RNS Number:0478S
Sagentia Group AG
01 March 2007
Embargoed release: 07:00hrs Thursday 1st March 2007
SAGENTIA GROUP AG
('Sagentia Group')
(FORMERLY THE GENERICS GROUP AG)
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
Sagentia, a leading integrated technology consulting, development and investment
organisation, today announces its preliminary results for the year ended 31
December 2006.
* Revenue increased by 8% to #23.6m (2005: #21.9m)
* Consultancy and IP Exploitation fee income increased by 7% to #18.0m
(2005: #16.9m)
* After a strong first half, Consulting was loss making in the second half
and, together with IP Exploitation, made an overall operating loss of #0.4m
for the full year (2005: profit #0.5m)
* Significant investment of #0.6m in extensive rebranding exercise
including change of name from The Generics Group to Sagentia Group
* Group loss from continuing activities before taxation of #2.5m (2005:
profit of #1.2m). Losses include #0.6m investment in rebranding, #0.9m
reduction in fair value of venture portfolio and #0.6m net costs incurred in
maintaining or increasing our holdings in majority held ventures
* CMR Fuel Cells plc, Sagentia Group's fuel cell spin-out listed in
December 2005, published key relationships with Solvay SA and Xaar plc, and
after its first full year of trading on AIM announced the achievement of a
key technical milestone, demonstrating stack performance of 500 watts/litre.
Sagentia retains an 11% stake in CMR, which had a gross value of #33m at the
year-end
* Sphere Medical Holding Ltd, Sagentia Group's medical device spin-out,
completed significant #6.2m financing in H1 2006, including #0.6m investment
from Sagentia Group at a post money valuation of #14m
* Atraverda Ltd, an advanced bipolar battery company, completed a #2m
financing in December 2006 supported by all principal shareholders,
including #0.2m investment from Sagentia Group at a post money valuation for
Atraverda of #8m
* Sale of the Group's equity interest in Vibration Technology Ltd for
#0.5m
* Period end cash balance of #2.0m (2005: #3.6m) with an increase in bank
facility from #6.6m to #11m, of which #4.5m remains unutilised at year end
* Adjusted loss per share of 1.1 pence (2005 earnings of 0.6 pence)
* Shareholders' funds per share of 9.7p (2005: 10.7p)
* Appointment of Chris Masters as Group Chairman during the second half of
the year
* Management restructuring and cost reduction measures started at the year
end pave the way for a return to profitability in 2007
Chris Masters, Chairman commented:
"After a strong start to 2006, the full year financial performance of Sagentia
Group was ultimately disappointing. While the Group grew revenues and continued
to see good progress in a number of its portfolio companies, sales in the core
technology consulting business were below expectations in H2 leading to a loss
in the second half and a full year loss of #0.4m (2005: #0.5m profit). Together
with the one-off cost of rebranding, reduction in value of the venture
portfolio, principally reflecting the 7% movement in the share price of CMR Fuel
Cells plc since listing in December 2005, and continued investment in spin-out
subsidiaries, the Group made an overall loss of #2.5m compared to a profit of
#1.2m in 2005.
Actions have already been taken to correct the second half performance. Dan
Flicos has been appointed Managing Director of the Group's technology consulting
business. This followed the resignation of Simon Davey in November. Under Dan's
leadership the business has been restructured and ongoing annual costs reduced
by #1.3m. The one-off cost of this reorganisation is #0.3m which will be borne
in Q1 2007. Over the last two years the Group's turnover has risen by 35% and
with a simplified management structure and reduced cost base we are now in a
strong position to return to profitable growth in 2007.
Our strategy regarding ventures remains the same, namely to create one or two
businesses a year from both Sagentia and its corporate network, and to be in a
position to retain a significant equity position in such businesses through to
exit. Over the last 2-3 years, we have demonstrated, in CMR Fuel Cells, Sphere
Medical and Atraverda, that we are capable of creating companies with
substantial value. During the year Sphere and Atraverda successfully completed
large refinancings, in which the Group invested #0.8m at a cumulative post money
valuation for these companies of #23m. The financing characteristics of an early
stage venture business are however very different from a core technology
consulting business and the Board is currently examining potential alternative
ways of financing this activity more effectively going forwards.
During the year the Group underwent a significant rebranding exercise,
ultimately leading to a change of name from The Generics Group AG to Sagentia
Group AG. Scientific Generics, the technology consulting company, has been
renamed Sagentia. Venture management activities are carried out through Sagentia
Group's FSA regulated fund manager, Chord Capital. This represents the most
extensive restructuring since the Company's formation in 1986 and supports the
core competencies of the technology consulting business in building both
businesses and capabilities for and with our clients. The investment in brand
after a period of good growth in the business will reposition Sagentia Group for
many years to come and eliminate the previous confusion in the market associated
with the word 'generic'. The cost of this exercise was #0.6m, which was treated
as an expense in 2006.
Outlook
The markets for technology consulting remain strong across Europe. While the
dollar exchange rate makes it more difficult to sell into the USA, there is no
reason why the business should not regain the momentum it experienced during the
first half of 2006. Our immediate target is to return the technology consulting
business to profitability while creating a strong platform from which the
company can deliver consistent profitable growth in the years ahead. The focus
in 2007 will therefore be very much on margins and profitability. Within the
venturing activity, the prospects for Sphere and Atraverda in particular are
strong and improving and, overall, we look to the future with confidence. "
Enquiries:
Sagentia Group AG (44) 1223875200
Martin Frost Group CEO www.sagentia.com
Daniel Flicos Managing Director, Sagentia Limited
Hansard Group (44) 207 2451100
Andrew Tan
Chief Executive's review
Analysis of segmental results
The following table includes an analysis of the sources of revenue and operating
profits and losses on ordinary activities across the Group, and is extracted
from the segmental information set out in the note 4 to this report.
--------------------------------------------------------------------------------
2006 2005 2006 2005
#000s Revenue Revenue Profit / (Loss) Profit / (Loss)
--------------------------------------------------------------------------------
Consulting and IP
exploitation 21,472 20,284 (409) 493
Venture Subsidiaries 531 288 (657) (767)
Asset Management 485 516 64 (77)
Property and Centre 1,158 858 (495) (1,106)
-------- -------- -------- --------
Revenues : Gross loss 23,646 21,946 (1,497) (1,457)
Profit on disposals
of investments 392 1,573
Change in fair value
on financial assets (876) 1,808
Related bonus accrual 384 (320)
Rebranding costs (632) -
Cost of options (235) (107)
-------- --------
Operating (loss)
profit (2,464) 1,497
---------------------- ======== ========
Consulting and intellectual property ("IP") exploitation
The Group's international technology consulting and IP exploitation activities
are carried out through its wholly owned subsidiary, Sagentia Ltd ("Sagentia")
and overseas subsidiaries in the US, Sweden, Hong Kong and Germany. The
technology and business consulting services offer customised product and process
solutions as well as advice on new technology opportunities to a wide range of
international clients, from start-ups to multinationals. Sagentia's wide and
interdisciplinary skill base means that the business can take a broad approach
to issues surrounding new business development, including technological,
financial, marketing and strategic aspects.
During the course of 2006 the consulting and IP activities grew fee income by 6%
to #18.0m (2005: 17.0m) and revenues by 6% to #21.5m (2005: #20.3m). Top-line
growth was driven in the first half of the year by a robust sales performance in
the US, Europe and UK, on the back of significant growth in 2005, albeit with
sales growth not being sustained into H2. The UK market for the Group's
technology consulting services remained significant, although all regions
increased year on year. Operating expenses increased by 9% to #18.5m (2005:
#17.0m) driven mainly by 7.5% headcount growth, resulting in 5% increase in
employee costs for permanent and temporary staff. Sagentia returned a loss for
the year of #0.4m following a profitable H1 (2005: profit #0.5).
