Final Results
Plant Health Care PLC
31 March 2008
For immediate release 31 March 2008
PLANT HEATH CARE PLC
('Plant Heath Care' or 'the Company')
Results for the year ended 31 December 2007
Plant Heath Care, (AIM: PHC.L), a leading provider of natural products for
plants and soil, announces its results for the year ended 31 December 2007.
Financial highlights:
• Turnover up 34% to $18.3 million (2006: $13.7 million)
• Gross profit up 37% to $8.4 million (2006: $6.1 million)
• Gross margin up from 44.7% to 45.6%
- due to upfront fee income from our partners and entry into the
higher margin Harpin business
• Loss before exceptional costs, costs of share-based payments, interest
and taxation of $4.4 million (2006: loss $2.5 million)
• Net loss of $5.4 million (2006: loss of $3.0 million)
• Net cash at 31 December of $9.8 million (2006: $3.7 million)
Operational highlights:
• First Myconate manufacture and supply agreement signed with Bayer
Cropscience in January 2007
- exclusive for seed-coated corn, soybean, cotton and sunflower
• Agreement signed with Monsanto to evaluate, develop and commercialise
certain applications of the Harpin-based technology
- made possible by the acquisition of the Harpin intellectual
property from Eden Bioscience
• Significant contribution from US agriculture division in its first full
year of operation
• New share capital of $10 million raised in September
• Post year end: Steve Weaver appointed to the Board of Directors as
Finance Director on 28 March 2008
Commenting on the results, Chief Executive John Brady said: 'Last year was
another important one for Plant Health Care. We signed our first two major
partnership deals with Bayer CropScience and Monsanto for Myconate and Harpin
respectively. These agreements have taken us further towards achieving our goal
of becoming the world's leading supplier of natural products for the promotion
of plant heath and growth.
'Plant Health Care's ability to fulfil the need for higher yields on existing
land has been validated by these partnership deals. With our stable of effective
natural technologies, we are extremely well positioned to offer further
solutions to help meet this global challenge, and as such, the macro environment
remains favourable.
'In 2007 we continued our pursuit of sales growth. Our performance was pleasing
with record revenue in almost all business units; in particular, in its first
full year of operation, our US agriculture division successfully introduced
Plant Health Care into what will be an important market for our future success.'
For further information:
Plant Heath Care plc
John Brady, Chief Executive
31 March - 4 April Tel: 020 7920 3150
Therafter: 001 603 525 3702
Evolution Securities Limited Tavistock Communications
Tim Worlledge/ Tim Redfern Jeremy Carey/Matt Ridsdale
Tel: 020 7071 4300 Tel: 020 7920 3150
Notes to editors
Plant Heath Care was established in 1995 in Pittsburgh (Pennsylvania) in the
United States. Its products are aimed at the agriculture, commercial landscaping
and land reclamation industries, through both direct sales and supply and
distribution agreements with major agrichemical industry partners. Plant Health
Care's products create both environmental and economic benefits for our
customers and capitalise upon long-term trends towards natural systems and
biological products to provide plant health and growth.
For immediate release 31 March 2008
Plant Health Care plc
('Plant Health Care' or 'the Company')
Results for the Year Ended 31 December 2007
Chairman's Statement
Introduction
Our core business is to provide natural products which promote plant growth,
health and yield with environmental care. There are few more topical issues in
the markets today than increased world population, the rapid growth of a
sizeable middle class in emerging economies demanding higher protein diets, and
the drive for biofuels. These have all contributed to higher demand levels for
agricultural products than has ever been seen before. At the same time, the
availability of productive agricultural land in suitable climate zones is
becoming more limited. Despite significant productivity increases from advances
in seeds, fertilisers, pest control and land management, the demand/supply
balance is being seriously tilted, crop prices are rising and strategic security
concerns are being aired. Major agriscience and agrichemical companies are
responding to this by seeking the next wave of technology innovation to further
improve yields and re-establish balance, in order to secure their own future
profitability.
Plant Health Care is very well positioned in this market environment, with the
proven capabilities of our IP-protected natural technologies, as evidenced by
our two major partnership deals with Bayer CropScience and Monsanto, for
Myconate and Harpin respectively. We have set two strategic targets: growth and
product development. Our major target is to exploit our natural technologies
through two sales channels: major partnerships with significant players who have
the distribution and resources to achieve wide penetration for our technologies
in high volume row crops, and product sales through major national distributors
for more fragmented markets where we can be cost effective in reaching
customers. We also continue to pursue the strategy of securing and developing
innovative natural technologies and products with a high level of intellectual
property protection for plant growth, health and yield which can fulfil the
above market demand.
An overview of 2007
The most important milestones during the period were the first two major
partnership agreements signed for our natural technologies. In January, Bayer
CropScience agreed to develop and commercialise Myconate seed treatment
applications for corn, cotton, soybean and sunflowers, while, in December,
Monsanto entered into an agreement with us to evaluate, develop and
commercialise certain applications of our Harpin-based technology suite.
The latter agreement was made possible by our acquisition in February 2007 of
certain assets and the Harpin intellectual property from Eden Bioscience,
another highlight of our year.
