delivering sustainable growth · the company’s ability to acquire high‑quality brands and...

Delivering sustainable growthSinclair IS Pharma plcAnnual report and accounts2012

Sinclair IS

Pharm

a plc Annual report and accounts 2

012

As a leading topicals and supportive care specialist, Sinclair IS Pharma strives to improve the health, appearance and confidence of patients, creating value for healthcare providers and shareholders.

Sinclair IS Pharma has a growing sales and marketing operation that is present in the UK, France, Italy, Germany and Spain and an extensive marketing partner network across selected developed and emerging markets.

Sinclair IS Pharma plc is listed on the London Stock Exchange (AIM) and Euronext Paris.

Contents

01 Highlights02 Chairman’s Statement04 Business Review 08 Financial Review10 Board of Directors and Senior Management12 Directors’ Report16 Statement of Directors’ Responsibilities17 Corporate Governance Report21 Directors’ Remuneration Report26 Independent Auditors’ Report27 Consolidated Income Statement and Consolidated Statement

of Comprehensive Income28 Consolidated Balance Sheet29 Company Balance Sheet30 Consolidated Statement of Changes in Shareholders’ Equity31 Company Statement of Changes in Shareholders’ Equity32 Cash Flow Statements33 Notes to the Financial Statements60 Corporate Advisors

Corporate

Governance

Financials

Annual report and accounts 2012 Sinclair IS Pharma plc 01

Overview

Operations

Financial• Revenues increased 56% to £51.4m (2011: £32.9m)• Like‑for‑like1 revenue growth of 11.6%• Adjusted EBITDA2 profit of £4.8m (2011: loss of £1.3m)• Adjusted profit before tax3 of £2.1m (2011: loss of £2.9m)• Loss before tax of £9.8m (2011: loss of £11.7m)• Strong improvement in operating cash flow +£10.7m vs 2011

Operating• IS Pharma operations rapidly integrated and UK commercial

operations restructured• Significant contribution post acquisition of worldwide rights

to Kelo‑cote®

• Multiple product launches undertaken by Invida in Asia• Quintiles partnership brings major opportunity in Mexico• Trading since year end is in line with the Board’s expectations• 100 year distribution agreement announced post year end with

Valeant for dermal filler brands Sculptra®, New‑Fill® and Succeev® in Western Europe

Highlights 2012

1 Like‑for‑like revenues exclude product acquisitions and disposals, one‑off licence fee income and currency fluctuations.

2 Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, share‑based payments and exceptional items.

3 Adjusted profit before tax excludes intangible asset amortisation and exceptional items.

02 Sinclair IS Pharma plc Annual report and accounts 2012

Chairman’s Statement

The year to June 2012 was the second full year for Chris Spooner and his executive management team and I am pleased to say that the significant benefits of the restructuring and refocusing undertaken in the prior year became increasingly visible as the year progressed. Notwithstanding the economic and currency headwinds in Europe, revenue for the full year grew by 56% to reach £51.4m with like‑for‑like sales growth of 11.6%; the Company broke through into profitability at the adjusted EBITDA level for the first time; and we now have a high quality platform for future growth in sales and profits.

I would like to highlight some of the key achievements of the executive team in the year which have put the Company on the road to achieving our ambitious goals for growth. These were: the creation of a single, fully integrated operations platform; the focusing of the business on fewer key products; the completion of some important transactions to dispose of non‑core products and acquire new core and synergistic products; and the positioning of the Company for significant future sales growth, especially in emerging markets.

Following the successful and rapid integration of IS Pharma, the Company now has a single international operating platform which fully integrates all key functions, including sales and marketing, logistics, supply and manufacturing, quality and pharmacovigilance and product and brand development. The significance of this is high operating leverage – namely that a high proportion of additional revenues achieved by future organic growth or product acquisitions will now drop through into operating profits. The Sinclair IS platform is robust and will now be able to handle a considerably higher level of sales without significant additional overhead being incurred.

At the beginning of the financial year, following the acquisition of IS Pharma, the Board performed a detailed assessment of the Company’s core skills and technologies and decided to focus the business on commercialising fewer, bigger assets and developing single brand names globally. The business was reorganised into three key areas: dermatology; wound care; and critical/supportive care. This represents a diversified product offering involving the engagement of hospitals, pharmacies and dermatologists. It also has a high degree of congruency, as several of the key products and technologies of the Company such as the Flamma (burns) and Kelo‑cote® (scar management) franchises can be cross‑sold into all these customer groups. For example, Flamma has historically been a successful but low‑growth product for the treatment of burns in hospitals, which was acquired by Sinclair IS in 2009; in March 2011 we launched FlammaSpray™ for the treatment of sunburn; in 2012–13 we will be launching FlammaGel for the treatment of minor burns, with other related products identified for future launches. Similarly Kelo‑cote® line extensions are being identified and Kelo‑Stretch™ is expected to be launched in 2012–13.

The rigorous focus imposed by the management team is already becoming evident in the sales performance; in the year to June 2012 the leading five products provided 50% of sales compared with 34% three years ago. The growth of the leading five products was 33% in the year to June 2012, compared with 5% three years ago.

This more focused approach, combined with targeted sales and marketing expenditure which was increased by a further £3m in the year to £14.5m, is helping to create a clear internationally recognised Sinclair IS brand. With a pipeline focused more on developing and extending existing brands than risky new technologies, the management have been able to reduce spending on research and development and spend commensurately more on increasing sales through an effective specialist sales force and more powerful marketing/brand support.

Grahame CookChairman

Corporate

Governance

Financials


Overview

Operations

During the year we were able to accelerate the increasing focus and the growth of the business by closing a series of successful deals and partnerships. Following the successful integration of IS Pharma, the non‑core IS Pharma product Mysoline was sold for £11.1m and the proceeds utilised to finance the acquisition of Advanced Bio‑Technologies, Inc. for £21.3m, which gave Sinclair IS ownership of the core Kelo‑cote® product in all remaining markets outside the US. Kelo‑cote® is a core dermatology product and is now Sinclair IS’s second largest brand with significant growth potential in both developed and emerging markets. These value‑accretive transactions were accompanied by a number of successful partnerships to broaden the sales reach of the Sinclair IS portfolio, such as the first co‑promotion agreement for Kelo‑cote® with Galderma in Italy. Galderma’s scale and reputation in the dermatology industry will significantly enhance our marketing strategy and complement our proprietary sales team.

Our 20 year partnership with Invida for multiple Asian markets started to bear fruit in the year and looks most encouraging for the future. Sinclair IS revenue from Asia grew by 155% in the year. Two major products – Atopiclair® and Papulex® – were launched in 9 and 11 Asian markets respectively and there are multiple new product launches scheduled for 2012–13 including a first launch in China in 2013. Invida is devoting significant time and resources to its partnership with Sinclair IS and we expect the partnership to be a major contributor to our earnings growth in the medium and long term. We continue to explore

additional partnerships for major emerging markets and the recent announcement of a multi‑product partnership for Mexico with Quintiles is the first for Latin America. Kelo‑cote® is already established in Brazil and is expected to serve as a platform for our Latin American ambitions.

The Company is in excellent financial shape to make selective investments in strategically appropriate product acquisitions, with net debt being only 8% of shareholders’ funds at the year‑end.

At the end of September we signed a 100 year distribution agreement with Valeant Pharmaceuticals International Inc. for the dermal filler brands Sculphra®, New‑Fill® and Succeev® for Western Europe. Payment of the upfront fee of €9.0m was funded through a placing to raise £9.0m at 28p per share, a premium to the prevailing share price, demonstrating a significant level of support from our shareholders.

Sinclair IS is now an internationally recognised successful specialty pharmaceuticals company which is increasingly reflected in the size and quality of potential partners who approach us. The management team have done a tremendous job in creating a focused, hungry, sales orientated organisation with a single culture which can meet the highest regulatory and supply‑chain standards. First quarter trading provides further encouragement and we look forward to reporting further progress during the year.

Grahame CookChairman

The key achievements of the executive team in the year have put the Company on the road to achieving our ambitious goals for growth.


Business Review

Country Operations

£35.5m Revenue+3.4% LFL growth (2011: £22.2m)

France

£12.6m Revenue0% LFL growth (2011: £12.5m)

The Company expects the trend to combine dermatologist‑led prescription and OTC promotion to continue. Hence the move towards self‑pay and a focus on key profitable brands set the direction of our sales and marketing strategy. Although the overall FY12 reported growth rate was lacklustre in a challenging market, the Board believes product mix is improving, a view reinforced by recent IMS data showing our drugs and medical devices growing c.6%.

Kelo‑cote® is already the scar market leading silicone gel product. It has been well received by the medical community and already enjoys a 27% market share among plastic surgeons and dermatologists. Despite taking market share, Atopiclair® sales were only stable which was disappointing, although the atopic dermatitis market was very weak overall due to the exceptionally mild winter. A better performance was enjoyed with Haemopressin®, with sales secured by two new two‑year tenders and Flammazine®, with an 8% increase in revenues from this leading franchise.

The OTC portfolio grew by 12% LFL and representing 23% of total sales turnover is already meaningful to our French business. Sinclair IS sells to around 1,900 pharmacy customers, with approximately 4,500 outlets.

the first time and has added to its growth potential in South‑East Asia. The tie‑up with Quintiles for multiple dermatology products in Mexico is a step forward in our ambitions for Latin America, while we remain confident of extending our reach in CEE and Russia.

Key to our acquisition strategy is to demonstrate the Company’s ability to acquire high‑quality brands and increase their value. The Flamma franchise grew by 7% in FY12 compared to a c.5% decline when the Company acquired the product in December 2009. Similarly the growth rates of Kelo‑cote® and Variquel®/Haemopressin® have materially accelerated under the Sinclair IS commercial team. We believe these improvements are a direct result of commercial focus. Over 60% of the sales and marketing budget is targeted at Kelo‑cote®, Flammazine® and Papulex®, while the total number of actively promoted brands is just six. The Company continues to dispose of non‑core assets; notably in November 2011 the anti‑epilepsy/tremor treatment Mysoline, sold to Laboratoires Serb.

Sinclair IS generated £4.8m adjusted EBITDA1 for FY12 on sales of £51.4m (+56%). Like‑for‑like revenues (excluding product acquisitions and disposals, one‑off license income and currency fluctuations) grew by 11.6%. The Company achieved EBITDA profitability without significant one‑off income for the first time in its history, and in line with management’s guidance.

The integration of IS Pharma involved a complete restructuring of the UK commercial operation, while in Italy the sales force headcount was cut to both reduce costs and pave the way for partnerships. France, Spain and Germany all enjoyed increases in sales and marketing headcount as the Company continued to invest heavily in commercial operations.

The acquisition of Kelo‑cote® worldwide (excluding the US) has created multiple opportunities. Therapeutically, it positions the Company for a move towards higher margin aesthetic dermatology. Geographically, the Company is now in Brazil and China for

1 Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items. Hereafter always referenced as EBITDA.

Christophe FoucherChief Operating Officer

Chris SpoonerChief Executive Officer

Corporate

Governance

Financials


Overview

Operations

UK

£10.1m Revenue2% LFL decline (2011: £1.0m)

Both marketing and sales were comprehensively reorganised and restaffed in the UK with clear targets to focus on the specialist hospital environment, specifically oncology critical and supportive care and wound care. Three experienced brand managers now provide targeted product strategies and this combined with the adoption of a true ‘key account management’ approach allowed the UK team to make significant progress. Relocation of the UK commercial effort to the London office has enabled sharing of best practice and a closer involvement with a strengthened UK management team.

The UK environment remains very difficult, and a decision in early FY12 to de‑stock the channel after the IS Pharma acquisition further hurt the sales line. Nevertheless there are good reasons for optimism on our key brands. Kelo‑cote® UV and Xclair® were launched during the year and early sales data is encouraging. Kelo‑cote® is now promoted to plastic surgeons in the private arena in addition to existing NHS channels. During FY12 we launched the oral version of Aloxi® and have already seen signs of growth with increased uptake especially at key NHS centres.

In Ireland we extended our exclusive partnership with Fannin Healthcare Ltd and added Kelo‑cote® to the agreement. Fannin is one of Ireland’s leading healthcare companies with a strong commercial infrastructure across both the Republic of Ireland and Northern Ireland. The transfer of key personnel from Sinclair IS Ireland to Fannin ensured business continuity and generated significant savings which have been reinvested into the core UK business.

Germany


In Germany we continue to balance the need for profitability against the increasing cost demands of a growing business. We are delighted that profitable and strong growth was achieved by a focus on Kelo‑cote® and Flammazine® and after hiring several new personnel in sales and marketing.

Kelo‑cote® market share grew in FY12 due to direct promotion to dermatologists and the initiation of training programmes for wholesalers and pharmacies. Haemopressin® has performed well as a result of our distributor Meduna growing the brand and developing new clinical partners, despite facing fierce competition. FlammaSpray™ was launched towards the end of the period after a deal was finalised with OTC Pharma, a domestic OTC distributor.

Spain


A strategy to promote Flammazine® in pharmacies and launch FlammaSpray™ (sunburn) has been implemented during the year and resulted in 38% growth in the Flamma franchise. Kelo‑cote®, which was launched in FY11 and specifically marketed to dermatologists, was additionally promoted in the OTC setting by Vemedia during FY12 and targeted at some 7,000 pharmacies.

A focus by the sales force on key dermatology brands has been successful and led to encouraging results, including Bio‑Taches® (+43%) and Papulex® (+36%). In oral care, our partner Italfarmaco grew Aloclair® (mouth ulcers) by 56%.

The IS Pharma merger has broadened our relationships in the hospital arena. Haemopressin® has been particularly strong (+33%), with several new collaboration opportunities at hospitals where the Company was already present with Flammazine®.

Italy

£3.5m Revenue10% LFL decline (2011: £3.9m)

Although sales were weak, the Italian operations are now significantly more profitable following restructuring. The strategic focus is on the leading Sinclair dermatology brands including Kelo‑cote®, where a co‑promotion partnership was signed with Galderma. The deal reflects both Kelo‑cote®’s attractive market position as a leading scar management brand and also the Company’s determination to augment its own sales infrastructure in key European territories. In aggregate, the partnership will target around 10,000 doctors and 3,000 pharmacies.

Key to our acquisition strategy is to demonstrate the Company’s ability to acquire high‑quality brands and increase their value.


Business Review continued

International Operations


Americas, Northern Europe, CEE

£6.1m Revenue19% LFL growth

The Quintiles partnership in Mexico is the first of what we intend will be several Latam distribution agreements and bodes well for continued strong growth. Over the coming months we also aim to sign new partnerships elsewhere in the region.

53% growth is in large part due to the contribution of Kelo‑cote®, especially in Brazil and Venezuela. Since the acquisition of ABT, Kelo‑cote® became our leading product for the region (27% of total revenues) and was also launched in Chile, Costa Rica & Curacao.

Sebclair® (+135%) grew strongly in large part due to the US launch of Promiseb scalp wash by US dermatology partner Promius. With a 26% share, Promiseb is the leading product in the US seborrhoeic dermatitis market.

Middle East, Turkey, Africa


25% growth was achieved despite instability in North Africa and only a small contribution from Kelo‑cote®. Of note was Turkey (+76%) due to a successful new partnership with Biocodex and Algeria (+22%) which achieved a strong performance despite a Flammazine® import ban, introduced to protect local manufacturers.

Bio‑Taches® is the leading product in the region, reaching £1.2m (+75%), notably due to the sun‑care line extensions and the recent launch of Bio‑Taches® Serum. Kelo‑cote® is expected to drive future growth, with the product recently launched by Aspen in South Africa, placed in Saudi Arabia’s leading pharmacy chain and due for launch in several countries.

Asia


Atopiclair® and Papulex® have now been launched in 9 and 11 of the 13 territories covered by the Invida partnership respectively. The Flammazine® franchise is well established in the Philippines market since its relaunch in March 2012. Outside the Invida partnership, the Company has multiple distributors for Kelo‑cote® in South‑East Asia and China as a result of the Advanced Bio‑Technologies, Inc. (‘ABT’) acquisition.

A feature of the Invida partnership is the latter’s commitment to a comprehensive sales and marketing launch and development plan for Sinclair IS products, involving considerable financial investment. Early signs of commercial success are very encouraging and the Company is optimistic for continued strong growth with several new product launches in FY13, including Kelo‑Stretch™ cream (under the Glyderm TM) and first product launches in China.

Business developmentSinclair IS has a fully integrated business platform and is committed to generating operating leverage by making brand acquisitions and extending distribution with larger, stronger partners. Equally, disposals of non‑core products are vital to keeping the allocation of resources effective.

The £21.3m acquisition of ABT in December 2011 gave Sinclair IS ownership of ABT’s flagship scar prevention and treatment product Kelo‑cote® in all the remaining markets not already licensed by Sinclair IS outside the US, with the most important markets being Brazil, Korea and China. At the same time Mysoline, a non‑core epilepsy drug was sold to Laboratoire Serb SAS, for £11.1m, and the proceeds recycled to part finance Kelo‑cote®.

It is a strategic intention of the Company to remain active in business development with further licensing deals and possible acquisitions likely in FY13. Similarly, beyond the Galderma/Kelo‑cote® partnership in Italy, Sinclair IS intends to sign further co‑marketing agreements in Europe during FY13 for specific leading products to augment its own sales forces.

Corporate

Governance

Financials


Overview

Operations

Supply chain An important part of the integration of Sinclair and IS Pharma involved centralising the Groups’ supply chain activities. All manufacturing, purchasing, logistics, regulatory, product development and quality operations are now managed from Chester. This has simplified the business and enhanced control particularly in areas of supply chain management, quality control, and pharmacovigilance.

The decision to cease in‑house manufacturing and close the Cléry plant from the end of June 2013 has been taken. All manufacturing will be transferred to already identified third parties during the coming financial year. Closure will significantly lessen business complexity, reduce inventories and improve gross margins.

In addition, a group wide ERP system is being implemented to provide fully integrated management of both supply chain and accounting functions. Group inventories were reduced by more than £3.5m last year, and further working capital optimisation may be expected as a result of ERP led efficiencies in inventory management and Group reporting.

Development pipelineR&D activities are predominantly focused on the development of new products to extend our portfolio of key brands and trademarks. Line extensions launched during FY12 include Kelo‑Stretch™ (Glyderm in Asia), and Bio‑Taches® Serum (hyperpigmentation), a high concentrate product for use at night.

Other near‑term projects include PapuDuo, a novel bio‑film busting nicotinamde/delmopinol combination anti‑acne product which is targeted for launch in early FY14, and a pre‑mixed Variquel® solution which is under registration, with approval expected towards the end of 2012.

