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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lombard Med.Tec | LSE:LMT | London | Ordinary Share | GB00B7FT8W85 | ORD 20P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 188.50 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Dec 2019 to Dec 2024
TIDMLMT
RNS Number : 9682B
Lombard Medical Technologies PLC
11 March 2014
Press Information
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.
Lombard Medical Technologies PLC
("Lombard Medical" or "the Company")
Results for the Year ended 31 December 2013
US FDA approval and launch of Aorfix(TM) leads transformational year for Company
London, UK 11 March, 2014 - Lombard Medical Technologies PLC (AIM: LMT), the specialist medical device company focused on endovascular aortic repair ("EVAR") of abdominal aortic aneurysms ("AAAs"), today announces its results for the year ended 31 December 2013.
Operational highlights
-- US FDA approval of Aorfix(TM) for the endovascular repair of AAAs in February 2013
o Only endovascular stent graft approved by the US for use in cases with neck angulation up to 90 degrees
-- US FDA approval of Aorflex(TM), the next generation delivery system for Aorfix in June 2013
-- Official US launch of Aorfix together with Aorflex at the VEITH Symposium in New York in November 2013
-- Following US Aorfix approval, recruited and trained a US direct sales force of 20 individuals, including two regional managers
-- Trained 244 physicians in the US to use Aorfix between July and December 2013 -- Appointment of Raymond W. Cohen as Non-Executive Chairman in July 2013
Financial highlights
-- Total revenue increased by 13% to $7.0m (2012: $6.2m) -- Aorfix commercial revenue increased 23% to $6.1m (2012: $5.0m)
o Aorfix revenue in main EU markets increased 8% to $3.9m (2012: $3.6m)
o Aorfix revenue in the US was $0.5m following launch in H2 2013
-- Operating loss increased to $20.0m (2012: $13.1m) due to increases in sales and marketing headcount and activity in the US
-- Cash and cash equivalents of $40.9m as at December 31, 2013 (December 31, 2012: $4.5m), increased primarily through the receipt of $53.2m (GBP34.4m) from equity fundraisings
-- Financing:
o US approval of Aorfix in February 2013, which triggered receipt of the $20.4m (net of expenses) second tranche of the two tranche April 2011 fundraising
o US approval of Aorfix triggered Company's ability to draw down $2.5m from the $5.0m loan facility granted by our exclusive Japanese distribution partner, Medico's Hirata Inc.
o Raised an additional $32.8m (net of expenses) in June 2013 through a placing, subscription and offer for new shares
Post period events
-- Live case demonstration using Aorfix at
o 2014 Leipzig Interventional Course (LINC) in Germany
o iCON 2014, a meeting of the International Society of Endovascular Specialists in Phoenix, Arizona
-- Approval for Aorfix in Japan continues to be anticipated in 2014
This press release does not constitute an offer of any securities for sale. As a result of regulations applying to the Company after the filing of a Form F-1 Registration Statement with the US Securities and Exchange Commission on 10 March 2014, this press release does not include comments on Outlook or by our Chief Executive Officer.
-Ends-
For further information:
Lombard Medical Technologies PLC Tel: +44 (0)1235 750 800 Simon Hubbert, Chief Executive Officer Ian Ardill, Chief Financial Officer Canaccord Genuity Limited (Nomad) Tel: +44 (0)20 7523 8000 Lucy Tilley / Tim Redfern / Henry Fitzgerald O'Connor / Dr Julian Feneley FTI Consulting (UK) Tel: +44 (0)20 7831 3113 Simon Conway / Stephanie Cuthbert / Victoria Foster Mitchell
About Abdominal Aortic Aneurysms
AAAs are a balloon-like enlargement of the aorta which, if left untreated, may rupture and cause death. Approximately 4.5 million people are living with AAAs in the developed world and each year over 500,000 new cases are diagnosed. In the US, aortic aneurysm disease is among the leading causes of death and it is estimated that 1.7 million people over the age of 55 have an abdominal aortic aneurysm.
About Lombard Medical
Lombard Medical Technologies PLC (AIM: LMT) is a medical device company focused on device solutions for the abdominal aortic aneurysm ("AAA") repair market. The Company's lead product, Aorfix(TM), is an endovascular stent graft which has been specifically designed to solve the problems that exist in treating complex tortuous anatomy, which is often present in advanced AAA disease. Aorfix is the only stent graft approved for AAA neck angulations of up to 90 degrees and is currently being commercialized worldwide. Aorfix is the first AAA stent graft not of US origin to gain US FDA approval. The Company is headquartered in Oxfordshire, England with US operations in Irvine, CA.
Further background on the Company can be found at www.lombardmedical.com.
FORWARD-LOOKING STATEMENTS
This announcement may contain forward-looking statements that reflect the Company's current expectations regarding future events, including the commercialization and regulatory clearance of the Company's products, the Group's liquidity and results of operations, as well as the Group's future capital raising activities. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including the success of the Company's research and development and commercialization strategies, the uncertainties related to the regulatory process and the acceptance of the Company's products by hospitals and other medical professionals.
