Sinclair IS Pharma plc

Preliminary Results for the year ended 30 June 2015

Sinclair IS Pharma plc (SPH.L), ("Sinclair" or the "Group") the international specialty pharma company, today announces its unaudited preliminary results for the year ended 30 June 2015.

 

Highlights

·     Revenues increased by 19.4% to £75.9m (7.7% Like-for-like¹ growth)

·     Aesthetic brands growth drives strong gross margin improvement to 62.9% from 56.5% in 2014

·     Silhouette growth rate 120% LFL

·     Ellansé growth rate 86% LFL (excluding Korea)

·     Silhouette Instalift FDA approved in April 2015, with launch expected in 2016

·     Adjusted EBITDA² increased 70% to £17.1m 

·     Operating profit of £4.5m (2014: loss of £1.8m)

·     Net debt at 30 June 2015 of £42.2m, 2.5xAdjusted EBITDA

 

Announced Separately Today 

·     Sale of non-aesthetics business for c.£132m in cash plus a sales royalty for US Flammacerium

·     Sinclair to collect remaining working capital, c.£4m net

·     Proceeds to repay debt facility in full

·     Estimated pro forma net cash of £82m at completion

·     Business complexity significantly reduced

 

Post Period Highlights

 

·     Company  to  focus on high growth aesthetics market

·     Silhouette launched in South Korea in September 2015

·     Silhouette Worldwide Expert meeting in October 2015 again attracts over 1000 physicians

·     Ellansé in market growth accelerating sharply

·     Q1 FY16 in market growth of 46%³ versus same period last year

·     Option to acquire Brazilian Silhouette distributor to create direct affiliate

·     The Company is remaining in an offer period under the framework provided by a formal sales process under the Takeover Code as it continues to receive attention for the remaining aesthetics business from a number of international companies

 

CEO Chris Spooner said "Today we have announced the disposal of our non-aesthetics business for an upfront cash consideration of c.£132m to create a fast growing and high gross margin pure-play aesthetics company with a leading and differentiated position in collagen stimulation. In-market sales data shows that the growth rate of our Aesthetics portfolio has accelerated throughout 2015 and is now trending at c.40%. The disposal substantially reduces business complexity and transforms Sinclair's balance sheet. The Company remains in an offer period as a result of continued interest in Sinclair's leading aesthetics brands".

 

¹ Like-for-like ('LFL') revenues presented on a constant currency basis and exclude product disposals and one-off licence fee income

² Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, share-based payments and exceptional items

³ In market sales defined as sales to doctors and clinics derived from monthly unit and price data supplied by partners and Sinclair affiliates, comprising approximately 94% of total aesthetic product revenues

 

 

Chairman's Statement

 

This has been a significant year for the Company in which we have redefined our strategic objectives and continued along the path to becoming a leading global aesthetics company.

 

Last November, at the Company's AGM, we highlighted that Sinclair had received significant interest from a number of international companies. During the past 12 months we have conducted a strategic review of the business with our advisers to evaluate the optimal way to unlock the value within the Company. During this process we had a number of discussions with third parties conducted within the framework of a formal sales process pursuant to the Takeover Code. The Takeover Panel granted a dispensation from the requirements of Rules 2.4 and 2.6 of the Takeover Code. As such interested parties were not obliged to disclose their position during discussion, enabling the Company to conduct these discussions whilst continuing to successfully run the business (as outlined below) without the distraction to employees and our suppliers/customers of public discussions and speculation.

 

The strategic review highlighted the Company has two strong but very distinct and separable business units. Our fast growing, increasingly successful and differentiated aesthetics franchise has fundamentally different commercial characteristics to our traditional, lower growth, medicinal wound and skincare business. This includes different customers and markets; and different sales forces and management requirements within Sinclair. The review also concluded that greater shareholder value could be unlocked by conducting discussions with separate potential partners and buyers for each of the two businesses individually rather than with a single party for the entire Company.

 

The aesthetics business has grown rapidly during the year to become a high growth, high margin business. Aesthetics (including Kelo-cote) accounted for 49% of revenue, excluding licence income, in the year to 30 June 2015. Where previously we have relied upon the cash flow from the medicinal business to invest in the development of our aesthetics franchise, we are now confident that the business can standalone.

 

Our established, medicinal derma business is performing well. However, to enable it to enter the next phase of growth it requires investment, which the Board believes would divert resources and management attention from the higher growth aesthetics business. Today the Company announced the sale of the entire non-aesthetic business (including Kelo-cote), including the transfer of employees within that business, to Alliance Pharma plc for £127.5m plus c.£4.7m estimated value of inventory at closing. Sinclair will also receive a royalty relating to Flammacerium US revenues The sale will transform the Company into a less complex, fast growth, pure-play aesthetics business. The sale proceeds creates a strong net cash position after debt repayment and covers future milestone payments relating to the aesthetic acquisitions of 2014.

 

Sinclair is now firmly established in the aesthetics field and our growth prospects are significant. We have a portfolio of unique products which are novel, differentiated and address unmet market need for effective, high quality, non-invasive treatment.  The Board believes we can achieve our aggressive sales growth projections by geographical expansion and line extensions of our existing products. We believe the US and over the medium-term China, are areas of particular potential. In the US we received FDA approval for Silhouette Instalift in April 2015, which means that we are now able to sell Silhouette Instalift in the US market. Based on independent market research, we expect that annual peak US sales for Silhouette Instalift will be in excess of $200m. We are currently evaluating the distribution model and potential partners in the light of the strategic review.

 

The Company is remaining in an offer period under the framework provided by a formal sales process under the Takeover Code. The Board believes that Sinclair as a dedicated aesthetics business is an attractive growth platform and has a secure and promising future as an independent business. The Board will continue its assessment on how to maximise shareholder value and continues to receive attention with regards to the remaining aesthetics business from a number of international companies, many of which are interested in some form of co-operation, including (co)-promotion; licensing of products; repatriation of distribution agreements; development collaborations; and merger and acquisition opportunities.

Sinclair has delivered financial results in the year to 30 June 2015 at the upper end of market expectations despite currency headwinds in Europe and managing the strategic review process. Revenue grew by 19.4% to £75.9m and we achieved a record pre-exceptional gross margin of 62.9% compared with 56.5% in the prior year due, in no small part, to the higher margins enjoyed by the aesthetics business as well as one-off licence fee income from Merial of £3.3m. We invested substantially in selling, marketing and distribution as we launched Silhouette and Ellansé in the UK, France, Spain and Germany. Demand for our products is significant and physician training is frequently a greater rate limiting step than patient demand, so we are investing heavily in this area.

 

The Adjusted EBITDA margin was a record 22.5% compared with 15.8% in the prior year. Cash flow generated from operations was also a record £10.0m.

 

Your Board believes that Sinclair  is now optimally positioned to fully exploit its position as a refocused aesthetics business.  As a dedicated aesthetics company with cash on our balance sheet and differentiated, high margin products in a fast growing consolidating market, our operational prospects are strong as a standalone business or as part of a larger group. Whilst we remain in an offer period, we continue to be fully committed to executing on our strong organic growth plan. I would like to thank shareholders for their continued support.

 

 

Strategic Review

 

Our recent announcement to focus purely on Aesthetic Dermatology reflects our strong conviction that Sinclair has a major presence in this high margin specialist sector and is well placed to leverage the significant opportunities for sustainable organic growth. Sinclair is in the process of transforming from a highly complex business with multiple products, to a more focused operation with just four private-pay brands. The Company's goal for FY16 is to optimise Silhouette Soft, Ellansé and Perfectha, and launch Silhouette Instalift in the US.

 

Sinclair generated £17.1m adjusted EBITDA^* on FY15 sales of £75.9m. Both sales and EBITDA were negatively impacted by a weak euro. 7.7% LFL sales growth for the Group compared to 35.4% for the aesthetics only business. Certain territories, notably in APAC (Asia Pacific), temporarily suffered as Sinclair transferred and optimised distributor relationships and all territories have benefited from increased commercialisation and training efforts. Consequently there was an acceleration of the aesthetics growth rate through the period, which has since continued into FY16.

 

At £17.1m, EBITDA was at the upper end of expectations although helped by the disposal to Merial Inc. of rights for the use of delmopinol in companion animal oral care for £3.3m. The aesthetics gross margin improved steadily through the year due to manufacturing process improvements in Perfectha leading to reduction in wastage rates and improvements to process and a sharp increase in volumes leading to the successful negotiation of a COGS reduction for Silhouette Soft in Q4 FY15. The non-aesthetics gross margin at 51% is significantly below that in aesthetics with the majority of the portfolio commercialised via distributors and a number of the products subject to government controlled pricing.

 

The disposal of the non-aesthetics business creates a business with reduced complexity. The remaining aesthetics business will have a significantly reduced number of SKU's to manage and a smaller number of distribution partners. There will also be a reduced and simplified corporate structure and a much stronger balance sheet. The business will also have improved control with increased access to its end customers through the extensive physician training programs in place. The creation of a regional hub in Singapore in addition to a Sinclair office presence in Mexico and the US has accelerated our push into APAC and LATAM aesthetics markets.

