Interim Results

RNS Number : 8018S

Venture Life Group PLC

29 September 2014

 



VENTURE LIFE GROUP PLC

("Venture Life" or the "Group")

Unaudited interim results for the six months ended 30 June 2014

Building the platform for growth, momentum increasing

Bracknell, UK - 29 September 2014: Venture Life Group plc (AIM: VLG), the international consumer products group addressing the self-care needs of the ageing population, presents its unaudited interim results for the six months ended 30 June 2014.

Financial highlights:

•      Successful fundraising of £4.2 million, net of expenses, and admission to AIM

•      Acquisition of Biokosmes S.r.l, an Italian development and manufacturing business, for £12.8m settled by £3.5 million in cash, together with shares and loan notes

•      Revenues increased to £3.1 million (H1 2013: £0.27 million), including the impact of Biokosmes for three months

•      EBITDA loss reduced to £0.2 million (H1 2013: loss of £0.34 million)

•      Cash at 30 June 2014: £0.5 million (31 December 2013: £0.45 million, 30 June 2013: £1.1 million)

Commercial highlights:

•      Nine long-term product distribution agreements signed with partners

•      Manufacturing equipment upgraded and the commercial team expanded

•      Seven new products added to the Brands portfolio - five medical devices and two food supplements

•      New product development moved to Biokosmes

Post-period end highlights:

•      Six long-term product distribution agreements signed

Commenting on the results, Jerry Randall, Chief Executive Officer of Venture Life, said:

"The Group has made solid progress against its strategic objectives with the acquisition of Biokosmes, the successful fundraising and admission to AIM, and continued business development wins. Since the start of the year, we have signed 15 new distribution agreements and have added five new medical devices and two new food supplements to our Brands portfolio. We are building momentum in each part of the business and are seeing encouraging evidence of growth for 2015 and beyond."

For further information please contact:

Venture Life Group PLC

Jerry Randall, Chief Executive Officer

James Hunter, Chief Financial Officer                                    [phone]

WG Partners (Broker)   
Jonathan Gosling, Claes Spång                                                  [phone]

Charles Stanley Securities (Nominated Adviser)              
Phil Davies                                                                                         [phone]

Square1 Consulting

David Bick, Mark Longson                                                            [phone]

JW Communications

Julia Wilson                                                                                       [phone]

Non-executive Chair's and Chief Executive's Statement

Overview

The first half of 2014 was significant for Venture Life Group, with the fundraising of £4.2 million, net of expenses, the admission to AIM and the acquisition of Biokosmes, for cash of £3.5 million, in addition to shares and loan notes.

The Group now employs 70 people between its offices and facilities in Bracknell, UK and Lecco, Italy, and has customers in over 50 countries around the globe. The Group also has its own in-house development and manufacturing facilities in Italy for topical products and has a strong and growing team in the UK commercialising the products developed by the Group to address the self-care needs of the ageing population. Through the investment in the Group over the last six months, we have established a solid platform for strong growth in 2015 and beyond, with the opportunity to increase significantly the revenues of the business without significant increase in our overhead costs.

Commercial review - Brands

The Group made solid progress in the first six months of 2014 and we are pleased to report increasing momentum in revenues across the business over the last few months, which will be seen in H2 2014 and into 2015.  In our Brands business we are seeing increased interest amongst international distributors in our range of self-care products, and this is translating into long-term distribution agreements with highly regarded companies such as Valeant and Hikma.

In the six month period to June 2014 we signed several new long-term distribution agreements on a number of products:

·     Ten year exclusive deal with DEEF Pharma, a new partner, to distribute Immobilice, Guma-eze, Baby Guma-eze and Procto-eze in Saudi Arabia;

·     Ten year exclusive deal with GM BAY, a new partner, to distribute ZipClear and Calm-eze in Turkey;

·     Ten year exclusive deal with an undisclosed new partner to distribute Benecol¹ in food supplement form in an undisclosed territory; and

·     Ten year exclusive deal with MedMen, an existing partner, to distribute NeuroAge Sleep and NeuroAge NRG in Romania and Moldova.

This impetus has continued and, since the period end, we have also concluded the following new long-term distribution deals:

·    Ten year exclusive deal with Valeant, a new partner, to distribute Procto-eze Cream in six European markets, including Germany;

·    Ten year exclusive deal with SymPhar, a new partner, to distribute Procto-eze Cream in Poland;

·    Ten year exclusive deal with Lyfis, a new partner, to distribute Procto-eze Cream and Procto-eze Foam Cleanser in Iceland;

·     Ten year exclusive deal with DeltaPharma, a new partner, to distribute Original Bioscalin in Albania; and

·     Ten year exclusive deal with Elpen, an existing partner, to distribute NeuroAge Sleep and NeuroAge NRG in Greece.

