31st Mar 2008 07:02
Plant Health Care PLC31 March 2008 For immediate release 31 March 2008 PLANT HEATH CARE PLC ("Plant Heath Care" or "the Company") Results for the year ended 31 December 2007 Plant Heath Care, (AIM: PHC.L), a leading provider of natural products forplants and soil, announces its results for the year ended 31 December 2007. Financial highlights: • Turnover up 34% to $18.3 million (2006: $13.7 million) • Gross profit up 37% to $8.4 million (2006: $6.1 million) • Gross margin up from 44.7% to 45.6% - due to upfront fee income from our partners and entry into the higher margin Harpin business • Loss before exceptional costs, costs of share-based payments, interest and taxation of $4.4 million (2006: loss $2.5 million) • Net loss of $5.4 million (2006: loss of $3.0 million) • Net cash at 31 December of $9.8 million (2006: $3.7 million) Operational highlights: • First Myconate manufacture and supply agreement signed with Bayer Cropscience in January 2007 - exclusive for seed-coated corn, soybean, cotton and sunflower • Agreement signed with Monsanto to evaluate, develop and commercialise certain applications of the Harpin-based technology - made possible by the acquisition of the Harpin intellectual property from Eden Bioscience • Significant contribution from US agriculture division in its first full year of operation • New share capital of $10 million raised in September • Post year end: Steve Weaver appointed to the Board of Directors as Finance Director on 28 March 2008 Commenting on the results, Chief Executive John Brady said: "Last year wasanother important one for Plant Health Care. We signed our first two majorpartnership deals with Bayer CropScience and Monsanto for Myconate and Harpinrespectively. These agreements have taken us further towards achieving our goalof becoming the world's leading supplier of natural products for the promotionof plant heath and growth. "Plant Health Care's ability to fulfil the need for higher yields on existingland has been validated by these partnership deals. With our stable of effectivenatural technologies, we are extremely well positioned to offer furthersolutions to help meet this global challenge, and as such, the macro environmentremains favourable. "In 2007 we continued our pursuit of sales growth. Our performance was pleasingwith record revenue in almost all business units; in particular, in its firstfull year of operation, our US agriculture division successfully introducedPlant Health Care into what will be an important market for our future success." For further information:Plant Heath Care plc John Brady, Chief Executive 31 March - 4 April Tel: 020 7920 3150 Therafter: 001 603 525 3702 Evolution Securities Limited Tavistock Communications Tim Worlledge/ Tim Redfern Jeremy Carey/Matt Ridsdale Tel: 020 7071 4300 Tel: 020 7920 3150 Notes to editors Plant Heath Care was established in 1995 in Pittsburgh (Pennsylvania) in theUnited States. Its products are aimed at the agriculture, commercial landscapingand land reclamation industries, through both direct sales and supply anddistribution agreements with major agrichemical industry partners. Plant HealthCare's products create both environmental and economic benefits for ourcustomers and capitalise upon long-term trends towards natural systems andbiological products to provide plant health and growth. For immediate release 31 March 2008 Plant Health Care plc ("Plant Health Care" or "the Company") Results for the Year Ended 31 December 2007 Chairman's Statement Introduction Our core business is to provide natural products which promote plant growth,health and yield with environmental care. There are few more topical issues inthe markets today than increased world population, the rapid growth of asizeable middle class in emerging economies demanding higher protein diets, andthe drive for biofuels. These have all contributed to higher demand levels foragricultural products than has ever been seen before. At the same time, theavailability of productive agricultural land in suitable climate zones isbecoming more limited. Despite significant productivity increases from advancesin seeds, fertilisers, pest control and land management, the demand/supplybalance is being seriously tilted, crop prices are rising and strategic securityconcerns are being aired. Major agriscience and agrichemical companies areresponding to this by seeking the next wave of technology innovation to furtherimprove yields and re-establish balance, in order to secure their own futureprofitability. Plant Health Care is very well positioned in this market environment, with theproven capabilities of our IP-protected natural technologies, as evidenced byour two major partnership deals with Bayer CropScience and Monsanto, forMyconate and Harpin respectively. We have set two strategic targets: growth andproduct development. Our major target is to exploit our natural technologiesthrough two sales channels: major partnerships with significant players who havethe distribution and resources to achieve wide penetration for our technologiesin high volume row crops, and product sales through major national distributorsfor more fragmented markets where we can be cost effective in reachingcustomers. We also continue to pursue the strategy of securing and developinginnovative natural technologies and products with a high level of intellectualproperty protection for plant growth, health and yield which can fulfil theabove market demand. An overview of 2007 The most important milestones during the period were the first two majorpartnership agreements signed for our natural technologies. In January, BayerCropScience agreed to develop and commercialise Myconate seed treatmentapplications for corn, cotton, soybean and sunflowers, while, in December,Monsanto entered into an agreement with us to evaluate, develop andcommercialise certain applications of our Harpin-based technology suite. The latter agreement was made possible by our acquisition in February 2007 ofcertain assets and the