8th Nov 2005 07:01
Celsis International PLC08 November 2005 CELSIS INTERNATIONAL PLC Interim Results for six months to 30 September 2005 CONTINUED STRONG PROFIT GROWTH 8 November 2005 Celsis International plc, the rapid microbial detection and analytical servicescompany, today announces its Interim results for the six months to 30 September2005. Financial Highlights: • Profit before tax up 19.1% to $3.56 million (H1 2004: $2.99 million) • Turnover up 3% to $15.65 million (H1 2004: $15.19 million) • Product Group revenues up 6.4% to $8.3 million (H1 2004: $7.8 million) and Laboratory Group revenues constant at $7.4 million (H1 2004: $7.4 million) • Gross margins increased to 68% (H1 2004: 65%) • Pre-tax earnings per share up 19.5% to 15.94c (H1 2004: 13.34c) • Strong cash position improved to $17.34 million (H1 2004: $15.0 million) Jay LeCoque, Chief Executive Officer of Celsis, commented: "I am pleased to report another period of growth in both revenues and profits.The 19% increase in profits before tax, despite some slowdown in growth inspending from certain segments of our Laboratory Group pharmaceutical base,reflects the success of our strategy of focusing on higher margin products andis evidence of our strengthened leadership position in our respective markets. "Our robust cash position gives us the ability to augment our continued strongorganic earnings growth with potential acquisitions. Our commitment toproviding our customers with new innovative testing solutions is demonstratedthrough our recently announced BioVentures agreement. We therefore remainconfident that we will meet the growth objectives we have set and are wellpositioned to deliver a strong year end performance." Enquiries: Celsis International plc Tel: 01638 600 151Jay LeCoque, Chief Executive Officer Tel: 020 7831 3113Christian Madrolle, Finance Director on 8 November 2005 Financial Dynamics Tel: 020 7831 3113Ben AtwellDavid Yates A presentation for analysts will be held at Financial Dynamics at 9.30am today,Tuesday 8 November 2005. Please call Gemma Cross Brown at Financial Dynamics on0207 269 7125 for further details. Celsis International plc Celsis International plc is a rapid microbial detection and analytical servicescompany. The company is listed on the London Stock Exchange (CEL.L). Using proprietary technology, the Product Group is the world leader in theprovision of diagnostic systems for the rapid detection of microbialcontamination. It works in close collaboration with many of the world's leadingpharmaceutical, personal care and beverage companies, ensuring the safety andquality of products bound for consumers. The Laboratory Group providesoutsourced analytical testing services to pharmaceutical and biopharmaceuticalcompanies to ensure the stability and chemical composition of their products. In addition to ensuring product quality and safety for consumers, both divisionshave the capacity to deliver substantial cost savings to Celsis' customers. Byreducing the time it takes to test and release raw materials and finished goodsto the market place, Celsis' products facilitate increased manufacturingproductivity and improved supply chain management. Further information can be found on its website at www.celsis.com. Chairman and Chief Executive's Review Introduction During the first half of 2005 we continued to strengthen our market position forboth our product and laboratory services. Our Product Group experienced stronggrowth in reagents and levels of new instrument placements remained healthy.Our Laboratory Group continues to expand into higher margin services butexperienced some slowdown in growth of pharmaceutical spending in certainsegments compared to last year's strong H1. These interim results are our first set of results prepared under the Group'sInternational Financial Reporting Standards (IFRS) accounting policies. Whilethe application of IFRS has no significant impact on the reported results forthe Group, the results for 2004-2005 have been restated in accordance with IFRS.Reconciliation of prior periods results to those restated under IFRS are shownon pages 16 and 17. For the first half ending 30 September 2005, we are pleased to report bothstrong profit growth and continued strengthening of the Company's balance sheet.Total Group revenue increased 3% to $15.65 million (H1 2004: $15.19 million)and profit before tax increased 19.1% to $3.56 million (H1 2004: $2.99 million).We continued to build our cash reserves to $17.34 million (H1 2004: $15.0million) and have been able both to invest in organic growth and to reviewpotential new earnings enhancing business opportunities, such as the recentBioVentures technology licensing deal. We anticipate healthy, sustainablegrowth across both our businesses and remain confident in our ability to delivera strong year end performance. Product Group Our Product Group, which provides rapid microbial detection systems to ensurethe safety and quality of products bound for consumers, represented 53% of totalGroup revenues in the first half. Celsis is the global leader in this businessand, as companies become increasingly concerned about the safety of theirproducts as well as the efficient management of their inventory, we are seeingan accelerating rate of adoption of our testing systems. Revenues increased6.35% to $8.3 million (2004: $7.8 million). Instrument sales were particularlystrong in North America and Asia while Europe and Latin America did not achievethe same levels on instrument placements as last year's first half. Reagentsand consumables, which now represent over 80% of Product Group revenues,continued to grow robustly as more and more products are screened by our rapiddetection systems. We continue to benefit from our Global Corporate Account Management (GCAM) salesstructure and intend to leverage this sales approach into new market areas suchas biologics, raw materials and other industries