CHIEF EXECUTIVE'S REVIEW
Overview
2013 was a particularly significant year in Lombard Medical's history with the US Food and Drug Administration ("FDA") approval of Aorfix for the endovascular aortic repair of abdominal aortic aneurysms granted in February 2013. The approval includes a unique label indication for the treatment of patients with angulations at the neck of the aneurysm up to and including 90 degrees. This gives Aorfix the broadest label for such a device on the US market, and makes it the only endovascular stent graft approved for use in high angle (>60 degrees) cases, providing a strong platform for growth in the world's largest EVAR market. The worldwide EVAR market was estimated to be approximately $1.4 billion in 2013, with the U.S. market estimated at approximately $680 million.
During the period, in June 2013, the Company also received US FDA approval for Aorflex, the Company's next generation delivery system. Aorfix was officially launched in the US at the 40(th) Annual Symposium on Vascular and Endovascular Issues (VEITH Symposium) in New York in November 2013. The Aorfix stent-graft has been successfully used to treat patients in the US since the FDA approval.
We generated revenue of $7.0 million in the year ended December 31, 2013 (2012: $6.2 million), with $0.5 million attributable to the US post launch. We reported an operating loss of $20.0 million in the year ended December 31, 2013 (2012: $13.1 million).
As of December 31, 2013, we had cash and cash equivalents of $40.9 million. We achieved this cash position primarily through the receipt of $53.2 million (GBP34.4 million) from equity fundraisings during the year ended December 31, 2013.
Aorfix Regulatory Approval in the US and launch
As part of the US launch, we are focusing on the 300 higher volume US centers, where approximately 50% of the EVAR procedures in the US are performed. Our US commercial headquarters have been moved to Irvine, California. Our US sales and marketing team have significant experience in the healthcare industry and in vascular sales and marketing in particular. We have recruited and trained a field sales force of 20 individuals, including two regional managers. The sales representatives come from a large pool of experienced sales representatives and have experience in EVAR, peripheral vascular sales or related fields, and have received in-depth training in the Aorfix implant and the procedure itself. We intend to more than double the size of our direct sales force in the US by the end of 2014.
The initial step in our US roll-out of Aorfix consists of training physicians seeking to use Aorfix. We have a number of experienced technical proctors in our US team who conduct physician training between July and December 2013 we trained 244 physicians.
Post period end, in February, a team of surgeons led by Venkatesh Ramaiah, M.D. of The Arizona Heart Institute in Phoenix, Arizona successfully performed a live case demonstration of a challenging AAA repair using Aorfix to more than 150 physicians at iCON 2014, a meeting of the International Society of Endovascular Specialists in Phoenix, Arizona. This case was performed using a percutaneous approach. During the procedure, which was broadcast live from The Arizona Heart Hospital in Phoenix, a panel of prominent vascular surgeons engaged in a dialogue with the surgical team focused on the deployment and placement of the Aorfix device during the AAA procedure. The panel was chaired by Edward Diethrich, M.D., the Program Chairman.
RoW Aorfix Update
European live case demonstration using Aorfix
In January 2014, a team of surgeons, led by Dr. Andrej Schmidt, Oberarzt (Senior Physician) Angiologie, Leipzig Park-Krankenhaus, successfully performed a live case demonstration of a challenging AAA repair using Aorfix to over 500 physicians at the 2014 Leipzig Interventional Course (LINC), Leipziger Messe, Leipzig, Germany. Prior to the live case Dr Schmidt demonstrated the Company's new simulation technology, developed in conjunction with Simbionix USA Corporation, which uses a patient CT scan to allow physicians to practice the procedure on a simulation of that particular patient's AAA anatomy ahead of the actual surgery. During the procedure, which was broadcast live from Park Hospital Leipzig, a panel of prominent vascular surgeons, interventional radiologists and interventional cardiologists, chaired by Professor Vicente Riambau, Professor and Chief of Vascular Surgery, Hospital Clinic of Barcelona, gave a series of presentations discussing their experiences of Aorfix utilization in complex AAA anatomy.
Japan
Through our relationship with our exclusive Japanese distribution partner, Medico's Hirata Inc,we are confident of securing Aorfix approval in Japan in 2014, which will allow us to access the second largest single market for this device. Medico's Hirata remains in dialogue with the Pharmaceuticals and Medical Devices Agency (PMDA) to achieve this. Medico's Hirata is a leading supplier of vascular products in Japan. Through its existing and established sales force, the Company believes it will be able to maximize the potential of Aorfix in this important and growing market, which in 2013 was estimated to account for approximately $140m or 10% of the global EVAR market.
Manufacturing update
To meet growing demand for Aorfix in the US, address growing sales in Europe and be ready for the anticipated regulatory approval of Aorfix in Japan in 2014, we announced the expansion of our manufacturing facilities in Didcot by c.10,000 square feet to approximately 32,000 square feet in October 2013. This expansion involves the construction of a new cleanroom and materials handling space. We are currently in the validation phase and expect to be manufacturing clinical product in the second quarter of 2014. This expansion will allow us to meet Aorfix demand for the global market for the foreseeable future.
