Final Results
Embargoed Release: 07:00hrs, Tuesday 3 March 2009
SAGENTIA GROUP PLC
('Sagentia' or the 'Group')
Annual Report and Financial Statements 2008
Highlights
-
Corporate structure simplified and ongoing costs reduced by moving the domicile from Switzerland to the UK and by the admission of Sagentia Group PLC to AIM
-
Business strategically realigned from an integrated consulting and venturing operation to one clearly focused on generating sustainable earnings from technology consulting and intellectual property ('IP') exploitation
-
Revenues and Gross Profits from technology consulting and IP were significantly ahead of market expectations and increased by 27% to £26.6m (2007: £20.9m) and 280% to £1.9m (2007: £0.5m) respectively
-
Non-core or non-recurring costs of £3.6m resulted in a pre-tax loss of £2.2m (2007: £2.8m), with a loss per share of 9.7 pence (2007: 15.0 pence)
-
Net debt decreased by £3.0m to £4.2m (2007: £7.2m)
-
Cash balances increased by £4.4m to £5.3m (2007: £0.9m)
-
Shareholders' funds per share of 71.9p (2007: 81.9p)
-
Winner of 3 Management Consulting Association awards for Best Technology, Best Innovation and the overall Best Private Sector Project Award
-
License deal signed with Master Meter Inc, which is expected to generate $4.5m royalty in total
-
US operation consolidated onto a single site in Washington DC at the heart of the East Coast Health Corridor
-
Sagentia is well placed to respond to changing market conditions in 2009
Enquiries:
Sagentia Group PLC:
+44 1223 875200
Dr Alistair Brown
Guy McCarthy
Arbuthnot Securities:
+44 20 7012 2000
John Prior
Antonio Bossi
www.arbuthnot.co.uk
Hansard Group
+44 20 7245 1100
Vikki Krause
www.hansardgroup.co.uk
Chairman's statement
In the 2007 financial statements we announced a number of actions which we intended to undertake during the course of 2008. I am pleased to announce that these have all been completed in that:
-
Sagentia's domicile has been transferred from Switzerland to the UK and the Company's Stock Exchange listing has been moved from the Main Market to AIM
-
Arbuthnot Securities has been appointed as our Nominated Adviser and Broker in order to facilitate the redomicile and admission to AIM and to assist the Company in broadening its shareholder base
-
The Board has been restructured
-
Our FSA registered fund management business, Chord Capital, has been sold and we are continuing to seek to monetarise our other third party investments whenever possible
-
Sagentia now has a clear and well understood strategy which is firmly focused on its consulting and IP exploitation activities
The Board is confident that these actions will not only result in a significant reduction in ongoing corporate costs and lead to an ongoing improvement in operating margins but will also make the business much simpler for our customers and our current and future investors to understand.
I am also pleased to report that, while implementing these changes, Sagentia has continued to make excellent progress in growing and developing its consulting and IP exploitation activities.
In 2008, while revenues from these activities were 27% ahead, operating profits, which totalled £1.9m, were almost four times greater than those achieved in 2007. Added to which, cash flow from operating activities was positive to the tune of £2.6m compared to a cash outflow of £3.5m in the previous year.
This is a great credit to our new Chief Executive, Alistair Brown, and indeed to everybody in Sagentia.
Although the overall results from the core operations in 2008 demonstrate continuing good progress, further reductions, totalling £2.0m (2007: £3.7m) in the valuation of the venturing portfolio, due principally to the share price movement of CMR Fuel Cells plc and provisions against other holdings, together with venture subsidiary costs of £1.0m (2007: £1.4m) and the one-off costs of £0.6m incurred in the redomiciliation exercise resulted in an overall operating loss of £1.4m (2007: £2.8m) which, after financing costs, gave rise to a pre-tax loss of £2.2m (2007: £3.3m) for the year.
While it is disappointing to be again reporting a pre-tax loss to shareholders, the Board is confident that the company is now firmly on the path to operational profitability. Over the last 12 months Sagentia has become a business focussed on growing a profitable technology consulting business creating, developing and delivering business opportunities, products and services. Over the next 12 months we will continue to focus the business on its core technology consulting capability while also to exploiting our own technology and intellectual property assets; generating income in the form of royalties and transaction fees from technology licensing, design and build and managed service applications.
The changes made during 2008 have not only simplified the business model and management structure, but have also aided communications with both investors and customers. This can only be positive for the business for the future. While overall market conditions remain unpredictable, Sagentia retains a healthy sales pipeline and order book. The cash position continues to strengthen and we look forward to the future with cautious optimism.
Chris Masters
Chairman
2 March 2009
Chief Executive's review
Over the last 12 months the Sagentia Board has moved Sagentia from being an integrated consulting and venturing business to a more profitable business focussed on delivering sustainable earnings from technology consulting and IP creation and exploitation. This will remain the strategic focus for Sagentia's future activities. We will continue to work with businesses worldwide creating, developing and delivering new business opportunities, products and services on a fees-for-service basis. We will continue to build on our existing core technology consulting capability and to exploit our technology and IP assets to generate additional future income in the form of licenses, product/service royalties and transaction fees.
In order to deliver on Sagentia's strategy, we have built our selling capability, grown our forward sales order book and substantially improved our operational management. At the same time we have reduced costs within the business, where sensible to do so, and as a consequence have increased the profitability of the core business. We have ended the year in a strong position; we have a clear strategic direction for the business and are well positioned to deliver future growth in profits.
The market conditions over the past 12 months have been widely reported, with talk of recession and the 'credit crunch'. Nevertheless, in 2008 we have seen the demand for our services hold up as our clients recognise the need to maintain their innovation agenda. Future business success will depend on continuing to deliver high quality work that adds measurable commercial benefit in the short- to medium-term to our clients' businesses. We are therefore always pleased to have work that we have undertaken for our clients recognised by appropriate bodies. These include the Management Consulting Association in its annual awards where Sagentia won 3 awards; for Best Technology, Best Innovation and the overall Best Private Sector Project Award, all for our ongoing work with Vodafone on M-PESA.
M-PESA, developed by Sagentia for Vodafone, is a breakthrough mobile payments solution which was successfully launched last year for remittances in Kenya. This service is now deployed in Tanzania and Afghanistan, with other significant markets under development. The M-PESA service in Kenya enables customers to send money safely using a mobile phone and the local Safaricom network. It provides cost effective access to financial services for people without bank accounts in economies where it is unsafe, difficult or expensive to hold cash and move money around. The work on this multi-million pound project has continued during 2008, with the ongoing improvement and roll-out of M-PESA. M-PESA also won the Telecommunications category at the IET Innovation Awards.
Sagentia has also seen the launch of a breakthrough product in the industrial sector for US water-meter giant, Master Meter Inc. ('Master Meter'). Sagentia was approached by Master Meter initially to design the mechanics for a water meter register based on existing technology. During a two-year development process, in which Sagentia reduced the tooling outlay by 90 percent, a change in design allowed Master Meter to adopt new IP as the basis for its sensing principle and so protect its product from duplication. Master Meter signed an exclusive license deal with Sagentia for the use of this technology. The project generated more than US$1 million in consulting fees and we expect the ongoing license deal for the core technology to generate US$4.5 million for the Group in total over a number of years.
Sagentia has also completed work with Prosurgics Limited ('Prosurgics') on Freehand, its next generation robotic camera holder for use in keyhole surgery. Freehand recently won the ERBI Medtech Innovation Award for Prosurgics and Sagentia. Similarly, Aqualisa Products Limited has recently been awarded a Queens Award for Enterprise in the Innovation Category as recognition of its digital shower technology, developed by Sagentia when Quartz Digital was launched. Information on some of our other exciting projects is available from The Gen, our quarterly magazine, which may be downloaded from our web site (www.sagentia.com).
Significant future opportunity for Sagentia will come from the expansion of our international operations. As the first step in our growth plan for our US business, we have consolidated our American operations onto a single site in Washington DC.
Washington DC sits centrally on the East Coast healthcare and life sciences business corridor and is well known for its proximity to the country's leading healthcare organisations and resources including Johns Hopkins; Americas first research university.
Healthcare and wellness are major growth markets, particularly in developed economies such as the USA. In recent years we have seen the boundary between them blurring. Healthcare has always been regarded as the curing of illness, wellness about preventing illness in the first place. A new market opportunity is emerging, driven by an ageing affluent population and the need to help these 'baby boomers' maintain healthy, independent and active lives through retirement. We are seeing traditional medical companies moving into the wellness space and, interestingly, fast moving consumer goods companies using the health giving properties of their products as a key marketing message. This presents a huge opportunity in the convergence of technology-led products and services in these sectors.