Sagentia retains significant licenses which should start to generate income over
the next few years. These include the AutosheathTM licence for which $0.5m is
due pending grant of the US patent, expected 2007. Patent fees of #0.34m were
incurred during the year (2005 #0.35m) and have been expensed through the profit
and loss account.
Overseas expansion has been driven through the offices in Baltimore, Frankfurt
and Hong Kong offices with significant increases in both the selling and
operating capacity made during the year. In February 2006, Sagentia's Hong Kong
subsidiary SGAI Tech Ltd, Rolls-Royce plc and Arup were named as the first
winners of the Cathay Pacific Awards, a scheme designed to recognise and reward
UK business dynamism and success in Hong Kong and China. The scheme was launched
in September 2005 and the three winners beat thirty-three other applicants from
a variety of sectors ranging across manufacturing, retail and academia.
During 2006 Sagentia completed a number of landmark projects. This included a
multi-year project stimulating wealth and innovation with Yorkshire Forward in
the advanced engineering and metals sector. Over 18 months, 450 jobs were
created and safeguarded and public money was invested with an 800 per cent
return. During the period the company completed a large breakthrough bathroom
appliance development project for a European leader while also being recognised
for its work with Aqualisa, when Aqualisa's Quartz shower secured the title of
'Best Consumer Product' at the Design Association's 'Design Effectiveness
Awards'. For UBI (now Intermec) the business carried out a strategic review of
options for a very low-cost thermal transfer bar code label printer. Finally,
Sagentia also won the Visionary Leadership category in the 'Vision 100'
competition organised by BT and Cranfield School of Management.
Sagentia continues to selectively exploit proprietary intellectual property and
technology. During 2006 Sagentia agreed a deal with Honeywell's First Technology
business to explore the commercial potential of its proprietary liquid
level-sensing technology Cap-Track. Cap-Track is an electronic dipstick and is
the latest in a line of innovative sensing technologies developed by Sagentia
over the past ten years. Unlike other capacitive sensors, which rely on a
two-sensor approach, this is a single sensor solution. Cap-Track also offers
the prospect of locating a fuel sensor outside the fuel tank - an industry
first. This has long been regarded as the 'Holy Grail' of fuel sensing and its
expected to have a major impact on the automotive industry.
Under the terms of the one year agreement, First Technology, now owned by
Sensata, has exclusive rights to capitalise on Cap-Track in the automotive
industry. Honeywell has indicated it will focus on promoting the technology as
an alternative to existing fuel-level sensing systems. With at least one sensor
per vehicle, the potential application exceeds 65 million new vehicles being
built globally each year.
During 2006 Dan Flicos was appointed Managing Director of Sagentia Ltd following
the resignation of Simon Davey. Daniel Flicos joined the business in 1993. He
spent three years in the US and during this period was responsible for
Sagentia's US operations and the successful growth of this business, including
the integration of a strategically important acquisition, Genesis Medical into
Sagentia Inc. Daniel returned to the UK in 2003, most recently as Group
Commercial Director. He has a masters degree in Electrical and Electronic
Engineering from Bath University
Fundamental to the success of Sagentia's business model is a growing and
profitable international technology consulting activity. In the consulting
business, the quality of our innovation, delivery and people is validated by
real customers; our technology is developed in the context of a real market
place rather than a laboratory; a profitable consulting business is able to
support a world-class technology engine at no cost. Finally the corporate
culture fosters the conditions for the next CMR or Sphere without the business
having to commit large amounts of capital to create the opportunity.
Venture subsidiaries
Venture subsidiaries are majority owned spin-out companies created by Sagentia
Group for the purpose of exploiting a particular technology, intellectual
property or business opportunity. Sagentia Group's goal with its venture
portfolio is ultimately to realise value through IPO or trade sale. Under IFRS,
controlled investments are consolidated as subsidiaries, therefore all costs
incurred by the Venture subsidiaries are expensed through the profit and loss
account. Consequently, the fair value of controlled investments is not shown on
the balance sheet. Controlled investments being actively exploited include
Sensopad Ltd, AtraNova Ltd and now Intrasonics Ltd.
The net costs of venture subsidiaries in 2006 were #0.7m (2005: #0.8m). The main
three of these venture subsidiaries are as follows:
Intrasonics Limited
Within the portfolio of IP assets, the Group has accelerated the planned
commercialisation programme for its wholly-owned IntrasonicsTM acoustic data
communications technology. Intrasonics addresses opportunities in the
interactive media sector and is presently in commercial discussions to raise
funding which will allow the next stage of development. As well as operating
costs, all expenditure on the creation and development of intellectual property
has been written off as incurred, in line with the Group's accounting policies.
Sagentia Group owns 93% of the equity in Intrasonics, and currently funds the
company via a loan facility.
Sensopad Limited
Sensopad obtained the rights to non-automotive applications for a contact-less
inductive sensing technology from Sensopad Technologies when Sensopad
Technologies was sold by the Group to a subsidiary of TT electronics plc in
March 2005. Sensopad Limited has added new sensor IP to its portfolio, and is
currently exploiting all its IP under a new management team. Sensopad was
operating at close to breakeven at the end of 2006 with the benefit of orders
and licences already secured in the aerospace, financial kiosks and games
markets.
Sagentia Group owns 77% of the equity in Sensopad, and currently funds the
company via a loan facility.
Atranova Limited
Atranova obtained the rights to non-battery applications to commercialise
EbonexTM, a titanium oxide ceramic, when Sagentia Group's portfolio company,
Atraverda Ltd, obtained funding for its battery applications. AtraNova has been
operating a #0.4m contract to supply water treatments sub-systems in Israel, and
is currently looking at other opportunities within the water treatment industry.
Sagentia Group owns 91% of the equity in Atranova, and currently funds the
company via a loan facility.
The fair value of Intrasonics, Sensopad and AtraNova is not shown in the
consolidated balance sheet. The combined BVCA value of the Group holdings in
these Venture subsidiaries is #1.0m
Asset management
Chord Capital, the Group's FSA registered subsidiary, manages both investments
within the Group, and advises on investments for 2 separate funds (2005 - 3).
Fees earned for funds under management was #0.5m (2005 - #0.5m) and generated a
gross profit of #0.1m (2005 gross loss of #0.1) following a restructuring of its
cost base. The portfolio capitalised on Sagentia Group's balance sheet at 31
December 2006 (Note 15) is valued at #11.3m (2005 - #11.0m).
The net result for the venture operations (being profit on disposals of
investments, change in fair value on financial assets and the related bonus
accrual) generated a profit of #0.1m (2005 - profit #3.1m) which was
disappointing. This reflected only one investment disposal and no external
refinancing of our venture subsidiaries.
The following investee companies now comprise 67 per cent of the fair/BVCA value
of the portfolio capitalised on Sagentia Group's balance sheet at 31 December
2006:
--------------------------------------------------------------------------------
Investee company Group fully diluted BVCA
equity Valuation of Group
interest * interest
% #m
--------------------------------------------------------------------------------
CMR Fuel Cells plc ("CMR") 11 3.7
Sphere Medical Holding Ltd ("Sphere") 10 1.5
Atraverda Ltd ("Atraverda") 14 1.3
Sensortec Ltd ("Sensor-Tec") 12 1.2
------------------------- --------- --------
Total 7.7
------------------------- --------- --------
* Fully diluted interest assumes that granted options have been exercised, with
the exception of CMR Fuel Cells
Progress during the year in the above investee companies was as follows:
CMR Fuel Cells ('CMR')
CMR was spun out of Sagentia in 2003 to exploit revolutionary flow-through fuel
cell utilising mixed reactants developed at Sagentia. CMR's patented technology
involves electrochemical devices, which convert fuel directly into electricity
at higher efficiency rates and have the potential for higher power storage
capacity. Commercial fuel cell revenues are projected to grow to over $14
billion by 2010. CMR will address this market with what is widely recognised as
one of the industry's leading commercial mass-market technology propositions.