Harpin intellectual property from Eden Bioscience,another highlight of our year. In 2007 we continued our pursuit of sales growth. Our performance was pleasingwith record revenue in almost all business units; in particular, in its firstfull year of operation, our US agriculture division successfully introducedPlant Health Care into what will be an important market for the future. Shareholder support for the company was demonstrated when, in September, weraised $10 million of new equity, which has left us in a strong cash positionwith no foreseeable need for further capital or borrowings to fulfil our presentplans. Financial Results Revenue for the year was $18.3 million, an increase of 34% over 2006 ($13.7million). The gross margin was 45.6% (2006: 44.7%), although increased expensesassociated with the development and testing of our Myconate and Harpintechnologies, together with the costs of our first full year of operation in theUS Agriculture market, led to an operating loss, before exceptional costs andthe costs of equity share-based payments, of $4.4 million (2006: loss of $2.5million). After exceptional costs, the costs of equity share-based payments,interest and a small taxation charge on certain overseas operations, the netloss for the year was $5.4 million (2006: loss of $3.0 million). At 31 December 2007 net cash was $9.8 million (2006: $ 3.7 million). Board changes I am pleased to announce that Steve Weaver was appointed to the Board on 28March 2008. Steve joined us as Chief Financial Officer in May 2007 and has madeinvaluable contributions in improving our financial controls, analysis andreporting to meet our needs as we grow. He has also proven himself a strongcontributor in strategic discussions and we look forward to his input as a Boardmember in the coming years. Today we are also announcing that our two longest serving Board members, DonMarx and Robert Chanson, are both standing down at the forthcoming AnnualGeneral Meeting. Each has served thirteen years as a director of Plant HealthCare plc and its predecessor companies, during which time they have eachcontributed a great deal to the development of the company and its business. Don, a co-founder of Plant Health Care, provided us with a wealth of knowledge,experience and contacts after a highly successful and prestigious career withthe USDA Forestry Service. After a period as Chief Executive of the Group, hehas since deployed his skills as our Chief Scientist and as a member of theBoard. Although standing down from the Board, Don will continue as ChiefScientist and we look forward to his continued contribution in that role. Robert has made many contributions to the company in his role as non-executivedirector. Before our AIM listing, he was instrumental in helping to secureinvestment in the Company and his wider business knowledge has enabled him tocontribute greatly to the strategy of the Company. I would like to take this opportunity to thank both Don and Robert for theircontributions to the company and to the Board over the past thirteen years. Outlook Plant Health Care's ability to fulfil the need for higher yields on existingland has been validated by the transactions with Bayer CropScience and Monsanto.With our stable of effective natural technologies, we are extremely wellpositioned to offer further solutions to help meet this global challenge, and assuch, the macro environment remains favourable. As a consequence of our progress in 2007 and the positive global drivers for thebusiness, the Board looks forward to the coming year with confidence. I wouldlike to thank all of the Plant Health Care team for their contribution to thesuccess of our Company and look forward to working with them to achieve ourshared goals. Dr Albert FischerNon-executive Chairman28 March 2008 Chief Executive's Review Introduction & Summary of Operating Results 2007 was another successful year for Plant Health Care, with our first two majorpartnership deals with Bayer CropScience and Monsanto for Myconate and Harpinrespectively and turnover up 34% to a record $18.3 million (2006: $13.7million). I am delighted to report that this growth was led by our USAgriculture division (established in 2006) which generated $4.0 million of salesin 2007 and from fee income from partners which contributed some 5% of turnover. Gross profit was up 37% to $8.4 million (2006: $6.1 million). The improvement inour gross margin to 45.6% (2006: 44.7 per cent) is attributable to fee-incomefrom our partners and to our entry into the higher margin Harpin business whichcontributed sales of $2.6 million. We continued to develop and test new applications of our natural technologies,and we expanded our sales team to achieve the above mentioned sales growth in USAgriculture. This resulted in increased operating costs of $13.6 million (2006:$9.0 million). The operating loss for the year was $5.2 million (2006: loss of $2.9 million),slightly higher than expected due to a delay on another Harpin deal, which isexpected to be completed in the first half of the current year. Net cash at 31December 2007 was $9.8 million, boosted by a successful $10 million equityfundraising in September 2007. Our Natural Technologies Partnerships Myconate Myconate increases the rate of plant root colonisation by beneficial fungi whichextract nutrients from the soil for the benefit of the plant. This allows theplant to grow more quickly and with more strength to resist pathogens anddisease. The result is healthier plants and, in the context of agriculture,significantly improved yields. Myconate is particularly effective when appliedin the earliest stages of a plant's growth, and can be applied as a seed coatingor side dressing at time of planting. In January 2007, the first manufacture and supply agreement for Myconate wassigned with Bayer CropScience, covering seed treatment of corn, cotton, soybeanand sunflower, and a year on Bayer confirmed that they are continuing to pursuetheir planned programme to introduce Myconate to their market. As a