1 Benecol® is a registered trademark of Raisio plc.

The increase in commercial activity and the number of signed distribution agreements reflect the investment the Group has made in business development resource with the appointment of two new business development directors in the UK who have already have made a significant contribution to the business.

The commercial lifecycle for partnering means that the Group will usually first generate revenue from an agreement with a distribution partner in the EU in 6-9 months, as we automatically register all products in the EU. However, this period may be longer outside the EU where we have to pursue a registration process for each of our products.

The Group has also added seven new products to the Brands portfolio since March 2014, including:

          ·     Procto-eze - a clinically-tested Class III medical device which helps relieve the discomfort caused by
              haemorrhoids;

          ·     Guma-eze - a Class I medical device in gel form formulated to ease gum soreness and discomfort caused by
              dentures and adult braces;

          ·     Immobilice - a clinically-tested Class I medical device in spray and shampoo form which help eliminate
              head lice;

          ·     ZipClear™ - a Class I medical device that helps to relieve symptoms associated with herpes simplex virus
              type 1 (cold sores);

          ·     NeuroAge™ NRG - a food supplement that as well as maintaining brain function has been specially
             formulated to maintain alertness; and

          ·    NeuroAge™ Sleep - a food supplement that as well as maintaining brain function helps to promote sleep
            and reduce the time taken to fall asleep.

Our portfolio of branded products now totals 14, and we have a range of skin-care products under our Lubatti brand. We regularly review our product portfolio and new product development pipeline to ensure that our product offering is continuing to meet customer needs. As part of this review we consider whether there are third party-owned products already on or near to the market that we would like to bring into the Group, as well as consider whether any of our own products could be more successfully commercialised by another party.

Although we have signed a number of distribution agreements already this year, we are confident that with continued hard work we will increase the distribution of our products, and consequently the long-term revenue opportunities.  We are investing in building strong relationships with our existing distribution partners to ensure that we are providing high levels of customer service, and so that we are well-positioned to benefit from cross-selling opportunities involving our current product range as well as new products in our development pipeline.  There are also a significant number of territories where our products are not distributed and we are aiming for every one of our products to be sold in at least 30 countries. We are continuing to make progress on discussions for partnering our food supplement under the Benecol brand, and towards launching a number of the Group's products into China where we remain on course to conclude a deal and ship first products in H2 2015.

Following the inspection and approval of the Biokosmes facility by the Brazilian government's National Health Surveillance Agency (ANVISA) in February 2014, we have recently appointed an agent in Brazil to access the market for our products in Brazil. In the US market our food supplements, dermatology products and medical devices are currently going through the notification and registration process with the Food and Drug Administration (FDA). We look forward to updating shareholders on progress on all these opportunities in due course.

Commercial review - Manufacturing

On 27 March 2014, the Group acquired Biokosmes, an established development and manufacturing business for topical products (liquids, creams, and gels). Founded some 30 years ago, Biokosmes specialises in the development and manufacturing of topical medical devices and cosmetics and has an enviable reputation for quality and customer service. We are pleased with the progress of the integration of Biokosmes into the Group, and we are already seeing a number of the expected benefits of the acquisition beginning to materialise.  Biokosmes now manufactures 11 of the Group's 14 branded products, as well as the entire Lubatti skin-care range, and we anticipate the increasing demand for the Group's branded products manufactured by Biokosmes to contribute to an increase in the Group's manufacturing margins in the future.

The facility, based in Lecco, provides significant opportunity for expansion. In 2013 the factory produced 12.8 million units and, with increased utilisation, capacity can be increased to 16 million units per annum to accommodate the planned growth in sales of the Group's branded and unbranded topical products, and with limited investment to as much as 25 million units per annum.  A significant proportion of Biokosmes's cost base is fixed and we would expect the planned volume increases in future years to improve the Group's gross profit margins.

We have already initiated the investment programme by installing a nine tonne blending vessel which will provide an increase in mixing capacity and a reduction in the batch cost. The facility was also inspected during H1 2014 and approved for manufacturing by ANVISA and the FDA, enabling the Group to benefit from the supply of its products to key markets in North America and South America.

In line with our strategy, the acquisition has enabled the Group to improve its new product development processes.  Rapid and safe development of effective products is a critical success factor for the Group and all but two of our current branded products have been developed internally. As announced in August 2014, we have consolidated our new product development function in our facility in Italy. The local team have extensive experience of developing new products and we expect this move to increase our speed to market and, at the same time, improve the quality of our new product development process. We have a significant pipeline of development products to bring to market, in areas including cardiovascular health, neurology, and women's health, and we look forward to updating shareholders on the progress of these products in due course.