The extension of the Flamma franchise in wound care remains a key area of activity and a topical hydrogel for use on minor domestic burns is targeted for early 2013 launch. Additionally, a clinical development plan is being defined for the use of Flammacerium in diabetic foot ulcers.

OutlookThe Group achieved double‑digit LFL sales growth and a strong improvement in profits and cash generation in FY12. Similar organic revenue growth is expected during FY13, accelerating thereafter. Operating leverage is already being achieved through strong international growth via distributors and by increasing volumes through the existing European infrastructure. It is the Board’s ambition to achieve step changes in the Company’s earnings profile through further product and distribution deals.

Chris SpoonerChief Executive Officer

Christophe FoucherChief Operating Officer

Sinclair IS has a fully integrated business platform, and is committed to generating operating leverage by making brand acquisitions, and extending distribution with larger, stronger partners.


Financial Review

The year ended 30 June 2012 has been a landmark year in the development of the Group. Following the merger with IS Pharma at the end of the previous year, disposal of Mysoline in November 2011 and acquisition of ABT in December 2011, the Group has reported its first full year EBITDA profit of £4.8m. This result illustrates the benefits of the operating leverage that can be derived from increasing product revenues through Sinclair IS’s established infrastructure. This strong improvement in underlying performance also translated into cash flow where operating cash flow improved by £10.7m compared to the prior year (£0.9m inflow vs £9.8m outflow).

Foreign exchange impactThe impact of currency movements on reported revenues and trading results is minimal for the year ended 30 June 2012 as the average Euro to Sterling exchange rate moved by less than 1.5% over the year. The balance sheet impact is more significant as the closing rate for June 2012 has weakened by 12% compared to the prior year, resulting in a reduction in the value of Euro denominated assets and liabilities. If the Euro’s current weakness versus sterling persists throughout the current financial year then reported revenues will be negatively impacted while Euro denominated cost of sales and operating costs will also be correspondingly reduced.

Revenue and gross marginGroup revenues increased by 56% to £51.4m, including revenue of £3.3m from ABT in the six month period post acquisition in mid‑December 2011. Underlying revenues grew by 11.6% LFL for the full year as a result of growth in core products (eg Kelo‑cote® and Flammazine®) and from Invida’s initial product launches across Asia during the year.

Gross margin (excluding fair value adjustments on acquired inventory) increased to 59.3% from 57.1% as a result of the change in product mix over the year with the inclusion of higher margin IS Pharma products, the acquisition of ABT with gross margin around 75% and the switch to a margin share arrangement with Fannin in Ireland which now delivers 100% gross margin on Irish revenues.

Operating expensesSelling, marketing and distribution costs increased by a further £3.0m to £14.5m as a result of the full year impact of the inclusion of UK commercial operations following the merger with IS Pharma and reflecting the continued investment which is being focused on key products such as Kelo‑cote® and Flammazine®. Administrative expenses before exceptional items, increased to £17.3m from £12.1m in the prior year. This increase is partly driven by a £2.5m increase in non‑cash expenses; amortisation charges of £4.7m (2011: £3.1m) against acquired product rights as well as share‑based payments charges of £0.9m (2011: £0.1m). Importantly, underlying general administrative expenses, excluding regulatory, product development and supply chain, increased by just £0.8m following the merger with IS Pharma and have now reduced to 12.0% of total revenue from 16.0% in the prior year.

Exceptional itemsExceptional charges of £7.2m (2011: £6.0m) have been incurred in the year. Of these, £2.7m are non‑cash charges, £1.7m will not be spent until 2013 when the factory closes and a further £0.8m was financed by Fannin on the transfer of the Irish business in November 2011. The net cash cost of these charges was just £2.0m in the year to 30 June 2012. It is anticipated that planned non‑core product disposals, to be completed in the current financial year, will finance a significant part of the redundancy costs that arise on the factory closure. The key components of the exceptional items are:• £0.7m in respect of the release of fair

value adjustment to acquired inventory in accordance with IFRS 3 as this inventory was sold into the market. This is a non‑cash accounting charge.

• Acquisition expenses of £0.9m incurred on the acquisition of ABT.

• Restructuring costs of £2.3m include reorganisation costs incurred following the merger with IS Pharma and the restructuring of supply and development activities into the Chester office as well as the closure of the Irish business following the transfer of this business to Fannin.

• A £0.2m profit on the disposal of Mysoline, net of disposal costs.

Alan OlbyChief Financial Officer

Corporate

Governance

Financials


Overview

Operations

• Impairment charge of £0.9m against episil distribution rights on the return of European rights to the licensor.

• Provision of £2.6m in relation to the planned closure of the manufacturing facility in Cléry, France.

Financing costsFinancing costs reduced to £1.3m from £1.9m as the prior year costs included a one‑off early settlement charge of £0.9m on debt facilities refinanced. The main elements of the ongoing cost were £0.8m interest on borrowings (2011: £0.7m), as well as a £0.4m imputed interest cost on deferred purchase considerations which is derived from the unwinding of discounting applied to the underlying liabilities.

TaxationA tax credit of £1.1m (2011: £0.1m) has been recorded for the year. This is made up of corporation tax charges of £0.7m offset by deferred tax credits of £1.8m. The Group is now paying tax in certain overseas jurisdictions where it operates; primarily in the US following the acquisition of ABT where profits on international Kelo‑cote® revenues are recognised. The deferred tax credit arises on the amortisation of intangible assets acquired through business combinations.

Earnings per shareAdjusted basic EPS improved to 0.5p from a loss of 1.3p in 2011. Basic loss per share was 2.2p, down from 5.1p in 2011. Adjusted basic EPS is calculated after adjusting for exceptional items, intangible asset amortisation and the related deferred tax credit.

Cash flow and net debtCash generated from operations was £0.9m compared with a cash outflow of £9.8m in 2011, an improvement of £10.7m in the year. This strong improvement in cash flow was achieved through a combination of increased EBITDA and an improved working capital position. Cash generated from reducing working capital was £0.9m which is an improvement of £3.5m on the prior year where working capital consumed £2.6m in cash. This was primarily achieved through a reduction in inventory.

During the year, the Group has drawn an additional £8.5m on its banking facility, in order to part fund the acquisition of ABT, and the payment of deferred consideration. The remaining cash paid to ABT shareholders was funded by the £11.1m received from the disposal of Mysoline.

Cash and cash equivalents were £4.0m at 30 June 2012 (2011: £5.1m) and net debt is £9.1m at 30 June 2012, representing 1.9x EBITDA (2011: net funds of £0.3m). The Group will continue to make careful use of debt to fund acquisitions as opportunities arise, without stretching the balance sheet. Cash that was placed on restricted deposits of £5.2m at 30 June 2011 has been released in full during the year and the Group had no restricted cash deposits at 30 June 2012. The cash released was used to repay all overseas bank debt, leaving the Group debt free outside the UK.

Balance sheetGoodwill and intangible assets increased by a combined £6.0m in the year as the acquisition of ABT added goodwill and intangibles of £27.6m, offset by the disposal of Mysoline, intangible amortisation, and foreign exchange losses.

Inventories have fallen significantly, down to £5.8m from £9.6m last year. This is due to closer management of inventory across the Group, as well as the transfer of all Irish products to Fannin during the year. Further reductions in inventory levels are anticipated following the implementation of a group wide ERP system and post the transfer of production from Cléry to a third party manufacturer which will remove raw material and packing components from inventory.

Liabilities for deferred purchase consideration have been reduced from £6.8m to £2.2m at the year end, following payments made to Helsinn and the developers of Haemopressin® made in the year.

Alan OlbyChief Financial Officer

The year ended 30 June 2012 has been a landmark year in the development of the Group, reporting its first full year EBITDA profit of £4.8m.


Board of Directors

Grahame CookNon‑executive ChairmanMr Cook joined the Board in 2004. He has over 18 years’ experience in investment banking, advising on a wide number of mergers and acquisitions and capital market transactions in the US and Europe. He was Global CEO of West LB Panmure, where he joined in 1999, Managing Director of Capital Markets and on the Global Investment Banking Committee at UBS. He has advised on a number of transactions in the pharmaceuticals and biotechnology sectors across Europe and the US, including private equity investments, IPOs and secondary offerings. Mr Cook was a founder member of the LSE’s TechMARK Advisory Committee, and holds an MA, double first, from Oxford University.

He is currently a non‑executive Chairman of Epi‑V LLP (private equity fund), Mdy Healthcare Plc, Actino Ltd and Davall Gears Ltd, and a non‑executive director at C5 Capital Ltd (private equity fund), Morphogenesis Inc, Minoan Group plc and Kinnerton Street Freehold Ltd.

Chris SpoonerChief Executive OfficerMr Spooner joined Sinclair following a career in financial services, most recently as founder and CEO of HealthCor Management UK, a dedicated healthcare hedgefund and the European division of HealthCor L.P. Prior to that Mr Spooner enjoyed a career as the senior pharmaceuticals analyst at various investment banks covering the European healthcare sector. He holds an MA in Economics from King’s College, Cambridge University.

Christophe FoucherChief Operating Officer Mr Foucher was appointed Chief Operating Officer in May 2009 and is responsible for all commercial, supply chain and manufacturing activities in the Group. Prior to this he held the positions of General Manager for Sinclair Pharma France and Southern Europe Director, in charge of operations in Italy and Spain. Mr Foucher has 15 years’ experience in the pharmaceutical industry at senior level in Europe, Africa and Asia. Mr Foucher has a doctorate degree in Pharmacy, an INSEAD diploma in Finance and an MBA from IAE. He is fluent in English, French and Italian.

Jean‑Charles TschudinSenior Independent DirectorMr Tschudin joined the Board in November 2007. He has extensive experience in the pharmaceutical industry at a senior executive level on three continents and was recently President and Chief Operating Officer of Yamanouchi Europe, the largest Japanese pharmaceutical company in Europe (now Astellas). He has also held senior positions at Johnson & Johnson, Schering‑Plough, Syntex and Cardinal Health. Mr Tschudin is currently Non‑Executive Director of SkyePharma plc, is a Chartered Director and he also consults for the pharma industry.

Stuart SwansonNon‑executive DirectorAs one of the two founders of the specialty pharmaceutical company PharmaSwiss SA, Mr Swanson worked in a variety of leadership roles in that company over the last 10 years, including both operations and driving corporate strategy, investor relations and business development. At the time of PharmaSwiss’ sale to Valeant International on 10 March 2011 he was President of Corporate Development and Board Member of the Company. Since Valeant’s purchase of PharmaSwiss, Mr Swanson has continued to work part time for Valeant as a Consultant.

Prior to joining PharmaSwiss in 2001, Mr Swanson held a series of senior operational and regional HQ positions for Bristol‑Myers Squibb (BMS) in Central Europe and Israel. Prior to BMS, he served as Pfizer’s first General Manager in Russia and CIS, opening Pfizer’s first affiliates in Russia, Kazakhstan, Uzbekistan and Turkmenistan. Mr Swanson began his professional career as a US diplomat, serving as a Political Officer in Pakistan and Leningrad/St. Petersburg. He received a BA from Yale College and an MA from Columbia University and grew up in the UK, where he attended Cranleigh School. Mr Swanson also serves on the boards of several private companies in real estate development and transportation.

Corporate

Governance

Financials


Overview

Operations

Senior Management

Alan OlbyChief Financial OfficerMr Olby joined Sinclair in September 2005 having gained experience in the biotech sector working at Xenova Group plc and KS Biomedix plc and was promoted to his current position in December 2009. He qualified as a chartered accountant in 1996 and subsequently spent three years in corporate finance at Deloitte, working with public and private companies completing due diligence, working capital reviews and stock exchange transactions.

Steve RedmanLegal Director and Company SecretarySteve Redman joined Sinclair as its first in‑house Legal Director in July 2007, from his previous role at Schering Health Care. He is a barrister and brings to the Sinclair Group more than 20 years’ experience as senior legal counsel in the financial services, insurance and pharmaceutical sectors. During this time he has supported the business growth of various employers by providing authoritative and practical advice in a wide variety of legal areas that includes multi‑national transactions, commercial contracts, licensing, intellectual property, completion, corporate, EU law as well as regulatory compliance.

Ann HardyGlobal Technical DirectorAnn Hardy joined Sinclair IS following the merger with IS Pharma in May 2011. She has over 25 years’ experience in the pharmaceutical industry, where she has held senior positions in operations, quality and technical management for Glaxo Pharmaceuticals, Evans Medical Ltd and Medeva Pharma Ltd. Ann holds a BSc with Honours in Biology and has a Diploma in Company Direction. She has responsibility for manufacturing, product development and technical operations within Sinclair IS Pharma.


Directors’ Report

The Directors present their Annual Report on the affairs of the Company and the Group, together with the audited financial consolidated statements for the year ended 30 June 2012.

Principal activitiesSinclair IS Pharma is an international specialty pharmaceutical company focused on treatments in dermatology, wound care, oncology support and critical care through advanced surface technology and innovative delivery systems. The Group has a growing sales and marketing operation with a direct sales presence in the top five European markets and an extensive marketing partner network across selected developed and emerging markets.

Business reviewThe Group is required to produce a business review complying with the requirements of the Companies Act 2006. In addition to the principal risks and uncertainties and key performance indicators laid out below, there can be found further information about the business, its strategy, structure, products and the markets in which it competes, and future developments within pages 2 to 9 of this report.

Principal risks and uncertaintiesSinclair IS Pharma plc is a business that depends on product revenues through its own sales and marketing operations and marketing partners, a successful pipeline to build future revenues, other business development activities to generate future revenues, and good management of the finances of the Group. The main risks associated with these factors are outlined below. Information on financial risk management is set out in note 3 to the financial statements.

Risk associated with commercialised success of productsThe Group’s revenues are and will be, principally from sales of its products. There can be no assurance that current product revenues can be maintained or increased in the future. Product sales may be affected by adverse market conditions or other factors including: pricing pressures from governments or other authorities, competition from other products, the withdrawal of a product because of a regulatory or other reason, or the financial or commercial failure of a marketing partner. The Company also spreads risk by commercialising its products throughout the global markets. Manufacturing of the majority of the Group’s products is outsourced and supply may be interrupted or products may be recalled should quality or other issues arise. The Company maintains adequate insurance to mitigate the risks associated with product recall.

Competition and intellectual property riskThe position of Sinclair’s products in the market is dependent on its ability to obtain and maintain patent and/or trademark protection for its products, preserve its trade secrets, defend and enforce its rights against infringement and operate without infringing the proprietary or intellectual property rights of third parties. The validity and enforceability of patents and/or trademarks may involve complex legal and factual issues resulting in uncertainty as to the extent of the protection provided. The Group’s intellectual property may become invalid or expire before or during commercialisation of the product. The Group continuously seeks to develop its products to ensure they are competitive and monitors its intellectual property rights to identify and protect against any infringements.

Risk associated with pipeline productsThe Group is currently seeking and will seek in the future, regulatory approval for its pipeline products. Approval of these products within the target time frame or at any time is a risk, as the Company cannot guarantee the safety, efficacy and regulatory pathway of these products. Once approved, the commercial success of pipeline products cannot be guaranteed and the returns on the product may not be sufficient to cover the costs incurred through its development. The Group may choose to halt development of certain pipeline products in certain circumstances.

Results, earnings and dividendsThe loss for the financial year was £8,641,000 (2011: £11,666,000). The Directors do not recommend a dividend (2011: £nil).

Going concernThe Group’s forecasts, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current debt facilities. After making enquiries, and considering the covenants on the Group’s debt, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. As a result, they continue to adopt the going concern basis in preparing these financial statements.

Corporate

Governance

Financials


Overview

Operations

Key performance indicatorsThe Group measures its performance according to a wide range of key performance indicators (‘KPIs̀ ). The main KPI’s at a group level are as follows:

KPI 2012 2011 Definition, method of calculation and analysis

Like‑for‑like revenue growth +11.6% +10% Like‑for‑like (‘LFL’) revenues exclude product acquisitions and disposals, one‑off licence fee income and currency fluctuations.

LFL growth accelerated as a result of 40% growth in International Operations. Country Operations grew at 3.4%.

Revenue £51.4m £32.7m Revenue grew by 56% in the year principally due to a full year contribution from IS Pharma, acquired in May 2011, the acquisition of Advanced Bio‑Technologies, Inc in December 2011 and organic growth primarily in international operations.

Gross margin (excluding licence fees)

58.6% 56.9% Gross margin is the ratio of gross profit after all direct costs to total revenue and excluding all licence income.

Sinclair aims to maximise gross margins for the Group.

The margin increased in 2012 due to the full year contribution from IS Pharma, the acquisition of Advanced Bio‑Technologies, Inc. and switch to a margin share arrangement in Ireland through Fannin.

Adjusted EBITDA £4.8m

9.3% of revenue

£(1.3)m

(4.0%) of revenue

Adjusted EBITDA is total earnings of the Group before interest income and expenses, tax charges and credits, depreciation, amortisation charges, share based payment costs and exceptional items.

The Group is now sustainably profitable at the EBITDA level following the merger with IS Pharma. The Directors aim to achieve step changes in EBITDA margin through further product and distribution deals.

DirectorsThe Directors of the Company who served during the year and up to the date of this report were:

Mr G Cook Non‑executive ChairmanMr CP Spooner Chief Executive OfficerMr CH Foucher Chief Operating OfficerMr J‑C Tschudin Senior Independent DirectorMr RS Swanson Non‑executive Director (appointed 22 September 2011)Mr J Gregory Non‑executive Chairman (resigned 22 September 2011) Mr T Wright Non‑executive Director (resigned 31 May 2012)

Biographies of the current Directors are detailed on page 10. Mr G Cook retires by rotation and will be available for reappointment at the AGM. Details of the resolution to reappoint them will be contained in the AGM notice.


Directors’ Report continued

Directors’ interestsThe Directors’ beneficial interests in the shares of the Company are as follows:

Holding of Ordinary shares of 1p at:

30 June 2012 30 June 2011

Mr G Cook1 700,000 700,000Mr J‑C Tschudin 1,411,117 1,000,117Mr CP Spooner 8,407,263 8,407,263Mr CH Foucher 156,200 76,200Mr RS Swanson 3,093,964 1,000,0002

1 Mr G Cook’s holding includes 100,000 shares held by his wife (2011: 100,000).2 At date of appointment on 22 September 2011.

Details of the Directors’ share awards are included in the Directors’ Remuneration Report.

Additional information for shareholdersFollowing the implementation of the EU Takeover Directive into UK law, the following description provides the required information for shareholders where not already provided elsewhere in this report.