CMR's technology has the potential to lead to a ten-fold increase in power
density, a five-fold reduction in cost with reduced dependence on precious
metals, such as platinum and can be mass-produced cheaply using existing
processes.
CMR was admitted to AIM in December 2005. Sagentia Group retains an 11% equity
stake in CMR post IPO. The mid-market share price of CMR at year end was #1.645.
Sagentia Group's shares in CMR are therefore held in the balance sheet at
year-end at a fair value of #3.7m.
CMR made good technical progress during the year and in February 2007 confirmed
that it met the key performance milestone in its research and development
programme on time and in accordance with the targets outlined in the company's
AIM admission document. The milestone of producing a fuel cell stack
consistently delivering a power density of greater than 500 watts per litre is a
tangible and important step towards producing commercially viable product.
During the year CMR also progressed commercial relationships with leading
consumer electronics OEMs, entered into a porous MEA development programme with
Solvay SA and increased staff members to 27. The company further entered into a
2nd generation 'printed stack' collaboration with Xaar plc and Solvay SA. The
company closed the year with a strong cash position.
Sphere Medical Holding ('Sphere')
Sphere Medical, medical microtech spin out from Sagentia, is developing
micro-analysers which can measure simultaneously numerous important clinical
parameters in real time. The disposable micro-analyser platform, which is based
on technology originally acquired from Siemens and Sagentia, can be applied to
numerous clinical needs at very cost effective price points. The initial
commercial application of the micro-analyser will be the real time measurement
of glucose levels, blood gas concentrations and electrolyte levels in a number
of clinical application areas. Sphere Medical is also developing novel receptor
technology, enabling the measurement of drugs and disease markers, as part of
its strategy to increase the commercial applications of its patented
micro-analyser system.
During 2006, Sphere closed a funding round of #6.2m, of which Sagentia Group
invested #0.6m to maintain its equity share. In addition to existing
shareholders, new shares were issued to Schroders Investment Management Limited,
Oxford Capital and Fritas A/S. The company has engaged with a number of the
world's leading device companies in commercial discussions, and the product
development programme has progressed well demonstrating integrated sensor
function. Sphere is now beginning to invest in manufacturing scale-ups.
During the year Sphere announced important relationships with AMI Semiconductor,
Analogic Devices and latterly Olivetti to manufacture Sphere's proprietary micro
sensor chips.
Atraverda
Atraverda has developed an innovative lead acid battery design using EbonexTM
bipolar membranes. Atraverda's plates are based on a novel ceramic material,
which enables a performance increase of over 30% compared with standard lead
acid batteries, while reducing weight by at least 25%. Atraverda's patented
Ebonex technology is the first commercially viable bi-polar product to enter the
market that makes lead-acid batteries smaller, lighter, longer lasting and more
reliable.
During the year Atraverda announced that it had entered into a commercial
agreement with East Penn Manufacturing Company, Inc the world's largest battery
manufacturer, to develop bipolar batteries. In 1995 the company announced a
similar agreement with Yuasa. Atraverda completed a #2m financing in December
2006 supported by all principal shareholders, including #0.2m investment from
Sagentia Group at a post money valuation for Atraverda of #8m.
Target markets for Atraverda include standby power, mobility, telecoms,
automotive including hybrid electric vehicles. Ebonex bi-polar batteries use
significantly less lead while being recyclable like conventional lead-acid
batteries delivering a dependable, environmentally-friendly technology.
Sensortec
Sensortec has developed a platform technology for use in disposable bio-sensors,
based on immuno-assay techniques. Sensortec's proprietary technology enables the
miniaturisation of a wide range of common format assays traditionally performed
at clinical reference laboratories, all in a simplified form and at a
competitive price. The unique design of the Sensortec sensor chips mean that low
cost materials and methods can be used to produce the disposable cartridge
incorporating the sensors and fluidics required to manipulate the blood sample
and perform the tests.
In 2006 Sensortec entered into an exclusive global agreement with DxTech LLC, a
private US company formed by XL TechGroup Inc, an AIM listed company. DxTech is
developing a unique fluidic-based medical diagnostic platform that will initiate
the transition from centralised to distributed diagnostics. The deal assigns the
exclusive global rights of the point of care clinical diagnostic instrument to
DxTech to be used in the development of a multi-analyte micro-fluidic cartridge
that forms an integral part of the DxTech diagnostic platform.
Under the terms of the agreement, DxTech will be granted an exclusive worldwide
licence for all medical and veterinary applications of the Sensortec technology,
in return for which Sensortec will receive an equity stake of up to 12% in
DxTech. Universal Sensors, the Cambridge based arm of Sensortec, has been
contracted to transfer the selected diagnostic tests to the sensors and to help
develop the multi-analyte, micro fluidic cartridge that forms an integral part
of the point of care diagnostics platform. It is anticipated that the device
will be the first of many diagnostic panels or cartridges to enter product
demonstrations in 2007.
Other investments
During the year Sagentia Group announced the sale of its entire equity stake in
Vibration Technology (Vibtech') to the French company Sercel for cash
consideration of #0.5m and a profit of #0.3m. Based in Scotland, Vibtech,
founded in 1996, pioneered the use of advanced wireless technologies for seismic
recording. This technology has now reached a new stage with the recent release
of the Unite system, and field trials of this new generation equipment have
attracted interest from both oil companies and seismic contractors.
Sagentia Group holds circa 11% of the equity in TurfTrax Ltd. TurfTrax primarily
provides data to the betting market, media and consumer on horse racing. In
particular the company has developed, with Sagentia, and introduced the TurfTrax
Tracking System capturing a horse race as data and broadcasts this data to
multiple clients in real time.
Our strategy regarding ventures remains the same, namely to create one or two
businesses a year from both Sagentia and its corporate network, and to be in a
position to retain a significant equity position in such businesses through to
exit. Over the last 2-3 years, we have demonstrated, in CMR Fuel Cells, Sphere
Medical and Atraverda, that we are capable of creating companies with
substantial value. The financing characteristics of a venture business are
however very different from a core technology consulting business and the Board
is currently examining alternative ways of financing this activity more
effectively going forwards.
Property and central services
Property comprises the Group's 77,000 square feet freehold headquarters in
Harston, England. The principal tenant remains the Group's consulting business,
Sagentia Limited, which occupies 40,000 square feet on arms length terms. The
remaining space is let on short to medium term leases.
The net cost of property and central services comprise #0.5m (2005 - #1.1m), the
decrease resulting in a reduction in the depreciation charge (see Note 14). The
remaining costs result from the cost of property; Group central costs, relating
to the Swiss quoted company Sagentia Group AG and its management; and the
Group's IT services company Managed5Nines Limited. Costs remain under review,
although 2006 closes in a better position with the building fully let, and
Managed5Nines revenues increasing including for the non Group share of its
customer base.
During 2006 the Board appointed Guy McCarthy to the role of Group Director of
Finance. He has taken over the financial management responsibilities previously
fulfilled by the Chief Executive.
Martin Frost
Chief Executive
28 February 2007
Financial review
The following table includes an analysis of the operating profits and losses on
ordinary activities across the Group, and is extracted from the Consolidated
Income Statement in this report.
2006 2005
#000s #000s
-------- --------
Core operations 23,115 21,658
Venture subsidiaries 531 288
-------- --------
Revenue 23,646 21,946
======== ========
Core operations (840) (402)
Venture subsidiaries (657) (1,055)
-------- --------
Gross Loss (1,497) (1,457)
-------- --------
Profit on disposals of investments 392 1,573
Change in fair value on financial assets (876) 1,808
Related bonus accrual 384 (320)
Re-branding costs (632) -
Cost of options (235) (107)
-------- --------
Operating (loss) profit (2,464) 1,497
-------- --------
Finance Charges (net) (59) (286)
-------- --------
(Loss) profit on continuing operations before income tax (2,523) 1,211
---------------------- ======== ========
Revenue
Revenue is stated net of inter-company activity. Total revenues increased by
7.7% to #23.6m (2005: #21.9m) due primarily to growth within technology
consulting services. Revenues from technology consulting including recharged
expenses represents 91% of Group revenue (2005: 92%).
