RNS Number:6665E
Tissue Science Laboratories PLC
28 September 2007
28 September 2007
Tissue Science Laboratories plc
(TSL or The Company)
Interim Results for the six months ended 30 June 2007
Tissue Science Laboratories plc (LSE: TSL), the medical technology company
specialising in biologic tissue replacement and repair products, today announces
its interim results for the six months ended 30 June 2007.
Highlights
* Substantial progress by direct sales team in core US complex hernia
market;
* First results reported under IFRS;
* Revenues increased 21% to #6.4m (H1 2006: #5.3m), and 32% on constant
currency basis;
o US General Surgery sales increased 68% to $7.4m (H1 2006: $4.4m);
* Gross margins unchanged at 68% (H1 2006: 68%) despite significant US
dollar weakness; 71% on constant currency basis;
* Net loss of #1.9m (H1 2006: #1.8m);
* Cash and cash equivalents of #2.6m (December 2006: #4.8m).
Post Period End Update
* R&D strategic review complete, with proposed spin-out of non-dermal
tissue product development into a separate, independently managed and
financed company;
* TSL to focus on growing the general surgery and other dermal tissue
business with operational and administrative overhead base reviewed in line
with strategy, resulting in annual savings of #0.7m.
Martin Hunt, CEO of TSL, said:
"We have made excellent progress in our core general surgery market and our
investment in sales and marketing infrastructure is beginning to make
significant returns. We have now defined a clear strategy for taking the
business through its next stages of development which in turn will maximise the
opportunity for future shareholder value generation."
-Ends-
There will be a meeting for analysts this morning at 11.30am. Please contact
Sarah Richardson at Hogarth Partnership Ltd on 020 7645 3965 for registration or
enquiries.
Enquiries:
TSL plc Tel: 01252 333 002
Martin Hunt, Chief Executive
David Jennings, Finance Director
Hogarth Partnership Limited Tel: 020 7357 9477
Melanie Toyne-Sewell / Sarah Richardson
www.tissuescience.com.
CHAIRMAN'S STATEMENT
Strategy Overview
Since IPO in 2001 the Group has established the unique Permacol(R) manufacturing
process as a class-leading technology within the rapidly developing biologic
implant market. Our strategy has been to address target markets where our
product attributes are well differentiated and where there is clear unmet or
poorly served surgical need. The first products to be developed and
commercialised from our core manufacturing technology have been derived from
porcine dermis and are used in soft tissue repair procedures in general surgery,
urology/gynaecology, orthopaedics and in head and facial surgery.
We initially approached the market through marketing partnerships with large
medical device corporations and distributors with the necessary sales and
marketing infrastructure required for successful market penetration. Through
these partners, we demonstrated both the commercial potential and scalability of
our core technology. More recently, however, we have reduced our dependence on
such partners through the development of our own direct sales team in the US
general surgery market. The substantial investment we have made has enabled us
to create an appropriately trained, directed and supported sales team in the
field addressing surgeons' needs directly. In turn, Permacol(R) has become a
significant product in the field of complex and recurrent hernia repair, with
growing key opinion leader endorsement and substantial and increasing annual
sales revenues.
In addition to deriving these and other pipeline products from porcine dermis,
future product opportunities are being developed by applying our proprietary
manufacturing technology to other porcine tissues such as bone, ligament and
blood vessels. As announced at our Research and Development Teach-in for analyst
and investors in April 2007, we have established pre-clinical proof of principle
in respect of all three product areas and have identified the initial potential
markets and product development pathways for each. In addition, as we have
developed our understanding of the unique Permacol(R) manufacturing process, we
believe that the application of our core technology is not limited to these
tissues but that there is also potential for other porcine tissues to be
exploited in the same way.
Considering the rich potential of both our current and future product platform,
and taking into account the prevailing dynamics in our existing markets and the
investment required to maximise the potential returns from both our existing
products and future opportunities, the Board has been working closely with both
management and external advisors to consider the strategic options available.
The outcome of this strategy review is as follows:
Proposed Spin-Out Of Non-Dermal Product Development
Whilst we believe that there is a broad consensus among our investors and the
wider financial and scientific communities that there is much potential value
for our new non-dermal tissues (bone, ligament, vascular) in the rapidly
developing biologic sector, the investment required to bring these products
through the next stages of development and ultimately to commercialisation is
substantial.
We believe that the potential value of these projects has effectively been
discounted by the financial markets because of the longer-term time frame for
future revenue generation and the associated investment risk. We recognise that
there is a significantly different investment risk/return profile in respect of
the new tissues than that of our underlying core dermal product business and
that these elements should be addressed in different ways to maximise future
potential value of both.
The Board therefore proposes to separate the two elements by transferring
development of new tissues into a separate, independently managed and financed
company. The benefit to TSL will be to free the core business from the future
cost burden of developing these longer term product opportunities, thereby
enabling management to focus fully on both existing markets and new applications
for the dermal products. A detailed proposal for the spin out of the new company
will be brought forward for shareholder consideration and approval in the near
term.