that can benefit from the costssavings that can be derived from our rapid testing systems. Our global presenceis unmatched in our respective industries and our control of the sales anddistribution channel for our products remains a significant advantage to ourgrowing global customer base. We are capitalising on today's trend inmanufacturing toward better supply chain management and companies increasinglyseeking to source from a preferred supplier that can provide one level ofpricing, customer service, global training and technical support across regions. We are also pleased to have made an ambitious move into new areas of rapiddetection utilising new approaches such as microarray and nucleic acidtechnologies via our licensing agreement with BioVentures Inc. This newlicensing agreement covers BioVentures' patented and patent pending high densitymicroarray technology which offers revolutionary improvements to theconsistency, reproducibility and cost effectiveness of microarrays.Additionally, the BioVenture microarray offers improved design flexibilityallowing for increased sensitivity and ease of interpretation. The jointdevelopment plan will also encompass nucleic acid testing and other rapiddetection technologies. Our focus on customer requirements remains consistent and we will develop onlynew technology systems that can add significant value to our customers'operations. Across our customer base, manufacturing processes are becoming moreprone to contamination due to the increased complexity of product formulationscoupled with the trend toward reducing preservative chemicals and anti-bacterialagents in the same formulations. These new manufacturing realities can resultin large scale stock write-offs and production shortages if not managedproperly. Screening for microbial contamination is now an essential part of themanufacturing process as customers increasingly recognise the importance ofensuring product quality and consumer safety. We currently offer our customersrapid testing solutions which provide results in 18 - 24 hours compared to themultiple days associated with traditional methods (including petri dishes). Theproducts we intend to develop through the new BioVentures agreement will benefitcustomers by significantly reducing the time to results to a few hours or less,while providing more information than permitted by current testingmethodologies. Better and faster information will provide significant economic benefits tocustomers by reducing manufacturing cycle times and working capitalrequirements. By utilising Celsis' detection technologies as part of an ongoingprogramme of focusing on process analytical technologies (PAT), our customerswill be better able to manage both product quality while also avoiding costlyproduct failures and recalls. Laboratory Group Our Laboratory Group business unit, which provides outsourced analytical testingservices to the pharmaceutical and biopharmaceutical industries to ensure thestability and chemical composition of their products, represented 47% of totalGroup revenues this half year. Revenues remained constant at $7.4 million(2004: $7.4 million) as we saw some temporary slow down in demand for ChemicalSciences services from certain US mid-west pharmaceutical companies whilst theEast Coast Chemical Sciences demand remained strong. We are confident in ourcurrent strategy to focus our Laboratory Group on higher margin services andremain confident that our second half, and year end, results will surpass ourperformance of last year. Our operating structure remains based around two business units, ChemicalSciences and Biological Sciences, to better focus on our customers' needs. Weencourage our business development and operational teams toward continuedspecialisation to better meet the needs of these two different but equallyimportant customer segments. We are expanding our laboratory expertise in New Jersey where the majority ofour customers are currently located. Our Chemical Sciences business in NewJersey remains particularly strong and we are expanding operations accordingly.Our Biological Sciences business in New Jersey has rebounded and our dedicatedbusiness development resource in this area has allowed us to become moreeffective in reaching our expanding business potential. During this half year, our St Louis operations have undergone some renovationand refurbishment to better position our capabilities toward stronger futuregrowth and new business development. We took advantage of the temporaryslowdown in Chemical Sciences in the mid-west to undergo the renovation andmanagement refocusing of this operation toward higher margin services. OurBiological Sciences in St Louis continues to grow at forecasted levels whilealso better preparing for future business opportunities through the renovationof its main microbiology laboratory. We remain focused on expanding our higher margin service offerings. We willcontinue to develop our resource base accordingly to further our expertise andexpansion into profitable areas of business growth. Financial Review The financial results presented below are, for the first time, prepared inaccordance with the group's International Financial Reporting Standards (IFRS)accounting policies. The comparative numbers in the financial statements forthe six months ended 30 September 2004 and the full year ended 31 March 2005have been restated in accordance with IFRS. In the Notes to the FinancialStatements, we describe our new IFRS accounting policies, and reconcilepreviously reported UK GAAP results to IFRS results, highlighting the main areasof impact on the results. The total Group revenue for the six months period ended 30 September 2005 was up3% to $15.65 million (H1 2004: $15.19). The revenue growth has been particularly strong in Asia and North America whileEurope and Latin America did not benefit from the same level of instrument salescompared