Gross loss
Gross loss before gains from venture disposals and fair value adjustments ended
similar to 2005 at 1.5m (2005 - #1.5m) due to a reduction in the cost of Venture
subsidiaries offsetting a reduction in profit in the consulting operations.
Analysis of the revenue and gross loss by segment are further analysed in the
Chief Executive's Review above.
Investment Activity
Profit on disposal of investments principally relates to the disposal of
Vibration Technologies investment.
The change in value of investments of #0.9m represents the reduction in the fair
value of investments of #0.7m, primarily due to the reduction in share price of
our quoted investment CMR Fuel Cells, together with the impairment of financial
assets of #0.2m. CMR's share price ended the year at #1.645 (2005 - #1.925). The
Group initially had a lock-in period, where it was unable to trade in CMR
shares. This has now expired. Of the remaining investments, gains in Sphere
Medical, Vibration Technologies and Atraverda were offset by losses of a similar
size booked in British Titanium, CDC (in administration), Zinwave and Turftrax
(down-round investments).
A bonus accrual of #0.4m has been released in 2006 (#0.3m accrued in 2005)
partly due to the reduction in fair value of investments, and partly due to the
Board decision to accrue bonuses at a lower level in future.
Rebranding
A one-off of #0.6m relating to external suppliers for the re-branding exercise
was incurred in 2006.
Cost of options
The cost of options issued and outstanding at the year-end for 2006 is
calculated as #0.2m in 2006 (#0.1m in 2005). The increase being due to the
options that were issued mid 2005. 0.7m options were issued in 2006. At the year
end, the majority of options issued have an exercise price in excess of market
price.
Finance Charges
Finance charges reduced to #0.1m (2005 - #0.3m) due to the increase in interest
rate charge reducing the value of the interest rate swap undertaken.
Earnings per share
The loss per share was 1.1p (2005 earnings per share 0.5p)
Analysis of balance sheet
At 31 December 2006 the Group had shareholders funds of #21.0m (2005: #23.1m)
which was equivalent to approximately 9.7 pence per share (2005: 10.7 pence).
This includes freehold land and buildings with a net book value of #14.8million
(2005: #15.0m), against which the Group has an outstanding loan of #6.5m (2005:
#6.6m), in addition to cash of #2.0m (2005: #3.7m). Unutilised loans of #4.5m
are currently available to be drawn down by the Group.
The fair value of investments and other loans to investee companies at the
year-end was #11.3m (2005: #11.0m). This represents the BVCA or market valuation
of all non-controlled investments. The BVCA valuation of controlled investments
- venture subsidiaries - is #1.1m (2005: #1.1m). The difference between the BVCA
valuation and the net asset value at the year-end for venture subsidiaries is
equivalent to approximately 0.5p per share (2005: 0.5p).
Cash and cash flow
Cash flows from operating activities reduced from a #1.2m outflow in 2005 to
#0.7m outflow in 2006, mainly resulting from the gross loss offset by a
reduction in working capital needs.
Cashflow from investing activities increased from #0.5m in 2005 to #0.9m in
2006. Discretional spending, including capital expenditure and financial
investment was limited to a net #0.8m (2005: #2.2m).
Bank loans drawn at the end of the year were #6.5m (2005: #6.6m). The loan is
part of a Group facility taken out as a 5 year revolving loan facility of up to
#9m secured against Harston Mill, together with a further #2m overdraft facility
guaranteed by the Sagentia Group. This replaced the existing mortgage against
the building. At the end of 2006 #4.5m of the facility remain available to be
drawn down.
The Group continues to carefully manage its access to cash resources so that its
business and investment activities can progress in line with its business plan.
The Group will continue to review opportunities to dispose of investments in
order to make funds available to make new investments.
G J McCarthy
Group Director of Finance
28 February 2007
Attachments
Sagentia Group AG
Consolidated income statement
For the year ended 31 December 2006
----------------------------------------------------------------------------------
Notes Core operations Venture 2006 2005
subsidiaries
#000 #000 #000 #000
----------------------- ----- ------- ------- -------- -------
Continuing operations
Revenue
Core operations 23,115 - 23,115 21,658
Venture
subsidiaries - 531 531 288
----------------------- ----- ------- ------- -------- -------
4 23,115 531 23,646 21,946
Operating expenses
Core operations (23,955) - (23,955) (22,348)
Venture
subsidiaries - (1,188) (1,188) (1,055)
----------------------- ----- ------- ------- -------- -------
4 (23,955) (1,188) (25,143) (23,403)
----------------------- ----- ------- ------- -------- -------
Gross loss 4 (840) (657) (1,497) (1,457)
Profit on
disposal of
investments 392 1,573
Change in value
of financial
assets (876) 1,808
Bonus accrual
on change in
fair value 384 (320)
Rebranding (632) -
Cost of
options* (235) (107)
----------------------- ----- ------- ------- -------- -------
Operating
(loss) profit 4 (2,464) 1,497
Finance charges
(net) (59) (286)
----------------------- ----- ------- ------- -------- -------
(Loss) profit
on continuing
operations
before income
tax (2,523) 1,211
Income tax
expense 51 4
----------------------- ----- ------- ------- -------- -------
(Loss) profit
on continuing
operations for
the year 4 (2,472) 1,215
----------------------- ----- ------- ------- -------- -------
Attributable to:
Equity holders
of the parent (2,531) 1,252
Minority
interests 59 (37)
----------------------- ----- ------- ------- -------- -------
(Loss) profit
for the year (2,472) 1,215
----------------------- ----- ------- ------- -------- -------
(Loss) earnings
per share
(basic) 5 (1.1)p 0.6p
(Loss) earnings
per share
(diluted) 5 (1.1)p 0.6p
----------------------- ----- ------- ------- -------- -------
* See Consolidated Statement of Changes in Equity.
Consolidated statement of changes in equity
For the year ended 31 December 2006
Group Issued Share Investment Translation Share Retained Total - Minority Total
capital premium in own reserve based earnings share- Interest equity
shares pay- holders
ment funds
reserve
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Balance at 1
January 2005 9,289 13,095 (74) 50 6 (612) 21,754 3 21,757
Profit (loss)
for the year - - - - - 1,252 1,252 (37) 1,215
Issue of
shares to
minorities - - - - - - - 79 79
Share options
adjustment - - - - 107 - 107 - 107
Exchange
differences on
translating
foreign
operations - - - (102) - - (102) - (102)
Balance at 31
December 2005 9,289 13,095 (74) (52) 113 640 23,011 45 23,056
-------------- ----- ------ ------- ------- ------ ------ -------- ------- ------
Balance at 1
January 2006 9,289 13,095 (74) (52) 113 640 23,011 45 23,056
Profit (loss)
for the year - - - - - (2,531) (2,531) 59 (2,472)
New shares
issued 18 38 - - - - 56 - 56
Dividends
payable to
minorities - - - - - - - (8) (8)
Issue of
shares to
minorities - - - - - - - 11 11
Disposal of
own shares - - 13 - - - 13 - 13
Share options
adjustment - - - - 235 - 235 - 235
Exchange
differences on
translating
foreign
operations - - - (77) - - (77) (15) (92)
Balance at 31
December 2006 9,307 13,133 (61) (129) 348 (1,891) 21,707 92 20,799
----- ------ ------- ------- ------ ------- ------- ------ ------
Consolidated balance sheet
At 31 December 2006
Group
---------- ----------
2006 2005
#000 #000
---------- ----------
ASSETS
Non-current assets
Intangible assets 9 13
Goodwill - -
Property, plant and equipment 14,787 15,005
Investments 11,279 11,044
Deferred income tax assets 3,014 2,951
------------------------- ---------- ----------
29,089 29,013
---------- ----------
Current assets
Trade and other receivables 5,212 7,271
Current tax asset 30 -
Investments 23 23
Cash and cash equivalents 1,963 3,567
------------------------- ---------- ----------
7,228 10,861
---------- ----------
Total assets 36,317 39,874
------------------------- ---------- ----------
EQUITY AND LIABILITIES
Shareholders' equity
Called-up share capital* 9,307 9,289
Share premium account* 13,133 13,095
Investment in own shares* (61) (74)
Translation reserves* (129) (52)
Share based payment reserve* 348 113
Retained earnings* (1,891) 640
------------------------- ---------- ----------
Total Shareholders' equity 20,707 23,011
Minority interest 92 45
------------------------- ---------- ----------
Total equity 20,799 23,056
------------------------- ---------- ----------
Non-current liabilities
Borrowings 6,948 6,451
Other creditors 41 -
Financial instruments 181 423
Deferred income tax liabilities 3,014 2,951
------------------------- ---------- ----------
10,184 9,825
---------- ----------
Current liabilities
Trade and other payables 5,250 6,354
Current income tax liabilities 43 26
Borrowings 41 613
------------------------- ---------- ----------
5,334 6,993
---------- ----------
---------- ----------
Total liabilities 15,518 16,818
------------------------- ---------- ----------
---------- ----------
Total equity and liabilities 36,317 39,874
------------------------- ---------- ----------
* See Consolidated Statement of Changes in Equity.
