REG - Venture Life Group - Half-year Report <Origin Href="QuoteRef">VLG.L</Origin> - Part 2
21/09/2016 07:05
- Part 2: For the preceding part double click ID:nRSU3725Ka
- 9,077
Inter-segment sales - 603 (603) -
Total revenue 1,067 8,613 (603) 9,077
Results
Operating (loss)/profit before exceptional items and excluding central administrative costs (826) 1,090 - 264
The reconciliation of segmental operating loss to the Group's operating loss
before exceptional items excluding central administrative costs is as
follows:
Six months ended Six months ended Year ended
30 June 2016 (Unaudited) 30 June 2015(Unaudited) 31 December 2015(Audited)
£'000 £'000 £'000
Operating profit before exceptional items and excluding central administrative costs 573 110 264
Central administrative costs (964) (953) (1,712)
Exceptional expenses (142) - (246)
Operating loss (533) (843) (1,694)
Net finance (cost)/income (321) 88 57
Loss before tax (854) (755) (1,637)
5. Amortisation of intangible assets
Six months ended Six months ended Year ended
30 June 2016(Unaudited) 30 June 2015(Unaudited) 31 December 2015(Audited)
Amortisation of: £'000 £'000 £'000
Acquired intangible assets (a) (284) (284) (568)
Acquired intangible assets (b) (53) - -
Patents, trademarks and other intangible assets (37) (36) (62)
Capitalised development costs (35) (18) (28)
(409) (338) (658)
(a) Customer relationship and product formulation intangible assets acquired
as part of the acquisition of Biokosmes Srl in March 2014. These intangible
assets are being amortised over five years to 31 March 2019.
(b) Customer relationships, patents and trademark intangible assets acquired
as part of the acquisition of Periproducts Limited in March 2016. The customer
relationships and trademark intangible assets are being amortised over five
years to 28 February 2021. The patent intangible assets are being amortised
over ten years to 28 February 2026.
6. Exceptional items
Six months ended Six months ended Year ended
30 June 2016(Unaudited) 30 June 2015(Unaudited) 31 December 2015(Audited)
£'000 £'000 £'000
Restructuring costs (9) - -
Costs incurred in acquisitions (133) - (246)
Total exceptional items (142) - (246)
There were no exceptional items in the six months to 30 June 2015.
7. Finance income and costs
Six months ended Six months ended Year ended
30 June 2016(Unaudited) 30 June 2015(Unaudited) 31 December 2015(Audited)
£'000 £'000 £'000
Finance income
Foreign exchange gains on vendor loan notes (a) - 153 92
Foreign exchange gains on other assets and liabilities (a) - (17) -
Mark to market gain on vendor loan notes - - 60
Total finance income - 136 152
Finance costs
Foreign exchange losses on vendor loan notes (a) (179) - -
Foreign exchange losses on other assets and liabilities (a) 4 - -
Interest charge on interest bearing borrowings (23) (20) (38)
Finance cost of vendor loan notes (43) (28) (57)
Finance cost of convertible bond (b) (80) - -
Total finance costs (321) (48) (95)
(a) Foreign exchange gains and losses include the revaluation of balance sheet
assets and liabilities held in currencies other than the reporting currency of
the underlying entity. At the end of each month, the Group's E2 million vendor
loan note is revalued using the period end sterling/euro foreign exchange rate
and accounts for most of the foreign exchange gains and losses of the Group.
The sterling/euro foreign exchange rate at 31 December 2015 was 1.3551 and
1.2085 at 30 June 2016. This movement in exchange rate generated a foreign
exchange loss of £179,000 in the period. This compares to a gain in the six
month period to 30 June 2015 of £153,000 and a gain of £92,000 in the year to
31 December 2015. Other smaller foreign exchange gains and losses relate to
the revaluation of the Group's other assets and liabilities that are not held
in the reporting currency of the Group's subsidiaries and foreign exchange
differences that arise on the settlement of foreign currency transactions with
customers and vendors of the Group.
(b) Under IAS 39, the liability element of the convertible bond is measured at
amortised cost. This is detailed further in note 15. The amortised cost
calculation creates a monthly charge which is recognised in finance costs and
equates to approximately £20,000 per month.