Core Dermal Products Business
We are justifiably pleased with the progress we have made in establishing
Permacol(R) in the soft tissue implant market. Through our partners and direct
sales team Permacol(R) and its related brands have established an excellent
reputation for clinical efficacy, safety, product handling and performance in
its target applications. We have developed a strong international business with
a broad user base in the general surgery and urology/gynaecology markets.
Our strategy for the dermal implant business remains focused on growing our
revenues in the US through our direct sales team. We have increased our sales
and marketing group to 46 people, and have achieved strong growth with excellent
margins in the first half of the year.
Whilst we remain confident that our product will increase its share of this
important market and demonstrate long term superiority over alternative
technologies, the dynamics of the general surgery market are changing rapidly.
It is essential, therefore, that we continue to invest in sales and marketing
infrastructure in order to increase our market share and drive growth in sales.
The divestment of the new tissue research and product development from the main
operational group will allow TSL resources and management to be focused entirely
on developing the dermal business. In addition, TSL will have rights of first
negotiation on products developed by the new company. As a result of this
review, the operational and administrative overhead base of the business is
being realigned to best meet the needs of the business going forward. Post
period end, we have conducted a reorganisation and reallocation of resources,
resulting in annualised cost savings of #0.7m.
In conjunction with continuing to grow our core business we shall also seek
strategic opportunities to maximise potential shareholder value from the dermal
business.
Summary & Outlook
The confidence we have in our products and technology is undiminished. The
investment we have made in our sales and marketing infrastructure is beginning
to deliver excellent returns. The soft tissue repair market is developing
rapidly, where the sales growth and margin potential of the biologics is
increasingly recognised. We remain focused on achieving scale and critical mass
in complex hernia repair, where our clinically proven technology is already well
established in this attractive market segment. By adopting the strategy set out
above and focusing on our core business we remain confident that we can achieve
significant value growth for our investors.
Patrick Paul
Chairman
INTERIM RESULTS STATEMENT - SIX MONTHS ENDED 30 JUNE 2007
CHIEF EXECUTIVE'S REPORT
Sales and Marketing
General Surgery - US
We have made substantial progress in the first half of the year, with 68% growth
to $7.4m (H1 2006: $4.4m) in US ($) general surgery sales over the same period
last year and sequential growth of 37% over the second half of last year.
Despite a further weakening of the US dollar which has impacted our reported
sales and overall gross margins, we are benefiting from the higher margins we
are able to earn on our direct sales. In addition, our average unit selling
price in US has increased as a result of sales of our larger implant sizes. We
anticipate that the increasing proportion of direct sales versus sales of
partnered products will continue to influence gross margins positively as our
direct business develops.
Our sales and marketing platform continues to develop well with increased
productivity from our sales team, as their time on territory and experience
profiles increase. We have achieved significant growth in new accounts in the
first half with conversions to Permacol(R) as surgeons increasingly recognise
the clinical performance and product advantages that we are able to demonstrate
over competing technologies.
The general surgery market is dynamic, with recent developments including the
launch of competitive porcine products by Davol (a division of CR Bard) and the
announcement by LifeCell Inc. of its intention to launch a porcine implant
alongside its human cadaver-sourced product, Alloderm. These entrants to the
market are able to deploy significantly greater sales and marketing resource
than we are currently able to. Nonetheless, we welcome this endorsement of the
clinical effectiveness and value proposition that porcine-derived materials
bring to soft tissue repair. We are also pleased with the progress we are making
in this market because of the excellence of our product and the productivity of
our sales team. We believe it is a significant achievement that we have been
able to grow our revenues so rapidly with more limited resource.
General Surgery - UK/EU/ROW
Sales in the UK were unchanged at #0.7m (H1 2006: #0.7m). In the first quarter
sales were impacted by budgetary constraints in the NHS at the end of the 2006/
2007 financial year. Post period end sales have performed well.
Sales through our Continental European and Korean distributors grew in the first
half to #0.3m (H1 2006: #0.2m). Post period end, we entered into a distribution
agreement for the German market for the first time.
New Colorectal Product
Work has continued as planned in the development of a new injectable product in
the general surgery market for anal fistula. There are some 125,000 fistula
patients annually in the US alone and, historically, this difficult to treat
condition has been inadequately served by treatment options available to
colorectal surgeons. We are in discussion with the FDA on the regulatory pathway
for this new product which will be sold through our direct US sales channel once
approved.
Partnered Products
Sales to Bard in the first half were $2.8m (H1 2006: $2.9m) and sales increased
over the second half of 2006 by 17% on stronger stocking orders from Bard in the
US. However, we do not anticipate that this trend will continue into the second
half of the year, as Bard is continuing to position its in-house products
alongside the established brands it markets for TSL in this application.
Zimmer sales in rotator cuff repair to date have been limited by a lack of human
clinical data to support sales efforts. The US marketing study is underway with
active sites and recruitment is 30% complete.