result, wehave now received our first milestone payment and our relationship with Bayerremains strong. Bayer is the worldwide leader in seed coatings for corn, and is also stronglyrepresented in seed coatings for the other crops in which we are partnered withthem. They have indicated their intention to launch their first Myconate-basedproduct in 2010, and we expect that such products will, following a period ofmarket rollout, address a significant proportion of the markets in which Bayeris currently represented. In 2007 we also continued our independent programme of Myconate testing in otherapplications, the results of which reaffirm significant yield enhancement whenit is applied to grains and high value vegetables. For example: • On grain and straw in winter wheat, tested using a variety ofapplication methods, there were particularly pleasing yield improvements. Whenapplied as a seed treatment, yield increased as much as 5.4% and when applied asa ground spray the improvement was up to 7.4%. Additionally, Myconate'sapplication as both a seed treatment and a ground spray delivered yieldincreases of up to 9.4%; • When applied to carrots in furrow application at seeding, Myconateproduced a yield improvement in excess of 30% in two separate trials; • Celery trials demonstrated a 14% harvestable yield increase whenMyconate was applied as a pre-plant, transplant spray. Against the control,tests showed a 12% increase in total weight and 12% increase in top weight; • A 13% yield increase was achieved in trials on onions; as with celery,application was by pre-plant, transplant spray. Additionally, a 13% increase inbulb weight and 11% increase in diameter were recorded. We have reached non-exclusive agreements with several multi-national agriculturecompanies to allow them to run their own tests and consider thecommercialisation of Myconate for application on small grain cereals such aswheat and barley. We will continue discussions with prospective partners regarding the use ofMyconate on vegetables, although we will also consider the option of addressingthis market, which is characterised in the United States by a small number oflarge, specialised growers for each of the main crops, by means of direct sales. Finally, we continue to explore the potential for Myconate in the emergingmarket of energy crops. We have evidence that Myconate is highly effective oncrops such as switchgrass which are anticipated to be the coming crops of choiceto fuel the growing demand for biofuels, and we will address that market with aproperly structured development, testing and commercialisation model. Harpin The acquisition of certain assets from Eden Bioscience was completed in February2007. The assets included the patent-protected rights to Harpin technology andadditionally provided Plant Health Care with Harpin-based products aiding thedevelopment of our US agriculture business. Harpin is a protein which, while itself harmless to a plant, causes the plant tobelieve it is under attack from pathogens. Accordingly the plant triggers itsnatural defences, which typically involve stronger growth and and pathogenresistance. Amongst the proven applications of this technology to date are: • To defend against cyst nematodes, particularly in soybeans; cystnematodes are estimated to cause approximately $1.0 billion of damage to theannual soybean crop in the US, and there is no other effective treatmentavailable today • To generate extended shelf life in leaf and other salad crops, of realeconomic benefit to supermarkets and other retailers • To improve yield in crops treated with glyphosate, an industry-standardherbicide. At the interim stage, the Board stated its belief that "...following anevaluation of the technology, the commercial prospects for Harpin weresignificantly greater than initially thought. In light of this, Plant HealthCare has actively pursued opportunities to further demonstrate the efficacy ofHarpin and has undertaken trials in conjunction with the American SoybeanAssociation and the University of Illinois". These field trials of Harpin-based N-Hibit(R) and ProActTM delivered veryencouraging results. Yield improvements in cotton were between 6% and 12% whenused in combination with nematicides and both products consistently demonstratedtheir efficacy in improving crop yields by reducing harmful nematodes. The acquisition of Eden Bioscience's assets provided us with five years of trialdata demonstrating significant yield increases for plants treated with acombination of glyphosate and Harpin. Additionally, we continued to pursueregistration of Pre-Tect, our shelf-life extension product. Our first partnership agreement to develop, evaluate and commercialise Harpinwas signed with Monsanto Company in December 2007. This agreement grantsMonsanto exclusive rights to certain applications of Harpin in return forundisclosed upfront fees, milestone payments which are dependent on the progressof the development programme, and ongoing royalty payments based on the acreageto which the product is applied. The Board believes that once evaluations arecomplete, products could begin to be available to growers by 2009. Product Sales Agriculture We continue to believe that agriculture represents the market of greatestpotential for Plant Health Care. As well as through the partnerships describedabove, we see significant potential in our product sales operations. In 2007 wesaw strong growth in our agriculture businesses in the US, Mexico and in variousEuropean markets. Only in the UK was there a slight slowdown. Our growth is derived from a number of products which meet particular needs ofgrowers and their customers. For example, our natural liquid plant foods areproving popular with growers with a need for a high nitrogen input but a desirealso for natural inputs, PreTect offers extended shelf life in-store for a widevariety of leaf and salad plants, while Harpin-based N Hibit offers soybeanfarmers a means of addressing their nematode problem. It is through these and other