8. Taxation
The Group calculates the income tax expense for the period using the tax rate
that would be applicable to the expected total annual earnings. The major
components of income tax expense in the Interim Condensed Statement of
Comprehensive Income are as follows:
Six months ended Six months ended Year ended
30 June 2016(Unaudited) 30 June 2015(Unaudited) 31 December 2015(Audited)
£'000 £'000 £'000
Current income tax 222 216 266
Adjustment in respect of earlier periods - - 11
Deferred income tax expense related to origination and reversal of timing differences (67) (46) (153)
Income tax expense recognised in statement of comprehensive income 155 170 124
The current income tax expense is based on the profits of the Development &
Manufacturing business based in Italy. The UK based businesses on a combined
basis are currently loss making and so there are no UK income tax charges due
in respect of trading for the first six months to 30 June 2016.
The Group has not recognised the deferred tax asset on losses made by the UK
based businesses on a combined basis as although management are expecting the
UK based businesses on a combined basis to become profitable, it is not
currently certain when there will be sufficient taxable profits against which
to offset such losses.
At the period end the estimated tax losses amounted to £6,690,000 (30 June
2015: £4,559,000; 31 December 2015: £5,328,000).
9. Other comprehensive income/(expense)
Other comprehensive income/(expense) represents the foreign exchange
difference on the translation of the assets, liabilities and reserves of
Biokosmes which has a functional currency of Euros. The movement is shown in
the foreign currency translation reserve between the date of acquisition of
Biokosmes, when the GBP/EUR rate was 1.193 and the balance sheet date rate at
30 June 2016 of 1.209 (at 31 December 2015 of 1.357 and at 30 June 2015 of
1.416), and is an amount that may subsequently be reclassified to profit and
loss.
10. Loss per share
Six months ended30 June 2016 Six months ended 30 June 2015 Year ended30 December2015
(Unaudited) (Unaudited) (Audited)
Weighted average number of ordinary shares in issue 35,968,571 34,403,534 34,403,534
Loss attributable to equity holders of the Company (£'000) (1,009) (925) (1,761)
Basic and diluted loss per share (pence) (2.81) (2.69) (5.12)
The loss attributable to ordinary shareholders and weighted average number of
ordinary shares for the purpose of calculating the diluted earnings per
ordinary share are identical to those used for basic earnings per share. This
is because the exercise of share options would have the effect of reducing the
loss per ordinary share and is therefore not dilutive under the terms of IAS
33.
11. Dividends
Amounts recognised as distributions to equity holders in the period:
Six months Six months ended 30 June 2015(Unaudited) Year ended 31 December 2015(Audited)
ended30 June 2016(Unaudited)
£'000 £'000 £'000
Final dividend 14 14 14
12. Business combinations
On 4 March 2016 the Company completed the acquisition of 100% of the share
capital of Periproducts Ltd ("Periproducts"), a UK based oral healthcare
products company. The acquisition consideration paid was £5.7 million,
comprising £4 million plus the value at the date of completion of current net
assets of Periproducts of some £1.7 million. The acquisition was funded
through the Company's own resources and by way of a Placing of new ordinary
shares raising £1.7 million (gross) and the issue of a 3 year 9% Convertible
Bond raising £1.9 million.
The Group acquired Periproducts because it expands its existing product
portfolio into an attractive area of the consumer healthcare market. The Group
also expects to generate a number of synergies from the acquisition to improve
the profitability of the acquired entity and the Group as a whole. The
acquisition has been accounted for using the acquisition method. The Interim
Condensed Consolidated Financial Statements include the results of
Periproducts for the period from 4 March 2016 to 30 June 2016.
The fair values of the identifiable assets and liabilities of Periproducts as
at the date of acquisition were:
Fair Value£'m
ASSETS
Non-current assets:
Customer relationships* 0.6
Patents and trademarks* 0.3
Current assets:
Inventories 0.3
Trade and other receivables 0.8
Cash and cash equivalents 0.9
Total assets 2.9
LIABILITIES
Current liabilities:
Trade and other payables (0.3)
Non-current liabilities:
Deferred tax liabilities (0.2)
Total liabilities (0.5)
Net assets acquired 2.4
Goodwill 3.3
Total consideration 5.7
Satisfied by:
Cash paid on completion 5.2
Deferred consideration in the form of a loan from the Vendors 0.4
Cash payment due on finalisation of completion accounts 0.1
Total consideration 5.7
Cash flows from business combination during the period
Cash and cash equivalents included in undertaking acquired 0.9
Cash paid on completion (5.2)
Net cash outflow arising on acquisition and in cashflow statement (4.3)
*Intangible assets identified as part of the Periproducts acquisition. See
note 5(b) for further details.