Sagentia will continue to generate non-consulting income through:
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Licensing proprietary IP
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Manufacturing royalties where Sagentia is involved in creating, at risk, the original product concept
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Generating retainer and transaction fee income from its growing managed services activity
Sagentia holds substantial interests in IP assets, usually in the form of licenses and/or equity stakes in exploitation vehicles which should start to generate non-consulting income over the next few years. These include:
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Grey Wheels - water meter reading sensing technology, licensed to Master Meter Inc
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Sensopad/Autopad - licensed to TT electronics plc ('TT') in on-board automotive and fuel level applications. Future revenues of £1.6m recognised through the profit and loss from the Autopad licence has been reduced to £1.2m following the current status of the automobile market. TT had announced it has taken orders for more than 100m devices
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Astra Zeneca PLC - licence to magnetic tagging technology developed by Sagentia, generating fees of £0.1m per annum
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Captrack and Mutrack - sensing technologies being exploited through Sagentia Sensors, likely to generate non-consulting income in 2009. Discussions are progressing with global industrial and automotive companies
Sagentia also retains stakes in investments, in both venture subsidiaries and via equity investments. The venture subsidiaries have incurred costs that are consolidated into the Group result, whereas the equity investments have recognised losses through a fall in value. The disposal of Chord Capital, our investment management vehicle, during the year confirms our intent to seek to dispose of these investments when the opportunity arises and monetarise the assets where possible.
The disposal of the investments and investment management assets will simplify the segmental analysis and reporting of Sagentia's results going forwards. Future reporting will focus on income generated either from fees for services, or from non-consulting income outlined above.
Outlook
Demand for Sagentia's product and service development capability grew during 2008 and at the end of the year was robust. The performance of Sagentia during 2009 will benefit substantially from the operational changes made in 2008. The global recession demands that we are operationally nimble and we remain focussed on our core strategy.
Alistair Brown
Chief Executive
2 March 2009
Financial review
Analysis of segmental results
The following table includes an analysis of the sources of revenue and operating profits and losses on ordinary activities across Sagentia, and is extracted from the Consolidated Income Statement and the segmental information set out in note 4 to this report.
|
|
Note |
2008 |
2007 |
2008 |
2007 |
|
£000 |
|
Revenue |
Revenue |
Profit / (Loss) |
Profit / (Loss) |
|
Consulting and IP exploitation |
|
26,569 |
20,926 |
1,941 |
540 |
|
Venture Subsidiaries |
|
44 |
169 |
(983) |
(1,390) |
|
Asset Management |
|
214 |
463 |
(2) |
55 |
|
Property and Centre |
|
2,244 |
1,404 |
384 |
47 |
|
Revenues : Gross profit (loss) |
4,5 |
29,071 |
22,962 |
1,340 |
(748) |
|
|
|
|
|
|
|
|
Profit on disposals of investments |
14 |
|
|
- |
1,376 |
|
Change in fair value on financial assets |
14 |
|
|
(1,982) |
(3,701) |
|
Related bonus accrual |
|
|
|
- |
327 |
|
Redomiciliation costs |
|
|
|
(589) |
- |
|
Share based payment charge |
17 |
|
|
(170) |
(83) |
|
Operating loss |
|
|
|
(1,401) |
(2,829) |
|
Finance Charges (net) |
6 |
|
|
(809) |
(485) |
|
Loss on continuing operations before income tax |
|
|
|
(2,210) |
(3,314) |
Revenue: Note 4
Revenue is stated net of inter-company activity. Total revenues increased by 27% to £29.1m (2007 - £23.0m) due primarily to an increase of £4.5m of technology consulting fees, and £1.3m in recharged expenses. Consulting and IP exploitation represents 91% of Group revenue (2007 - 91%).
Gross profit (loss): Note 5
Gross profit before fair value adjustments improved to £1.3m (2007 - a loss of £0.7m). This includes a profit for the core operations of £1.9m (2007: £0.6m) offset by Venture Subsidiary costs of £1.0m (2007: £1.4m). Venture subsidiary cost increases include additional costs in both Atranova (partially funded by a minority investor loan) and in Sagentia Sensors.
The gross profit by segment is further discussed in the Chief Executive's Review above.
Investment Activity:
Profit on disposal of investments: Note 14
Profit on disposal of investments in 2007 principally relates to the disposal of Intrasonics Limited investment.
Change in fair value on financial assets: Note 14
The change in fair value on financial assets of £2.0m represents the total of the movement in market value of our quoted shares held and movement in fair value (as calculated using British Venture Capital Association methodology) of our unquoted investments. The largest part of this relates to the reduction in share price of CMR (£0.5m) and Turftrax plc (£0.4m), and a provision against the value of Sensortech Ltd (£0.6m). CMR's share price ended the year at £0.17 (2007 - £0.42). Turftrax's share price ended the year at £0.004 (2007 - Unquoted). Of the remaining financial assets, marginal gains were booked in Sphere Medical Holding Ltd, with losses booked to our investments in Telsecure Group Limited, Zinwave Holdings Limited, Biowisdom Limited, Wingspeed Corp and deferred income on TT Electronics plc royalty.
Bonus accrual
A bonus accrual of £0.3m was released in 2007 due to the reduction in fair value on financial assets.
Re-domiciliation costs
A one-off cost of £0.6m was incurred due to external costs related to the re-domicile of the Company, the delisting of Sagentia Group AG from the London Stock Exchange main market and admission of Sagentia Group plc to AIM.
Cost of options: Note 17
The cost of options issued and outstanding at the year-end for 2008 is calculated as £0.2m (2007 - £0.1m). The increase is due to an additional 1.7m new options being issued during 2008. At the year-end, all options issued have an exercise price in excess of market price.
Finance Charges: Note 6
Finance charges for the year increased to £0.8m (2007 - £0.5m) due to an increase in the value of the interest rate swap liability (identified in Note 18 of £0.3m, as additional interest on the increased borrowings).
Loss per share: Note 11
The loss per share was 9.7p (2007 - 15.0p)
Venture subsidiaries
Venture subsidiaries are majority owned spin-out companies created by Sagentia Group for the purpose of exploiting a particular technology, intellectual property or business opportunity. Sagentia's goal with its venture portfolio is ultimately to realise value through IPO or trade sale. The scale of this activity will continue to reduce going forwards as the business focuses on exploiting technology through licensing and collaboration with Sagentia's consulting clients.
Under IFRS, controlled investments are consolidated as subsidiaries, therefore all costs incurred by the venture subsidiaries are expensed through the income statement. Consequently, the fair value of controlled investments are not shown on the balance sheet. Controlled investments actively exploited during the year included Sensopad Limited, AtraNova Limited and Sagentia Sensors Limited.
The net costs of venture subsidiaries in 2008 were £1.0m (2007 - £1.4m). As well as operating costs, all expenditure on the creation and development of intellectual property was written off as incurred, in line with Sagentia's accounting policies.
Sensopad Limited (74% Sagentia owned)
Sensopad owns IP in relation to its contact-less inductive sensing 'Pad' technology.
Automotive applications of the IP were sold to TT Electronics plc ('TT') in 2004. Royalties commenced in Q408, will run for 4 years, and are capped at £10m. Net royalties of £1.7m, now reduced to £1.2m, have been recognised to date through the consolidated income statement and are shown as an asset within investments in the balance sheet.
TT took a further license in the field of fuel level sensing in 2007. Royalties, which will run until 2017, are capped at £10m, although are not expected to commence before 2010.
Non-automotive applications for the technology are currently being exploited in the industrial, aerospace and gaming controller market via a marketing and operating agreement with Sagentia Ltd, and are likely to be exploited through individual license agreements.
AtraNova Limited (91% Sagentia owned)
AtraNova owns IP in relation to Ebonex™, a conductive ceramic material.
During the period AtraNova completed testing of its water treatment equipment, which has shown to significantly reduce the Mogden charge levied by water companies to manufacturers. In Aug 08, it agreed an initial funding of up to £750K to allow it the start of equipment installation on client sites during the second half of 2008. Sagentia did not participate in the fundraising. In Dec 08 it raised a further £500K mainly by way of convertible loans.
Sagentia Sensors Ltd (77% Sagentia owned)
Sagentia Sensors owns IP in relation to its contact-less inductive sensing technology, Cap-track™ and Mu-track™.