Financial review

During the period under review, the Group undertook a successful fundraising of £4.2 million, net of expenses, £3.5 million of which was used in part consideration for the acquisition of Biokosmes. The details of this acquisition are shown in Note 10 to the unaudited financial statements, and Note 10 also shows a pro forma income statement to help shareholders understand the impact of the acquisition. Biokosmes is now referred to as the Group's Manufacturing segment when reporting by segment.

Statement of comprehensive income

Headline revenue in the period increased from £0.27 million in H1 2013 to £3.1 million in H1 2014 whilst the enlarged Group pro forma¹ revenues were £5.0 million for the period compared with £6.1 million for H1 2013.   After a record performance in 2013 which we recognised would provide challenges to our 2014 comparatives, revenues at Biokosmes were slower than expected in Q1 but picked up strongly in Q2. Revenues in June 2014 were the highest ever recorded by Biokosmes in a single month. 

Revenue from Venture Life's branded products business (referred to as our Brands business for segmental reporting purposes) was £0.13 million (H1 2013: £0.27 million).  We are expecting variability in reported revenue between periods in the early years of distribution agreements as there is considerable variability in the time it takes distribution partners to register products, educate their sales force and achieve sell-in to pharmacies.   However, as we continue to sign more agreements, the frequency and volume of orders will increase and consequently variability in our reported revenues between periods is expected to reduce.  Sterling was much stronger in H1 2014 compared with H1 2013 and this has negatively impacted reported revenues by some 2-3%. 

Gross margins in the Brands business increased to 51% compared with 33% in H1 2013 when margins had been adversely impacted by a one-off cost. Gross margins in the Manufacturing business were 33% compared with 34% in H1 2014 reflecting the impact of the fixed manufacturing cost base on lower revenue. Future planned increases in throughput are expected to improve this margin.

EBITDA² for the period improved from a loss of £0.34 million in H1 2013 to a loss of £0.20 million in H1 2014 reflecting the contribution made by Manufacturing following the Biokosmes acquisition.  On an enlarged Group pro forma basis EBITDA was a loss of £0.08 million in H1 2014 compared with a profit of £1.0 million in H1 2013 with reduced revenues and an increase in selling and administrative costs explaining this. In particular, we have invested in business development and customer service ahead of revenue in order to drive the growth of the Group and, after a record year in 2013, and a period of consolidation in 2014 we expect our Manufacturing business to resume its growth in 2015 and beyond.

Loss per share was (2.8p) (H1 2013: (2.7p)).

Statement of financial position and cash flow

Net assets increased to £11.6 million (30 June 2013: £0.8 million, 31 December 2013: £0.56 million), owing largely to the Biokosmes acquisition.  Net assets included cash and cash equivalents of £0.51 million (30 June 2013: £1.1 million, 31 December 2013: £0.45 million).  Total debt stood at £3.0 million (30 June 2013: £0.33 million, 31 December 2013: £0.35 million), the increase reflecting the debt acquired with the Biokosmes acquisition and the convertible loan notes issued to the vendors of Biokosmes as part of the total consideration.  We expect trading to be broadly cash neutral during the second half of this year.

1Pro forma as if Biokosmes had been wholly owned by the Venture Life Group for the whole period under review 

2Earnings before interest, tax, depreciation, and amortisation and share-based payments

Outlook

With 15 new distribution agreements signed in the year to date and a strong order book, we are expecting significantly stronger underlying revenues in H2 2014. In addition, in 2013 there was a 60/40 split in H1 vs H2 revenues at Biokosmes, but we expect this split to be a little less pronounced this year. Taken together, we expect a continued improvement of the business in the second half of the year and into 2015.

The acquisition of Biokosmes and the placing and admission to AIM were significant milestones in the development of the Group. They have provided a scalable platform for growth that will enable and support the further development and commercialisation of our product portfolio. We operate in a sector that is rapidly growing as the ageing population looks to improve their quality of life and we remain confident of strong growth in the years ahead.

Lynn Drummond - Non-executive Chair

Jerry Randall - Chief Executive Officer

Unaudited Interim Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

	Note	Six months ended 30 June 2014		Six months ended 30 June 2013		Year ended 31 December 2013
		(Unaudited)		(Unaudited)		(Audited)
		£'000		£'000		£'000
Revenue	4	3,146		274		486
Cost of sales		(1,913)		(184)		(301)
Gross profit		1,233		90		185
Other income		19		-		-
Administrative expenses		(1,719)		(501)		(1,178)
Exceptional expenses	5	(80)		-		(105)
Operating loss		(547)		(411)		(1,098)
Finance income		88		-		1
Finance costs		(23)		(6)		(25)
Loss before tax		(482)		(417)		(1,122)
Tax	6	(105)		-		41
Loss for the period attributable to the equity shareholders of the parent		(587)		(417)		(1,081)
Other comprehensive expense attributable to the equity shareholders of the parent	7	(587)		-		-
Total comprehensive income for the period attributable to equity shareholders of the parent		(1,174)		(417)		(1,081)
Basic and diluted loss per share (pence per share) attributable to equity shareholders of the parent	8	(2.8)		(2.7)		(6.7)