 

 

Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, share-based payments and exceptional items. Hereafter always referenced as EBITDA

 

Aesthetics

 

We believe that the future of the aesthetic dermatology industry will be for longer duration products centred more around facial shape, including volumisation and jaw line definition, as opposed to filling wrinkles and lines. This is an important distinction since the industry historically has sought to 'make people younger' as opposed to our aim, which is to make patients' appearance 'natural and healthy'.

 

This strategy has differentiated Sinclair from other players, since the focus of our marketing efforts are around volume lifting and repositioning (Silhouette Soft/Silhouette Instalift) and natural volume creation (Ellansé). Our biphasic HA filler Perfectha is a longer duration product, but has the benefit of requiring a light needle extrusion force, more typical of shorter acting monophasic products. We have no current ambition to enter the injectable toxin market, as we believe the existing brands are well established and there is scant opportunity for meaningful product differentiation.

 

Silhouette Soft (£8.7m, 120% LFL growth) was in-line with budget, despite Russia and Brazil approvals delayed until Q4 FY15, currency headwinds and production growth lagging demand growth. A new Vaupell facility coming on-stream from February 2016 will also reduce production risk and increase capacity. Physician education and training are both key and rate limiting steps for the success of the Silhouette brand. In October 2014, the Silhouette World Experts' Meeting attracted over 1000 doctors for two days. Silhouette training courses remain in very high demand across all markets and are the Company's primary marketing budget item.

 

Perfectha revenues (£8.1m, 13% LFL growth) were slightly disappointing due to specific commercial issues post acquisition in APAC and notably in Korea.  These have now been resolved and revenues in FY16 are expected to return to normalised levels, producing double-digit franchise growth. In the UK and Germany, around 70% of the HA filler market is Lidocaine combination and consequently the expected mid-2016 launch of Perfectha Lidocaine is eagerly anticipated.

 

A slow start for Ellansé (£4.5m, 1% LFL growth), was due entirely to Korea where the transition of distributor relationships caused a channel destock. Excluding Korea, LFL growth was 86% where there has been a steady month-on-month growth in users, with physician training key to sales evolution. With Korea now largely resolved and strong underlying growth in Europe and elsewhere, the growth rate accelerated in H2, with this trend continuing into FY16.

 

Non-Aesthetics

 

Reported sales in the non-aesthetics business declined to £44.8m (2014: £49.9m) primarily as a result of product disposals which reduced reported sales by £2.3m, headwinds from the weaker euro and channel destocking in Asia. However the largest brands (Kelo-cote and Flammazine) both reported growth and buoyant sell out data for skin care brands in Asia and new launches in Mexico suggest an encouraging outlook.

 

Kelo-cote was the leading product within the non-aesthetics portfolio, reaching £8.0m (+3% LFL). Sales to China at £1.5m (+31%) were the major contributor to growth and the outlook remains very positive with sales experiencing strong growth in online channels. Despite the economic situation in Brazil with an estimated 8% decrease in the total scars market, the in-market sales of Kelo-cote showed low single digit growth and a 4% point increase in the prescription market to 29%. Elsewhere, most markets grew around mid-single digits, which in Europe was offset by the weak euro. Towards the end of the period strong launches in France (Recordati) and Germany (Kyberg) had only a small benefit for FY15, but augur well for FY16.

 

Flammazine franchise (£7.1m, 5% LFL growth), recovered in the year as partner issues in Spain were overcome. The Company has continued to develop Flammacerium for the US, leading European markets and the MENA region. In the US where Flammacerium has Orphan Drug status and the opportunity is substantial, approval is anticipated for mid-2017. European and MENA launches are also expected beyond 2016.

 

Country Operations - Revenue £39.7m (2014: £37.9m)

 

Reported sales growth of 5% in Sinclair's Country operations masks a very significant pick up in underlying sales growth which was 16% on a like-for-like basis with growth in both aesthetics (+37% LFL) and non-aesthetics (+5% LFL). Product disposals removed £2.3m from the reported number with Cryogesic being sold in July 2014 and the rights to Aloxi being returned to Helsinn from 1 Jaunary 2015. Sinclair re-launched Silhouette and Ellansé in September 2014 with revamped marketing materials and a major emphasis on physician training. The results of which are clear to see with Silhouette sales in Europe increasing to £3.8m (+127% LFL), Ellansé reaching £1.5m (+297% LFL) and Perfectha growing to £2.0m (+151% LFL). There was no evidence of Sculptra sales switching to Ellansé with the latter detailed against Radiesse (Merz), Scuptra and New-fill performed well at £6.4m (-4% LFL).

 

Sales of the Flamma franchise recovered well in the year to £4.9m (+8% LFL) in country operations, mainly due to a recovery in Spain where the partner performance issues were overcome in the year. There was a strong performance from skin care brands Tridesonit (+14% LFL at £1.3m) and Oxyplastine (+40% LFL to £1.0m) in France during the year.

 

Sales of hospital products Haemopressin (£4.0m,+7% LFL)  and Optiflo (£2.8m +4% LFL) were strong during FY15. In recent years Haemopressin has suffered from sharp price competition in Germany, but with Germany stabilising and major contract wins in the UK (+46% LFL at £1.9m), the outlook for the hospital products is encouraging.

 

International Operations - Revenue £32.9m (2014: £25.6m)

 

Reported revenues for Sinclair's International operations grew by 29% in 2015 as a result of consolidating a full year of sales for the aesthetic acquisitions made in 2014 as well as launches into new markets and in particular Brazil in the final quarter. On a like-for-like basis international aesthetic revenues grew by 19% on the back of a very strong performance by Silhouette (+127% LFL) but held back by a weak performance in Russia as a result of the political situation, weak rouble and a delayed approval for Silhouette which was eventually obtained in late June 2015, 9 months later than anticipated. Korean sales were also disappointing with Ellansé in particular being very weak as a result of the destocking seen in the year. This situation has now been resolved and the sell out trends seen in market augur well for a recovery in FY16. Sinclair's regional hub in Singapore has now been strengthened with the addition of a local training manager to support the anticipated growth in our aesthetic products and in particular the launch of Silhouette in Korea from September 2015. Sinclair has recently signed a distribution agreement for Silhouette and Ellansé for China which will commence the approval process for these two key brands in the fast growing Chinese market. Approval is expected to take around two years. Registration of Perfectha in China is also underway with approval and launch expected in 2017.

 

Non-aesthetic revenues from international operations declined by 20% on a LFL basis in 2015 largely as a result of destocking by Menarini in APAC and lower Aloclair sales in CEE following the initial stocking seen ahead of launch by Berlin Chemie in 2014. International Kelo-cote sales of £5.7m (+3% LFL) remained strong, supported by continued growth through partner Conbio in China.

 

The outlook is more positive however with skin care sales to APAC continuing to show strong sell out data (+17% unit growth), despite distributor ordering patterns which meant that FY15 reported sales declined. Atopiclair (atopic dermatitis) is already the no.4 APAC emollient with calendar 2015 forecast sell out growth at 17%, driven by a continued focus on medical marketing to dermatologist and paediatricians. Papulex (acne) is expected to grow 21% in 2015, while recently launched Sebclair (seborrheic dermatitis) continues to grow rapidly from a low base and will likely continue to grow as the product is launched in more APAC territories during 2016. Despite a strong competitive environment Glyderm (stretchmarks) in market sales grew by 78% in the period, with heavy marketing investment by the partner driving the product to be the leading product by market share in the region (market share by value 50.9%).

 

Growth in aesthetic products as well as increasing margin share from Kelostretch sales through Menarini has strongly improved the gross margins in international operations over 2015 to 59.7% from 53.0% in 2014.

 

Product Development

 

On the product development front, the successful approval of Silhouette Instalift during FY15 was the clear priority for the Company, alongside the creation of an aesthetics development pipeline. Sinclair's development pipeline is focused on the line and geographical extension of existing assets. For the foreseeable future, the Company expects to derive the majority of its growth organically from this pipeline.

 

FDA approval of Silhouette Instalift (PLGA cones on suture) was granted during in April 2015. However Sinclair has not launched the product ahead of the conclusion of the ongoing strategic review. Moreover the Company is taking the opportunity to start a US clinical study aimed at both simplifying the labelled insertion technique and generating specific US efficacy data. Various protocols are under evaluation and the study is expected to conclude in H2 2016. Sinclair has commissioned two independent market research studies which both pointed to peak US revenue in excess of $200m.

 

Silhouette Soft registrations are still ongoing in multiple geographies, while a clinical study to enable Chinese approval is expected to start in 2016. Manufacturing challenges for our next generation Silhouette Soft and Silhouette Instalift multifilament products have been largely overcome and trials are expected to commence in 2016. The prospect of longer and stronger sutures would allow new non-face procedures to be developed, considerably enlarging the brand's revenue potential.

 

In the US and China, Ellansé clinical studies are expected to commence in 2016 following extensive pre-IDE work. Elsewhere Ellansé is in registration in multiple territories. We expect Atléan (volumising filler) to be launched in Europe in 2017. Perfectha Lidocaine has been filed in Europe with launches expected in mid-2016, and Perfectha G (female sexual function) is expected to follow approximately 12 months later. While registration in China is ongoing with first launch now expected in 2018, there are no current plans to register Perfectha in the US.