The Company is currently still in the process of agreeing the completion
accounts with the vendors of Periproducts and expects to reach agreement
shortly. Depending on the outcome of these discussions, there may be small
changes to the final consideration paid and goodwill acquired, as shown above
and in note 13.
Revenue and profit impact of the acquisition
Periproducts contributed revenues of £0.9 million and operating profit before
exceptional expenses of £0.2 million in the period from 4 March 2016 (the date
of acquisition) to 30 June 2016.
If the acquisition had taken place on 1 January 2016, the first day of the
reporting period under review, total Group revenue and operational loss before
exceptional items for the period would have been £6.6 million and (£0.3
million) respectively.
13. Intangible assets
Development costs£'000 Patents and trademarks£'000 Goodwill £'000 Other intangible assets£'000 Total£'000
Cost or valuation:
At 1 January 2015 1,322 544 9,796 1,995 13,657
Additions 151 20 - - 171
Disposals (10) (110) - - (120)
Foreign exchange (83) - - - (83)
At 30 June 2015 1,380 454 9,796 1,995 13,625
Additions 116 2 - - 118
Foreign exchange 42 - - - 42
At 31 December 2015 1,538 456 9,796 1,995 13,785
Additions 139 - - - 139
Acquisition - 307 3,298 546 4,151
Foreign exchange 95 - - - 95
At 30 June 2016 1,772 763 13,094 2,541 18,170
Amortisation:
At 1 January 2015 141 235 - 299 675
Charge for the period 104 35 - 199 338
Disposals - (45) - - (45)
Foreign exchange (32) - - - (32)
At 30 June 2015 213 225 - 498 936
Charge for the period 90 30 - 200 320
Foreign exchange 2 - - - 2
At 31 December 2015 305 255 - 698 1,258
Charge for the period 127 44 - 238 409
Foreign exchange 3 - - - 3
At 30 June 2016 435 299 - 936 1,670
Carrying value:
At 30 June 2015 1,167 229 9,796 1,497 12,689
At 31 December 2015 1,233 201 9,796 1,297 12,527
At 30 June 2016 1,337 464 13,094 1,605 16,500
There were no impairment charges recorded in the current or prior periods.
14. Share capital and share premium
Ordinary shares of 0.3p each OrdinaryShares Share premium Merger reserve
No. £'000 £'000 £'000
Audited at 1 January 2014 16,961,424 51 2,668 50
Share issue 12,942,110 39 5,113 7,606
Unaudited at 30 June 2014 29,903,534 90 7,781 7,656
Share issue 4,500,000 13 4,045 -
At 31 December 2014 and 31 December 2015 34,403,534 103 11,826 7,656
Share issue 2,428,572 7 1,463 -
Unaudited at 30 June 2016 36,832,106 110 13,289 7,656
There were no movements in share capital or share premium between 31 December
2014 and 31 December 2015.
On 4 March 2016 2,428,572 new ordinary 0.3p shares of Venture Life Group plc
were issued as part of the fund raising for the acquisition of Periproducts
Ltd. The share issue raised £1.7 million gross, (£1.5 million net of
expenses).
In connection with the placing in March 2016 to raise new equity to acquire
Periproducts, the Company entered into an agreement to issue warrants to one
of the Group's appointed brokers. The warrants will give the warrant holders
the right to be issued with up to 262,053 new ordinary 0.3p shares in the
Company at a subscription price of 94.5p (being a 35% premium to the Placing
Price of 70p) before 3 March 2019. As at 30 June 2016 the warrants had not
been issued and it has therefore not been possible to determine accurately the
related expense. Consequently no accounting entry has been made in the
Interim Financial Statements. It is expected, however, that the warrants will
be issued before 31 December 2016 and, if so, will be reported in the Group's
2016 Report & Accounts.
15. Convertible bond
During the period a convertible bond with a principal value of £1.9 million
was issued as part of the funding for the Periproducts acquisition. The bond
carries a 9% coupon with interest payable quarterly over a three year term
with full repayment of the convertible bond due on 3 March 2019. Bondholders
have the right to convert their bonds to shares in the Group at a conversion
price of 87.5p per Venture Life share (87.5p representing a 25% premium to the
70 pence placing price of the new equity at the time of the acquisition) which
can be exercised at any point before 3 March 2019.