Unaudited Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2014

	Note	30 June 2014		30 June 2013		31 December 2013
		(Unaudited)		(Unaudited)		(Audited)
Assets:		£'000		£'000		£'000
Non-current assets
Intangible assets		12,600		361		457
Property, plant and equipment		948		6		10
Available for sale financial assets	5	5		-		31
		13,553		367		498
Current assets
Inventories		2,133		87		174
Trade and other receivables		3,446		149		874
Unpaid share capital		-		25		-
Cash and cash equivalents		511		1,069		453
Total current assets		6,090		1,330		1,501
Total assets		19,643		1,697		1,999
Equity and liabilities:
Capital and reserves
Share capital	11	90		2		51
Share premium account	11	14,983		2,530		2,668
Merger reserve		50		50		50
Convertible loan note reserve		-		38		39
Share-based payment reserve		277		118		338
Foreign currency translation reserve		(587)		-		-
Retained earnings		(3,188)		(1,925)		(2,589)
Total equity attributable to equity holders of the parent		11,625		813		557
Liabilities
Non-current liabilities
Interest bearing borrowings		1,148		-		-
Deferred licence provision		20		137		35
Convertible loan notes		1,551		290		298
Employee liability provision		470		-		-
Other provisions		48		-		-
Deferred tax		675		-		-
		3,912		427		333
Current liabilities
Trade and other payables		3,341		348		1,051
Interest bearing borrowings		436		-		-
Deferred licence provision		20		66		8
Taxation		260		-		-
Convertible loan notes		49		43		50
		4,106		457		1,109
Total liabilities		8,018		884		1,442
Total equity and liabilities		19,643		1,697		1,999

Unaudited Interim Condensed Consolidated Statement of Changes in Equity attributable to the equity shareholders of the parent

As at 30 June 2014

	Share capital £'000		Share premium account £'000		Other reserve £'000		Convertible  loan note reserve £'000		Share-based payment reserve £'000		Foreign currency translation reserve £'000		Retained earnings £'000		Total equity £'000
Balance at 1 January 2013	1		1,507		50		-		77		-		(1,508)		127
Comprehensive income:
Total comprehensive income for the period	-		-		-		-		-		-		(417)		(417)
Transactions with shareholders:
Issue of share capital	1		1,023		-		-		-		-		-		1,024
Issue of convertible loan notes	-		-		-		38		-		-		-		38
Share option charge	-		-		-		-		41		-		-		41
Balance at 30 June 2013 (Unaudited)	2		2,530		50		38		118		-		(1,925)		813
Comprehensive income:
Total comprehensive income for the period	-		-		-		-		-		-		(664)		(664)
Transactions with shareholders:
Issue of share capital	-		187		-		-		-		-		-		187
Bonus  issue	49		(49)		-		-		-		-		-		-
Issue of convertible loans	-		-		-		1		-		-		-		1
Share option charge	-		-		-		-		70		-		-		70
Share settled liability	-		-		-		-		150		-		-		150
Balance at 31 December 2013 (Audited)	51		2,668		50		39		338		-		(2,589)		557
Comprehensive income:
Profit for the period	-		-		-		-		-		-		(587)		(587)
Other comprehensive income	-		-		-		-		-		(587)		-		(587)
Total comprehensive income	-		-		-		-		-		(587)		(587)		(1,174)
Transactions with shareholders:
Issue of share capital	39		12,315		-		(39)		(150)		-		-		12,165
Share option charge	-		-		-		-		89		-		-		89
Dividend paid	-		-		-		-		-		-		(12)		(12)
Balance at 30 June 2014 (Unaudited)	90		14,983		50		-		277		(587)		(3,188)		11,625