similar innovative products, and a strategy ofprogressively introducing these products into new territories (as registrationsand marketing resources allow) that we anticipate continued strong growth in ourdirect sales to the world's agriculture markets. Horticulture & Turf Our US horticulture and turf business reached a major milestone in 2007 bydelivering a positive financial contribution for the first time on the back ofrecord sales of $6.3 million (2006: $6.0 million). We had recognised that thegrowth potential for Plant Health Care in this market in the near term does notmatch that available in agriculture, and had set our sights therefore onachieving a positive return from what we could conservatively anticipate insales, rather than on major promotional spending to chase growth which mightprove difficult to secure. Our focused work with major distributors combinedwith stringent cost control resulted in the shift into profitability for thisoperating unit. Outlook A number of important milestones were met during the period and we madesignificant progress towards achieving our objectives. Our work with Bayer CropScience and Monsanto continues to take us closer torealising significant revenue and financial returns from the widespreadexploitation of our natural technologies. Our product sales activities provide a powerful platform from which to promoteour technologies, and also generate revenue and contribution from higher value,smaller volume products and crops. We continue to invest heavily into the development and testing of ourtechnologies to ensure that we maximise our potential from their exploitation,and we remain alert to the possibilities of securing further innovative naturaltechnologies which can be effectively deployed in our target markets. We remain focused on building Plant Health Care into the leading global providerof natural technologies and products which promote plant growth, health andyield, and thereby building value for our shareholders. The macro drivers andmarket conditions remain extremely favourable and the prospects for our Companyremain strong. As a result, we look forward to reporting further progress duringthe current year. John Brady Chief Executive 28 March 2008 Consolidated income statementfor the year ended 31 December 2007 2007 2006 $'000 $'000 Revenue 18,295 13,679 Cost of sales (9,944) (7,565) Gross profit 8,351 6,114 Distribution costs (4,660) (3,143) Research and development expenses (771) (306) Administrative expenses (8,161) (5,531) Operating loss (5,241) (2,866) Finance revenue 177 275 Finance costs (302) (335) Loss before tax (5,366) (2,926) Tax expense (47) (72) Loss for the year (5,413) (2,998) Attributable to:Equity holders of the parent (5,424) (3,028) Minority interest 11 30 (5,413) (2,998) Basic and diluted loss per share (12.8)c (8.2)c In 2007 and 2006 all results derived from continuing operations. Consolidated statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 $'000 $'000 Net income recognised directly in equity:Exchange differences on translation of 130 219foreign operations Loss for the year (5,413) (2,998) Total recognised income and expense for the (5,283) (2,779)year Attributable to:Equity holders of the parent (5,294) (2,809)Minority interest 11 30 (5,283) (2,779) Consolidated balance sheet at 31 December 2007 2007 2006 $'000 $'000Assets Non-current assets Intangible assets 4,282 2,737 Property, plant and equipment 928 1,008 Total non-current assets 5,210 3,745 Current assets Inventories 2,872 2,468 Trade and other receivables 6,751 6,942 Short-term investments 559 436 Cash and cash equivalents 10,254 4,446 Total current assets 20,436 14,292 Total assets 25,646 18,037 Liabilities Current liabilities Trade and other payables 3,648 3,108 Short-term borrowings 205 314 Provisions 546 396 Total current liabilities 4,399 3,818 Non-current liabilities Long-term borrowings 278 414 Provisions 440 - Total non-current liabilities 718 414 Total liabilities 5,117 4,232 Total net assets 0,529 13,805 Capital and reserves attributable to equityholders of the company Share capital 809 731 Share premium 33,451 21,826 Reverse acquisition reserve 11,016 11,174 Share-based payment reserve 580 118 Foreign exchange reserve 121 (9) Retained earnings (25,679) (20,255) 20,298 13,585Minority interests 231 220 Total equity 20,529 13,805 The financial statements were approved and authorised for issue by the Board on28 March 2008. J Brady Director Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 $'000 $'000 Cash flows from operatingactivities Loss before tax (5,366) (2,926) Adjustments for: Depreciation 262 248 Amortisation of intangibles 242 2 Impairment charge - 30 Finance revenue (177) (275) Finance costs 302 335 Share-based payment expense 462 68 (Gain)/loss on sale of fixed (5) 10assets Cash used in operating activitiesbeforechanges in working capital and (4,280) (2,508)provisions Decrease/(increase) in trade and 208 (3,952)other receivables Decrease/(increase) in inventories 436 (887) Increase in trade and other 836 387payables (Decrease)/increase in provisions (121) 396 Cash used in operations (2,921) (6,564) Interest paid (287) (322) Income taxes paid (74) (79) Net cash flows used in operatingactivities (3,282) (6,965) Investing activities Purchase of business net assets (2,446) - Purchase of tangible fixed assets (136) (396) Expenditure on internally (53) -developed intangible assets Proceeds on sale of assets held 675 -for sale Proceeds on sale of fixed assets 21 20 Interest received 177 275 Purchase of short term investments (123) (184) Net cash used in investing (1,885) (285)activities Financing activities Issuing of ordinary share capital 10,182 11,053 Exercise of options and warrants 1,365 64 Repayment of borrowings (367) (180) Repurchase of minority interest'sshares by subsidiary (160) (119) Net cash generated from financing 11,020 10,818activities Effects of exchange rate changeson cashand cash equivalents (45) (16) Net increase in cash and cashequivalents 5,808 3,552 Cash and cash