New product development
Delivery System
We are developing new versions of the Aorfix stent-graft delivery system to allow physicians to use Aorfix to treat patients with narrow access vessels through a low profile design that reduces vessel trauma and to reposition the top of the graft to further enhance physician accuracy in placing the stent-graft. We intend to work closely with the regulatory bodies in the US and the European Union to plan the optimal route to market.
Thoracic Stent-Graft
We are also developing a stent-graft system to treat thoracic aortic aneurysms ("TAAs"). Within the thoracic endovascular aortic repair ("TEVAR") market, we believe that there are benefits from having a highly flexible stent-graft, we have built prototype TEVAR devices that have this characteristic. We expect these designs to demonstrate benefits in treating the severe curvature of the aortic arch in a similar manner to the benefits demonstrated by Aorfix in treating angulated AAAs. The thoracic stent-graft we are developing may additionally have potential applications in treating patients with dissections and partial transections of the thoracic aorta.
Aorfix Size Range
We have made significant progress toward expanding the size range of Aorfix, thereby addressing the needs of patients with AAAs with aortic neck diameters either too large or too small for the current product size range. Based on published clinical data, we estimate that this expanded patient group could constitute up to 25% of the total AAA patient population, representing a significant incremental market opportunity. We anticipate commencing a clinical study to support regulatory approval of the most widely used combinations of sizes in the expanded size range in late 2014. Currently, in Europe, larger sizes of Aorfix can be made to a physician's special prescription and patients have already been treated with custom made Aorfix devices.
The Board
After two years of service as Lombard Medical's Chairman and following the achievement of gaining FDA approval for Aorfix in the US, John Rush announced in April 2013 that he would step down as Non-executive Chairman of the Company, pending completion of a comprehensive search for his successor. John remains an active and committed member of the Board as a Non-executive Director.
In July 2013, the Board appointed Raymond W. Cohen as Non-executive Chairman. Ray, a US national, has extensive international medical device experience having held several Chairman and CEO positions on the boards of both publicly listed and private life sciences companies in the US and Europe. Ray served as Chief Executive Officer of Vessix Vascular, Inc., a developer of a renal denervation system used to treat uncontrolled hypertension. During his tenure as CEO, the company was acquired by Boston Scientific Corporation in a structured transaction valued at up to $425 million.
Post period end, in February 2014, Professor Martin Rothman resigned from the Board with immediate effect, having served as a Non-executive Director of the Company since 2005. The Board thanks Professor Rothman for his commitment and long service to the Company and wishes him well in his future endeavors.
FINANCIAL REVIEW
The financial information for all the periods presented has been prepared in accordance with International Accounting Standards as issued by the IASB. The financial information is unaudited and presented in US dollars as extracted from a registration statement on Form F-1 that the Company has filed with the United States Securities and Exchange Commission. Such financial information is being presented to comply with Rule 10 of the AIM Rules for Companies. They do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This information does not constitute an offer of any securities for sale.
Revenue
Revenue increased by $0.8 million or 13%, to $7.0 million for the year ended December 31, 2013 (2012: $6.2 million). Aorfix commercial revenue increased 23% to $6.1 million in the year ended December 31, 2013 (2012: $5.0 million).
In our four main European markets, the United Kingdom, Germany, Italy and Spain, revenue increased 8% to $3.9 million for the year ended December 31, 2013 (2012: $3.6 million). Revenue in Germany increased by 38% offsetting the effect of EVAR center consolidation in the United Kingdom.. Outside our main European markets, revenue from distributors increased 27% to $1.7 million for the year ended December 31, 2013 (2012: $1.4 million). In addition to Aorfix revenue, revenue generated from the OEM business based on Prestwick, Scotland decreased 28% to $0.8 million for the year ended December 31, 2013 from $1.1 million for the year ended December 31, 2012. On December 20, 2013 we completed the divestiture of this business for GBP0.6 million or $1.0 million at the exchange rate at December 20, 2013. This is not considered to be discontinued operations in accordance with IFRS.
In the US market, revenue was $0.5 million, which consisted of patients treated following FDA approval for Aorfix, the majority of which arose in the fourth quarter..
Cost of sales
Cost of sales increased to $4.3 million for the year ended December 31, 2013 (2012: $4.0 million). This was due primarily to the increase in the volume of units sold over the equivalent period. Cost of sales of Aorfix increased to $4.0 million for the year ended December 31, 2013 (2012: $3.5 million). Cost of sales for the year ended December 31, 2012 included initial unanticipated costs from the transfer of the Aorflex delivery system into production.
Operating expenses
Selling, marketing and distribution expenses increased by $6.0 million, or 136%, to $10.5 million for the year ended December 31, 2013 (2012: $4.4 million), due to increases in sales and marketing expenses of $5.8 million in the US following FDA approval of Aorfix in February 2013.
Research and development expenses decreased by $0.3 million, or 5%, to $7.0 million for the year ended December 31, 2013 (2012: $7.3 million) as our expenditures relating to Aorfix clinical development decreased significantly due to the end of the trial, but development expenses increased following the FDA approval in February 2013.