In Head and Face surgery, we are now using our US general surgery sales team to
address the Head and Face market as a cross-selling opportunity to plastic
surgeons who are now increasingly involved in the large abdominal reconstruction
procedures. The Permacol(R) range of products was increased at the beginning of
the year to include smaller sizes appropriate for this application.
Permacol Injection - UBA and Dermal Filler
Whilst these products are not a core focus for the business, the injectable
products remain a feature of business to business development activity. We are
actively working with third parties to derive value from these assets.
Clinical and Technical
Prophylactic parastomal reinforcement clinical studies
The interest level in the UK from surgeons wanting to be involved in the study
continues to be high with 9 sites currently approved to recruit patients and a
further 12 in the process of obtaining local site approval. It is anticipated
that the study will take approximately 18 months to recruit the 300 patients
targeted for completion of this study.
In the US, we are supporting a number of clinical studies in general and
colorectal surgery. These include a US focused prophylactic parastomal
reinforcement study to gather rapid data to complement the larger UK study.
Other General and Colorectal clinical studies
At the moment, we have a number of clinical studies underway in the US. We are
also in discussion with the FDA and key opinion leaders to design other targeted
studies to extend our product indications and gain key competitive advantages in
niche surgical areas.
Parastomal hernia repair clinical study
As a result of NHS constraints and difficulty in obtaining suitable patients at
the participating sites, we have taken the decision to cancel this study and
focus our clinical efforts on the higher priority prophylactic parastomal
clinical study.
New Tissue Development
In April, we updated investors and analysts on the progress we have made in the
development of products from other porcine tissues (bone, ligament and blood
vessel). We have identified the market opportunities and development pathways
for each product. We have achieved pre-clinical proof of principle in respect of
each project and, as outlined, above, will be separating this element of our
business into a separate entity to take these projects forward. In addition, and
as discussed as our recent R&D Teach-in in April, we have filed patent
applications covering these new technologies to underpin the technical
advancements we have made in these areas of biological product development.
Summary and Outlook
We have made excellent progress in our core general surgery market and our
investment in sales and marketing infrastructure is beginning to demonstrate
significant returns. We have now defined a clear strategy for taking the
business through the next stages of development which in turn will maximise the
opportunity for future shareholder value generation.
Martin Hunt
Chief Executive Officer
FINANCIAL REVIEW
Adoption of International Financial Reporting Standards
The financial results for the six months ended 30 June 2007 are the first
results prepared in accordance with the recognition and measurement principles
of International Financial Reporting Standards ("IFRS"). Prior to these results,
the Group prepared its audited financial statements under UK Generally Accepted
Accounting Practices ("UK GAAP").
The results for the six months ended 30 June 2006 and the year ended 31 December
2006 included in these interim results have been restated in accordance with
IFRS. The impact of the restatement is set out in note 3 in the financial
statements. The principal adjustments relate to the adoption of IAS 32
'Financial Instruments: disclosure and presentation' and IAS 39 'Financial
instruments: recognition and measurement'. The effect of the transition on the
income statement for the period ended 30 June 2006 and 31 December 2006 is a
charge of #12,000 and #106,000 respectively. The effect of the transition on the
opening balance sheet at 1 January 2006 and the balance sheet for the period
ended 30 June 2006 and the year ended 31 December 2006 is #48,000,
#57,000 and #nil respectively.
Revenue
Group reported revenues increased by 21% to #6.4m (H1 2006: #5.3m). US dollar
sales revenues were translated at an average rate of #1 = $1.97 in the year (H1
2006: #1 = $1.74). Overall sales growth on a consistent currency basis
(translating H1 2007 revenues at the same exchange rate as used for H1 2006) was
32%.
General surgery revenues in the US grew strongly, increasing by 68% to $7.4m (H1
2006: $4.4m). General surgery sales in other markets were unchanged at #1.0m (H1
2006: #1.0m), where growth in our European and Korean markets was offset by a
slight decline in UK sales resulting from the impact of NHS budgetary
constraints in the first quarter.
In Urology/gynaecology sales revenues from Bard in the period were $2.8m (H1
2006: $2.9m), whist sales through our other partners in orthopaedics (Zimmer)
and head and facial surgery (Porex) were $0.1m (H1 2006: $0.2m) and $0.1m (H1
2006: $0.1m) respectively.
Gross Margin
Gross margins were unchanged at 68% (H1 2006: 68%). There was a significant
adverse movement in the #/$ exchange rate over the prior year period, impacting
translated sales revenues and hence and gross margins in the period by c#0.7m or
3%. This adverse movement was offset by improvements in sales mix, as higher
margin direct sales increase as a proportion of our total business. Translating
revenues at the same exchange rate as used for H1 2006, our gross margins would
have been 71%.
Operating Expenses
Selling, distribution and marketing costs increased to #3.4m (H1 2006 #2.7m)
reflecting the ongoing strategy to increase investment in our direct US sales
and marketing teams.
Other administrative expenses were #1.8m (H1 2006: #1.4m), and included one-off
charges of #0.2m in professional fees associated with the review of strategy
options in respect of the new tissue development projects and other strategic
projects.