to 2004. The New Jersey Laboratory Group activity continued to growdespite an unfavourable economic environment, while the Saint Louis LaboratoryGroup activity reflected the temporary slow down of the pharmaceutical industrydemand for analytical services. Gross profit increased 7.1% to $10.58 million (H1 2004: $9.88 million). As aresult of our policy to focus on high margin activities, both Groups saw theirgross margins strengthening and the Group overall margin increased to 68% (H12004: 65%). Operating, administration and R&D costs increased 4.5% to $7.27 million (H12004: $6.96 million). This increase is due to some non-recurring costsoriginating from the improvement of our Quality Control and Logistics processesin the Product Group. Operating profit rose 13.4% to $3.31 million (H1 2004: $2.92 million) and profitbefore tax increased 18.9% to $3.56 million (H1 2004: $2.99 million). For the six-month period, we accrued for a future tax-charge based on thecurrent profitability of our UK and US entities amounting to $1.14 million (H12004: $0.68 million credit). As we are now utilising our US and UK tax lossesand thus reducing the deferred tax asset on the balance sheet we are saving theCompany a substantial cash outflow. During the period ended 30 September 2005, we paid a dividend of $1.15 million(H1 2004: $0.97 million). Retained profit for the period has decreased to $2.42 million (H1 2004: $3.67million) but this difference is exclusively due to the change in the Group taxposition, which benefited from a tax credit of $0.68 million last year versus atax charge of $1.14 million this year representing an adverse impact of $1.82million in taxation. As the earnings per share comparison is impacted by the fact that this year ataxation charge has been debited whilst last year a deferred tax asset wascredited, we consider that comparing pre-tax earnings per share is a betterindicator of the Group's performance. Pre-tax earnings per share are up to15.94c (H1 2004: 13.34c) and pre-tax diluted earnings per share are up to 15.81c(H1 2004: 13.25c). We shall revert as from next year to the comparison of after-tax earnings pershare as a key performance indicator, given that the tax situation will then beconsistent on a year on year comparative basis. After-tax earnings per share are down to 10.84c (H1 2004: 16.38c) and after-taxdiluted earnings per share are down to 10.75c (H1 2004: 16.26c). It should be noted that all earnings per share calculations are now based on thenew number of shares resulting from the share consolidation plan on the basis ofone new 5p ordinary share in the Company for each five ordinary shares of 1peach held in the Company at close of business on 26 August 2005. Total Group capital expenditure is up to $0.89 million (H1 2004: $0.80 million).In accordance with IAS 38, $0.28 million development costs have been capitalisedduring the period under review (H1 2004: $0.28 million). Stocks have increased to $2.51 million at September 2005 (H1 2004: $2.20million) but decreased compared to the level held at March 2005 ($2.84 million). Debtors due within a year are up 10.6% to $7.47 million (H1 2004: $6.75million), reflecting the increased level of sales, and a particularly strongsecond quarter in terms of revenue for both Product and Laboratory Groups. Creditors have decreased to $3.32 million (H1 2004: $3.60 million) and the Grouphas no long-term debt or bank overdraft. Our creditors/cash ratio (acid test ratio) has further strengthened to 0.19 (H12004: 0.26). The cash and cash equivalents position has improved to $17.34million (H1 2004: $15.00 million) although the free cash generation has sloweddown during the period under review as the Group has paid a dividend of $1.15million, bought $0.29 million of treasury shares and invested $0.89 million ofcapital expenditure during the last six months. There will be no interimdividend. Equity shareholders' funds have increased 16.8% to $35.65 million (H1 2004:$30.52 million). Sales and profits from both Groups have remained solidly in line with managementexpectations. With no long-term debt and a strong balance sheet, the Group iscontinuing to deliver increased shareholder value and is well positioned topursue its organic and external growth. Outlook We are pleased with the performance of this first half and remain confident of astrong year end performance. Our revenue and profit growth in the first halfunderscores the health of our business base and we are confident that revenuegrowth in the second half will return to our laboratory services business unit. Our Product Group remains the leader in its selective fields of interest and,with the recent licensing agreement with BioVentures Inc, we are positioned toextend our growth in the rapid detection system market. We remain focused oncustomer needs that will position our Laboratory Group to secure levels ofgrowth unseen in this business unit previously and the Laboratory Group isexpected to return to growth in the second half. The market opportunities for our products and services are expanding and we willcontinue to position our resources to best exploit this growth. We areconfident that we can accelerate revenue growth whilst continuing to tightlymanage our cost base to deliver consistent profit growth. We will continue touse a disciplined approach toward enhancing shareholder value in identifying newbusiness opportunities and will focus only on opportunities that are best ableto ensure long-term shareholder value. We would like thank all of our employees around the world for their manyindividual and combined contributions this first half and we also would like tothank our shareholders for their support and continued confidence in Celsis. Weare confident in our ability to deliver a strong full year result and areoptimistic about the Company's long term prospects. Jay LeCoque, Chief Executive OfficerJack Rowell, Non-Executive