Administrative expenses increased by $1.7 million, or 47% to $5.3 million for the year ended December 31, 2013 (2012: $3.6 million). This increase can be attributed primarily to a 2013 share option charge of $1.2 million, which resulted from changes made to the performance criteria in June 2013, compared with a credit of $0.4 million in 2012.
Taxation
The tax credit of $1.1 million in the year ended December 31, 2013, (2012: $0.6 million), represents an estimate of $0.9 million for the research and development tax credit arising in the period in addition to a credit of $0.2m in relation to an adjustment of the research and development tax credit in the 2012 accounts, which was revised.
Cash outflow from operating activities
Net cash outflow from operating activities increased by 49% to $17.8 million for the year ended December 31, 2013 (2012: $11.9 million), principally due to increased expenditure on sales and marketing activities, which increased by $6.0 million, the majority of which was incurred in the US. In addition, there were decreased working capital requirements of $0.6 million compared to a decrease in working capital requirements in 2012 of $0.1 million. This was principally due to an increase in payables during 2013 as the company invested in sales and marketing and its manufacturing and development facilities ahead of growth in revenues.
Cash flows from investing activities
Net cash used in investing activities increased to $3.9 million for the year ended December 31, 2013 (2012: $0.2 million), due to our purchase of sales and marketing equipment to support the US launch of Aorfix and development mold tooling for the next generation of Aorfix products. In addition, there was an initial payment for the acquisition of a license to a US patent from Medtronic.
Cash flows from financing activities
Net cash flows from financing activities were $55.7 million for the year ended December 31, 2013 (2012: $4.5 million) and consisted of the following:
-- US approval of Aorfix in February 2013, which triggered our receipt of the $20.4 million (net of expenses) second tranche of the two tranche April 2011 fundraising.
-- Aorfix approval also triggered our ability to draw down $2.5 million from the $5.0 million loan facility granted by our exclusive Japanese distribution partner, Medico's Hirata Inc.
-- In June, the Company raised an additional $32.8 million (net of expenses) through an offer, subscription and placing of new shares.
LOMBARD MEDICAL TECHNOLOGIES PLC
CONSOLIDATED FINANCIAL INFORMATION
Consolidated Balance Sheets
as at December 31, 2012 and 2013
Hot Features
Premium
2012 2013
Note $'000 $'000
Assets
Intangible assets 3 3,621 5,722
Property, plant and equipment 4 955 2,411
Trade and other receivables 7 - 523
Non-current assets 4,576 8,656
Inventories 6 3,173 3,361
Trade and other receivables 7 1,844 3,444
Taxation recoverable 922 2,143
Cash and cash equivalents 4,450 40,866
Current assets 10,389 49,814
Total assets 14,965 58,470
Liabilities
Borrowings 8 (4,473) -
Trade and other payables 9 (3,763) (6,579)
Current liabilities (8,236) (6,579)
Borrowings - (2,558)
----------- -----------
Non-current liabilities - (2,558)
----------- -----------
Total Liabilities (8,236) (9,137)
Net assets 6,729 49,333
Equity
Called up share capital 11 44,800 52,406
Share premium account 11 84,041 134,305
Other reserves 11 19,594 19,087
Translation reserve 1,284 4,192
Accumulated loss (142,990) (160,657)
Total equity 6,729 49,333
The accompanying notes form part of this financial information.
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2011, 2012 and 2013
2011 2012 2013
Note $'000 $'000 $'000
----------
Revenue 12 6,425 6,175 6,960
Cost of sales (3,259) (3,952) (4,315)
Gross profit 3,166 2,223 2,645
Selling, marketing and distribution
expenses (4,636) (4,433) (10,452)
Research and development expenses (10,524) (7,300) (6,963)
Administrative expenses (6,337) (3,576) (5,264)
Total operating expenses (21,497) (15,309) (22,679)
Operating loss 13 (18,331) (13,086) (20,034)
Finance income-interest receivable 94 37 164
Finance costs 14 - (669) (449)
Loss before taxation (18,237) (13,718) (20,319)
Taxation 17 2,053 556 1,115
Loss for the year (16,184) (13,162) (19,204)
Other comprehensive income:
Items that will not be reclassified
to profit or loss
Currency translation differences (805) 724 2,908
Total comprehensive loss for
the year (16,989) (12,438) (16,296)
Basic and diluted loss per
ordinary share (cents)
From continuing operations 18 (99.2) (65.3) (53.5)
The accompanying notes form part of this financial information.