Structure of the Company’s capitalThe Company’s share capital comprises a single class of 1p Ordinary shares, each carrying one vote and all ranking equally with each other. At 30 June 2012, the issued share capital was £4,025,830 comprising 402,583,065 1p Ordinary shares (2011: 380,812,790) allotted and fully paid. There are no restrictions on the transfer of shares in the Company or on voting rights.

Authority to issue and buy back sharesEach year at the AGM the Directors seek authority to allot shares and buy back shares. The authorities, when granted, last for 15 months or until the conclusion of the next AGM if sooner. At the last AGM held on 21 November 2011, shareholders gave authority for the Directors to allot relevant securities up to £1,269,376 and to allot for cash equity securities having a nominal amount not exceeding in aggregate £380,813 (being 10% of the issued share capital). Shareholders also gave authority for the Directors to make market purchases of up to 38,081,279 shares (being 10% of the issued share capital).

Substantial shareholdingsAt 4 October 2012, the Company has been notified (or are otherwise aware) of the following interests in 3% or more of the Ordinary share capital.

Shareholding %

AXA Investment Managers 50,330,837 11.58Lansdowne Partners 47,936,523 11.03Abingworth LLP 33,433,227 7.69Toscafund Asset Management 31,969,069 7.35Norges Bank 17,994,269 4.14BlackRock 18,942,343 4.36Dr MJ Flynn 13,495,414 3.10

Significant agreementsThe Companies Act 2006 requires the Company to disclose any significant agreements which take effect, alter or terminate upon a change of control of the Company. The Company is not party to any such agreement.

Directors and officers liability insuranceThe Company has in place qualifying third party indemnity insurance for all Directors.

Research and developmentThe Group actively reviews technical development in its markets with a view of taking advantage of the available opportunities to maintain and improve its competitive position. The Group has continued to invest in the development of new pharmaceutical products during the year, details of which can be found in the Business Review.

Payments to suppliersIt is the Group’s policy to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided goods and services in accordance with agreed terms and conditions. The Group’s creditor days outstanding at 30 June 2012 were 84 days (2011: 86 days). The Company’s creditor days outstanding at 30 June 2012 were 97 (2011: 78).

Corporate

Governance

Financials


Overview

Operations

EmployeesOur most important asset is our employees. We are committed to developing policies that encourage all employees to achieve their greatest potential and to continue to contribute to the success of the Group. We seek to develop employees’ potential by encouraging them to attend seminars, training courses and providing help in seeking necessary professional qualifications to further their careers. We operate equal opportunities in recruitment, training and promotion regardless of gender, ethnic origin, nationality or disability.

Disabled employeesIt is our policy to treat applicants and employees with disabilities equally and fairly and not to discriminate against the disabled in recruitment, training, career development and promotion.

Overseas branchesThe Group operates a branch in Switzerland.

Charitable and political donations The Group made charitable donations totalling £15,044 during the year to the Earl Mountbatten Hospice, Isle of Wight (2011: £1,153).

Post balance sheet eventsDetails regarding post balance sheet events can be found in note 36.

Corporate governanceThe Company’s statement on Corporate Governance is included in the Corporate Governance Report on pages 17 to 20 of this annual report. The statement is made voluntarily as the Company is no longer required to comply with the UK Corporate Governance Code as a company listed on AIM.

Independent auditorsPricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and a resolution proposing their reappointment and authorising the Directors to determine their remuneration will be proposed at the AGM.

Annual General MeetingThe Annual General Meeting (‘AGM’) of the Company will be held at the offices of CMS Cameron McKenna at Mitre House, 160 Aldersgate Street, EC1A 4DD on 7 November 2012 at 11.00am. The Notice convening the AGM, together with information concerning the resolutions to be proposed at the AGM is enclosed with this report.

By order of the Board

Stephen Redman Company Secretary8 October 2012


Statement of Directors’ Responsibilities

Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the loss of the Group for that period. In preparing these financial statements, the Directors are required to:• select suitable accounting policies and then apply them

consistently;• make judgements and accounting estimates that are reasonable

and prudent;• state whether applicable IFRSs as adopted by the European

Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of their knowledge:• the Group financial statements, which have been prepared in

accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

• the Directors’ Report contained on pages 12 to 15 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Statement as to disclosure of information to auditorsThe Directors, in office at the date of this Report, have confirmed that:a. so far as they are aware, there is no relevant audit information

of which the Company’s auditors are unaware; andb. each Director has taken all the steps that they ought to have

taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.



Corporate

Governance

Financials


Overview

Operations

Corporate Governance Report

Compliance with the UK corporate governance codeThe Board supports the ideals of the UK Corporate Governance Code (the ‘Code’), issued by the Financial Services Authority in June 2010. This statement describes how the Company applies the principles of the Code and the Company’s compliance with the specific provisions of the Code. The principles set out in the Code cover four areas: the Board, Directors’ remuneration, accountability and audit and relations with shareholders. With the exception of the Directors remuneration (which is dealt with separately in the Directors’ Remuneration Report) the following report sets out how the Board has applied such principles.

As a Company listed on AIM, the Company is no longer required to comply with the Code but the Board has voluntarily chosen to apply the provisions as if the Company were a fully listed company.

Board and Board CommitteesThe Board of DirectorsThe Board of the Company is responsible for the Group’s system of corporate governance. At 30 June 2012 the Board comprised five Directors: an Executive Chief Executive Officer, Mr CP Spooner; a Chief Operating Officer, Mr CH Foucher and three Non‑executive Directors including the Non‑executive Chairman.

Mr G Cook is Non‑executive Chairman (appointed 22 September 2011) and Mr J‑C Tschudin is the Senior Independent Director.

Details of Directors’ service contracts are given in the Directors’ Remuneration Report on page 25.

All the Directors have access to advice and services of the Company Secretary, who is responsible for ensuring that Board procedures and applicable regulations under the Company’s Articles of Association or otherwise are complied with. Each Director is entitled, if necessary, to seek independent professional advice at the Company’s expense.

Board MeetingsThe Board of Directors normally meets at least bi‑monthly and has a defined schedule of matters reserved for its decision. It is responsible for the overall Group strategy, approval of major capital expenditure projects and consideration of major financing matters of the Group. The Board held four formal meetings during the year. All Board members attended each meeting.

Board CommitteesThe Board Committees, which are comprised solely of Non‑executive Directors, operate within clearly defined terms of reference and report regularly to the Board. The terms of reference of the Board Committee’s are available for inspection on the Company’s registered website (www.sinclairispharma.com) and at the AGM (for 15 minutes prior to the meeting and during the meeting).

Audit Committee and auditorsThe Audit Committee is composed entirely of independent Non‑executive Directors and comprises Mr G Cook (Chairman) and Mr J‑C Tschudin. The Committee’s main responsibility is to review any reports from management and the auditors regarding the financial statements or the internal control systems implemented throughout the Group along with consideration of both interim and annual financial statements. It will also make recommendations to the Board on the appointment of the auditors and their audit fee. The Board considers that the members of the Audit Committee possess recent and relevant financial experience. The Audit Committee has unrestricted access to the Group’s auditors. Meetings are also attended, by invitation, by the Chief Executive and the Chief Financial Officer. The Audit Committee met three times during the year. Each meeting was attended by all current members.

The terms of reference of the Audit Committee include the following responsibilities:• monitoring the integrity of the financial statements of the

Company and any formal announcements relating to the Company’s financial reporting performance and reviewing financial reporting judgements contained in them;

• reviewing the Company’s internal financial controls and reviewing the Company’s internal control and risk management systems;

• establishing and reviewing the Company’s ‘whistle‑blowing’ arrangements;

• to review and challenge where necessary the Company’s audited financial statements, before submission to the Board;

• making recommendations to the Board, for it to be put to shareholders for their approval in the AGM, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;

• reviewing the need for a separate internal audit function;• reviewing and monitoring the external auditors’ independence and

objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements;

• developing and implementing policy on engagement of the external auditor to supply non‑audit services, taking into account relevant ethical guidance regarding the provision of non‑audit services by the external audit firm;

• to review the consistency and application of accounting policies;• to establish procedures for the receipt, retention and treatment of

complaints regarding accounting, internal accounting controls and auditing matters;

• to meet with the external auditors at least twice each year; and• to review any auditors management letters and management’s

responses.


The Group’s auditors, PricewaterhouseCoopers LLP, provide non‑audit services in addition to the provision of audit services. In the year ending 30 June 2012, non‑audit services provided by PricewaterhouseCoopers LLP comprised advice with regard to taxation, due diligence on acquisitions and other miscellaneous services. Where appropriate the Partner managing the provision of non‑audit services is different from the Partner managing audit services and as such the Board believes the auditors remain objective and independent. The Board also considers the level of fees charged by PricewaterhouseCoopers LLP is not disproportionate or inappropriate to the size of the business and considers the Company therefore compliant with provision C3.7 of the Code with regard to independence and objectivity. The Audit Committee considers that the relationship with the Group’s auditors is working well and it remains satisfied with their effectiveness. Accordingly, it has not been considered necessary to perform a tender. There are no contractual obligations restricting the Company’s choice of external auditors.

Nomination CommitteeThe Nomination Committee is chaired by Mr G Cook and comprises Mr RS Swanson (appointed 22 September 2011) and Mr J‑C Tschudin. The Committee is responsible to the full Board for determining the qualities and experience required of the Company’s Executive and Non‑executive Directors and for identifying suitable candidates. In appropriate cases, recruitment consultants assist in the process. The Committee is responsible for succession planning. Executive and Non‑executive Directors are subject to election by shareholders at the first opportunity after their appointment and to re‑election thereafter by the shareholders at least every three years. The Nomination Committee met once during the year and the meeting was attended by all members.

The terms of reference of the Nomination Committee include the following responsibilities:• to review the structure, size and composition of the Board;• to prepare a description of the role and capabilities required

for a particular appointment;• to identify and nominate candidates required for a particular

appointment; and• to satisfy itself with regard to succession planning.

Remuneration CommitteeThe Remuneration Committee is made up entirely of independent Non‑executive Directors and comprises Mr G Cook and Mr J‑C Tschudin (Chairman). The Committee is responsible for making recommendations to the Board on remuneration policy for the Company’s Executive Directors and the terms of their service contracts, with the aim of ensuring that their remuneration, including share options and awards under the Share Schemes, is based both on their own performance and that of the Group generally. The Remuneration Committee will also administer and establish performance targets for the Share Schemes and approve further grants or awards under them. In addition, it will advise on the remuneration policy for the Group’s employees. The Remuneration Committee met twice during the year, each meeting was attended by all members.

The terms of reference of the Remuneration Committee include the following responsibilities:• to determine the framework and policy and the individual

packages for the remuneration of the Executive Directors, Chairman and members of the executive management;

• to determine targets for any performance‑related pay schemes;• to approve overall remuneration policy;• to review employee benefit structures; and• to produce an annual report of the Committee’s remuneration policy.

Appointments to the BoardAppointments to the Board are made on merit and against objective criteria. Care is taken to ensure that appointees have enough time to devote to the job. The Board keeps under review, and takes appropriate action, to ensure orderly succession for appointments to the Board and to senior management, so as to maintain an appropriate balance of skills and experience within the Company and on the Board. The Code provisions require the formation of a Nomination Committee to lead and oversee the application of the Code principles as they relate to Board and senior management appointments.

The Board considers the other significant commitments of Non‑executive Directors prior to appointment, to ensure that they have sufficient time to meet what is expected of them and keeps changes to these commitments under review. Mr RS Swanson was appointed to the Board as an independent Non‑executive Director on 22 September 2011. Mr RS Swanson was appointed to the board of directors having been approached directly by the board on the basis of his relevant experience in the industry.

The terms and conditions of appointment of Non‑executive Directors are available for inspection at the Company’s registered office during normal business hours and at the AGM (for 15 minutes prior to the meeting and during the meeting).

Chairman and Chief ExecutiveThe roles of Chairman and Executive management, led by the Chief Executive Officer, are separated and clearly defined:a. The Non‑Executive Chairman is responsible for leadership of

the Board, ensuring effectiveness in all aspects of its role, setting the Board’s agenda and conducting Board meetings and ensuring effective communication with shareholders and the conduct of shareholders meetings; and

b. Executive management are led by the Chief Executive Officer, Mr CP Spooner, who has been delegated responsibility by the Board for the day‑to‑day management of the Company within the control and authority framework set up by the Board. The levels of authority for management are periodically reviewed by the Board and are documented. The Chief Operating Officer, Mr CH Foucher and members of the Executive Management Team assist the Chief Executive Officer, in managing the business.

The division of responsibility between the Chairman and the Chief Executive is clearly established, set out in writing and agreed by the Board.

Corporate Governance Report continued

Corporate

Governance

Financials


Overview

Operations

Mr G Cook was appointed as Non‑executive Chairman on 22 September 2011 succeeding Mr J Gregory who stepped down as Non‑executive Chairman and from the Board of Directors on the same date.

Board balance and independenceThe Board includes a balance of Executive and Non‑executive Directors such that no individual or small group of individuals can dominate the Board’s decision taking. The size of the Board and balance of skills is considered appropriate for the requirements of the business. No one other than the Committee Chairman and members is entitled to be present at a meeting of the Audit, Nomination or Remuneration Committees, but others may attend at invitation of the Committee.

As a smaller company, Code provision B1.2 requires the Company to have at least two independent Non‑executive Directors. The Board considers that Mr G Cook, Mr J‑C Tschudin and Mr RS Swanson are independent for the reasons set out below.

The Board has reviewed the independence of the Non‑executive Directors, including an assessment of their overall character and approach and concluded based on the following guiding principles that they are independent throughout the period of their appointment. They have not been previous employees of the Group, have no material business relationships with the Group, are not members of the Company’s pension scheme or share option schemes, have no close family ties with the Company’s advisors, Directors or senior employees, hold no cross Directorships linking them with the other Directors, do not represent significant shareholders and have not served on the Board for an unduly long time. All the Non‑executive Directors have nominal shareholdings in the Company, which the Board considers appropriate without compromising independence. The Board consider that Mr G Cook remained independent even in his capacity as Chairman.

Information and professional developmentThe Board is supplied in a timely manner with information in a form and of quality appropriate to enable it to discharge its duties. The Chief Financial Officer is responsible for ensuring the Directors receive accurate, timely and clear information, which is provided by operational management and enhanced or clarified where necessary.

All Directors receive induction on joining the Board and the Chairman ensures that Directors continually update their skills and knowledge and familiarity with the Company required to undertake their role both on the Board and on Board committees. The Company provides the necessary resources for developing and updating its Directors’ knowledge and capabilities.

Under the direction of the Chairman, the Company Secretary’s responsibilities include good information flows within the Board and its committees and between senior management and Non‑executive Directors, as well as facilitating induction and assisting with professional development as required. The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters and for ensuring that Board procedures are complied with and applicable rules and regulations are followed. The appointment and removal of the Company Secretary is a matter for the Board as a whole.

The Directors have access to independent professional advice at the Company’s expense where they judge it necessary to discharge their responsibilities as Directors. Committees are also provided with sufficient resources to undertake their duties.

AnnouncementsAll major announcements are approved by the Chairman, the Executive Directors and panel of senior executive management and then circulated to the Board prior to issue. The Group also has internal and external checks to guard against unauthorised release of information.

Performance evaluationA formal performance review of the Audit and Remuneration Committees and their chairmen were performed during the year by a process of self‑assessment. In performing these reviews, criteria that were taken into account included the ability of the Director to: take the perspective of creating shareholder value; to contribute to the development of strategy and identification of risks; to provide clarity of direction to management; to be a source of wise counsel; to bring a broad perspective to discussions and an understanding of key issues; to commit the time required to fulfil the role; and to listen to and respect the ideas of fellow Directors and management.

Re‑electionAll Directors are submitted for re‑election at regular intervals, subject to continued satisfactory performance. The Board keeps under review the need for refreshing the Board and takes appropriate action.

All Directors are subject to election by shareholders at the first AGM after their appointment and to re‑election at least every three years. Non‑executive Directors are appointed for specified terms subject to re‑election and to Companies Act provisions relating to the removal of a Director.

AccountabilityFinancial reportingThe Board is responsible for presenting a balanced and understandable assessment of the Company’s position and prospects, extending to interim reports and other price‑sensitive public reports and reports to regulators as well as to information required to be presented by statutory requirements.


Corporate Governance Report continued

Internal controlThe Directors are responsible for reviewing the effectiveness of the Group’s internal controls on an annual basis. There is an ongoing process to identify, evaluate and manage risk, which has been in place throughout the period and up to date of approval, in accordance with the Turnbull guidance, and it is regularly reviewed by the Board. The system is designed to manage rather than eliminate risk of failure to achieve business objectives. The system includes internal controls covering financial, operational and compliance areas and risk management. There are limitations in any system of internal control, which can provide reasonable but not absolute assurance with respect to the preparation of financial information, the safeguarding of assets and the possibility of misstatement or loss. The additional key procedures designed to provide an effective system of internal control are the:• annual review of the control environment and procedures;• review and update of the Group’s policy and procedures;• review of external audit plans; • review of significant issues arising from the external audit; and• discussions with management on risk areas identified by the

management and the Board.

A risk assessment and review of internal controls was not carried out during the year as required under the Turnbull guidelines as the Group is currently implementing a new Enterprise Resource Planning System which will result in substantial changes to internal controls. The Board will seek to complete a full risk assessment and review of internal controls in 2013.

Control environmentThe Group operates within a control framework developed and strengthened over a number of years and communicated as appropriate by a series of written procedures. These lay down accounting and financial control procedures, in addition to controls of a more operational nature. The key procedures that Directors have established with a view to providing internal control are as follows:• the establishment of the organisational structure and the

delegated responsibilities of operational management;• the definition of authorisation limits, including matters reserved

for the Board;• the establishment of detailed operational budgets for each

financial year;• reporting and monitoring performance against budgets and

rolling forecasts;• the security of physical property and computer information;• establishment and annual review of a Group wide

insurance programme;• detailed financial, legal and environmental due‑diligence

on all acquisitions; and• the establishment of in‑house legal and human

resource functions.

The Board has reviewed the need for an internal audit function and based on advice from the Audit Committee and the relative size of the Group has concluded that for the time being it would not be appropriate to establish an internal audit function.

Relations with shareholdersThe Directors place great importance on maintaining good communications with both institutional and private investors. The Company reports formally to shareholders twice a year with the publication of its interim and annual reports. More regular communication is provided through the website www.sinclairispharma.com where all press releases are posted. The Executive Directors also present to institutional shareholders and analysts at the time of the interim and full year results. Feedback from these meetings is provided to the Board through the Company’s brokers. Mr J‑C Tschudin, the Senior Independent Director, is available to shareholders if and when required.

The AGM provides an opportunity to communicate with private and institutional shareholders and the Company welcomes their participation.