Investment in research and development, which includes clinical, regulatory and
new product development expenditure, was limited to #1.0m (H1 2006: #1.4m).
Costs were incurred principally in respect of product line extensions for
Permacol(R) and in progressing the bone, ligament and vascular grafts to the
current stage of pre-clinical proof of principle.
Net Loss
The Group made an operating loss of #1.9m (H1 2006: #1.9m) and a net loss (after
finance income and expense) of #1.9m (H1 2006: #1.8m), in line with management's
expectations and previous guidance. Basic and diluted loss per ordinary share
was 5.6p (H1 2006: 6.2p).
Fixed Assets and Capital Expenditure
Expenditure on capital items amounted to #0.2m in the period reflecting
investment in our US infrastructure and development of our operational
facilities in Leeds.
As a result of the proposed spin-out of non-dermal tissue development and the
increasing productivity and production capacity of our existing manufacturing
facilities, the freehold property located at Wakefield is considered to be
surplus to the needs of the core dermal business and is currently being marketed
for sale. The asset (and its associated mortgage liability) has therefore been
re-categorised as a non current asset held for sale as required under IFRS.
Working Capital
Investment in Group working capital in the period increased by #0.4m to #4.5m
(December 2006: #4.1m) driven by an increase in inventory of #0.4m in the
period. This investment was principally to support our US sales team in our
target general surgery market.
Cash
Cash outflow from operating activities in the period was #1.9m (H1 2006: #1.8m).
As at 30 June 2007, the Group had cash and cash equivalents of #2.6m (Dec 2006
#4.8m).
Tissue Science Laboratories plc
Consolidated Income Statement for the six months ended 30 June 2007
Note Six months Six months
ended ended Year ended
30 June 30 June 31 December
2007 2006 2006
(Unaudited) (Unaudited)
#000s #000s #000s
Continuing operations
Revenue 2 6,352 5,333 10,522
Cost of Sales (2,050) (1,711) (3,401)
--------- --------- ---------
Gross Profit 4,302 3,622 7,121
Selling, distribution and (3,443) (2,729) (5,910)
marketing costs
Research and development costs (1,037) (1,379) (2,269)
Other administrative expenses (1,750) (1,382) (2,768)
--------- --------- ---------
Total administrative expenses (6,230) (5,490) (10,947)
--------- --------- ---------
--------- --------- ---------
Operating loss (1,928) (1,868) (3,826)
Finance income 56 103 173
Finance expenses (72) (75) (149)
--------- --------- ---------
Loss before tax (1,944) (1,840) (3,802)
Taxation - - 152
--------- --------- ---------
Loss for the period (1,944) (1,840) (3,650)
========= ========= =========
Attributable to:
---------- ---------- ----------
Equity holders of the parent (1,944) (1,840) (3,650)
========== ========== ==========
Earnings per share
Basic loss per share 4 5.6 6.2 12.1
Diluted loss per share 4 5.6 6.2 12.1
Tissue Science Laboratories plc
Consolidated Statement of Changes in Equity for the Six Months Ended 30 June
2007
Share Share Shares Merger Translation Profit Total
Capital Premium to be Reserve Reserve & Loss Equity
Account issued Account
#000s #000s #000s #000s #000s #000s #000s
Balance at
31 December 2005 2,946 22,075 72 545 - (14,526) 11,112
Changes in equity for
the 6 months ended 30
June 2006
Exchange differences
on translation of - - - - 30 - 30
foreign operations
Loss for the period - - - - - (1,840) (1,840)
------ -------- ------- ------- ------- -------- -------
Total recognised gains
and losses for the
period - - - - 30 (1,840) (1,810)
------ -------- ------- ------- ------- -------- -------
Recognition of share
based payment charge - - 52 - - - 52
Issue of share capital 5 37 - - - - 42
------ -------- ------- ------- ------- -------- -------
Balance at 30 June 2006 2,951 22,112 124 545 30 (16,366) 9,396
====== ======== ======= ======= ======= ======== =======
Balance at 31
December 2005 2,946 22,075 72 545 - (14,526) 11,112
Changes in equity for
2006
Exchange differences
on translation of - - - - 112 - 112
foreign operations
Loss for the period - - - - - (3,650) (3,650)
------ -------- ------- ------- ------- -------- -------
Total recognised gains
and losses for the
period - - - - 112 (3,650) (3,538)
------ -------- ------- ------- ------- -------- -------
Recognition of
share based
payment charge - - 108 - - - 108
Issue of share capital 514 2,172 - - - - 2,686
------ -------- ------- ------- ------- -------- -------
Balance at
31 December 2006 3,460 24,247 180 545 112 (18,176) 10,368
Changes in equity for
the 6 months ended 30
June 2007
Exchange differences
on translation of
foreign operations - - - - 39 - 39
Loss for the period - - - - - (1,944) (1,944)
------ -------- ------- ------- ------- -------- -------
Total recognised
gains and losses for
the period - - - - 39 (1,944) (1,905)