Consolidated cash flow statement
For the year ended 31 December 2006
---------- ----------
2006 2005
#000 #000
---------- ----------
Profit (loss) before income tax (2,523) 1,211
------------------------- ---------- ----------
Depreciation charges 422 958
Profit on disposal of investments (392) (1,573)
Change in fair value 876 (1,808)
Change in fair value of interest rate swap (242) 8
Bonus accrual on change in fair value (384) 320
Cost of options 235 107
Decrease (Increase) in debtors 2,059 (2,100)
(Decrease) increase in creditors (747) 1,653
UK corporation tax received (net) 35 21
Foreign corporation tax received (paid) (net) 3 (10)
------------------------- ---------- ----------
Cash flows from operating activities (658) (1,213)
------------------------- ---------- ----------
---------- ----------
Purchase of property, plant and equipment (212) (610)
Loans granted to related parties - (691)
Loan repayments received from third parties - 1,493
Purchase of financial assets at fair value through the
income statement (1,279) (678)
(678)
Sale of financial assets at fair value through the
income 540 5
statement ---------- ----------
-------------------------
Cash flows from investing activities (951) (481)
------------------------- ---------- ----------
---------- ----------
Issue of ordinary share capital 56 -
Disposal of own shares 13 -
Issue of shares by subsidiary undertakings to minority
interests 11 79
Issue of loans by minority interests to subsidiary
undertakings (11) 30
Loan repayments (64) (11)
------------------------- ---------- ----------
Cash flows from financing activities 5 98
------------------------- ---------- ----------
(Decrease) increase in cash and cash equivalents in the
year (1,604) (1,596)
Cash and cash equivalents at the beginning of the year 3,567 5,144
Exchange gains / (losses) on cash - 19
Cash and cash equivalents at the end of the year 1,963 3,567
------------------------- ---------- ----------
Extracts from notes to the financial statements
1 Statement of accounting policies
1 General information
Sagentia Group AG (the Company) and its subsidiaries (together the Group) is an
integrated technology consulting, development and venture organisation, that
commercialises emerging science and technology.
The Group develops technologies that underpin the future of the widest range of
industries. Its key areas of expertise include: engineering, materials,
telecommunications, life sciences, business innovation and electronics.
Sagentia's facilities include state-of-the-art laboratories and are located in
Europe in Cambridge, Frankfurt, and Stockholm; in Boston and Baltimore in the
USA and in Hong Kong.
The entity only accounts of Sagentia Group AG have been prepared under Swiss Law
and have been audited by Trestor Treuhand with an unqualified audit report.
Accounts are available from the company's registered office; Bahnhofstrasse 44,
CH-8023, Zurich, Switzerland.
The Company has its primary listing on the London Stock Exchange (SGA.L)
These consolidated financial statements have been approved for issue by the
Board of Directors on 28 February 2007.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS) and IFRIC
interpretations issued and effective or issued at the time of preparing these
statements.
These financial statements have been prepared under the historical cost
convention, as modified by the revaluation of certain assets at fair value, as
allowed by IAS39 Financial Instruments: Recognition and Measurement. Of the new
Standards and Interpretations effective for the year ending 31 December 2006,
listed below, there was no impact on the presentation of the accounts of the
Sagentia Group AG.
Number Title
IFRS 4 Insurance Contracts
(Amendment) Amendment for financial guarantee contracts
IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
IFRS 6 Exploration for and Evaluation of Mineral Assets
IAS 19 Employee Benefits
(Amendment)
IAS 39 Financial Instruments: Recognition and Measurement
(Amendment)
The Standards and Interpretations in issue but not yet effective for the year
ending 31 December 2006 are listed below. The Group has not adopted these early.
Other than additional disclosure, there will be no impact on the preparation of
the accounts of the group on the adoption of these standards.
Number Title
IAS 1 Presentation of Financial Statements
(Amendment) Added disclosures about an entity's capital
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting
in Hyperinflationary Economies
IFRS 7 Financial Instruments: Disclosures
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
IFRIC 11 IFRS 2: Group and Treasury Share Transactions
The preparation of financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Companies accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 26.
The allocation of the minority interest has been restated in the current year.
Excess losses of the minorities have now been allocated to the majority interest
in line with accounting standards, and even when loans have been made by the
minorities to fund trading losses. The prior year comparatives have been amended
accordingly.
2.2 Basis of consolidation
The consolidated financial statements of Sagentia have been prepared in
conformity with International Financial Reporting Standards ("IFRS"). In
accordance with the rules of the London Stock Exchange and applicable
legislation, Sagentia is required to adopt IFRS for accounting periods beginning
on January 1, 2005. The Group has applied the business combinations exemptions
in IFRS 1. It has not restated business combinations that took place prior to
the 1 January 2004 transition date.
The Group financial statements consolidate the financial statements of Sagentia
Group AG and its subsidiary undertakings drawn up to 31 December each year. The
Company was incorporated in 1996 under the name of Catella AG; in 1998 changed
its name to The Generics Group AG; and in 2006 changed its name to Sagentia
Group AG. The Company, as part of a group reorganisation, became the parent of
The Generics Group Ltd (now Sagentia Group Ltd) in 1998 via a share-for-share
exchange in that company. The company, as part of a group rebranding exercise,
changed its name again during 2006 to Sagentia Group AG. This combination
qualified as a group reconstruction under FRS 6 'Acquisitions and Mergers', and,
as such, was accounted for via merger accounting. Thus the results and cash
flows of the combined entities were brought into the financial statements of the
combined entity as though they had always been combined.
The basis of consolidation is set out below:
Subsidiaries - Subsidiaries are entities over which the Group has the power to
govern the financial and operating policies accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date that control ceases. These acquisitions are
accounted for using the purchase method of accounting.
Venture subsidiaries - Venture subsidiaries are investments in which the Group
holds control, but holds these investments for ultimate disposal and capital
gain. The Group accounts for such investments as subsidiaries until either they
are disposed of or the Group issues shares to minorities and allows control to
pass.
Investments - Investments are investments in which the Group does not hold
significant influence. Where the Group holds these investments for ultimate
disposal and capital gain, they are accounted for in accordance with IAS39, and
are designated as at fair value through profit and loss.
2.3 Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and return that are different from those of segments operating
in other economic environments.
2.4 Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary/
associate at the date of acquisition. Goodwill on acquisitions of subsidiaries
is included in intangible assets. Goodwill on acquisition of associates is
included in investments in associates. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Gains and
losses on the disposal of an entity include the carrying amount of the goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. Each of those cash-generating units represents the Groups investment in
each country of operating by each primary reporting segment.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are
amortised on a straight-line basis over their estimated useful lives.