Corporate social responsibilityThe Group operates in the highly regulated pharmaceutical and medical devices sector. Hence every aspect of the products for which the Group owns the intellectual property and which are marketed or which are approved for marketing will have gone through an approval process overseen by EU, US or other national authorities to ensure their safety and efficacy.

The Group operates in a socially and environmentally responsible manner. Despite being in a relatively low‑impact industry, the Group proactively seeks ways of reducing any adverse impact upon our surroundings through recycling schemes, making more efficient use of utilities and seeking ways to reduce waste. The Group adheres to relevant legislative, regulatory and environmental codes of practice.

Statement of compliance with the provisions of the UK corporate governance codeAs a Company listed on AIM, the Company is not required to comply with the Code but the Board has voluntarily chosen to apply the provisions as if the Company were a fully listed company. The Board confirms that throughout the year ended 30 June 2012 the Company has complied with the provisions set out in the 2010 UK Corporate Governance Code issued by the Financial Services Authority, other than provision C.2.1 (review of risks and internal controls) and B.6 (evaluation) as disclosed above.



Corporate

Governance

Financials


Overview

Operations

Directors’ Remuneration Report

IntroductionThe report sets out the Group’s remuneration policy and details of Directors’ remuneration. A resolution to approve this report will be proposed to shareholders at the AGM, details of the resolution may be found in the notice of the meeting which is enclosed with this Annual Report. This report is unaudited other than the sections noted as audited.

Remuneration CommitteeThe Remuneration Committee (the ‘Committee’) is made up of Independent Non‑executive Directors and is chaired by Mr J‑C Tschudin. The other serving members of the Committee during the year were Mr G Cook and Mr T Wright (resigned 31 May 2012). The Committee met twice during the year. The committee uses suitably experienced external advisors as appropriate. No advisors services were used during the year.

None of the Committee has any conflicts of interest arising from cross‑Directorships or day‑to‑day involvement in running the business. The Committee makes recommendations to the Board and no Director plays a part in any discussions about his own remuneration. A sub‑group of the Committee not comprising the Chairman assesses the Chairman’s remuneration.

Remuneration policyExecutive remuneration packages are designed to attract, motivate and retain Directors and to reward them for enhancing value to shareholders. The performance measurement of the Executive Directors’ and key members of senior management and the determination of their annual remuneration packages are undertaken by the Remuneration Committee. The Board determines the remuneration of the Non‑executive Directors.

There are four main elements of the remuneration policy:• basic salaries and benefits in kind;• bonus scheme;• pensions; and• long‑term incentives.

The Company’s policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related. As described below, Executive Directors may earn annual incentive payments in the range between 0% and 75% of their basic salary, together with the benefits of participation in long‑term incentive schemes. Executive Directors are entitled to accept appointments outside the Company, providing these are approved by the Committee, but cannot be involved with a competing business except with the written consent of the Board.

Non‑remunerated external appointments for Mr CP Spooner were: Future Perfect Partners LLP, Eclipse Film Partners NO.8 LLP, Eclipse Film Partners NO.23 LLP, Red Squirrel Limited, Pirtsemit Limited.

(i) Basic salaries and benefits in kindThe Remuneration Committee, prior to the beginning of each year when an individual may change position or responsibility, determines basic salaries. In deciding appropriate levels, the Committee considers the Group as a whole and takes into account the performance of the individual and the rates for similar positions in comparable companies. Directors also receive private health cover for themselves and their families.

(ii) Bonus schemeThe Committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid. Account is taken of the relative success of the different parts of the business for which the Directors are responsible and the extent to which strategic objectives are being met. The Directors’ bonus is based upon profitability and share performance subject to targets being achieved.

(iii) PensionsThe Group operates a defined contribution scheme for the benefit of Directors and employees. The assets of the pension scheme are held separately from those of the Group. Neither Mr CP Spooner, nor Mr CH Foucher received pension contributions from the Company in the year.

(iv) Share schemesSinclair Pharma plc 2011 Value Creation PlanThe Sinclair Pharma plc Value Creation Plan (‘VCP’) was established pursuant to a resolution of the Board on 26 January 2011 following the approval of a shareholder resolution at a General Meeting on 13 January 2011. Under the terms of the VCP, Executive Directors and selected senior managers are allocated VCP units from a total pot.

These units have no value on grant but give the participants the opportunity, during the five year performance period, to share in a proportion of the total value created for shareholders depending on level of value created compared to an annual hurdle at a series of annual Measurement Dates (‘Measurement Dates’). The annual hurdle is a minimum growth of total shareholder return of 20% p.a. above which participants will receive 15% of the value created.

The value to each individual participant will be set by reference to the number of units held in proportion to the total units allocated and will be delivered in Company shares.

At each Measurement Date participants will bank shares (in the form of a nil‑cost option) with a value equivalent to a proportion of the excess value created above the hurdle using the measurement price. 50% of any banked shares will become exercisable on the fifth Measurement Date with the remainder on the first anniversary of this date.

The level of value created for shareholders will be determined by reference to the appreciation in the Company’s share price and the amount of dividends paid to shareholders (absolute total shareholder return).


Directors’ Remuneration Report continued

The shareholder value created at each Measurement Date will be calculated using the average share price over the 30 day period prior to the relevant Measurement Date (the ‘Measurement Price’). The First Measurement Date comprises the 30 day period commencing on 13 September 2012, the day of the announcement of the Company’s annual results.

The diagram below outlines the operation of the VCP:

YEAR 3

-

- - - - -

YEAR 2GRANT DATE YEAR 1 YEAR 4 YEAR 5

Start of Performance Period

Initial Price Set

Participants allocated VCP Units from

total pot

End of VCP Plan Period

50% of nil cost options banked are exercisable at the end of Year 5 & 50% on

1st anniversary

Measurement Date

15 % of value created in excess of the Threshold

Price converted into awards of nil cost options using the

prevailing price and banked

2nd th thMeasurement Date

15% of value created in excess of the Threshold



3rd Measurement Date




Threshold Price

Initial Price

Threshold Price

Threshold Price

Threshold Price

% of value created in excess of the Threshold



Threshold Price

5 Measurement Date




4 Measurement Date1st

15

Performance TargetsThe annual hurdle (the ‘Threshold Price’):• will be set from the base price of 28p being the price that shareholders participated in the Firm Placing and Open Offer

in September 2010;• for the first Measurement Date will be 33.6p (28p + 20% growth);• for the second to fifth Measurement Date will be the higher of:

– 20% above the average share price at the start of the relevant year (or previous Measurement Date if this is higher); and – 20% compounded annually from the first Threshold Price (‘33.6p’).

Rationale for the VCP The Committee feels that the VCP is an appropriate incentive as it satisfies the following criteria:• there is a clear link between the value created for shareholders and the payout to the Executives;• the greater the return to shareholders the greater the payout to participants;• value creation is a measure that is comprehensively understood by the Executive Directors and other Key Executives and is something

that they have a direct line of sight over; • participants only derive value from the VCP where significant value is generated for shareholders; • a number of shareholders expect at least some element of market based measure in an equity incentive package for Executives; • the potential dilution under the EIP would be 10% compared to 5% under the VCP (based on the illustrative modelling in Part IV of the

circular); and• the EIP is a three year plan whereas the VCP is a five year plan encouraging longer‑term sustainable performance.

Corporate

Governance

Financials


Overview

Operations

Sinclair Pharma plc 2003 Executive Incentive PlanThe Company established the Sinclair Pharma plc 2003 Executive Incentive Plan (“EIP”) pursuant to a resolution of the Board passed on 18 November 2003. The EIP is intended to allow the Company to make performance share awards and grant options, make restricted share awards, award stock appreciation rights and cash based long‑term incentives, or a combination thereof to senior executives and key employees.

No rewards were made to directors under the EIP during the year; (2011: nil).

A performance share award is a promise to deliver Ordinary shares at the end of the performance period subject to the satisfaction of the performance conditions. The right will vest automatically and does not require any action by the award holder.

At the discretion of the Committee an award may be granted under the 2003 EIP to any Executive Director or employee of the Group who is required to devote the whole or substantially the whole of his working time to the Group.

Awards may be made at any time other than a close period or other than at any time when a grant would be in breach of any other applicable laws or regulations. No awards will be made more than 10 years after the date of the adoption of the EIP. No award may be assigned or transferred in any way, although the executors or personal representatives of a deceased participant may in certain circumstances benefit from the award. No consideration is payable for the grant of an award.

The performance criteria period will, in the absence of any other period determined by the Committee, be the three consecutive financial years commencing with the financial year in which the award is made.

The Committee will set performance conditions that they consider to be both relevant and stretching and designed to enhance the business having regard to the Code and the guidelines and standards of principles published from time to time by the Association of British Insurers relating to best practice on share incentive schemes. The performance conditions must be met at the end of the performance period for the award to vest.

The Performance Share awards granted to Executive Directors and other senior managers in December 2008 and December 2011 are subject to performance conditions relating to the performance of Sinclair’s TSR measured against a comparator group of companies within the industry, and achievement of Group EBITDA targets. 50% of the awards are judged against the TSR condition and 50% against the EBITDA target. 139,650 of these shares options vested during the year and were allotted to certain key managers and Directors. 791,350 of the share options issued in December 2008 lapsed during the year (note 29).

The TSR condition seeks to align the interests of the Executive Directors and senior managers with the interests of the shareholders by comparing Sinclair’s TSR performance with other companies within the industry. The awards will vest in full if Sinclair’s TSR, over the three year performance period, ranks the Company in the upper quartile of the comparator group. 30% of the awards will vest if the Company’s TSR is equal to the median TSR of the comparator group, and no awards will vest if Sinclair’s TSR is below the median TSR of the comparator group. Between median and upper quartile performance, the number of awards which will vest will be calculated on a straight line basis.

The EBITDA target was measured on an average basis for the three years ended 30 June 2011. The awards would have vested in full if the Group’s average EBITDA for the performance period exceeded £4.0m per annum. 30% of the awards would have vested if the Group’s average EBITDA for the period was £2.5m per annum, and no awards would vest if the Group’s average EBITDA for the period was below the £2.5m per annum. EBITDA for the three years to 30 June 2011 was below £2.5m per annum and therefore all awards linked to the EBITDA target lapsed.

During the year the Remuneration Committee approved the vesting of certain Performance Share Awards under the EIP. The Remuneration Committee undertook a review of the performance criteria attached to the share awards issued in December 2008 following the end of the performance period on 9 December 2011 and determined that certain awards had partially met the TSR performance criteria and therefore partially vested.

The shares which vested to members of the Board of Directors and key management were as follows:

Mr CH Foucher 45,000 sharesMr A Olby 24,750 sharesMr S Redman 28,500 shares

The Board authorised the issue of new Ordinary 1p shares to satisfy these awards.


Directors’ Remuneration Report continued

Total shareholder return The following graph shows the Company’s performance, measured by total shareholder return (‘TSR’), against the FTSE Pharma and Biotech Index over the past five years. In the opinion of the Directors, the FTSE Pharma & Biotech Index is the most appropriate index against which the total shareholder return of Sinclair IS Pharma plc should be measured as it is an index of companies in the same sector to Sinclair IS Pharma plc. The calculations assume the reinvestment of dividends.

Sinclair IS Pharma plc FTSE All-Share/Pharmaceuticals and Biotechnology

Data provided by Jefferies International Limited

Sinclair IS Pharma Plc vs FTSE Pharma & Biotechnology

120

100

80

60

40

20

0Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12

Directors’ service contractsIt is the Group’s policy that Executive Directors should have contracts with an indefinite term, providing for a maximum of one year’s notice. Details of current Directors service contracts are as follows:

Date of ContractNotice Period (both parties)

ExecutiveMr CP Spooner 11 December 2009 12 monthsMr CH Foucher 21 February 2008 12 monthsNon‑ExecutiveMr G Cook 12 July 2009 3 monthsMr J‑C Tschudin 8 November 2008 3 monthsMr RS Swanson 22 September 2011 1 week

Corporate

Governance

Financials


Overview

Operations

Directors’ emoluments (audited information)

Salary/Fees £’000

Benefits in kind £’000

Bonuses £’000

Compensation for loss of

office £’000

2012 2011Total

£’000Pension

£’000Total

£’000Pension

£’000

ExecutiveMr CP Spooner1 330 1 330 – 661 – 498 –Mr CH Foucher2 261 – 178 – 439 – 387 –Non‑executiveMr G Cook 54 – – – 54 – 60 –Mr J Gregory3 13 – – 11 24 – 5 –Mr J‑C Tschudin 33 – – – 33 – 33 –Mr RS Swanson4 34 – – – 34 – – –Mr T Wright5 32 – – 9 41 – 3 –

757 1 508 20 1,286 – 986 –

1 Mr CP Spooner was awarded a bonus equivalent to 100% of salary for the year ended 30 June 2012 in recognition of the significant progress made in the development of the Group, including the level of EBITDA achieved for the year. The remuneration policy remains that executive bonuses should be a maximum of 75% of salary.

2 The remuneration for Mr CH Foucher was paid in € and has been converted using average rate of €1.1779: £1 for disclosure purposes.3 Mr J Gregory resigned 22 September 2011.4 Mr RS Swanson was appointed 22 September 2011.5 Mr T Wright resigned 31 May 2012.

Directors’ share awards (audited information)Details of the share awards and VCP units held by Directors are as follows:

At July 1 2011

Lapsed in the year

Exercised in the year

At June 30 2012

Exercise Price

(p)Exercisable

From To

Mr CH FoucherPerformance Share Awards 300,000 (255,000) (45,000) – £0.01 9 Dec 2011 N/A1

1 Shares subject to performance share awards will be issued to holders of such awards immediately upon satisfaction of the performance criteria, subject to the holder agreeing to pay the 1p per share nominal value if new shares are issued.

Upon exercising the performance share options Mr Foucher made a gain of 26p per share. The market value of the shares on that date was 27p. The exercise price was 1p. The total gain made was £11,700.

VCP units were granted on 12 May 2011 to Executive Directors as follows: 3,500 to Mr CP Spooner and 2,500 to Mr CH Foucher out of a total pot of 10,000 units. The First Measurement Date will be 30 days after the announcement of the Company’s results for the year ending 30 June 2012.

The market price of the Company’s Ordinary shares to which the awards relate fluctuated between 21.05p and 30.9p during the year. At 30 June 2012, the closing market price of the Company’s Ordinary 1p shares was 26.7p (2011: 28.4p)

On behalf of the Board

Mr J‑C TschudinChairman Remuneration Committee8 October 2012


Independent Auditors’ ReportFor the year ended 30 June 2012

Independent Auditors’ Report to the Members of Sinclair IS Pharma plcWe have audited the Group and Parent Company financial statements (the ‘financial statements’) of Sinclair IS Pharma plc for the year ended 30 June 2012 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated and Company Balance Sheets, the Consolidated and Company Statement of Changes in Shareholders’ Equity, the Consolidated and Company Cash Flow Statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Respective responsibilities of Directors and auditorsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 16, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non‑financial information in the Annual Report and Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion:• the financial statements give a true and fair view of the state of

the Group’s and of the Parent Company’s affairs as at 30 June 2012 and of the Group’s loss and Group’s and Parent Company’s cash flows for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion, the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the Parent

Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Parent Company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

The Directors have requested, (because the Company applies Listing Rules 9.8.6R 5 and 6 of the Financial Services Authority as if it were a listed Company), that we review the parts of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review by the Listing Rules of the Financial Services Authority. We have nothing to report in respect of this review.

At the request of the Directors, we have also audited the part of the Directors’ Remuneration Report that is described as having been audited. In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Stephen Wootten (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading8 October 2012


Overview

Operations

FinancialsC

orporate G

overnance

Consolidated Income StatementFor the year ended 30 June 2012

2012 2011

Notes

Pre‑ exceptional

items£’000

Exceptional items

(note 5)£’000

Total£’000

Pre‑ exceptional

items£’000

Exceptional items

(note 5)£’000

Total£’000

Revenue 4 51,424 – 51,424 32,897 – 32,897Cost of sales (20,911) (687) (21,598) (14,108) – (14,108)

Gross profit/(loss) 30,513 (687) 29,826 18,789 – 18,789

Selling, marketing and distribution costs (14,548) – (14,548) (11,543) – (11,543)Administrative expenses (17,260) (6,510) (23,770) (12,077) (5,057) (17,134)

Operating loss 6 (1,295) (7,197) (8,492) (4,831) (5,057) (9,888)

Finance income 8 5 – 5 16 – 16Finance costs 8 (1,287) – (1,287) (946) (924) (1,870)

Loss before taxation (2,577) (7,197) (9,774) (5,761) (5,981) (11,742)Taxation 9 1,133 76

Loss for the year (8,641) (11,666)

Loss per share (basic and diluted) 11 (2.2p) (5.1p)

Consolidated Statement of Comprehensive IncomeFor the year ended 30 June 2012

2012 £’000

2011£’000

Loss for the year (8,641) (11,666)

Other comprehensive income:Currency translation differences (7,010) 5,585

Total comprehensive expense for the year (15,651) (6,081)

The notes on pages 33 to 59 are an integral part of these consolidated financial statements.