Consolidated Statements of Changes in Equity
for the years ended December 31, 2011, 2012 and 2013
Share
Share Premium Other Translation Accumulated Total
Capital Account Reserves reserve loss Equity
Note $'000 $'000 $'000 $'000 $'000 $'000
At January
1, 2011 41,739 66,991 19,087 1,365 (113,651) 15,531
Loss for
the year - - - - (16,184) (16,184)
Share-based
compensation 19 - - - - 417 417
Issue of
ordinary
shares 3,061 18,361 - - - 21,422
Currency
translation - - - (805) - (805)
Share issue
expenses - (1,311) - - - (1,311)
At January
1, 2012 44,800 84,041 19,087 560 (129,418) 19,070
Loss for
the year - - - - (13,162) (13,162)
Share-based
compensation 19 - - - - (410) (410)
Currency
translation - - - 724 - 724
Equity component
of convertible
loan notes
(net of
issue expenses) - - 507 - - 507
At December
31, 2012 44,800 84,041 19,594 1,284 (142,990) 6,729
Loss for
the year - - - - (19,204) (19,204)
Share-based
compensation 19 - - - - 1,176 1,176
Currency
translation - - - 2,908 - 2,908
Issue of
ordinary
shares 6,933 48,408 - - - 55,341
Share issue
expenses - (2,180) - - - (2,180)
Conversion
of convertible
loan note 8 673 4,036 (507) - 361 4,563
At December
31, 2013 52,406 134,305 19,087 4,192 (160,657) 49,333
The accompanying notes form part of this financial information.
Consolidated Cash Flow Statements
for the years ended December 31, 2011, 2012 and 2013
2011 2012 2013
Note $'000 $'000 $'000
----------
Cash outflow from operating activities
Cash used in operations 20 (17,364) (13,137) (17,728)
Interest paid - (289) (161)
Interest received 94 37 124
Research and development tax credits
/ (income tax paid) 1,332 1,478 (27)
Net cash outflow from operating activities (15,938) (11,911) (17,792)
Cash flows from investing activities
Purchase of property, plant and equipment (842) (218) (1,807)
Purchase of intangible assets -- -- (2,070)
Net cash flows used in investing
activities (842) (218) (3,877)
Cash flows from financing activities
Proceeds from issue of convertible
loan notes - 4,784 2,500
Convertible loan notes issue expenses - (250) -
Proceeds from issue of ordinary shares 21,422 - 55,341
Share issue expenses (1,311) - (2,180)
Net cash flows from financing activities 20,111 4,534 55,661
Increase/(decrease) in cash and cash
equivalents 3,331 (7,595) 33,992
Cash and cash equivalents at beginning
of year 9,012 11,620 4,450
Effects of exchange rates on cash
and cash equivalents (723) 425 2,424
Cash and cash equivalents at end
of year 11,620 4,450 40,866
The accompanying notes form part of this financial information.
Notes to the Consolidated Financial Information
1 Accounting Policies
Basis of Preparation
Lombard Medical Technologies plc (the "Company" or the "Group") is a medical technology company specializing in developing, manufacturing, and marketing endovascular stent-grafts used in the repair of aortic aneurysms. The Company's lead product, Aorfix, is used in the treatment of abdominal aortic aneurysms. The financial information as of December 31, 2012 and 2013 and for the three years ended December 31, 2013 have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Standards Interpretations Committee (IFRIC), collectively 'IFRSs'.
The financial information for all periods presented is unaudited and presented in US dollars as extracted from a registration statement on Form F-1 that the Company has filed with the United States Securities and Exchange Commission. Such financial information is being presented to comply with Rule 10 of the AIM Rules for Companies.They do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information was approved for issuance by the Board on March 10, 2014.
The financial information has been prepared on the historical cost basis, revised for use of fair values where required by applicable IFRS. The consolidated financial information is presented in US dollars to the nearest thousand ($000), except where otherwise indicated. The principal accounting policies adopted are set out below.
Assets and liabilities of foreign operations where the functional currency is other than the US dollar were translated into US dollars at the relevant closing rates of exchange. Non-US dollar trading results were translated into US dollars at the average rates of exchange for those periods. Differences arising from the retranslation of the opening net assets and the results for the year have been taken to other comprehensive income.
The exchange rates relevant for each period were as follows:
2011 2012 2013
------ ------ ----
Sterling/US dollar exchange rate
Closing rate 1.54 1.62 1.65
Average rate 1.60 1.59 1.56
These policies have been applied consistently throughout the year except where otherwise indicated.
Basis of Preparation-Financing
The financial information has been prepared on the going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future. The Group has incurred significant losses and negative cash flows from operations. At December 31, 2013, the Group had an accumulated deficit of $160,657,000 and cash and cash equivalents of $40,866,000.
The Group obtained regulatory approval in the United States for Aorfix on February 14, 2013 but still expects to absorb cash until sales reach an appropriate level.
The Company's management believes that its currently available resources will provide sufficient funds to enable the Company to meet its obligations through at least December 31, 2014. Based on current forecasts the Company's management expect to have to raise additional funding prior to the period when the Group becomes cash generative through these increased sales levels. Additional funding may not be available to the Company on acceptable terms, or at all. The Company's management are confident, based on the combination of the US approval, a large market for the product, a unique product indication, near term cash funding and supportive major shareholders that they will be able to raise suitable additional funding and based on this the going concern basis has been adopted in the preparation of this financial information.
Basis of Consolidation
The consolidated annual financial information comprises the financial information of the Company and its subsidiaries at December 31 each year. The purchase method of accounting is used for the acquisition of subsidiaries.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
An investor controls an investee when it has power over the relevant activities, exposure to variable returns from the investee and the ability to affect those returns through its power over the investee.