equivalents atbeginning of period 4,446 894 Cash and cash equivalents at end 10,254 4,446of period Notes forming part of the financial statements for the year ended 31 December 2007 1. Annual Report The abridged financial information set out herein has been extracted fromfinancial statements approved by the directors on 28 March 2008, and which willbe delivered to the Registrar of Companies following the Company's annualgeneral meeting. The auditors have reported on these accounts and their reportwas unqualified and did not include references to any matters to which theauditors drew attention by way of emphasis without qualifying their reports anddid not contain statements under the Companies Act 1985, s 237(2) or (3). This financial information does not constitute statutory accounts as defined insection 240 of the Companies Act 1985 and has been prepared on the basis of theaccounting policies set out in the financial statements for the year ended 31December 2007. The Annual Report and Financial Statements will be posted toshareholders shortly and thereafter will be available from the Company'sregistered office at Minerva House, 5 Montague Close, London SE1 9BB, and fromthe Company's website www.planthealthcare.com. 2. Accounting policies Basis of preparation This is the first time the Company has prepared its financial statements inaccordance with International Financial Reporting Standards (IFRS) as adopted bythe European Union, having previously prepared its financial statements inaccordance with UK GAAP accounting standards. Details of how the transition fromUK accounting standards to EU-adopted IFRS has affected the Group's reportedfinancial position, financial performance and cash flows are given in note 12. The financial statements are reported in US dollars. The directors believe thatit is appropriate to use US dollars as a currency for reporting, given that themajority of the Group's operations are denominated in that currency. Changes in accounting policies - First-time adoption of International FinancialReporting Standards In preparing these financial statements, the Group has elected to apply thefollowing transitional arrangements permitted by IFRS 1 'First-time Adoption ofInternational Financial Reporting Standards': •Business combinations effected before 1 January 2006 have not been restated. •The carrying amount of capitalised goodwill at 31 December 2005 that arose on business combinations accounted for using the acquisition method under UK GAAP was frozen at this amount and tested for impairment at 1 January 2006. •IFRS 2 'Share-based payment' has been applied to employee options granted after 7 November 2002 that had not vested by 1 January 2006. The Group has made estimates under IFRSs at the date of transition; these wereconsistent with those estimates made at the same date under UK GAAP, there beingno objective evidence that those estimates were in error; that is, the group hasnot reflected any new information in its opening IFRS balance sheet, butreflected that new information, if any, in its income statement for subsequentperiods. Basis of consolidation On 6 July 2004, Plant Health Care plc became the legal parent company of PlantHealth Care, Inc. in a share-for-share transaction. The former shareholders ofPlant Health Care, Inc. became the majority shareholders of Plant Health Careplc. Further, the continuing operations and executive management of Plant HealthCare plc were those of Plant Health Care, Inc. Accordingly, the substance of thecombination was that Plant Health Care, Inc. acquired Plant Health Care plc in areverse acquisition. In order to present a true and fair view, the directorshave adopted reverse acquisition accounting as the basis of consolidation. Revenue Revenue is comprised of sales of goods to external customers, revenues fromservice contracts and fee income. Sales of goods to external customers are atinvoiced amount less value added tax or local taxes on sales and are recognisedat the point that the customer takes legal title to the goods sold. Revenue fromservice contracts is recognised as the services are performed and revenue isearned and billed over the term of the contract. Fee income is recognised whenthe Company has no remaining obligations to perform under a non-cancellablecontract which permits the user to act freely under the terms of the agreement. Goodwill Goodwill is measured as the excess of the cost of the acquisition over the netfair value of the identifiable assets, liabilities and contingent liabilities,plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset with any impairment in carryingvalue being charged to the consolidated income statement. Where the fair valueof identifiable assets, liabilities and contingent liabilities exceed the fairvalue of consideration paid, the excess is credited in full to the consolidatedincome statement on the acquisition date. At the date of transition to IFRS, 1 January 2006, the goodwill carrying amountunder UK GAAP was tested for impairment and based on the conditions existing atthe transition date no impairment was identified. Thus, the carrying amount ofgoodwill in the Company's IFRS opening balance sheet was equal to the goodwillcarrying amount under UK GAAP. From the date of transition to IFRS the Companydiscontinued the amortisation of goodwill and implemented annual impairmenttests for goodwill. Other intangible assets Externally acquired intangible assets are initially recognised at cost andsubsequently amortised on a straight line basis over their useful economiclives. The amortisation expense is included within the administrative expensesline in the consolidated income statement. Intangible assets are recognised on business combinations if they are separablefrom the acquired entity or give rise to other contractual or legal rights. Theamounts ascribed to such intangibles are arrived at by using appropriatevaluation techniques. Expenditures on internally developed intangible assets (research and developmentcosts) are capitalised