statements requires management to make judgements and estimates that affect the reported amounts of assets and liabilities at each Statement of Financial Position date and the reported amounts of revenue during the reporting periods. Actual results could differ from these estimates. Information about such judgements and estimations are contained in individual accounting policies. The key judgements and sources of estimation uncertainty that could cause an adjustment to be required to the carrying amount of assets or liabilities within the next accounting period are outlined below: (a) Judgements (i) Capitalisation of internally-generated development costs Expenditure on Group product development is reviewed throughout each of the years represented in these financial statements to assess whether it meets the six accounting criteria referenced in note 3.8. Where the Group can demonstrate that the expenditure meets each of the criteria it is capitalised, with the balance of expenditure expensed to the income statement. Costs are amortised over five years once the projects are recorded as complete. Annual Report & Accounts 2017 — Venture Life Group plc 47 Financial statements 3. Summary of significant accounting policies continued 3.22. Critical accounting estimates and judgements continued (b) Estimates (i) Recoverability of internally-generated intangible assets In each of the years represented in these financial statements, there is a considerable balance relating to non-current assets, including development costs, patents and trademarks. The Group’s accounting policy covering the potential impairment of intangible assets is covered in note 3.12 to these financial statements. An impairment review of the Group’s patent and trademark balances is undertaken at each year end. This review involves the use of judgement to consider the future projected income streams that will result from the ownership of the development costs, patents and trademarks. The expected future cash flows are modelled over the remaining useful life of the respective assets and discounted present value in order to test for impairment. In each of the years ended 31 December 2016 and 2017, no impairment charge was recognised as a result of these reviews. (ii) Impairment of other non-financial assets The Group conducts annual impairment reviews of assets, such as goodwill, when events or changes in circumstances indicate that their carrying amounts may not be recoverable, or in accordance with the relevant accounting standards. An impairment loss is recognised when the carrying amount of an asset is higher than the greater of its net selling price or the value in use. In determining the value in use, management assesses the present value of the estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Estimates and judgements are applied in determining these future cash flows and the discount rate. These assumptions relate to future events and circumstances. The actual results may vary and may cause adjustments to the Group’s assets in future financial years. Details of the estimates and assumptions made in respect of the potential impairment of goodwill are detailed in note 14 to the financial statements. The Directors considered that no impairment was necessary in respect of goodwill recognised in the year ended 31 December 2017. (iii) Fair values on acquisition When acquiring a business, the Directors have to make judgements and best estimates about the fair value of the assets, liabilities and contingent liabilities acquired. These are estimated regardless of whether or not they were recognised in the financial statements of the subsidiary prior to acquisition. The valuation of externally acquired assets such as products, data or technologies requires judgements regarding the estimated future cash outflows required to commercialise the asset(s) and the cash inflows expected to arise from such commercialisation, discounted at a suitable rate reflecting the time value of money and the risks inherent in such activities. The valuation of other acquired intangible assets such as customer relationships and product formulations also requires judgements regarding estimated future cash flows arising from those established assets, discounted to reflect the time value of money. (iv) Amortisation periods When acquiring a business, the Directors make best estimates about the future life of acquired assets. These best estimates are based on historic trends and the future of existing commercial relationships to determine a suitable future working life of each asset. See note 14 for further details. 3.23. Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Directors. 4. Accounting developments a) New standards, amendments and interpretations issued and adopted IFRS 15 ‘Revenue from Contracts with Customers’ and the related ‘Clarifications to IFRS 15 Revenue from Contracts with Customers’ (hereinafter referred to as ‘IFRS 15’) replace IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related interpretations. Although only mandatory for annual reporting periods beginning on or after 1 January 2018, the Group has elected to apply IFRS 15 early, on 1 January 2017. The new Standard has been applied retrospectively without restatement, with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained earnings at 1 January 2017. In accordance with the transition guidance, IFRS15 has only been applied to contracts that are incomplete as at 1 January 2017. The adoption of IFRS 15 has had no impact on the financial statements of the Group. IFRS 16 replaces IAS 17 ‘Leases’ and three related interpretations. Leases will be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability. Although only mandatory for annual reporting periods beginning on or after 1 January 2019, the Group has elected to apply IFRS 16 early, on 1 January 2017. 48 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 4. Accounting developments continued The impact of adoption of IFRS 16 has mainly affected the following: • Management has performed a full review of all lease contracts on the Group and classified and valued each leasing obligation in line with the guidance of IFRS 16 • The new Standard has been applied retrospectively without restatement, with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained earnings at 1 January 2017 Further details of the adoption of IFRS 16 are included in note 29. b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2017 and not adopted early At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the Group. Information on those expected to be relevant to the Group’s financial statements is provided below. Management anticipates that all relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments neither adopted or listed below, are not expected to have a material impact on the Group’s financial statements. IFRS 9, Financial Instruments The IASB released IFRS 9 ‘Financial Instruments’, representing the completion of its project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting. The Group’s management has yet to assess the impact of IFRS 9 on these consolidated financial statements. The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2018. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. The impact of the above interpretations has not been quantified for the periods to which they will apply. 5. Segmental Information IFRS 8, Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the CODM to allocate resources to the segments and to assess their performance. Management has determined the operating segments based on the reports reviewed by the Group Board of Directors (Chief Operating Decision Maker) that are used to make strategic decisions. The Board considers the business from a line-of-service perspective and uses operating profit/(loss) as its profit measure. The operating profit/(loss) of operating segments is prepared on the same basis as the Group’s accounting operating profit. In summary, the operations of the Group are segmented as: • Brands, which includes sales of branded healthcare and cosmetics products direct to retailers and under distribution agreement. • Development and Manufacturing, which includes sales of products and services under contract development and manufacturing agreements. Annual Report & Accounts 2017 — Venture Life Group plc 49 Financial statements 5. Segmental Information continued 5.1 Segment revenue and results The following is an analysis of the Group’s revenue and results by reportable segment. Year ended 31 December 2017 Revenue Sale of goods Sale of services Intercompany sales elimination Total external revenue Results Operating profit before exceptional items and excluding central administrative costs Year ended 31 December 2016 Revenue Sale of goods Sale of services Intercompany sales elimination Total external revenue Results Operating profit before exceptional items and excluding central administrative costs Development and Brands Manufacturing £’000 £’000 Consolidated Group £’000 4,502 — — 13,491 297 (2,238) 17,993 297 (2,238) 4,502 11,550 16,052 255 1,756 2,011 3,764 11,099 14,863 — — 243 (826) 243 (826) 3,764 10,516 14,280 17 1,509 1,526 All revenue of the Group is recognised at point in time as determined by IFRS15. The reconciliation of segmental operating profit to the Group’s profit before tax is as follows: Operating profit before exceptional items and excluding central administrative costs Exceptional items Central administrative costs Finance costs Profit/(loss) before tax Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 2,011 — (1,430) (518) 63 1,526 (180) (1,811) (644) (1,109) One customer generated revenue of £3,376,000 which accounted for 10% or more of total revenue (2016: one customer generated revenue of £3,388,000 which accounted for 10% or more of total revenue). 