Unaudited Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2014

	Six months ended 30 June 2014 (Unaudited)		Six months ended 30 June 2013 (Unaudited)		Year ended 31 December 2013 (Audited)
	£'000		£'000		£'000
Cash flow from operating activities:
Loss before tax	(482)		(417)		(1,122)
Finance income	(88)		-		(1)
Finance  cost	23		6		25
Operating loss	(547)		(411)		(1,098)
Adjustments for:
- Depreciation of property, plant and      equipment	25		2		4
- Amortisation of intangible assets	174		27		56
- Impairment of Available-for-sale assets	31		-		-
- Gain on sale of intangible assets	(8)		-		-
- Movement in other provisions	17		-		-
- Share-based payment expense	89		41		111
Operating cash flow before movements in working capital	(219)		(341)		(927)
(Increase)/decrease  in deferred consideration	(3)		9		(2)
Interest paid	(75)		-		(25)
Taxation paid	(63)		-		-
Decrease/(increase) in inventories	138		20		(68)
(Increase)/decrease in trade and other receivables	(128)		(28)		(711)
(Decrease)/increase in trade and other payables	(650)		(16)		698
Net cash used in operating activities	(1,000)		(356)		(1,035)
Cash flow from investing activities:
Interest received	88		-		1
Proceeds on disposal of intangible assets	8		-		-
Acquisition of subsidiary - net cash acquired	700		-		-
Purchases of property, plant and equipment	(77)		(1)		(7)
Purchases of intangible assets	(167)		(15)		(140)
Purchases of Available-for-sale financial assets	-		-		(31)
Net cash generated/(used) by investing activities	552		(16)		(177)
Cash flow from financing activities:
Proceeds from issue of ordinary shares	1,889		998		1,211
Transaction costs of issue of shares	(1,211)		-		-
Movements in interest bearing borrowings	(128)		-		-
Proceeds from issue of convertible loans	-		365		375
Dividends paid	(12)		(6)		(5)
Net cash from financing activities	538		1,357		1,581
Net  increase in cash and cash equivalents	90		985		369
Net foreign exchange difference	(32)		-		-
Cash and cash equivalents at beginning of period	453		84		84
Cash and cash equivalents at end of period	511		1,069		453

Notes to the unaudited financial statements of Venture Life Group plc

For the six months to 30 June 2014

1.             Corporate information

The Interim Condensed Consolidated Financial Statements of Venture Life Group plc and its subsidiaries (collectively, the Group) for the six months ended 30 June 2014 were approved and authorised for issue in accordance with a resolution of the directors on 26^th September 2014.

Venture Life Group plc (the Company) is domiciled and incorporated in United Kingdom, and is a public company whose shares are publicly traded.  The Group's principal activities are the development, manufacture and distribution of healthcare and dermatology products.

2.            Basis of preparation

The interim condensed consolidated financial statements for the half-year ended 30 June 2014 have been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2013 which have been prepared in accordance with IFRSs as adopted by the European Union.

The financial information contained in this interim report and accounts, which is unaudited, does not constitute statutory accounts in accordance with the Companies Act 2006. The financial information for the year ended 31 December 2013 is extracted from the statutory accounts for that year which have been delivered to the Registrar of companies and on which the auditor issued an unqualified opinion that did not include an emphasis of matter reference or statement made under section 498(2) or (3) of the Companies Act 2006.

3.             Accounting policies

The accounting policies adopted in the preparation of the Interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Consolidated Financial Statements for the year ended 31 December 2013. In addition the Group has implemented the following new accounting policies:

a)     Foreign currency

Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at rates approximating to the exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in the translation reserve.

b)    Goodwill

As previously discussed, business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on the acquisition of subsidiary undertakings and associates. Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable assets, including intangible assets, liabilities and contingent liabilities acquired.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment.

c)     Intangible assets

Initial recognition

Intangible assets acquired as a result of a business combination are initially recognised at their fair value in accordance with IFRS3 - 'Business Combinations'.  

Amortisation

Intangible assets are amortised in a manner calculated to write off the cost, on a straight-line basis, over the effective life of the asset. In determining the appropriate life of the asset, consideration is given to the expected cash generating life of the asset.

In the event that an intangible asset is no longer used or is abandoned, the balance of unamortised expenditure is written off immediately.

3.             Accounting policies (continued)

The effective life of each new class of intangible asset acquired during the acquisition is determined as follows:

Customer relationships - expected cash-generating life of underlying manufacturing contracts

Product formulations - expected cash-generating life of the particular product formulation.

The following useful economic lives are applied:

Customer relationships: 5 years

Product formulations:    5 years

d)    New standards and interpretations

The Group has adopted the following new standards and interpretations which are effective as of 1 January 2014:

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)	These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact to the Group, since none of the entities in the Group qualifies to be an investment entity under IFRS 10.
IAS 39,  Financial Instruments: Recognition and Measurement	These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments have no impact to the Group as the Group does not have any derivatives instruments.
IAS 36,  Impairment of Assets	These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. The Group early adopted these disclosure requirements in the annual consolidated financial statements for the year ended 31 December 2013.
IAS 32, Offsetting Financial Assets and Financial Liabilities	These amendments clarify the meaning of 'currently has a legally enforceable right to set-off' and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These amendments have no impact on the Group.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Consolidated Financial Statements of Venture Life Group Plc.

4.             Segmental Information

Management has determined the operating segments based on the reports reviewed by the Group Board of Directors (Chief Operating Decision Maker) that are used to make strategic decisions. The Board considers the business from a line-of-service perspective and uses operating profit/(loss) as its profit measure. The operating profit of operating segments is prepared on the same basis as the Group's accounting operating profit.

