RNS Number:8883P
Tissue Science Laboratories PLC
12 March 2008
12 March 2008
Audited Preliminary Results for the year ended 31 December 2007
Recommended Cash Offer
Tissue Science Laboratories plc (LSE: TSL), the medical technology company
specialising in biologic tissue replacement and repair products, today announces
its audited Preliminary Results for the year ended 31 December 2007.
Post Period End
* Recommended cash Offer for the entire issued and to be issued share capital of
TSL by Covidien UK Holding Limited for �38.0 m at 103.5 pence per share (see
separate announcement today).
Highlights
* Permacol(R) is now established as a significant product within the complex
hernia repair market. Good growth in sales via TSL's direct sales team in the
US.
* Revenues increased by 15% to �12.1m (2006: �10.5m), with overall growth on a
constant currency basis of 25%.
- US general surgery sales increased 55% to $15.2m (2006: $9.8m);
- ROW sales increased by 21% to �2.3m (2006: �1.9m); and
- Partnered sales in other surgical areas of $4.3m (2006: $5.9m).
* Gross margins improved to 68.5% (2006: 67.7%) despite adverse impact of
exchange rate movements; on a constant currency basis, gross margins would
have been 70.8% in the year.
* Selling, distribution and marketing costs increased to �6.9m (2006: �5.9m)
reflecting ongoing investment in TSL's direct US sales team.
* Operational review and overhead reduction implemented in August 2007, achieved
annualised savings of �0.7m.
* Cash and cash equivalents as at 31 December 2007 were �1.6m (2006: �4.8m).
Commenting on the results, Martin Hunt, CEO of TSL, said:
"2007 saw continued good progress in the marketing of our core product,
Permacol(R), for complex and recurrent hernias in general surgery through our
direct sales team in the US. The market place for biologic materials such as
Permacol(R) in general surgery, as in other markets, is evolving rapidly and
further endorses the porcine-sourced material model in this field.
"At the interims, we commented that the scale with which we can address the
market was limited in comparison to larger competitors. The Directors of TSL are
therefore pleased to unanimously recommend the proposed Offer for TSL by
Covidien which will see our technology platform supported by Covidien's
marketing and technical resources and wide geographical reach."
-Ends-
Enquiries:
Tissue Science Laboratories plc Tel: 01252 369 603
Martin Hunt, Chief Executive
David Jennings, Finance Director
Nomura Code Securities Tel: 0207 776 1200
Juliet Thompson
Hogarth Partnership Limited Tel: 020 7357 9477
Melanie Toyne Sewell Mobile: 07767 660 040
Sarah Richardson
www.tissuescience.com.
Nomura Code Securities Limited, which is authorised and regulated by the
Financial Services Authority in the United Kingdom, is acting exclusively for
Tissue Science Laboratories and no one else in relation to the Offer and will
not be responsible to anyone other than Tissue Science Laboratories for
providing the protections afforded to clients of Nomura Code Securities Limited
nor for providing advice in relation to the Offer or any other matters referred
to in this announcement.
CHAIRMAN'S STATEMENT
In September 2007, I reported on the strategic position of the Group and the
proposal then being considered for separating the business into two entities,
one to develop further our growing commercial business in dermal derived tissue
implants and the other to take forward our development projects for other
porcine tissues under separate financing and management via a spin-out from the
Group.
Whilst considering detailed proposals to be brought forward to shareholders in
this regard, the Group received approaches from certain parties interested in
the acquisition of all or parts of the Group. The Board considered a range of
options for maximizing future shareholder value including a further equity
refinancing, a partial disposal of the core business and spin out of the
development projects as previously indicated and an offer for the entire
business.
The Directors have carefully considered all of the options available to the
business and the respective merit of each. Having been so advised by Nomura
Code, the Directors of the Company consider the terms of the Offer announced
today ("the Offer") to be fair and reasonable and unanimously recommend it to
shareholders. In providing advice to the Directors of the Company, Nomura Code
has taken into account the commercial assessment of the Directors. A summary of
the terms of the recommended Offer and the rationale for the recommendation of
the Board for acceptance of the offer are contained in a document to be posted
to shareholders today.
Patrick Paul
Chairman
CHIEF EXECUTIVE'S REPORT
Sales and Marketing
General Surgery - US
2007 saw continued progress in our strategy of marketing our core product,
Permacol(R), for complex and recurrent hernias in general surgery through our
direct sales team in the US. Our focus continues to be on treatment of large
recurrent and complex hernias where our larger implant sizes and the features
and benefits of our product offer competitive advantage and are particularly
suited to the surgeon's needs.
Sales in this market increased to $15.2m in the year (2006: $9.8m) an overall
increase of 55%. It is worth noting that if the comparative period figure is
adjusted for the $2.7m of sales made through previous third party distributor
arrangements which ended in 2006 and for which there is no comparable amount in
2007, the growth achieved by our own in-house direct team in the year was 114%.
We have continued to increase both our unit sales and our average selling price
per procedure during the year.
The market place for biologic materials such as Permacol(R) in general surgery,
as in other markets, is evolving rapidly. The premium pricing and attractive
margins commanded by this class of product, have attracted new entrants to the
market. We welcome the market's further endorsement of the porcine model in this
field and are wholly confident of the excellence of our products and the
increasing productivity of our sales team.
General Surgery - UK/EU /ROW
Sales in general surgery and in respect of our Permacol(R) Injection for
urethral bulking outside of the US increased by 21% to �2.3m (2006: �1.9m).
Sales through our distributors in Europe and Korea increased by 50% to �0.6m
(2006: �0.4m), whilst sales in our home market in the UK increased by 13% to
�1.7m.
Partnered Products
Although our strategy to develop our business through direct sales and marketing
as opposed to working through distribution partners is now firmly established we
continue to work with our marketing partners in the fields of urology/
gynaecology, orthopaedics and head and facial surgery.
Bard has worldwide marketing rights in respect of our sheet material in the
field of urology/gynaecology, marketed under the PelviColTM, PelviSoftTM, and
PelviLaceTM brands. However, as previously reported, Bard has continued to
refocus its marketing efforts on a broader portfolio of products in the field of
pelvic floor reconstruction and the treatment of incontinence resulting in
reduced orders in respect of our products. Sales to Bard in the year were $3.9m
(2006: $5.3m).
Sales in orthopaedics were $0.2m (2006; $0.4m) and in head and face were $0.2m
(2006: $0.2m).
Operational Review and Overhead Reduction
In August 2007 we undertook a detailed review of the organisation and its
operational overheads. Our objective was to align our resources with the
anticipated level of business going forward and to streamline the operational
and administrative overhead of the business. We reduced headcount in
administrative and operational functions where appropriate and the savings in
overhead achieved will amount to �0.7m annually.
Clinical Studies
Prophylactic parastomal reinforcement clinical studies
The study continues to make progress with an increase in the number of approved
sites and increased number of patients recruited into the study. We are
continuing to enrol new investigators and sites to build a larger base to speed
patient recruitment.
Bone graft
We have made further progress in the development of our porcine derived bone
graft product during the year. We are seeking to develop a biologic product with
superior performance characteristics to currently available treatment options.
As reported in September we achieved proof of principle for the bone graft
project as planned and work has continued with completion of the definitive
in-vivo efficacy study which enabled submission of a 510(k) in December 2007.