------ -------- ------- ------- ------- -------- -------
Recognition of share
based payment charge - - 37 - - - 37
Issue of share capital 1 3 - - - - 4
------ -------- ------- ------- ------- -------- -------
Balance at 30 June 2007 3,461 24,250 217 545 151 (20,120) 8,504
====== ======== ======= ======= ======= ======== =======
Tissue Science Laboratories plc
Consolidated Balance Sheet as at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
Note (Unaudited) (Unaudited)
#000s #000s #000s
Non-current assets
Property, plant and equipment 1,077 3,196 2,993
--------- --------- ---------
1,077 3,196 2,993
--------- --------- ---------
Current Assets
Inventories 4,256 3,319 3,875
Trade and other receivables 2,362 2,282 2,422
Cash and cash equivalents 2,577 4,812 4,760
--------- --------- ---------
9,195 10,413 11,057
Non-current assets held for sale 5 1,762 - -
--------- --------- ---------
10,957 10,413 11,057
--------- --------- ---------
--------- --------- ---------
TOTAL ASSETS 12,034 13,609 14,050
--------- --------- ---------
Current liabilities
Trade and other payables (816) (1,016) (762)
Current portion of long-term (234) (299) (265)
borrowings
Short-term provisions (1,041) (1,320) (1,140)
--------- --------- ---------
(2,091) (2,635) (2,167)
Liabilities associated with
non-current assets held for sale 5 (1,262) - -
--------- --------- ---------
(3,353) (2,635) (2,167)
Non-current liabilities
Long-term borrowings (177) (1,578) (1,515)
--------- --------- ---------
TOTAL LIABILITIES (3,530) (4,213) (3,682)
--------- --------- ---------
--------- --------- ---------
NET ASSETS 8,504 9,396 10,368
========= ========= =========
Equity
Share capital 3,461 2,951 3,460
Share premium account 24,250 22,112 24,247
Shares to be issued 217 124 180
Merger reserve 545 545 545
Translation reserve 151 30 112
Profit & loss account (20,120) (16,366) (18,176)
---------- ---------- ----------
TOTAL EQUITY 8,504 9,396 10,368
========== ========== ==========
Tissue Science Laboratories plc
Consolidated Cash Flow Statement for the six months ended 30 June 2007
Note Six months Six months
ended ended Year ended
30 June 30 June 31 December
2007 2006 2006
(Unaudited) (Unaudited)
#000s #000s #000s
Cash flows from operating
activities
Loss after tax (1,944) (1,840) (3,650)
Adjustments for:
Depreciation 382 539 1,024
Foreign exchange loss/(gain) 67 55 (8)
Finance income (56) (103) (173)
Finance expense 72 75 149
Taxation expense recognised in
profit and loss - - (152)
Decrease in trade and other 61 275 286
receivables
Increase in inventories (381) (1,018) (1,574)
(Decrease)/Increase in trade (43) 104 (331)
payables
Share based payments 37 52 108
Interest paid (73) (76) (149)
Taxation - 172 324
--------- --------- ----------
Net cash from operating (1,878) (1,765) (4,146)
activities --------- --------- ----------
Cash flow from investing
activities
Purchase of property, plant and (232) (389) (677)
equipment
Proceeds from sale of equipment 4 - -
Interest received 56 106 197
--------- --------- ----------
Net cash used in investing (172) (283) (480)
activities --------- --------- ----------
Cash flow from financing
Proceeds from issue of share 4 42 2,686
capital
Proceeds from long-term 40 180 245
borrowings
Payments of finance lease (143) (181) (341)
liabilities
--------- --------- ----------
Net cash used in financing (99) 41 2,590
activities --------- --------- ----------
--------- --------- ----------
Net decrease in cash and cash (2,149) (2,007) (2,036)
equivalents --------- --------- ----------
Cash and cash equivalents at
beginning of period 4,760 6,848 6,848
Effect of foreign exchange rate (34) (29) (52)
changes --------- --------- ----------
Cash and cash equivalents at
end of period 2,577 4,812 4,760
========= ========= =========
Notes To The Accounts
1. BASIS OF PREPARATION
The financial information set out in this announcement does not constitute the
Group's statutory accounts for the six months ended 30 June 2007, and these
results are not audited or reviewed by the auditors. Information for the year
ended 31 December 2006 has been derived from the statutory accounts for that
period which have been delivered to the Registrar of Companies.
The audit report for the year ended 31 December 2006 was unqualified.
The Income Statement and Cash Flow Statements for the periods ended 30 June 2006
and 31 December 2006, and the Balance Sheet at 1 January 2006, 30 June 2006 and
31 December 2006, have been adjusted for the adoption of IFRS. See Note
3.
2. ACCOUNTING POLICIES
Basis of accounting
These interim condensed consolidated financial statements are for the six months
ended 30 June 2007. They have been prepared in accordance with the requirements
of IFRS 1 "First-time Adoption of International Financial Reporting Standards"
relevant to interim reports, because they are part of the period covered by the
Group's first IFRS financial statements for the year ended 31 December 2007.