The financial information of subsidiaries is prepared for the same reporting year as the Company using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All inter-company balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated in full.
Critical Accounting Estimates and Assumptions
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement and impairment of indefinite life intangible assets (including goodwill), the estimation of share-based compensation expense and the treatment of R&D expenditure in line with the relevant accounting policy.
Intangible Assets-Goodwill on Acquisition
The Group determines whether indefinite-life intangible assets are impaired on an annual basis and this requires the estimation of the fair value less costs of disposal of the cash generating units to which the intangible assets are allocated which in turn involves estimation of premiums paid for control of public companies and the costs that would be incurred in a sale (see note 3).
Share-Based Compensation Expenses
The estimation of share-based compensation expense requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs based on judgments relating to the probability of meeting performance conditions and the continuing participation of employees (see note 19).
Research and Development Expenditure
The treatment of research and development expenditure requires an assessment of the expenditure in order to determine whether or not it is appropriate to capitalize costs and recognize as an asset on the balance sheet in accordance with IAS 38.
Revenue Recognition
Revenue represents the amount receivable from the sale of medical devices and the licensing of technology, net of trade discounts and sales-related taxes. Revenue is recognized as follows:
Product Sales
Product sales to direct customers are recognized when goods are delivered to customers and are net of any provision for estimated returns. Products provided for a particular procedure include a range of medical devices that may not all be used; where this is the case an estimation of the number of unused devices to be returned is made and provided for. Where our sales are made through distributors, such sales are recognized on delivery to the distributor as returns of stocking orders are not generally accepted under the distributor agreements. In the case of products provided for a particular medical procedure and sold through a distributor, an estimate of the returns of unused parts is made and provided for. Sales include products used in clinical trials provided the supply is under a separate contract and payment arrangements.
Royalty and Licence Income
Income arising from a license agreement is recognized when receivable under the terms of a contract and when all related obligations have been fulfilled. Royalty income is recognized on a received basis and represents income earned as a percentage of product sales in accordance with the terms of the relevant agreement.
Cost of Sales
Cost of sales includes all costs relating to the manufacture of the medical devices.
Research & Development Expenditure
Research and development expenditure is charged to the statement of comprehensive income in the period in which it is incurred. The Group considers that the regulatory, technical and market uncertainties inherent in the development and commercialization of new products mean that development costs incurred to date have not yet met the relevant capitalization criteria and so should not be capitalized as intangible assets and consequently expenditure on research and development has been expensed as incurred.
Goodwill
Goodwill was recognized under UK GAAP prior to the adoption of IFRS. Upon adoption of IFRS on January 1, 2006 the Goodwill was carried over and is stated at net book value at that date. Goodwill arising on the acquisition of subsidiary or associate undertakings and business subsequent to January 1, 2006, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalized. Goodwill is not amortized but is reviewed for impairment annually.
Intangible Assets-Intellectual Property and Licences
Separately acquired intellectual property and license fee payments made to third parties are recognized at cost. Intangible assets for intellectual property are amortized on a straight-line basis over the expected useful life
of the patents on the related products or processes. The life used for this purpose is ten years.
Intangible assets recognized for licence payments are amortized over a straight-line basis over the licence agreement period. The carrying value of intangible assets is reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.
Intangible Assets-Software
Software is recognized at cost and amortized on a straight-line basis over the expected useful life. The economic life used for this purpose is three years.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost of each asset over its expected useful life as follows:
-- Plant and equipment - three to ten years
Impairment of Assets
The carrying values of non-current assets are reviewed for impairment where there is an indication that the assets might be impaired. First-year and annual impairment reviews are conducted for acquired goodwill. Impairment is determined by reference to the higher of fair value less cost of disposal and value in use. Any provision for impairment is charged in the statement of comprehensive income for the year. Non-financial assets other than goodwill which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand together with short-term highly liquid investments that are readily convertible to cash.
Financial assets-investments
Financial assets are stated at fair value where this can be determined by reference to an active market. Investments in unlisted equity instruments are measured at cost, less any provision for impairment in value, as their fair value cannot be reliably measured. Losses relating to impairment are immediately recognized as an expense in the statement of comprehensive income.
Foreign Currencies
Group undertakings have functional currencies of the Sterling and the Euro that are different to the Group's presentational currency of US dollars.
Monetary assets and liabilities of subsidiary undertakings in foreign currencies are translated at the closing rates of exchange for the year. Differences on exchange arising from the retranslation of the opening net investment in subsidiary companies, and from the translation of the results of those companies at average rate, are taken to reserves and, where material, are reported in the statement of changes in equity.
Transactions denominated in foreign currencies are translated into functional currencies and recorded at the rate ruling at the date of the transaction. Monetary balances, at the year-end, are translated into functional currencies at the closing rate of exchange. Exchange differences are taken to the income statement in the period in which they arise.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Costs in respect of operating leases are charged on a straight line basis over the lease term.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis and includes transport and handling costs. In the case of manufactured products, cost includes all direct expenditure including production overheads. Where necessary, provision is made for obsolete, slow-moving and defective inventories.