During 2008 it developed application specific demonstrators for a number of clients in both the industrial and automotive markets, and it is expected to complete a number of licensing agreements during the second half of 2008.
The combined BVCA value of the holdings in the venture subsidiaries is £1.5m.
Asset Management
The whole of the issued share capital of Chord Capital, our FSA registered subsidiary, was sold to its management in July 2008 for its net asset value. Chord Capital made a marginal loss in the period. Sagentia is no longer FSA registered.
The net result for the venture operations (being profit on disposals of investments, change in fair value on financial assets and the related bonus accrual) generated a loss of £2.0m (2007 - £2.0m). This reflected a reduction in fair value of investments, as noted above.
The following investee companies now comprise 74% of the fair/BVCA value of the portfolio capitalised on Sagentia's balance sheet at 31 December 2008:
|
Investee company |
Group fully diluted |
2008 BVCA |
2007 BVCA |
|
|
% |
£m |
£m |
|
CMR Fuel Cells plc ('CMR') |
11 |
0.4 |
0.9 |
|
Sphere Medical Holding Limited ('Sphere') |
7 |
1.6 |
1.5 |
|
Atraverda Limited ('Atraverda') |
8 |
1.3 |
1.3 |
|
Sensortec Limited ('Sensortec') |
10 |
0.6 |
1.2 |
|
Turftrax Group plc (Turftrax) |
8 |
- |
0.4 |
|
Total |
|
3.9 |
5.3 |
* Fully diluted interest assumes that granted options have been exercised, with the exception of CMR Fuel Cells
Property and central services
Property comprises Sagentia's 77,000 square feet freehold headquarters in Harston, England. The principal tenant remains Sagentia's consulting business, Sagentia Limited, which occupies 37,000 square feet on arms length terms. The remaining space is let on short to medium term leases.
The remaining costs result from the cost of property; Group central costs, relating to the Swiss quoted company (now dormant), Sagentia Group plc and its management; and to Sagentia's IT services company Manage5Nines Limited. The building was fully let at the year end, and Manage5Nines revenues from non-Group companies increased during the year.
Analysis of balance sheet
At 31 December 2008 Sagentia had shareholders' funds of £15.3m (2007 - £17.3m) which is equivalent to approximately 71.9p per share (2007 - 81.7p). This includes freehold land and buildings with a net book value of £14.0m (2007 - £14.1m) against which Sagentia has an outstanding loan of £9.0m (2007 - £6.8m). At the year-end Sagentia had no unutilised loans (2007 - £3.4m) but had cash balances of £5.3m (2007: £0.9m).
The fair value of investments and other loans to investee companies at the year-end was £5.3m (2007 - £7.6m). This represents the BVCA or market valuation of all non-controlled investments. The BVCA valuation of controlled investments - venture subsidiaries - is £1.5m (2007 - £0.9m). The difference between the BVCA valuation and the net asset value at the year-end for venture subsidiaries is equivalent to approximately 7.0p per share (2007 - 4.2p).
Cash and cash flow
The cash and cash equivalents during 2008 increased by £4.4m (2007 - decreased by £1.1m). This resulted from cash inflows from operating activities of £2.6m (2007 - outflows of £3.5m) offset by cash outflows from investing activities of £0.5m (2007 - inflows of £1.3m) and cash inflows of £2.3m (2007 - £1.1m) from financing activities including the drawdown of the loan facility.
Operating cash inflows during the year largely resulted from a decrease in working capital requirements during the year of £1.9m (2007 - increase of £2.7m) due to a decrease in receivables and an increase in payables.
Cash outflow from investing activities resulted from discretional spending, including capital expenditure, offset by the sale of financial assets at fair value through the profit and loss of £0.2m (2007 - £0.2m).
Bank loans drawn down at the end of 2008 were £9.0m (2007 - £6.8m). The loan is part of a Group bank facility taken out as a 5 year revolving loan facility of up to £9m secured against Harston Mill. The £2m overdraft facility guaranteed by the Sagentia Group was not renewed during 2008. At the end of 2008 £Nil (2007 - £3.4m) of the facility remains available to be drawn down.
Sagentia continues to carefully manage its access to cash resources so that its current liabilities can be met as they fall due, and that business and investment activities can progress in line with the business plan.
Guy McCarthy
Financial Director
2 March 2009
Report of the Directors
The Directors present their annual report on the affairs of Sagentia Group plc, together with consolidated financial statements and Group auditors' report for the year ended 31 December 2008.
Acquisition of Sagentia Group AG by Sagentia Group plc
These statements consolidate the financial statements of Sagentia Group plc and its subsidiary undertakings drawn up to 31 December each year. The Company was incorporated on 17 March 2008 in order to acquire the whole of the undertaking of Sagentia Group AG via a share for share exchange. To date it has acquired 99.6% of Sagentia Group AG via a share for share exchange. For the purpose of preparing the consolidated accounts this transaction is not considered to be a business combination under IFRS. Thus, the directors have treated the results and cash flows of the combined entities brought into the consolidated financial statements of Sagentia Group plc, restating comparative results, as though they had always been combined. The comparative balance sheet at 31 December 2007 is stated as per the position of Sagentia Group AG, except that the share capital, share premium and reserve accounts have been restated to create a merger reserve, to reflect the position which assumes the share for share exchange had occurred at the start of the comparative accounting period. The company only results of Sagentia Group plc are for the period from 17 March 2008 to 31 December 2008 only.
Directors
|
Chris Masters - Chairman Dr. Masters took his doctorate in Chemistry at Leeds University and then worked for Shell Research BV in the Netherlands, and with Shell Chemicals in the UK. He joined Christian Salvesen as Business Development Manager in 1979, becoming a director of its US operation and subsequently its Chief Executive from 1989 to 1997. After this, he was appointed Executive Chairman of Aggreko plc, a post he held until January 2002. Other directorships include British Assets Investment Trust plc, Alliance Trust plc, John Wood Group plc, the Crown Agents, and Creative Scotland 2009 Ltd. |
Lars Kylberg* - Senior Independent Non-Executive Director Mr. Kylberg has been a Non-Executive director of Sagentia Group AG since 2000. He worked at ASEA as Managing Director of its subsidiaries in Colombia and South Africa from 1967 to 1976. He was president of ASEA Skandia from 1976 to 1982 and Executive Vice president of Saab Scania from 1982 to 1984. He was President and Chief Executive Officer of Incentive AB and Alfa Laval AB from 1984 to 1989, two large Swedish industrial groups. From 1991 until 1995 he was president and CEO of Saab Scania and was Chairman of Morgan Crucible Company plc from 1996 to 2006. |
|
Alistair Brown* - Chief Executive Officer Dr. Brown took his doctorate in Physics at UMIST. He moved to Germany in 1990, working for Focus, Steinbeis Stiftung and UBM Messtechnik in both technical and commercial roles in the fields of metrology and image processing. Returning to the UK in 1998 he joined Ernst & Young helping to set up an international technology transfer network. He joined Sagentia Ltd in 2000 as a business development manager before establishing the German consulting operation Sagentia GmbH in 2002. Dr. Brown was appointed Geschaeftsfuehrer (Managing Director) of Sagentia GmbH in 2004. In 2006 he joined the board of Sagentia Limited and in 2007 he joined the board of Sagentia Holdings Ltd in the role of Sales and Marketing Director. |
Staffan Ahlberg - Non-Executive Director Mr. Ahlberg received his Master of Science in Electronics from the Royal Institute of Technology in 1966 and his Bachelor of Business Administration from the Stockholm School of Economics in 1969. He worked as a management consultant at PA International from 1968 until 1978, when he founded International Business Systems AB. He was the first managing director of International Business Systems AB, took the company public in 1986 and kept serving International Business Systems AB during 24 years until retiring in 2002, when International Business Systems AB was a global company with more than 2,000 employees in 22 different countries. He is a serving director of Catella AB, a Stockholm based investment asset management, corporate finance and private equity business. Besides his directorship in Catella AB, he is currently the Chairman of two public information technology companies in Stockholm, ENEA AB and ProAct AB. |
|
Guy McCarthy - Finance Director Mr. McCarthy took his B.Sc in Pure Mathematics at Bath University in 1984 and completed an MBA through the Open University in 2002. He joined Price Waterhouse in 1984, and qualified as a Chartered Accountant in 1987. He remained with Price Waterhouse, as an audit manager until 1990 when he joined Sagentia Limited. He has undertaken a number of senior management positions and company secretarial roles within the Sagentia over the years, most recently as Finance Director. |
Dan Flicos - Commercial Director Mr. Flicos took his B.Sc and Masters in Electrical and Electronic Engineering at Bath University. He joined Marconi Radar Systems in 1987, working on the development of signal processors. He then moved to Digithurst Limited, a company developing imaging products for personal computers, where he became Technical Director. Mr. Flicos moved to Sagentia in 1993 where he has taken a number of senior management positions, including a period as President of the US operations from 2000 to 2003. |
|
|
* Retire by rotation at the next AGM. |
Business Review and principal activities
The principal activities of Sagentia are the provision of skillߛbased technology consulting services, and the development and exploitation of intellectual property.