Consolidated Balance SheetFor the year ended 30 June 2012

Notes2012

£’0002011

£’000

Non‑current assetsGoodwill 12 64,765 61,897Intangible assets 13 64,860 61,715Property, plant and equipment 14 842 2,115Deferred tax assets 24 4,806 4,417Other financial assets 18 128 2,040

135,401 132,184

Current assetsInventories 16 5,833 9,586Trade and other receivables 17 16,781 15,268Other financial assets 18 – 3,411Cash and cash equivalents 4,036 5,101

26,650 33,366

Assets held for resale 13 425 –

Total assets 162,476 165,550

Current liabilitiesBorrowings 20 (3,118) (2,838)Trade and other payables 19 (15,740) (16,170)Other financial liabilities 21 (494) (4,290)Current tax liabilities (738) –Provisions 22 (370) (409)

(20,460) (23,707)

Non‑current liabilitiesBorrowings 20 (9,984) (7,147)Other financial liabilities 21 (1,706) (2,556)Deferred tax liabilities 24 (13,293) (7,416)Other non‑current liabilities (707) (480)Provisions 22 (2,048) (331)

(27,738) (17,930)

Total liabilities (48,198) (41,637)

Net assets 114,278 123,913

EquityShare capital 26 4,026 3,809Share premium account 27 58,727 58,788Merger Reserve 97,141 92,424Other reserves 30 3,529 10,539Retained deficit (49,145) (41,647)

Total shareholders’ equity 114,278 123,913


Approved by the Board of Directors on 8 October 2012

C P SpoonerChief Executive Officer


Overview

Operations

FinancialsC

orporate G

overnance

Company Balance SheetFor the year ended 30 June 2012

Notes2012

£’0002011

£’000

Non‑current assetsIntangible assets 13 627 700Investments 15 166,351 146,026

166,978 146,726Current assetsTrade and other receivables 17 1,512 81Cash and cash equivalents – 525

1,512 606

Total assets 168,490 147,332

Current liabilitiesTrade and other payables 19 (1,248) (1,447)

(1,248) (1,447)Non‑current liabilitiesFinancial liabilities – borrowings 20 (26,153) (3,750)Other financial liabilities 21 – (331)Other non‑current liabilities – (146)

(26,153) (4,227)

Total liabilities (27,401) (5,674)

Net assets 141,089 141,658

EquityShare capital 26 4,026 3,809Share premium account 27 58,727 58,788Merger reserve 102,241 97,524Other reserves 30 24 24Retained deficit (23,929) (18,487)

Total shareholders’ equity 141,089 141,658


Approved by the Board of Directors on 8 October 2012

CP SpoonerChief Executive OfficerSinclair IS Pharma plc registered number 03816616


Consolidated Statement of Changes in Shareholders’ Equity For the year ended 30 June 2012

Share capital £’000

Share premium

£’000

Merger reserve£’000

Other reserves

£’000

Retained deficit£’000

Total equity£’000

Balance at 1 July 2010 1,622 39,500 50,474 4,954 (30,175) 66,375Exchange differences arising on translation of overseas subsidiaries – – – 5,585 – 5,585Loss for the year – – – – (11,666) (11,666)

Total comprehensive income/(expense) for the year – – – 5,585 (11,666) (6,081)Share‑based payments – – – – (200) (200)Options and warrants exercised 19 – – – – 19Share capital issued – Fundraising 679 18,321 – – – 19,000Share capital issued – Acquisition (note 35) 1,398 – 41,950 – – 43,348Share capital issued – Loan note conversion 91 2,209 – – – 2,300Repayment of ESOT loan – – – – 394 394Share issue expenses – (1,242) – – – (1,242)

Balance at 30 June 2011 3,809 58,788 92,424 10,539 (41,647) 123,913Exchange differences arising on translation of overseas subsidiaries – – – (7,010) – (7,010)Loss for the year – – – – (8,641) (8,641)

Total comprehensive expense for the year – – – (7,010) (8,641) (15,651)Share‑based payments – – – – 1,143 1,143Options and warrants exercised 1 – – – – 1Share capital issued – Acquisition (note 35) 200 – 4,348 – – 4,548Share capital issued – Deferred consideration 16 – 369 – – 385Share issue expenses – (61) – – – (61)

Balance at 30 June 2012 4,026 58,727 97,141 3,529 (49,145) 114,278



Overview

Operations

FinancialsC

orporate G

overnanceCompany Statement of Changes in Shareholders’ EquityFor the year ended 30 June 2012

Share capital £’000

Share premium

£’000

Merger reserve£’000

Other reserves

£’000

Retained deficit£’000

Total equity£’000

Balance at July 1 2010 1,622 39,500 55,574 24 (20,835) 75,885Profit for the year – – – – 2,081 2,081

Total comprehensive income for the year – – – – 2,081 2,081Share‑based payments – – – – (127) (127)Options and warrants exercised 19 – – – – 19Share capital issued – Fundraising 679 18,321 – – – 19,000Share capital issued – Acquisition (note 35) 1,398 – 41,950 – – 43,348Share capital issued – Loan Note Conversion 91 2,209 – – – 2,300Repayment of ESOT Loan – – – – 394 394Share issue expenses – (1,242) – – – (1,242)

Balance at 30 June 2011 3,809 58,788 97,524 24 (18,487) 141,658Loss for the year – – – – (6,585) (6,585)

Total comprehensive expense for the year – – – – (6,585) (6,585)Share‑based payments – – – – 1,143 1,143Options and warrants exercised 1 – – – – 1Share capital issued – Acquisition (note 35) 200 – 4,348 – – 4,548Share capital issued – Deferred consideration 16 – 369 – – 385Share issue expenses – (61) – – – (61)

Balance at 30 June 2012 4,026 58,727 102,241 24 (23,929) 141,089



Cash Flow StatementsFor the year ended 30 June 2012

Group Company

Note2012

£’0002011

£’0002012

£’0002011

£’000

Cash flows from operating activitiesNet cash inflow/(outflow) from operations 31 1,512 (8,462) (3,354) (2,579)Interest paid (825) (1,294) – (943)Interest paid on finance leases (4) – – –Taxation repaid 230 – – –

Net cash generated from/(used in) operating activities 913 (9,756) (3,354) (3,522)

Investing activitiesInterest received 5 16 – 13Purchases of property, plant and equipment (223) (865) – –Purchase of intangible assets (685) (1,392) – –Proceeds from sale of intangible assets 10,935 – – –Purchase of financial instruments (21) – – –Payment of deferred consideration (3,679) – – –Advances of intra‑group loans – – (2,770) (5,260)Acquisition of subsidiary undertakings, net of cash acquired (16,688) 11,979 (16,703) (1,507)Investment in subsidiary undertaking – – (101) –

Net cash (used in)/generated from investing activities (10,356) 9,738 (19,574) (6,754)

Financing activitiesRepayments of obligations under finance leases (11) (25) – –Dividend received – – – 2,900Proceeds from borrowings 8,500 7,894 22,403 –Repayments of borrowings (5,013) (17,932) – (11,350)Proceeds from issue of share capital – 19,018 – 19,018Proceeds from repayment of loan ESOT – 394 – 394Net transfer of cash from/(to) restricted deposits held as other financial assets 5,210 (5,210) – –Share issue expenses – (1,242) – (1,242)

Net cash generated from financing activities 8,686 2,897 22,403 9,720

Net (decrease)/increase in cash and cash equivalents (757) 2,879 (525) (556)

Cash and cash equivalents at 1 July 4,784 1,850 525 1,081Exchange gains on cash and bank overdrafts 9 55 – –

Cash and cash equivalents at 30 June 4,036 4,784 – 525

Cash and cash equivalents includes:Cash at bank and on hand 4,036 5,101 – 525Bank overdrafts – (317) – –

Cash and cash equivalents 4,036 4,784 – 525



Overview

Operations

FinancialsC

orporate G

overnance

1. General informationThe Company is a public limited company which is listed on the AIM market of the London Stock Exchange, and Euronext, Paris and is incorporated and domiciled in the United Kingdom. The address of its registered office is Whitfield Court, 30–32 Whitfield Street, London, W1T 2RQ.

2. Accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below.

Basis of preparationThe financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified to fair value for certain financial assets and liabilities.

The preparation of financial statements in conformity with generally accepted accounting practice requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.

Going concernThe Group’s forecasts, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current debt facilities. After making enquiries and considering the covenants on the Group’s debt, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. As a result, they continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidationThe consolidated financial statements of Sinclair IS Pharma plc incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. They are deconsolidated from the date on which control ceases.

The acquisition method of accounting is applied to all business combinations made by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any non‑controlling interest. The excess of the cost of the acquisition over the fair value of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group. On consolidation, all intra‑group transactions, balances, income and expenditure are eliminated.

Segment reportingOperating segments are reported in a manner consistent with internal reporting provided to the executive management team (who act as the chief operating decision maker). The executive management team has determined that there are the following reportable operating segments: International Operations, France, Italy, Germany, United Kingdom, and Spain.

Foreign currency translationItems included in the financial statements of each of the Group’s entities are measured using the functional 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 and the Group’s functional and presentation currency. Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates of exchange prevailing at that date. Gains and losses arising on translation are included in the income statement. The results of operations that have a functional currency different from the presentation currency are translated at the average rate of exchange during the period and their balance sheets at the rates ruling at the date of the balance sheet. Exchange differences arising on translation from 1 July 2005 are taken directly to a separate component of equity, the cumulative translation reserve. Exchange differences on intra‑group loan balances are taken to the income statement, unless they are considered long‑term equity type investments.

Revenue recognitionRevenue from product sales is recognised upon shipment to customers. Provisions for rebates, product returns and discounts to customers are provided for as reductions to revenue in the same period as the related sales occurred. Royalties receivable under licensing agreements are recognised as they are earned and are recorded within revenue. The recognition of other payments received and receivable, such as licence fees, upfront payments and milestones, is dependent on the terms of the related arrangement, having regard to the ongoing risks and rewards of the arrangement and the existence of any performance or repayment obligations, if any, with the third party. Amounts received and receivable are recognised immediately as revenue where there are no substantial remaining risks, no ongoing performance obligations and amounts received are not refundable. Amounts are deferred over an appropriate period where these conditions are not met.

Notes to the Financial StatementsFor the year ended 30 June 2012


2. Accounting policies continuedGoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets, including intangible assets, of the acquired subsidiary at the date of acquisition. 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 goodwill relating to the entity sold. Goodwill arising on the acquisition of a foreign entity is treated as an asset of the foreign entity denominated in foreign currency and translated at the balance sheet date according to the rate of exchange prevailing at that date.

Intangible assetsi) Licences and product rightsLicences and trademarks including product distribution rights and technical dossiers are recognised at their fair values at acquisition date (where acquired as part of a business combination) or cost (if acquired separately) and are amortised on a straight line basis over their estimated useful economic lives (5 to 20 years) from the time they are available for use.

ii) Research and developmentResearch expenditure is recognised as an expense as incurred. Costs incurred on development activities are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, status of regulatory approval, and costs can be measured reliably. Other development expenditure is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life and that have been capitalised are amortised from the date of regulatory approval of the product on a straight‑line basis over the period of its expected benefit, not exceeding 10 years.

Property, plant and equipmentAll property, plant and equipment is shown at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits 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 write off the cost of each asset to its residual value over its estimated useful life as follows:• Freehold buildings over 15 to 45 years.• Leasehold improvements expensed over period of lease.• Office and laboratory equipment depreciated at 15% to 50% per year.• Motor vehicles are depreciated at 20% per year.

The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each balance sheet date.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or where shorter, over the term of the relevant lease.

Investments in subsidiary undertakingsInvestments in subsidiary undertakings are carried at cost less impairment provision. Such investments are subject to review and any impairment is charged to the income statement.

Impairment of property, plant and equipment and intangible assets excluding goodwillAnnually, the Group reviews the carrying amounts of its property, plant and equipment assets where those assets have infinite lives and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash‑generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash‑generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash‑generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying value of the asset (cash‑generating unit) is increased to the revised estimate of its recoverable amount, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash‑generating unit) in prior periods. A reversal of an impairment loss is recognised as income immediately.

InventoriesInventories are valued at the lower of cost and net realisable value. Cost comprises materials, direct labour and a share of production overheads if appropriate at the relevant stage of production. Provision is made for obsolete, slow‑moving or defective items where appropriate. Net realisable value is determined at the balance sheet date on commercially saleable products based on estimated selling price less all further costs to completion and all relevant marketing, selling and distribution costs.

Notes to the Financial Statements continuedFor the year ended 30 June 2012


Overview

Operations

FinancialsC

orporate G

overnance

2. Accounting policies continuedBorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; 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.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenses that are taxable and deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising from investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

LeasesLeases, including hire purchase contracts, are classified as a finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases and hire purchase contracts are capitalised and included in property, plant and equipment at fair value. Each asset is depreciated over the shorter of the lease term or its useful life. The obligations related to finance leases, net of finance charges in respect of future periods, are included, as appropriate, under current, or non‑current liabilities. The interest element of a rental obligation charged to the income statement is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period. Rentals under operating leases are charged to the income statement on a straight‑line basis over the term of the relevant lease.

PensionsThe Group operates a defined contribution pension scheme for its employees. The assets of the scheme are held in independently administered funds. Contributions are charged to the income statement as they become payable in accordance with the rules of the schemes.

Other employee benefitsThe expected cost of compensated short‑term absence (i.e. holidays) is recognised when employees provide services that increase their entitlement. An accrual is made for holidays earned but not taken.

Share‑based paymentsi) Options, warrants and performance share awardsThe Group grants share options, warrants and performance share awards to Directors, employees and certain consultants. Equity‑settled share‑based payments are measured at fair value at the date of grant and expensed on a straight‑line basis over the expected life of the option or warrant, based on the estimated number of options or warrants that will eventually vest. The share options or warrants granted have varying performance criteria required for the option or warrants to vest and these are considered in the method of measuring the fair value. Where it is considered appropriate, the fair value is measured using the Black‑Scholes model. Where complex market performance criteria exist, a Monte Carlo model has been used to establish the fair value on grant.

ii) Value Creation PlanThe Group also operates a Value Creation Plan (‘VCP’) which grants VCP units to Executive Directors and certain employees of the Group. These VCP units are convertible into nil‑cost options over Ordinary shares subject to the Group’s share price reaching certain targets. The fair value of the VCP units granted is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at the date of the award of the VCP units and is spread over the period during which the VCP units are convertible into Ordinary shares. The fair value of the VCP units is determined using a Monte Carlo valuation model taking into account the terms and conditions upon which the grants are made.

Equity settled share‑based payments granted by the Company to employees of subsidiaries are recognised as an expense charged to the relevant subsidiary with an equal increase in the investment in the subsidiary undertaking.

Trade receivables and trade payablesTrade receivables and trade payables do not bear any interest and are stated at their book value as reduced where appropriate with allowances for estimated irrecoverable amounts.


2. Accounting policies continuedCash and cash equivalentsCash and cash equivalents includes 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.

Exceptional itemsExceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statements to give a better understanding to shareholders of the elements of the financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

Other financial assetsOther financial assets include non‑current rent deposits paid on the property occupied in France.

Critical accounting estimates and judgementsEstimates 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.

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 material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy set out above. The recoverable amounts of cash‑generating units have been determined using value‑in‑use calculations. These calculations require the use of estimates.

Valuation of intangibles acquired in business combinationsDetermining the fair value of intangible assets acquired in business combinations requires estimation of the value of the cash flows related to the identified intangibles and a suitable discount rate in order to calculate the present value. The value of cash flows has been estimated by applying royalty rates on comparable products to forecast cash flows used at the time of the business combination. The estimate of the applicable discount rates for intangible assets are based on a capital asset pricing model‑derived discount rate and the nature of the intangible asset being valued.

New IFRS standards and interpretationsThe following new standards and amendments to standards are mandatory for the first time for the financial year ending 30 June 2012 and have been applied by the Group, but have had no impact.• Annual improvements to 2010. This set of amendments includes changes to a number of standards based on the exposure draft issued

in August 2009, with additional change to IFRS 1, ‘First‑time adoption of IFRS’, which was exposed as part of the ‘rate‑regulated activities’ proposals issued in July 2009. Effective for annual periods beginning on or after 1 January 2011.

• Amendment to IAS 24, ‘Related party disclosures’. Effective for annual periods beginning on or after 1 January 2011.• Amendments to IFRS 7, ‘Financial instruments: Disclosures’ on de‑recognition. Effective for annual periods beginning on or after 1 July 2011.• Amendment to IFRS 1, ‘First time adoption’, on fixed dates and hyperinflation. Effective for annual periods beginning on or after 1 July 2011.

The following are standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group:

The following new standards, amendments to existing standards and new interpretations have been published and are mandatory for the Group’s future accounting periods. They are, with the exception of the amendments to IAS 1 and IAS 19, subject to endorsement by the European Union. They have not been early adopted in the Group’s financial statements and are not expected to have a significant impact on future financial statements when they are adopted:

Effective for annual periods beginning on or after 1 July 2012: IAS 1 (Amended), ‘Presentation of Financial Statements’.

Effective for annual periods beginning on or after 1 January 2013: IFRS 10, ‘Consolidated financial statements’; IFRS 11, ‘Joint arrangements’; IFRS 12, ‘Disclosures of interests in other entities’; IFRS 13, ‘Fair value measurement’; IAS 19 (revised 2011), ‘Employee benefits’; IAS 27 (revised 2011), ‘Separate financial statements’; IAS 28 (revised 2011), ‘Associates and joint ventures’; IFRIC 20, ‘Stripping costs in the production phase of a surface mine’;

Effective for annual periods beginning on or after 1 January 2015: IFRS 9, ‘Financial instruments’.



Overview

Operations

FinancialsC

orporate G

overnance

3. Financial risk managementMonitoring of financial risk is part of the Board’s ongoing risk assessment process. Other than short‑term forward currency contracts, the Group does not use financial derivatives, other than an interest rate cap to manage interest rate risk on borrowings and it is the Group’s policy not to undertake any trading in financial instruments.

The main financial risks arising from the Group’s operations are foreign exchange risk, interest rate risk, liquidity and credit risk.

Foreign exchange riskThe Group has transactional currency exposures as the majority of the Group’s revenues and certain expenditures, are in currencies other than the functional currency of the Group, mainly Euros and US Dollars. Certain of the Group’s bank borrowings are denominated in Euros, as disclosed in note 25.

The Group finances the majority of its activities in Europe and the US in the local currency, out of revenue receipts, excess currency receipts are then translated into Sterling either at the spot rate or through forward contracts. At 30 June 2012 and 30 June 2011, the Group had no such forward contracts outstanding.

At 30 June 2012, if the Euro had strengthened/weakened by 5% against Sterling, with all other variables held constant, loss after tax would have been £111,000/(£100,000) (2011: £205,000/(£172,000)) lower/higher. The impact on total equity would have been £2,738,000/(£2,477,000) (2011: £2,662,000/(£2,207,000)) higher/lower.

At 30 June 2012, if the US Dollar had strengthened/weakened by 5% against Sterling, with all other variables held constant, loss after tax would have been £(276,000)/£250,000 higher/lower (2011: minimal). The impact on total equity would have been £1,279,000/(£1,157,000) higher/lower (2011: minimal).

Credit riskCredit risk is managed on a Group basis. The Group is exposed to credit risk through pre‑wholesalers and marketing partners, such that if one or more of them is affected by financial difficulty, it could materially and adversely affect the Group’s financial results. Concentration of credit risk in relation to trade receivables is analysed in note 17.

The Directors do not believe that the Group is exposed to significant concentrations of credit risk on other classes of financial instruments.

Cash flow and interest rate riskThe Group does not have significant interest‑bearing assets and therefore the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest rate risk arises from short and long‑term borrowings. Borrowings at variable rates expose the Group to cash flow interest rate risk. At 30 June 2012, if interest rates on floating borrowing rates had been 0.5% higher/lower with all other variables held constant, loss after tax would have been £65,768 (2011: £20,000) higher/lower.

The Group manages interest rate risk through the purchase of interest caps covering a portion of its borrowings.