Ligament graft
We have developed a porcine derived tendon that retains strength, post
processing and sterilisation for cruciate ligament and other tendon/ligament
repairs.
We announced in 2007 that our in-vivo study data in a sheep model for ACL
reconstruction has shown good joint stability and bio-mechanical performance and
we have achieved pre-clinical proof of principle for the ligament graft project.
Vascular graft
We have developed a porcine derived vascular graft intended for permanent
implantation for use initially as an arterio-venous (AV) access graft and longer
term as a coronary artery bypass graft (CABG).
As reported in 2007 we achieved pre-clinical proof of principle for the vascular
graft product, ahead of plan and we have further extended our pre-clinical work
and have successfully completed a pilot AV access animal study in sheep.
Summary and outlook
2007 saw continued good progress in the marketing of our core product,
Permacol(R), for complex and recurrent hernias in general surgery through our
direct sales team in the US. The market place for biologic materials such as
Permacol(R) in general surgery, as in other markets, is evolving rapidly and
further endorses the porcine-sourced material model in this field.
That said, the business remains constrained by a lack of resource and the
financial strength to pursue our business objectives that would enable us to
drive shareholder value growth more aggressively in the near and medium term. In
regards to the sufficiency of available cash resources, the Chairman, Mr Patrick
Paul, has undertaken to provide an unsecured loan on arms length commercial
terms to an amount not exceeding �1.0m as may be required.
At the interims, we commented that the scale with which we can address the
market was limited in comparison to larger competitors and that as an
independent entity we are not able to deploy the sales and marketing resources
of these larger players. The Offer will see our technology platform supported by
their marketing and technical resources and wide geographical reach. The
Directors, having been so advised by Nomura Code, consider the terms of the
Offer to be fair and reasonable and unanimously recommend the proposed Offer.
Martin Hunt
Chief Executive Officer
FINANCE DIRECTOR'S REPORT
REVENUE
Group reported revenues increased by 15% to �12.1m (2006: �10.5m). US dollar
sales revenues were translated at an average rate of �1 = $1.99 in the year
(2006: �1 = $1.82). Overall sales growth on a consistent currency basis was 25%.
Strong growth in our general surgery business was partly offset by a decline in
revenues from our marketing partner in urology/gynaecology, Bard.
General surgery revenues in the US grew by 55% to $15.2m (2006: $9.8m). This
growth was the result of the increased investment in our direct US sales and
marketing team with Permacol(R) now established as a significant product within
the complex hernia repair market. General surgery sales also grew strongly in
Europe and in our Korean market - together increasing to �0.6m (2006: �0.4m),
returning growth of 50% in the year. In the UK our general surgery business grew
to �1.7m (2006: �1.5m).
Sales revenues from Bard in urology/gynaecology in the year were $3.9m (2006:
$5.3m). In orthopaedics, sales to Zimmer were $0.2m (2006: $0.4m) and sales to
Porex our distributor in head and face were $0.2m (2006: $0.2m).
GROSS MARGIN
Gross margins improved to 68.5% (2006: 67.7%) despite the adverse impact of
exchange rate movements during the year. This impact was offset by the increase
in our sales mix of higher margin direct sales in general surgery versus
partnered revenues principally in urology/gynaecology through Bard. Gross
margins on a constant currency basis would have been 70.8% in the year.
OPERATING EXPENSES
Selling, distribution and marketing costs increased to �6.9m (2006: �5.9m) which
represents 57% of sales (2006: 56%) reflecting the ongoing investment in our
direct US sales team where costs amounted to �5.0m (2006: �4.1m).
Other administrative expenses were �2.6m (2006: �2.8m).
Investment in research and development was �2.0m (2006: �2.3m). Research and
Development includes clinical, regulatory and new product development
expenditure, principally in respect of product line extensions for Permacol(R)
and the costs of progressing the bone, ligament and vascular grafts through
pre-clinical proof of principle studies.
RESULTS
The group made an operating loss of �3.3m (2006: �3.8m). Net interest and
finance costs were �0.1m (2006: �0.0m) and a tax credit of �0.2m (2006: �0.2m)
was received in respect of the Government's research and development tax credit
scheme. Net loss for the year was �3.2m (2006: �3.7m), in line with management's
expectations and previous guidance. Basic and diluted loss per ordinary share
was 9.1p (2006: 12.1p).
FIXED ASSETS AND CAPITAL EXPENDITURE
Expenditure on capital items amounted to �0.3m in the year reflecting investment
in our US infrastructure and development of our operational facilities in Leeds.
There were no material capital commitments in place at the year end.
WORKING CAPITAL
Investment in working capital (current assets excluding cash and cash
equivalents, less current liabilities) increased by �0.4m to �4.5m (2006:
�4.1m).
CASH
Cash outflow from operating activities in the year was �2.8m (2006: �4.3m). Cash
outflow reduced principally as a result of the lower loss for the year and the
smaller increase in investment in working capital than in the prior year period.
As at 31 December 2007, the Group had cash and cash equivalents of �1.6m (2006:
�4.8m).
TREASURY POLICY AND FINANCIAL RISK MANAGEMENT
The Group operates a risk-averse policy of treasury management in order to
minimise exposure to capital loss whilst securing market rates of interest on
cash balances. Funds are deposited with UK clearing banks on short to
medium-term deposits, with maturity typically at three to six months, and
bearing interest at prevailing rates. During the year cash balances were placed
with more than one UK clearing bank.
CURRENCY RISK
The Group is exposed to currency risk principally in respect of US dollar
revenues and with the translation of the revenues, expenses and net assets of
our US subsidiary into sterling on consolidation. As at 31 December 2007
forward-sale hedging contracts amounting to $1.9m at a composite rate of �1 =
$2.03 were outstanding and due to mature by 28th April 2008.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
The financial results for the year ended 31 December 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 year ended 31 December 2006 included in these results have
been restated in accordance with IFRS. The impact of the restatement is set out
in note 2 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 year ended 31 December 2006 is a
charge of �106,000. The effect of the transition on the opening balance sheet at
1 January 2006 and the balance sheet at 31 December 2006 is �48,000 and �nil
respectively.
EXTRACTION FROM AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2007 or for the year
ended 31 December 2006, but is derived from the 2007 accounts. Statutory
accounts for the year ended 31 December 2006, which were prepared under UK
Generally Accepted Accounting Practice ("UK GAAP"), have been delivered to the
Registrar of Companies Statutory accounts for the year ended 31 December 2007,
prepared under International Financial Reporting Standards ("IFRS") as adopted
for use in the EU, will be delivered in due course. The auditors have reported
on the accounts for both the year ended 31 December 2006 and the year ended 31
December 2007; their reports were unqualified and did not contain statements
under s237(2) of (3) Companies Act 1985.