They do not include all of the information required for full annual financial
statements, and should be read in conjunction with the consolidated financial
statements of the Group for the year ended 31 December 2006.
These financial statements have been prepared under the historical cost
convention, except for revaluation of certain properties and financial
instruments.
The Group has chosen not to adopt IAS 34, 'Interim financial statements', in
preparing its 2007 interim statements.
These condensed consolidated interim financial statements (the interim financial
statements) have been prepared in accordance with the accounting policies set
out below which are based on the recognition and measurement principles of IFRS
in issue as adopted by the European Union (EU) that are effective at 31 December
2007 or are expected to be adopted and effective at 31 December 2007, our first
annual reporting date at which we are required to use IFRS accounting standards
adopted by the EU.
Tissue Science Laboratories plc's consolidated financial statements were
prepared in accordance with United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) until 31 December 2006. The date of
transition to IFRS was 1 January 2006. The comparative figures in respect of
2006 have been restated to reflect changes in accounting policies as a result of
adoption if IFRS. The disclosures required by IFRS 1 concerning the transition
from UK GAAP to IFRS are given in the reconciliation schedules, presented and
explained in note 3. The accounting policies have been applied consistently
throughout the Group for the purposes of preparation of these condensed
consolidated interim financial statements.
Basis of consolidation
The consolidated financial reports incorporate the financial statements of the
Company and the entities controlled by the Company (its subsidiaries) made up to
the 30 June and 31 December each year.
Tissue Science Laboratories, Inc. has been accounted for using acquisition
accounting.
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations prior to the date of transition. As a result of the
application of merger accounting under the then prevailing UK GAAP, a separate
merger reserve arose on the acquisition of Tissue Science Laboratories (UK) Ltd
by Tissue Science Laboratories plc. As the amounts included in the merger
reserve are not attributable to any other class of equity presented, they have
been disclosed as a separate classification of equity.
All intra-Group transactions, balances, income and expense are eliminated on
consolidation.
Revenue
Revenue is measured by reference to the fair value of consideration received or
receivable by the Group for goods supplied, excluding VAT. Revenue is recognised
upon the transfer of risk to the customer.
Deferred Revenue
Royalties due from customers are recognised in the months to which the royalty
relates. A debtor is created in the accounts on recognition and is cleared upon
receipt of payment.
Property, plant and equipment
Property, plant and equipment are stated at cost or valuation less depreciation.
Depreciation is provided at rates calculated to write off the cost or valuation
of fixed assets, less their estimated residual value, over their expected useful
lives, which fall between the following ranges:
Plant and machinery 3-5 years
Fixture and fittings 3-5 years
Leased assets 3-10 years (depending on the period of the lease)
Motor vehicles 3 years
Freehold property 25 years
Freehold improvements 25 years (in line with the property)
Freehold land Not depreciated
Non-current assets classified as held for sale
Assets held for sale include assets that the Group intends and expects to sell
within one year from the date of classification as held for sale. Assets
classified as held for sale are measured at the lower of their carrying amounts
immediately prior to their classification as held for sale and their fair value
less costs to sell. Assets classified as held for sale are not subject to
depreciation or amortisation.
Leases
In accordance with IAS 17, the economic ownership of a leased asset is
transferred to the lessee if the lessee bears substantially all the risks and
rewards related to the ownership of the leased asset. The related asset is
recognised at the time of inception of the lease at the fair value of the leased
asset or, if lower, the present value of the minimum lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount
is recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the income statement over the
period of the lease.
All other leases are regarded as operating leases and the payments made under
them are charged to the income statement on a straight line basis over the term
of the lease.
Inventories
Inventories and work in progress are valued at the lower of cost and net
realisable value. WIP includes materials, direct labour and an attributable
proportion of manufacturing overheads. Inventories are held on a FIFO basis with
provisions made for slow moving stock based on past experience of sales.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are reported at the rates of exchange
prevailing at that date.
The balance sheets of overseas subsidiary undertakings are translated at the
rate of exchange ruling at the balance sheet date. The exchange difference
arising on the retranslation of opening net assets is taken directly to
reserves. All other exchange differences are taken to the profit and loss
account.
Deferred taxation
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of an asset or liability
unless the related transaction affects tax or accounting profit.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax
assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to offset against future taxable
income. Current and deferred tax assets and liabilities are calculated at tax
rates that are expected to apply to their respective period or realisation,
provided they are enacted or substantively enacted at the Balance Sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expenses in the Income Statement, except where they relate to items that are
charged or credited directly to equity in which case the related deferred tax is
also charged or credited directly to equity.
Pensions
The Group operates a defined contribution pension scheme for its permanent
employees and the pension charge represents the amounts payable by the Group to
the fund in respect of the period.
Share-based payments
Employees (including senior executives) of the Group receive remuneration in the
form of share-based payments such as share options.