Costs associated with maintaining computer software programmes are recognised as
an expense as incurred. Costs that are directly associated with the production
of identifiable and unique software products controlled by the Group, and that
will probably generate economic benefit greater than one year, are recognised as
intangible assets. Direct costs include the software development employee costs
and an appropriate portion of relevant overheads.
Computer software development costs recognised as assets are amortised over
their useful lives (not exceeding three years).
2.5 Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation but
are tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment using discounted cash flow techniques at the company
cost of capital to calculate the value in use and whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. Impairment losses are expensed when
foreseen. The recoverable amount is the higher of an assets fair value less
costs to sell, and value in use. For the purpose of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units).
2.6 Research expenditure
Research expenditure is written off as incurred.
2.7 Development expenditure
Development expenditure is also written off as incurred, except where the
Directors are satisfied that the technical, commercial and financial viability
of individual projects under relevant IAS 38 criteria are met that would allow
such costs to be capitalised. Under IAS 38, the Group recognise an intangible
asset if it believes it can demonstrate the following:
* The technical feasibility of completing the intangible asset so that it
will be available for use or sale.
* Its ability to use or sell the intangible asset.
* How the intangible asset will generate probable future economic
benefits; either by the existence of a market for the output of the
intangible asset or the intangible asset itself or, if it is to be used
internally, the usefulness of the intangible asset.
* The availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset.
* Its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
Identifiable expenditure is then capitalised and amortised over the period
during which benefits are expected.
2.8 Property, plant and equipment
Land and buildings comprise offices and laboratories at Harston Mill, Harston,
Cambridge, UK. Land and buildings are shown at historical cost less accumulated
depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items. Cost may also include transfers from equity of
any gains/losses on qualifying cash flow hedges of foreign currency purchases of
property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that the future
economic benefit associated with the item will flow to the Group and the cost of
the item can be measured reliably. All other repairs and maintenance are charged
to the income statement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the
straight line method to allocate their cost or revalued amounts to their
residual values over their estimated useful lives, as follows:
Buildings 25 years
Furniture and fittings 3-10 years
Equipment 3-4 years
The asset's residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. An asset's carrying amount is written
down immediately to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
The residual value of the property at Harston Mill has been revised to #10.8m.
This has resulted in a reduction of depreciation for the year of #525,000.
Gains and losses on disposals are determined by comparing proceeds with carrying
amount. These are included in the income statement.
2.9 Investments
The Directors consider that a substantial measure of the performance of the
Group is assessed through changes in fair value arising from the investment
activity of the Group. Consequently the Group classifies its investments that
are not controlled investments as being financial assets at fair value through
profit or loss, loans and receivables and available for sale financial assets.
Fair value through profit or loss investments that are not controlled
investments are shown on the balance sheet at their fair value and any
associated changes in fair value are included in the income statement in the
period they arise.
Valuation policy - In determining fair value, investments have been valued by
the Directors in compliance with the principles of the International Private
Equity and Venture Capital Guidelines, updated and effective 1 January 2005, as
recommended by the British Venture Capital Association (BVCA).
Listed investments - the fair values of quoted investments are based on bid
prices at the balance sheet date.
Unlisted investments - the valuation methodology used most commonly by the Group
is the "price of recent investment", reflecting the early stage nature of the
investments.
The following considerations are used when calculating the fair value using the
"price of recent investment" guidelines:
* Where the investment being valued was itself made recently, its cost
will generally provide a good indication of fair value; and
* Where there has been any recent investment by third parties, the price
of that investment will provide a basis of the valuation.
Convertible loan notes - Under IAS 28 financial instruments that are presently
exercisable are taken into account in determining control and significant
influence and this may affect the basis of consolidation.
Under IAS 39 convertible loan notes are financial assets and are defined as
compound financial instruments consisting of a liability component and an equity
component. At the date of issue there is a requirement to split the instrument
between its debt and equity components.
The debt component is not classified as fair value through profit or loss, but
under investments as "loans and receivables" and subsequently carried in the
balance sheet at amortised cost using the effective interest method less any
impairment.
The equity component is classified under investments and subsequently carried in
the balance sheet at fair value. The right to convert the loan into equity
represents an embedded derivative (the option) and as such needs to be
re-measured to fair value at each reporting date with any changes in fair value
of this right taken through profit or loss.
Convertible loans issued in a different functional currency to the issuing
entity are treated the same, however, there may also be an associated financial
instrument to manage the risks associated with foreign currency fluctuations.
Controlled investments - The Group also undertake investment activities in
investments that are controlled, the performance of which, therefore, cannot be
measured by changes in fair value arising from the investment activity of the
Group. The Group identify these activities separately as Venture Subsidiaries.
2.10 Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
the amounts due according to the original terms of receivables. The amount of
the provision is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognised in the income
statement.
2.11 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short term highly liquid investments with original maturities of
three months or less, and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities on the balance sheet.
2.12 Borrowings
Borrowings are recognised initially at for value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised costs; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
2.13 Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Where any Group company purchases the Company's equity share capital (Treasury
shares), the consideration paid, including any directly attributable incremental
costs (net of income taxes,) is deducted from equity attributable to the
Company's equity holders until the shares are cancelled, reissued or disposed
of. Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable incremental transaction costs and the
related income tax effects, and is included in equity attributable to the
Company's equity holders.
The Group also has an Employee Share Ownership Trust (ESOT) for assisting with
the obligations under share option and other employee remuneration schemes. The
ESOT is consolidated as if it were a subsidiary. Shares in the Group held by the
ESOT are stated at cost and presented in the balance sheet as a deduction from
equity under the heading of Investment in Own Shares. Finance and administration
costs relating to the ESOT are charged to operating costs.
2.14 Revenue recognition
Group revenue comprises the value of sales (excluding VAT) of services provided
in the normal course of business. The Group revenue recognition policies by
revenue type are as follows:
* Consulting revenues are recognised in proportion to the stage of
completion of each project. The stage of completion takes into account the
milestones achieved in relation to the project deliverables. Any success
elements of consultancy revenues are recognised when earned.
* Licence and royalty income is recognised when earned.
* Share of manufacturers margin - income recognised when earned
* Management fees (and any carried interest income) relating to the
provision of investment management services are recognised when earned.
Management fees are typically a percentage of funds under management.
* Rental income from leases over property held is recognised when earned.
* Trade payables are non interest bearing and are stated at their nominal
value.
2.15 Long-term contracts
Amounts recoverable on long-term contracts, which are included in trade
receivables, are stated at the value of the work done less amounts received as
progress payments on account. Progress payments in excess of work done are
included in creditors as payments on account.
2.16 Foreign currency
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in sterling, which is the Company's functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Translation differences on non-monetary items, such as equities held at fair
value through profit or loss, are reported as part of the fair value gain or
loss. Translation differences on non-monetary items, such as equities classified
as available-for-sale financial assets, are included in the fair value reserve
in equity.
(c) Group companies
The results and financial position of all the group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
(i) Assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that balance sheet;
(ii) Income and expenses for each income statement are
translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
(iii) All resulting exchange differences are recognised as a
separate component of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, and of borrowings and other currency instruments
designated as hedges of such investments, are taken to shareholders' equity.
When a foreign operation is sold, such exchange differences are recognised in
the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
2.17 Employee benefits
(a) Pension obligations
Group companies operate various pension schemes. The schemes are generally
funded through payments to insurance companies based on a percentage of salary
earned, currently ranging between 0 and 20%, or trustee-administered funds
determined by periodic actuarial calculations. The Group has defined
contribution plans. A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The Group has no
legal or constructive obligations to pay further contributions if the fund does
not hold sufficient assets to pay all employees the benefits relating to
employee service in the current and prior periods.
For defined contribution plans, the Group pays contributions to publicly or
privately administered pension insurance plans on a mandatory, contractual or
voluntary basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee
benefit expense when they are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in the future payments is
available.