A review of Sagentia's activities is contained in the Chairman's Statement and the Chief Executive's Review. The entities principally affecting the profit and assets of Sagentia in the current and preceding year are listed in Note 14 to the financial statements.
Key performance indicators
Group turnover was £29.1m (2007: £23.0m).
Loss on continuing operations before income tax was £2.2m (2007: £3.3m).
Loss attributable to equity holders of the parent was £1.7m (2007: £3.3m).
Individual results at a segmental level are also discussed in the Financial Review earlier.
Principal risks and uncertainties facing Sagentia
The Directors consider that the risks include:
Risk of increased competition
Sagentia may face significant competition, both actual and potential, including competition from competitors with greater capital resources than those of Sagentia. One or more of these competitors may be able to provide products and services which are more effective, economically viable or advanced than those provided by Sagentia or may undertake an aggressive pricing policy. There is no assurance that Sagentia will be able to compete successfully in such a market place. In particular, the market in which the Sagentia conducts its business may require it to reduce its prices. If Sagentia's competitors offer discounts on certain products or services in an effort to recapture or gain market share or to sell products and services, Sagentia may be required to lower prices or offer other favourable terms to compete successfully. Any such changes would be likely to reduce the Sagentia's margins and could adversely affect Sagentia's operating results.
Failure to retain or loss of customer contracts
Sagentia operates with a forward order book which runs on average across the business approximately 8 to 14 weeks. Loss of key customer contracts will reduce the order book towards 8 weeks and could lead to loss of consulting utilisation and therefore profitability.
Potential downturn in the market for outsourced product and service development
Sagentia is dependent on the global market for outsourced product and service development. Economic downturn or instability may cause customers to delay decisions to commit to large product or service development projects, or to use internal resources to achieve their business goals.
Dependence on key personnel
Sagentia's business depends on recruiting and retaining technical experts on whom the business depends to deliver product and service innovation. Failure to replace or hold on to key staff can threaten the business's ability to deliver projects to its clients and to win work.
Project over-run or failure to meet technical milestones
Sagentia is vulnerable to projects over-running and/or failure to meet technical milestones because the nature of the work which Sagentia undertakes is technically challenging and clients' specifications where they relate to new product development are liable to frequent change. Project over-run can lead to loss of margin on projects and overall profitability for the consulting business. Management recognises this uncertainty by conducting a rigorous exercise at the year-end to ensure that the revenue recognised on contracts in progress during the year is a fair representation of actual costs incurred and estimated costs to completion
Product liability claims or other warranty and indemnity claims in respect of contractual obligations
Sagentia is involved in the creation, development and delivery of innovative products. This involves design and product development which can be technically challenging. While Sagentia maintains product liability and professional indemnity insurance, it is not always possible to protect Sagentia against all risks, which may lead to product liability claims or other warranty and indemnity claims in respect of contractual obligations
Infringement of third party IP rights
Third parties may have filed applications for, may have been granted patents for, or may acquire patents and other proprietary rights that may cover Sagentia's existing or future products or technologies. If Sagentia is sued for infringement Sagentia may be forced to stop selling or manufacturing any infringing products and may be liable to pay damages for patent infringement.
Failure of licensees to successfully exploit licensed technology
Where Sagentia licences its intellectual property rights, future royalty payments are often dependent on achievement of certain product and transaction volumes which are outside of Sagentia's control.
Loss of value or liquidation of portfolio companies
Sagentia's strategy is to exploit intellectual property and other technology assets through licence, design and build and transaction fee income. Sagentia is unlikely to invest in or necessarily support its venture portfolio companies through their funding rounds. Where portfolio companies are dependent solely upon Sagentia for funding, this may threaten their financial position. Moreover, as Sagentia is likely to adopt a passive position in future financings, the valuation of its residual holding may reduce as Sagentia is diluted by the investment made by new shareholders. Consequently cashflows of Sagentia relating to disposal of investments may vary significantly. Sagentia seeks to maintain access to sufficient funds via its own cash balances and loans that may be drawn upon in order to compensate for this
Currency exchange rates
Sagentia's work involves delivering projects with overseas clients who may insist on being invoiced in foreign currency. As project timetables cannot be guaranteed, Sagentia cannot fully protect its position and foreign currency exposure.
Changes in legislation relating to trading
Sagentia operates in the life science sector which is heavily regulated. Any future changes which are made in legislation or regulations which affect or relate to trading arrangements between Sagentia and its customers could have an adverse effect on the business of Sagentia.
Fluctuation in the market price of quoted portfolio companies
Sagentia's portfolio includes a number of investments which are quoted or likely to be quoted in the future. Quoted investments are held on Sagentia's balance sheet at the mid-market price as at the balance sheet date. The market price of quoted portfolio companies is liable to fluctuation which may have a material impact on the financial statements of Sagentia and its balance sheet strength. Public traded securities from time to time experience significant price and volume fluctuations which will be beyond the Sagentia's control.
Financial instruments
Sagentia's operations expose it to a variety of financial risks including the effects of changes in interest rates on debt, foreign currency exchange rates, credit risk and liquidity risk. This is explained in more detail in Note 3 to the financial statements.
In additional to these operational risks, there are a number of financial and trading risks discussed in Note 3 to the financial statements.
Environment
Sagentia's policy with regard to the environment is to ensure that we understand and effectively manage the actual and potential environmental impact of our activities. Our operations are conducted such that we comply with all legal requirements relating to the environment in all areas where we carry out our business. During the period covered by this report Sagentia has not incurred any fines or penalties or been investigated for any breach of environmental regulations.
Employees
Sagentia is dependent upon the qualities and skills of our employees. The commitment of our people has played a major role in our business success. This has been demonstrated in many ways, including improvements in customer satisfaction (as measured under our ISO9001 system) of our UK consultancy business, the development of our service offerings and the flexibility they have shown in adapting to changing business requirements and new ways of working. Employees' performance is aligned to goals through an annual performance review process that is carried out with all employees, and via Sagentia's profit share and Sagentia's option schemes.
Employment policies
Sagentia's employment policies are non-discriminatory on the grounds of age, gender, nationality, ethnic or racial origin, non-job-related-disability or marital status. Sagentia gives every consideration to applications from all people and provides training and the opportunity for career development wherever possible.
Sagentia operates a share option scheme, which is at the discretion of the Remuneration Committee. Executives and managers throughout Sagentia are invited to participate on the basis of recommendations made by the CEO to the Remuneration Committee. Sagentia provides employees with information about its activities through regular briefings and Sagentia intranet. Employee involvement is encouraged across a wide range of business issues.
Sagentia operates an Employee Consultative Committee to consult on collective matters that affect employees.
Non current assets
Details of movements in property, plant and equipment during the year are set out in Note 13 to the financial statements.
The property was last valued during August 2008. The directors do not believe that the carrying value of the property is significantly different to its fair value.
Research and development
Sagentia has a continuing commitment to a high level of research and development, both on its own behalf, and on behalf of its clients. Directors estimate that research and development costs incurred during the year amounted to £6,227,000 (2007 - £6,085,000), all of which has been written off to the income statement. This increase reflects the need to be at the forefront of technological advance to ensure future growth.
Dividends
No interim dividend was declared during the year and the directors do not recommend that a dividend be paid in respect of the year ended 31 December 2008 (2007 - £Nil). It is the Board's policy to invest retained earnings to fund the further development and growth of the consulting business. The Board will review its policy periodically in the context of Sagentia's financial position.
Directors
The present membership of the Board is shown at the start of this report.