David Jennings
Finance Director
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2007
Note 2007 2006
�'000 �'000
CONTINUING OPERATIONS
Revenue 1,3 12,132 10,522
Cost of sales (3,828) (3,401)
-------- --------
Gross profit 3 8,304 7,121
Selling, distribution and marketing costs (6,922) (5,910)
Research and development costs (2,017) (2,269)
Other administrative expenses (2,636) (2,768)
-------- --------
Total administrative expenses (11,575) (10,947)
-------- --------
OPERATING LOSS 3,4 (3,271) (3,826)
Finance income 88 173
Finance cost 7 (138) (149)
-------- --------
LOSS BEFORE TAXATION (3,321) (3,802)
Taxation 8 159 152
-------- --------
LOSS FOR THE YEAR (3,162) (3,650)
======== ========
Attributable to:
Equity holders of the parent (3,162) (3,650)
Basic and diluted loss per ordinary share 9 (9.1)p (12.1)p
======== ========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2007
Share Share Shares to Merger Translation Profit & Total
Capital Premium be issued Reserve Reserve Loss Equity
Account Account
�'000 �'000 �'000 �'000 �'000 �'000 �'000
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 foreign
operations - - - - 112 - 112
Loss for the period - - - - - (3,650) (3,650)
------- ------- ------- ------- ------- ------- -------
Total recognised gains and loss
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 2007
Exchange differences on
translation of foreign
operations - - - - 66 - 66
Loss for the period - - - - - (3,162) (3,162)
------- ------- ------- ------- ------- ------- -------
Total recognised gains and loss
for the period - - - - 66 (3,162) (3,096)
------- ------- ------- ------- ------- ------- -------
Recognition of share based
payment charge - - 52 - - - 52
Issue of share capital 1 3 - - - - 4
------- ------- ------- ------- ------- ------- -------
Balance at December 2007 3,461 24,250 232 545 178 (21,338) 7,328
------- ------- ------- ------- ------- ------- -------
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2007
Share Share Shares to Translation Profit & Total
Capital Premium be issued Reserve Loss Equity
Account Account
�'000 �'000 �'000 �'000 �'000 �'000
Balance at 31 December 2005 2,946 22,075 72 - (13,981) 11,112
Changes in equity for 2006
Exchange differences on
translation of foreign operations - - - 112 - 112
Loss for the period - - - - (1,012) (1,012)
------- ------- ------- ------- ------- -------
Total recognised gains and loss
for the period - - - 112 (1,012) (900)
------- ------- ------- ------- ------- -------
Recognition of share based
payment charge - - 108 - - 108
Issue of share capital 514 2,172 - - - 2,686
------- ------- ------- ------- ------- -------
Balance at 31 December 2006 3,460 24,247 180 112 (14,993) 13,006
------- ------- ------- ------- ------- -------
Changes in equity for 2007
Exchange differences on
translation of foreign operations - - - 66 - 66
Loss for the period - - - - (998) (998)
------- ------- ------- ------- ------- -------
Total recognised gains and loss
for the period - - - 66 (998) (932)
------- ------- ------- ------- ------- -------
Recognition of share based
payment charge - - 52 - - 52
Issue of share capital 1 3 - - - 4
------- ------- ------- ------- ------- -------
Balance at December 2007 3,461 24,250 232 178 (15,991) 12,130
------- ------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET
As at 31 December 2007
2007 2006
Note �'000 �'000 �'000 �'000
NON-CURRENT ASSETS
Property, plant and equipment 1,12 806 2,993
------- -------
806 2,993
------- -------
CURRENT ASSETS
Inventories 1,13 4,443 3,875
Trade and other receivables 14 2,388 2,422
Cash and cash equivalents 1,601 4,760
------- -------
8,432 11,057
Non-current assets held for sale 11 1,761 -
------- -------
10,193 11,057
------- -------
TOTAL ASSETS 10,999 14,050
------- -------
CURRENT LIABILITIES
Trade and other payables (992) (762)
Current portion of long-term borrowings (217) (265)
Other liabilities (1,131) (1,140)
------- -------
15 (2,340) (2,167)
Liabilities associated with non-current
assets held for sale 11 (1,248) -
------- -------
(3,588) (2,167)
NON-CURRENT LIABILITIES
Long-term borrowings 16 (83) (1,515)
------- -------
TOTAL LIABILITIES (3,671) (3,682)
------- -------
NET ASSETS 7,328 10,368
======= =======
EQUITY
Share capital 17 3,461 3,460
Share premium account 24,250 24,247
Shares to be issued 232 180
Merger reserve 545 545
Translation reserve 178 112
Profit and loss account (21,338) (18,176)
------- -------
TOTAL EQUITY 7,328 10,368
======= =======
These financial statements were approved by the Board of Directors on 11 March
2008.
Signed on behalf of the Board of Directors
M B Hunt, Director
COMPANY BALANCE SHEET
As at 31 December 2007
2007 2006
Note �'000 �'000 �'000 �'000
NON-CURRENT ASSETS
Investment in subsidiaries 10 141 -
Property, plant and equipment 1,12 636 2,876
------- -------
777 2,876
------- -------
CURRENT ASSETS
Intercompany receivables 8,439 5,119
Inventories 1,13 2,421 2,282
Trade and other receivables 14 1,323 1,658
Cash and cash equivalents 654 4,472
------- -------
12,837 13,531
Non-current assets held for sale 11 1,761 -
------- -------
14,598 13,531
------- -------
TOTAL ASSETS 15,375 16,407
------- -------
CURRENT LIABILITIES
Trade and other payables (946) (681)
Current portion of long-term borrowings (215) (264)
Other liabilities (757) (947)
------- -------
15 (1,918) (1,892)
Liabilities associated with non-current
assets held for sale 11 (1,248) -
------- -------
(3,166) (1,892)
NON-CURRENT LIABILITIES
Long-term borrowings 16 (79) (1,509)
------- -------
TOTAL LIABILITIES (3,245) (3,401)
NET ASSETS 12,130 13,006
------- -------
EQUITY
Share capital 17 3,461 3,460
Share premium account 24,250 24,247
Shares to be issued 232 180
Translation reserve 178 112
Profit and loss account (15,991) (14,993)
------- -------
TOTAL EQUITY 12,130 13,006
======= =======
These financial statements were approved by the Board of Directors on 11 March
2008.
Signed on behalf of the Board of Directors
M B Hunt, Director
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2007
Note 2007 2006
�'000 �'000
Cash flows from operating activities
Loss after tax (3,162) (3,650)
Adjustments for:
Depreciation 12 698 1,024
Foreign exchange loss/(gain) 104 (8)
Finance income (88) (173)
Finance expense 138 149
Taxation recognised in profit and loss 8 (159) (152)
-------- --------
Decrease in trade and other receivables 41 286
Increase in inventories (569) (1,574)
Increase/(Decrease) in trade payables 218 (331)
Share based payments 52 108
Interest paid (138) (148)
Taxation 8 159 324
-------- --------
Net cash from operating activities (2,706) (4,145)
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment 12 (289) (678)
Proceeds from sale of equipment 12 3 -
Interest received 90 197
-------- --------
Net cash used in investing activities (196) (481)
-------- --------
Cash flow from financing
Proceeds from issue of share capital 4 2,686
Proceeds from long-term borrowings 40 252
Payments of finance lease liabilities (276) (348)
-------- --------
Net cash used in financing activities (232) 2,590
-------- --------
Net decrease in cash and cash equivalents (3,134) (2,036)
Cash and cash equivalents at beginning of period 4,760 6,848
Effect of foreign exchange rate changes (25) (52)
-------- --------
Cash and cash equivalents at end of period 1,601 4,760
======== ========
COMPANY CASH FLOW STATEMENT
Year ended 31 December 2007
Note 2007 2006
�'000 �'000
Cash flows from operating activities
Loss after tax (998) (1,012)
Adjustments for:
Depreciation 12 691 1,014
Foreign exchange loss/(gain) (86) 261
Finance income (463) (173)
Finance expense 138 148
Taxation recognised in profit and loss 8 (159) (152)
Decrease in trade and other receivables 324 1,030
Decrease/(Increase) in inventories (139) 19
Increase/(Decrease) in trade payables 84 (531)
Share based payments 52 108
Interest paid (139) (149)
Taxation 8 159 324
-------- --------
Net cash from operating activities (536) 887
-------- --------
Cash flow from investing activities
Purchase of property, plant and equipment 12 (270) (550)
Proceeds from sale of equipment 12 - -
Inter-company transactions (2,856) (296)
Interest received 70 197
-------- --------
Net cash used in investing activities (3,056) (649)
-------- --------
Cash flow from financing
Proceeds from issue of share capital 4 2,686
Proceeds from long-term borrowings 40 245
Payments of finance lease liabilities (270) (347)
-------- --------
Net cash used in financing activities (226) (2,584)
-------- --------
Net decrease in cash and cash equivalents (3,818) (2,346)
Cash and cash equivalents at beginning of period 4,472 6,848
Effect of foreign exchange rate changes - (30)
-------- --------
Cash and cash equivalents at end of period 654 4,472
======== ========
NOTES TO THE ACCOUNTS
Year ended 31 December 2007
1. ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU) that are effective at 31 December 2007. The principal accounting
policies are set out below.