Under IAS 32, this convertible bond is accounted for as a compound financial
instrument. The fair value of the convertible bond is determined using a
discounted cash flow method. The difference between the £1.9 million principal
value of the bond and the present value of the future fixed interest payments
and capital repayment is recorded in equity as a convertible bond reserve,
representing the value of the convertible element of the bond.
Bond issue fees incurred have been allocated between liabilities and equity as
a proportion of the value of each element. The fees held against the liability
element are released to the Income Statement over the three year life of the
bond.
The value of the liability and associated costs are held on the balance sheet
at amortised cost. The initial amortised cost valuation gave a carrying value,
net of fees, of £1.6 million which was recorded as a liability at 4 March
2016. This will increase to its principal value of £1.9 million over the life
of the bond to 3 March 2019, with interest costs being taken to the Income
Statement on a monthly basis. The resulting equity value is £0.1 million which
is recorded as a convertible bond reserve.
16. Related party transactions
The following transactions with related parties are considered by the
Directors to be significant for the interpretation of the Interim Condensed
Financial Statements for the six month period to 30 June 2016 and the balances
with related parties at 30 June 2016 and 31 December 2015:
In March 2014 the Company issued 3% convertible loan notes with a nominal
amount of E2,000,000 to the vendors of Biokosmes including Gianluca Braguti, a
Director of the Company. Mr Braguti's interest in the convertible loan notes
amounted to E1,980,000. Interest is accrued on the loan notes at 3% per year
and is paid in October and April each year.
Under the terms of the Share Purchase Agreement dated 28 November 2013 and
signed between the Company and the vendors of Biokosmes, one of whom was
Gianluca Braguti, the vendors agreed to indemnify the Company in full for any
net liability arising from certain litigation cases which had not settled at
the time of completion of the acquisition on 27 March 2014. At the period end
the amount due to the Company under the indemnity totalled E250,935, of which
Gianluca Braguti's liability is E248,426. Settlement of this liability will be
made when the final outstanding case is concluded.
In March 2016 the Company issued a 9% convertible bond for £1.9m. The bond was
issued to a number of bondholders including Jerry Randall and Gianluca
Braguti, both Directors of the Company. Both Directors subscribed to £200,000
of the issued bond. Interest is accrued on the bond at 9% and is paid in
March, June, September and December each year.
Key transactions with other related parties
Biokosmes Immobiliare Srl, a company 100% owned by Gianluca Braguti, a
director and shareholder of the Group provided property lease services to
Biokosmes Srl, the Group's Italian subsidiary, totalling E230,000 in the six
months to 30 June 2016 (E245,968 in the six months to 30 June 2015). At 30
June 2016, the Group owed Biokosmes Immobiliare Srl E782,150 (E882,459 at 31
December 2015).
17. Financial instruments
Set out below is an overview of financial instruments held by the Group as
at:
30 June 2016 30 June 2015 31 December 2015
Loans and receivables Total financial assets Loans and receivables Total financial assets Loans and receivables Total financial assets
£'000 £'000 £'000 £'000 £'000 £'000
Financial assets:
Trade and other receivables (a) 4,290 4,290 3,279 3,279 3,030 3,030
Cash and cash equivalents 1,583 1,583 3,253 3,253 2,857 2,857
Total 5,873 5,873 6,532 6,532 5,887 5,887
30 June 2016 30 June 2015 31 December 2015
Liabilities (amortised cost) Total financial liabilities Liabilities (amortised cost) Total financial liabilities Liabilities (amortised cost) Total financial liabilities
£'000 £'000 £'000 £'000 £'000 £'000
Financial liabilities:
Trade and other payables (b) 3,105 3,105 1,868 1,868 2,430 2,430
Convertible bond 1,677 1,677 - - - -
Vendor loan note 1,612 1,612 1,407 1,407 1,416 1,416
Interest bearing debt 3,014 3,014 1,756 1,756 1,844 1,844
Total 9,408 9,408 5,031 5,031 5,690 5,690
(a) Trade and other receivables excludes prepayments
(b) Trade and other payables excludes accruals and deferred revenue
During the period, the treatment of the Vendor loan notes was reviewed and as
a result the classification has been revised to reflect it as a financial
instrument at amortised cost rather than fair value through profit or loss.
18. Post balance sheet events
There were no post balance sheet events.
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