50 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 5. Segmental Information continued 5.2 Segmental assets and liabilities Assets Brands Development and Manufacturing Group consolidated assets Consolidated total assets Liabilities Brands Development and Manufacturing Group consolidated liabilities Consolidated total liabilities 5.3 Other segmental information Year ended 31 December 2017 Brands Development and Manufacturing Central administration Year ended 31 December 2016 Brands Development and Manufacturing Central administration At 31 December At 31 December 2016 £’000 2017 £’000 3,255 13,683 14,371 31,309 1,651 11,014 4,459 17,124 2,431 9,820 15,095 27,346 1,059 7,336 4,593 12,988 Depreciation and amortisation £’000 Additions to non-current assets £’000 123 735 331 1,189 79 258 701 1,038 362 4,485 — 4,847 81 463 4,189 4,733 5.4 Geographical information The Group’s revenue from external customers by geographical location of customer is detailed below: Revenue UK Italy Switzerland Rest of Europe Rest of the World Total revenue Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 5,538 4,936 3,791 857 930 4,762 4,417 3,338 819 944 16,052 14,280 Annual Report & Accounts 2017 — Venture Life Group plc 51 Financial statements 6. Exceptional items Costs incurred in the acquisition of Periproducts Total exceptional items Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 — — (180) (180) During the prior period the Group incurred legal and professional fees in relation to the Periproducts acquisition, as well as certain restructuring costs. 7. Operating profit Operating profit for the year has been arrived at after charging: Depreciation of property, plant and equipment included in operating expenses Amortisation of intangible assets included in administrative expenses Research and development costs included in operating expenses Operating lease rentals Share-based payments charge Staff costs (note 8) Auditor’s remuneration – Fees for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and its associated for other services: – Audit of the accounts of the Company’s subsidiaries – Tax compliance services – Audit related fee – Corporate finance services 8. Employee information Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 668 521 387 59 88 176 862 426 493 42 4,528 4,385 20 44 14 4 — 20 44 12 4 5 The average number of staff, including Executive Directors, employed by the Group during the year are as shown below: Product development and manufacturing Sales and marketing Directors Administration Year ended 31 December 2017 Number Year ended 31 December 2016 Number 66 12 7 14 99 55 13 7 15 90 52 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 8. Employee information continued Their aggregate remuneration comprises: Wages and salaries Social security costs Pension costs Other benefits Equity settled share-based payments Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 3,479 3,443 701 320 28 88 632 282 28 42 4,616 4,427 The equity settled share-based payments charge for the year included £59,000 in respect of the Directors of the Group (2016: £38,000). Further information on Directors remuneration is included in the Remuneration Report on page 28. 9. Pension costs and other post-retirement benefits The Group operates a stakeholder pension scheme to which it makes contributions. As an alternative, the Group also makes contributions into the personal pension schemes of certain employees. The pension charge represents contributions payable by the Group and amounted to £320,000 (2016: £282,000). At year end an amount of £Nil (2016: £1,194) was payable in respect of pension contributions charged during the year. 10. Income tax expense Current tax: Current tax on profits for the year Adjustments in respect of earlier years Total current tax expense Deferred tax: Origination and reversal of temporary differences Total deferred tax expense Total income tax expense Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 528 — 528 (98) (98) 430 455 (21) 434 (174) (174) 260 Tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits and losses of the consolidated entities as follows: Profit/(loss) before tax Profit/(loss) before taxation multiplied by the local tax rate of 19% (2016: 20%) Expenses not deductible for tax purposes Research and development tax credit for current year Change in recognised deferred tax liability Change in unrecognised deferred tax asset Higher rate on foreign taxes Income tax charge Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 63 (12) 159 — (98) 255 126 430 (1,109) (222) 248 (21) (174) 342 87 260 There are no enacted or substantively enacted changes to the small profits tax rate. As at the reporting date, the Group has unused tax losses of £8,610,000 (2016: £7,195,000) available for offset against future profits generated in the UK. No deferred tax asset has been recognised in respect of these losses due to the uncertainty of its recoverability. Annual Report & Accounts 2017 — Venture Life Group plc 53 Financial statements 10. Income tax expense continued The tax charge of the group is driven by tax paid on the profits of Biokosmes, offset by the release of deferred tax liabilities generated on the acquisition of Biokosmes and Periproducts businesses. In 2017 the effective tax rate of Biokosmes was 25% (2016: 25%). 11. Deferred tax Deferred taxes arising from temporary differences are summarised as follows: Deferred tax liabilities/(assets) Purchased goodwill Other intangibles Inventories Trade and other receivables Deferred tax liability 12. Earnings per share At 1 January 2017 Recognised in profit and loss Movements attributed to foreign exchange At 31 December 2017 £’000 £’000 £’000 £’000 91 (546) (53) 1 (507) (9) 96 9 2 98 3 — — — 3 85 (450) (44) 3 (406) A reconciliation of the weighted average number of ordinary shares used in the measures is given below: For basic and diluted EPS calculation A reconciliation of the earnings used in the different measures is given below: For basic and diluted EPS calculation For adjusted EPS calculation1 1 Adjusted EPS is profit/(loss) after tax excluding amortisation and share-based payments. The resulting EPS measures are: Basic and diluted EPS calculation Adjusted EPS calculation Year ended 31 December 2017 Number Year ended 31 December 2016 Number 36,837,106 36,409,340 £’000 (367) 242 Pence (1.00) 0.66 £’000 (1,369) (465) Pence (3.76) (1.28) The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted loss per ordinary share are identical to those used for basic loss per share. This is because the exercise of share options and conversion of the vendor loan notes would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of IAS 33. 13. Dividends Amounts recognised as distributions to equity holders in the period: Final dividend Year ended 31 December 2017 £’000 Year ended 31 December 2016 £’000 15 14 The Directors recommend the payment of a dividend of 0.04 pence per share (2016: 0.04 pence per share) in 2017 and a resolution will be put to shareholders at the 2018 Annual General Meeting. 