 

Outlook

 

Operational objectives are focused on revenue growth and profit delivery. Following today's announcement of the disposal of the non-aesthetics business, Sinclair has become a dedicated aesthetics player. There has already been a healthy start to FY16. Silhouette in market sales grew 86% in the 9 months to September 2015, with strong growth expected into FY16. Ellansé experienced an in market growth rate of 45% for 9 months to September 2015, despite headwinds from overstocking in South Korea. The Ellansé in market growth rate is expected to accelerate into 2016 supported by strong growth in existing markets, launches in new geographies and an improving situation in South Korea (new distribution contract agreed in principle). The Perfectha in market growth rate for the 9 months to September 2015 was 21%, with good growth in Europe and multiple emerging markets offset by headwinds in South Korea, Brazil and Russia.

 

A step-up in growth is expected to continue with strong in-market demand for our products and the roll out of further training programmes. Management is optimistic for US Silhouette Instalift prospects and is evaluating various commercial options ahead of a planned full launch in 2016.

 

With supply issues now resolved, a process of inventory smoothing and lowering is underway to more closely align Company reported sales with in market sales. Distributor inventory levels are expected to halve to less than 2 months by end of 2015. Consequently reported sales growth for FY16 is expected to be in the range of 8% to 25% as these changes work through the system. In contrast in market sales growth for FY16 is expected to be approximately 40% compared to FY15.  On a reported basis, very strong sales growth is expected to return in H1 FY17. We have recently signed an option to acquire the Brazilian distributor of Silhouette in early 2016. Consolidation of Brazil sales and the launch of Silhouette Instalift® in the US are excluded from the above guidance.

 

Sinclair is in an exciting position. After just two years, the Company is regarded as an established aesthetics player with high value and novel brands, in a market which remains buoyant. A strong balance sheet post completion of the disposal, high marginal profitability and multiple organic growth opportunities from a combination of existing products, new large markets and the development pipeline suggest strong growth will continue for the foreseeable future.

 

 

Finance review

 

The year ended 30 June 2015 is the first full year following completion of the acquisitions of Silhouette, Ellansé and Perfectha, which were all undertaken in the second half of FY14. The increased focus on aesthetics in FY15 (accounting for 38% of revenue excluding licence income, up from 22% in FY14) has driven strong growth in revenue, gross margin and adjusted EBITDA all of which have shown significant improvement over FY14 with EBITDA margin increasing to 22% from 16% last year. This is a result of full year contributions from the three acquired products as well as continued growth in each product with Silhouette in particular exceeding expectations to become the Group's largest product with revenue of £8.7m for FY15, as well as the contribution from one-off licence income of £3.3m.

 

Revenue

 

Revenues grew by 19.4% overall to £75.9m (2014: £63.6m) with a full year contribution from each of the acquired products; Silhouette reaching £8.7m (2014: £0.8m), Perfectha £8.1m (2014: £3.9m) and Ellansé £4.5m (2014; £1.3m). Revenue also includes £3.3m in one-off licencing income relating to the sale of certain patents to Merial Inc.covering the use of delmopinol in the treatment of halitosis in companion animals. Reported revenue was held back by foreign exchange headwinds due to the strength of sterling versus the euro, in particular, which reduced headline revenue by £3.1m on a constant currency basis. Revenue was also reduced by £2.3m versus FY14 from products disposed in the year or during last year.

 

Gross profit

 

Gross profits (excluding fair value adjustments on acquired inventory) increased strongly and as anticipated, growing by 33% to £47.8m (2014: £35.9m) with a gross margin of 62.9% for the full year compared with 56.5% for 2014. The underlying gross profit excluding one-off patent licence income was £44.5m, which is a gross margin on product sales of 61.3%. This reflects the impact of a strong improvement in product mix with higher margin aesthetic products representing 38% of total product sales compared with 22% in FY14.

 

Operating expenses

 

Selling, marketing, and distribution costs increased by 25% to £18.8m (2014: £15.0m) as a result of a further build-out of the Group's aesthetics commercial infrastructure. This included the launch by Sinclair of Silhouette and Ellansé in UK, France, Spain and Germany which was supported by an extensive physician training program.

Administrative expenses before exceptional items, of £23.0m (2014: £19.3m) increased due to a £2.6m increase in non-cash charges for depreciation, amortisation and share based payments as well as a £1.1m increase in underlying development, regulatory and administrative costs as a result of the acquisitions made in the prior year.

 

Exceptional items

 

Exceptional operating charges of £1.5m (2014: £3.4m) have been recorded in the year net of credits arising from adjustments to the value of deferred consideration. The key components of exceptional items are:

·     Acquisition and business development costs of £0.7m (2014: £2.6m) include legal and professional fees relating to post closing actions for the three acquisitions which completed during the prior year as well as costs linked to the strategic review process announced by the Board on 25 November 2014.

·     Restructuring and integration costs of £0.8m (2014: £1.6m) include post-acquisition restructuring and manufacturing write-offs, and other restructuring actions undertaken in the year. Additional details can be found in note 3.

·     A credit of £0.6m arising from adjustments to the value of deferred consideration relating to the acquisition of Obvieline SAS which were agreed during the year.

·     Leagl settlement costs of £0.6m arising from the resolution of a contract dispute with a former distribution partner and an IP related dispute.

 

Finance costs

 

Finance costs increased to £12.7m from £2.7m. Within this charge, interest costs on borrowings increased to £5.7m from £2.1m reflecting a full year charge for the borrowings taken on over the second half of the prior year to finance acquisitions. Finance charges also include a £8.8m (2014: £1.9m) non-cash charge for the discount unwind on deferred consideration liabilities, offset by a £1.9m (2014: £1.9m) foreign exchange gain arising from the retranslation of US dollar and euro denominated borrowings.

 

Taxation

 

A tax credit of £0.9m (2014: credit of £0.3m) has been recorded for the year. This consists of current corporation tax charges of £0.3m (2014: £0.5m) and net deferred tax credits of £1.3m (2014: credit of £0.8m). Within deferred tax, a £0.6m (2014: £0.2m) charge arises on the utilisation of brought forward losses resulting in a reduction in deferred tax assets, offset by a deferred tax credit of £1.9m (2014: £1.0m) linked to the amortisation of intangible assets acquired through business combinations and timing differences arising in the year.

 

Earnings per share

 

Adjusted basic EPS increased by 54% to 2.0p from 1.3p in 2014, as a result of the improvement in EBITDA but partly offset by increased interest costs. Adjusted basic EPS is calculated after adjusting for exceptional items, discount unwind expense on deferred consideration, losses from discontinued operations, amortisation of acquired intangibles and related deferred tax credits. Basic loss per share increased to 1.5p (2014: loss 1.2p) as a result of higher finance charges and in particular the non-cash discount unwind expense.

 

Cash flow and net debt

 

Cash generation was significantly improved during the year with the Group achieving a cash inflow from operations of £10.0m compared with a cash outflow of £4.4m in the prior year. This was due to the increase in underlying EBITDA, income from sale of patents to Merial, lower exceptional charges and no further significant costs of discontinued operations at the Group's former manufacturing site in France. Interest payments increased to £5.2m (2014: £2.1m) reflecting a full year impact of the increased debt used to fund acquisitions in 2014. Tax payments of £0.5m (2014: £0.3m) resulted in net cash generated from operations of £4.3m, in the prior year there was a net cash outflow of £6.8m from operations.

 

Investing activities resulted in a cash outflow of £8.4m in the year (2014: £44.2m) arising from the settlement of deferred consideration liabilities (£7.4m) as well as certain payments to acquire the distribution rights to Silhouette in certain key markets, offset by £1.4m of proceeds received for the disposal of Cryogesic and other non-core products.

 

At 30 June 2015, cash and cash equivalents were £12.7m (2014: £17.5m) with net debt of £42.2m (2014: net debt of £40.2m).This equates to a leverage multiple of 2.5x EBITDA reduced from 2.8x at 30 June 2014 as a result of the strong growth in EBITDA achieved in the year.

 

Balance sheet

 

Non-current assets

 

Non-current assets have decreased to £237.5m at 30 June 2015 (2014: £247.0m) mainly as a result of amortisation charges of £8.5m and losses due to foreign exchange movements of £0.5m, offset by additions in the year of £5.0m which mainly related to the buyout of the local Silhouette distributors in the Group's core markets in France and Spain. 

 

Current assets

 

Inventories and trade and other receivables have both stabilised despite the strong underlying growth in the year which reflects an improvement in working capital management which has been achieved over the course of the year following the period of acquisition activity. Inventories were unchanged at £7.6m and trade and other receivables reduced to £27.7m (2014: £29.5m). Assets held for sale at 30 June 2014 represented the Cryogesic assets, which were sold immediately post year end on 1 July 2014 for £1.1m.

 

Total Liabilities

 

Non-current liabilities have reduced to £133.1m from £141.9m last year, mainly as a result of the payment of various deferred consideration milestones and due to the strength of sterling versus euro which has reduced the value of part of the Group's borrowings and future milestones due in euros. Non-current borrowings decreased to £51.9m from £53.3m, being the non-current portion of the Hayfin debt facility, less capitalised costs associated with entering into the facility. Deferred consideration payable (other financial liabilities) of £54.4m (2014: £61.5m) represents the discounted present value of future milestones and royalties payable in relation to the acquisitions of Obvieline, AQTIS and Silhouette® and the direct distribution rights for Silhouette in Europe.