if it can be demonstrated that: •it is technically feasible to develop the product for it to be sold; •adequate resources are available to complete the development; •there is an intention to complete and sell the product; •sale of the product will generate future economic benefits; and •expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods of the futureeconomic benefit attributable to the asset. The amortisation expense is includedwithin administrative expenses in the consolidated income statement. Development expenditure not satisfying the above criteria and expenditure on theresearch phase of internal projects are recognised in the consolidated incomestatement as incurred. The significant intangibles recognised by the group and their estimated usefuleconomic lives are as follows: Licenses - 12 years Developed technology - 15 years Trade name and customer relationships - 15 years Registrations - 5-10 years Financial instruments Trade receivables are initially recognised at fair value, and are subsequentlycarried at amortised cost using the effective interest rate method, lessprovision for impairment. Short-term investments comprise interest bearing cash held on deposit andshort-term investments maturing in less than one year at fixed rates ofinterest. Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to insignificant risk of changes in value. Bank borrowings are initially recognised at fair value net of any transactioncosts directly attributable to the instrument. Borrowings are subsequentlymeasured at amortised cost using the effective interest rate method, whichensures that interest expense over the period to repayment is at a constant rateon the balance of the liability carried in the balance sheet. Trade and other payables are initially recognised at fair value and subsequentlycarried at amortised cost using the effective interest method. The group does not trade in derivative financial instruments. Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Employee benefits The Group maintains a number of defined contribution pension schemes for certainof its employees; the Group does not contribute to any defined benefit pensionschemes. The amount charged to the income statement represents the employercontributions payable to the schemes for the financial period. The expected cost of all short-term employee benefits, including short-termcompensated absences, are recognised during the period the employee service isrendered. Equity share-based payments Share-based payments issued to employees include share options and stock awardsunder a long-term incentive plan. Equity-settled share-based payments aremeasured at fair value (excluding the effect of non-market-based vestingconditions) at the date of grant. The fair value determined at the date of grantis recognised as an expense with a corresponding increase in equity on astraight-line basis over the vesting period, based on the Company's estimate ofthe shares that will eventually vest and adjusted for the effect ofnon-market-based vesting conditions. Where equity instruments are granted to persons other than employees, the profitand loss account is charged with the fair value of goods and services received. The fair value of equity instruments is calculated using the binomial optionpricing model. 3. Revenue 2007 2006Revenue arises from: Sale of goods 15,523 12,359 Service contracts and fee 2,772 1,320income 18,295 13,679 4. Operating loss 2007 2006 $'000s $'000sOperating loss is arrived at after charging: Staff costs 7,831 5,040 Research and development costs 771 306 Depreciation 262 248 Amortisation 242 2 Equity share-based payment expense 462 67 Write-down of inventory to net realisable value 114 33 Operating lease expense 543 468 Auditors' remunerationFees payable to the Company's auditor for theaudit of the Company's annual accounts 127 97 Fees payable to the Company's auditor for otherservices: Audit of the Company's subsidiaries 143 106 Tax services 5 25 Other services* 18 36 Total fees for other services 166 167 Exceptional costs - Plant relocation 175 250 Staff reorganisation 171 - Placement costs - 63 346 313 * The "other services" provided related to the Company's transition toInternational Financial Reporting Standards. In 2006, the auditors were alsopaid $87,000 in relation to the Company's secondary placement and a businessacquisition; these fees were capitalised. Plant relocation expenses comprise a provision for the relocation of thePittsburgh, Pennsylvania manufacturing facility. Write-down of inventory to net realisable value recognised as an expense during2007 and 2006 relates primarily to changes in market conditions impacting theexpected demand for specific products. 5. Share-based payment The Company operates two equity-settled share-based remuneration schemes foremployees: a share option scheme and a long-term incentive stock award plan. Valuation of the share options granted during the period was as follows: 2007 2006 26 September 17 January 3 November 22 June 11 April Share options granted 16,500 175,000 3,000 50,000 131,470 Weighted average fair value 134p 90p 39p 47p 34p Assumptions used in measuringfair value: Weighted average share price 240p 165p 128p 106p 74p Exercise price 245p 224p 128p 123p 74p Expected volatility 53% 60% 57% 57% 57% Option life 10 years 10 years 10 years 10 years 10 years Expected vesting period 4.5 years 4.5 years 4.5 years 4.5 years 4.5 years Expected dividend yield Nil Nil Nil Nil Nil Risk free interest rate 5.04% 5.09% 4.77% 4.77% 4.42 % Valuation of the stock awards under the long-term incentive plan adopted in 2007was as follows: 4 October 1 July 2007 2007 Shares awarded 100,000 300,000 Weighted average fair value 216p 237p Assumptions used in measuring fairvalue: Expected volatility 58% 58% Expected vesting period 3 years 2.5 years Expected dividend yield Nil Nil Risk free interest rate 4.93% 5.59% For valuation of both the share options granted and LTIP shares awarded: In 2007, the expected volatility was determined by reference to the historicalshare price of Plant Health Care plc for a three-year period. In 2006, theexpected volatility was determined by reference to the historic share price ofthree comparable companies for a three-year period. The expected vesting period reflects market-based performance conditions forthese options and share awards Fair values were calculated using the binomial option pricing model. The Company pays a portion of non-executive director's fees in the form of theCompany's ordinary shares at a total value equal to the fair value of theservices rendered. In 2007, the Company issued 33,789 shares (2006: 29,760) withan aggregate value of $156,000 (2006: $38,000) for payment of fees tonon-executive directors. 