The cost of share-based payments made to employees, for awards granted after 7
November 2002, is measured by reference to the fair value at the date on which
they are granted. The fair value is determined using an appropriate pricing
model and is expensed on a straight-line basis over the vesting period. Market
related performance conditions are reflected in the fair value of the share.
Non-market related performance conditions are allowed for using a separate
assumption about the number of awards expected to vest. The transitional
arrangements on the adoption of IFRS 2 apply to options that had not vested at 1
January 2005.
Research and development
Expenditure on research is recognised as an expense in the period in which it is
incurred.
Development costs incurred are capitalised when all the following conditions are
satisfied.
*completion of the intangible asset is technically feasible so that it
will be available for use or sale;
*the Group has the ability to use or sell the intangible asset;
*the intangible asset will generate future economic benefits;
*the Group has adequate resources to complete the development of the
intangible asset; and
*the development cost of the asset can be measured reliably.
Development costs not meeting the above criteria for capitalisation are expensed
as incurred.
3. TRANSITION TO IFRS
As stated in the Basis of Preparation, these are the Group's first consolidated
interim financial statements for the part of the period covered by the first
IFRS annual consolidated financial statements prepared in accordance with IFRS.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial position, financial performance and cash flow is set out
below.
IFRS 1 permits companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. Except
for the exemption from restating business combinations prior to adoption, these
interim statements do not apply any of these exemptions.
IAS 32 and 39 - Financial instruments
The Group has applied IAS 32 and 39 from 1 January 2006. The Group uses forward
exchange contracts to hedge currency transaction exposure. The Group previously
translated certain transactions in foreign currencies at the hedged forward
contract rate. These contracts do not meet the relevant criteria for hedge
accounting under IFRS and accordingly the fair value movements for these
derivatives have been accounted for through the Income Statement. The effect of
the transition on the Income Statement for the period ended 30 June 2006 and 31
December 2006 is a charge of #12,000 and #106,000 respectively. The effect of
the transition on the opening Balance Sheet at 1 January 2006 and the Balance
Sheet for the period ended 30 June 2006 and the year ended 31 December 2006 is
#48,000, #57,000 and #nil respectively.
Other adjustments relate to the reclassification of reserve amounts for share
options issued prior to 7 November 2002. The adjustment does not have any
effect on the net asset position of the Group.
(a) Income Statement
Six months Year Ended 31
ended 30 June December 2006
2006
(Unaudited)
As As
previously As previously
stated IAS 39 restated stated IAS 39 As restated
#000s #000s #000s #000s #000s #000s
Continuing
operations
Revenue 5,367 (34) 5,333 10,683 (161) 10,522
Cost of Sales (1,711) - (1,711) (3,401) - (3,401)
-------- ------- ------- --------- -------- --------
Gross Profit 3,656 (34) 3,622 7,282 (161) 7,121
Selling,
distribution
and marketing
costs (2,729) - (2,729) (5,910) - (5,910)
Research and
development
costs (1,379) - (1,379) (2,269) - (2,269)
Other
administrative
expenses (1,404) 22 (1,382) (2,823) 55 (2,768)
-------- ------- ------- --------- -------- --------
Total
administrative
expenses (5,512) 22 (5,490) (11,002) 55 (10,947)
-------- ------- ------- --------- -------- --------
-------- ------- ------- --------- -------- --------
Operating loss (1,856) (12) (1,868) (3,720) (106) (3,826)
Finance income 103 - 103 173 - 173
Finance (75) - (75) (149) - (149)
expense
-------- ------- ------- --------- -------- --------
Loss before (1,828) (12) (1,840) (3,696) (106) (3,802)
tax
Taxation - - - 152 - 152
-------- ------- ------- --------- -------- --------
Loss for the
period (1,828) (12) (1,840) (3,544) (106) (3,650)
======== ======= ======= ========= ======= ========
Attributable
to: --------- -------- -------- ---------- -------- ---------
Equity holders
of the parent (1,828) (12) (1,840) (3,544) (106) (3,650)
========= ======== ======== ========== ======== =========
Earnings per
share
Basic loss per
share 6.2 6.2 11.8 12.1
Diluted loss
per share 6.2 6.2 11.8 12.1
(b) Balance Sheet
As at 1 January 2006
As previously As
stated IAS 39 Other restated
#000s #000s #000s #000s
Non-current assets
Property, plant and equipment 3,340 - - 3,340
--------- -------- -------- --------
3,340 - - 3,340
--------- -------- -------- --------
Current assets
Inventories 2,301 - - 2,301
Trade and other receivables 2,713 20 - 2,733
Cash and cash equivalents 6,842 6 - 6,848
--------- -------- -------- --------
11,856 26 - 11,882
--------- -------- -------- --------
--------- -------- -------- --------