Price riskThe Group is not exposed to signficant commodity or other market price risk. However like any trading company, the Group is exposed to the risk of unforeseen increases in the cost of goods purchased from suppliers. To mitigate this risk, the Group manages its relationships with suppliers closely.

Liquidity riskThe Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Details of the maturity of financial liabilities are given in note 19 and 20.

Capital managementThe Group defines the capital that it manages as the Group’s total equity. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern; to provide an adequate return to investors based on the levels of risk undertaken; to have available the necessary financial resources to allow the Group to invest in areas that may deliver future benefits and returns to investors; and to maintain sufficient financial resources to mitigate against risks and unforeseen events together with ensuring compliance with the Group’s existing banking covenants on borrowings.

The Group believes it has sufficient on‑going cash and cash equivalents to meet its stated capital management objectives.


4. Segmental informationThe chief operating decision maker has been identified as the executive management team. This team reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The segmental analysis has been revised in accordance with IFRS 8 (revised) which requires management to determine operating segments based on the Group’s internal reporting structure, as a consequence management has revised the 2011 presentation (restated below) to reflect the impact of changes in the Group during the year ending 30 June 2012.

The executive management team considers the business as being organised into the following reportable operating segments; Country Operations (including the Group’s operations in France, UK, Italy, Germany and Spain) where the Group has its proprietary sales infrastructure, and International Operations where the Group sells through a local distributor. Research and development, technology licensing income and costs, intellectual property and corporate costs are included under the ‘other’ heading.

The executive management team assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation, amortisation, exceptional items and share based payments (Adjusted EBITDA).

2012Operating Segments

France £’000

Italy £’000

Germany £’000

United Kingdom

£’000Spain £’000

Country operations

£’000

International operations

£’000Other £’000

Total £’000

Revenue 12,562 3,503 5,852 10,086 3,530 35,533 15,439 452 51,424Cost of goods sold (5,126) (1,456) (1,813) (3,493) (1,525) (13,413) (7,177) (321) (20,911)

Gross profit 7,436 2,047 4,039 6,593 2,005 22,120 8,262 131 30,513

Adjusted EBITDA 1,420 480 2,434 3,055 399 7,788 4,813 (7,817) 4,784

2011Operating Segments

France £’000

Italy £’000

Germany £’000

United Kingdom

£’000Spain £’000

Country operations

£’000

International operations

£’000Other £’000

Total £’000

Revenue 12,514 3,905 2,697 1,014 2,087 22,217 10,555 125 32,897Cost of goods sold (5,019) (1,647) (890) (331) (1,027) (8,914) (5,194) – (14,108)

Gross profit 7,495 2,258 1,807 683 1,060 13,302 5,361 125 18,789

Adjusted EBITDA 387 141 358 (91) (181) 614 2,641 (4,584) (1,329)

During the year there was £4,518,000 (2011: £4,189,000) of sales at arm’s length prices between segments. The revenue analysis above is stated net of inter‑company sales.

No single customer comprised more than 10% of revenue for 2012 or 2011.

The segmental analysis above represents the analysis of sales by destination.

Country operations for Germany include the Group’s activities in Austria and Switzerland. Similarly UK Country operations also include the Republic of Ireland and Spain Country operations also include Portugal. International operations represent the Group’s business in the rest of Europe and the rest of the world.

A reconciliation of total adjusted EBITDA to total operating loss is provided as follows:2012

£’0002011

£’000

EBITDA for reportable segments 4,784 (1,329)Depreciation (463) (343)Amortisation (4,738) (3,064)Exceptional items (7,197) (5,057)Share‑based payments (excluding amounts in exceptional items) (878) (95)

Operating loss before tax (8,492) (9,888)

An analysis of revenue by category is set out in the table below:2012

£’0002011

£’000

Product revenue 49,588 31,508Royalties 981 1,229Licence fees and milestones 855 160

51,424 32,897



Overview

Operations

FinancialsC

orporate G

overnance

5. Exceptional itemsExceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

2012 £’000

2011 £’000

Acquisition costs (882) (1,395)Restructuring costs (2,286) (2,993)Impairment charges (947) (669)Cost of sales – Release of fair valuation uplift in acquired inventories (687) –Profits on disposal 197 –Closure of manufacturing facilities (2,592) –Early settlement expenses on Bracken facility – (924)

(7,197) (5,981)

Acquisition costs of £882,000 include legal and professional expenses incurred in relation to the acquisition of Advanced Bio‑Technologies, Inc. which was completed in December 2011.

Restructuring costs of £2,286,000 primarily relates to severance packages paid to employees in order to achieve efficiencies following the merger with IS Pharma plc and the restructuring of the Irish operation post the transfer of sales and marketing responsibilities to Fannin Limited. This also includes non‑cash costs of £265,000 relating to accelerated share‑based payments.

Impairment charges of £947,000 have been made to the Episil product license included within intangible assets and acquired as part of the acquisition of the IS Pharma Group. Disappointing sales of the Episil product which is licensed from Camarus led to the decision to terminate this license agreement, thus avoiding future minimum order liabilities. The Company retains the rights to sell Episil in the UK. In 2011 impairment charges of £669,000 were made to product distribution rights included within intangible assets and acquired as part of a non‑cash asset swap arrangement in prior years which the Group is no longer marketing or selling. These are non‑cash charges.

Exceptional cost of sales of £687,000 are the pass through of the fair value uplift applied at acquisition to the carrying value of the inventory acquired with the IS Pharma Group in May 2011 and with Advanced Bio‑Technologies, Inc. in December 2011. The fair value uplift is expensed as the inventory is sold to the market. All inventory associated with the acquisition of the IS Pharma Group which was valued as part of this uplift has now been sold into the market.

Profits on disposal of £197,000 were generated from the disposal of Mysoline by the Group to Laboratories Serb SAS for a total consideration of £11,075,000 in November 2011. The profit on disposal is the consideration net of the carrying value of the asset disposed and associated legal costs incurred.

The Group has announced a plan to close its only manufacturing facility at Cléry in France and fully outsource its manufacturing arrangements. The Group plans to complete the closure by June 2013. As a consequence charges of £2,592,000 have been recognised in respect of the costs of this closure and to recognise the impairment of certain assets, including the land and buildings. The Group expects to make significant cost savings through the outsourcing of these manufacturing arrangements to its manufacturing partners. The charge of £2,592,000 includes redundancy and out placement provisions amounting to £1,691,000 and impairment charges against property, plant and equipment of £901,000.

Early settlement expenses on the debt facility include early repayment fees and amortised expenses totalling £924,000 which were expensed on repayment of the Bracken debt facility in October 2010.


6. Expenses by nature2012

£’0002011

£’000

Cost of inventory recognised as an expense 19,443 13,864Royalties payable 183 244Depreciation on property plant and equipment (note 14) 463 343Impairment charges 1,849 669Amortisation of intangible assets1 (note 13) 4,738 3,064Employee benefit expense (note 7) 10,585 8,599Foreign exchange gains (104) (277)Operating leases – Land and Buildings 566 390Operating leases – other 232 182Research and development (excluding salary costs) 803 718Profit on disposal of intangible assets (197) –Loss on disposal of property, plant and equipment – 54Legal and professional fees including patents costs 1,651 1,517Distribution expenses (excluding salary costs) 1,565 1,367Selling and marketing costs (excluding salary costs) 8,091 6,503Restructuring charges (note 5) 4,398 2,390Acquisition costs (note 5) 882 1,395Share‑based payments 1,143 (296)Other expenses 3,625 2,059

Total cost of sales, selling, marketing and distribution and administrative expenses 59,916 42,785

1 In line with the Group’s accounting policy amortisation and impairment of intangible assets is included in the income statement under administrative expenses.

Services provided by the Group’s auditorDuring the year the Group obtained services from the Group’s auditor as described below:

2012 £’000

2011 £’000

Fees payable to Company’s auditors for the audit of Parent Company and consolidated financial statements 115 117

Fees payable to Company’s auditors and its associates for other servicesAudit of the financial statements of the Group’s subsidiaries pursuant to legislation 97 84Services relating to corporate finance transactions entered into or proposed to be entered into by the Group 231 376Services relating to taxation 36 54All other services 33 25

512 656

7. Employees and DirectorsThe average monthly number of employees (including Executive Directors) employed by the Group during the year was:

Group Company

2012 Number

2011 Number

2012 Number

2011 Number

Sales and distribution 52 39 – –Production 38 31 – –Administration 42 31 1 1

132 101 1 1

Group Company

Staff costs for the above employees2012

£’0002011

£’0002012

£’0002011

£’000

Wages and salaries 7,483 6,630 814 711Social security costs 1,684 1,595 95 86Pension costs 540 306 – –Share‑based payments 878 68 148 –

10,585 8,599 1,057 797

At 30 June 2012 the Group had unpaid pension contributions of £28,000 (2011: £nil).

The above staff costs include redundancy and termination payments for certain former employees.



Overview

Operations

FinancialsC

orporate G

overnance

7. Employees and Directors continuedKey management compensationKey management includes Executive Directors and members of the executive management team. Compensation paid or payable to key management for employee services is shown below:

Group Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Salaries and short‑term employee benefits 1,671 1,450 661 497Post‑employment benefits 80 36 – –Termination benefits – 229 – –Share‑based payments 696 100 353 44

2,447 1,815 1,014 541

Details of the Directors’ remuneration are set out in the Directors’ Remuneration Report.

8. Finance income and costs2012

£’0002011

£’000

Interest on bank loans and overdrafts (764) (291)Interest on other borrowings (19) (342)Imputed interest on deferred consideration (392) (35)Net foreign exchange gains/(losses) on financing activities 62 (199)Early settlement expense on Bracken facility (note 5) – (924)Other finance costs (174) (79)

Finance costs (1,287) (1,870)

Bank interest receivable 5 16

Finance income 5 16

Net finance costs (1,282) (1,854)

9. Taxation on loss on ordinary activities2012

£’0002011

£’000

Current taxUK corporation tax (79) –Overseas tax 753 34Withholding tax – 15

674 49Deferred tax (note 24)Reversal of temporary differences (1,807) (125)

Tax credit on loss before taxation (1,133) (76)

Factors affecting the total tax chargeThe tax assessed on the loss on ordinary activities for the year is lower (2011: lower) than the standard rate of corporation tax in the UK of 24% (2011: 26%). The differences are reconciled below:

2012 £’000

2011 £’000

Loss on ordinary activities before tax (9,774) (11,742)

Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 25.5% (2011: 27.5%) (2,492) (3,229)Amortisation not allowed for tax purposes 750 48Expenses not deductible for tax purposes 347 929Utilisation of brought forward tax losses (264) –Unrelieved UK tax losses 780 1,712Unrelieved overseas tax losses 86 457Tax rate difference (267) 2Decelerated capital allowances – (10)Withholding tax suffered – 15R&D tax credits (118) –Other temporary differences 45 –

Total tax credit (1,133) (76)


9. Taxation on loss on ordinary activities continuedA number of changes to the UK Corporation tax system were announced in the March 2012 Budget Statement. This included a change to the standard rate of Corporation tax to 24% from 1 April 2012 which has been substantively enacted. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and, therefore, are not included in the financial statements. The proposed reductions of the main rate of corporation tax by 1% per year to 22% by 1 April 2014 are expected to be enacted separately each year, and the relevant UK assets and liabilities will therefore need to be remeasured on an annual basis.

The exceptional impairment of the Episil asset (note 5) resulted in a deferred tax credit of £200,000 and the disposal of the Mysoline asset resulted in a deferred tax credit of £26,000 resulting from the release of certain deferred tax liabilities.

10. (Loss)/profit for the financial yearAs permitted by section 408 of the Companies Act 2006, the Company’s income statement has not been included in these financial statements. The Company’s loss for the financial year was £6,585,000 (2011: profit of £2,081,000).

11. Loss per shareThe basic loss per share has been calculated by dividing the loss for the year, by the weighted average number of shares in existence for the year. The loss and weighted average number of shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per share at 30 June 2012, as the exercise of share options and warrants would have the effect of reducing the loss per share and therefore is not dilutive.

2012 2011

Loss attributable to equity shareholders (£’000) (8,641) (11,666)Weighted average number of shares 391,557,663 230,011,876Diluted weighted average number of shares 391,557,663 230,011,876Basic and diluted loss per share (pence) (2.2p) (5.1p)

Adjusted earnings per share has been calculated by adding back exceptional charges and amortisation of intangible assets to the loss for the year, together with related deferred tax movements resulting in an adjusted profit for the year.

2012 2011

Adjusted profit/(loss) attributable to equity shareholders (£’000) 2,092 (2,920)Adjusted earnings/(loss) per share basic and diluted (pence) 0.5p (1.3p)

A reconciliation of adjusted profit/(loss) is as follows:2012

£’0002011

£’000

Loss for the year (8,641) (11,666)Exceptional items (note 5) 7,197 5,981Amortisation (note 13) 4,738 3,064Deferred tax credit arising on amortisation (1,202) 299

Adjusted profit/(loss) for the year 2,092 (2,920)



Overview

Operations

FinancialsC

orporate G

overnance

12. Goodwill2012

£’0002011

£’000

CostAt 1 July 64,776 52,524Additions (note 35) 7,134 8,607Exchange adjustments (4,266) 3,645

At 30 June 67,644 64,776

Accumulated impairmentAt 1 July and 30 June 2,879 2,879

Net book value at year end 64,765 61,897

Additions in the year comprise the excess consideration paid over the fair value of assets acquired on the purchase of Advanced Bio‑Technologies, Inc (2011: IS Pharma plc and Cranage Healthcare Limited).

Accumulated amortisation and impairment represents amortisation charges prior to 30 June 2004, before transition to IFRS and impairment of the goodwill arising on the acquisition of Ashbourne Pharmaceuticals Limited, recorded in 2008.

Exchange adjustments arise as a result of the impact of the difference in the Sterling : Euro exchange rate at the beginning and end of the year on balances recorded in Euros and on the impact of the difference in the Sterling : US Dollar exchange rate at the beginning and end of the year on balances recorded in US Dollars.

Goodwill has been allocated to the following cash generating units:£’000

International Operations 14,233Sinclair Italy 4,580Sinclair UK 8,607Sinclair France 30,288Advanced Bio‑Technologies, Inc. 7,057

64,765

Goodwill is not amortised but tested annually for impairment or more frequently if there are indications that it may be impaired. Value in use calculations have been utilised to calculate recoverable amount. Value in use is calculated as the net present value of the projected post tax cash flows of the cash generating unit, discounted at 11% (2011: 11%), the Group’s estimated post tax weighted average cost of capital. The cash flows, which have been approved by the Board, have been projected over five years representing the Director’s best estimate of future product revenues and margins. Growth rate assumptions have been applied at an individual product level and range from 0% for non‑core products to 25% for key brands. Long‑term growth rate assumptions are 5.0% for International Operations and Sinclair France where there is significant exposure to emerging market growth rates, 3.0% for IS Pharma Group which is primarily exposed to trade in Europe, and 2.0% for Sinclair Italy. These growth rates are consistent with forecasts used in industry reports.

The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amounts are based would not cause the carrying amount of goodwill to exceed its recoverable amount. For the Sinclair Italy CGU, a reduction in the long‑term growth rate to zero would not remove the remaining headroom. However, an increase in the discount rate to 17.5% would remove the remaining headroom. For the Sinclair France CGU a reduction in the long‑term growth rate to 1.4% or an increase in the discount rate to 13.6% would remove the remaining headroom. For the IS Pharma Group CGU, a reduction in the long‑term growth rate to zero would not remove the remaining head room. However an increase in the discount rate to 15.9% would remove the remaining headroom.


13. Intangible assetsGroup Company

Licenses and product rights

£’000Other £’000

Total £’000

Total £’000

CostAt 1 July 2010 38,214 1,262 39,476 1,249Additions 2,092 – 2,092 –Additions arising on business combinations (note 35) 37,039 – 37,039 –Disposals (322) – (322) –Exchange adjustments 2,019 – 2,019 –

At 30 June 2011 79,042 1,262 80,304 1,249Additions 329 909 1,238 –Additions arising on business combinations (note 35) 20,451 – 20,451 –Disposals (12,420) – (12,420) –Transfers to assets held for sale (425) – (425) –Exchange adjustments (2,508) 48 (2,460) –

At 30 June 2012 84,469 2,219 86,688 1,249

Accumulated amortisation and impairment

At 1 July 2010 13,849 483 14,332 476Charge for the year 2,992 72 3,064 73Disposals (164) – (164) –Impairment charge (note 5) 669 – 669 –Exchange adjustments 688 – 688 –

At 30 June 2011 18,034 555 18,589 549Charge for the year 4,194 544 4,738 73Disposals (1,458) – (1,458) –Impairment charge (note 5) 947 – 947 –Exchange adjustments (948) (40) (988) –

At 30 June 2012 20,769 1,059 21,828 622

Net book valueAt 30 June 2012 63,700 1,160 64,860 627

At 30 June 2011 61,008 707 61,715 700

At 1 July 2010 24,365 779 25,144 773

Additions arising on business combinations relate to the fair value uplift on acquisition of Advanced Bio‑Technologies, Inc. (note 35). Disposals principally comprise the Mysoline assets sold to Laboratoire SERB SAS in November 2011.

Exchange adjustments arise as a result of the impact of the difference in the Sterling : Euro exchange rate at the beginning and end of the year on balances recorded in Euros and on the impact of the difference in the Sterling : US Dollar exchange rate at the beginning and end of the year on balances recorded in US Dollars.

Transfers in the period ended 30 June 2012 include certain intangible assets, which have been reclassified as assets held for resale because the Group has entered into negotiations to sell these assets.



Overview

Operations

FinancialsC

orporate G

overnance

14. Property, plant and equipmentFreehold land and buildings

£’000

Leasehold improvements

£’000

Office & Lab equipment

£’000

Motor vehicles

£’000Total

£’000

CostAt 1 July 2010 744 465 1,762 48 3,019Exchange adjustments 32 15 105 6 158Additions – 159 706 – 865Additions arising on business combinations (note 35) – – 245 – 245Disposals – – (224) (54) (278)

At 30 June 2011 776 639 2,594 – 4,009Exchange adjustments (59) – (429) – (488)Additions – – 242 – 242Transfers to intangible assets – – (128) – (128)Disposals – (261) (50) – (311)

At 30 June 2012 717 378 2,229 – 3,324

Accumulated depreciationAt 1 July 2010 91 277 1,309 25 1,702Exchange adjustments 7 – 64 2 73Charge for year 26 55 251 11 343Disposals – – (186) (38) (224)

At 30 June 2011 124 332 1,438 – 1,894Exchange adjustments (43) – (424) – (467)Charge for the year 22 39 402 – 463Impairment charges 535 – 368 – 903Disposals – (261) (50) – (311)

At 30 June 2012 638 110 1,734 – 2,482

Net book valueAt 30 June 2012 79 268 495 – 842

At 30 June 2011 652 307 1,156 – 2,115

At 1 July 2010 653 188 453 23 1,317

The net book value of office equipment, leasehold improvements and motor vehicles includes £74,000 (2011: £28,000) in respect of assets held under finance leases and hire purchase agreements. Depreciation for the year on those assets was £24,000 (2011: £30,000).