 

Current liabilities increased to £46.7m (2014: £42.9m) as a result of an increase in deferred consideration. Total deferred consideration (other financial liabilities) expected to be settled within one year of £23.1m (2014: £14.6m) is mainly linked to regulatory and sales milestones for Silhouette® and regulatory approval of Perfectha Lidocaine.

 

Post balance sheet event

 

The proposed disposal of the non-aesthetics business announced today to Alliance Pharma PLC ("Alliance") for a total consideration of £132.2m including inventory will result in the repayment of all external borrowings and will leave the Group with a pro forma net cash balance of £82m and therefore a much stronger balance sheet to invest in growing the aesthetics business and to pay future milestones linked to the aesthetic product acquisitions in 2014. The disposal which is subject to approval of Alliance shareholders, novation of distribution contracts and customary employee consultations is expected to complete in December 2015. Irrevocable undertakings to vote in favour of the transaction have been received from 46.7% of Alliance shareholders.

 

Unaudited Consolidated Income Statement

For the year ended 30 June 2015

 

		Unaudited 2015			Audited 2014
	Notes	Pre-exceptional items £'000	Exceptional items (note 3) £'000	Total £'000	Pre-exceptional items £'000	Exceptional items (note 3) £'000	Total £'000
Revenue	2	75,887	-	75,887	63,559	-	63,559
Cost of sales		(28,125)	-	(28,125)	(27,632)	(171)	(27,803)
Gross profit/(loss)		47,762	-	47,762	35,927	(171)	35,756
Selling, marketing and distribution costs		(18,812)	-	(18,812)	(15,011)	-	(15,011)
Administrative expenses		(22,950)	(1,457)	(24,407)	(19,334)	(3,196)	(22,530)
Operating profit/(loss)		6,000	(1,457)	4,543	1,582	(3,367)	(1,785)
Finance expense	4	(12,695)	-	(12,695)	(2,656)	-	(2,656)
Loss before taxation		(6,695)	(1,457)	(8,152)	(1,074)	(3,367)	(4,441)
Taxation	5	944	-	944	284	64	348
Loss for the year from continuing operations		(5,751)	(1,457)	(7,208)	(790)	(3,303)	(4,093)
Discontinued operations
Loss for the year from discontinued operations				-			(1,208)
Loss for the year				(7,208)			(5,301)
Loss attributable to the owners of the parent				(7,208)			(5,301)
Loss per share (basic and diluted)	6
From continuing operations				(1.5p)			(0.9p)
From discontinued operations				-			(0.3p)
From loss for the year				(1.5p)			(1.2p)

 

 

Unaudited Consolidated Statement of Comprehensive Income

For the year ended 30 June 2015

 

	Unaudited 2015 £'000	Audited 2014 £'000
Loss for the year	(7,208)	(5,301)
Other comprehensive expense (Items that may subsequently be reclassified to the income statement)
Currency translation differences	(6,555)	(7,840)
Total comprehensive expense for the year	(13,763)	(13,141)
Total comprehensive expense attributable to the owners of the parent	(13,763)	(13,141)
Total comprehensive expense arises from:
Discontinued operations	-	(1,208)
Continuing operations	(13,763)	(11,933)
	(13,763)	(13,141)

 

.

 

Unaudited Consolidated Balance Sheet

For the year ended 30 June 2015

 

	Note	Unaudited 2015 £'000	Audited 2014 £'000
NON-CURRENT ASSETS
Goodwill	7	122,072	127,306
Intangible assets	8	110,210	114,235
Property, plant and equipment		1,712	1,399
Deferred tax assets		3,308	3,847
Other financial assets		167	163
		237,469	246,950
CURRENT ASSETS
Inventories		7,623	7,599
Trade and other receivables	9	27,664	29,537
Cash at bank		12,661	17,532
		47,948	54,668
Assets held for resale		-	1,100
TOTAL ASSETS		285,417	302,718
CURRENT LIABILITIES
Borrowings	11	(19)	(1,240)
Trade and other payables	10	(22,606)	(26,084)
Other financial liabilities	12	(23,101)	(14,815)
Current tax liabilities		(393)	(558)
Provisions	13	(628)	(178)
		(46,747)	(42,875)
NON-CURRENT LIABILITIES
Borrowings	11	(51,779)	(53,319)
Other financial liabilities	12	(54,615)	(61,455)
Deferred tax liabilities		(26,704)	(27,040)
Other non-current liabilities		-	(112)
		(133,098)	(141,926)
TOTAL LIABILITIES		(179,845)	(184,801)
NET ASSETS		105,572	117,917
EQUITY
Share capital		4,974	4,974
Share premium		86,128	86,137
Merger reserve		97,141	97,141
Other reserves		(6,728)	(173)
Accumulated losses		(75,943)	(70,162)
Total shareholders' equity		105,572	117,917

 

 

Unaudited Consolidated Statement of Changes in Shareholders' Equity

For the year ended 30 June 2015

 

	Share capital £'000	Share premium £'000	Merger reserve £'000	Other reserves £'000	Accumulated losses £'000	Total equity £'000
Balance at 1 July 2013	4,349	67,242	97,141	7,691	(65,882)	110,541
Exchange differences arising on translation of overseas subsidiaries	-	-	-	(7,840)	-	(7,840)
Loss for the year	-	-	-	-	(5,301)	(5,301)
Total comprehensive expense for the year	-	-	-	(7,840)	(5,301)	(13,141)
Share-based payments	-	-	-	-	997	997
Share capital issued	625	19,375	-	-	-	20,000
Share issue expenses	-	(480)	-	-	-	(480)
Transfer on lapse of warrants	-	-	-	(24)	24	-
Total transactions with owners recognised directly in equity	625	18,895	-	(24)	1,021	20,517
Balance at 30 June 2014	4,974	86,137	97,141	(173)	(70,162)	117,917
Exchange differences arising on translation of overseas subsidiaries	-	-	-	(6,555)	-	(6,555)
Loss for the year	-	-	-	-	(7,208)	(7,208)
Total comprehensive expense for the year	-	-	-	(6,555)	(7,208)	(13,763)
Share-based payments	-	-	-	-	1,427	1,427
Share issue expenses	-	(9)	-	-	-	(9)
Total transactions with owners recognised directly in equity	-	(9)	-	-	1,427	1,418
Balance at 30 June 2015	4,974	86,128	97,141	(6,728)	(75,943)	105,572

 

 

Unaudited Cash Flow Statements

For the year ended 30 June 2015

 

			Note	Unaudited 2015 £'000	Audited 2014 £'000
Cash flows from operating activities including discontinued operations
Net cash inflow/(outflow) from operations			14	9,978	(4,361)
Interest paid				(5,181)	(2,112)
Interest paid on finance leases				(3)	(2)
Taxation paid				(542)	(297)
Net cash generated/(used in) from operating activities				4,252	(6,772)
Investing activities
Purchases of property, plant and equipment				(826)	(355)
Purchase of intangible assets				(1,401)	(1,368)
Proceeds from sale of intangible assets				1,367	900
Payment of deferred and contingent consideration				(7,402)	(248)
Advances of intra-group loans				-	(450)
Repayments of intra-group loans				-	-
Acquisition of subsidiary undertakings, net of cash acquired				(93)	(42,640)
Net cash used in from investing activities				(8,355)	(44,161)
Financing activities
				-	(19)
Proceeds from borrowings				-	59,468
Payment of borrowings issue costs				-	(3,461)
Repayments of borrowings				(973)	(11,928)
Proceeds from issue of share capital				-	20,000
Payment of share issue expenses				(9)	(449)
Net cash (used in)/generated from financing activities				(982)	63,611
Net decrease/(increase) in cash and cash equivalents				(5,085)	12,678
Cash and cash equivalents at 1 July				17,532	5,061
Exchange gains/(losses) on cash and bank overdrafts				214	(207)
Cash and cash equivalents at 30 June				12,661	17,532

 

 

1.      Basis of preparation 

The preliminary financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Standards Interpretations Committee ('IFRS IC') interpretations as adopted for use in the European Union and with Companies Act 2006 applicable to Companies reporting under IFRS.  In preparing this financial information management has used the principal accounting policies as set out in the Group's annual financial statements for the year ended 30 June 2014 and which will be used in preparing the financial statements for the year ended 30 June 2015. There have been no changes to the accounting policies during the year, except as described below:

The following new standards and amendments to standards are mandatory for the first time for the financial year ending 30 June 2015 and have been applied by the Group, but have had no impact.

·      IAS 1 (amendment) Financial statement presentation

·      IAS 12 (amendment) Income taxes

·      IAS 19 (amendment) Employee benefits

·      IAS 32 (amendment) Financial instruments: Presentation

·      IAS 36 (amendment) Impairment of assets

·      IAS 39 (amendment) Financial instrument: Recognition and measurement

·      IFRS 10 Consolidated financial statements

·      IFRS 12 Disclosure of interest in other entities

·      IFRS 13 Fair value measurement

 

The preliminary financial information has not been audited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 30 June 2014 has been extracted from the Group's financial statements for the year ended 30 June 2014. The auditors' report on the financial statements for the year ended 30 June 2014 was unqualified and did not contain statements under either section 498 (2) or section 498 (3) of the Companies Act 2006. The financial statements for the year ended 30 June 2014 have been delivered to the Registrar of Companies.