In 2007 we continued our pursuit of sales growth. Our performance was pleasing
with record revenue in almost all business units; in particular, in its first
full year of operation, our US agriculture division successfully introduced
Plant Health Care into what will be an important market for the future.
Shareholder support for the company was demonstrated when, in September, we
raised $10 million of new equity, which has left us in a strong cash position
with no foreseeable need for further capital or borrowings to fulfil our present
plans.
Financial Results
Revenue for the year was $18.3 million, an increase of 34% over 2006 ($13.7
million). The gross margin was 45.6% (2006: 44.7%), although increased expenses
associated with the development and testing of our Myconate and Harpin
technologies, together with the costs of our first full year of operation in the
US Agriculture market, led to an operating loss, before exceptional costs and
the costs of equity share-based payments, of $4.4 million (2006: loss of $2.5
million). After exceptional costs, the costs of equity share-based payments,
interest and a small taxation charge on certain overseas operations, the net
loss for the year was $5.4 million (2006: loss of $3.0 million).
At 31 December 2007 net cash was $9.8 million (2006: $ 3.7 million).
Board changes
I am pleased to announce that Steve Weaver was appointed to the Board on 28
March 2008. Steve joined us as Chief Financial Officer in May 2007 and has made
invaluable contributions in improving our financial controls, analysis and
reporting to meet our needs as we grow. He has also proven himself a strong
contributor in strategic discussions and we look forward to his input as a Board
member in the coming years.
Today we are also announcing that our two longest serving Board members, Don
Marx and Robert Chanson, are both standing down at the forthcoming Annual
General Meeting. Each has served thirteen years as a director of Plant Health
Care plc and its predecessor companies, during which time they have each
contributed a great deal to the development of the company and its business.
Don, a co-founder of Plant Health Care, provided us with a wealth of knowledge,
experience and contacts after a highly successful and prestigious career with
the USDA Forestry Service. After a period as Chief Executive of the Group, he
has since deployed his skills as our Chief Scientist and as a member of the
Board. Although standing down from the Board, Don will continue as Chief
Scientist and we look forward to his continued contribution in that role.
Robert has made many contributions to the company in his role as non-executive
director. Before our AIM listing, he was instrumental in helping to secure
investment in the Company and his wider business knowledge has enabled him to
contribute greatly to the strategy of the Company.
I would like to take this opportunity to thank both Don and Robert for their
contributions to the company and to the Board over the past thirteen years.
Outlook
Plant Health Care's ability to fulfil the need for higher yields on existing
land has been validated by the transactions with Bayer CropScience and Monsanto.
With our stable of effective natural technologies, we are extremely well
positioned to offer further solutions to help meet this global challenge, and as
such, the macro environment remains favourable.
As a consequence of our progress in 2007 and the positive global drivers for the
business, the Board looks forward to the coming year with confidence. I would
like to thank all of the Plant Health Care team for their contribution to the
success of our Company and look forward to working with them to achieve our
shared goals.
Dr Albert Fischer
Non-executive Chairman
28 March 2008
Chief Executive's Review
Introduction & Summary of Operating Results
2007 was another successful year for Plant Health Care, with our first two major
partnership deals with Bayer CropScience and Monsanto for Myconate and Harpin
respectively and turnover up 34% to a record $18.3 million (2006: $13.7
million). I am delighted to report that this growth was led by our US
Agriculture division (established in 2006) which generated $4.0 million of sales
in 2007 and from fee income from partners which contributed some 5% of turnover.
Gross profit was up 37% to $8.4 million (2006: $6.1 million). The improvement in
our gross margin to 45.6% (2006: 44.7 per cent) is attributable to fee-income
from our partners and to our entry into the higher margin Harpin business which
contributed sales of $2.6 million.
We continued to develop and test new applications of our natural technologies,
and we expanded our sales team to achieve the above mentioned sales growth in US
Agriculture. This resulted in increased operating costs of $13.6 million (2006:$
9.0 million).
The operating loss for the year was $5.2 million (2006: loss of $2.9 million),
slightly higher than expected due to a delay on another Harpin deal, which is
expected to be completed in the first half of the current year. Net cash at 31
December 2007 was $9.8 million, boosted by a successful $10 million equity
fundraising in September 2007.
Our Natural Technologies Partnerships
Myconate
Myconate increases the rate of plant root colonisation by beneficial fungi which
extract nutrients from the soil for the benefit of the plant. This allows the
plant to grow more quickly and with more strength to resist pathogens and
disease. The result is healthier plants and, in the context of agriculture,
significantly improved yields. Myconate is particularly effective when applied
in the earliest stages of a plant's growth, and can be applied as a seed coating
or side dressing at time of planting.
In January 2007, the first manufacture and supply agreement for Myconate was
signed with Bayer CropScience, covering seed treatment of corn, cotton, soybean
and sunflower, and a year on Bayer confirmed that they are continuing to pursue
their planned programme to introduce Myconate to their market. As a result, we
have now received our first milestone payment and our relationship with Bayer
remains strong.
Bayer is the worldwide leader in seed coatings for corn, and is also strongly
represented in seed coatings for the other crops in which we are partnered with
them. They have indicated their intention to launch their first Myconate-based
product in 2010, and we expect that such products will, following a period of
market rollout, address a significant proportion of the markets in which Bayer
is currently represented.