Trade and Other Receivables
Trade and other receivables are recognized and carried at the lower of their original invoiced value and recoverable amount. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as remote.
Trade and Other Payables
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less. If not, they are classified as non-current liabilities. Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
Pensions
The Group operates a defined contribution pension scheme for some of its employees. Contributions payable during the year are charged to the statement of comprehensive income.
Taxation
Taxation on the profit or loss for the year comprises current and deferred tax including tax on capital gains. Current tax is the expected tax payable, or recoverable, on the taxable profit/loss and any adjustment to tax payable or receivable in respect of prior years. Research and development tax credits are recognized when it is probable they will be received.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit or loss.
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized. Their carrying amount is reviewed at each balance sheet date on the same basis. Deferred tax is measured on an undiscounted basis and at the tax rates expected to apply in the period in which the asset or liability is settled. It is recognized in the statement of comprehensive income except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Financial and Capital Instruments
The fair value of the liability portion of a convertible instrument is determined using a market interest rate for an equivalent non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished on conversion or maturity of the instrument. The remainder of the proceeds is allocated to the conversion option; this is recognized and included in shareholders' equity.
Capital instruments are included at fair value and measured at amortized cost. Costs associated with the issue of capital instruments offset against the proceeds of the instrument.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are taken to the share premium account and shown in equity as a deduction from the proceeds.
Share-Based Payments
The Group operates a number of executive share option schemes and has issued a warrant instrument in lieu of professional fees related to the placing of preference shares. In accordance with IFRS 2, the cost of equity-settled transactions is measured by reference to their fair value at the date at which they are granted, with fair value determined using the Black-Scholes model. The cost of equity-settled transactions is recognized over the period until the award vests. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied. Modified options are measured at fair value on the date of modification and the difference between the fair value of the original option on that date and themodified fair value is recognized over the vesting period of the modified option. At each reporting date, the cumulative expense recognized for equity-based transactions reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors at that date, will ultimately vest.
Segmental reporting
Operating segments are reported on a basis consistent with the internal reporting used by the chief operating decision makers. These have been identified as the Executive Management team which makes operating decisions.
Standards and Interpretations
In preparing the consolidated financial information for the current year the Group has adopted the following new IFRS, amendments to IFRS and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, which have not had a significant effect on the results or net assets of the Group:
-- IFRS 10, Consolidated financial statements. -- IFRS 11, Joint arrangements. -- IFRS 12, Disclosures of interests in other entities. -- IFRS 13, Fair value measurement. -- IFRS 7 (Amendment), Financial instruments: disclosures. -- IFRS 10 (Amendments), Consolidated financial statements. -- Amendments to IFRS 10, 11 and 12 on transition guidance. -- IAS 19, Employee benefits. -- IAS 27 (Revised 2011), Separate financial statements. -- IAS 28 (Revised 2011), Associates and joint ventures. -- IAS 1 (Amendment), Presentation of financial statements. -- 2009 - 2011 Cycle-Annual Improvements to IFRSs.
At the date of authorization of these consolidated accounts, the following standards, amendments and interpretations, which have not been applied in this financial information, were in issue but not yet effective:
-- IAS 32 (Amendment), Financial instruments: presentation (effective January 1, 2014). -- IAS 36 (Amendment), Impairment of assets (effective January 1, 2014).
-- IAS 39 (Amendment), Financial instruments: recognition and measurement (effective January 1, 2014).
-- Amendments to IFRS10, 12 and IAS 27 Investment Entities (effective January 1, 2014). -- IFRS 9, Financial instruments (effective January 1, 2015).
Under present circumstances, none of these is expected to have a material impact on the Group's financial information.
2 General Information
The Company is a public limited company listed on the Alternative Investment Market of the London Stock Exchange since December 13, 2005 and is incorporated and domiciled in the UK. The address of the registered office is 4 Trident Park, Didcot, Oxfordshire OX11 7HJ.
3 Intangible Assets
Intellectual
Goodwill Property
on and
Acquisition Licenses SoFTWARE Total
$'000 $'000 $'000 $'000
Cost
At January 1, 2012 3,268 747 - 4,015
Currency translation 170 39 - 209
At December 31, 2012 3,438 786 - 4,224
Currency translation 63 122 7 192
Additions - 1,945 125 2,070
At December 31, 2013 3,501 2,853 132 6,486
Accumulated amortization
At January 1, 2012 - 511 - 511
Currency translation - 28 - 28
Charge for the year - 64 - 64
At December 31, 2012 - 603 - 603
Currency translation - 17 1 18
Charge for the year - 116 27 143
At December 31, 2013 736 28 764
Net book value
At December 31, 2013 3,501 2,117 104 5,722
At December 31, 2012 3,438 183 - 3,621
At January 1, 2012 3,268 236 - 3,504
License additions during the year are for a non-exclusive license granted by Medtronic for the US patent No. 6,306,141 ("Jervis" patent), which will be amortised over 9 years and has a net book value at December 31, 2013 of $1,993,000 (2012: nil).