Basis of accounting
These consolidated financial statements are for the year ended 31 December 2007.
They have been prepared in accordance with the requirement of IFRS 1 "First-time
Adoption of International Financial Reporting Standards" because they are the
Group's first IFRS financial statements.
These financial statements have been prepared under the historical cost
convention, except for revaluation of financial instruments.
Tissue Science Laboratories plc's consolidated financial statements were
prepared in accordance with the 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 of 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 2. The accounting policies have been applied
consistently throughout the Group for the purposes of preparation of these
financial statements.
The Directors have prepared these financial statements on the basis that the
business is a going concern. The basis for the preparation of these accounts on
a going concern basis is a follows:
As at 11 March 2008, the Directors have formally approved a recommended offer
('the offer') by Covidien UK Holdings Limited (the 'proposed acquiror') to
acquire the entire issued and to be issued share capital of the Company. The
offer is subject to approval by shareholders in due course. The Directors are of
the opinion that the proposed acquiror is of sufficient financial strength such
that it would be able to provide financial support as may be necessary for the
Company to continue its day to day operations for a period of at least one year
from the date of acquisition
In the event that shareholders do not approve the offer the Directors would seek
to undertake a fundraising for the purposes of providing additional working
capital for the Group, in order for it to finance its day to day operations for
a period of at least 12 months from the balance sheet date. The Directors
believe that a fundraising of up to �1.0m could be required and are confident
that this could be completed. Pending the completion of such a fundraising, Mr
Patrick Paul, (the chairman) has undertaken to provide an unsecured loan on arms
length commercial terms to an amount not exceeding �1.0m as may be required.
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
30 June and 31 December each year. 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.
Tissue Science Laboratories Inc., has been accounted for using acquisition
accounting. On acquisition, the assets and liabilities were measured at their
fair values at the date of acquisition. Any excess of the cost of acquisition
over the fair values of the identifiable net assets acquired would have been
recognised as goodwill. Any deficiency of the cost of acquisition below the fair
values of the identifiable net assets (i.e. discount on acquisition) would have
been credited to the income statement in the period of acquisition.
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 (which treats the merged entities as if they
had been combined throughout the current and comparative accounting periods)
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 class of equity presented, they have been disclosed as a
separate classification of equity.
All intra-Group transactions, balances, income and expenditure are eliminated on
consolidation.
Revenue recognition
Revenue is measured by reference to the fair value of consideration received or
receivable by the Group for goods supplied, excluding VAT.
Revenue from the sale of goods is recognised when all the following conditions
have been satisfied:
* the group has transferred to the buyer the significant risks and rewards of
ownership of the goods which is generally when delivery of the product has
been accepted or, in the case of consignment stocks, on receipt of an order
from the customer
* the group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold
which is generally when delivery of the product has been accepted or, in
the case of consignment stocks, on receipt of an order from the customer
* the amount of revenue can be measured reliably
* it is probable that the economic benefits associated with the transaction
will flow to the group, and
* the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
Royalties due from customers are recognised on an accruals basis.
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.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation.
Depreciation is provided at rates calculated to write off the cost or valuation
of property, plant and equipment, less their estimated residual value, over
their expected useful lives, which fall between the following ranges:
Plant and machinery 3-5 years
Fixtures 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.
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 the
translation reserves. All other exchange differences are taken to the profit and
loss account.
Derivatives policy
The Group's activities expose it to the financial risks of changes in foreign
currency exchange rates. The Group uses foreign exchange forward contracts to
mitigate these exposures. The Group does not use derivative financial
instruments for speculative purposes.
Changes in the fair value of derivative financial instruments are recognised in
the income statement as they arise.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date.
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 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.
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
the date of transition to IFRS.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of
changes in value.
Other provisions
Other provisions are recognised when present obligations will probably lead to
an outflow of economic resources from the Group and they can be estimated
reliably. Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive commitment that
has resulted from past events, for example, product warranties granted, legal
disputes or onerous contracts. Provisions are not recognised for future
operating losses. Provisions are measured at the estimated expenditure required
to settle the present obligation, based on the most reliable evidence available
at the balance sheet date, including the risks and uncertainties associated with
the present obligation. Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole.
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 year.
Reserves
Share capital is determined using the nominal value of shares that have been
issued.
Share premium account includes any premiums received on the initial issuing of
the share capital. Any transaction costs associated with the issuing of shares
are deducted from share premium account capital, net of any related income tax
benefits.
Shares to be issued represents the credits relating to share-based employee
remuneration which will be cleared once stock options are exercised or lapse.
Merger reserve arose on the acquisition of Tissue Science Laboratories (UK) Ltd
by Tissue Science Laboratories plc.
Translation reserve includes foreign currency translation differences.
Retained earnings include all current and prior period results as disclosed in
the income statement.
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 intangible asset will be completed and then either used by the
Group or sold to a third party;
* the Group has adequate resources to complete the development of the
intangible assets; and
* the development cost of the asset can be measured reliably.
Development costs not meeting the above criteria for capitalisation are expensed
as incurred.
Standards not yet applied
The following standards have not yet been adopted by the Group. The adoption of
these standards in future periods is not expected to have any material effect on
the reported numbers.
Standard Interpretation Effective in reporting
periods starting on or after
IFRS 14 IAS 19 - The limit on a defined benefit asset, minimum
funding requirements and their interaction 1 January 2008
IFRIC 13 Customer loyalty programmes 1 July 2008
IFRIC 12 Service Concession Arrangements 1 January 2008
IFRIC 11 IFRS 2 Group and treasury share transactions 1 March 2007
IAS 23 Borrowing costs (revised 2007) 1 January 2009
IFRS 8 Operating segments 1 January 2009
Critical judgements and estimates
Applying accounting policies requires the use of certain judgements, assumptions
and estimates. The most important of these are set out below.