Chairman8 November 2005 Consolidated Income Statementfor the 6 months ended 30 September 2005 $'000 Six months Six months Year to 30 Sept to 30 Sept to 31 March 2005 2004 2005 Unaudited Unaudited Unaudited _____ _____ _____Revenue 15,650 15,187 30,397Cost of Sales (5,071) (5,312) (10,361) _____ _____ _____Gross profit 10,579 9,875 20,036 OverheadsSales & marketing expenses (5,254) (5,036) (10,241)Administrative expenses (1,904) (1,814) (3,586)Research & development expenditure (110) (104) (229) _____ _____ _____Operating profit 3,311 2,921 5,980 Interest receivable & similar income 254 87 244Interest payable & similar charges (6) (14) (24) _____ _____ _____Profit before taxation 3,559 2,994 6,200 Taxation (1,139) 683 1,755 _____ _____ _____Profit for the period 2,420 3,677 7,955 _____ _____ _____ Dividends Final 2005 paid at 5.13 cents per share 1,150Final 2004 paid at 4.30 cents per share 966 966 Earnings per Ordinary ShareBasic earnings per Ordinary Share 10.84c 16.38c 35.50cDiluted earnings per Ordinary Share 10.75c 16.26c 35.22c Pre-Tax earnings per Ordinary ShareBasic earnings per Ordinary Share 15.94c 13.34c 27.68cDiluted earnings per Ordinary Share 15.81c 13.25c 27.46c Statement of Recognised Income and Expensefor the 6 months to 30 September 2005 Profit for the period 2,420 3,677 7,955Net exchange adjustment offset in reserve net (307) (102) 282of tax _____ _____ _____Total recognised income for the period 2,113 3,575 8,237 _____ _____ _____ All results are from continuing operations Consolidated Balance Sheetat 30 September 2005 $'000 At 30 Sept At 30 Sept At 31 March 2005 2004 2005 Unaudited Unaudited Unaudited _____ _____ _____AssetsNon-current assetsGoodwill 1,143 1,143 1,143Intangible assets 1,679 1,401 1,500Property, plant and equipment 4,116 3,409 3,838Other receivables 81 180 81Deferred tax asset 2,050 2,059 3,949 _____ _____ _____ 9,069 8,192 10,511Current assetsInventory 2,513 2,200 2,844Trade and other receivables 7,473 6,751 6,556Current tax asset 2,760 2,239 1,907Cash and cash equivalents 17,341 15,002 17,363 _____ _____ _____ 30,087 26,192 28,670LiabilitiesCurrent liabilitiesTrade and other payables (3,317) (3,602) (4,066) _____ _____ _____Net current assets 26,770 22,590 24,604 Non-current liabilitiesOther non-current liabilities (186) (182) (163)Provisions - (76) (10) _____ _____ _____Net assets 35,653 30,524 34,942 _____ _____ _____Shareholder's equityCalled up share capital 1,611 1,611 1,611Share premium account 13,120 23,120 13,120Treasury shares (715) (205) (420)Currency translation reserve (127) (102) 180Retained earnings 20,282 4,618 18,969Reserve arising on consolidation 1,482 1,482 1,482 _____ _____ _____Total equity 35,653 30,524 34,942 _____ _____ _____ Cashflow Statementfor the 6 months to 30 September 2005 $'000 Six months Six months Year to 30 Sept to 30 Sept to 31 March 2005 2004 2005 Unaudited Unaudited Unaudited _____ _____ _____Cash flows from operating activities 2,682 3,301 7,592Tax paid (85) (35) (592)Interest paid (6) (14) (24)Interest received 254 87 244 _____ _____ _____Net cash from operating activities 2,845 3,339 7,220 Cash flows from investing activitiesPurchase of property, plant and equipment (893) (796) (1,805)Purchase of intangible fixed assets (391) (493) (763) _____ _____ _____Net cash used in investing activities (1,284) (1,289) (2,568) Cash flows from financing activitiesEquity dividends paid (1,150) (967) (967)Purchase of treasury shares (295) (205) (420)Repayment of principle under finance leases (37) (83) (135) _____ _____ _____Net cash used in financial activities (1,482) (1,255) (1,522) Effects of exchange rate changes (101) - 26 _____ _____ _____Net (decrease)/increase in cash and cash equivalents in the (22) 795 3,156period _____ _____ _____ Cash and cash equivalents at the beginning of the period 17,363 14,207 14,207Cash and cash equivalents at the end of the period 17,341 15,002 17,363 _____ _____ _____ Reconciliation of operation profit to cash generated fromoperations Profit before taxation 3,559 2,994 6,200Depreciation of tangible fixed assets 563 537 1,106Amortisation of intangible assets 165 174 363Share option compensation 50 41 128Net finance income (248) (1) (220) _____ _____ _____Operating cash flow before changes in working capital and 4,089 3,745 7,577provisions(Increase)/decrease in debtors (1,018) (1,012) (548)Decrease/(increase) in inventory 258 561 (78)(Decrease)/increase in creditors (637) (18) 682Costs of fundamental reorganisation provided - provision (10) 25 (41)expended _____ _____ _____Cash flows from operating activities 2,682 3,301 7,592 _____ _____ _____ Notes to the Financial Statementsfor the 6 months to 30 September 2005 1. Basic & diluted profit per ordinary share $'000 Six months Six months Year to 30 Sept to 30 Sept to 31 March 2005 2004 2005 Unaudited Unaudited Unaudited _____ _____ _____Profit on ordinary activities after taxation 2,420 3,677 7,955Basic weighted average number of Ordinary Shares in issue 22,322,881 22,438,249 22,400,792Diluted weighted average number of Ordinary Share in issue 22,515,510 22,600,857 22,580,817 _____ _____ _____ 2. Basis of preparation and statement of compliance The interim financial statements comprise the unaudited results for the sixmonths to 30 September 2005 and 30 September 2004, together with the unauditedresults for the 12 months ended 31 March 2005. Prior to 1 April 2005, the Groupprepared its audited annual financial statements and unaudited interim resultsunder UK Generally Accepted Accounting Principles (UK GAAP). The audited UKGAAP annual financial statements for 2005, which represent the statutoryaccounts for that year, and on which the auditors gave an unqualified opinion,have been filed with the Registrar of Companies. From 1 April 2005, the Group is required to prepare its annual consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) as adopted by the European Union (EU) and implemented in theUK. As the annual 2005-2006 financial statements will include comparatives for2004-2005 the Group's date of transition to IFRS under IFRS1 (First timeadoption of IFRS) is 1 April 2004 and the 2004-2005 comparatives have beenrestated to IFRS. The financial information has been prepared under the historical cost conventionand has been prepared on a basis consistent with the IFRS accounting policies asset out below. The accounting policies are consistent with those that thedirectors intend to use in the next annual financial statements. There is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 March 2006 are not known with certainty atthe time of preparing this interim financial information. 