In 2007 we also continued our independent programme of Myconate testing in other
applications, the results of which reaffirm significant yield enhancement when
it is applied to grains and high value vegetables.
For example:
• On grain and straw in winter wheat, tested using a variety of
application methods, there were particularly pleasing yield improvements. When
applied as a seed treatment, yield increased as much as 5.4% and when applied as
a ground spray the improvement was up to 7.4%. Additionally, Myconate's
application as both a seed treatment and a ground spray delivered yield
increases of up to 9.4%;
• When applied to carrots in furrow application at seeding, Myconate
produced a yield improvement in excess of 30% in two separate trials;
• Celery trials demonstrated a 14% harvestable yield increase when
Myconate was applied as a pre-plant, transplant spray. Against the control,
tests showed a 12% increase in total weight and 12% increase in top weight;
• A 13% yield increase was achieved in trials on onions; as with celery,
application was by pre-plant, transplant spray. Additionally, a 13% increase in
bulb weight and 11% increase in diameter were recorded.
We have reached non-exclusive agreements with several multi-national agriculture
companies to allow them to run their own tests and consider the
commercialisation of Myconate for application on small grain cereals such as
wheat and barley.
We will continue discussions with prospective partners regarding the use of
Myconate on vegetables, although we will also consider the option of addressing
this market, which is characterised in the United States by a small number of
large, specialised growers for each of the main crops, by means of direct sales.
Finally, we continue to explore the potential for Myconate in the emerging
market of energy crops. We have evidence that Myconate is highly effective on
crops such as switchgrass which are anticipated to be the coming crops of choice
to fuel the growing demand for biofuels, and we will address that market with a
properly structured development, testing and commercialisation model.
Harpin
The acquisition of certain assets from Eden Bioscience was completed in February
2007. The assets included the patent-protected rights to Harpin technology and
additionally provided Plant Health Care with Harpin-based products aiding the
development of our US agriculture business.
Harpin is a protein which, while itself harmless to a plant, causes the plant to
believe it is under attack from pathogens. Accordingly the plant triggers its
natural defences, which typically involve stronger growth and and pathogen
resistance.
Amongst the proven applications of this technology to date are:
• To defend against cyst nematodes, particularly in soybeans; cyst
nematodes are estimated to cause approximately $1.0 billion of damage to the
annual soybean crop in the US, and there is no other effective treatment
available today
• To generate extended shelf life in leaf and other salad crops, of real
economic benefit to supermarkets and other retailers
• To improve yield in crops treated with glyphosate, an industry-standard
herbicide.
At the interim stage, the Board stated its belief that '...following an
evaluation of the technology, the commercial prospects for Harpin were
significantly greater than initially thought. In light of this, Plant Health
Care has actively pursued opportunities to further demonstrate the efficacy of
Harpin and has undertaken trials in conjunction with the American Soybean
Association and the University of Illinois'.
These field trials of Harpin-based N-Hibit(R) and ProActTM delivered very
encouraging results. Yield improvements in cotton were between 6% and 12% when
used in combination with nematicides and both products consistently demonstrated
their efficacy in improving crop yields by reducing harmful nematodes.
The acquisition of Eden Bioscience's assets provided us with five years of trial
data demonstrating significant yield increases for plants treated with a
combination of glyphosate and Harpin. Additionally, we continued to pursue
registration of Pre-Tect, our shelf-life extension product.
Our first partnership agreement to develop, evaluate and commercialise Harpin
was signed with Monsanto Company in December 2007. This agreement grants
Monsanto exclusive rights to certain applications of Harpin in return for
undisclosed upfront fees, milestone payments which are dependent on the progress
of the development programme, and ongoing royalty payments based on the acreage
to which the product is applied. The Board believes that once evaluations are
complete, products could begin to be available to growers by 2009.
Product Sales
Agriculture
We continue to believe that agriculture represents the market of greatest
potential for Plant Health Care. As well as through the partnerships described
above, we see significant potential in our product sales operations. In 2007 we
saw strong growth in our agriculture businesses in the US, Mexico and in various
European markets. Only in the UK was there a slight slowdown.
Our growth is derived from a number of products which meet particular needs of
growers and their customers. For example, our natural liquid plant foods are
proving popular with growers with a need for a high nitrogen input but a desire
also for natural inputs, PreTect offers extended shelf life in-store for a wide
variety of leaf and salad plants, while Harpin-based N Hibit offers soybean
farmers a means of addressing their nematode problem.
It is through these and other similar innovative products, and a strategy of
progressively introducing these products into new territories (as registrations
and marketing resources allow) that we anticipate continued strong growth in our
direct sales to the world's agriculture markets.
Horticulture & Turf
Our US horticulture and turf business reached a major milestone in 2007 by
delivering a positive financial contribution for the first time on the back of
record sales of $6.3 million (2006: $6.0 million). We had recognised that the
growth potential for Plant Health Care in this market in the near term does not
match that available in agriculture, and had set our sights therefore on
achieving a positive return from what we could conservatively anticipate in
sales, rather than on major promotional spending to chase growth which might
prove difficult to secure. Our focused work with major distributors combined
with stringent cost control resulted in the shift into profitability for this
operating unit.
Outlook
A number of important milestones were met during the period and we made
significant progress towards achieving our objectives.