15. InvestmentsShares in

subsidiary undertakings

£’000

Loans to Group

undertakings £’000

Total £’000

CostAt 1 July 2010 57,485 38,505 95,990Additions, net of loan repayments 45,187 9,010 54,197Interest charged on loans to Group undertakings – 669 669Capital contribution re employee share options 50 – 50Exchange adjustments – 2,628 2,628

At 30 June 2011 102,722 50,812 153,534Additions, net of loan repayments 21,351 2,770 24,121Interest charged on loans to Group undertakings – 674 674Loan waivers – (1,983) (1,983)Capital contribution re employee share options 731 – 731Exchange adjustments (56) (3,162) (3,218)

At 30 June 2012 124,748 49,111 173,859

ImpairmentAt 30 June 2010, 2011 and 2012 (6,425) (1,083) (7,508)

Net book valueAt 30 June 2012 118,323 48,028 166,351

At 30 June 2011 96,297 49,729 146,026

At 1 July 2010 51,060 37,422 88,482

The Company’s principal subsidiary undertakings are as set out below:

Country of incorporation Holding

Proportion held Nature of business

Sinclair Pharmaceuticals Limited England Ordinary shares 100% Pharmaceutical productsSinclair Pharma UK Limited England Ordinary shares 100% Pharmaceutical productsSinclair Pharma Srl Italy Ordinary shares 100% Pharmaceutical productsSalix Pharma AB Sweden Ordinary shares 100% Pharmaceutical productsSinclair Pharma AB Sweden Ordinary shares 100% Pharmaceutical productsSinclair Pharma France Holding SAS France Ordinary shares 100% Holding companySinclair Pharma France SAS1 France Ordinary shares 100% Pharmaceutical productsSinclair Pharmaceutical Espana SL1 Spain Ordinary shares 100% Pharmaceutical productsSinclair Pharma GmbH Germany Ordinary shares 100% Pharmaceutical productsCranage Healthcare Limited England Ordinary shares 100% Pharmaceutical productsIS Pharma Limited England Ordinary shares 100% Holding companyIS Pharmaceuticals Limited1 England Ordinary shares 100% Pharmaceutical productsAcorus Therapeutics Limited1 England Ordinary shares 100% Pharmaceutical productsSinclair IS Pharma Ireland Limited1 Ireland Ordinary shares 100% Pharmaceutical productsAdvanced Bio‑Technologies, Inc USA Ordinary shares 100% Pharmaceutical productsSinclair Life Sciences India Private Limited India Ordinary shares 100% Pharmaceutical products

1 Investment held indirectly.

Investments are reviewed for impairment when there is an indication of impairment. The Directors are not aware of any indications of impairment and believe that the carrying value of the investments held at historic cost is recoverable.

16. Inventories2012

£’0002011

£’000

Raw materials 1,503 2,771WIP 28 19Finished goods 4,302 6,796

5,833 9,586



Overview

Operations

FinancialsC

orporate G

overnance

17. Trade and other receivablesGroup Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Trade receivables 15,023 12,769 – –Less provision for impairment of trade receivables (279) (193) – –Amounts due from Group undertakings – – 1,445 –

Trade receivables – net of provision 14,744 12,576 1,445 –Current tax receivable 99 7 – –Other receivables 888 1,382 – –Prepayments and accrued income 1,050 1,303 67 81

16,781 15,268 1,512 81

The ageing analysis of trade receivables is as follows:Group

2012 £’000

2011 £’000

Not yet due 8,118 5,427Up to three months past due 5,204 4,237Over three months past due 1,701 3,105Impaired (279) (193)

14,744 12,576

Receivables past due but not impaired relate to wholesalers and marketing partners for whom there is no recent history of default.

Movements on the Group’s provision for impairment of trade receivables are as follows:Group

2012 £’000

2011 £’000

At 1 July 193 1,541Provision for receivables impairment 172 54Receivables written off during the year as uncollectable (69) (1,453)Exchange adjustments (17) 51

279 193

The table below shows the top three receivables at 30 June 2012 and the comparative balance as at 30 June 2011.Group

2012 £’000

2011 £’000

Company A 800 825Company B 789 668Company C 727 598

2,316 2,091

The carrying amounts of trade and other receivables are denominated in the following currencies:Group Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Pounds 1,146 3,043 1,512 81Euro 12,416 10,983 – –USD 2,840 520 – –CHF 379 – – –SEK – 715 – –

16,781 15,261 1,512 81

18. Other financial assetsIn 2012 other financial assets consists of £128,000 of rent deposits.

In 2011 other financial assets of £3,411,000 and balances included in other non‑current assets of £1,799,000 comprised restricted cash deposits held at Clydesdale Bank under the terms of the Group’s debt facility. In 2012 the restricted cash deposits were released in full into cash and cash equivalents as overseas bank debt was repaid and certain other financial liabilities settled.


19. Trade and other payablesGroup Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Trade payables 9,037 8,580 396 376Other taxes and social security costs 940 1,477 – –Other payables 1,301 1,483 – 236Accruals and deferred income 4,462 4,630 852 835

15,740 16,170 1,248 1,447

20. BorrowingsGroup Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Bank loans 9,933 7,130 – –Obligations under finance leases 51 17 – –Amounts due to Group undertakings – – 26,153 3,750

Non‑current borrowings 9,984 7,147 26,153 3,750

Obligations under finance leases 18 17 – –Bank loans 3,100 2,504 – –Bank overdrafts – 317 – –

Current borrowings 3,118 2,838 – –

Total borrowings 13,102 9,985 26,153 3,750

Borrowings are repayable as follows:On demand or within one year 3,118 2,838 – –Over one and under two years 3,118 2,330 – –Over two and under five years 6,866 4,817 – –Over five years – – 26,153 3,750

Total borrowings 13,102 9,985 26,153 3,750

The minimum lease payments under finance leases fall due as follows:2012

£’0002011

£’0002012

£’0002011

£’000

Not later than one year 21 18 – –Later than one year but not more than five 55 18 – –

Future finance charges on finance lease (7) (2) – –

Present value of finance lease liabilities 69 34 – –

Bank loans comprise a term loan facility with Clydesdale Bank of which £15.5m (2011: £7.0m) has been drawn at June 2012 and £13.5m remains outstanding after capital repayments of £2m. This includes a drawdown denominated in dollars of $10.1m (£6.1m) of which $8.8m (£5.6m) remains outstanding after capital repayments. The total facility is for £16.0m (including £1.0m revolving credit facility) and expires on 6 April 2015. Interest is charged at LIBOR plus 3.0%, and interest over two thirds of the amount drawn is capped at 4.5% through an interest rate cap. Direct issue costs of £380,000 have been offset against the gross liability. Repayments are scheduled to be made in equal instalments every six months. Drawings under the facility are secured by a debenture over all the Group’s assets.

Amounts due to group undertakings are interest free, unsecured and repayable greater than five years.



Overview

Operations

FinancialsC

orporate G

overnance

21. Other financial liabilitiesOther financial liabilities include deferred purchase considerations due as follows:

Group Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Non‑current 1,706 2,556 – 331Current 494 4,290 – –

2,200 6,846 – 331

Included within other financial liabilities is deferred contingent consideration which represents the fair value of the assumed contractual minimum liabilities of the previous owner of SEPI AG (a Swiss subsidiary acquired by IS Pharma in April 2008) which are payable to the original developers of Haemopressin in annual instalments until 2016 representing royalties payable on future net revenue from Haemopressin. The amount included represents the Directors’ estimate of the fair value based on the timing of the minimum contractual amount payable by 2016 discounted to its present value.

In 2011 other current financial liabilities also include £1,355,000 of deferred purchase consideration payable to the former owners of Sinclair IS Pharma Ireland Limited (formerly Helsinn Birex Therapeutics Limited). This was settled in full by a cash payment during 2011.

Also included non‑current other financial liabilities in 2011 was deferred contingent consideration liabilities relating to the acquisition of Cranage Healthcare Limited (£331,000). This was settled in March 2012 through the issue of 1,640,625 new Ordinary 1p shares.

22. ProvisionsGroup

Legal £’000

Restructuring £’000

Total £’000

At 1 July 2011 612 128 740Charged to the income statement 509 1,448 1,957Utilised in the year (201) (23) (224)Released in the year – (55) (55)

At 30 June 2012 920 1,498 2,418

Analysis of total provisions:2012

£’0002011

£’000

Non‑current 2,048 331Current 370 409

2,418 740

Legal provisionThe legal provision from 2011 was partially utilised during the year. The Group expects a further utilisation of this provision within the next year.

A further provision was established relating to various claims the Group has received during the year.

RestructuringThe restructuring provision from 2011 related to the employee costs associated with the restructuring plan implemented in previous years.

During the year the Company announced its plans to close its only manufacturing facility at Clery in France and outsource its manufacturing arrangements. The Company plans to complete the closure by June 2013. As a consequence, a provision has been established to cover the various costs of this closure.

The Company has no provisions for charges as at 30 June 2012 (2011: £nil).

23. Contingent liabilitiesThe Directors are aware of certain potential legal claims against the Group, which the Directors believe can be successfully defended and therefore require no provision.


24. Deferred income taxAnalysis of the Group’s deferred tax assets and liabilities is as follows:

Group2012

£’0002011

£’000

Deferred tax assets:– Deferred tax asset to be recovered after more than 12 months 4,806 4,417– Deferred tax asset to be recovered within 12 months – –

4,806 4,417

Deferred tax liabilities:– Deferred tax liability to be recovered after more than 12 months (12,692) (6,722)– Deferred tax liability to be recovered within 12 months (601) (694)

(13,293) (7,416)

Deferred tax liabilities (net) (8,487) (2,999)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

The movement in the Group’s deferred tax assets is as follows:Business

combinations £’000

Tax losses £’000

Total £’000

At 1 July 2011 1,530 2,887 4,417Exchange differences (164) (101) (265)Transfers – 94 94Credited to the income statement 177 383 560

At 30 June 2012 1,543 3,263 4,806

A deferred tax asset arises as a result of the fair value adjustment to the carrying value of intangible assets at the time of the acquisition of Groupe CS Dermatologie SAS (now Sinclair Pharma France SAS) and the subsequent amortisation of the intangible assets and also on tax losses carried forward in certain entities which the Directors expect to be utilised in the foreseeable future.

A number of changes to the UK Corporation tax system were announced in the March 2012 Budget Statement. This included a change to the standard rate of Corporation tax to 24% from 1 April 2012 which has been substantively enacted. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and, therefore, are not included in the financial statements. The proposed reductions of the main rate of corporation tax by 1% per year to 22% by 1 April 2014 are expected to be enacted separately each year, and the relevant UK assets will therefore need to be remeasured on an annual basis.

The movement in the Group’s deferred tax liabilities is as follows:Business

combinations £’000

Other timing differences

£’000

Reinvestment relief

£’000Total

£’000

At 1 July 2011 6,877 186 353 7,416Additions arising on business combinations (note 35) 7,134 – – 7,134Disposals (2,905) – 2,879 (26)Impairments 152 – (353) (201)Timing differences arising during the period – (10) – (10)Amortisation of deferred tax liabilities arising on business combinations (1,020) – – (1,020)

At 30 June 2012 10,238 176 2,879 13,293

The deferred tax liability arising on business combinations relates to the fair value adjustment to the carrying value of intangible assets recognised on the acquisition of Advanced Bio‑Technologies, Inc in December 2011 and IS Pharma plc in May 2011 (note 35) and the subsequent disposal, amortisation, or impairment of balances within this category of intangible assets.

The deferred tax liability arising on reinvestment reflects the taxable value of timing differences following the tax relief obtained through the reinvestment of the proceeds from the sale of assets. In 2012 certain intangible assets in which these proceeds were reinvested were fully impaired and consequently the deferred tax liability arising on reinvestment relief was also released to the income statement.



Overview

Operations

FinancialsC

orporate G

overnance

24. Deferred income tax continuedUnrecognised deferred taxThe Group has a potential deferred tax asset, which has not been recognised in the financial statements, due to uncertainties surrounding suitable future taxable profits. In the event that these assets are recognised in the future, planned reductions in the rate of Corporation Tax in the UK will reduce the potential value of these assets. This potential deferred tax asset is analysed as follows:

2012 £’000

2011 £’000

Tax losses 7,740 6,721Decelerated capital allowances 15 308Future tax relief for share based remuneration 57 29Other temporary differences 265 389

Unrecognised deferred tax asset 8,077 7,447

No deferred tax is recognised on the distributed profits of subsidiaries as they are reinvested by the Group and no tax is expected to be payable on them for the foreseeable future. Since acquisition, subsidiaries have earned profits of £3,720,000 (2011: 654,000) that have not been remitted to the Company and have been utilised against brought forward tax losses.

25. Financial instrumentsThe Group’s financial instruments comprise; cash and cash equivalents, finance leases, borrowings and various trade and other receivables and trade and other payables that arise directly from its operations. The Group’s policies and additional disclosures relating to the management of foreign exchange, credit, cash flow and liquidity and pricing risk are set out in note 3.

The Group had the following financial instruments at 30 June each year:Assets Liabilities

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Other non‑current financial assets 128 2,040 – –Other current financial assets – 3,411 – –Cash and cash equivalents 4,036 5,101 – –Bank overdraft – – – 317Trade and other receivables 15,632 13,958 – –Trade and other payables – – 14,800 14,693Other financial liabilities – – 2,200 6,846Provisions – – 920 331Other non‑current liabilities – – 96 480Borrowings – finance leases – – 69 34Borrowings – bank loans – – 13,033 9,634

19,796 24,510 31,118 32,335

Interest rate riskThe Group does not have significant interest‑bearing assets and therefore the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

Interest‑bearing financial liabilities are made up as follows:2012 2011

Financial liabilitiesFixed £’000

Floating £’000

Fixed £’000

Floating £’000

Bank overdraft Euro – – – 317Borrowings – finance leases Euro 69 – 34 –Borrowings – bank loans GBP – 7,384 – 6,516Borrowings – bank loans Euro – – 3,118 –Borrowings – bank loans USD – 5,649 – –

69 13,033 3,152 6,833

The effective interest rates on financial liabilities are as follows:2012 2011

FixedInterest

rate

FloatingInterest

rate

FixedInterest

rate

FloatingInterest

rate

Euro – bank overdrafts – n/a – 8.6%Sterling – bank loans – 4.7% – 9.6%US Dollar – bank loans – 3.9% – n/aEuro – finance leases 5% – 7.4% –Euro – loans n/a – 4.0%–6.0% –


25. Financial instruments continuedTrade and other receivables, trade and other payables and other non‑current liabilities are not interest bearing.

In accordance with IAS 39 ‘Financial instruments: Recognition and measurement’ the Group has reviewed all contacts for embedded derivatives that are required to be separately accounted for. There were no such derivatives at 30 June 2012 or 30 June 2011.

The Directors consider that the fair value of the Group’s financial instruments do not differ significantly from their book values, other than bank loans, as set out in note 20.

Foreign currency exposureAt 30 June 2012 the Group’s operating companies have financial instrument assets of £3,555,000 (2011: £45,000) and financial instruments liabilities of £7,815,000 (2011: £nil) denominated in US Dollars, financial instrument assets of £13,690,000 (2011: £18,073,000) and financial instrument liabilities of £12,652,000 (2011: £11,227,000) denominated in Euros.

CompanyThe Company had the following financial instruments at 30 June each year:

Assets Liabilities

2012 £’000

2011 £’000

2012 £’000

2011 £’000

Cash and cash equivalents – 525 – –Amounts due from Group undertakings 49,473 49,729 – –Trade and other payables – – 1,248 1,447Borrowings – amounts due to Group undertakings – – 26,153 3,750

49,473 50,254 27,401 5,197

Amounts due to Group undertakings are unsecured and interest free.

Trade and other payables and other non‑current liabilities are non‑interest bearing.

Foreign currency exposureAt 30 June 2012 and 30 June 2011 all the Company’s financial instrument assets and financial instruments were denominated in Sterling.

26. Called‑up share capital

Group and Company2012

Number2011

Number2012

£’0002011

£’000

Issued and fully paidOrdinary shares of 1pAt 1 July 380,812,790 162,151,069 3,809 1,622Allotted on exercise of share awards 139,650 1,861,172 1 19Shares issued for cash – 67,857,131 – 679Issued on conversion of unsecured convertible (loan notes) – 9,112,884 – 91Shares issued in settlement of acquisition 21,630,625 139,830,534 216 1,398

At 30 June 402,583,065 380,812,790 4,026 3,809

See note 28 for details of potential issues of Ordinary shares.

On 15 December 2011, the Company acquired Advanced Bio‑Technologies, Inc. from Health Edge Investment Partners, LLC. The Company issued 19,990,000 Ordinary 1p shares to the former shareholders as part of the consideration paid. The premium on issue has been credited to the merger reserve.

On 16 March 2012 the Company issued 1,640,625 Ordinary 1p shares to the former shareholders of Cranage Healthcare Limited, acquired in December 2010. Under the terms of an earn out agreement, the former Cranage shareholders were entitled to receive future payments equal to 50% of the earnings of the Cranage business unit over the four financial years to 30 June 2015. However, this one‑off final payment settled in shares concluded the early settlement of this Cranage earn‑out liability. The premium on issue has been credited to the merger reserve.

On 9 May 2012 the Company issued 139,650 Ordinary 1p shares on the satisfaction of performance criteria of Performance Share Awards during the year. The price paid was 1p per share, realising cash consideration of £1,396.



Overview

Operations

FinancialsC

orporate G

overnance

27. Share premium

Group and Company2012

£’0002011

£’000

At 1 July 58,788 39,500Proceeds from shares issued – 18,321Loan note conversion – 2,209Share issue expenses (61) (1,242)

At 30 June 58,727 58,788

28. Potential issues of Ordinary sharesThe Company has issued share options and warrants to Directors and employees of the Group. Share options have been issued from the Sinclair Pharma plc 2003 Enterprise Management Incentive Scheme (‘2003 scheme’), approved by the Board on 18 November 2003. Under this scheme the Company can grant both qualifying options (EMI options) and unapproved options over Ordinary 1p shares in the Company. The Company has also issued Performance Share awards and Replacement options under the 2003 Executive Incentive Plan (‘EIP’). The scheme rules for each of these schemes are summarised in the Directors Remuneration Report.