3. Significant Accounting Policies A summary of the more important Group accounting policies adopted after thechanges resulting for the first-time adoption of IFRS is set out below : 1. Basis of accounting: The financial statements are prepared in accordance with the historical costconvention, except for certain financial assets and liabilities, which aremeasured at fair value. 2. Functional currency: The company regards the US dollar as its functional currency. The US dollar isthe currency of the primary economic environment in which the company operates,and it is also the currency in which the majority of cash is generated andexpended by its main subsidiaries. Effective from 1 April 2002, the Financial Statements have been presented in USdollars. The exchange rate used as at 30 September 2005 was $1.7696/£. 3. Basis of consolidation The consolidated profit and loss account and balance sheet include the financialstatements of the Company and its subsidiary undertakings drawn up to 30September 2005. Intra-group sales and profits are eliminated fully onconsolidation. The results of subsidiaries acquired or disposed of during theperiod are included in the consolidated profit and loss account from the datethe control passes. On acquisition of a subsidiary, all of the subsidiary's assets and liabilitiesthat exist at the date of acquisition are recorded at their fair valuesreflecting their condition at that date. All changes to those assets andliabilities, and the resulting gains or losses, that arise after the Company hasgained control of the subsidiary, are charged to the post-acquisition profit andloss account. 4. Goodwill Goodwill arising on consolidation represents the excess of the fair value of theconsideration over the fair value of the net assets acquired. Goodwill is notamortised, but reviewed annually for impairment and carried at cost less anyaccumulated impairment losses. The annual impairment review involves comparingthe carrying amount to the estimated recoverable amount on a cash generatingunit basis, any impairment loss arising is recognised through the incomestatement. Negative goodwill arising on an acquisition is recognised directly through theincome statement. 5. Revenue Revenue which excludes value added tax, sales between Group companies and tradediscounts, represents the invoiced value of goods and services supplied.Revenue is recognised on delivery and customer acceptance of goods and servicesor when contractual obligations have been fulfilled. 6. Deferred Income Income received in relation to instrument service contracts is recognised asrevenue on a straight line basis over the period of the contract. Amountsinvoiced for which the revenue recognition criteria have yet to be satisfied areincluded within deferred income. 7. Property, Plant & Equipment The cost of property, plant & equipment is the purchase cost, together with anyincidental costs of acquisition. Depreciation is calculated so as to write offthe cost of property, plant & equipment less the estimated residual values, on astraight line basis over the expected useful economic lives of the assetsconcerned. The principal useful economic lives used for this purpose are: Plant and Machinery Up to 10 yearsLeasehold improvements Period of Lease 8. Intangible fixed assets Intangible fixed assets are stated at their original costs, together with anyincidental costs of acquisition, or accumulated amortisation. Expenditure on patents is written off to the profit and loss account in theperiod. Expenditure on license fees and trade marks are capitalised andamortised on a straight line basis over the expected useful life of the license/trademark which does not exceed 20 years. Internally generated assets such as product development expenditure resulting innew products or substantially improved products and processes are capitalised ifthe product or process meet the criteria for capitalisation under IAS 38.Amortisation of these assets commences when the asset is brought into use and iscalculated on a straight line basis over the asset's useful economic life. The Group considers at each reporting date whether there is any indication thatnon-current assets are impaired. If there is such an indication, the Groupcarries out an impairment test by measuring each asset's recoverable amount,which is the higher of the asset's fair value less costs to sell and its valuein use. If the recoverable amount is less than the carrying amount an impairmentloss is recognised, and the asset is written down to its recoverable amount. 9. Research and Development expenses Expenditure on research activities is recognised as expense, through the incomestatement when it occurs, as well as the expenditure on development activitieswhich does not meet the criteria for capitalisation under IAS 38. 