 

The financial statements have been prepared on a going concern basis. The Group has today announced the disposal of its non-aesthetics business to Alliance Pharma plc for £127,500,000. That disposal is subject to a number of conditions including the approval of Alliance shareholders. The Board is confident that the transaction will complete and, following receipt of funds, they will repay the entire indebtedness of the Group. In the unlikely event that the transaction does not complete, the Board would need to raise additional funding to finance the future acquisition milestone obligations of the Group ahead of signing the June 2015 Annual Report and Accounts (otherwise it is likely the audit opinion would contain an emphasis of matter in relation to going concern). The board believes this is highly unlikely and remains confident that the transaction will complete in line with the timetable set out today.

 

This preliminary financial information was approved by the Board of Sinclair IS Pharma plc on 26 November 2015.

 

 

2. Segmental information

The chief operating decision maker has been identified as the executive management team. This team reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

 

The executive management team considers the business as being organised into the following reportable operating segments; Country Operations (including the Group's operations in France, UK, Italy, Germany and Spain) where the Group has its proprietary sales infrastructure, and International Operations where the Group sells through a local distributor. The Group's product portfolio is sold across all segments, with the exception of Sculptra^® which is only sold in Country Operations as the Group only has rights to Sculptra^® in Western Europe. Research and development, technology licensing income and costs, intellectual property and corporate costs are included under the 'other' heading.

 

The executive management team assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation, amortisation, exceptional items and share-based payments ('adjusted EBITDA').

 

2015 Continuing operations (Unaudited)

 

Operating segments	France £'000	Italy £'000	Germany £'000	UK £'000	Spain £'000	Country operations £'000	International operations £'000	Other £'000	Total £'000
Revenue	13,097	5,654	4,457	11,249	5,217	39,674	32,937	3,276	75,887
Cost of goods sold	(5,163)	(2,744)	(1,433)	(3,402)	(2,102)	(14,844)	(13,281)	-	(28,125)
Gross profit	7,934	2,910	3,024	7,847	3,115	24,830	19,656	3,276	47,762
Adjusted EBITDA	1,775	1,706	676	4,566	875	9,598	16,215	(8,756)	17,057

 

2014 Continuing operations (Audited)

 

Operating segments	France £'000	Italy £'000	Germany £'000	UK £'000	Spain £'000	Country operations £'000	International operations £'000	Other £'000	Total £'000
Revenue	12,835	5,088	5,323	10,000	4,683	37,929	25,630	-	63,559
Cost of goods sold	(5,260)	(2,640)	(1,828)	(3,482)	(2,393)	(15,603)	(12,029)	-	(27,632)
Gross profit	7,575	2,448	3,495	6,518	2,290	22,326	13,601	-	35,927
Adjusted EBITDA	2,147	1,073	1,256	3,466	841	8,783	9,446	(8,197)	10,032

 

During the year there was £19,746,000 (2014: £16,629,000) of sales between segments. The revenue analysis above is stated net of inter-company sales. The other operating segment in 2015 consists of one-off licencing income amounting to £3,276,000 relating to patents, which is recognised at 100% gross margin.

 

The segmental analysis above represents the analysis of sales by destination.

 

The executive management team also monitors business performance based on product categories.  Revenues by product categories were as follows:

 

	Unaudited 2015 £'000	Audited Restated 2014 £'000
Aesthetic Care1	27,817	13,696
Skin Care	16,645	19,423
Wound Care	19,169	19,675
Non-Dermatology	8,980	10,765
Other	3,276	-
Total Revenue	75,887	63,559

 

¹ During the year revenue from Kelo-cote of £8.0m (2014: £7.7m) was reclassified from Aesthetic care to wound care, comparatives have been restated

 

A reconciliation of total adjusted EBITDA to total operating loss is provided as follows:

	Unaudited 2015 £'000	Audited 2014 £'000
EBITDA for reportable segments	17,057	10,032
Depreciation on continuing activities	(503)	(299)
Amortisation	(8,511)	(6,186)
Exceptional items (note 3)	(1,457)	(3,367)
Share-based payments	(2,043)	(1,965)
Operating loss from continuing operations	4,543	(1,785)

 

  

3. Exceptional items

 

Exceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

 

	Unaudited 2015 £'000	Audited 2014 £'000
Acquisition and business development costs	(696)	(2,558)
Adjustments to the value of contingent consideration	645	-
Restructuring costs	(814)	(1,632)
Impairment charges	-	(426)
Legal settlements	(592)	-
Reversal of prior year impairment charge	-	820
Cost of sales - release of fair valuation uplift in acquired inventories	-	(171)
Profits on disposal	-	600
	(1,457)	(3,367)

 

Acquisition and business development costs of £696,000 (2014: £2,558,000) include £635,000 (2014: £nil) of legal and professional expenses incurred in relation to the strategic review announced by the Board in November 2014 and £61,000 (2014: £2,558,000) incurred in the acquisition of Aqtis Holdings BV, Silhouette Lift SL, and Obvieline SAS. These are non-deductible for tax purposes.

 

Adjustments to the value of contingent consideration includes a credit of £645,000 following a reduction in the Obvieline SAS contingent purchase consideration. This follows changes to the forecast timings of payment of certain milestones and has been credited to the income statement as the changes were triggered more than twelve months after the original acquisition completion date. This does not impact taxation.

 

Restructuring costs of £814,000 (2014: £1,632,000) include post acquisition restructuring costs and manufacturing write offs amounting to £438,000 incurred as a result of integrating the activities of acquired businesses into the Group, and £268,000 of other restructuring actions undertaken in the year. This charge is deductible for tax purposes.

 

Legal settlement costs of £592,000 (2014: nil) represent fees and a settlement payment in relation to an IP Infringement concerning the Aloclair patent of £243,000, which was fully settled in the year and £349,000 legal settlement in relation to one-off costs for early settlement of a distribution contract dispute. This charge is deductible for tax purposes.

 

In 2014, impairment charges of £426,000 relate to an impairment to the rights to the Terbinafine spray asset following the decision to halt further development work on this product and return the rights to the licensor. This does not impact taxation.

 

Also in 2014, an impairment reversal of £820,000 was recognised as a result of an agreement reached to dispose of the Cryogesic assets for total consideration of £1,100,000.  The asset had been impaired in the prior year. The sale completed on 1 July 2014 and as a result the Cryogesic assets were treated as an asset held for sale at 30 June 2014. This charge does not impact taxation.

 

Also included in 2014 were exceptional cost of sales of £171,000.  This represented the pass through of the fair value uplift applied, at acquisition, to the carrying value of the inventories acquired with the acquisition of Silhouette Lift SL and Obvieline SAS. The fair value uplift was expensed through cost of sales as the inventory was sold to the market. This charge is deductible for tax purposes.

 

Profits on disposal of £600,000 were generated in 2014 from the disposal of Effederm by the Group for a total consideration of €1,010,000 (£854,000) in November 2013. The profit on disposal is the consideration net of the carrying value of the asset disposed and associated legal costs incurred and are chargeable for taxation purposes.

 

In 2015 all exceptional costs have been expensed through admin expenses. In 2014 after exceptional cost of sales of £171,000, the remaining £3,196,000 of exceptional costs was expensed through administration expenses.

 

4. Finance expense

	Unaudited 2015 £'000	Audited 2014 £'000
Finance income
Net foreign exchange gains on financing activities	1,964	1,921
	1,964	1,921
Finance expense
Finance expenses in relation to bank borrowings	(5,652)	(2,041)
Interest on other borrowings	(23)	(24)
Discount unwind on deferred consideration	(8,790)	(1,853)
Write off of arrangement expenses for refinanced loan facilities	-	(604)
Other finance charges	(194)	(55)
	(14,659)	(4,577)
Net finance expense	(12,695)	(2,656)

 

 

Net foreign exchange gains of £1,964,000 (2014: £1,921,000) arise from the difference in the Sterling: Euro and the Sterling: US Dollar exchange rates at the drawdown date of the Hayfin Capital Management LLP ('HayFin') facilities and the end of the year.

 

 

 

 

 

5. Taxation on loss on ordinary activities

	Unaudited 2015			Audited 2014
	Pre-exceptional items	Exceptional items	Total £'000	Pre-exceptional items	Exceptional items	Total £'000
Current tax
UK corporation tax	-	-	-	(38)	-	(38)
Overseas tax	(334)	-	(334)	(458)	-	(458)
	(334)	-	(334)	(496)	-	(496)
Deferred tax
Utilisation of brought forward losses	(642)	-	(642)	(184)	-	(184)
Timing differences arising in the year	751	-	751	92	-	92
Reversal of temporary differences	1,169	-	1,169	872	64	936
	1,278	-	1,278	780	64	844
Tax credit on loss before taxation on continuing activities	944	-	944	284	64	348

 

The deferred tax credit on exceptional items in 2014 includes the amortisation of deferred tax liabilities arising from the impairment and disposal of intangible assets (note 3).

 

 

6. Loss per share

The basic loss per share has been calculated by dividing the loss for the year, by the weighted average number of shares in existence for the year. The loss and weighted average number of shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per share at 30 June 2015, as the exercise of share options and warrants would have the effect of reducing the loss per share and therefore is not dilutive.