54 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 14. Intangible assets Cost or valuation: At 1 January 2016 Additions Disposals Foreign exchange At 1 January 2017 Additions Disposals Foreign exchange At 31 December 2017 Amortisation: At 1 January 2016 Charge for the year Disposals Foreign exchange At 1 January 2017 Charge for the year Disposals Foreign exchange At 31 December 2017 Carrying amount: At 31 December 2016 At 31 December 2017 Development costs £’000 Patents and trademarks £’000 Goodwill £’000 456 424 (46) — 834 — — — Other intangible assets £’000 1,995 546 — — Total £’000 13,785 4,538 (80) 139 9,796 3,337 — — 13,133 2,541 18,382 — — — 89 — — 568 (165) 80 834 13,133 2,630 18,865 255 124 (48) — 331 172 — — 503 503 331 — — — — — — — — — 698 490 — — 1,188 91 — — 1,258 862 (48) 38 2,110 521 — 59 1,279 2,690 13,133 13,133 1,353 1,351 16,272 16,175 1,538 231 (34) 139 1,874 479 (165) 80 2,268 305 248 — 38 591 258 — 59 908 1,283 1,360 All trademark, license and patent renewals are amortised over their estimated useful lives, which is between five and ten years. All amortisation has been charged to administrative expenses in the Statement of Comprehensive Income. Other intangible assets currently comprise customer relationships and product formulations acquired through the acquisition of Biokosmes Srl. Also included in the intangible assets balance are patents and trademarks and customer relationships acquired through the acquisition of Periproducts. These assets were recognised at their fair value at the date of acquisition and were being amortised over a period of five years. Following a review of the acquired assets, management has reassessed the future useful economic life of acquired customer relationships, patents and trademarks of the Group to ten years from 1 January 2017. The change in useful economic lives reduced the amortisation in 2017 by £397,000 and better reflects the utilisation of these long term assets. The key judgements used in relation to the Biokosmes (Development and Manufacturing CGU) and Periproducts (part of the Brands CGU) impairment review are as follows: • The estimates of profit after tax for the three years to 31 December 2020 are based on management forecasts of the Biokosmes and Periproducts businesses, with subsequent years growth forecasted at 5% and 2% respectively. Management consider 5% and 2% conservative growth rates for the businesses, but reflective of the operating sectors of the businesses. • The Group has applied a discount rate to the future cash flows of Biokosmes for five years, with a terminal value reflecting future years, using a pre-tax average cost-of-capital of 15%. These assumptions generate a significant headroom over the assets of the business held at the balance sheet date. These estimates and judgements are subjective and relate to future events and circumstances. The actual results may vary and accordingly may cause adjustments to the Group’s valuation in future financial years. Annual Report & Accounts 2017 — Venture Life Group plc 55 Financial statements 15. Property, plant and equipment Plant and equipment £’000 Other equipment £’000 Right-of-use assets £’000 Cost or valuation: At 1 January 2016 Additions Disposals Foreign exchange movements At 1 January 2017 Additions Disposals Foreign exchange movements At 31 December 2017 Depreciation: At 1 January 2016 Charge for the year Disposals Foreign exchange movements At 1 January 2017 Charge for the year Foreign exchange movements At 31 December 2017 Carrying amount: At 31 December 2016 At 31 December 2017 1,361 185 (21) 204 1,729 267 — 64 2,060 252 164 (5) 39 450 203 14 667 1,279 1,393 75 — — 11 86 — — — 86 64 12 — 10 86 — — 86 — — — — — — — 4,012 — 129 4,141 — — — — — 465 — 465 — 3,676 Total £’000 1,436 185 (21) 215 1,815 4,279 — 193 6,287 316 176 (5) 49 536 668 14 1,218 1,279 5,069 All depreciation has been charged to administrative expenses in the Statement of Comprehensive Income. Additions to right-of-use asset category reflect the recognition of the Group’s leasing obligations under IFRS 16. Further details are included in note 29. 16. Inventories Raw materials Finished goods At 31 December At 31 December 2016 £’000 2017 £’000 2,277 1,286 3,563 2,051 1,090 3,141 An amount of £5,721,000 (2016: £5,695,000) was recognised in respect of expenditure on inventory in the Statement of Comprehensive Income. 56 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 17. Trade and other receivables Trade receivables Prepayments and accrued income Other taxation recoverable Other receivables At 31 December At 31 December 2016 £’000 2017 £’000 4,700 4,264 152 — 289 92 25 275 5,141 4,656 Contractual payment terms with the Group’s customers are typically 60-90 days. The following is an analysis of trade receivables that are past due, but not impaired. These relate to a number of customers for whom there is no recent history of defaults. The ageing analysis of these trade receivables is as follows: 31 to 60 days past due 60 to 90 days past due 90 to 120 days past due > 120 days past due Overdue trade receivables gross Provision for overdue receivables Trade receivables – net At 31 December At 31 December 2016 £’000 2017 £’000 15 9 11 178 213 (12) 201 70 4 4 72 150 (7) 143 The Directors consider that the carrying value of trade and other receivables represents their fair value. As at the reporting date, a provision of £12,000 for overdue receivables has been made and is included in the carrying value of trade and other receivables (2016: £7,000). In determining the recoverability of trade receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date. For details on the Group’s credit risk management policies, refer to note 30(d). No allowance has been made against the overdue receivables based on historic default experience. The Group does not hold any collateral as security for its trade and other receivables. The amounts of trade and other receivables denominated in currencies other than pounds sterling are shown in note 30(c). 18. Cash and cash equivalents Cash and cash equivalents At 31 December At 31 December 2016 £’000 2017 £’000 1,361 1,998 The Group holds sterling, Chinese renminbi and Euro denominated balances in the UK. The Group’s subsidiaries hold US dollar, yen and Euro accounts in Italy and a Swiss franc account in Switzerland. The Directors consider that the carrying value of cash and cash equivalents approximates their fair value. For details on the Group’s credit risk management policies, refer to note 30(d). The amounts of cash and cash equivalents denominated in currencies other than pounds sterling are shown in note 30(c). Annual Report & Accounts 2017 — Venture Life Group plc 57 Financial statements 19. Share capital and share premium Share capital All shares are authorised, issued and fully paid. The Group has one class of ordinary shares which carry no fixed income. At 31 December 2016 and 2017 36,837,106 110,511 13,289 Ordinary shares of 0.3p each Number Ordinary shares of 0.3p each £ Share premium £’000 Merger reserve £’000 7,656 The Company issued no new shares during the period (2,433,572 in 2016). The Group operates a Long-Term Incentive Plan. Up to the balance sheet date, there have been three awards under this plan, in which Executive Directors and senior management of the Group participate. Further details are included in the Directors’ Remuneration Report set out on page 28. 20. Merger reserve In 2010 the Company acquired 100% of the issued share capital of Venture Life Limited from shareholders of the company. This combination gave rise to a merger reserve in the Consolidated Statement of Financial Position, being the difference between the nominal value of new shares issued by the Company for the acquisition of the shares of the subsidiary and the subsidiary’s own share capital and share premium account. The merger reserve is also used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue of new shares by the Company, thereby attracting merger relief under the Companies Act 2006. The balance on the reserve of £7,656,000 (2016: £7,656,000) has arisen through the acquisition of Venture Life Limited in 2010 (£50,000), and Biokosmes in March 2014 (£7,606,000). 21. Convertible bond Convertible bonds with a principal value of £1.9 million were issued as part of the funding for the Periproducts acquisition in 2016. The bond carries a 9% coupon with interest payable quarterly over a three year term with full repayment of the convertible bond due on 3 March 2019. Bondholders have the right to convert their bonds to shares in the Group at a conversion price of 87.5 pence per Venture Life share (87.5 pence representing a 25% premium to the 70 pence placing price of the new equity at the time of the acquisition) which can be exercised at any point before 3 March 2019. 