Directors' interests in the shares of Sagentia, at 31 December 2008 and 31 December 2007, and any changes subsequent to 31 December 2008, are as follows:
|
Ordinary £0.01 shares of Sagentia Group plc |
Average exercise price (p) |
31 December 2008 Number |
Average exercise price (p) |
31 December 2007 Number |
31 December 2008 Number |
31 December 2007 Number |
|
|
|
Options |
|
Options |
Shares |
Shares |
|
Masters |
|
- |
|
- |
100,000 |
100,000 |
|
Brown |
29.6 |
447,079 |
45.0 |
147,079 |
52,501 |
22,500 |
|
Flicos |
30.7 |
307,079 |
45.0 |
147,079 |
- |
- |
|
McCarthy |
27.4 |
307,078 |
45.0 |
110,309 |
20,621 |
9,460 |
|
Kylberg |
|
- |
|
- |
34,654 |
34,654 |
|
Ahlberg |
|
- |
|
- |
- |
- |
|
|
|
1,061,236 |
|
404,467 |
207,776 |
166,614 |
Options and shares held in 2007 represent the options and shares that would have been held in Sagentia Group AG assuming that the Sagentia Group plc offer for shares in Sagentia Group AG had already been accepted.
Options were granted during 2008 as follows:
|
Ordinary £0.01 shares of Sagentia Group plc |
Average exercise price p |
Exchanged for Sagentia Group AG options |
Approved share options |
Unapproved share options |
31 December 2008 Number |
|
|
Brown |
45.0 45.0 17.5 17.5 |
147,079 50,000 |
171,428 |
78,572 |
147,079 50,000 171,428 78,572 |
|
|
Flicos |
45.0 17.5 |
147,079 |
160,000 |
|
147,079 160,000 |
|
|
McCarthy |
45.0 17.5 17.5 |
110,309 |
171,428 |
25,341 |
110,309 171,428 25,341 |
|
|
|
|
454,467 |
502,856 |
103,913 |
1,061,236 |
|
The options may be exercised between 3 and 10 years from the date of grant. No Directors made any gain on the exercise of share options during the year and no options were exercised.
Election of Directors
Lars Kylberg and Alistair Brown will retire by rotation and offer themselves for re-election at the next Annual General Meeting.
Directors' interests in contracts
None of the directors had an interest in any contract of significance to which Sagentia was a party during the financial year, other than that disclosed in Note 8.
Supplier payment policy
The supplier payment policy is to pay suppliers generally at the end of the month following that in which the supplier's invoice is received. This policy is made known to the staff that make payments to suppliers, and to all suppliers on request. Sagentia payables balance for 2008 represents a creditor payment period of 32 days (2007 - 30 days).
Charitable and political donations
No charitable or political donations were made in the year (2007 - £Nil).
Post balance sheet events
See Note 25.
Planned future developments
A review of Sagentia's current and future activities is contained in the Chairman's Statement and Chief Executive's Review.
Substantial shareholdings
As at the date of this report, Sagentia had been notified of the following significant interests in its ordinary share capital:
|
Shareholder |
Number of ordinary shares |
% held |
|
Catella Switzerland AG |
10,512,080 |
48.9 |
|
Herald Investment Management Limited |
1,387,491 |
6.5 |
|
Prof. Gordon Edge CBE |
1,129,807 |
5.1 |
|
Mark Bradshaw |
1,034,209 |
4.8 |
Corporate Governance Report
Statement about applying the Principles of Good Governance
The Company is registered in England and Wales, and listed on the Alternative Investment Market of the London Stock Exchange ('AIM'). As such it has sought to apply the overlying principles of good governance set out by both parties. In particular Sagentia has applied the Principles of Good Governance set out in Section One of the Combined Code (2006) throughout the year by complying with the Code of Best Practice as reported below. Further explanation of how the Principles have been applied is set out below.
Corporate Governance Statements
Sagentia is committed to the principles of corporate governance contained in the Combined Code and for which the Board is accountable to shareholders. This report explains how the Directors seek to apply the requirements of the Combined Code to procedures within Sagentia.
Statement of compliance with the Code of Best Practice
Sagentia has complied throughout the year with the Provisions of the Code of Best Practice set out in Section One of the Combined Code except for the following matters:
-
Not all of the Non-Executive Directors on the Remuneration Committee or Audit Committee are independent
-
The Board does not formally evaluate the performance of each of its Directors, but evaluates the effectiveness of the Board as a whole as part of the Strategy Review annually in quarter 3 each year by open forum discussion both with and without the executive Directors in attendance.
The Chairman and senior Non-Executive Director on the Board at the year-end are independent.
Although the structure of the Board and a number of its subcommittees does not comply with the Combined Code, the Board believes that its composition is representative of the shareholders' register and, in particular, of the significant shareholding position of Catella Switzerland AG. The Board believes that it is well advised by Lars Kylberg and Staffan Ahlberg, very experienced non-executive Directors. It is the Board's intention to continue to seek the view of institutional shareholders regarding its composition and to adapt the composition of the Board in line with its strategic direction.
Board of Directors
Biographical details of the directors are included at the start of the Directors' Report.
At 31 December 2008, the Board comprised a Chairman, three Executive Directors and two Non-Executive Directors. One of the two Non-Executive Directors is independent. All directors bring a wide range of skills and international experience to the Board. Lars Kylberg is the senior independent Non-Executive Director. The Chairman holds meetings with the Non-Executive Directors without Executive Directors present.
The roles of Chairman and Chief Executive are separated and clearly defined. The Chairman is primarily responsible for the working of the Board of Sagentia Group plc, and the Chief Executive for the running of the business and implementation of the Board strategy and policy. The Chief Executive is assisted in the managing of the business on a day-to-day basis by the Executive team of Sagentia, and Finance Director.
High-level strategic decisions are discussed and taken by the full Board, with recommendations as appropriate from the Chief Executive. Investment decisions (above a de minimus level) are taken by the Board, following the recommendation from the Chief Executive. Operational decisions are taken by the Chief Executive within the framework approved in the annual budgets for their part of Sagentia. Sagentia's principal operating subsidiary, Sagentia Ltd, is run by an executive team, chaired by the Chief Executive.
The Board met 6 times during 2008. The Board regulations define a framework of high-level authorities that maps the structure of delegation below Board level, as well as specifying issues which remain within the Board's preserve. The Board will meet at least six times a year to consider a formal schedule of matters including the operating performance of the advisory, exploitation and investment businesses and to review Sagentia's budget strategy and business model.
Corporate Governance Report (continued)
Non-Executive Directors are appointed for a three-year term after which their appointment may be extended by mutual agreement, after rigorous review by the Board. In accordance with the company's Articles of Association, one-third of the Board are required to retire by rotation each year so that over a three-year period all Directors will have retired from the Board and faced re-election. Lars Kylberg, and Alistair Brown retire by rotation and will offer themselves for re-election at the forthcoming Annual General Meeting on 28 April 2009.
All directors have access to the advice and services of the Company Secretary, Group Legal Adviser, and other independent professional advisers as required. Sagentia has put in place processes by which Non-Executive Directors can familiarise themselves with all aspects of Sagentia and have access to key members of staff.
It is the responsibility of the Chairman and the Company Secretary to ensure that Board members receive sufficient and timely information regarding corporate and business issues to enable them to discharge their duties. Sagentia's strategy is regularly communicated to all employees in regular briefings.
Risk management is crucial to the success of Sagentia, and the Board and Audit Committee consider the risks associated with Sagentia's technology and intellectual property pipeline, technical resources, as well as regulatory and other operational risks. Risks are reviewed by the Board as part of the strategy review and the Audit Committee has since reviewed progress in all risk areas.
Directors
The directors of the Company who served during the year were:
|
Director |
Role at 31 December 2008 |
Date of (re-) appointment |
|
Board Committee |
||||
|
Chris Masters |
Chairman |
9 May 2008 |
|
A |
I |
N |
R |
|
|
Lars Kylberg |
Senior Non-Executive |
9 May 2008 |
|
A |
I |
N |
R |
|
|
Staffan Ahlberg |
Non-Executive |
9 May 2008 |
|
A |
|
N |
R |
|
|
Alistair Brown |
Chief Executive |
17 March 2008 |
|
|
|
|
|
|
|
Dan Flicos |
Commercial Director |
9 May 2008 |
|
|
|
|
|
|
|
Guy McCarthy |
Finance Director |
17 March 2008 |
|
|
|
|
|
|
Board Committee abbreviations are as follows: A = Audit Committee; I = Independent Director; R = Remuneration Committee; N = Nomination Committee
|
Board Meetings |
8 May |
9 May |
3 Jun |
16 Jun |
7 Jul |
21 Jul |
11 Aug |
26 Aug |
26 Aug |
15 Sep |
6 Oct |
28 Oct |
7 Nov |
23 Dec |
|
Full Board |
• |
• |
|
• |
|
|
|
• |
|
|
|
• |
|
• |
|
Sub-committee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Audit |
|
|
|
|
|
|
|
|
• |
|
|
|
|
|
|
- Remuneration |
|
|
|
|
|
|
|
|
• |
|
|
|
|
|
|
- Offer |
|
|
• |
|
• |
• |
• |
|
|
• |
• |
|
• |
|
|
- Nomination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors in attendance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Chris Masters |
|
• |
|
• |
|
|
|
• |
• |
|
|
• |
|
• |
|
- Lars Kylberg |
|
• |
|
• |
|
|
|
• |
• |
|
|
• |
|
• |
|
- Staffan Ahlberg |
|
• |
|
• |
|
|
|
x |
x |
|
|
• |
|
• |
|
- Alistair Brown |
• |
• |
• |
• |
|
• |
• |
• |
|
• |
• |
• |
• |
• |
|
- Daniel Flicos |
|
• |
|
• |
• |
|
|
• |
|
|
|
• |
|
• |
|
- Guy McCarthy |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• Attended the meeting. X Did not attend the meeting.