	Unaudited 2015	Audited 2014
Loss attributable to equity shareholders (£'000)	(7,208)	(5,301)
Weighted average number of shares (number)	496,983,706	444,757,679
Diluted weighted average number of shares (number)	496,983,706	444,757,679
Basic and diluted loss per share (pence)	(1.5)p	(1.2)p
Loss from continuing activities (£'000)	(7,208)	(4,093)
Basic and diluted loss per share (pence) from continuing activities	(1.5)p	(0.9)p
Loss from discontinued activities (£'000)	-	(1,208)
Basic and diluted loss per share (pence) from discontinued activities	-	(0.3)p

 

Adjusted earnings per share

Adjusted earnings per share has been calculated by adding back exceptional charges, amortisation of acquired product rights, the discount unwind on deferred consideration, and loss from discontinued operations to the loss for the year, together with related deferred tax movements resulting in an adjusted profit for the year. The prior year comparative has been restated to include the discount unwind on the deferred consideration.

 

A reconciliation of adjusted profit is as follows:

	Unaudited 2015 £'000	Audited Restated 2014 £'000
Loss for the year	(7,208)	(5,301)
Exceptional items (note 3)	1,457	3,367
Discontinued activities	-	1,208
Amortisation of acquired product rights and trademarks	8,066	5,710
Discount unwind on deferred consideration	8,790	1,853
Deferred tax credit arising on amortisation and exceptional items	(1,169)	(1,099)
Adjusted profit for the year	9,936	5,738
Adjusted earnings per share (pence)	2.0p	1.3p

 

 

 

7. Goodwill

	Unaudited 2015 £'000	Audited 2014 £'000
Cost
At 1 July 2014	133,862	70,077
Additions (note 15)	1,646	69,004
Adjustments to provisional goodwill	(2,568)	-
Disposals	-	(95)
Exchange adjustments	(4,312)	(5,124)
At 30 June 2015	128,628	133,862
Accumulated impairment
At 1 July 2014	6,556	6,556
At 30 June 2015	6,556	6,556
Net book value at year end	122,072	127,306

 

7. Goodwill (continued)

 

Additions in 2015 comprise the excess consideration paid over the fair value of assets acquired on the purchase of Arkea BV and Medicalio SL.

 

In 2014, the company acquired Obvieline SAS, Aqtis Medical BV, and Silhouette SL. Adjustments to the provisional goodwill have been made following changes in the director's estimates to the timing of certain milestone payments included in contingent consideration which have been identified within twelve months of the acquisition dates.

 

Exchange adjustments arise as a result of the impact of the difference in the Sterling: Euro exchange rate and the Sterling: US Dollar exchange rate, at the beginning of the year or the date of acquisition and at end of the year on balances recorded in Euros and US Dollars.

 

Goodwill has been allocated to cash generating units ('CGU's) in line with the Group's segmental reporting structure. The 2014 goodwill allocated to CGU's has been re-evaluated and restated as a consequence of adjustments to provisional goodwill, exchange adjustments, and additions. The goodwill arising from these acquisitions has been allocated according to the forecast cash flows of each operating segment that will benefit from the goodwill.

 

Goodwill has been provisionally allocated to the following CGUs:

	Unaudited 2015 £'000	Audited 2014  £'000
International operations	79,917	83,579
France country operations	16,372	16,571
Italy country operations	7,204	7,819
Spain country operations	8,009	8,243
Germany country operations	2,077	2,310
United Kingdom country operations	8,493	8,784
	122,072	127,306

 

Goodwill is not amortised but tested annually for impairment or more frequently if there are indications that it may be impaired. Value in use calculations have been utilised to calculate recoverable amount. Value in use is calculated as the net present value of the projected post-tax cash flows of each CGU, discounted at 11.5% (2014: 11.5%), the Group's estimated post-tax weighted average cost of capital. The same discount rate is applied to each CGU because the Group is centrally funded.

 

The cash flows, which have been approved by the Board, have been projected over five years for all CGUs, representing the Director's best estimate of future product revenues and margins. Growth rate assumptions have been applied at an individual product and market levels and range from 0% (2014: nil) for non-core products to 141% (2014: 50%) for certain key strategic products.

 

Long-term growth rate assumptions beyond year five are 2% (2014: 2.0%) for all CGUs.  These growth rates are consistent with forecasts used in industry reports.

 

In 2015 France country operations and Spain country operations have the lowest headroom of recoverable amount over carrying value. The recoverable amounts of these CGUs are most sensitive to revenue forecasts. A 16% reduction in forecast sales in France, a 20% reduction in forecast sales in Italy and an 18% reduction in forecast sales in Spain would reduce the headrooms for each CGU to a minimum before impairment would be necessary.

 

In 2014 France country operations and German country operations have the lowest headroom of recoverable amount over carrying value. The recoverable amounts of these CGUs were most sensitive to revenue forecasts. A 14% reduction in forecast sales in France and a 17% reduction in forecast sales in Germany would have reduced the headrooms for each CGU to a minimum before an impairment would have been   necessary.

 

Values in use calculations generate significant headroom over recoverable amounts for all other CGUs. Whilst forecasts are sensitive to growth rates for specific products and territories, the Directors believe that any reasonably possible change in the key assumptions on which the recoverable amounts are based for all other CGUs would not cause the carrying amount to exceed their recoverable amount.

 

 

 

 

8. Intangible assets

 

			Unaudited 2015 £'000	Audited  2014 £'000
Cost
At 1 July			155,123	96,401
Additions			1,622	5,031
Additions arising on business combinations (note 15)			3,373	62,106
Disposals			(7,718)	(40)
Transfers to assets held for sale			-	(3,602)
Exchange adjustments			(1,493)	(4,773)
At 30 June 2015			150,907	155,123
Accumulated amortisation and impairment
At 1 July 2013			40,888	38,560
Charge for the year			8,511	6,186
Transfers to assets held for sale			-	(2,502)
Eliminated on disposal			(7,706)	-
Impairment charge and reversal of impairments (note 3)			-	(394)
Exchange adjustments			(996)	(962)
At 30 June 2015			40,697	40,888
Net book value at year end			110,210	114,235

 

 

Additions arising on business combinations are recognised based on the fair value of the identifiable intangible assets acquired which primarily relate to the product rights and trademarks covering the acquired products. The amounts recognised are £2,603,000 relating to the acquisition of Arkea BV and £770,000 relating to the acquisition of Medicalio SL as set out further in note 15. In 2014 the amounts recognised were £31,936,000 relating to the acquisition of Silhouette Lift SL, £17,619,000 for AQTIS Medical BV, and £12,551,000 for the acquisition of Obvieline SAS.

 

Additions in the year of £1,622,000 (2014: £5,031,000) includes £1,498,000 of payments to acquire direct distribution rights for Silhouette, Perfectha, and Ellanse in various local markets across the globe (2014: £3,605,000 payable for the purchase of the direct distribution rights for Silhouette in the UK).

 

In 2014, an agreement was reached to dispose of the Cryogesic assets for total consideration of £1,100,000. As a result the Cryogesic assets were treated as an asset held for sale at 30 June 2014.

 

Exchange adjustments arise as a result of the impact of the difference in the Sterling: Euro exchange rate and the Sterling: US Dollar exchange rate, at the beginning of the year or the date of acquisition and at end of the year on balances recorded in Euros and US Dollars.

 

 

9. Trade and other receivables

			Unaudited 2015 £'000	Audited 2014 £'000
Trade receivables			24,380	24,510
Less provision for impairment of trade receivables			(483)	(383)
Trade receivables - net of provision			23,897	24,127
Other receivables			1,523	2,311
Accrued income			600	1,073
Prepayments			1,644	2,026
At 30 June			27,664	29,537

 

 

10.  Trade and other payables

			Unaudited 2015 £'000	Audited 2014 £'000
Trade payables			12,576	14,621
Other taxes and social security costs			1,289	724
Other payables			851	1,116
Accruals and deferred income			7,890	9,623
At 30 June			22,606	26,084

 

 

 

 

11.  Borrowings

			Unaudited 2015 £'000	Audited 2014 £'000
Bank loans			51,779	53,319
Non-current borrowings			51,779	53,319
Obligations under finance leases			19	21
Bank loans			-	1,219
Current borrowings			19	1,240
Total borrowings			51, 798	54,559
Borrowings are repayable as follows:
On demand or within one year			19	1,240
Over one and under two years			-	3,112
Over two and under five years			51,779	50,207
Over five years			-	-
Total borrowings			51,798	54,559

 

 

On 3 January 2014 the Group entered into a new term loan facility with Hayfin and consequently the Group's existing loan facility with Clydesdale Bank was repaid in full. Total drawings at 30 June 2015 under the Hayfin facility amounted to £54,821,000 (2014: £57,758,000).

 

Drawings in 2014 were used to fund the acquisition of Obvieline SAS, AQTIS Medical BV, and Silhouette Lift SL, repay existing borrowings, and to meet borrowing issuing expenses and the costs of acquisition.

 

In 2015 the company made a capital repayment of £973,000 required under the terms of the borrowing facility to be paid out of excess cash flow generated above debt service costs.