1) Work in Progress valuation - Estimates are made for part completed
works based on a validated stage process operation. If these estimates do not
reflect actual work in progress value then operating profits would be affected.
2) Stock Provision - A provision is made against slow moving stock based
product shelf life and on managements expectations of future sales volumes.
Operating profits would be adversely affected if underprovided.
Financial instruments
Financial assets are divided into the following categories:
* Loans and receivables
* Financial assets at fair value through profit and loss
* Available-for-sale financial assets
Financial assets are assigned to the different categories on initial
recognition, depending on the characteristics of the instrument and its purpose.
A financial instrument's category is relevant for the way it is measured and
whether any resulting income and expense is recognised in the profit and loss or
directly in equity.
Generally, the Group recognises all financial assets using the settlement day
accounting. An assessment of whether a financial asset is impaired is made at
least at each reporting date. All income and expense relating to financial
assets are recognised in the income statement line item "finance income" or "
finance expense", respectively.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. After initial
recognition these are measured at amortised cost using the effective interest
method, less provision for impairment. Any change in their value is recognised
in profit and loss. The Group's trade and most other receivables fall into this
category of financial instruments. Discounting, however, is omitted where the
effect of discounting is immaterial.
Significant receivables are considered for impairment on a case-by-case basis
when they are past due at the balance sheet date or when objective evidence is
received that a specific counterparty will default. All other receivables are
reviewed for impairment in groups, which are determined by reference to the
industry and region of a counterparty and other available features of shared
credit risk characteristics, if any.
Financial assets at fair value through profit or loss include financial assets
that are either classified as held for trading or are designated by the entity
to be carried at fair value through profit or loss upon initial recognition. By
definition, all financial instruments that do not qualify for hedge accounting
fall into this category.
Any gain or loss arising from derivative financial instruments is based on
changes in fair value, which is determined by direct reference to active market
transactions or using a valuation technique where no active market exists.
For the reporting periods under review, the Group has entered into currency
contracts to mitigate currency exchange risk arising from sales denominated in
US Dollars. For the periods under review this results in the recognition of the
fair value of these financial assets and liabilities, which are presented within
"Other receivables" or "Other payables", respectively.
The Group's financial liabilities include borrowings, trade and other payables
(including finance lease liabilities), which are measured at amortised cost
using the effective interest rate method.
Financial liabilities are recognised when the Group becomes a party to the
contractual agreements of the instrument. All interest-related charges and, if
applicable, changes in an instrument's fair value that are reported in profit or
loss are included in the income statement line items "finance expense" or
"finance income".
2. TRANSITION TO IFRS
As stated in the Basis of Preparation, these are the Group's first 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.
Any adjustments between the balance sheet as at 31 December 2005 and the balance
sheet at 1 January 2006 have been treated as a change in accounting policy.
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. Whilst the group
previously used hedge accounting when reporting income and expenditure in
foreign currencies, these contracts do not qualify for hedge accounting under
IFRS. 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 31 December 2006 is a charge of �106,000. The
effect of the transition on the opening balance sheet at 1 January 2006 and the
balance sheet for the year ended 31 December 2006 is �48,000 and �nil
respectively.
Other
Other adjustments relate to the reclassification of reserve amounts for share
options issued prior to 7 November 2002. This adjustment does not have any
effect on the net assets of the group.
(a.) Income Statement
Year ended 31 December 2006
As previously IAS 39 As restated
stated
�'000 �'000 �'000
CONTINUING OPERATIONS
Revenue 10,683 (161) 10,522
Cost of sales (3,401) - (3,401)
-------- -------- --------
Gross profit 7,282 (161) 7,121
Selling, distribution and marketing costs (5,910) - (5,910)
Research and development costs (2,269) - (2,269)
Other administrative expenses (2,823) 55 (2,768)
-------- -------- --------
Total administrative expenses (11,002) 55 (10,947)
-------- -------- --------
OPERATING LOSS (3,720) (106) (3,826)
Finance income 173 - 173
Finance expense (149) - (149)
-------- -------- --------
LOSS BEFORE TAXATION (3,696) (106) (3,802)
Taxation 152 - 152
-------- -------- --------
LOSS FOR THE YEAR (3,544) (106) (3,650)
======== ======== ========
Attributable to:
Equity holders of the parent (3,544) (106) (3,650)
Basic and diluted loss per ordinary share (11.8)p (12.1)p
======== ========
(b.) Balance sheet
As at 1 January 2006
As previously IAS 39 Other As restated
stated
�'000 �'000 �'000 �'000
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 borrowings (322) - - (322)
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
======== ======== ======== ========
(b) Balance sheet (continued)
As at 31 December 2006
As previously IAS 39 Other As restated
stated
�'000 �'000 �'000 �'000
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 borrowings (265) - - (265)
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.
3. SEGMENTAL REPORTING
Business segments
The business is managed according to two business segments: Direct/Distributor
and Partner. These are the basis on which the Group reports its primary segment
information. The principal activities of each division are as follows;
* The Direct/Distributor division manufactures, distributes and sells
Hernia/General surgery products (Permacol(R)) via Distributors and the
Group's own sales reps direct to hospitals and around the world.
* The Partner division manufactures Urology, Orthopaedic and Head & Neck
devices and sells via partners around the world.
Year ended 31 December 2006
Direct/ Partners Unallocated Total
Distributor
�000s �000s �000s �000s
Revenue 7,153 3,369 10,522
------- ------- -------
Gross Profit 5,470 1,651 7,121
------- ------- ------- -------
OPERATING PROFIT/(LOSS) (75) 1,567 (5,318) (3,826)
Finance income 173
Finance expense (149)
-------
LOSS BEFORE TAX (3,802)
=======
Segment assets 909 786 12,355 14,050
Segment liabilities - - (3,682) (3,682)
Fixed Asset additions - - 676 676
Depreciation - - 1,023 1,023
Year ended 31 December 2007
Direct/ Partners Unallocated Total
Distributor
�000s �000s �000s �000s
Revenue 9,770 2,362 12,132
------- ------- -------
Gross Profit 7,338 967 8,304
------- ------- ------- -------
OPERATING PROFIT/(LOSS) 964 908 (5,143) (3,271)
Finance income 88
Finance expense (138)
-------
LOSS BEFORE TAX (3,321)
=======
Segment assets 1,352 319 9,328 10,999
Segment liabilities - - (3,671) (3,671)
Fixed Asset additions - - 288 288
Depreciation - - 698 698
Geographical segments
The Group's business segments operate throughout the world. In presenting
information on the basis of geographical segments, segment revenue is based on
the geographical location of the customers and not the legal entity in which the
transaction occurred.
Revenue Assets
2007 2006 2007 2006
�000s �000s �000s �000s
United Kingdom 1,698 1,495 261 185
Europe (excluding UK) 764 511 168 80
USA 9,521 8,339 1,240 1,402
Rest of World 149 177 2 28
Unallocated 9,328 12,355
Total 12,132 10,522 10,999 14,050
All Fixed Assets are classified as Unallocated.