10. Finance and operating leases Assets held under leases which confer rights and obligations, as well as risksand rewards similar to those attached to owned assets, are classified as financeleases. Assets held under finance leases are recognised as assets of the groupat their fair value at the inception of the lease, or if lower, at the presentvalue of the minimum lease payments and depreciated over the shorter of thelease period or their expected economic useful lives. The corresponding liability to the lessor is included in the balance sheet as afinance lease obligation. Lease payments are apportioned between financecharges and reduction in the lease obligation so as to achieve a constant rateof interest on the remaining balance of the liability. Finance charges arecharged to profit or loss. Assets held under leases in which a significant portion of the rights andobligations as well as risks and rewards are retained by the lessor areclassified as operating leases. Rentals under operating leases are charged tothe profit and loss account on a straight line basis over the term of the lease. 11. Inventory Inventory is stated at the lower of cost and net realisable value. In general,cost is determined on a first in first out basis and includes transport andhandling costs. In the case of manufactured products, cost includes all directexpenditure and production overheads based on the normal level of activity.Where necessary, provision is made for obsolete, slow moving and defectivestocks. Net realisable value is the estimated selling price in the ordinarycourse of business, less the estimated selling costs. 12. Cash and cash equivalents Cash and cash equivalents are invested in short term bank deposits with anoriginal maturity date of 3 months or less. Movement in such investments isincluded under cash and cash equivalents for the purpose of the statement ofcash flows. 13. Pension costs The Group operates a number of defined contribution schemes for the benefit ofthe employees of the group. Pension benefits are provided to overseas employeesin accordance with appropriate local practice. For defined contributionschemes, the amount charged to the income statement represents the contributionspayable in the period. Differences between contributions payable during theperiod and contributions actually paid are shown as either accruals orprepayments in the balance sheet. 14. Deferred taxation Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised for all taxable temporarydifferences. Deferred tax assets are generally recognised for all deductibletemporary differences to the extent that it is probable that taxable profitswill be available against which such differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecoverable in the foreseeable future. Deferred tax is measured at the average rates that are expected to apply in theperiods in which the timing differences are expected to reverse, based on taxrates and laws that have been enacted or substantially enacted by the balancesheet date. The Group has taken advantage of the exemption for deferred tax arising from theinitial recognition of goodwill. 15. Fixed assets investments Investments in subsidiaries are held in the Company financial statements at costless provision for impairment. 16. Treasury shares The cost of ordinary shares in Celsis International plc which have been acquiredby a group company as treasury shares are shown as a deduction fromshareholders' equity and the number of shares deducted from the weighted averagenumber of shares in the calculation of earnings per share. Dividends receivedon treasury shares are eliminated on consolidation. 17. ESOT The Group operates a share option scheme for certain employees under an employeeshare options trust. Other than costs incurred in administering the trust,which are expensed as incurred, the scheme does not result in any expense to theGroup. Shares in the ESOT previously held as investments are now shown as adeduction from equity. 18. Foreign currencies The individual financial statements of each group entity are presented in thecurrency of the primary economic environment in which the entity operates. Theconsolidated financial statements are presented in US dollars as this is thecurrency of the primary economic environment in which Celsis operates. In preparing financial statements, transactions in currencies other than the USdollar are recorded at the standard internal rate of exchange prevailing on thedates of the transactions. At each balance sheet date, assets and liabilitiesof all non US dollar functional currency companies are translated in US$ dollarat the rates prevailing on the balance sheet date, and the results of all non-USdollar functional currency companies are translated at the average rates ofexchange for the year. Differences on exchange arising from the retranslation of the opening netinvestment in subsidiary companies and from the translation of the results ofthose companies at average rates are taken to reserves and are reported instatement of recognised income and expense. All other foreign exchangedifferences are taken to the profit and loss account in the year in which theyarise. 19. Share-based payments Share options are awarded annually to selected executives and employees on adiscretionary basis. The options are subject to three year service vestingconditions, and their fair value (which is measured at grant date using theBlack Scholes model) is spread over the vesting period. The amount is recognised as an employee benefits expense with a correspondingincrease in the retained earnings reserve. The proceeds received net of anydirect transaction costs are credited to share capital (nominal value) and sharepremium when the options are exercised. The Group has applied IFRS 2 only to equity-settled awards granted after 7November 2002, and those which were no longer outstanding at 31 March 2005. 20. Dividends Dividend payment to the Company shareholders is recognised as a liability in theperiod in which the dividends are approved by the Company's shareholders. 