In the annual financial statements for the year ended 31 December 2013 the operations of the Group were segmented as Sales of cosmetics and Sales of healthcare products. Following the acquisition of Biokosmes S.r.l the operations of the Group are now segmented as Brands, which includes sales of healthcare and cosmetic products under distribution agreements, and Manufacturing. 

4.1          Segment Revenue and Results

The following is an analysis of the Group's revenue and results by reportable segment.

		Brands		Manufacturing		Eliminations		Consolidated Group
		£'000		£'000		£'000		£'000
Six months to 30 June 2014
Revenue
External sales		133		3,013		-		3,146
Inter-segment sales		-		48		(48)		-
Total revenue		133		3,061		(48)		3,146
Results
Operating (loss)/profit		(591)		560		-		(31)

		Brands		Manufacturing		Eliminations		Consolidated Group
Six months to 30 June 2013
Revenue
External sales		274		-		-		274
Total revenue		274		-		-		274
Results
Operating loss		(397)		-		-		(397)
Year to 31 December 2013
Revenue
External sales		486		-		-		486
Total revenue		486		-		-		486
Results
Operating loss		(706)		-		-		(706)

Inter-segment sales are charged at commercial rates.

The reconciliation of segmental operating loss to the Group's loss before tax is as follows:

			Six months ended 30 June 2014 (Unaudited)				Six months  ended 30 June 2013 (Unaudited)		Year ended 31 December 2013 (Unaudited)
			£'000				£'000		£'000
Operating loss			(31)				(397)		(706)
Central administrative costs			(516)				(14)		(392)
Operating loss			(547)				(411)		(1,098)
Net finance income/(costs)			65				(6)		(24)
Loss before tax			(482)				(417)		(1,122)

5.             Exceptional items

			Six months ended 30 June 2014 (Unaudited)				Six months  ended 30 June 2013 (Unaudited)		Year ended 31 December 2013 (Audited)
			£'000				£'000		£'000
Costs incurred in acquisition of Biokosmes			(57)				-		(105)
Impairment of available for sale investments (a)			(31)				-		-
Gains on sales of trademarks (b)			8				-		-
			80				-		(105)

(a)   In July 2014 the Directors were advised by the management of G2S Cosmetics SAS that G2S Cosmetics SAS was likely to be declared insolvent. As a result of this the Directors are uncertain that any part of the investment will be recovered and so the investment has been impaired in full.

(b)    During the period the Group entered into a sale agreement for the Bioscal trademark for the USA and Canadian territories. These trademarks were acquired along with the Bioscalin trademarks which the Group holds for the USA and Canada and thus were not part of the key marketing strategy of the Group in those territories.

6.             Taxation

The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the Interim Condensed Statement of Comprehensive Income:

		Six months ended 30 June 2014 (Unaudited)		Six months  ended 30 June 2013 (Unaudited)		Year ended 31 December 2013 (Audited)
		£'000		£'000		£'000
Income taxes Brands
Current income tax		198		-		(41)
Deferred income tax expense related to origination and reversal of timing differences		(93)		-		-
Income tax expense recognised in statement of comprehensive income		105		-		(41)

The Group has not recognised the deferred tax asset on losses made by the Brands segment as it is not currently certain that there will be sufficient taxable profits against which to offset such losses. At the period end the estimated tax losses amounted to £3,409,000 (30 June 2013: £1,721,000; 31 December 2013: £2,436,000)

7.             Other comprehensive income

Other comprehensive income represents the foreign exchange difference on the net investment in Biokosmes, the functional currency of which is Euros, that is shown as a movement in the foreign currency translation reserve between the date of acquisition of Biokosmes S.r.l, when the GBP/EUR rate was 1/1.193 and the balance sheet date rate of 1/1.249, and is an amount that may subsequently be reclassified to profit and loss.

8.             Loss per share

		Six months ended 30 June 2014		Six months  ended  30 June 2013		Year ended 31 December 2013
		(Unaudited)		(Unaudited)		(Audited)
Weighted average number of ordinary shares in issue		21,135,209		16,054,683		16,118,556
Loss attributable to equity holders of the Company (£000)		(587)		(417)		(1,081)
Basic and diluted loss per share (pence)		(2.8)		(2.7)		(6.7)

At 30 June 2014 there were 3,792,440 options outstanding (30 June 2013: 1,641,400 options outstanding; 31 December 2013: 3,842,440 options outstanding). The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical to those used for basic earnings per share. This is because the exercise of share options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of IAS 33.