Board Committees
The Board maintains three standing committees, being the Audit, Remuneration and Nomination committees, all of which operate within written terms of reference. Further, while the Sagentia Group AG offer remains in place, there is also an Offer Committee which deals with the acceptances of Sagentia Group AG shareholders, and the issue of Sagentia Group plc shares in exchange. The minutes are circulated for review and consideration by the full complement of Directors, supplemented by oral reports from the Committee Chairmen at Board meetings.
-
Audit Committee
The Audit Committee is chaired by Lars Kylberg and comprises himself, Chris Masters and Staffan Ahlberg.
The Audit Committee is responsible for reviewing a wide range of matters including the half year and annual financial statements before their submission to the board as well as monitoring the controls, in particular regarding processes concerning investments, which are in force to ensure the integrity of the information reported to the shareholders. There is a whistle-blowing policy incorporated with Sagentia Handbook. The Audit Committee contribute to the Board's review of the effectiveness of internal controls and risk management systems. The Audit Committee advises the board on the appointment of external auditors and on their remuneration both for audit and non-audit work, and discusses the nature, scope and results of the audit with external auditors. The Audit Committee keeps under review the cost effectiveness and the independence and objectivity of the auditors. There is no internal audit function within Sagentia. The audit committee is satisfied that this would be inappropriate for a Group of Sagentia's size. The auditors have provided services in relation to the annual audit of the Group, a government grant audit report during the year, as well as the working capital review as part of the redomiciliation exercise during the year.
The Audit Committee met once during 2008. The Chairman also took additional meetings with the auditors and Finance Director during the year.
-
Remuneration Committee
The Remuneration Committee is chaired by Staffan Ahlberg and comprises Chris Masters and Lars Kylberg. Its function is to monitor the Human Resources policies of Sagentia to ensure that they are consistent with Sagentia's business and culture. It is charged with executing the Board's policy on Executive Director and executive management remuneration and reporting decisions made to the Board. The Committee both determines the individual remuneration package of Executive Directors and reviews remuneration levels for other senior employees of Sagentia. The Report of the Board on Remuneration on how Directors are remunerated can be found following this report. Details of individual Directors' remuneration packages are in Note 8 to the financial statements.
The Remuneration Committee met once during 2008.
-
Nomination Committee
The Nomination Committee is chaired by Chris Masters and comprises the two non-executive members of the Board. The Committee meets when necessary. The Committee's primary function is to make recommendations to the Board on all new appointments and also to advise generally on issues relating to Board composition and balance. The Board seeks input from all non-executive Directors regarding nominations for Board positions. Nominations for executive Directors are submitted by the Chief Executive to the Nomination Committee. All board appointments have to be approved at a General Meeting of the Company.
The Nomination Committee did not meet during 2008. It may take advice from time to time from external advisors, but did not do so in 2008.
Relations with shareholders
The directors seek to build on a mutual understanding of objectives between Sagentia and its institutional shareholders by meeting to discuss long-term issues and receive feedback, communicating regularly throughout the year and issuing semi-annual trading updates. The Board also seeks to use the Annual General Meeting to communicate with its investors.
Balanced and understandable assessment of position and prospects
The Board has shown its commitment to presenting balanced and understandable assessments of Sagentia's position and prospects by providing additional information to that required to comply with statutory obligations. This principally includes information on Sagentia's portfolio of investments in addition to disclosures within the segmental breakdown of income from activities.
As well as complying with the provisions of the Code as described in Sagentia's corporate governance statements, the Board has applied the Principles of Good Governance relating to directors' remuneration as described below. The Board has determined that there are no specific issues which need to be brought to the attention of shareholders. Approval of this report will not be sought at the Annual General Meeting.
Remuneration strategy
Sagentia operates in a competitive market. If Sagentia is to compete successfully, it is essential that it attracts, develops and retains high quality staff. Remuneration policy has an important part to play in achieving this objective. Sagentia aims to offer to its staff a remuneration package which is both competitive in the relevant employment market and which is set in relation to individual performance.
Report of the Board on Remuneration
Remuneration Committee
The Remuneration Committee exists to provide a mechanism through which the Board can satisfy itself that Sagentia is adopting Human Resources policies that are consistent with Sagentia's business objectives and philosophy. Its written terms of reference require the Committee to recommend policy on Executive Directors' and other senior managers' remuneration to the Board and, in accordance with the provisions of the Combined Code, to determine the remuneration of each Executive Director, including pension rights and any compensation payments.
The Committee, which is chaired by Staffan Ahlberg, also comprises Lars Kylberg and Chris Masters. Both Chris Masters and Lars Kylberg are considered independent Non-Executive Directors. The Committee consults, as appropriate, with the Chief Executive of Sagentia and asks for assistance from the Human Resources Manager. It also takes advice from time to time from external advisers, but did not do so in 2008.
Remuneration policy for Executive Directors
The aim of the Board and the Remuneration Committee is to maintain a policy that:
-
establishes a remuneration structure that will attract, retain and motivate Executive Directors and senior managers of appropriate calibre
-
rewards Executive Directors according to both individual and Group performance
-
establishes an appropriate balance between fixed and variable elements of total remuneration, with the performance-related element forming a potentially significant proportion of the total remuneration package
-
aligns the interests of Executive Directors and senior managers with those of shareholders through the use of performance-related rewards and share options in Sagentia
-
ensures that Directors' and senior managers' remuneration packages are in line with Sagentia's remuneration policy
From time to time the Committee obtains market data and information as appropriate when making its comparisons and decisions and is sensitive to the wider perspective, including pay and employment conditions elsewhere in Sagentia, especially when determining salary increases.
The remuneration package comprises the following elements:
-
Basic salary: Basic salaries are normally reviewed annually and are set to reflect market conditions, personal performance and those paid for similar jobs in comparable companies.
-
Annual performance-related bonus: Executive Directors receive annual performance-related bonuses related to consulting performance, valuation increases in the investment portfolio and profit.
-
Benefits: Executive Directors' benefits include medical and dental expenses, life assurance and pension contributions.
Full details of each Director's remuneration package and his interests in shares and share options can be found in Note 8 to the financial statements. There are no elements of remuneration, other than basic earnings, which are treated as being pensionable.
Service contracts
All Directors are appointed for a period of three years. Executive directors' contracts contain a notice period of 6 months. Non-executive Directors' service contracts may be terminated on three months' notice. There are no additional financial provisions for termination
Chairman and Non-Executive Directors
The remuneration arrangements of the Chairman and Non-Executive Directors are determined by the Board. Fees are paid to Non-Executive Directors. The basic fee for Non-Executive Directors is £15,000 per annum. The Chairman is paid a fee of £50,000 per annum. Benefits for Non-Executive Directors include reimbursement of travel and other incidental expenses for attendance at Board meetings and other Board committee meetings.
Option plans
The Company formally adopted an approved and unapproved Share Option Scheme on 26 August 2008. Options granted under these schemes have only been issued at market price. The Company has also granted option to replace options granted under the Sagentia Group AG option scheme which had not vested as a result of the redomiciliation exercise.
The Remuneration Committee and Board recognise that incentivisation of staff is a key issue for Sagentia, which depends on the skill of its people for its success. The Board and the Remuneration Committee are evaluating the optimum route to link Sagentia and individual performance. It is their intention to revise incentives at the earliest opportunity, within an open period. It is also the intention to accompany new incentives with performance criteria including both the growth and profitability of the technology development and consulting activities.
The market price of the shares at 31 December 2008 was 17 pence (2007 - 40 pence equivalent). The highest and lowest price during the year was 49 pence and 14 pence respectively.