22. Vendor loan notes Vendor loan notes totalling €2 million which pay an annual coupon of 3% were issued by the Group in March 2014 in connection with the acquisition of Biokosmes. Interest amounting to £17,000 accrued during the period is payable on these vendor loan notes at the period end. Interest is payable on these vendor loan notes in October and April. The agreements covering these vendor loan notes were subsequently amended such that the latest repayment date of the loan notes was extended from July 2016 to July 2020 and the annual coupon increased to 4% effective 1 August 2017. 23. Foreign currency translation reserve The Foreign currency reserve represents unrealised cumulative net gains and losses arising on the translation and consolidation of the Group’s Italian subsidiary. 58 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 24. Share-based payments and share-based payments reserve 24.1 Share options Share options are held by option holders in either the Venture Life Group plc Enterprise Management Incentive Share Option Plan (“EMI Plan”) or under the Venture Life Group plc Unapproved Share Option Plan (“Unapproved Plan”). All options in both plans are settled in equity when the options are exercised. Options under both Plans vest according to time employed at Venture Life. Additionally, some options granted under the EMI Plan vest according to achievement of certain non-market performance targets. The maximum term of options granted under both plans is ten years. The IFRS 2 share option charge for the year was £88,000 (2016: £42,000) and is included in administrative expenditure in the Statement of Comprehensive Income. The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year. Total outstanding at beginning of the year Granted during the year Exercised Forfeited Total outstanding at 31 December Exercisable at 31 December 2017 Number 2017 WAEP (p) 2016 Number 2016 WAEP (p) 3,880,670 465,000 — (500,000) 3,845,670 2,867,440 53 60 — 82 50 45 3,653,770 455,660 — (228,760) 3,880,670 3,367,440 54 56 — 80 53 51 The following table summarises information about the range of exercise prices for share options outstanding at 31 December: Range of exercise prices 0p-49p 50p-99p 100p-149p Total 2017 Number 2016 Number 2,827,440 2,827,440 921,900 96,330 956,900 96,330 3,845,670 3,880,670 At 31 December 2017, the weighted average remaining contractual life of options exercisable is 5.22 years (2016: 6.31 years). The weighted average fair value of options granted in the year is 45 pence (2016: 56 pence). The non-market performance conditions for all share options outstanding at 31 December 2017 and which are exercisable at 31 December 2017 or before have been achieved. The share-based payment charge has been calculated using the Black-Scholes model to calculate the fair value of the share options that vest according to non-market performance conditions. An appropriate valuation model has been used to calculate the fair value of share options with market performance-related vesting. Disclosure of those valuation assumptions is not made on the basis that the related charge is immaterial. The inputs into the Black-Scholes model are as follows: Weighted average share price (p) Weighted average exercise price (p) Weighted average expected volatility (%) Weighted average expected life (years) Weighted average-risk free rate (%) Expected dividends (%) 2017 59.5 59.5 22.7 4 0.51 0.067 2016 59.3 59.6 18.5 4 1.19 0.004 Annual Report & Accounts 2017 — Venture Life Group plc 59 Financial statements 24. Share-based payments and share-based payments reserve continued 24.1 Share options continued a. The risk-free rate is based on the UK Gilt rate as at the grant date with a period to maturity commensurate with the expected term of the relevant option tranche. b. The fair value charge is spread evenly over the period between the grant of the option and the earliest exercise date. c. The expected volatility is based on the historical volatility of similar companies share prices over the previous three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The range of comparable companies has been reviewed for grants in the current year resulting in the decrease in expected volatility. 24.2 Long-Term Incentive Plan The Group operates a Long-Term Incentive Plan. Up to the balance sheet date, there have been three awards under this plan, in which Executive Directors and senior management of the Group participate. Awards under the Plan are granted in the form of nominal cost share options, and are to be satisfied either using market-purchased shares or by the issuing of new shares. The awards vest in full or in part dependent on the satisfaction of specified performance targets at the end of the vesting period applying to each plan. The number of awards that vest is dependent upon either the earnings per share (“EPS”) achieved for the relevant year and the Group’s Total Shareholder Return (“TSR”) during the vesting period within a comparator group. Details are set out below: Award One Award Two Award Three Grant date of awards 28 September 2016 28 September 2016 24 April 2017 Grant date fair value of award (pence per award) 54.5 54.5 64.5 Vesting date of awards 25 March 2018 28 September 2019 Maximum number of awards 492,954 Vesting conditions based on EPS and TSR 831,209 EPS and TSR 24 April 2020 897,598 EPS and TSR Relevant date for determination of vesting conditions 31 December 2017 for EPS and 25 March 2018 for TSR 31 December 2018 for EPS and 28 September 2019 for TSR 31 December 2019 for EPS and 24 April 2020 for TSR Further details of vesting conditions are set out in the Directors’ Remuneration Report on pages 28 to 31. The fair value at grant date of Award One was estimated based on the share price of the Group at grant date. Award Two includes vesting conditions that are market based, and allowance for these are included within the fair value at grant date. The weighted average fair value of options granted during the period determined using the Monte-Carlo valuation model was 64.5 pence per option. The significant inputs into the model were: • weighted average share price of 64.5 pence at the grant date • exercise price shown above • dividend yield assumed nil for the basis of the calculation • options are assumed to be exercised at point of vesting • an annual risk-free interest rate of 0.141% The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last three years. Movements in the number of awards outstanding, assuming maximum achievement of vesting conditions, are as follows: At 1 January Granted Forfeited At 31 December 2017 Number 1,324,163 2016 Number — 897,598 1,641,247 — (317,084) 2,221,761 1,324,163 Please refer to note 7 for disclosure of the charge to the Consolidated Income Statement arising from share-based payments. The share-based payment reserve represents charges made to the Income Statement in respect of share-based payments under the Group’s share option schemes. 60 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 25. Retained earnings Retained earnings represents all other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. 26. Trade and other payables Trade payables Accruals and deferred income Social security and other taxes Other payables At 31 December At 31 December 2016 £’000 2017 £’000 2,998 949 120 337 4,404 2,528 1,360 90 369 4,347 Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. They are non-interest-bearing and are normally settled on 60 day terms. The Directors consider that the carrying value of trade and other payables approximates their fair value. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices during the year. The amount of trade and other payables denominated in currencies other than pounds sterling are shown in note 30(c). 