TOTAL ASSETS 15,196 26 - 15,222
--------- -------- -------- --------
Current liabilities
Trade and other payables (907) (74) - (981)
Current portion of long-term (322) - - (322)
borrowings
Short-term provisions (1,253) - - (1,253)
--------- -------- -------- --------
(2,482) (74) - (2,556)
Non-current liabilities
Long-term borrowings (1,554) - - (1,554)
--------- -------- -------- --------
TOTAL LIABILITIES (4,036) (74) - (4,110)
--------- -------- -------- --------
--------- -------- -------- --------
NET ASSETS 11,160 (48) - 11,112
========= ======== ======== ========
Equity
Share capital 2,946 - - 2,946
Share premium account 22,075 - - 22,075
Shares to be issued 239 - (167) 72
Merger reserve 545 - - 545
Profit and loss account (14,645) (48) 167 (14,526)
---------- --------- --------- ---------
TOTAL EQUITY 11,160 (48) - 11,112
---------- --------- --------- ---------
As at 30 June 2006 (Unaudited)
As previously As restated
stated IAS 39 Other
#000s #000s #000s #000s
Non-current assets
Property, plant and equipment 3,190 6 - 3,196
--------- -------- -------- --------
3,190 6 - 3,196
--------- -------- -------- --------
Current assets
Inventories 3,319 - - 3,319
Trade and other receivables 2,232 50 - 2,282
Cash and cash equivalents 4,839 (27) - 4,812
--------- -------- -------- --------
10,390 23 - 10,413
--------- -------- -------- --------
--------- -------- -------- --------
TOTAL ASSETS 13,580 29 - 13,609
--------- -------- -------- --------
Current liabilities
Trade and other payables (1,044) 28 - (1,016)
Current portion of long-term (299) - - (299)
borrowings
Short-term provisions (1,320) - - (1,320)
--------- -------- -------- --------
(2,663) 28 - (2,635)
Non-current liabilities
Long-term borrowings (1,578) - - (1,578)
--------- -------- -------- --------
TOTAL LIABILITIES (4,241) 28 - (4,213)
--------- -------- -------- --------
--------- -------- -------- --------
NET ASSETS 9,339 57 - 9,396
========= ======== ======== ========
Equity
Share capital 2,951 - - 2,951
Share premium account 22,112 - - 22,112
Shares to be issued 291 - (167) 124
Merger reserve 545 - - 545
Translation reserve (87) 117 - 30
Profit and loss account (16,473) (60) 167 (16,366)
---------- --------- --------- ---------
TOTAL EQUITY 9,339 57 - 9,396
========== ========= ========= =========
As at 31 December 2006
As As
stated IAS 39 Other restated
#000s #000s #000s #000s
Non-current assets
Property, plant and equipment 2,994 (1) - 2,993
--------- -------- -------- --------
2,994 (1) - 2,993
--------- -------- -------- --------
Current assets
Inventories 3,875 - - 3,875
Trade and other receivables 2,422 - - 2,422
Cash and cash equivalents 4,762 (2) - 4,760
--------- -------- -------- --------
11,059 (2) - 11,057
--------- -------- -------- --------
--------- -------- -------- --------
TOTAL ASSETS 14,053 (3) - 14,050
--------- -------- -------- --------
Current liabilities
Trade and other payables (765) 3 - (762)
Current portion of long-term (265) - - (265)
borrowings
Short-term provisions (1,140) - - (1,140)
--------- -------- -------- --------
(2,170) 3 (2,167)
Non-current liabilities
Long-term borrowings (1,515) - - (1,515)
--------- -------- -------- --------
TOTAL LIABILITIES (3,685) 3 - (3,682)
--------- -------- -------- --------
--------- -------- -------- --------
NET ASSETS 10,368 - - 10,368
========= ======== ======== ========
Equity
Share capital 3,460 - - 3,460
Share premium account 24,247 - - 24,247
Shares to be issued 341 - (161) 180
Merger reserve 545 - - 545
Translation reserve (42) 154 - 112
Profit and loss account (18,183) (154) 161 (18,176)
--------- -------- -------- --------
TOTAL EQUITY 10,368 - - 10,368
========= ======== ======== ========
(c) Cash Flow Statement
There have been no changes to the content of the Cash Flow Statement as a result
of the adoption of IFRS. All changes relate solely to the format.
4. LOSS PER SHARE
Loss per ordinary share has been calculated based on the weighted-average number
of ordinary shares in issue during the period.
Six months Six months Year Ended
ended ended
30 June 30 June 31 December
2007 2006 2006
(Unaudited) (Unaudited) (Audited)
#000s #000s #000s
Loss for the period (1,944) (1,840) (3,650)
Weighted average number of
ordinary shares 34,603,131 29,496,848 30,131,492
Loss per share 5.6p 6.2p 12.1p
7,500 shares have been issued in the period generating finance for the Group of
#4k
5. TRANSFER OF ASSET TO NON-CURRENT ASSETS HELD FOR SALE
The freehold property purchased in 2005, along with improvements made to the
site since acquisition, have been transferred to non-current assets held for
sale in the current period. The asset was transferred at the carrying value held
at the time and no further depreciation has been charged.
The asset is not expected to sell for less than its carrying value.
The mortgage relating to the asset transferred to assets held for sale has been
reclassified as a current liability as the property is expected to be sold
within the year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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