Executive Directors are entitled to participate in Sagentia's share option schemes. The Remuneration Committee approves any options granted thereunder. Non-Executive Directors do not participate in Sagentia's share option schemes. It is the policy of Sagentia to grant share options to key employees and Executive Directors as a means of encouraging ownership and providing incentives for performance.
Report of the Audit Committee
Audit Committee
The Audit Committee has written terms of reference and exists to provide a mechanism through which the Board can maintain the integrity of the financial statements of Sagentia and any formal announcements relating to Sagentia's financial performance; to review Sagentia's internal financial controls and Sagentia's internal control and risk management systems; and to make recommendations to the board, for it to put to the shareholders for their approval in general meetings, in relation to the appointment of the external auditor. Provision is made by the Audit committee to meet the auditors at least twice a year.
The Committee, which is chaired by Lars Kylberg, also comprises Chris Masters and Staffan Ahlberg. The Committee consults, as appropriate, with the Chief Executive and Finance Director. It may also take advice from time to time from external advisers, but did not do so in 2008.
Internal controls
In applying the principle that the Board should maintain a sound system of internal control to safeguard shareholders' investment and Sagentia's assets, the Directors recognise that they have overall responsibility for ensuring that Sagentia maintains a system of internal control to provide them with reasonable assurance regarding effective and efficient operations, internal control and compliance with laws and regulations, and for reviewing the effectiveness of that system. However, there are inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable and not absolute assurance against material mis-statement or loss, and that the system is designed to manage rather than eliminate the risk of failure to achieve the business objectives.
Sagentia has established procedures necessary to implement the guidance on internal control issued by the Turnbull Committee. This includes identification, categorisation and prioritisation of critical risks within the business and allocation of responsibility to its Executive Director and senior managers.
In previous years the Board has established a process for identifying, evaluating and managing the significant risks Sagentia faces.
The key features of the internal control system are described below:
Control environment. Sagentia is committed to high standards of business conduct and seeks to maintain these standards across all of its operations. There are also policies in place for the reporting and resolution of suspected fraudulent activities. Sagentia has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve its objectives.
Risk identification. Management is responsible for the identification and evaluation of key risks applicable to their areas of business. These risks are assessed on a continual basis and may be associated with a variety of internal and external sources, including infringement of IP, sales channels, investment risk, staff retention, disruption in information systems, natural catastrophe and regulatory requirements.
Information systems. Group businesses participate in periodic strategic reviews, which include consideration of long-term financial projections and the evaluation of business alternatives. Annual budgets and rolling four-year plans are prepared. The Board actively monitors performance against plan. Forecasts and results are consolidated and presented to the Board on a regular basis. Through these mechanisms, performance is continually monitored, risks identified in a timely manner, their financial implications assessed, control procedures re-evaluated and corrective actions agreed and implemented.
Main control procedures. Sagentia has implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the exposure to loss of assets and fraud. Measures taken include segregation of duties and reviews by management.
Monitoring and corrective action. There are clear and consistent procedures in place for monitoring the system of internal financial controls.
This process, which operates in accordance with Turnball guidance, was maintained throughout the 2008 financial year, and has remained in place up to the date of the approval of these financial statements. The Board, via the Audit Committee, has formally reviewed the systems and processes in place in meetings with the Chief Executive, Finance Director, and Sagentia's Auditors during 2008. No internal audit function is operated outside of the systems and processes in place, as Sagentia is considered too small for a separate function. The Board considers the internal control system to be adequate for Sagentia.
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
-
select suitable accounting policies and then apply them consistently
-
make judgments and estimates that are reasonable and prudent
-
state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements
-
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In so far as each of the directors is aware:
-
there is no relevant audit information of which the company's auditors are unaware; and
-
the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
Auditors
The directors appointed Grant Thornton UK LLP as auditors during the year. The auditors are willing to continue in office, and a resolution to reappoint them will be proposed at the forthcoming annual general meeting.
Approval
The report of the directors was approved by the Board on 2 March 2009 and signed on its behalf by:
By order of the Board
Guy McCarthy
Company Secretary
Harston Mil
Harston
Cambridge
CB22 7GG
Auditors' Report:
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF SAGENTIA GROUP PLC
We have audited the group and company financial statements (the 'financial statements') of Sagentia Group plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and company statements of changes in equity, the consolidated and company balance sheets, the consolidated and company cash flow statements, and notes 1 to 25. These financial statements have been prepared under the accounting policies set out therein
This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman's Statement, the Chief Executives Review, the Financial Review and the Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
-
the group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the group's affairs as at 31 December 2008 and of its loss for the year then ended
-
the parent company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 31 December 2008;
-
the financial statements have been properly prepared in accordance with the Companies Act 1985; and
-
the information given in the Directors' Report is consistent with the financial statements.
GRANT THORNTON UK LLP
REGISTERED AUDITOR
CHARTERED ACCOUNTANTS
Cambridge
Date: 2 March 2009
Consolidated Income Statement
For the year ended 31 December 2008
|
|
Note |
|
Core operations £000 |
Venture subsidiaries £000 |
2008
|
2007
|
|
Continuing operations |
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Core operations |
|
|
29,027 |
- |
29,027 |
22,793 |
|
Venture subsidiaries |
|
|
- |
44 |
44 |
169 |
|
|
4 |
|
29,027 |
44 |
29,071 |
22,962 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Core operations |
|
|
(26,704) |
- |
(26,704) |
(22,151) |
|
Venture subsidiaries |
|
|
- |
(1,027) |
(1,027) |
(1,559) |
|
|
4,5 |
|
(26,704) |
(1,027) |
(27,731) |
(23,710) |
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
4 |
|
2,323 |
(983) |
1,340 |
(748) |
|
Profit on disposal of investments |
14 |
|
|
|
- |
1,376 |
|
Change in value of financial assets |
14 |
|
|
|
(1,982) |
(3,701) |
|
Bonus accrual |
|
|
|
|
- |
327 |
|
Redomiciliation |
|
|
|
|
(589) |
- |
|
Share based payment charge* |
|
|
|
|
(170) |
(83) |
|
Operating loss |
|
|
|
|
(1,401) |
(2,829) |
|
|
|
|
|
|
|
|
|
Finance costs |
6 |
|
|
|
(536) |
(552) |
|
Finance income |
6 |
|
|
|
16 |
86 |
|
Other financial result |
6 |
|
|
|
(289) |
(19) |
|
Loss on continuing operations before income tax |
|
|
|
|
(2,210) |
(3,314) |
|
Tax income |
9 |
|
|
|
123 |
80 |
|
Loss on continuing operations for the year |
|
|
|
|
(2,087) |
(3,234) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
Equity holders of the parent |
|
|
|
|
(1,746) |
(3,264) |
|
Minority interests |
|
|
|
|
(341) |
30 |
|
Loss for the year |
|
|
|
|
(2,087) |
(3,234) |
|
|
|
|
|
|
|
|
|
Earnings per share from total and continuing operations |
|
|
|
|
|
|
|
Loss per share (basic and diluted) |
11 |
|
|
|
(9.7)p |
(15.0)p |
* See Consolidated Statement of Changes in Equity.