(b) Share-based compensation
The Group operates an equity-settled, share-based compensation plan. The fair
value of the employee services received in exchange for the grant of the options
is recognised as an expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted, as
calculated using the Black-Scholes option pricing method, excluding the impact
of any non-market vesting conditions (for example, profitability and sales
growth targets). Non-market vesting conditions are included in assumptions about
the number of options that are expected to become exercisable. At each balance
sheet date, the entity revises its estimates of the number of options that are
expected to become exercisable. It recognises the impact of the revision of
original estimates, if any, in the income statement, and a corresponding
adjustment to equity over the remaining vesting period.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
The Group has elected to apply the share based payment exemption. It applied
IFRS 2 from 1 January 2004 to those options that were issued after 7 November
2002 but that have not vested by 1 January 2005.
(c) Termination benefits
Termination benefits are payable when employment is terminated before the normal
retirement date, or whenever an employee accepts voluntary redundancy in
exchange for these benefits. The Group recognises termination benefits when it
is demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than 12 months after balance
sheet date are discounted to present value.
(d) Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing,
based on a formula that takes into consideration the profit attributable to the
Company's shareholders after certain adjustments. The Group recognises a
provision where contractually obliged or where there is a past practice that has
created a constructive obligation.
2.18 Deferred income tax
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if
the deferred income tax arises from goodwill, the initial recognition of an
asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profit nor
loss, it is not accounted for. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
2.19 Income Tax
Income tax is provided at amounts expected to be paid (or recovered) using the
tax rates and laws of the relevant countries that have been enacted or
substantively enacted by the balance sheet date.
2.20 Leases
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if payments are not made on such a basis.
Assets held under finance leases are initially reported at the fair value of the
asset, with an equivalent liability categorised as appropriate under creditors
due within or after one year. The asset is depreciated over the shorter of the
lease term and the asset's useful economic life. Finance charges are allocated
to accounting periods over the period of the lease to produce a constant rate of
charge on the outstanding balance.
2.21 Capitalisation of borrowing costs and interest
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount. Finance
costs which are directly attributable to the construction of tangible fixed
assets are capitalised as part of the cost of those assets. The commencement of
capitalisation begins when both finance costs and expenditures for the asset are
being incurred and activities that are necessary to get the asset ready for use
are in progress. Capitalisation ceases when substantially all the activities
that are necessary to get the asset ready for use are complete.
3 Financial risk management
3.1 Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk, fair value interest risk and price risk), credit risk,
liquidity risk and cash flow interest-rate risk. The Group's overall risk
management programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group's financial
performance. The Group uses derivative financial instruments to hedge certain
risk exposures.
Risk management is carried out by a central treasury department (Group Treasury)
under policies approved by the Board of Directors. Group Treasury identifies,
evaluates and hedges financial risks in close co-operation with the Group's
operating units. The Board provides written principles for overall risk
management, as well as written policies covering specific areas, such as foreign
exchange risk, interest-rate risk, credit risk, use of derivative financial
instruments and non-derivative financial instruments, and investing excess
liquidity.
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the US dollar
and the Euro.
Foreign exchange risk arises from future commercial transactions, recognised
assets and liabilities and net investments in foreign operations.
To manage their foreign exchange risk arising from future commercial
transactions, recognised assets and liabilities, entities in the Group use
forward contracts, transacted with Group Treasury. Foreign exchange risk arises
when future commercial transactions, recognised assets and liabilities are
denominated in a currency that is not the entity's functional currency. Group
Treasury is responsible for managing the net position in each foreign currency
by using external forward currency contracts.
The Group's risk management policy is to hedge anticipated transactions when
there is certainty of receipt of funds. The Group has certain investments in
foreign operations, whose net assets are exposed to foreign currency translation
risk. Currency exposure arising from the net assets of the Group's foreign
operations is managed primarily through borrowings denominated in the relevant
foreign currencies.
(ii) Price risk
The Group is exposed to equity securities price risk because of investments held
by the Group and classified on the consolidated balance sheet either as
available-for-sale or at fair value through profit or loss. The Group is not
exposed to commodity price risk.
(b) Credit risk
The Group has no significant concentrations of credit risk. It has policies in
place to ensure that sales are made to clients with an appropriate credit
history. Derivative counterparties and cash transactions are limited to
high-credit-quality financial institutions. The Group has policies that limit
the amount of credit exposure to any financial institution.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and
marketable securities, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market positions. Group
Treasury aims to maintain flexibility in funding by keeping committed credit
lines available.
(d) Cash flow and fair value interest rate risk
The Group's interest-rate risk arises from long-term borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest-rate risk.
Borrowings issued at fixed rates expose the Group to fair value interest-rate
risk. Group policy is to maintain the majority of its borrowings in fixed rate
instruments. At the year end, 90% of borrowings were at fixed rates.
The Group manages its cash flow interest-rate risk by using floating-to-fixed
interest-rate swaps. Such interest-rate swaps have the economic effect of
converting borrowings from floating rates to fixed rates. Generally, the Group
raises long-term borrowings at floating rates and swaps them into fixed rates
that are lower than those available if the Group borrowed at fixed rates
directly. Under the interest-rate swaps, the Group agrees with other parties to
exchange, at specified intervals (mainly quarterly), the difference between
fixed contract rates and floating-rate interest amounts calculated by reference
to the agreed notional principal amounts.
The Group's financial liabilities and their interest rate profile are as
follows:
--------- ---------
2006 2005
#000 #000
--------- ---------
Sterling - bank loan 6,531 6,593
Swedish Krona - bank loan 41 43
------------------- --------- ---------
6,572 6,636
--------- ---------
Weighted average interest rate % %
------------------- --------- ---------
Sterling - fixed rate bank loan 7.1 7.1
Swedish Krona - floating rate bank loan 5.5 5.5
------------------- --------- ---------
For benchmark rates of interest, the Group refers to both the LIBOR and EUROBOR
rates.
The bank loans are secured via a fixed charge over assets of the Group and are
repayable as disclosed in Note 22.
Terms and conditions of the interest rate swap are as disclosed in Note 20.
3.2 Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured at their fair value at
each reporting date. The method of recognising the resulting gain or loss
depends on whether the derivative is designated as a hedging instrument, and if
so, the nature of the item being hedged. The Group designates certain
derivatives as either: (1) hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedge); (2) hedges of cashflows of
recognized assets or liabilities or highly probable forecast transactions (cash
flow hedges); or (3) hedges of net investments in foreign operations.
The Group documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The Group has not applied hedge accounting. Derivatives are recognized at fair
value and remeasured at each reporting date, with changes in fair value
recognized in the income statement.
3.3 Fair value estimation
The fair value of financial instruments traded in active markets (such as
publicly traded derivatives, and trading and available-for-sale securities) is
based on quoted market prices at the balance sheet date. The quoted market price
used for financial assets held by the Group is the current bid price; the
appropriate quoted market price for financial liabilities is the current ask
price.
The fair value of financial instruments that are not traded in an active market
(for example, over-the-counter derivatives) is determined by using valuation
techniques. The Group uses a variety of methods and makes assumptions that are
based on market conditions existing at each balance sheet date. Techniques, such
as estimated discounted cash flows, are used to determine fair value for
non-traded financial instruments. The fair value of interest-rate swaps is
calculated as the present value of the estimated future cash flows. The fair
value of forward foreign exchange contracts is determined using forward exchange
market rates at the balance sheet date.
The nominal value less estimated credit adjustments of trade receivables and
payables are assumed to approximate their fair values. The fair value of
financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is
available to the Group for similar financial instruments.