 

Foreign exchange gains of £1,964,000 (2014: £1,921,000) arising from the difference in the Sterling: Euro and the Sterling: US Dollar exchange rates at 30 June 2014 and 30 June 2015, have been credited to net finance expenses.

 

The total available facility of £57,821,000 (2014: £60,758,000) includes a revolving facility of £3,000,000, syndicated to Barclays bank plc, and a borrowing facility of up to £54,821,000 (2014: £57,758,000) and expires on 3 January 2019.

 

Direct issue costs of £3,042,000 at June 2015 (2014: £3,220,000) have been offset against the gross liability and are being amortised over the remaining 4 year life of the facility.

 

Interest is charged at LIBOR + 8.0% but will reduce to LIBOR + 7.0% and then 5.50% when the ratio of debt to EBITDA drops below 3.20:1 and then 2.00:1. Interest payments are scheduled every quarter. Capital repayments, equivalent to 50% of the amount by which cash flows after debt service exceeds £500,000 will be paid within 130 days following the end of each financial year, starting in from June 2014. A final settlement payment will be made at the expiry of the facility.

 

Drawings under the facility are secured by a debenture over all the Group's assets.

 

 

12.  Other financial liabilities

 

Other financial liabilities include deferred and contingent purchase considerations which are due as follows:

 

	Unaudited 2015	Audited 2014
	£'000	£'000
Obvieline SAS	6,044	1,601
Silhouette Lift SL	15,795	12,583
Other deferred and contingent consideration	1,262	631
Total Current	23,101	14,815
Obvieline SAS	1,268	8,267
Aqtis Medical BV	26,953	30,471
Silhouette Lift SL	44,940	50,581
Other deferred and contingent consideration	10,643	6,485
Total non-current	83,804	95,804
Discount	(29,189)	(34,349)
	77,716	76,270

 

 

 

12.  Other financial liabilities (continued)

			Unaudited 2015 £'000	Audited 2014 £'000
Non-current			54,615	61,455
Current			23,101	14,815
At 30 June			77,716	76,270

 

The business combinations for Obvieline SAS, Aqtis Medical BV, and Silhouette Inc were completed in the year ended 30 June 2014. Items of deferred and contingent consideration represents the Director's estimate of the fair value of the assumed contractual minimum liabilities discounted to their present value using a discount rate of 11.5%, the Groups' estimated weighted average cost of capital.

 

Other includes:

Deferred consideration payable to the previous owner of SEPI AG (a Swiss subsidiary acquired by IS Pharma in April 2008) to which is payable to the original developers of Haemopressin in annual instalments until March 2017 reflecting royalties that are expected to be paid on future net revenue from Haemopressin. On 30 June 2015 £476,000 (2014: £451,000) is current, and £756,000 (2014: £1,035,000) is non-current.

 

Contingent consideration payable to the former distributors of Silhouette in UK, Spain, France, and Switzerland which arises from the repurchase of distribution rights in those territories and also the acquisition of Arkea B.V. and Medicalio SL. These are payable in annual instalments until November 2018 representing royalties payable on future net revenue from Silhouette in those territories.  On 30 June 2015 £786,000 is current (2014:£180,000) and £9,887,000 (2014: £5,252,000) is non-current.

 

Deferred and contingent consideration is payable as follows:
	Unaudited 2015 £'000		Audited 2014 £'000
On demand or within one year	23,101		14,815
Over one and under two years	17,149		19,693
Over two and under five years	51,530		39,453
Over five years	15,125		36,658
Discount	(29,189)		(34,349)
Total other financial liabilities	77,716		76,270

 

 

 

13. Provisions

		Unaudited 2015 £'000	Audited 2014 £'000
At 1 July		178	1,380
Charged to the income statement		492	86
Utilised in the year		-	(1,185)
Released in the year		(20)	(12)
Exchange adjustments		(22)	(91)
At 30 June		628	178

 

Additional provisions of £492,000 (2014: £86,000) were established during the year of which £349,000 related to a provision for an early settlement of a distribution contract dispute, £59,000 relating to an onerous lease provision and £84,000 related to other restructuring activities undertaken during the year. All provisions are expected to be utilised within the next year.

 

 

 

 

 

 

 

14. Cash flows from operating activities

			Unaudited 2015 £'000	Audited 2014 £'000
Continuing operations
Loss before tax			(8,152)	(4,441)
Exceptional Items			1,457	3,367
Loss before tax and exceptional items			(6,695)	(1,074)
Adjustments for:
Finance income			(1,964)	(1,921)
Finance expenses			14,659	4,577
Share-based payments			2,043	1,965
Depreciation			503	299
Amortisation of intangible assets			8,511	6,186
Profit on disposal of intangible assets			(415)	(201)
Increase in provision for doubtful debts			(101)	(159)
Increase in provisions			-	74
Exchange losses			-	115
Changes in working capital
Increase in inventory			(27)	(2,863)
Increase/(decrease) in receivables			2,283	(10,919)
(Decrease)/increase in payables			(7,198)	5,899
Net cash inflow from continuing operations before exceptional items			11,599	1,978
Exceptional costs paid			(1,621)	(3,436)
Net cash inflow/(outflow) from continuing operations			9,978	(1,458)
Discontinued operations
Loss before tax			-	(1,208)
Changes in working capital
Decrease in inventories			-	173
Decrease in receivables			-	44
Increase in payables			-	(727)
Decrease in provisions			-	(1,185)
Net cash outflow from discontinued operations			-	(2,903)
Cash generated from/(used In) operations including discontinued operations			9,978	(4,361)

15. Business combinations

 

Arkea BV

 

The Company acquired 100% of the issued share capital of Arkea BV, on 21 November 2014. Arkea BV owns the exclusive distribution rights to Silhouette in France and Switzerland.

 

As a result of the acquisition, the Group expects to increase its control of the distribution of the Silhouette brand. The goodwill of £1,358,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette directly through the Group's direct sales forces in France, and through partners in Switzerland, alongside the Group's existing aesthetic portfolio. Goodwill is not deductible for tax purposes.

 

Details of the consideration paid, the provisional fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

	Book Value £'000	Adjustments £'000	Fair Value £'000
Intangible assets	-	2,603	2,603
Trade and other receivables (contractual)	298	-	298
Cash and cash equivalents	12	-	12
Trade and other payables	(336)	-	(336)
Deferred tax liabilities	-	(651)	(651)
Net assets	(26)	1,952	1,926
Goodwill			1,358
Total consideration			3,284
Satisfied by:
Cash consideration			157
Contingent consideration			3,127
Total consideration			3,284
Net cash outflow arising on acquisition
Cash consideration			157
Less: cash and cash equivalent balances acquired			(12)
			145

 

 

 

Contingent consideration comprises;

·      a royalty earned on Silhouette sales in France and Switzerland in the first four years of the agreement which is not expected to exceed €1.6m

·      a one-off payment payable in year four, equivalent to a multiple of sales in France which is capped at €4.5m

·      a one-off payment payable in year four which is equivalent to a multiple of sales in Switzerland and is capped at €0.8m.

 

15. Business combinations (continued)

 

The contracted amounts in local currency, and Sterling equivalent translated at the date of acquisition, are expected to be settled as follows:

 

	€'000	£'000
Within one year	132	103
Over one and under two years	242	190
Over two and under five years	5,929	4,642
Discount	(2,309)	(1,808)
Total contingent consideration	3,994	3,127

 

 

Contingent consideration included in the calculation of total consideration is calculated by discounting the contracted contingent consideration amounts in the table above to present value at the date of acquisition using a discount rate of 11.5%.

 

The minimum undiscounted future payment is €0m and the potential undiscounted amount of all further future payments that the Group could be required to make is estimated to be €6.3m but could be higher if sales outperform expectations.

 

The fair value of the contingent consideration of £3.1m was estimated by applying the income approach. The fair value estimates are based on a discount rate of 11.5%, and assumed future growth in the Silhouette trade in France and Switzerland.

 

Arkea BV contributed £0.9m revenue and a profit of £0.5m to the Group's loss for period from the date of acquisition to 30 June 2015.

If Arkea BV had been acquired on 1 July 2014 additional revenue of £0.9m and a profit before tax of £0.5m would have been included in the group financial statements.

 

Medicalio SL

 

The Company acquired 100% of the issued share capital of Medicalio SL, on 14 May 2015. Medicalio SL owns the exclusive distribution rights to Silhouette in Spain.

 

As a result of the acquisition, the Group expects to increase its control of the distribution of the Silhouette brand. The goodwill of £288,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette directly through the Group's direct sales force Spain alongside the Group's existing aesthetic portfolio. Goodwill is not deductible for tax purposes.

 

Details of the consideration paid, the provisional fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

 

	Book Value £'000	Adjustments £'000	Fair Value £'000
Intangible assets	-	770	770
Deferred tax liabilities	-	(231)	(231)
Net assets	-	539	539
Goodwill			288
Total consideration			827
Satisfied by:
Cash consideration			92
Contingent consideration			735
Total consideration			827
Net cash outflow arising on acquisition
Cash consideration			92
Less: cash and cash equivalent balances acquired			-
			92

 

 

The contracted amounts in local currency, and Sterling equivalent translated at the date of acquisition, are expected to be settled as follows:

 

	€'000	£'000
Within one year	471	332
Over one and under two years	260	185
Over two and under five years	585	414
Discount	(278)	(196)
Total contingent consideration	1,038	735

 

 

 

Deferred consideration included in the calculation of total consideration is calculated by discounting the contracted deferred consideration amounts in the table above to present value at the date of acquisition using a discount rate of 11.5%.