Consolidated and Company Statement of Changes in Equity
For the year ended 31 December 2008
|
Group |
Issued capital £000 |
Merger reserve £000 |
Investment in own shares £000 |
Translation reserve £000 |
Share based payment reserve £000 |
Retained earnings £000 |
Total - Shareholders funds £000 |
Minority Interest £000 |
Total equity £000 |
|
Balance at 1 January 2007 |
215 |
22,099 |
(61) |
(128) |
346 |
(1,880) |
20,591 |
209 |
20,800 |
|
Exchange differences on translating foreign operations |
- |
- |
- |
(104) |
- |
- |
(104) |
(4) |
(108) |
|
Net income recognised directly in equity |
- |
- |
- |
(104) |
- |
- |
(104) |
(4) |
(108) |
|
Profit (loss) for the year |
- |
- |
- |
- |
- |
(3,246) |
(3,246) |
12 |
(3,234) |
|
Total recognised income (expense) for the year |
- |
- |
- |
(104) |
- |
(3,246) |
(3,350) |
8 |
(3,342) |
|
Dividends payable to minorities |
- |
- |
- |
- |
- |
- |
- |
(8) |
(8) |
|
Shares in subsidiaries issued to minorities |
- |
- |
- |
- |
- |
- |
- |
5 |
5 |
|
Share based payment charge |
- |
- |
- |
- |
83 |
- |
83 |
- |
83 |
|
Balance at 31 December 2007 |
215 |
22,099 |
(61) |
(232) |
429 |
(5,126) |
17,324 |
214 |
17,538 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2008 |
215 |
22,099 |
(61) |
(232) |
429 |
(5,126) |
17,324 |
214 |
17,538 |
|
Exchange differences on translating foreign operations |
- |
- |
- |
(446) |
- |
- |
(446) |
24 |
(422) |
|
Net income recognised directly in equity |
- |
- |
- |
(446) |
- |
- |
(446) |
24 |
(422) |
|
Profit (loss) for the year |
- |
- |
- |
- |
- |
(1,746) |
(1,746) |
(341) |
(2,087) |
|
Total recognised income (expense) for the year |
- |
- |
- |
(446) |
- |
(1,746) |
(2,192) |
(317) |
(2,509) |
|
Dividends paid to minorities |
- |
- |
- |
- |
- |
- |
- |
(34) |
(34) |
|
New shares issued |
50 |
- |
(50) |
- |
- |
- |
- |
- |
- |
|
Shares in subsidiaries issued to minorities |
- |
- |
- |
- |
- |
- |
- |
276 |
276 |
|
Share based payment charge |
- |
- |
- |
- |
170 |
- |
170 |
- |
170 |
|
Balance at 31 December 2008 |
265 |
22,099 |
(111) |
(678) |
599 |
(6,872) |
15,302 |
139 |
15,441 |
|
Company |
Issued capital £000 |
Merger reserve £000 |
Investment in own shares £000 |
Translation reserve £000 |
Share based payment reserve £000 |
Retained earnings £000 |
Total - Shareholders funds £000 |
Minority Interest £000 |
Total equity £000 |
|
Balance at 1 January 2007 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Profit (loss) for the year |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Share based payment charge |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Balance at 31 December 2007 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2008 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Profit (loss) for the year |
- |
- |
- |
- |
- |
(634) |
(634) |
- |
(634) |
|
New shares issued |
265 |
10,295 |
- |
- |
- |
- |
10,560 |
- |
10,560 |
|
Share based payment charge |
- |
- |
- |
- |
3 |
- |
3 |
- |
3 |
|
Balance at 31 December 2008 |
265 |
10,295 |
- |
- |
3 |
(634) |
9,929 |
- |
9,929 |
Sagentia Group plc was incorporated on 17 March 2008, and hence the company results show new shares issued in 2008.
Group results restated to reflect the group reorganisation. See note 2.
The accompanying Notes are an integral part of the consolidated statement of changes in equity.
The Merger reserve arose as a consequence of a group reconstruction that resulted in Sagentia Group plc acquiring Sagentia Group AG by way of a share for share exchange.
Consolidated and Company Balance Sheet
At 31 December 2008
|
|
|
Company |
Group |
||
|
|
Note |
2008 £000 |
2007 |
2008 £000 |
2007 |
|
ASSETS |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Intangible assets |
12 |
- |
- |
1 |
5 |
|
Property, plant and equipment |
13 |
- |
- |
15,008 |
14,574 |
|
Investments |
14 |
10,510 |
- |
5,291 |
7,570 |
|
Deferred income tax assets |
10 |
- |
- |
2,633 |
2,657 |
|
|
|
10,510 |
- |
22,933 |
24,806 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
15 |
6 |
- |
6,768 |
7,733 |
|
Current tax asset |
|
- |
- |
80 |
59 |
|
Cash and cash equivalents |
16 |
- |
- |
5,341 |
859 |
|
|
|
6 |
- |
12,189 |
8,651 |
|
Total assets |
|
10,516 |
- |
35,122 |
33,457 |
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
Called-up share capital* |
17 |
265 |
- |
265 |
215 |
|
Merger reserve* |
|
10,295 |
- |
22,099 |
22,099 |
|
Investment in own shares* |
|
- |
- |
(111) |
(61) |
|
Translation reserve* |
|
- |
- |
(678) |
(232) |
|
Share based payment reserve* |
|
3 |
- |
599 |
429 |
|
Retained earnings* |
|
(634) |
- |
(6,872) |
(5,126) |
|
Equity attributable to the equity holders of the parent |
|
9,929 |
- |
15,302 |
17,324 |
|
Minority interest |
|
- |
- |
139 |
214 |
|
Total equity |
|
9,929 |
- |
15,441 |
17,538 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Borrowings |
18 |
- |
- |
9,430 |
7,243 |
|
Other creditors |
18 |
- |
- |
90 |
69 |
|
Financial instruments |
18 |
- |
- |
489 |
200 |
|
Deferred income tax liabilities |
10 |
- |
- |
2,633 |
2,657 |
|
|
|
- |
- |
12,642 |
10,169 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
19 |
586 |
- |
6,926 |
4,891 |
|
Current income tax liabilities |
19 |
- |
- |
- |
36 |
|
Borrowings |
19 |
1 |
- |
113 |
823 |
|
|
|
587 |
- |
7,039 |
5,750 |
|
|
|
|
|
|
|
|
Total liabilities |
|
587 |
- |
19,681 |
15,919 |
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
10,516 |
- |
35,122 |
33,457 |
* See Consolidated Statement of Changes in Equity.
Sagentia Group plc was incorporated on 17 March 2008, and hence the company results show no 2007 comparatives.
The financial statements were approved by the Board of Directors and signed on its behalf by
Chris Masters Chairman
Alistair Brown Chief Executive Officer
On 2 March 2009
The accompanying Notes are an integral part of the consolidated balance sheet.
Consolidated and Company Cash Flow Statement
For the year ended 31 December 2008
|
|
Note |
Company |
Group |
||
|
|
|
2008 £000 |
2007 |
2008 £000 |
2007 |
|
Loss before income tax |
|
(631) |
- |
(2,210) |
(3,314) |
|
Depreciation and amortisation charges |
|
- |
- |
375 |
409 |
|
Profit on disposal of investments |
|
- |
- |
- |
(1,376) |
|
Change in fair value of financial assets |
|
- |
- |
2,047 |
3,701 |
|
Change in fair value of interest rate swap |
|
- |
- |
289 |
19 |
|
Bonus accrual |
|
- |
- |
- |
(327) |
|
Share based payment charge |
|
- |
- |
170 |
83 |
|
(Increase) decrease in receivables |
|
(6) |
- |
965 |
(2,599) |
|
Increase (decrease) in payables |
|
586 |
- |
918 |
(140) |
|
UK corporation tax received (net) |
|
- |
- |
76 |
50 |
|
Foreign corporation tax (paid) received (net) |
|
- |
- |
- |
(6) |
|
Cash flows from operating activities |
|
(51) |
- |
2,630 |
(3,500) |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
- |
- |
(764) |
(200) |
|
Proceeds from sale of property, plant and equipment |
|
- |
- |
- |
5 |
|
|
|
|
|
|
|
|
Loans repaid by related parties |
|
- |
- |
- |
63 |
|
Loan repayments received from third parties |
|
- |
- |
19 |
(34) |
|
|
|
|
|
|
|
|
Purchase of financial assets at fair value through profit and loss |
|
- |
- |
- |
(185) |
|
|
|
|
|
|
|
|
Sale of current assets investments |
|
- |
- |
- |
23 |
|
Sale of subsidiary undertaking |
|
- |
- |
10 |
1,488 |
|
Sale of financial assets at fair value through the profit and loss |
|
- |
- |
206 |
165 |
|
Cash flows from investing activities |
|
- |
- |
(529) |
1,325 |
|
|
|
|
|
|
|
|
Issue of ordinary share capital |
|
50 |
- |
- |
- |
|
Issue of shares by subsidiary undertakings to minority interests |
|
- |
- |
276 |
5 |
|
Dividends paid to minorities |
|
- |
- |
(34) |
- |
|
Issue of loans by minority interests to subsidiary undertakings |
|
- |
- |
502 |
13 |
|
Loan drawn down |
|
- |
- |
1,477 |
1,064 |
|
Cash flows from financing activities |
|
50 |
- |
2,221 |
1,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents in the year |
|
(1) |
- |
4,322 |
(1,093) |
|
Cash and cash equivalents at the beginning of the year |
|
- |
- |
859 |
1,963 |
|
Exchange profit (loss) on cash |
|
- |
- |
160 |
(11) |
|
Cash and cash equivalents at the end of the year |
17 |
(1) |
- |
5,341 |
859 |
Sagentia Group plc was incorporated on 17 March 2008, and hence the company results show no 2007 comparatives.
This information is provided by RNS
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