Our work with Bayer CropScience and Monsanto continues to take us closer to
realising significant revenue and financial returns from the widespread
exploitation of our natural technologies.
Our product sales activities provide a powerful platform from which to promote
our technologies, and also generate revenue and contribution from higher value,
smaller volume products and crops.
We continue to invest heavily into the development and testing of our
technologies to ensure that we maximise our potential from their exploitation,
and we remain alert to the possibilities of securing further innovative natural
technologies which can be effectively deployed in our target markets.
We remain focused on building Plant Health Care into the leading global provider
of natural technologies and products which promote plant growth, health and
yield, and thereby building value for our shareholders. The macro drivers and
market conditions remain extremely favourable and the prospects for our Company
remain strong. As a result, we look forward to reporting further progress during
the current year.
John Brady
Chief Executive
28 March 2008
Consolidated income statement
for the year ended 31 December 2007
2007 2006
$'000 $'000
Revenue 18,295 13,679
Cost of sales (9,944) (7,565)
Gross profit 8,351 6,114
Distribution costs (4,660) (3,143)
Research and development expenses (771) (306)
Administrative expenses (8,161) (5,531)
Operating loss (5,241) (2,866)
Finance revenue 177 275
Finance costs (302) (335)
Loss before tax (5,366) (2,926)
Tax expense (47) (72)
Loss for the year (5,413) (2,998)
Attributable to:
Equity holders of the parent (5,424) (3,028)
Minority interest 11 30
(5,413) (2,998)
Basic and diluted loss per share (12.8)c (8.2)c
In 2007 and 2006 all results derived from continuing operations.
Consolidated statement of recognised income and expense
for the year ended 31 December 2007
2007 2006
$'000 $'000
Net income recognised directly in equity:
Exchange differences on translation of 130 219
foreign operations
Loss for the year (5,413) (2,998)
Total recognised income and expense for the (5,283) (2,779)
year
Attributable to:
Equity holders of the parent (5,294) (2,809)
Minority interest 11 30
(5,283) (2,779)
Consolidated balance sheet at 31 December 2007
2007 2006
$'000 $'000
Assets
Non-current assets
Intangible assets 4,282 2,737
Property, plant and equipment 928 1,008
Total non-current assets 5,210 3,745
Current assets
Inventories 2,872 2,468
Trade and other receivables 6,751 6,942
Short-term investments 559 436
Cash and cash equivalents 10,254 4,446
Total current assets 20,436 14,292
Total assets 25,646 18,037
Liabilities
Current liabilities
Trade and other payables 3,648 3,108
Short-term borrowings 205 314
Provisions 546 396
Total current liabilities 4,399 3,818
Non-current liabilities
Long-term borrowings 278 414
Provisions 440 -
Total non-current liabilities 718 414
Total liabilities 5,117 4,232
Total net assets 0,529 13,805
Capital and reserves attributable to equity
holders of the company
Share capital 809 731
Share premium 33,451 21,826
Reverse acquisition reserve 11,016 11,174
Share-based payment reserve 580 118
Foreign exchange reserve 121 (9)
Retained earnings (25,679) (20,255)
20,298 13,585
Minority interests 231 220
Total equity 20,529 13,805
The financial statements were approved and authorised for issue by the Board on
28 March 2008.
J Brady
Director
Consolidated cash flow statement
for the year ended 31 December 2007
2007 2006
$'000 $'000
Cash flows from operating
activities
Loss before tax (5,366) (2,926)
Adjustments for:
Depreciation 262 248
Amortisation of intangibles 242 2
Impairment charge - 30
Finance revenue (177) (275)
Finance costs 302 335
Share-based payment expense 462 68
(Gain)/loss on sale of fixed (5) 10
assets
Cash used in operating activities
before
changes in working capital and (4,280) (2,508)
provisions
Decrease/(increase) in trade and 208 (3,952)
other receivables
Decrease/(increase) in inventories 436 (887)
Increase in trade and other 836 387
payables
(Decrease)/increase in provisions (121) 396
Cash used in operations (2,921) (6,564)
Interest paid (287) (322)
Income taxes paid (74) (79)
Net cash flows used in operating
activities (3,282) (6,965)
Investing activities
Purchase of business net assets (2,446) -
Purchase of tangible fixed assets (136) (396)
Expenditure on internally (53) -
developed intangible assets
Proceeds on sale of assets held 675 -
for sale
Proceeds on sale of fixed assets 21 20
Interest received 177 275
Purchase of short term investments (123) (184)
Net cash used in investing (1,885) (285)
activities
Financing activities
Issuing of ordinary share capital 10,182 11,053
Exercise of options and warrants 1,365 64
Repayment of borrowings (367) (180)
Repurchase of minority interest's
shares by subsidiary (160) (119)
Net cash generated from financing 11,020 10,818
activities
Effects of exchange rate changes
on cash
and cash equivalents (45) (16)
Net increase in cash and cash
equivalents 5,808 3,552
Cash and cash equivalents at
beginning of period 4,446 894
Cash and cash equivalents at end 10,254 4,446
of period
Notes forming part of the financial statements
for the year ended 31 December 2007
1. Annual Report
The abridged financial information set out herein has been extracted from
financial statements approved by the directors on 28 March 2008, and which will
be delivered to the Registrar of Companies following the Company's annual
general meeting. The auditors have reported on these accounts and their report
was unqualified and did not include references to any matters to which the
auditors drew attention by way of emphasis without qualifying their reports and
did not contain statements under the Companies Act 1985, s 237(2) or (3).