4. OPERATING LOSS
2007 2006
�'000 �'000
The operating loss is stated after charging:
Depreciation of tangible property, plant and equipment
- owned by the Group 333 490
- assets held under finance leases 380 534
Fees payable to the Group's auditor for the audit of the annual
financial statements 40 32
Fees payable to the Group's auditor and its associates for other services
- Other services relating to taxation 12 16
Operating lease rentals
- land and buildings 274 260
- other 27 40
Research and development 2,017 2,269
Foreign exchange (gains)/losses (6) 22
======== ========
5. STAFF COSTS
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Wages and salaries 6,259 5,731 3,181 3,375
Social security costs 794 652 357 308
Other pension costs 167 158 113 122
Employee share option scheme costs 52 108 52 108
-------- -------- -------- --------
7,272 6,649 3,703 3,913
======== ======== ======== ========
The pension costs shown above relate to payments into the Group's defined
contribution pension scheme.
The average monthly number of employees, including executive directors but
excluding non-executive directors, during the year was as follows:
Group Company
2007 2006 2007 2006
Office and management 15 16 10 11
Sales 55 42 9 9
Research and development 18 21 14 15
Production 54 58 54 58
-------- -------- -------- --------
142 137 87 93
======== ======== ======== ========
6. DIRECTORS' REMUNERATION
Directors' remuneration for the year (or from the date of appointment for
directors appointed during the year):
2007 2006
�'000 �'000
Aggregate emoluments 511 524
Pension contributions to money purchase schemes 35 32
------ ------
546 556
====== ======
During the year retirement benefits were accruing to three directors (2006:
three) in respect of money purchase pension schemes. The remuneration of the
highest paid director was as follows:
2007 2006
�'000 �'000
Emoluments 216 221
Pension contributions to money purchase schemes 20 19
------ ------
236 240
====== ======
7. FINANCE INCOME AND FINANCE COST
Finance Income 2007 2006
�'000 �'000
Bank interest 88 173
------ ------
88 173
====== ======
Finance cost 2007 2006
�'000 �'000
On bank loans and overdrafts 86 89
Other interest 20 18
Finance leases 32 42
------ ------
138 149
====== ======
8. TAXATION
2007 2006
�'000 �'000
UK research and development tax credit 159 152
------ ------
Tax credit for current year 159 152
====== ======
The tax assessed for the period is lower than that resulting from
applying the standard rate of corporation tax in the UK: 30%
(2006: 30%). The differences are explained below:
Loss on ordinary activities before tax 3,321 3,696
Tax credit at 30% thereon (996) (1,109)
Expenses not deductible for tax purposes 111 121
Movement in accelerated capital allowances not provided 61 90
Movement in losses not provided 667 854
Prior year underestimate of deferred tax asset not provided (141) (241)
R&D tax credit 139 133
------ ------
Tax credit for current year (159) (152)
====== ======
The Group recognises the tax credits arising from its research and development
activities when they are received. The tax credit recognised above, relates to a
claim made for the tax credit for research undertaken in the year ended 31
December 2006. Tax credits are given at a rate of 16% of gross losses.
Consequently, the difference between the value at which potential losses are
disclosed as a deferred tax asset (30%) and the surrender value of the losses
(16%) is a reconciling item in the reconciliation note.
There was no provision for deferred tax during the year, as the asset is not
expected to be utilised in the next accounting period. Unprovided deferred tax
on share based payments is not expected to be material.
2007 2006
�'000 �'000
Tax losses carried forward 3,075 3,002
Accelerated capital allowances 478 442
------ ------
Potential deferred tax asset not provided 3,553 3,444
====== ======
9. LOSS PER ORDINARY SHARE
The loss per ordinary share has been calculated based on the weighted-average
number of ordinary shares in issue during the year.
2007 2006
�'000 �'000
Loss for the financial year (3,162) (3,650)
========== ==========
Weighted average number of ordinary shares 34,606,077 30,131,492
========== ==========
Basic and diluted loss per share (9.1)p (12.1)p
========== ==========
10. FIXED ASSET INVESTMENTS
The Group includes a 100% wholly owned subsidiary incorporated in the US, Tissue
Science Laboratories, Inc. engaged in the business of importation, marketing and
distribution of surgical implants. The company was incorporated on 1 January
2006 and the carrying value at 31 December 2007 was $276k.
The Company also has an investment in a dormant subsidiary incorporated in the
UK, Tissue Science Laboratories (UK) Limited, comprising a holding of 100% of
its issued share capital. The carrying value of this investment was �nil at
both 31 December 2006 and 31 December 2007.
The Company also has an investment in a subsidiary incorporated in the UK,
Regentix Limited, comprising a holding of 100% of its issued share capital. The
carrying value of this investment was �nil at 31 December 2007.
11. TRANSFER OF ASSET TO NON-CURRENT ASSET 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 carrying value 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 a year.
12. PROPERTY, PLANT AND EQUIPMENT
Group Leasehold Freehold Plant and Motor Fixtures Total
improvements land and machinery vehicles and
property equipment
�'000 �'000 �'000 �'000 �'000 �'000
Cost
At 1 January 2007 1,342 1,865 2,699 31 871 6,808
Additions 124 1 94 - 70 289
Disposals - - - - (22) (22)
Transfer to Non-current asset - - - - - -
held for sale - (1,866) - - - (1,866)
-------- -------- -------- -------- -------- --------
At 31 December 2007 1,466 - 2,793 31 919 5,209
-------- -------- -------- -------- -------- --------
Depreciation
At 1 January 2007 956 91 2,260 18 489 3,814
Charge for year 145 14 355 7 177 698
Disposals - - - - (4) (4)
Transfer to Non-current asset - - - - - -
held for sale - (105) - - - (105)
-------- -------- -------- -------- -------- --------
At 31 December 2007 1,101 - 2,615 25 662 4,403
-------- -------- -------- -------- -------- --------
Net book value
At 31 December 2007 365 - 178 6 257 806
======== ======== ======== ======== ======== ========
At 31 December 2006 386 1,774 439 13 381 2,993
======== ======== ======== ======== ======== ========
Leased assets included above:
Net book value
At 31 December 2007 54 - 76 6 89 225
======== ======== ======== ======== ======== ========
At 31 December 2006 102 - 315 13 136 566
======== ======== ======== ======== ======== ========
Group Leasehold Freehold Plant and Motor Fixtures Total
improvements land and machinery vehicles and
property equipment
�'000 �'000 �'000 �'000 �'000 �'000
Cost
At 1 January 2006 1,071 1,765 2,628 31 636 6,131
Additions 271 100 71 - 234 676
-------- -------- -------- -------- -------- --------
At 31 December 2006 1,342 1,865 2,699 31 870 6,807
-------- -------- -------- -------- -------- --------
Depreciation
At 1 January 2006 736 35 1,692 12 316 2,791
Charge for year 220 56 568 6 173 1,023
-------- -------- -------- -------- -------- --------
At 31 December 2006 956 91 2,260 18 489 3,814
-------- -------- -------- -------- -------- --------
Net book value
At 31 December 2006 386 1,774 439 13 381 2,993
======== ======== ======== ======== ======== ========
At 31 December 2005 335 1,730 936 19 320 3,340
======== ======== ======== ======== ======== ========
Leased assets included above:
Net book value
At 31 December 2006 102 - 315 13 136 566
======== ======== ======== ======== ======== ========
At 31 December 2005 67 - 593 19 139 818
======== ======== ======== ======== ======== ========
Company Leasehold Freehold Plant and Motor Fixtures Total
improvements land and machinery vehicles and
property equipment
�'000 �'000 �'000 �'000 �'000 �'000
Cost
At 1 January 2007 1,342 1,865 2,699 31 744 6,681
Additions 124 1 94 - 51 270
Disposals - - - - (70) (70)
Transfer to Non-current asset
held for sale - (1,866) - - - (1,866)
-------- -------- -------- -------- -------- --------
At 31 December 2007 1,466 - 2,793 31 725 5,015
-------- -------- -------- -------- -------- --------
Depreciation
At 1 January 2007 956 91 2,260 18 480 3,805
Charge for year 145 14 355 7 170 691
Disposals - - - - (12) -
Transfer to Non-current asset
held for sale (105) (105)
-------- -------- -------- -------- -------- --------
At 31 December 2007 1,101 - 2,615 25 638 4,379
-------- -------- -------- -------- -------- --------
Net book value
At 31 December 2007 365 - 178 6 87 636
======== ======== ======== ======== ======== ========
At 31 December 2006 386 1,774 439 13 264 2,876
======== ======== ======== ======== ======== ========
Leased assets included above:
Net book value
At 31 December 2007 54 - 76 6 89 225
======== ======== ======== ======== ======== ========
At 31 December 2006 102 - 315 13 130 560
======== ======== ======== ======== ======== ========
Company Leasehold Freehold Plant and Motor Fixtures Total
improvements land and machinery vehicles and
property equipment
�'000 �'000 �'000 �'000 �'000 �'000
Cost
At 1 January 2006 1,071 1,765 2,628 31 636 6,131
Additions 271 100 71 - 108 550
-------- -------- -------- -------- -------- --------
At 31 December 2006 1,342 1,865 2,699 31 744 6,681
-------- -------- -------- -------- -------- --------
Depreciation
At 1 January 2006 736 35 1,692 12 316 2,791
Charge for year 220 56 568 6 164 1,014
-------- -------- -------- -------- -------- --------
At 31 December 2006 956 91 2,260 18 480 3,805
-------- -------- -------- -------- -------- --------
Net book value
At 31 December 2006 386 1,774 439 13 264 2,876
======== ======== ======== ======== ======== ========
At 31 December 2005 335 1,730 936 19 320 3,340
======== ======== ======== ======== ======== ========
Leased assets included above:
Net book value
At 31 December 2006 102 - 315 13 130 560
======== ======== ======== ======== ======== ========
At 31 December 2005 67 - 593 19 139 818
======== ======== ======== ======== ======== ========
13. INVENTORIES
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Raw materials and packaging 278 211 278 211
Work in progress 814 883 814 883
Finished goods 3,351 2,781 1,329 1,188
-------- -------- -------- --------
4,443 3,875 2,421 2,282
======== ======== ======== ========
In the opinion of the Group's Directors, the replacement cost of stocks is not
materially different from the value of stock shown above.
Finished goods written off and charged to the Income Statement was �242k (�nil
2006), which were fully provided for in the previous year.
14. TRADE AND OTHER RECEIVABLES
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Trade receivables 1,671 1,695 732 1,027
Other receivables 83 82 83 82
Prepayments and accrued income 634 645 518 549
-------- -------- -------- --------
2,388 2,422 1,323 1,658
-------- -------- -------- --------
Inter-company account - - 8,439 5,119
The inter-company loan is made up of stock purchased and expenses paid on behalf
of Tissue Science Laboratories Inc. The total amount of the loan is repayable
with no fixed due date. The amount outstanding is charged interest at market
determined rates.
15. TRADE AND OTHER PAYABLES
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Bank loans and overdrafts - 26 - 26
Obligations under finance leases 217 239 215 238
Trade payables 992 762 946 681
Social security and other taxes 113 104 113 104
Other payables 364 390 382 390
Accruals and deferred income 654 646 298 453
-------- -------- -------- --------
2,340 2,167 1,918 1,892
======== ======== ======== ========
16. LONG-TERM BORROWINGS
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Bank loans and overdrafts - 1,248 - 1,248
Obligations under finance leases 83 267 79 261
-------- -------- -------- --------
83 1,515 79 1,509
======== ======== ======== ========
17. CALLED UP SHARE CAPITAL
2007 2006
�'000 �'000
Authorised:
100,000,000 ordinary shares of 10p each 10,000 10,000
========= =========
Allotted, called up and fully paid:
34,609,139 (2006:34,601,639) ordinary shares of 10p
each 3,461 3,460
========= =========
During the year 7,500 shares options were exercised.
SHARE OPTIONS
As at 31 December 2007 there were outstanding share options granted (but not yet
exercised) under the Company's executive share option plans in respect of
ordinary shares of 10 pence each, as follows:
Exercise Expiry Date Exercise Outstanding options as Options exercised Outstanding
Price at 31 December 2006 during the year options as at 31
December 2007
10 November 2008 50.0p 60,000# 60,000#
22 February 2009 75.0p 17,500# 17,500#
27 February 2010 37.5p 664,474# 664,474#
27 February 2010 75.0p 70,000# 70,000#
28 February 2010 37.5p 120,000# 120,000#
11 October 2010 37.5p 15,000# 15,000#
31 December 2010 37.5p 100# 100#
18 May 2011 37.5p 35,000# 35,000#
24 October 2011 37.5p 191,626# (2,500) 189,126#
24 October 2011 55.0p 355,000# (5,000) 350,000#
31 January 2012 166.5p 50,000# 50,000#
7 June 2015 170.0p 615,000* 615,000*
18 December 2016 71.5p 437,500* 437,500*
___________ ___________ ___________
2,631,200 (7,500) 2,623,700
=========== =========== ===========
# The vesting of these options is subject to a three year time period from the
date of grant
* The vesting of these options is subject to a three-year time period from the
date of grant and challenging performance criteria. The performance criteria
relate to the Tissue Science Laboratories share price achieving stretching
targets
Accelerated vesting of management and SAYE share options upon change of control
of the Company is permissible in accordance with the rules of the respective
option schemes.
As at 31 December 2007 there were outstanding share options granted (but not yet
exercised) under the Company's Save As You Earn (SAYE) scheme in respect of
ordinary shares of 10 pence each, as follows:
Exercise Expiry Date Exercise Outstanding options as Options granted/ Outstanding
Price at 31 December 2006 (exercised/lapsed) options as at 31
during the year December 2007
30 November 2007 132.0p 49,438 (49,438) -
31 May 2010 61.0p 250,080 (76,277) 173,803
___________ ___________ ___________
299,518 (125,715) 173,803
=========== =========== ===========
For the adoption of IFRS 2 "Share based payment" the fair value of the options
is estimated at the date of grant using the Black-Scholes option pricing model.
Volatility is based on historical share price movement. The following table
gives the assumptions applied to the options granted in the respective periods
shown.
Grant Date 18 December 2006 10 November 2006 7 June 2005
Fair value (p) 27.0 30.0 63.0
Share price at grant date (p) 72.0 63.0 165.0
Exercise price (p) 72.0 61.0 170.0
Expected volatility 33.6% 59.2% 35.7%
Option life (years) 10 3.5 10
Expected life (years) 5 3.5 5
Expected dividend yield - - -
Risk free interest 4.5% 4.5% 4.5%
Details of Directors' share options are given in the Report on Directors'
Remuneration in the Group's statutory accounts.