 

The fair value of the contingent consideration of £0.7m was estimated by applying the income approach. The fair value estimates are based on a discount rate of 11.5%, and assumed future growth in the Silhouette trade in Spain.

 

Medicalio contributed £0.1m revenue and a profit of £0.1m to the Group's loss for period from the date of acquisition to 30 June 2015.

If Medicalio SL had been acquired on 1 July 2014 additional revenue of £0.3m and a profit before tax of £0.1m would have been included in the group financial statements.

 

 

15. Business combinations (continued)

 

Obvieline SAS

 

The Company acquired 100% of the issued share capital of Obvieline SAS, on 3 January 2014 from Pharmavital SA. In April 2014, the Group also completed the acquisition of distribution rights to Perfectha in Russia, Brazil and certain other territories from Pharmavital SA. Obvieline SAS owns the worldwide rights to Perfectha™, a range of hyaluronic acid based dermal fillers.

 

As a result of the acquisition, the Group expects to increase its presence in the global aesthetics market. The goodwill of £15,910,000 arising from the acquisition is attributable to the acquired customer base, and economies of scale expected from selling Perfectha^® directly through the Group's direct sales forces in Europe. None of the goodwill recognised is expected to be deductible for tax purposes.

 

Goodwill of £15,910,000 (30 June 2014 (provisional) £16,028,000) has been recalculated following changes in management's assumptions around the timing for payment of certain items of contingent consideration.

 

Details of the consideration paid, the revised discounted consideration payable, the fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

	Book Value £'000	Adjustments £'000	Fair Value £'000
Intangible assets	-	12,551	12,551
Property, plant and equipment	287	-	287
Prepaid rent deposits	27	-	27
Inventories	858	127	985
Trade and other receivables (contractual)	319	-	319
Cash and cash equivalents	231	-	231
Trade and other payables	(1,812)	-	(1,812)
Deferred tax liabilities	-	(4,142)	(4,142)
Net assets	(90)	8,536	8,446
Goodwill			15,910
Total consideration			24,356
Satisfied by:
Cash consideration			16,641
Deferred consideration (note 12)			1,432
Contingent consideration (note 12)			6,283
Total consideration			24,356
Net cash outflow arising on acquisition in FY 2014
Cash consideration			16,641
Less: cash and cash equivalent balances acquired			(231)
			16,410

 

 

Contingent consideration included in the calculation of total consideration is calculated by discounting the contracted contingent consideration amounts to present value at the date of acquisition using a discount rate of 11.5%.

 

The potential undiscounted amount of all future payments that the Group could be required to make ranges from €2.0m to €10.3m (note 12).

 

The fair value of the contingent consideration arrangement of £6.3m was estimated by applying the income approach. The fair value estimates are based on a discount rate of 11.5%, assumed future growth in the Perfectha^® trade, and regulatory approval for the launch of Perfectha Lidocaine in 2016.

 

Acquisition related costs of £711,000 were charged to exceptional administrative expenses in the income statement for the year ended 30 June 2014. There were no further acquisition related costs in 2015.

 

 

 

 

AQTIS Medical BV

 

The Company acquired 100% of the issued share capital of AQTIS Medical BV on 25 March 2014. AQTIS Medical BV owns the worldwide rights to Ellansé™, a range of collagen stimulating dermal fillers.

 

As a result of the acquisition, the Group expects to increase its presence in the global aesthetic market.

 

Goodwill has been recalculated following changes in management's assumptions around the timing for payment of certain items of contingent consideration.

 

The recalculated goodwill of £17,302,000 (2014: provisional valuation £17,809,000) arising from the acquisition is attributable to the acquired customer base and economies of scale expected from selling Ellansé™ directly through the Group's direct sales forces in Europe and globally alongside the Group's existing aesthetic portfolio.

 

 

 

15.  Business combinations (continued)

 

Details of the consideration paid, the revised discounted consideration payable, the fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

	Book Value £'000	Adjustments £'000	Fair Value £'000
Intangible assets	1,095	16,524	17,619
Property, plant and equipment	591	-	591
Deferred tax asset	262	-	262
Inventories	144	-	144
Trade and other receivables (contractual)	349	-	349
Cash and cash equivalents	66	-	66
Trade and other payables	(1,440)	609	(831)
Deferred tax liabilities	(164)	(4,405)	(4,569)
Net assets	(4,052)	12,728	13,631
Goodwill			17,302
Total consideration			30,933
Satisfied by:
Cash consideration			13,855
Working capital adjustment			(144)
Contingent consideration (note 12)			17,222
Total consideration			30,933
Net cash outflow arising on acquisition in FY 2014
Cash consideration			13,855
Less: cash and cash equivalent balances acquired			(66)
			13,789
Net cash inflow arising on acquisition in FY 2015
Working capital adjustment			(144)
			(144)

 

Contingent consideration included in the calculation of total consideration is calculated by discounting the contracted contingent consideration amounts to present value at the date of acquisition using a discount rate of 11.5%.

 

The potential undiscounted amount of all the future payments that the Group could be acquired to make is estimated to be up to €38.1m (note 12).

 

In 2015 the vendors of Aqtis Medical BV refunded £146,000 of the consideration paid as compensation for a shortfall in the working capital acquired. 

 

Acquisition related costs of £659,000 were charged to exceptional administrative expenses in the income statement for the year ended 30 June 2014. There were no acquisition costs relating to this acquisition in 2015.

 

 

Silhouette Lift SL

 

The Company acquired a controlling interest in Silhouette Lift SL on 2 May 2014. Silhouette Lift SL owns the worldwide rights to Silhouette Lift and Silhouette Soft, a range of collagen stimulating cones on threads complimentary to the Group's aesthetic portfolio.

 

The acquisition was made in two steps with 75% of the shares purchased on 2 May 2014 and the remaining shares were transferred at a fixed price in January 2015. The payment for the remaining shares was also made on 2 May into an escrow account pending their transfer to the Group. These remaining shares do not carry voting rights and did not earn a dividend in the period from acquisition until transfer. Consequently the acquisition has been treated as a full business combination and there is no remaining minority interest.

 

As a result of the acquisition, the Group expects to increase its presence in the global aesthetic market.

 

Goodwill has been recalculated following changes in management's assumptions around the timing for payment of certain items of contingent consideration.

 

The  recalculated goodwill of £32,918,000 (2014: provisional valuation of £35,167,000) arising from the acquisition is attributable to the acquired customer base and economies of scale expected from selling Silhouette directly through the Group's direct sales forces in Europe and globally alongside the Group's existing aesthetic portfolio.

 

 

 

 

15.  Business combinations (continued)

 

Details of the consideration paid, the revised discounted consideration payable, the fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

	Book Value £'000	Adjustments £'000		Fair Value £'000
Intangible assets	2,607	29,329		31,936
Property, plant and equipment	42	-		42
Inventories	149	35		184
Trade and other receivables (contractual)	884	-		884
Cash and cash equivalents	416	-		416
Trade and other payables	(3,414)	2,712		(702)
Deferred tax liabilities	-	(9,581)		(9,581)
Net assets	684	22,495		23,179
Goodwill				32,918
Total consideration				56,097
Satisfied by:
Cash consideration				12,857
Deferred consideration (note 12)				1,157
Contingent consideration (note 12)				42,083
Total consideration				56,097
Net cash outflow arising on acquisition in FY 2014
Cash consideration			12,587
Less: cash and cash equivalent balances acquired			(416)
			12,441

 

 

Contingent consideration included in the calculation of total consideration is calculated by discounting the contracted contingent consideration amounts in the table above to present value at the date of acquisition using a discount rate of 11.5%.

 

The fair value of the contingent consideration of £42.1m was estimated by applying the income approach. The fair value estimates are based on a discount rate of 11.5%, assumed future growth in the Silhouette trade and regulatory approval for Silhouette Soft in the USA in 2016.

 

At acquisition the minimum undiscounted future payment was €1.7m and the potential undiscounted amount on all further future payments that the group could be required to make was up to $105.8m (note 12).

 

Acquisition related costs of £1,222,000 were charged to exceptional administrative expenses in the income statement for the year ended 30 June 2014. In 2015 a further £61,000 has been charged to exceptional administrative expenses.

 

 

16.  Post balance sheet events

On 26 November 2015, the Board announced that it had reached agreement for the disposal of all the Group's non-aesthetic business (including Kelo-cote) to Alliance Pharma plc for a cash consideration of £127,500,000 plus the value of inventory, estimated at £4,700,000 million. The estimated net assets of the Non aesthetic business including Kelo-cote at 30 June 2015 is £99,528,000 and the revenue for the year ended 30 June 2015 was £43,349,000. The disposal which is subject to the approval of Alliance Pharma plc shareholders, from whom irrevocable undertakings to vote in favour of the transaction representing 46.7% of Alliance's shares, is expected to complete on 17 December 2015. The proceeds of the disposal will be used to repay the Group's borrowing facility with Hayfin in full on completion.