27. Interest-bearing borrowings Current Invoice financing Leasing obligations Unsecured bank loans due within one year Non-current Deferred consideration Leasing obligations Unsecured bank loans due after one year At 31 December At 31 December 2016 £’000 2017 £’000 965 485 59 1,509 426 3,211 2,606 6,243 629 — 58 687 416 — 2,570 2,986 All bank loans are held by the Group’s Italian wholly-owned subsidiary, Biokosmes. During the year, an existing bank loan held with Unicredit SPA for €0.8 million, due to expire in November 2018, was extended. The loan principal remained at €0.8 million and the expiry date was extended to May 2023. Invoice financing includes the Italian RiBa (or “Ricevuta Bancaria”) facility and UK invoice financing facility with HSBC. Both are short-term facilities. The balance shown above of £965,000 (2016: £629,000) reflects the amount that had been settled in Biokosmes’s account under RiBa and drawn against invoices in the UK as at the reporting date. Deferred consideration reflects the fair value of a loan held by the Company with the vendors of Periproducts. The loan principal of £400,000 is repayable in March 2019 and has an annual interest charge of 10% from September 2017. Its carrying value at 31 December 2017 was £426,000 (2016: £416,000). Annual Report & Accounts 2017 — Venture Life Group plc 61 Financial statements 27. Interest-bearing borrowings continued A summary showing the contractual repayment of interest-bearing borrowings is shown below: At 31 December 2017 At 31 December 2016 Leasing obligations £’000 Other £’000 2017 £’000 Leasing obligations £’000 Other £’000 2016 £’000 Amounts and timing of non-current debt repayable Between 1 January 2018 and 31 December 2018 Between 1 January 2019 and 31 December 2019 Between 1 January 2020 and 31 December 2020 Between 1 January 2021 and 31 December 2021 Between 1 January 2022 and 31 December 2026 — 486 491 489 1,745 3,211 — 612 584 533 1,303 3,032 — 1,098 1,075 1,022 3,048 6,243 Reconciliation of debt 1 January 2017 Cash flows: Draw-down/(repayment) Non cash: Movements in fair value and foreign exchange 31 December 2017 Lease liability — — — — — — 742 473 400 343 1,028 2,986 Short-term borrowings £’000 Long-term borrowings £’000 742 473 400 343 1,028 2,986 Total £’000 912 312 42 1,266 6,232 7,144 (45) 267 227 6,414 269 7,680 The Group’s net debt position remains unchanged from 2016 in respect of its lease contracts. Under IFRS16, leases that have previously been recognised as operating leases have now been recognised in the Statements of Financial Position showing additional lease liabilities at 31 December 2017 of £3,696,000 offsetting right-of-use assets of £3,676,000, giving a net liability position of £20,000 28. Statutory employment provision The statutory employment provision includes the liability for severance indemnities related to employees of the Group’s Italian subsidiary. The severance indemnity liability arises under Italian law and is calculated with reference to each employee’s length of service, employment category and remuneration. There is no vesting period or funding requirement associated with the liability. The liability recorded at the reporting date is based on the aggregate amount that the employees of the Group’s Italian subsidiary would be entitled to on termination of employment for whatever reason. 29. Leases During the year the Group early adopted IFRS 16 ‘Leases’, which has been applied from 1 January 2017. IFRS 16 requires the Group, with the exception of short-term and low value leases, to value all leasing obligations disclosing right-for-use assets and corresponding lease liabilities. As detailed below, all leases of the group have been considered to have balance sheet leasing obligations with the exception of a UK property lease which expired within the year. 62 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 29. Leases continued Right-of-use assets Carrying value 1 January 2017 Additions Depreciation charge in the year Foreign exchange Carrying value 31 December 2017 Interest charge in the year Cash outflow for leases in the year Office equipment £’000 Motor vehicles £’000 62 — (16) 2 48 1 17 15 — (10) — 5 — 10 Property £’000 3,664 271 (439) 127 Total £’000 3,741 271 (465) 129 3,623 3,676 41 459 42 486 Lease liabilities were calculated as the present value of the future lease obligations of the Group. The future leasing obligations were discounted using the relevant Italian and UK local borrowing rates of 1% and 5% respectively. There was one lease contract of the Group that remained as an operating lease in the year, with its monthly lease payments taken through the income statement. This lease contract for the office of the former UK headquarters, was terminated in October 2017 and consequently was considered short term in nature. The ten monthly lease payments made during the year totalled £59,000. The lease categories of the Group are made up of: Office equipment • Photocopiers and laboratory equipment leased by the Group in Italy and the UK are rented under contract with lease terms extending between 2019 and 2021. Each contract comes with a three month break clause, but management do not expect that these break clauses will be exercised. Motor vehicles • A company car is provided to the Group’s Chief Executive Officer. This lease has a three year term ending June 2018 where upon the leased asset is required to be returned to the lessor. Property • The Group’s Italian subsidiary has one operating location and storage location in Lecco, near to Milan. The operating location has a long-term rental agreement until November 2019. Rental obligations on the storage location continue until September 2020. Both locations have a six year extension option at the end of the initial term that is available to the Group. Due to the fixed nature of the Italian business, management consider that these extensions will be exercised. • The Group’s current UK operation is headquartered in a leased premises in Bracknell. The lease contract commenced in August 2017 and expires in July 2022. The contract has a three year break clause, but management does not expect that this break clause will be exercised. At transition IFRS 16 permits the cumulative effect of adopting the standard to be taken to retained earnings. The Group has also elected to value the right-of-use assets in line with lease liabilities at transition. There were no movements taken to retained earnings in the year as a result of transition. If IFRS 16 was not adopted in the year, operating profit of the Group for the year would be reduced by £21,000 and profit before tax would be increased by £21,000. Annual Report & Accounts 2017 — Venture Life Group plc 63 Financial statements 30. Financial instruments The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. a. Principal financial instruments The principal financial instruments used by the Group from which financial instrument risk arises are as follows: • Trade and other receivables (excluding prepayments) • Cash and cash equivalents • Trade and other payables (excluding deferred revenue) • Convertible bond • Vendor loan notes • Interest-bearing debt • Leasing obligations • Invoice financing Set out below are details of financial instruments held by the Group as at: Financial assets: Trade and other receivables1 Cash and cash equivalents Total Financial liabilities: Trade and other payables2 Leasing obligations Convertible bond Vendor loan note Interest-bearing debt Total 31 December 2017 31 December 2016 Loans and receivables £’000 Total financial assets £’000 Loans and receivables £’000 Total financial assets £’000 4,989 1,361 6,350 4,989 1,361 6,350 4,564 1,998 6,562 4,564 1,998 6,562 31 December 2017 31 December 2016 Liabilities (amortised cost) £’000 Total financial liabilities £’000 Liabilities (amortised cost) £’000 Total financial liabilities £’000 4,389 3,696 1,802 1,822 4,056 4,389 3,696 1,802 1,822 4,056 4,260 — 1,717 1,754 3,673 4,260 — 1,717 1,754 3,673 15,765 15,765 11,404 11,404 1 Trade and other receivables excludes prepayments. 2 Trade and other payables excludes deferred revenue. During the period the Group adopted the lease accounting standard IFRS 16. The standard requires the recognition of leasing obligations which are included above. See note 29 for further details. 64 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 30. Financial instruments continued Disclosures in respect of the Group’s financial risks are set out below: b. Financial risk management The Group’s activities expose it to a variety of financial risks: market risk of foreign exchange fluctuations, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s policies for financial risk management are outlined in the section on Principal Risks and Uncertainties in the Strategic Report on pages 18 and 19. c. Market risk Foreign exchange risk The Group is exposed to foreign exchange risk on sales, purchases, and translation of assets and liabilities that are in a currency other than the functional currency of its operating units. The carrying amount of the Group’s foreign currency denominated monetary assets and liabilities in Euros, US dollars, Chinese renminbi and Swiss francs are shown below in the Group’s presentational currency, (£). US$ £’000 RMB £’000 SFr £’000 Euro £’000 Yen £’000 Total £’000 At 31 December 2017 Assets Trade and other receivables Cash and cash equivalents Liabilities Trade and other payables Vendor loan notes, convertible bond and interest-bearing debt Net position At 31 December 2016 Assets Trade and other receivables Cash and cash equivalents Liabilities Trade and other payables Vendor loan notes and interest- bearing debt Net position 52 57 109 63 — 63 46 — 41 41 — — — 41 306 55 361 47 — 47 314 23 5 28 — — — 28 — 20 20 — — — 20 — 1 1 — — — 1 4,116 926 5,042 3,398 8,580 11,978 (6,936) 3,227 1,490 4,717 3,052 5,011 8,063 (3,346) — — — — — — — — — — 46 — 46 4,474 1,058 5,532 3,508 8,580 12,088 (6,556) 3,250 1,537 4,787 3,098 5,011 8,109 (46) (3,322) Annual Report & Accounts 2017 — Venture Life Group plc 65 Financial statements 30. Financial instruments continued c. Market risk continued Foreign exchange risk continued The following table details the Group’s sensitivity to a 10% increase and decrease in the foreign currencies used by the Group against sterling. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonable possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% weakening or strengthening of the foreign currencies against sterling. At 31 December 2017 Assets Liabilities At 31 December 2016 Assets Liabilities d. Credit risk £ currency impact strengthening £’000 £ currency impact weakening £’000 503 (1,060) 435 (737) (503) 1,060 (435) 737 Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and deposits with financial institutions. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group has an established credit policy under which each new customer is analysed for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, and in some cases bank references. An allowance for impairment is made when there is an identified loss event, which based on previous experience, is evidenced in the recoverability of the cash flows. Management considers the above measures to be sufficient to control the credit risk exposure. The Group gives careful consideration to which organisations it uses for its banking services in order to minimise credit risk. At the previous reporting date, the Group had a significant concentration of cash held on deposit with certain banks in the United Kingdom. This deposit was used in part to fund the Periproducts acquisition during the year and so the cash concentration is no longer held. The Group considers its credit risk by counterparty and geography. At 31 December 2017, the Group was also owed £1,238,000 (2016: £1,352,000) from one (2016: one) of its major customers, the balance being shown under trade receivables. No impairment was made against any of the above amounts at any of the Statement of Financial Position dates. The carrying amount of financial assets recorded represents the Group’s maximum exposure to credit risk without taking into account the value of any collateral obtained. In the Director’s opinion there have been no impairments of financial assets in the periods in this financial information. No collateral is held by the Group in relation to any of its financial assets. 66 Venture Life Group plc — Annual Report & Accounts 2017 Financial statementsNotes to the Consolidated Statements continuedfor the year ended 31 December 2017 30. Financial instruments continued d. Credit risk continued Interest rate risk The Group’s principal interest-bearing assets are its cash balances. The main principles governing the Group’s investment criteria are the security and liquidity of its investments before yield, although the yield (or return) is also a consideration. The Group will also ensure: i) that it has sufficient liquidity in its investments. For this purpose it will use its cash flow forecasts for determining the maximum periods for which funds may prudently be committed; and ii) that it maintains a policy covering both the categories of investment types in which it will invest, and the criteria for choosing investment counterparties. The interest rate risk profile of the Group’s financial assets, excluding trade and other receivables, as at 31 December 2017 was: Sterling Euro RMB USD Swiss franc Total Fixed rate Floating rate Total 2017 £’000 2016 £’000 — — — — — — — — — — — — 2017 £’000 303 926 55 57 20 2016 £’000 461 1,490 5 41 1 2017 £’000 303 926 55 57 20 2016 £’000 461 1,490 5 41 1 1,361 1,998 1,361 1,998 Floating rate deposits in all currencies earn interest at prevailing bank rates. e. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or damage to the Group’s reputation. The Directors manage liquidity risk by regularly reviewing the Group’s cash requirements by reference to short-term cash flow forecasts and medium-term working capital projections prepared by management. f. Maturity of financial assets and liabilities All of the Group’s financial assets and financial liabilities at each reporting date are either payable or receivable within one year, with the exception of the non-current interest-bearing borrowings as detailed in note 27. g. Capital management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. The Group is funded by interest-bearing borrowings, loan notes and equity, comprising issued capital and retained profits. The capital structure of the Group consists of cash and cash equivalents and equity, comprising issued capital and retained profits. The Group has no externally imposed capital requirements, but maintains an efficient overall financing structure while avoiding excessive leverage. Annual Report & Accounts 2017 — Venture Life Group plc 67 Financial statements Notes to the Consolidated Statements continued for the year ended 31 December 2017 30. Financial instruments continued g. Capital management continued The amounts managed as capital by the Group for the reporting periods under review are summarised as follows: Total equity Cash and cash equivalents Capital Total equity Borrowings Leasing obligations Overall financing Capital to overall financing ratio At 31 December At 31 December 2016 £’000 2017 £’000 14,185 (1,361) 12,824 14,185 7,680 3,696 25,561 0.50 14,358 (1,998) 12,360 14,358 7,144 — 21,502 0.57 31. Related party transactions The following transactions were carried out with related parties: (a) Transactions with Directors Total dividends paid to Directors in the year ending 31 December 2017 were £5,061 (2016: £5,051). In March 2016 the Company issued a 9% convertible bond for £1.9 million. The bond was issued to a number of bondholders including Jerry Randall and Gianluca Braguti, both Directors of the Company. Both Directors subscribed to £200,000 of the issued bond. Interest is accrued on the bond at 9% and is paid in March, June, September and December each year (which are the same terms as the other bondholders). Gianluca Braguti, a Director and shareholder of the Group, was provided with services by the Group totalling £3,765 (2016: £2,977). At 31 December 2017, Gianluca Braguti owed the Group £3,700 (2016: £3,839). Gianluca Braguti, a Director and shareholder of the Group, was issued vendor loan notes by the Group for €2 million as part of the Biokosmes acquisition in March 2014. The agreements covering these vendor loan notes were amended in the year such that the latest repayment date of the loan notes was extended from July 2017 to July 2020. The interest rate on the loan was also increased from 3% in the initial loan agreement to 4%, effective from 1 August 2017 and for the remainder of the loan notes term. Interest totalling €68,000 (2016: €60,000) was charged on the vendor loans note during the year. See note 22 for further details. Under the terms of the Share Purchase Agreement dated 28 November 2013 and signed between the Company and the vendors of Biokosmes, one of whom was Gianluca Braguti, the vendors agreed to indemnify the Company in full for any net liability arising from certain litigation cases which had not settled at the time of completion of the acquisition on 27 March 2014. At the year end the amount due to the Company under the indemnity totalled €250,935 (2016: €250,935), of which Gianluca Braguti’s liability is €248,426 (2016: €248,426). There is still one litigation case outstanding, upon settlement of which, Gianluca Braguti will clear any outstanding liability with the Group. 68 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 31. Related party transactions continued (b) Transactions with other related parties Bragut’s real estate Srl (formerly known as Biokosmes Immobiliare Srl), a company 100% owned by Gianluca Braguti, a Director and shareholder of the Group provided property lease services to Biokosmes Srl, the Group’s Italian subsidiary, totalling €460,000 in the year to 31 December 2017 (2016: €460,000). At 31 December 2017, the Group owed Bragut’s real estate Srl €413,661 (€692,000 at 31 December 2016). Services purchased from Biogenico Srl, a company 47% owned by Gianluca Braguti, a Director and shareholder of the Group, totalled £8,499 (2016: £4,016). At 31 December 2017, the Group owed Biogenico Srl £nil (2016: £8,189). Services provided to Biogenico Srl totalled £68,364 (2016: £17,466). At 31 December 2017, Biogenico Srl owed the Group £10,617 (2016: £14,318). Services purchased from A. Erre, a company 10% owned by Gianluca Braguti, a Director and shareholder of the Group, totalled £36,311 (2016: £71,784). At 31 December 2017, the Group owed A. Erre £nil (2016: £4,682). Services purchased from Farmacia San Francesco, a company 10% owned by Gianluca Braguti, a Director and shareholder of the Group, who is also a Director, totalled £794 (2016: £381 provided to Farmacia San Francesco). At 31 December 2017, Farmacia San Francesco owed the Group £nil (2016: £nil). 