6. Tax expense The tax charge for the year comprises: 2007 2006 $000s $000sCurrent tax expense Corporation tax and income tax on profits for the 77 81year (30) -Utilisation of previously unrecognised tax losses 47 81 Deferred tax expense: Origination and reversal of temporary differences - (9) 47 72 The reasons for the difference between the actual tax charge for the year andthe standard rate of corporation tax in the UK applied to profits for the yearare as follows: 2007 2006 $000s $000s Loss for the period (5,366) (2,926) Expected tax charge based on the standard rate ofcorporationtax in the UK of 30% (2006: 30%)) (1,610) (878) Expenses not deductible for tax purposes 477 - Utilisation of previously unrecognised tax losses (30) - Financial statement share based payment expense 139 - Tax returns share based payment expense (2,089) - Losses in year not relieved against current tax 3,398 950 Amortisation of intangibles 3 - Different tax rates applied in overseas (241) -jurisdictions 47 72 At December 31, 2007, the Group has a potential deferred tax asset of$15,156,000, which includes tax losses available to carry forward of $10,812,000arising from historic losses incurred, anticipated tax relief on share basedpayments of $4,037,000 and other timing differences of $307,000. 7. Loss per share Basic loss per ordinary share has been calculated on the basis of the lossattributable to equity holders of the parent of $5,424,000 (loss for 2006 -$3,028,000) and the weighted average number of shares in issue during therelevant financial periods. For 2007, the weighted average number of equityshares in issue is 42,408,798 (2006 - 36,838,918). Instruments (share options,warrants and share awards) that could potentially dilute basic earnings pershare in the future have been considered, but were not included in thecalculation of diluted earnings per share because they are anti-dilutive for theperiods presented. 8. Intangible assets Trade name Licenses and Developed and customer Goodwill registrations technology relationships Total $'000s $'000s $'000s $'000s $'000s Cost Balance at 1 January 2006 and1 January 2007 536 2,586 - - 3,122 Additions - internally - 53 - - 53developed Acquired through business 1,432 - 143 159 1,734combinations Balance at 31 December 2007 1,968 2,639 143 159 4,909 Accumulated amortisation Balance at 1 January 2006 348 5 - - 353 Impairment charge - 30 30 Amortisation charge for the - 2 2year Balance at 1 January 2007 348 37 - - 385 Amortisation charge for the - 217 12 13 242year Balance at 31 December 2007 348 254 12 13 627 Net book value At 1 January 2006 188 2,581 - - 2,769 At 31 December 2006 188 2,549 - - 2,737 At 31 December 2007 1,620 2,385 131 146 4,282 The recoverable amount of goodwill is based on value in use. Forecast cash flowsare based on approved budgets and plans for the next five years. The underlyingassumptions of these cash flows are based on management's experience andprobability ratios for new business generation. Subsequent cash flows have beenincreased at a terminal growth rate of 0%. The cash flows have been discountedusing a pre-tax discount rate of 15% based on the Group's estimated incrementalborrowing rate adjusted for risks associated with the estimated cash flows. 9. Trade and other receivables 2007 2006 $'000s $'000s Trade receivables 6,914 6,194 Less: provision forimpairment (775) (312) Trade receivables-net 6,139 5,882 Other receivables 57 57 Prepayments 529 996 Prepaid Corporate Tax 26 7 6,751 6,942 All amounts fall due for payment within one year. Movements on the Group provision for impairment of trade receivables are asfollows: 2007 2006 $'000s $'000s Balance at the beginning of the year 312 218 Provided 516 113 Receivables written off as uncollectible (45) (19) Unused amounts reversed (8) - Balance at the end of the year 775 312 The gross value of trade receivables for which a provision for impairment hasbeen made is $1,216,000 (2006: $360,000). The maximum exposure to credit risk at the reporting date is the fair value ofeach class of receivables set out above. The directors consider that the carrying amount of trade and other receivablesapproximates to their fair value. The following is an analysis of the Group's trade receivables identifying thetotals of trade receivables which are current and those which are past due butnot impaired. 2007 2006 $'000s $'000s Current 5,215 4,944 Past due: Up to 3 months 457 755 3 to 6 months 79 160 6 to 12 months 388 23 Total 6,139 5,882 The main factors used in assessing the impairment of trade receivables are theage of the balances and the circumstances of the individual customer. The Grouphas not provided for these receivables as these relate to customers with nodefault history and there has not been a significant change in credit quality. 