This financial information does not constitute statutory accounts as defined in
section 240 of the Companies Act 1985 and has been prepared on the basis of the
accounting policies set out in the financial statements for the year ended 31
December 2007. The Annual Report and Financial Statements will be posted to
shareholders shortly and thereafter will be available from the Company's
registered office at Minerva House, 5 Montague Close, London SE1 9BB, and from
the Company's website www.planthealthcare.com.
2. Accounting policies
Basis of preparation
This is the first time the Company has prepared its financial statements in
accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union, having previously prepared its financial statements in
accordance with UK GAAP accounting standards. Details of how the transition from
UK accounting standards to EU-adopted IFRS has affected the Group's reported
financial position, financial performance and cash flows are given in note 12.
The financial statements are reported in US dollars. The directors believe that
it is appropriate to use US dollars as a currency for reporting, given that the
majority of the Group's operations are denominated in that currency.
Changes in accounting policies - First-time adoption of International Financial
Reporting Standards
In preparing these financial statements, the Group has elected to apply the
following transitional arrangements permitted by IFRS 1 'First-time Adoption of
International Financial Reporting Standards':
•Business combinations effected before 1 January 2006 have not been
restated.
•The carrying amount of capitalised goodwill at 31 December 2005 that
arose on business combinations accounted for using the acquisition method
under UK GAAP was frozen at this amount and tested for impairment at 1
January 2006.
•IFRS 2 'Share-based payment' has been applied to employee options granted
after 7 November 2002 that had not vested by 1 January 2006.
The Group has made estimates under IFRSs at the date of transition; these were
consistent with those estimates made at the same date under UK GAAP, there being
no objective evidence that those estimates were in error; that is, the group has
not reflected any new information in its opening IFRS balance sheet, but
reflected that new information, if any, in its income statement for subsequent
periods.
Basis of consolidation
On 6 July 2004, Plant Health Care plc became the legal parent company of Plant
Health Care, Inc. in a share-for-share transaction. The former shareholders of
Plant Health Care, Inc. became the majority shareholders of Plant Health Care
plc. Further, the continuing operations and executive management of Plant Health
Care plc were those of Plant Health Care, Inc. Accordingly, the substance of the
combination was that Plant Health Care, Inc. acquired Plant Health Care plc in a
reverse acquisition. In order to present a true and fair view, the directors
have adopted reverse acquisition accounting as the basis of consolidation.
Revenue
Revenue is comprised of sales of goods to external customers, revenues from
service contracts and fee income. Sales of goods to external customers are at
invoiced amount less value added tax or local taxes on sales and are recognised
at the point that the customer takes legal title to the goods sold. Revenue from
service contracts is recognised as the services are performed and revenue is
earned and billed over the term of the contract. Fee income is recognised when
the Company has no remaining obligations to perform under a non-cancellable
contract which permits the user to act freely under the terms of the agreement.
Goodwill
Goodwill is measured as the excess of the cost of the acquisition over the net
fair value of the identifiable assets, liabilities and contingent liabilities,
plus any direct costs of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated income statement. Where the fair value
of identifiable assets, liabilities and contingent liabilities exceed the fair
value of consideration paid, the excess is credited in full to the consolidated
income statement on the acquisition date.
At the date of transition to IFRS, 1 January 2006, the goodwill carrying amount
under UK GAAP was tested for impairment and based on the conditions existing at
the transition date no impairment was identified. Thus, the carrying amount of
goodwill in the Company's IFRS opening balance sheet was equal to the goodwill
carrying amount under UK GAAP. From the date of transition to IFRS the Company
discontinued the amortisation of goodwill and implemented annual impairment
tests for goodwill.
Other intangible assets
Externally acquired intangible assets are initially recognised at cost and
subsequently amortised on a straight line basis over their useful economic
lives. The amortisation expense is included within the administrative expenses
line in the consolidated income statement.
Intangible assets are recognised on business combinations if they are separable
from the acquired entity or give rise to other contractual or legal rights. The
amounts ascribed to such intangibles are arrived at by using appropriate
valuation techniques.
Expenditures on internally developed intangible assets (research and development
costs) are capitalised if it can be demonstrated that:
•it is technically feasible to develop the product for it to be sold;
•adequate resources are available to complete the development;
•there is an intention to complete and sell the product;
•sale of the product will generate future economic benefits; and
•expenditure on the project can be measured reliably.
Capitalised development costs are amortised over the periods of the future
economic benefit attributable to the asset. The amortisation expense is included
within administrative expenses in the consolidated income statement.
Development expenditure not satisfying the above criteria and expenditure on the
research phase of internal projects are recognised in the consolidated income
statement as incurred.
The significant intangibles recognised by the group and their estimated useful
economic lives are as follows:
Licenses - 12 years
Developed technology - 15 years
Trade name and customer relationships - 15 years
Registrations - 5-10 years
Financial instruments
Trade receivables are initially recognised at fair value, and are subsequently
carried at amortised cost using the effective interest rate method, less
provision for impairment.