9.             Dividends

Amounts recognised as distributions to equity holders in the period:

		Six months ended 30 June 2014 (Unaudited)		Six months  ended 30 June 2013 (Unaudited)
		£'000		£'000
Final dividend		12		5

10.          Business combinations

On 27 March 2014, the Company completed the acquisition of 100% of the share capital of Biokosmes S.r.l, an unlisted company based in Italy that specialises in the development and manufacture of topical medical device and cosmetic products. The initial consideration paid to the vendors of Biokosmes at the time of the acquisition amounted to £3.5 million in cash, £1.67 million in the form of a loan note convertible under certain circumstances into Venture Life Group plc ordinary 0.3p shares ("Shares"), and 1,358,185 Shares. Further consideration in the form of 5,639,393 new Shares was issued to the vendors on 6 June 2014 on the basis that the audited EBITDA achieved by Biokosmes in the financial year ended 31 December 2013 amounted to £1.62 million.

The Group acquired Biokosmes because it expands its existing product portfolio and as an established manufacturer of high-quality topical products it secures a key element of the supply chain. The acquisition has been accounted for using the acquisition method. The Interim Condensed Consolidated Financial Statements include the results of Biokosmes for the period 27 March 2014 to 30 June 2014.

10.          Business combinations (continued)

The fair values of the identifiable assets and liabilities of Biokosmes as at the date of acquisition were:

					Fair Value £'m
ASSETS
Non-current assets:
Product formulations					0.8
Customer relationships					2.0
Property, plant & equipment					1.0
Current assets:
Inventories					2.0
Trade and other receivables					2.5
Cash and cash equivalents					0.7
Total assets					9.0
LIABILITIES
Current liabilities:
Trade and other payables					(2.9)
Current portion of borrowings					(1.0)
Non-current liabilities:
Borrowings					(0.8)
Employee liability provisions					(0.5)
Deferred tax liabilities					(0.8)
Total liabilities					(6.0)
Net assets acquired					3.0
Goodwill					9.8
Total consideration					12.8
Satisfied by:
Shares issued to vendors and sold at the time of admission to AIM to realise cash					3.5
Convertible loan note issued					1.7
Initial shares issued to vendors					1.5
Further shares issued to vendors					6.1
Total consideration					12.8
Cash flows from business combination
Cash and cash equivalents included in undertaking acquired					0.7
Cash consideration paid					-
Net cash inflow arising on acquisition and in cash flow statement					0.7

The Company is currently still in the process of determining the fair value of the assets and liabilities acquired and the values provided in this note are therefore provisional. The Company expects to complete the final determination of fair values shortly.

10.          Business combinations (continued)

Revenue and profit impact of acquisitions

Biokosmes contributed revenues of £3,013,000 and operating profit before acquisition adjustments and reorganisation costs of £560,000 in the period from the date of acquisition to 30 June 2014.

Set out below is a pro forma Income Statement which has been prepared as if the acquisition had taken place on 1 January 2013, the first day of the reporting period under review:

		Six months ended 30 June 2014		Six months ended 30 June 2013		Year ended  31 December 2013
		(Unaudited)		(Unaudited)		(Unaudited)
		£'000		£'000		£'000
Revenue		4,973		6,128		10,469
Cost of sales		(3,293)		(4,004)1		(6,846)1
Gross profit		1,680		2,124		3,623
Gross margin		34%		35%		35%
Other income		35		66		82
Administrative expenses		(2,099)		(1,397)1		(3,007)1
Exceptional items		(80)		(4)		9
Operating (loss)/profit		(464)		789		707
Finance income		88		-		1
Finance costs		(28)		(35)		(82)
(Loss)/profit before tax		(404)		754		626
Tax		(146)		(478)		(261)
(Loss)/profit for the period		(550)		276		365

11.          Share capital and share premium

Share capital		Ordinary shares of 0.3p each		Ordinary Shares		Share premium
		No.		£'000		£'000
At 1 January 2013		14,494,000		1		1,507
Share issue		2,274,100		1		1,023
Unaudited at 30 June 2013		16,768,100		2		2,530
Share issue		193,324		-		187
Bonus issue		-		49		(49)
Audited at 1 January 2014		16,961,424		51		2,668
Share issue		12,942,110		39		13,526
Transaction costs of issue of shares		-		-		(1,211)
Unaudited at 30 June 2014		29,903,534		90		14,983

¹ adjusted for the reclassification of certain expense items to bring into line with Group policies.

11.          Share capital and share premium (continued)

The Company issued bonus shares on 29 July 2013 at a ratio of 29 new shares for each one share held. The ordinary shares were further consolidated and sub-divided on 16 December 2013 resulting in a change to the nominal value of the ordinary shares from 1p to 0.3p. The disclosures above reflect these changes to the share capital of the Company.

During the six month period to 30 June 2014 the following share issues were undertaken:

On 27 March 2014 the Company issued 821,421 ordinary 0.3p shares following the conversion of previously issued convertible loan notes, with a nominal value of £375,000, into equity.