10. Trade and other payables 2007 2006 $'000s $'000s Trade creditors 1,276 1,513 Accruals 2,185 1,481 Taxation and social 187 114security 3,648 3,108 11. Asset Purchase On 28 February 2007, the Company acquired certain of the assets of EdenBioscience Corporation for a total consideration of $2,200,000, plus theassumption of certain liabilities associated with these assets. $1,500,000 waspaid at closing and $700,000 was paid during the year under a secured promissorynote bearing interest at a rate of 5% per annum. Costs attributable to thepurchase were $246,000. Details of the fair value of the assets acquired and liabilities assumed were asfollows: $,000 Inventories 839 Tangible assets 686 Intangible assets 302 Accrued expenses (102) Onerous lease provision (711) 1,014 Goodwill 1,432 Cost of acquisition 2,446 The main factors leading to the recognition of goodwill are: •the presence of certain intangible assets which do not qualify for separate recognition; and •synergistic cost savings which result in the group being prepared to pay a premium The Company acquired certain equipment under the asset purchase agreement thatwould not be used in the Company's operations. The Company sold all of thisequipment during the year for an amount equal to its fair value. The Company assumed the obligations under an Exclusive License Agreementrelating to the licensing of technology from Cornell University. Payments dueunder the agreement with Cornell are the greater of 2% of sales or $200,000 perannum. Following the acquisition of the assets of Eden Bioscience Corporation, theassets were fully integrated into the Group, therefore it is not possible todisclose a separate profit or loss applicable to this acquisition for the periodsince the date of acquisition. 12. First-time adoption of International Financial Reporting Standards (IFRS) Reconciliations and explanatory notes on how the transition to IFRS has affectedprofit and net assets previously reported under UK Generally Accepted AccountingPrinciples (UK GAAP) are given below: Income statement reconciliation for the year ended 31 December 2006 Note UK GAAP Adjustments IFRS $,000 $,000 $,000 Revenue 13,679 13,679 Cost of sales (7,565) (7,565) Gross profit 6,114 - 6,114 Goodwill amortisation (i) (36) 36 - Administrative expenses (ii) (8,976) (4) (8,980) Operating loss (2,898) 32 (2,866) Finance revenue 275 275 Finance costs (335) (335) Loss before tax (2,958) 32 (2,926) Tax expense (72) (72) Loss for the year (3,030) 32 (2,998) Attributable to: Equity holders of the parent (3,060) 32 (3,028) Minority interest 30 30 All amounts relate tocontinuing operations (3,030) 32 (2,998) Balance sheet reconciliation at 1 January 2006 Note UK GAAP Adjustments IFRS $,000 $,000 $,000Assets Non-current assets Intangible assets 2,769 2,769 Property, plant and equipment 790 790 Total non-current assets 3,559 - 3,559 Current assets Inventories 1,582 1,582 Trade and other receivables 2,989 2,989 Short term investments 252 252 Cash and cash equivalents 894 894 Total current assets 5,717 - 5,717 Total assets 9,276 - 9,276 Liabilities Current liabilities Trade and other payables (ii) 2,813 51 2,864 Short-term borrowings 285 285 Provisions 234 234 Total current liabilities 3,332 51 3,383 Non-current liabilities Long-term borrowings 523 523 Provisions - Total non-current liabilities 523 523 Total liabilities 3,855 51 3,906 Total net assets 5,421 (51) 5,370 Capital and reservesattributable to equity holdersof the company Share capital 542 542 Share premium 10,847 10,847 Reverse acquisition reserve 11,195 11,195 Share-based payment reserve 51 51 Foreign exchange reserve iii - (228) (228) Retained earnings (17,404) 177 (17,227) 5,231 (51) 5,180 Minority interest 190 190 Total equity 5,421 (51) 5,370 Balance sheet reconciliation at 31 December 2006 Note UK GAAP Adjustments IFRS $,000 $,000 $,000Assets Non-current assets Intangible assets (i) 2,701 36 2,737 Property, plant and equipment 1,008 1,008 Total non-current assets 3,709 36 3,745 Current assets Inventories 2,468 2,468 Trade and other receivables 6,942 6,942 Short term investments 436 436 Cash and cash equivalents 4,446 4,446 Total current assets 14,292 - 14,292 Total assets 18,001 36 18,037 Liabilities Current liabilities Trade and other payables (ii) 3,166 56 3,222 Short-term borrowings 314 314 Provisions 282 282 Total current liabilities 3,762 56 3,818 Non-current liabilities Long-term borrowings 414 414 Provisions - - Total non-current liabilities 414 414 Total liabilities 4,176 56 4,232 Total net assets 13,825 (20) 13,805 Capital and reservesattributable to equity holdersof the company Share capital 731 731 Share premium 21,826 21,826 Reverse acquisition reserve 11,174 11,174 Share-based payment reserve 118 118 Foreign exchange reserve (iii) - (9) (9) Retained earnings (20,244) (11) (20,255) 13,605 (20) 13,585 Minority interest 220 220 Total equity 13,825 (20) 13,805 Adjustments Explanations of the adjustments made to the UK GAAP income statement and balancesheets are as follows: Note (i) IFRS 3 'Business Combinations" has been applied to acquisitions completedafter the date of transition, 1 January 2006. As a result, the carrying value ofgoodwill in the UK GAAP balance sheet at 31 December 2005 is brought forward tothe IFRS opening balance sheet. The effect of IFRS has been to reverse thegoodwill amortisation charge for the June 2006 and December 2006 reportingperiods. (ii) In accordance with IAS 19, administrative expenses have been adjusted toreflect accrued entitlement to short-term compensated absences. (iii) In accordance with IAS 21, the foreign exchange reserve is classified as aseparate component of equity. There were no material changes to the cash flow for the year ended 31 December2006; the only changes are presentational. 13. Cautionary Statement Plant Health Care has made forward-looking statements in this press release,including: statements about the market for and benefits of its products andservices; financial results; product development plans; the potential benefitsof business relationships with third parties; and business strategies. Thesestatements about future events are subject to risks and uncertainties that couldcause Plant Health Care's actual results to differ materially from those thatmight be inferred from the forward-looking statements. Plant Health Care canmake no assurance that any forward-looking statements will prove correct. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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