Short-term investments comprise interest bearing cash held on deposit and
short-term investments maturing in less than one year at fixed rates of
interest.
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to insignificant risk of changes in value.
Bank borrowings are initially recognised at fair value net of any transaction
costs directly attributable to the instrument. Borrowings are subsequently
measured at amortised cost using the effective interest rate method, which
ensures that interest expense over the period to repayment is at a constant rate
on the balance of the liability carried in the balance sheet.
Trade and other payables are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
The group does not trade in derivative financial instruments.
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Employee benefits
The Group maintains a number of defined contribution pension schemes for certain
of its employees; the Group does not contribute to any defined benefit pension
schemes. The amount charged to the income statement represents the employer
contributions payable to the schemes for the financial period.
The expected cost of all short-term employee benefits, including short-term
compensated absences, are recognised during the period the employee service is
rendered.
Equity share-based payments
Share-based payments issued to employees include share options and stock awards
under a long-term incentive plan. Equity-settled share-based payments are
measured at fair value (excluding the effect of non-market-based vesting
conditions) at the date of grant. The fair value determined at the date of grant
is recognised as an expense with a corresponding increase in equity on a
straight-line basis over the vesting period, based on the Company's estimate of
the shares that will eventually vest and adjusted for the effect of
non-market-based vesting conditions.
Where equity instruments are granted to persons other than employees, the profit
and loss account is charged with the fair value of goods and services received.
The fair value of equity instruments is calculated using the binomial option
pricing model.
3. Revenue
2007 2006
Revenue arises from:
Sale of goods 15,523 12,359
Service contracts and fee 2,772 1,320
income
18,295 13,679
4. Operating loss
2007 2006
$'000s $'000s
Operating loss is arrived at after charging:
Staff costs 7,831 5,040
Research and development costs 771 306
Depreciation 262 248
Amortisation 242 2
Equity share-based payment expense 462 67
Write-down of inventory to net realisable value 114 33
Operating lease expense 543 468
Auditors' remuneration
Fees payable to the Company's auditor for the
audit of the Company's annual accounts
127 97
Fees payable to the Company's auditor for other
services:
Audit of the Company's subsidiaries 143 106
Tax services 5 25
Other services* 18 36
Total fees for other services 166 167
Exceptional costs - Plant relocation 175 250
Staff reorganisation 171 -
Placement costs - 63
346 313
* The 'other services' provided related to the Company's transition to
International Financial Reporting Standards. In 2006, the auditors were also
paid $87,000 in relation to the Company's secondary placement and a business
acquisition; these fees were capitalised.
Plant relocation expenses comprise a provision for the relocation of the
Pittsburgh, Pennsylvania manufacturing facility.
Write-down of inventory to net realisable value recognised as an expense during
2007 and 2006 relates primarily to changes in market conditions impacting the
expected demand for specific products.
5. Share-based payment
The Company operates two equity-settled share-based remuneration schemes for
employees: a share option scheme and a long-term incentive stock award plan.
Valuation of the share options granted during the period was as follows:
2007 2006
26 September 17 January 3 November 22 June 11 April
Share options granted 16,500 175,000 3,000 50,000 131,470
Weighted average fair value 134p 90p 39p 47p 34p
Assumptions used in measuring
fair value:
Weighted average share price 240p 165p 128p 106p 74p
Exercise price 245p 224p 128p 123p 74p
Expected volatility 53% 60% 57% 57% 57%
Option life 10 years 10 years 10 years 10 years 10 years
Expected vesting period 4.5 years 4.5 years 4.5 years 4.5 years 4.5 years
Expected dividend yield Nil Nil Nil Nil Nil
Risk free interest rate 5.04% 5.09% 4.77% 4.77% 4.42 %
Valuation of the stock awards under the long-term incentive plan adopted in 2007
was as follows:
4 October 1 July
2007 2007
Shares awarded 100,000 300,000
Weighted average fair value 216p 237p
Assumptions used in measuring fair
value:
Expected volatility 58% 58%
Expected vesting period 3 years 2.5 years
Expected dividend yield Nil Nil
Risk free interest rate 4.93% 5.59%
For valuation of both the share options granted and LTIP shares awarded:
In 2007, the expected volatility was determined by reference to the historical
share price of Plant Health Care plc for a three-year period. In 2006, the
expected volatility was determined by reference to the historic share price of
three comparable companies for a three-year period.
The expected vesting period reflects market-based performance conditions for
these options and share awards
Fair values were calculated using the binomial option pricing model.
The Company pays a portion of non-executive director's fees in the form of the
Company's ordinary shares at a total value equal to the fair value of the
services rendered. In 2007, the Company issued 33,789 shares (2006: 29,760) with
an aggregate value of $156,000 (2006: $38,000) for payment of fees to
non-executive directors.