18. OTHER COMMITMENTS
At 31 December 2007 the Group had annual commitments under non-cancellable
operating leases as follows:
Land and buildings Other
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Expiry date:
Within one year 47 44 5 1
Between one and five years 98 246 24 30
Greater than five years 64 - - -
====== ====== ====== ======
19. OBLIGATIONS UNDER FINANCE LEASES
2007 2006
�'000 �'000
Minimum lease payments payable
Within one year 232 270
Between one and five years 87 281
-------- --------
319 551
Less: Finance charges allocated to future periods (19) (45)
-------- --------
300 506
======== ========
The obligations under finance leases are secured over the assets to which the
obligations relate.
20. FINANCIAL INSTRUMENTS
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
CURRENT ASSETS
Derivative financial instruments:
* Financial assets held for trading (carried at - 9 - 9
fair value through profit or loss)
Trade and other receivables:
* Loans and receivables 2,388 2,422 1,323 1,658
Cash and cash equivalents 1,601 4,760 654 4,472
3,989 7,182 3,075 6,754
NON CURRENT LIABILITIES
Borrowings:
* Financial liabilities measured at amortised cost (83) (1,515) (79) (1,509)
(83) (1,515) (79) (1,509)
CURRENT LIABILITIES
Borrowings:
* Financial liabilities measured at amortised cost (1,248) (26) (1,248) (26)
Derivative financial instruments:
* Financial liabilities held for trading (carried (22) - (22) -
at fair value through profit or loss)
Trade and other payables
* Financial liabilities measured at amortised cost (1,664) (1,495) (1,634) (1,413)
(2,934) (1,521) (2,904) (1,439)
The carrying value of financial assets and liabilities not held at fair value is
a reasonable approximation of their fair value.
Most of the Group's expenses are carried out in UK Sterling. Exposures to
currency exchange rates arise from the Group's overseas sales, which are
primarily denominated in US Dollars.
To mitigate the Group's exposure to foreign currency risk, non-Sterling cash
flows are monitored and forward contracts are entered in accordance with the
Group's risk management policies.
The value of the financial assets and liabilities at the balance sheet date
related to currency exchange contracts for both the Group and the Company are as
follows:
2007 2006
�'000 �'000
US Dollar forward exchange contracts, held-for-trading assets/ (22) 9
(liabilities)
Foreign currency denominated financial assets and liabilities, translated into
UK Sterling at the closing rate, are as follows.
Group 2007 �'000 2006 �'000
US$ Euro US$ Euro
Financial assets 2,525 169 2,494 144
Financial liabilities (416) - (544) -
Short-term exposure 2,109 169 1,950 144
Financial assets - - - -
Financial liabilities (4) - (5) -
Long-term exposure (4) - (5) -
Company 2007 �'000 2006 �'000
US$ Euro US$ Euro
Financial assets 523 169 1,446 144
Financial liabilities (2) - (90) -
Short-term exposure 521 169 1,356 144
Financial assets - - - -
Financial liabilities - - - -
Long-term exposure - - - -
The Group's/Company's exposure to credit risk is limited to the carrying amount
of financial assets recognised at the balance sheet date, as summarised below:
Group Company
2007 2006 2007 2006
Classes of financial assets - carrying amounts �'000 �'000 �'000 �'000
Cash and cash equivalents 1,601 4,760 654 4,472
Trade and other receivables 2,388 2,422 1,323 1,658
------- ------- ------- -------
3,989 7,182 1,977 6,130
The carrying amount of the trade receivables has not been impaired. Some of the
trade receivables are past due as at the reporting date. The age of financial
assets past due but not impaired is as follows:
Group Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Not more than 3 months 145 47 122 47
More than 3 months but not more than 6 months - 18 - 18
More than 6 months but not more than 1 year - 10 - -
------- ------- ------- -------
145 75 122 65
The following table illustrates the sensitivity of net results for the year and
equity in respect of the Group's financial assets and financial liabilities and
the US Dollar - UK Sterling exchange rate.
It assumes a +/- 3.3% change of US Dollar/UK Sterling exchange rate for the year
ended at 31 December 2007 (2006:4.1%). This percentage is based on average
market volatility in exchange rates in the previous 12 months. The sensitivity
analysis is based on the Group's/Company's foreign financial instruments held at
each balance sheet date.
If the US Dollar had strengthened against the UK Sterling by 3.3% (2006:4.1%)
then this would have had the following impact:
Group Company
2007 2006 2007 2006
�'000s �'000s �'000s �'000s
Net result for the year (48) (36) (12) (38)
Equity (48) (36) (12) (38)
If the US Dollar had weakened against the UK Sterling by 3.3% (2006:4.1%) then
this would have had the following impact:
Group Company
2007 2006 2007 2006
�'000s �'000s �'000s �'000s
Net result for the year 51 38 13 41
Equity 51 38 13 41
The Group manages its liquidity needs by carefully monitoring scheduled debt
servicing payments for long-term financial liabilities as well as cash out-flows
due in day-to-day business. Liquidity needs are monitored in various time
bands, on a day-today and week-to-week basis. Long-term liquidity needs are
identified monthly.
As at 31 December 2007, the Group's liabilities have contractual maturities
which are summarised below:
Current Non-current
Within 6 6 to 12 1 to 5 years Later than 5
months months years
�'000s �'000's �'000s �'000s
Long-term bank loans - - - -
Finance lease obligations 128 104 87 -
Trade payables 992 - - -
Other short term liabilities 1,131 - - -
Derivatives 937 - - -
------- ------ ------- -------
3,188 104 87 -
This compares to the maturity of the Group's financial liabilities in the
previous reporting period as follows:
Current Non-current
Within 6 6 to 12 1 to 5 years Later than 5
months months years
�'000s �'000's �'000s �'000s
Long-term bank loans 57 57 565 1,441
Finance lease obligations 148 122 281 -
Trade payables 762 - - -
Other short term liabilities 1,140 - - -
Derivatives 979 - - -
------- ------ ------- -------
3,086 179 846 1,441
The above contractual maturities reflect the gross cash flows, which may differ
to the carrying values of the liabilities at the balance sheet date.
As at 31 December 2007, the Company's liabilities have contractual maturities
which are summarised below:
Current Non-current
Within 6 6 to 12 1 to 5 years Later than 5
months months years
�'000s �'000's �'000s �'000s
Long-term bank loans - - - -
Finance lease obligations 127 103 83 -
Trade payables 946 - - -
Other short term liabilities 757 - - -
Derivatives 937 - - -
------- ------ ------- -------
2,767 103 83 -
This compares to the maturity of the Company's financial liabilities in the
previous reporting period as follows:
Current Non-current
Within 6 6 to 12 1 to 5 years Later than 5
months months years
�'000s �'000's �'000s �'000s
Long-term bank loans 57 57 565 1,441
Finance lease obligations 147 121 275 -
Trade payables 681 - - -
Other short term liabilities 947 - - -
Derivatives 979 - - -
------- ------ ------- -------
2,811 178 840 1,441
The above contractual maturities reflect the gross cash flows, which may differ
to the carrying values of the liabilities at the balance sheet date.
21. CAPITAL COMMITMENTS
At 31 December 2006 and 2007 the Group had no capital commitments.
22. RELATED PARTY TRANSACTIONS
There were no related party transactions in either the current or preceding
year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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