On 27 March 2014 the Company issued 168,526 ordinary 0.3p shares in respect of agreements it had entered into with suppliers for services that had been provided to the Company.

On 28 March 2014 the Company issued 1,358,185 ordinary 0.3p shares for £1.09 each pursuant to the acquisition of Biokosmes S.r.l.

On 28 March 2014 the Company issued 4,954,585 ordinary 0.3p shares at £1.09 each as part of the admission to trading on the Alternative Investment Market of the London Stock Exchange.

On 6 June 2014 the Company issued 5,639,393 ordinary 0.3p shares at £1.09 being the final consideration for the acquisition of Biokosmes S.r.l. 

12.          Related party transactions

The following transactions with related parties are considered by the Directors to be significant for the interpretation of the Interim Condensed Financial Statements for the six month period to 30 June 2014 and 30 June 2013 and the balances with related parties at 30 June 2014 and 31 December 2013:

(a) Director emoluments

The following amounts were paid to the executive Directors and Non-Executive Directors

		Six months ended 30 June 2014 (Unaudited)		Six months  ended 30 June 2013 (Unaudited)		Year ended 31 December 2013 (Audited)
		£'000		£'000		£'000
Aggregate emoluments		560		89		485
Share based payments		95		35		94
		655		124		579

(b) Other transactions with Directors

Total dividends paid to Directors in the period amounted to £5,000 (2013: £nil). 

Interest totalling £1,000 (2013: £3,000) was paid during the period on the 7.5% convertible loan notes with a nominal value of £55,000 as issued to certain directors in April 2013. These loan notes were all converted into equity prior to the Admission to AIM.

The Company issued 3% convertible loan notes with a nominal amount of £1,676,000 to the vendors of Biokosmes including Lodovico Gianluca Braguti, a Director of the Company. Mr Braguti's interest in the convertible loan notes amounted to £1,659,000. Interest amounting to £13,000 has accrued on the loan notes during the period and is still payable at the period end. Interest is payable on the loan notes in October and April each year.

During the period from acquisition of Biokosmes S.r.l to 30 June 2014 property rental costs amounting to £112,000 were charged to Biokosmes S.r.l by Biokosmes Imm.re S.r.l, a company owned and controlled by Ludovico Gianluca Braguti. At period end an amount of £754,000 was owed to Biokosmes Imm.re S.r.l for the accumulated property rental costs.

13.          Financial instruments

Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the Group as at:

	30 June 2014				30 June 2013				31 December 2013
	Loans and receivables		Available -for-sale		Loans and receivables		Available -for-sale		Loans and receivables		Available -for-sale
	£'000		£'000		£'000		£'000		£'000		£'000
Financial assets:
Trade and other receivables (excl. prepayments)	3,352		-		166		-		237		-
Available-for-sale investments:
Unquoted equity investments	-		-		-		-		-		31
Total	3,352		-		166		-		237		31
Total current	3,352		-		166		-		237		-
Total non-current	-		-		-		-		-		31

	Financial liabilities at amortised cost		Available -for-sale		Financial liabilities at amortised cost		Available -for-sale		Financial liabilities at amortised cost		Available -for-sale
	£'000		£'000		£'000		£'000		£'000		£'000
Financial liabilities:
Non-current interest bearing loans and borrowings:
Obligations under finance leases	3		-		-		-		-		-
Secured bank loans	1,145		-		-		-		-		-
7.5% convertible loan notes (excl. equity element)	-		-		290		-		298		-
3% Convertible loan notes (excl. equity element)	1,551		-		-		-		-		-
Other non-current loans:
Deferred licence provision	20		-		137		-		35		-
Trade and other payables (excl. deferred revenue)	3,341		-		253		-		632		-
Current interest bearing loans and borrowings:
Obligations under finance lease	9		-		-		-		-		-
Bank loans	427		-		-		-		-		-
7.5% convertible loan notes (excl. equity element)	-		-		43		-		50		-
3% convertible loan notes	49		-		-		-		-		-
Other current loans:
Deferred licence provision	20		-		66		-		8		-
Total	6,565		-		789		-		1,023		-
Total current	3,846		-		427		-		690		-
Total non-current	2,719		-		362		-		333		-

The Available-for-sale investment in unquoted shares is the only financial instrument that is measured at fair value and is based on level 3 valuation assumptions. The carrying value of other financial assets and liabilities is a fair approximation of their fair values.

14.          Post balance sheet events

In July 2014 the Directors were advised by the management of G2S Cosmetics SAS that G2S Cosmetics SAS was likely to be declared insolvent. As a result of this the Directors are uncertain that any part of the investment will be recovered and so the investment has been fully impaired in the period ended 30 June 2014.

 

END

 

 

IR SELEFAFLSEIU