6. Tax expense
The tax charge for the year comprises:
2007 2006
$000s $000s
Current tax expense
Corporation tax and income tax on profits for the 77 81
year
(30) -
Utilisation of previously unrecognised tax losses
47 81
Deferred tax expense:
Origination and reversal of temporary differences - (9)
47 72
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the UK applied to profits for the year
are as follows:
2007 2006
$000s $000s
Loss for the period (5,366) (2,926)
Expected tax charge based on the standard rate of
corporation
tax in the UK of 30% (2006: 30%)) (1,610) (878)
Expenses not deductible for tax purposes 477 -
Utilisation of previously unrecognised tax losses (30) -
Financial statement share based payment expense 139 -
Tax returns share based payment expense (2,089) -
Losses in year not relieved against current tax 3,398 950
Amortisation of intangibles 3 -
Different tax rates applied in overseas (241) -
jurisdictions
47 72
At December 31, 2007, the Group has a potential deferred tax asset of
$15,156,000, which includes tax losses available to carry forward of $10,812,000
arising from historic losses incurred, anticipated tax relief on share based
payments of $4,037,000 and other timing differences of $307,000.
7. Loss per share
Basic loss per ordinary share has been calculated on the basis of the loss
attributable to equity holders of the parent of $5,424,000 (loss for 2006 -
$3,028,000) and the weighted average number of shares in issue during the
relevant financial periods. For 2007, the weighted average number of equity
shares in issue is 42,408,798 (2006 - 36,838,918). Instruments (share options,
warrants and share awards) that could potentially dilute basic earnings per
share in the future have been considered, but were not included in the
calculation of diluted earnings per share because they are anti-dilutive for the
periods presented.
8. Intangible assets
Trade name
Licenses and Developed and customer
Goodwill registrations technology relationships Total
$'000s $'000s $'000s $'000s $'000s
Cost
Balance at 1 January 2006 and
1 January 2007 536 2,586 - - 3,122
Additions - internally - 53 - - 53
developed
Acquired through business 1,432 - 143 159 1,734
combinations
Balance at 31 December 2007 1,968 2,639 143 159 4,909
Accumulated amortisation
Balance at 1 January 2006 348 5 - - 353
Impairment charge - 30 30
Amortisation charge for the - 2 2
year
Balance at 1 January 2007 348 37 - - 385
Amortisation charge for the - 217 12 13 242
year
Balance at 31 December 2007 348 254 12 13 627
Net book value
At 1 January 2006 188 2,581 - - 2,769
At 31 December 2006 188 2,549 - - 2,737
At 31 December 2007 1,620 2,385 131 146 4,282
The recoverable amount of goodwill is based on value in use. Forecast cash flows
are based on approved budgets and plans for the next five years. The underlying
assumptions of these cash flows are based on management's experience and
probability ratios for new business generation. Subsequent cash flows have been
increased at a terminal growth rate of 0%. The cash flows have been discounted
using a pre-tax discount rate of 15% based on the Group's estimated incremental
borrowing rate adjusted for risks associated with the estimated cash flows.
9. Trade and other receivables
2007 2006
$'000s $'000s
Trade receivables 6,914 6,194
Less: provision for
impairment (775) (312)
Trade receivables-net 6,139 5,882
Other receivables 57 57
Prepayments 529 996
Prepaid Corporate Tax 26 7
6,751 6,942
All amounts fall due for payment within one year.
Movements on the Group provision for impairment of trade receivables are as
follows:
2007 2006
$'000s $'000s
Balance at the beginning of the year 312 218
Provided 516 113
Receivables written off as uncollectible (45) (19)
Unused amounts reversed (8) -
Balance at the end of the year 775 312
The gross value of trade receivables for which a provision for impairment has
been made is $1,216,000 (2006: $360,000).
The maximum exposure to credit risk at the reporting date is the fair value of
each class of receivables set out above.
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value.
The following is an analysis of the Group's trade receivables identifying the
totals of trade receivables which are current and those which are past due but
not impaired.
2007 2006
$'000s $'000s
Current 5,215 4,944
Past due:
Up to 3 months 457 755
3 to 6 months 79 160
6 to 12 months 388 23
Total 6,139 5,882
The main factors used in assessing the impairment of trade receivables are the
age of the balances and the circumstances of the individual customer. The Group
has not provided for these receivables as these relate to customers with no
default history and there has not been a significant change in credit quality.
10. Trade and other payables
2007 2006
$'000s $'000s
Trade creditors 1,276 1,513
Accruals 2,185 1,481
Taxation and social 187 114
security
3,648 3,108
11. Asset Purchase
On 28 February 2007, the Company acquired certain of the assets of Eden
Bioscience Corporation for a total consideration of $2,200,000, plus the
assumption of certain liabilities associated with these assets. $1,500,000 was
paid at closing and $700,000 was paid during the year under a secured promissory
note bearing interest at a rate of 5% per annum. Costs attributable to the
purchase were $246,000.
Details of the fair value of the assets acquired and liabilities assumed were as
follows:
$,000
Inventories 839
Tangible assets 686
Intangible assets 302
Accrued expenses (102)
Onerous lease provision (711)
1,014
Goodwill 1,432
Cost of acquisition 2,446
The main factors leading to the recognition of goodwill are:
•the presence of certain intangible assets which do not qualify for
separate recognition; and
•synergistic cost savings which result in the group being prepared to pay
a premium
The Company acquired certain equipment under the asset purchase agreement that
would not be used in the Company's operations. The Company sold all of this
equipment during the year for an amount equal to its fair value.