4 Segment information
Primary reporting format - business segments
On 31 December 2006 the Group is organised on a worldwide basis into four main
business segments:
Year ended 31 Consulting Venture Asset Property
December 2006 and IP subsidiaries management and central
exploitation services Total
#000 #000 #000 #000 #000
-------- -------- -------- -------- --------
Fees 18,003 531 764 2,188
Recharged
project
expenses 3,392 - - -
Licence /
royalty income 137 - - -
Less: Inter
company
trading (60) - (279) (1,030)
----------------- -------- -------- -------- -------- --------
Revenue 21,472 531 485 1,158 23,646
----------------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Expenses (18,549) (1,188) (700) (2,683)
Recharged
project
expenses (3,392) - - -
Less: Inter
company
trading 60 - 279 1,030
----------------- -------- -------- -------- -------- --------
Expenses (21,881) (1,188) (421) (1,653) (25,143)
----------------- -------- -------- -------- -------- --------
----------------- -------- -------- -------- -------- --------
Gross (loss)
profit (409) (657) 64 (495) (1,497)
----------------- -------- -------- -------- -------- --------
Profit on
disposal of
investments - - 2 390 392
Change in fair
value on
financial
assets - - (876) - (876)
Bonus accrual
on change in
fair value - - 384 - 384
Cost of options (80) - (71) (84) (235)
Rebranding (367) - - (265) (632)
----------------- -------- -------- -------- -------- --------
Operating
(loss) (856) (657) (497) (454) (2,464)
----------------- -------- -------- -------- -------- --------
Finance charges (59)
----------------- -------- -------- -------- -------- --------
(Loss) before
income tax (2,523)
----------------- -------- -------- -------- -------- --------
Income tax
expense 51
----------------- -------- -------- -------- -------- --------
(Loss) for the
year (2,472)
----------------- -------- -------- -------- -------- --------
Balance sheet
analysis -------- -------- -------- -------- --------
Intangible
assets 13 - - - 13
Intangible
assets -
amortisation (4) - - - (4)
Goodwill 312 651 - - 963
Goodwill -
amortisation (312) (651) - - (963)
Property,
plant and
equipment 6,757 50 16 14,248 21,071
Property,
plant and
equipment -
depreciation (3,713) (50) (16) (2,505) (6,284)
----------------- -------- -------- -------- -------- --------
3,053 - - 11,743 14,796
----------------- -------- -------- -------- -------- --------
Investments (2,474) - 11,279 2,474 11,279
-------- -------- -------- -------- --------
Current assets
(excluding
cash) 4,507 346 (1,792) 2,204 5,265
Cash and cash
equivalents 1,051 82 206 624 1,963
----------------- -------- -------- -------- -------- --------
Total assets 6,137 428 9,693 17,045 33,303
----------------- -------- -------- -------- -------- --------
Total
liabilities
(excluding
loans and
interest
bearing
liabilities) 8,251 2,867 381 783 12,282
----------------- -------- -------- -------- -------- --------
Total equity
(excluding
loans and
interest
bearing
liabilities) (2,114) (2,439) 9,312 16,262 21,021
----------------- -------- -------- -------- -------- --------
Loans and
interest
bearing
liabilities (41) - - (181) (222)
----------------- -------- -------- -------- -------- --------
Total equity (2,155) (2,439) 9,311 15,900 20,799
----------------- -------- -------- -------- -------- --------
4 Segment information (continued)
Year ended 31 Consulting Venture Asset Property
December 2005 and IP subsidiaries management and central
exploitation services Total
#000 #000 #000 #000 #000
-------- -------- -------- -------- --------
Fees 16,968 288 516 1,833
Recharged
project
expenses 2,879 - - -
Licence /
royalty income 497 - - -
Less: Inter
company
trading (60) - - (975)
----------------- -------- -------- -------- -------- --------
Revenue 20,284 288 516 858 21,946
----------------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Expenses (16,972) (1,055) (593) (2,939)
Recharged
project
expenses (2,879) - - -
Less: Inter
company
trading 60 - - 975
----------------- -------- -------- -------- -------- --------
Expenses (19,791) (1,055) (593) (1,964) (23,403)
----------------- -------- -------- -------- -------- --------
----------------- -------- -------- -------- -------- --------
Gross profit
(loss) 493 (767) (77) (1,106) (1,457)
----------------- -------- -------- -------- -------- --------
Profit /
(loss) on
disposal of
investments - - 1,573 - 1,573
Change in fair
value on
financial
assets - - 1,808 - 1,808
Bonus accrual
on change in
fair value - - (320) - (320)
Cost of options (36) - (32) (39) (107)
----------------- -------- -------- -------- -------- --------
Operating
profit (loss) 457 (767) 2,952 (1,145) 1,497
----------------- -------- -------- -------- -------- --------
Finance charges (286)
----------------- -------- -------- -------- -------- --------
Profit before
income tax 1,211
----------------- -------- -------- -------- -------- --------
Income tax
expense 4
----------------- -------- -------- -------- -------- --------
Profit for the
year 1,215
----------------- -------- -------- -------- -------- --------
Balance sheet
analysis -------- -------- -------- -------- --------
Intangible
assets 14 - - - 14
Intangible
assets -
amortisation (1) - - - (1)
Goodwill 312 651 - - 963
Goodwill -
amortisation (312) (651) - - (963)
Property,
plant and
equipment 7,146 133 16 14,326 21,621
Property,
plant and
equipment -
depreciation (4,053) (130) (16) (2,417) (6,616)
----------------- -------- -------- -------- -------- --------
3,106 3 - 11,909 15,018
----------------- -------- -------- -------- -------- --------
Investments (2,389) - 11,044 2,389 11,044
-------- -------- -------- -------- --------
Current assets
(excluding
cash) 6,690 151 (1,797) 2,250 7,294
Cash and cash
equivalents 2,383 32 239 913 3,567
----------------- -------- -------- -------- -------- --------
Total assets 9,790 186 9,486 17,461 36,923
----------------- -------- -------- -------- -------- --------
Total
liabilities
(excluding
loans and
interest
bearing
liabilities) 10,486 (70) 3,341 (503) 13,254
----------------- -------- -------- -------- -------- --------
Total equity
(excluding
loans and
interest
bearing
liabilities) (696) 256 6,145 18,387 24,092
----------------- -------- -------- -------- -------- --------
Loans and
interest
bearing
liabilities (613) - - (423) (1,036)
----------------- -------- -------- -------- -------- --------
Total equity (1,309) 256 6,145 17,964 23,056
----------------- -------- -------- -------- -------- --------
5 Earnings per share
The calculations of earnings per share are based on the following losses and
numbers of shares:
----------------
Basic
2006 2005
#000 #000
--------- ---------
Profit (loss) for the financial year (2,472) 1,215
------------------- --------- ---------
------------------- -------------------------
Weighted average number of shares: 2006 2005
Number Number
-------------------------
For basic earnings per share 215,158,527 215,548,800
For fully diluted earnings per share 215,157,670 216,750,679
------------------- ----------- -----------
Options have no dilutive effect in loss-making years, and hence the diluted loss
per share for 2006 is the same as the basic loss per share.
6 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
6.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below.
(a) Fair value of investments
The Group tests regularly whether investments and other loans have suffered any
impairment, in accordance with the accounting policy stated in Note 2. The
recoverable amounts have been determined based on BVCA calculations. These
calculations require the use of estimates.
(b) Project accounting
The Group undertakes a number of fixed price consultancy projects. The state of
completeness of each project, and hence the revenue recognised, requires the use
of estimates.
(c) Other loans recognition
The Group has now recognised other loans amounting to #1,677,000 that will
become due and payable as part of the consideration of the disposal of Sensopad
Ltd to TT Electronics plc. The repayment of the loan is dependent upon TT
Electronics achieving various target revenues which will generate a royalty
payable to Sagentia.
7
The financial information set out above does not constitute the full statutory
financial statements for Sagentia Group AG. The statutory accounts for the
Company for the year ended 31 December 2006 are available from the Company
Secretary, Sagentia Group AG, Bahnhofstrasse 44, CH-8023 Zurich, Switzerland.
The auditors' report for the year ended 31 December 2005 was unqualified.
8
The Annual General Meeting of the company will be held in Zurich on 27 April
2007.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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