21. Allowance for doubtful debts: Trade receivables are first assessed individually for impairment or collectivelywhere the receivables are not individually significant. Where there is noobjective evidence of impairment for an individual receivable, it is included ina group of receivables with similar credit risk characteristics and these arecollectively assessed for impairment. Movements in the provision for doubtfuldebts are recorded in the income statement. 22. Use of estimates The preparation of these interim financial statements has required management tomake estimates and assumptions that affect the amounts reported. Actual resultscould differ from these estimates. Significant estimates in these financialstatements include but are not limited to, revenue recognition, accounting forinvestments, provision for income taxes, allowance for doubtful debts,impairment of non-current assets, goodwill and purchased intangible assets andcontingencies and legal settlements. 4. Dividends 2005 2004 $'000 $'000 Final dividend paid: 5.13c (2004: 4.30c) per ordinary share 1,150 966 The Directors have declared no interim dividend. 5. Taxation 2005 2004 $'000 $'000 United Kingdom taxation at 30% 593 729Foreign taxation (US-Europe) 546 (1,500) _____ _____ 1,139 (771) _____ _____ The Corporation tax accrual for the interim period is charged at 32%representing the best estimate of the weighted average annual corporation taxrate expected for the full financial year. Differences between the effectivetax rate of 32% and the notional statutory UK rate of 30% include, but are notlimited to the effect of tax rates in foreign jurisdictions and non deductibleexpenses. 6. Earnings per share The weighted average number of shares used in the calculation of the dilutedearnings per share for the six months to 30 September 2005 excludes 234,370treasury shares (31 March 2005: 149,370) as these were not dilutive. 7. Share-based payments Details of the share options granted to directors and employees during theperiod are as follows: Grant Date Number of Options Vesting period Options granted to Directors 26 July 2005 186,235 3 yearsOptions granted to Senior Employees 27 May 2005 59,000 3 years In accordance with IFRS 2, the fair value of services received in return forshare options granted to directors and employees, is measured by reference tothe fair value of share options granted, based on the Black-Scholes formula.See note 10 a). 8. Unaudited Consolidated Statement of Changes in Shareholder's Equity at 30 September 2005 $'000 Share capital Share premium Treasury account shares _____ _____ _____ Balance at 1 April 2004 1,611 23,120 - Purchase of own shares (205)Profit for the six months ended 30 September 2004DividendsCurrency translation differences -groupShare option compensation charge _____ _____ _____Balance at 30 September 2004 and at 1 October 2004 1,611 23,120 (205) _____ _____ _____ Purchase of own shares (215)Capital reorganisation (10,000)Profit for the six months ended 31 March 2005Currency translation differences -groupShare option compensation charge _____ _____ _____Balance at 31 March 2005 and at 1 April 2005 1,611 13,120 (420) _____ _____ _____ Purchase of own shares (295)Profit for the six months ended 30 September 2005DividendsCurrency translation differences -groupShare option compensation charge _____ _____ _____Balance at 30 September 2005 1,611 13,120 (715) _____ _____ _____ Unaudited Consolidated Statement of Changes in Shareholder's Equityat 30 September 2005 (continued) $'000 Currency Retained Reserve Total translation earnings arising on reserve consolidation _____ _____ _____ _____ Balance at 1 April 2004 - 1,872 1,482 28,085 Purchase of own shares (205)Profit for the six months ended 30 September 3,677 3,6772004Dividends (966) (966)Currency translation differences -group (102) (102)Share option compensation charge 35 35 _____ _____ _____ _____ Balance at 30 September 2004 and at 1 October (102) 4,618 1,482 30,5242004 _____ _____ _____ _____ Purchase of own shares (215)Capital reorganisation 10,000 -Profit for the six months ended 31 March 2005 4,278 4,278Currency translation differences -group 282 282Share option compensation charge 73 73 _____ _____ _____ _____Balance at 31 March 2005 and at 1 April 2005 180 18,969 1,482 34,942 _____ _____ _____ _____ Purchase of own shares (295)Profit for the six months ended 30 September 2,420 2,4202005Dividends (1,150) (1,150)Currency translation differences -group (307) (307)Share option compensation charge 43 43 _____ _____ _____ _____ Balance at 30 September 2005 (127) 20,282 1,482 35,653 _____ _____ _____ _____ 9. Reconciliation of comparative equity and profit figures under IFRS andpreviously published data (UK GAAP) As stated in Note 1, these are the Group's first consolidated interim financialstatements prepared in accordance with the Group's IFRS accounting policies.The comparative information for the six months to 30 September 2004, and for theyear ended 31 March 2005, previously prepared under UK GAAP, have been restatedunder IFRS. An explanation of how the transition from previous GAAP to IFRS hasaffected the Group's financial performance is shown over the page. Reconciliation of Profit for the Period $'000 Six months to Year to 30 Sept 2004 31 March 2005 Unaudited Unaudited Notes _____ _____ Profit for the period reported under UK GAAP 3,487 6,499 AdjustmentsCapitalisation of development costs b 283 504Share option compensation charge a (41) (128)Reversal of goodwill amortisation c 36 73Dividends d - 1,150Income tax on adjustments e (88) (143) _____ _____ Profit for the period reported under IFRS 3,677 7,955 _____ _____ Reconciliation of Equity at 1 April 2004 UK GAAP Effect of IFRS$'000 At 1 April transition At 1 April 2004 to 2004 IFRS Notes Unaudited Unaudited Unaudited _____ _____ _____ AssetsNon-current assets c, f 5,427 2,121 7,548Current assets f 26,595 (2,211) 24,384LiabilitiesCurrent liabilities d (4,536) 966 (3,570)Non-current liabilities (277) - (277) _____ _____ _____ Net assets 27,209 876 28,085 Total equity 27,209 876 28,085 _____ _____ _____ Reconciliation of Equity at 30 