The Company assumed the obligations under an Exclusive License Agreement
relating to the licensing of technology from Cornell University. Payments due
under the agreement with Cornell are the greater of 2% of sales or $200,000 per
annum.
Following the acquisition of the assets of Eden Bioscience Corporation, the
assets were fully integrated into the Group, therefore it is not possible to
disclose a separate profit or loss applicable to this acquisition for the period
since the date of acquisition.
12. First-time adoption of International Financial Reporting Standards (IFRS)
Reconciliations and explanatory notes on how the transition to IFRS has affected
profit and net assets previously reported under UK Generally Accepted Accounting
Principles (UK GAAP) are given below:
Income statement reconciliation for the year ended 31 December 2006
Note UK GAAP Adjustments IFRS
$,000 $,000 $,000
Revenue 13,679 13,679
Cost of sales (7,565) (7,565)
Gross profit 6,114 - 6,114
Goodwill amortisation (i) (36) 36 -
Administrative expenses (ii) (8,976) (4) (8,980)
Operating loss (2,898) 32 (2,866)
Finance revenue 275 275
Finance costs (335) (335)
Loss before tax (2,958) 32 (2,926)
Tax expense (72) (72)
Loss for the year (3,030) 32 (2,998)
Attributable to:
Equity holders of the parent (3,060) 32 (3,028)
Minority interest 30 30
All amounts relate to
continuing operations (3,030) 32 (2,998)
Balance sheet reconciliation at 1 January 2006
Note UK GAAP Adjustments IFRS
$,000 $,000 $,000
Assets
Non-current assets
Intangible assets 2,769 2,769
Property, plant and equipment 790 790
Total non-current assets 3,559 - 3,559
Current assets
Inventories 1,582 1,582
Trade and other receivables 2,989 2,989
Short term investments 252 252
Cash and cash equivalents 894 894
Total current assets 5,717 - 5,717
Total assets 9,276 - 9,276
Liabilities
Current liabilities
Trade and other payables (ii) 2,813 51 2,864
Short-term borrowings 285 285
Provisions 234 234
Total current liabilities 3,332 51 3,383
Non-current liabilities
Long-term borrowings 523 523
Provisions -
Total non-current liabilities 523 523
Total liabilities 3,855 51 3,906
Total net assets 5,421 (51) 5,370
Capital and reserves
attributable to equity holders
of the company
Share capital 542 542
Share premium 10,847 10,847
Reverse acquisition reserve 11,195 11,195
Share-based payment reserve 51 51
Foreign exchange reserve iii - (228) (228)
Retained earnings (17,404) 177 (17,227)
5,231 (51) 5,180
Minority interest 190 190
Total equity 5,421 (51) 5,370
Balance sheet reconciliation at 31 December 2006
Note UK GAAP Adjustments IFRS
$,000 $,000 $,000
Assets
Non-current assets
Intangible assets (i) 2,701 36 2,737
Property, plant and equipment 1,008 1,008
Total non-current assets 3,709 36 3,745
Current assets
Inventories 2,468 2,468
Trade and other receivables 6,942 6,942
Short term investments 436 436
Cash and cash equivalents 4,446 4,446
Total current assets 14,292 - 14,292
Total assets 18,001 36 18,037
Liabilities
Current liabilities
Trade and other payables (ii) 3,166 56 3,222
Short-term borrowings 314 314
Provisions 282 282
Total current liabilities 3,762 56 3,818
Non-current liabilities
Long-term borrowings 414 414
Provisions - -
Total non-current liabilities 414 414
Total liabilities 4,176 56 4,232
Total net assets 13,825 (20) 13,805
Capital and reserves
attributable to equity holders
of the company
Share capital 731 731
Share premium 21,826 21,826
Reverse acquisition reserve 11,174 11,174
Share-based payment reserve 118 118
Foreign exchange reserve (iii) - (9) (9)
Retained earnings (20,244) (11) (20,255)
13,605 (20) 13,585
Minority interest 220 220
Total equity 13,825 (20) 13,805
Adjustments
Explanations of the adjustments made to the UK GAAP income statement and balance
sheets are as follows:
Note
(i) IFRS 3 'Business Combinations' has been applied to acquisitions completed
after the date of transition, 1 January 2006. As a result, the carrying value of
goodwill in the UK GAAP balance sheet at 31 December 2005 is brought forward to
the IFRS opening balance sheet. The effect of IFRS has been to reverse the
goodwill amortisation charge for the June 2006 and December 2006 reporting
periods.
(ii) In accordance with IAS 19, administrative expenses have been adjusted to
reflect accrued entitlement to short-term compensated absences.
(iii) In accordance with IAS 21, the foreign exchange reserve is classified as a
separate component of equity.
There were no material changes to the cash flow for the year ended 31 December
2006; the only changes are presentational.
13. Cautionary Statement
Plant Health Care has made forward-looking statements in this press release,
including: statements about the market for and benefits of its products and
services; financial results; product development plans; the potential benefits
of business relationships with third parties; and business strategies. These
statements about future events are subject to risks and uncertainties that could
cause Plant Health Care's actual results to differ materially from those that
might be inferred from the forward-looking statements. Plant Health Care can
make no assurance that any forward-looking statements will prove correct.
This information is provided by RNS
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