32. Post balance sheet events There were no material events after the balance sheet date. Annual Report & Accounts 2017 — Venture Life Group plc 69 Financial statements Parent Company Balance Sheet for the year ended 31 December 2017 Company number 05651130 Fixed assets Investments Current assets Debtors Cash at bank Creditors Amounts falling due within one year Net current assets Total assets less current liabilities Creditors Amounts falling due after one year Net assets Capital and reserves Called up share capital Share premium account Convertible bond reserve Merger reserve Share-based payments reserve Profit and loss account brought forward Profit and loss account for the year Shareholders’ funds At 31 December At 31 December 2016 £’000 2017 £’000 Note 5 6 7 8 9 19,062 19,062 19,033 19,033 8,734 33 8,767 (452) 8,315 7,219 210 7,429 (739) 6,690 27,377 25,723 (5,139) (5,139) (3,662) (3,662) 22,238 22,061 111 13,289 109 7,656 497 472 104 111 13,289 109 7,656 409 387 100 22,238 22,061 The financial statements on pages 70 to 76 were approved and authorised for issue by the Board on 21 March 2018 and signed on its behalf by: Jerry Randall Director 70 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements Parent Company Statement of Changes in Equity for the year ended 31 December 2017 Share capital £’000 Share premium account £’000 Merger reserve £’000 Convertible Share-based payments reserve £’000 bond reserve £’000 Profit and loss account £’000 Balance at 1 January 2016 103 11,826 7,656 Profit for the year Total comprehensive income Share-based payments charge Convertible bond reserve Issue of share capital Dividends Transactions with shareholders — — — — 8 — 8 — — — — 1,463 — 1,463 — — — — — — — Balance at 31 December 2016 111 13,289 7,656 Profit for the year Total comprehensive income Share-based payments charge Dividends Transactions with shareholders — — — — — — — — — — — — — — — — — — — 109 — — 109 109 — — — — — 368 — — 41 — — — 41 409 — — 88 — 88 401 100 100 — — — (14) (14) 487 104 104 — (15) (15) Total equity £’000 20,354 100 100 41 109 1,471 (14) 1,607 22,061 104 104 88 (15) 73 Balance at 31 December 2017 111 13,289 7,656 109 497 576 22,238 Annual Report & Accounts 2017 — Venture Life Group plc 71 Financial statements Notes to the Parent Company Balance Sheet for the year ended 31 December 2017 1. Company Information Venture Life Group plc is a publicly traded company on the UK alternative investments market (“AIM”), incorporated in the United Kingdom whose registered office, and principal place of business, is at: Venture House, 2 Arlington Square, Downshire Way, Bracknell, Berkshire RG12 1WA The principal activity of the company is the holding of the Group’s share capital and provision of management services to the Group. 2. Accounting convention These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (“FRS 102”), and with the Companies Act 2006. The financial statements have been prepared on the historical cost basis. Financial Reporting Standard 102 – reduced disclosure exemptions The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’: • the requirements of Section 4 Statement of Financial Position paragraph 4.12(a)(iv); • the requirements of Section 7 Statement of Cash Flows; • the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d); • the requirements of Section 11 Financial Instruments paragraphs 11.39 to 11.48A; • the requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.29; • the requirements of Section 26 Share-based Payment paragraphs 26.18(b), 26.19 to 26.21 and 26.23; • the requirements of Section 33 Related Party Disclosures paragraph 33.7. Going concern The most imminent capital repayment of the Company is the £1.9 million UKBN convertible bond which is due to be repaid, if not converted in March 2019. The Directors are already in discussions to either defer or refinance with debt this convertible bond and consequently fully expect this to be confirmed in the foreseeable future. Forecasts assume the convertible bond is refinanced rather than repaid from existing funds. On the basis of the above, the Directors are confident that the Company and its Group have sufficient working capital to honour all of its obligations to creditors as and when they fall due. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements. Investment in subsidiary undertakings and impairment review Investments in subsidiary undertakings where the Company has control are stated at cost less any provision for impairment. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments are calculated such that the carrying value of the investment is the lower of its cost or recoverable amount. Recoverable amount is the higher of its net realisable value and its value in use. Share-based payments The Company issues equity-settled share-based payments to certain employees and others under which the Group receives services as consideration for those equity instruments in the Company. Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted. The fair value determined at the grant date of equity-settled share-based payments is recognised as an expense in the Group’s Statement of Comprehensive Income over the vesting period on a straight-line basis, based on the Group’s estimate of the number of instruments that will eventually vest with a corresponding adjustment to equity. The expected life used in the valuation is adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations. Non-vesting and market vesting conditions are taken into account when estimating the fair value of the awards at grant date. Service and non-market vesting conditions are taken into account by adjusting the number of share options expected to vest at each reporting date. When the share options are exercised the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. 72 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 2. Accounting convention continued Share-based payments continued When an agreement is reached for the settlement of a fixed liability for a fixed number of the Company’s shares (“Fixed for Fixed”) the value of the liability is de-recognised and is recognised in the share-based payments reserve at the date of the agreement. When the Company grants options over equity instruments directly to the employees of a subsidiary undertaking, the effect of the share-based payment, as calculated, is capitalised as part of the investment in the subsidiary as a capital contribution, with a corresponding increase in equity. Taxation Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in respect of all timing differences at the reporting date, except as otherwise indicated. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Deferred tax is measured at the rates that are expected to apply in the period when the timing differences are expected to reverse, based on the tax rates and law enacted or substantively enacted at the balance sheet date. Foreign currency Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are charged/credited to the profit and loss account. Financial Instruments Financial assets and financial liabilities are recognised in the Company’s Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contracted rights to the cash flows from the financial asset expire or when the contracted rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. Financial assets Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the profit or loss when there is objective evidence that the assets are impaired. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits held on call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Trade and other payables Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the ‘effective interest rate’ to the carrying amount of the liability. Vendor loan notes The carrying value of the vendor loan notes is determined with reference to the present value of the principal amount of the loan note to be settled in the future, together with the present value of the future interest payments to be made under the terms of the loan note. The equity element of the Company’s vendor loan notes issued in 2014 was not considered material. Convertible bond The carrying value of the convertible bond is determined with reference to the present value of the principal amount of the bond to be settled in the future, together with the present value of the future interest payments to be made under the terms of the loan note. The equity element of the convertible bond has been recognised within shareholders’ funds as a convertible loan note reserve. Judgements: Intercompany loan obligations On the basis of the forecasts prepared by the Group, the Directors are confident that the Company and its Group have sufficient working capital to honour all of its obligations to creditors as and when they fall due. Annual Report & Accounts 2017 — Venture Life Group plc 73 Financial statements Notes to the Parent Company Balance Sheet continued for the year ended 31 December 2017 3. Profit attributable to members of the parent Company As permitted by s408 of the Companies Act 2006, the Company’s profit and loss account has not been included in these financial statements. The profit dealt with in the financial statements of the parent Company was £104,000 (2016: profit of £100,000). The current auditors’ remuneration in respect of audit services provided to the Company is disclosed in note 7 of the consolidated financial statements. 4. Directors’ remuneration Details of Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 28 to 31. 5. Investments Cost At 1 January 2017 Additions At 31 December 2017 Accumulated Impairment At 1 January 2016 Charge for the year At 31 December 2017 Net book value At 31 December 2016 At 31 December 2017 Investments in subsidiary undertakings Shares £’000 Capital contributions from share-based payments £’000 Other investments £’000 18,756 — 18,756 — — — 18,756 18,756 277 29 306 — — — 277 306 31 — 31 (31) — (31) — — Total £’000 19,064 29 19,093 (31) — (31) 19,033 19,062 Venture Life Group plc has four UK subsidiary undertakings, Venture Life Limited (Company number 07186207), Lubatti Limited (Company number 06704099), Tracey Malone Originals Limited (Company number 06703243) and Periproducts Limited (Company number 02864374) which are all Incorporated in England and registered with the same address as the Company. It also has one Italian subsidiary (Biokosmes Srl, registered address 20122 Milano – Via Besana, 10) and one Swiss subsidiary (Permapharma AG, registered address Oberallmendstrasse 24, 6304 Zug). Name of subsidiary Venture Life Limited Lubatti Limited Tracey Malone Originals Limited Periproducts Limited PermaPharm AG Biokosmes Srl Class of holding Proportion held directly Location Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% UK UK UK UK Switzerland Italy 74 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements 6. Debtors Amounts falling due within one year: Other debtors Other taxation Prepayments and accrued income Amounts owed by Group undertakings Amounts falling due after more than one year: Amounts owed by Group undertakings Aggregate amounts 7. Creditors: amounts falling due within one year Trade creditors Other taxation and social security costs Accruals and deferred income Vendor loan notes Convertible bond Other payables 8. Creditors: Amounts falling due after more than one year Amounts owed to Group undertakings Vendor loan notes Convertible bond Deferred consideration Vendor loan notes 2017 £’000 2016 £’000 10 16 45 350 421 48 47 18 252 365 8,313 8,734 6,854 7,219 2017 £’000 61 38 100 71 171 11 452 2017 £’000 1,331 1,751 1,631 426 5,139 2016 £’000 88 23 356 54 171 47 739 2016 £’000 — 1,700 1,546 416 3,662 Pursuant to the acquisition of Biokosmes Srl in March 2014, the Company issued to the vendors of Biokosmes vendor loan notes with a face value of €2.0 million and which paid an annual coupon of 3%. Under the terms of the loan notes, the loan notes were due to be repaid in full at the latest by the Company in July 2016. The repayment date of these loan notes were subsequently extended to July 2020. The interest due on the loan notes was also increased from 3% to 4% effective 1 August 2017. Amortised cost valuation of vendor loan notes at 31 December 2016 Foreign exchange movements and changes in fair value of vendor loan notes Accrued interest not paid Amortised cost valuation of vendor loan notes at 31 December 2017 Current element of vendor loan notes liability Non-current element of vendor loan notes liability £’000 1,754 51 17 1,822 71 1,751 1,822 The interest expensed for the year is calculated by applying an effective interest rate of 3% from the date the loan notes were issued (subsequently updated to 4%, effective 1 August 2017). The carrying value of the vendor loan notes is determined with reference to the present value of the principal amount of the loan note to be settled in the future, together with the present value of the future interest payments to be made under the terms of the loan note. The equity element of the Group’s vendor loan notes included in 2016 and 2017 was not considered material. Annual Report & Accounts 2017 — Venture Life Group plc 75 Financial statements Notes to the Parent Company Balance Sheet continued for the year ended 31 December 2017 8. Creditors: Amounts falling due after more than one year continued Convertible bonds The value of the liability and associated costs are held on the balance sheet at amortised cost. The initial amortised cost valuation gave a carrying value, net of fees, of £1.6 million which was recorded as a liability at 4 March 2016. This will increase to its principal value of £1.9 million over the life of the bond to 3 March 2019, with interest costs being taken to the Income Statement on a monthly basis. The resulting equity value is £0.1 million which is recorded as a convertible bond reserve. Amortised cost valuation of convertible bond at 31 December 2016 Accrued interest not paid Change in fair value of convertible bonds Amortised cost valuation of convertible bonds at 31 December 2017 Current element of convertible bonds liability Non-current element of convertible bonds liability £’000 1,717 14 71 1,802 171 1,631 1,802 Deferred consideration Deferred consideration reflects the fair value of a loan held by the Company with the vendors of Periproducts. The loan principal of £400,000 is repayable in March 2019 and has an annual interest charge of 10% from September 2017. The amortised cost valuation of deferred consideration included in non-current liabilities at the balance sheet date was £426,000 (2016: £416,00). 9. Share capital Allotted, issued and fully paid: (2016: 36,837,106) ordinary shares of 0.3 pence each 2017 £’000 2016 £’000 111 111 The Company has removed the Authorised Share capital from its Memorandum and Articles of Association as allowed by the Companies Act 2006. 10. Post balance sheet events There were no material events after the balance sheet date. 76 Venture Life Group plc — Annual Report & Accounts 2017 Financial statements Shareholder Information Company contact details and registered office Shareholder enquiries Venture House 2 Arlington Square Bracknell Berkshire RG12 1WA Incorporated and registered in England and Wales with No. 05651130 Company Secretary Peter Shepherd Website Further information on the Group can be found on our websiteatwww.venture-life.com Share price information ThelatestVentureLifesharepricecanbeobtained via a numberoffinancialinformationwebsites. VentureLife’sLondonstockexchangecodeisVLG. Enquiries concerning shareholdings, change of address or otherparticulars,shouldbedirectedinthefirstinstance to theCompany’sregistrars: Link Asset Services TheRegistry 34 Beckenham Road Beckenham Kent BR34TU Telephone:08701623100 (Callscost10p/minuteplusnetworkextras.Linesareopen 8.30am-5.30pmMon-Fri.IfcallingfromoutsidetheUK pleasedial:+44(0)2086393399) Investor relations Any shareholders with enquiries regarding the Group are welcome to contact Jerry Randall on +44 (0)1344 578 004. Alternatively, they can e-mail their enquiry to ir@venture-life.com. Copiesofthisreportarebeingsenttoallshareholders. Copiesarealsoavailableattheregisteredofficeofthe Company,VentureHouse,ArlingtonSquare,Bracknell, Berkshire RG12 1WA. PrintedonArcoprint,madefromanFSC®certifiedandECF (ProcessChlorineFree)material.PrintedintheUKbyPark Communicationsusingtheirenvironmentalprintingtechnology. Both manufacturing mill and the printer are registered to the Environmental Management System ISO14001 and are Forest StewardshipCouncil®(FSC)chain-of-custodycertified. V e n t u r e L i f e G r o u p p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 Venture Life Group plc Venture House 2 Arlington Square Bracknell Berkshire RG12 1WA +44 (0) 1344 742 870 T. info@venture-life.com E. W. www.venture-life.com