The Company has also issued various warrants as follows:

Replacement Warrants and New WarrantsReplacement Warrants were issued on 2 December 2003 in exchange for an equivalent number of Old Warrants. Replacement Warrants provide the holder with a right to acquire such number of Ordinary shares as are equal in amount to a ‘target value’. Target value is calculated using the following formula:

Number of Old Warrants (or Unapproved Options) held by warrant holder multiplied by the IPO placing price per Ordinary share (115p).

Replacement Warrants are denominated in units. On the exercise of each unit of value a corresponding value of Ordinary shares in the Company may be acquired. The maximum number of Ordinary shares which can be acquired under the terms of the Replacement Warrants shall not exceed the number of Ordinary shares that may have been acquired under the terms of the Old Warrants. The acquisition price payable for Ordinary shares shall be between £0.01 and £0.33 per unit and shall, in aggregate, be equal to the acquisition price payable for Ordinary shares under the terms of the Old Warrants.

The Company and the holders of the Replacement Warrants also entered into a joint election under section 4(4)(a) of the UK Social Security Contributions and Benefits Act 1992 to transfer legal responsibility for payment of the employers’ national insurance contributions to the holders of the Replacement Warrants.

New Warrants were granted under the same terms and exercise prices as the Replacement Warrants to which they relate.

Replacement Warrants and New Warrants are exercisable in whole or in part at any time. They shall lapse on the earliest of the 10th anniversary of the date of grant, or the bankruptcy of the warrant holder. There are no performance conditions relating to either Replacement Warrants or New Warrants.

GEM WarrantsThe Company has issued warrants to GEM Global Yield Fund Limited (‘GEM Warrants’) to subscribe for Ordinary 1p shares in the Company. GEM Warrants vested immediately on issue and can be exercised for a period of five years from the date of grant.

Octopus WarrantsThe Company has also issued warrants to Octopus Capital Limited (‘Octopus Warrants’) to subscribe for Ordinary 1p shares in the Company. The Octopus Warrants vested immediately and can be exercised for a period of five years from the date of grant.


28. Potential issues of Ordinary shares continuedThe number of shares subject to options, warrants, performance share awards and interests in shares at 30 June 2012, the date of grant and periods in which they may be exercised are given below.

Outstanding at

Date of grantExercise

Price30 June

201230 June

2011 Exercise period

Share Options10 December 2003 115p 36,000 36,000 10 December 2003–9 December 201320 October 2004 94.5p 15,575 15,575 20 October 200 –19 October 20144 October 2006 101p 13,005 13,005 4 October 2009–3 October 2016Performance share awards9 December 2008 1p – 931,000 9 December 2011–N/A1

14 December 2011 1p 300,000 – 14 December 2014–N/A1

Replacement options6 November 2009 1p 42,958 42,958 6 November 2010–5 November 2016Replacement Warrants3 December 2003 67p 75,000 75,000 3 December 2003–2 December 20133 December 2003 133p 75,000 75,000 3 December 2003–2 December 2013New Warrants3 December 2003 67p 11,214 11,214 3 December 2003–2 December 20133 December 2003 133p 11,214 11,214 3 December 2003–2 December 2013GEM Warrants15 May 2009 37.2p 900,000 900,000 15 May 2009–14 May 2014Octopus Warrants11 December 2009 32p 1,000,000 1,000,000 11 December 2009–10 December 2014

2,479,966 3,110,966

1 Shares subject to performance share awards will be issued to holders of such awards immediately upon satisfaction of the performance criteria, subject to the holder agreeing to pay the 1p per share nominal value if new shares are issued.

29. Share‑based paymentsValue Creation PlanThe Sinclair Pharma 2011 VCP was approved by shareholders at a General Meeting held on 13 January 2011. Awards granted under the VCP have no value at grant but subject to satisfaction of the performance conditions can convert into nil‑cost options at each measurement date. Further details of the plan are outlined in the Directors’ Remuneration Report.

9,500 VCP units, out of a total pot of 10,000 were granted to Executive Directors and senior management on 12 May 2011 of which 9,000 remained outstanding at 30 June 2012.

The VCP awards are valued using a Monte Carlo model. The inputs into the model are as follows:12 May 2011

Share price on award date 32.5pBase price 28.0pNumber of simulations 10,000Expected life of options 5 yearsDividend yield NilRisk free interest rate 1.09%Sinclair IS Pharma share price volatility 35%Share price hurdle per measurement period 20%Payout over share price hurdle 15%Shares in issue 380,812,790

The charge for the year to the income statement in relation to these VCP awards amounted to £1,120,000 (2011: £120,000).

Options, warrants and performance share awardsEmployees of the Group are awarded share options and awards subject to qualifying conditions. Options are granted to employees under the ‘2003 scheme’, these Options have a fixed exercise price based on the market price at the date of the grant. The contractual life of all options and warrants is 10 years with the exception of the GEM and Octopus Warrants, five years. Options cannot normally be exercised before the third anniversary of the date of grant. Performance share awards are issued under the ‘EIP’ and are converted into Ordinary shares subject to satisfaction of the performance criteria, usually on the third anniversary of grant.



Overview

Operations

FinancialsC

orporate G

overnance

29. Share‑based payments continuedOptions and performance share awards are valued using the Black‑Scholes option‑pricing model where no market conditions are attached and the Monte Carlo model where market conditions are applied. Directors and other senior employees of the Group are normally granted options with market performance conditions. For each relevant option and award grant, individual valuation assumptions were assessed based upon conditions at the date of the grant. The range of assumptions in the calculations is as follows:

Award Grant dateExpected

term

Expected dividend

yieldExpected

volatilityRisk free

ratePerformance

conditionsValuation

Method

2003 scheme 20 October 2004 3 years 0% 53.5% 4.52% None Black‑Scholes2003 scheme 4 October 2006 3 years 0% 26.9% 4.86% None Black‑ScholesGEM Warrants 15 May 2009 3 years 0% 58.9% 2.80% None Black‑ScholesOctopus Warrants 11 December 2009 3 years 0% 62.0% 2.80% None Black‑ScholesEIP scheme 14 December 2011 3 years 0% 45.0% 0.56% None Black‑Scholes

The expected lapse rate for the above awards is 7% evenly over the three year vesting period, other than GEM and Octopus warrants which have no vesting period and therefore 0% lapse rate. The fair values per option granted are set out in the tables below.

Award Grant date

Number of options/awards

granted

Share price on grant date

(pence)

Fair value price on

grant date (pence)

Fair value £

2003 scheme 20 October 2004 288,526 96p 38p 109,6402003 scheme 4 October 2006 668,148 101p 25p 166,168GEM Warrants 15 May 2009 900,000 30.25p 9.6p 86,400Octopus Warrants 11 December 2009 1,000,000 33.75p 14p 140,000EIP scheme 14 December 2011 300,000 23.5p 22.5p 67,560

A reconciliation of share option, warrant and performance share award movements for the years ended 30 June 2012 and 30 June 2011 is set out below:

2012 2011

Number

Weighted average

exercise price (pence) Number

Weighted average

exercise price (pence)

Outstanding at 1 July 3,110,966 29.1p 6,108,496 15.4pGranted 300,000 1.0p – –Lapsed (791,350) 1.0p (1,136,358) 1.0pExercised (139,650) 1.0p (1,861,172) 1.0p

Outstanding at 30 June 2,479,966 39.0p 3,110,966 29.1p

Exercisable at 30 June 2,179,966 41.1p 2,179,966 41.1p

Exercisable and market price exceeds exercise price at 30 June 42,958 1.0p 42,958 1.0p

The following table summarises information about the range of exercise prices for share options warrants and performance share awards outstanding at 30 June 2012 and 30 June 2011.

2012 2011

Range of exercise prices

Weighted average exercise

priceNumber of

shares

Weighted average remaining life (years)

Weighted average exercise

priceNumber of

shares

Weighted average remaining life (years)

Expected Contractual Expected Contractual

Under 40p 32.4p 2,242,958 0.7 2.6 23.1p 2,873,958 0.7 3.641p to 80p 67.0p 86,214 – 1.4 67.0p 86,214 – 2.481p to 120p 107.2p 64,580 – 2.2 107.2p 64,580 – 3.2121p to 160p 133.0p 86,214 – 1.4 133.0p 86,214 – 2.4

2,479,966 3,110,966

The total charge/(credit) for the year relating to employee share options, warrants and performance share awards was £23,425 (2011: (£296,000)) all of which related to the above equity based transactions.


30. Other reservesGroup Company

Cumulative translation

reserves £’000

Warrant reserve £’000

Total £’000

Warrant reserve £’000

At 1 July 2010 4,930 24 4,954 24Exchange differences arising on translation of overseas subsidiaries 5,585 – 5,585 –

At 30 June 2011 10,515 24 10,539 24Exchange differences arising on translation of overseas subsidiaries (7,010) – (7,010) –

At 30 June 2012 3,505 24 3,529 24

Warrant reserveOther reserves arose on the grant of 784,875 warrants in settlement of the National Insurance liability on certain warrants and unapproved share options that were issued by the Company.

During the year ended 30 June 2004, the Company entered into a joint election with the holders of certain warrants for the transfer of the employer’s National Insurance liability arising on the exercise of the warrants. In consideration for the transfer of this liability, the Company granted additional warrants over units to subscribe for shares, which, as at the date of grant, provided the warrant holders with a right to subscribe for 784,875 shares.

The warrants were granted at the same exercise price as the warrants that attracted National Insurance liability, which was less than market value on the date of grant reflecting the value of the National Insurance liability transferred to the holders. Accordingly, the intrinsic value (the difference between market price and the grant price) was transferred from the National Insurance provision and is included in the warrant reserve, which is released to the profit and loss account reserve as the underlying warrants are exercised.

No warrants were exercised in the period ended 30 June 2012 (2011: nil).

31. Cash flows from operating activitiesGroup Company

2012 £’000

2011 £’000

2012 £’000

2011 £’000

(Loss)/profit before tax (9,774) (11,742) (6,585) 2,081Adjustments for:Finance income (5) (16) (674) (682)Partial waiver of loan account – – 1,983 –Finance costs 1,287 1,870 – 1,382Share‑based payments 1,143 (200) 412 (177)Depreciation 463 343 – –Amortisation of intangible assets 4,738 3,064 73 73Impairment charges 1,849 669 – –Dividends received – – – (2,900)(Profit)/loss on disposal of intangible assets (197) 54 – –Decrease/(Increase) in provision for doubtful debts 86 (92) – –Increase in provisions – net of finance costs provision 1,565 29 – –Exchange gains/(losses) (562) 194 3,238 (2,628)Changes in working capital (excluding effects of acquisitions and exchange

differences on consolidation):Decrease/(increase) in inventories 3,567 (1,358) – –(Increase)/decrease in receivables (3,769) (2,100) (1,431) 46Increase/(decrease) in payables 1,121 823 (370) 226

Net cash inflow/(outflow) from operations 1,512 (8,462) (3,354) (2,579)



Overview

Operations

FinancialsC

orporate G

overnance

32. Operating lease commitmentsAt 30 June 2012 the Group has total commitments in respect of non‑cancellable operating leases as follows:

Group

Land & buildings

2012 £’000

Equipment 2012

£’000

Total 2012

£’000

Land & buildings

2011 £’000

Equipment 2011

£’000

Total 2011

£’000

Commitments under non‑cancellable operating leasesWithin one year 441 179 620 127 119 246Between two and five years 662 203 865 964 272 1,236After five years – 17 17 – – –

1,103 399 1,502 1,091 391 1,482

CompanyThere were no operating lease commitments for the Company at 30 June 2012 (2011: £nil).

33. Capital commitmentsThe Group and Company had no capital commitments at 30 June 2012 (2011: £nil).

34. Related party transactionsGroupThe following transactions were carried out with related parties:

a) Key management compensationThe compensation paid to key management for employee services is set out in note 7.

b) DirectorsRefer to the Directors’ Remuneration Report for details of remuneration of Directors employed by the Company.

CompanyThe following transactions were carried out with related parties:

Transactions with subsidiariesThe Company is responsible for financing, of the Group, managing Group funds and setting Group strategy. Finance is then provided to operating subsidiary undertakings where necessary, details of intercompany loans are set out in note 15.

The Company has not been charged for expenses paid by subsidiaries during the year (2011: £nil).

In addition, options over the Company’s shares have been awarded to employees of subsidiary companies. In accordance with IFRIC 11, the Company has treated the awards as a capital contribution to the subsidiaries, resulting in an increase in the cost of investment of £731,000 (2011: £50,000).


35. Business combinationsThe Company acquired 100% of the issued share capital of Advanced Bio‑Technologies, Inc. (‘ABT’) on 15 December 2011 from HealthEdge Investment Partners and other shareholders. ABT owns the worldwide Kelo‑cote® product rights excluding the USA.

Details of the fair value of the identifiable assets and liabilities acquired, purchase consideration and goodwill arising are as follows:

Book value £’000

Adjustments £’000

Fair value £’000

Intangible assets 1,657 20,451 22,108Inventories 349 403 752Trade and other receivables 975 – 975Cash and cash equivalents 15 – 15Trade and other payables (629) (313) (942)Deferred Tax liabilities – (7,134) (7,134)

Net assets 2,367 13,407 15,774

ConsiderationEquity consideration 4,548Net book value of licenses purchased prior to acquisition 1,657Cash consideration 16,703

Total consideration 22,908

Total consideration less net assets acquired 7,134

Goodwill 7,134Purchase consideration settled in cash (16,703)Cash and cash equivalents in subsidiary acquired 15

Cash inflow on acquisition 16,688

Equity consideration of £4,548,000 was satisfied through the issue of 19,990,000 Ordinary 1p shares in the Company with a fair value at date of issue (15 December 2011) of 22.75p

Fair value adjustments in respect of intangible assets are recognised on acquisition due to the existence of trademarks, marketing authorisations and patents which are valued by applying the royalty relief method to the forecast cash flows that are expected to be generated by the assets.

The provisional fair value of finished goods inventories was measured at selling price less costs of disposal and selling profit.

A fair value adjustment to deferred tax recognises the deferred tax liability arising from the recognition of the intangible assets above as measured at the current rates of corporation tax in the UK.

The main factors leading to the recognition of goodwill were:• The presence of certain intangible assets, such as the non‑contractual customer relationships of the acquired entity, which do not qualify

for separate recognition; and• a strategic premium: the Sinclair IS Pharma Board believes that the acquisition will increase Sinclair’s presence in emerging markets

providing greater ability to attract commercial partners.

If ABT had been acquired on 1 July 2011 additional revenue of £2.2m and a profit before tax of £1.3m would have been included in the consolidated accounts.



Overview

Operations

FinancialsC

orporate G

overnance

35. Business combinations continuedIS Pharma plcOn 20 May 2011 the Company acquired the entire share capital of IS Pharma plc which subsequently changed its name to IS Pharma Limited. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill arising are as follows:

Book value £’000

Adjustments £’000

Fair value £’000

Goodwill 31,526 (31,526) –Intangible assets 10,039 26,232 36,271Property, plant and equipment 245 – 245Deferred tax asset 2,142 – 2,142Inventories 2,557 442 2,999Trade and other receivables 2,724 – 2,724Cash and cash equivalents 13,490 – 13,490Trade and other payables (4,000) – (4,000)Other financial liabilities (5,943) – (5,943)Financial liabilities – borrowings (4,500) – (4,500)Deferred Tax liabilities (1,415) (6,050) (7,465)

Net assets 46,865 (10,902) 35,963

ConsiderationEquity consideration 43,348Cash consideration 1,136

Total consideration 44,484

Total consideration less net assets acquired – Goodwill 8,521

Purchase consideration settled in cash (1,135)Cash and cash equivalents in subsidiary acquired 13,490

Cash inflow on acquisition 12,355

Fair value adjustments in respect of intangible assets were recognised on acquisition due to the recognition of trademarks, marketing agreements and licences which were valued by applying the Royalty Relief Method to the forecast cash flows that were expected to be generated by the assets at the date of acquisition.

The fair value of finished goods was measured at selling price less costs of disposal and selling profit. The fair value of raw materials was measured at the current cost of replacement.

A fair value adjustment to deferred tax recognises the deferred tax liability arising from the recognition of the intangible assets above as measured at the current rates of corporation tax in the UK.

The main factors leading to the recognition of goodwill were:• The presence of certain intangible assets, such as the value of the assembled work force and non‑contractual customer relationships

of the acquired entity, which do not qualify for separate recognition; and• strategic premium: the Sinclair IS Pharma Board believes that the acquisition will establish the Company as a Pan European group with

greater ability to attract commercial partners and future funding for investment.

Equity consideration of £43,349,000 was satisfied through the issue of 139,830,534 Ordinary 1p shares in the Company with a fair value at date of issue (20 May 2011) of 31p.

Cranage Healthcare LimitedThe Group acquired 100% of the issued share capital of Cranage Healthcare Limited on 29 November 2010. Cranage held the UK distribution rights for Kelo‑cote®. Total purchase consideration was £696,000 with a fair value of intangible assets recognised in respect of marketing agreements and licenses of £768,000 leaving goodwill arising of £86,000.

36. Post balance sheet eventsOn 1 October 2012, the Company announced that it had entered into a 100 year distribution agreement with Valeant Pharmaceuticals International Inc. for the distribution of injectable aesthetic dermal filler products Sculptra and New‑Fill and the sub‑distribution of Succeev in Western Europe. The Company made an upfront payment of €9.0m for the rights, funded through a cash placing of 32,142,858 new Ordinary shares at 28p to raise £9.0m.


Independent AuditorsPricewaterhouseCoopers LLP9 Greyfriars RoadReading Berkshire RG1 1JG

BankersClydesdale Bank plc88 Wood StreetLondonEC2V 7QQ

NOMAD and BrokerJefferies International LimitedVintners Place68 Upper Thames StreetLondonEC4V 3BJ

RegistrarsCapita RegistrarsNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest Yorks HD8 0LA

Registered officeWhitfield Court30–32 Whitfield StreetLondonW1T 2RQ

Company informationSinclair IS Pharma plc is registered as a public limited company under English law. Its shares are listed on the AIM market of the London Stock Exchange and on Euronext, Paris.

Sinclair IS Pharma plc is incorporated and domiciled in England and its registered number is 03816616.

Corporate Advisors

Sinclair IS Pharma plc1st Floor Whitfield Court30–32 Whitfield StreetLondon W1T 2RQUnited Kingdom

Tel: +44 20 7467 6920Fax: +44 20 7467 6930

delivering sustainable growth · the company’s ability to acquire high‑quality brands and...

Documents