September 2004 UK GAAP Effect of IFRS$'000 At 30 Sept transition At 30 Sept 2004 to IFRS 2004 Notes Unaudited Unaudited Unaudited _____ _____ _____ Assets _____ _____ _____Non-current assets b, c, f 5,724 2,468 8,192 _____ _____ _____Current assets e, f 28,519 (2,327) 26,192LiabilitiesCurrent liabilities (3,602) - (3,602)Non-current liabilities a (252) (6) (258) _____ _____ _____ Net assets 30,389 135 30,524 Total equity 30,389 135 30,524 _____ _____ _____ Reconciliation of equity at 31 March 2005 UK GAAP Effect of IFRS$'000 At 31 March transition At 31 March to 2005 IFRS 2005 Notes Unaudited Unaudited Unaudited _____ _____ _____ Assets _____ _____ _____Non-current assets b, c, f 5,994 4,517 10,511 _____ _____ _____Current assets e, f 32,843 (4,173) 28,670LiabilitiesCurrent liabilities d (5,216) 1,150 (4,066)Non-current liabilities a (153) (20) (173) _____ _____ _____Net assets 33,468 1,474 34,942 Total equity 33,468 1,474 34,942 _____ _____ _____ 10. Notes to the IFRS adjustments The key areas of impact of IFRS are described below: a) IFRS 2: Share based payments A charge is made to the income statement for share options issued since November2002, and those which were no longer outstanding at 31 March 2005. The chargeis based on the fair value of options at the grant date, with the fair valuebeing determined by the Black Scholes option pricing model. The charge was: $41,000 for the 6 months ended 30 September 2004 for options issued in 2003 and2004. $128,000 for the 12 months ended 31 March 2005. The group has taken the exemption not to apply IFRS 2 'Share based payment' toshare options granted before 7 November 2002. An accrual of $6,000 of National Insurance contribution has been booked tonon-current liabilities at 30 September 2004 and $20,000 at 31 March 2005 toprovide for the potential liability that the Group may have when these optionswill be exercised. b) IAS 38: Intangible assets Research & Development costs As required by IAS 38, certain development costs which have been incurred duringthe financial year ended 31 March 2005 have been identified and capitalisedresulting in a gain of $283,000 for the 6 months ended 30 September 2004 and$504,000 for the financial year ended 31 March 2005. Development costs prior to1 April 2004 for have not been capitalised as the Company does not havesufficiently detailed records of these costs for prior years to enable it toestablish whether these costs meet the criteria for capitalisation under IAS 38. Computer software Under IFRS computer software is now deemed to be an intangible asset and allcomputer software has been reclassified from tangible to intangible assets.This reclassification has resulted in a transfer of $1.013 million from tangibleassets to intangible assets. Useful Life The group has reassessed the useful lives of its intangible assets in accordancewith the provisions of IAS 38. No adjustment resulted from this reassessment. c) IAS 36: Impairment of Assets - Goodwill The Group has taken advantage of the exemption available under IFRS 1 under bywhich goodwill arising on acquisitions before 31 March 2004 has been frozen atthe UK GAAP amounts, subject to being tested for impairment at that date. Under IFRS goodwill should no longer be amortised and thus the amortisationcharged in the profit and loss account in the 6 months period ended 30 September2004 of $36,000 and for the full year ended 31 March 2005 of $73,000 have beenreversed so that it is now stated at its carrying amount prior to the date oftransition. In accordance with the provisions of IFRS 3 the group ceasedamortisation of goodwill from 1 April 2004. A test of impairment of capitalised goodwill has been performed and has resultedin a write off of $90,000 generated on the acquisition of the Saint LouisLaboratory (formerly SAI Laboratories) in 1997. This impairment of goodwill hasbeen written off directly to reserves at 1 April 2004. d) IAS 10: Events after the balance sheet date As dividends declared after the balance sheet date should not be recognised as aliability at the balance sheet date, the dividend accrued at 31 March 2005 of$1,150,000 has been reversed in the comparative financial statements and isrecognised in the period in which it was declared under IFRS. Similarly thedividend of $966,000 accrued on 31 March 2004 has been reversed at 1 April 2004in the comparative financial statements and is recognised in the period in whichit was declared. e) IAS 12: Income taxes The deferred tax recognised at 30 September 2004 and 31 March 2005 have beenadjusted to take into account the adjustments resulting from the first timeadoption of IFRS, and the deferred tax credit has been decreased by $88,000 at30 September 2004 and $143,000 at 31 March 2005 with similar amounts beingsubtracted from the balance sheets at 30 September 2004 and 31 March 2005. f) IAS 1: Presentation of financial statements The group has reclassified its deferred tax asset of $2.06 million and its longterm asset of $0.15 million from current assets to non-current assets at 1 April2004. At 30 September 2004 Celsis reclassified its deferred tax asset and longterm asset of $2.06 million and $0.18 million respectively from current assetsto non-current assets. At 31 March 2005 the group reclassified its deferred taxasset and long term asset of $3.95 million and $0.1 million respectively fromcurrent assets to non-current assets. Explanation of material adjustments to the cash flow statements for 2004-2005 Purchase of intangible assets in respect of development costs of $0.28 millionhave been included in the 30 September 2004 cash flow, and of $0.50 million tothe 31 March 2005 cash flow in investing activities as a result of IAS 38, 'Intangible Assets'. The remaining standards are either not applicable to the business or have nomaterial effect on the Group's policies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Celadon Pharmaceuticals