Impairment Test for Goodwill on Acquisition
The recoverable amount of goodwill has been determined based on the fair value less costs of disposal calculation using valuation methods based on the Company as a whole as there is a single segment and cash generating unit. Management reviewed the Company's recent share price and applied a typical premium for control to various measures of the share price (average and volume weighted average share prices over one, three and six month periods) to derive a range of acquisition values. A percentage allowance for the selling costs was deducted from the valuations. The valuations were also compared to the target prices from the models of the Analysts following the Company, to provide further comfort as to the range. The current market value of the Company and the range of valuations, representing the recoverable amount of the Goodwill on Acquisition were significantly in excess of the carrying value of the Goodwill.
4 Property, Plant and Equipment
Plant and
equipment
$'000
Cost
At January 1, 2012 2,683
Currency translation 144
Additions 218
At December 31, 2012 3,045
Currency translation 138
Additions 1,807
Disposals (322)
At December 31, 2013 4,668
Accumulated depreciation
At January 1, 2012 1,747
Currency translation 97
Charge for the year 246
At December 31, 2012 2,090
Currency translation 43
Charge for the year 430
Disposals (306)
At December 31, 2013 2,257
Net book value
At December 31, 2013 2,411
At December 31, 2012 955
At January 1, 2012 936
5 Interests in Group undertakings
The following subsidiary undertakings have been included in the Group consolidation. All interests are held directly in the form of ordinary shares.
Name of undertaking Principal area of activity Country of incorporation
----------------------------- ---------------------------- --------------------------
Lombard Medical Limited Medical implants Great Britain
PolyBioMed Limited Dormant from December
1, 2009 Great Britain
LionMedical Limited Investment holding company Great Britain
Lombard Medical Technologies,
Inc. Medical implants USA
Lombard Medical Scotland
Ltd Medical fabrics Great Britain
Lombard Medical Technologies
GmbH Medical implants Germany
All of the subsidiaries are wholly owned by Lombard Medical Technologies PLC. The above companies operate principally in their country of incorporation.
6 Inventories
2012 2013
$'000 $'000
Raw materials 1,567 1,523
Finished goods 1,606 1,838
3,173 3,361
Costs of inventories recognized as expenses were cost of sales $3,044,000 (2012: $3,053,000; 2011: $2,562,000); selling, marketing and distribution expenses $546,000 (2012: $1,170,000; 2011: $979,000) and research and development expenses $258,000 (2012: $521,000; 2011: $693,000).
7 Trade and Other Receivables
2012 2013
$'000 $'000
Amounts falling due within one year:
Trade receivables 1,452 1,378
Other receivables 105 813
Prepayments and accrued income 287 1,776
1,844 3,967
Less non-current portion:
Other receivables - (523)
1,844 3,444
========= =========
Trade receivables are stated net of an impairment provision of $0 (2012: $83,000). Debtor days at the year-end were 51 days (2012: 70 days). Provisions of $0 (2012: $0) were utilized and $83,000 released (2012: $11,000 released) in the year.
All non-current receivables are due within five years from the end of the reporting period and relate to the deferred consideration from the sale of the OEM business. The fair value of other receivables are based on cash flows discounted using a rate of 12.5%. The fair values are within level 3 of the fair value hierarchy.
Trade receivables are individually assessed for impairment. The maximum exposure to credit risk at the reporting date is the carrying value of the receivable. The customer base is split between public sector and distributors and is such that payment terms can be exceeded. It is considered that the majority of past due debt is still likely to be collected. The ageing of trade receivables including past due but not impaired is:
2012 2013
$'000 $'000
Not past due 1,168 1,304
Past due 284 74
1,452 1,378
8 Borrowings
Convertible loan notes with a face value of $4.86m were issued to Invesco, the Company's largest shareholder, on March 30, 2012. The loan notes paid interest of 8% per annum and were repayable at the Company's discretion at any time until July 1, 2013; and were repayable or convertible at the holder's discretion at any time between July 1, 2013 and September 1, 2013 or on certain other events as noted in the shareholder circular dated March 9, 2012. In the case of conversion, the conversion share price was 140 pence per share.
On May 24, 2013, as part of the placing, subscription and offer, the Company and Invesco agreed to vary the convertible loan to allow for earlier conversion, this did not impact the valuation of the note. Notice of conversion was received from Invesco on June 6, 2013. As a result, on June 17, 2013 the Company issued 2,142,857 ordinary shares of 20 pence to Invesco and retired the Convertible Loan Notes.
At December 31, 2013, there was no balance outstanding:
$'000
Liability component at January 1, 2013 4,473
Interest expense 391
Interest paid (159)
Currency translation difference (142)
Converted to equity (4,563)
-
The outstanding liability on the convertible loan notes was valued at a discount rate of 18%, considered a market rate for an equivalent non-convertible loan and the excess liability has been treated as an equity component and credited to other reserves. On conversion, the difference between the outstanding value and the face value was charged to accumulated losses and the equity component was transferred to accumulated losses from other reserves.
Medico's Hirata convertible loan
On March 28, 2013 the Company received $2.5m from the total $5m convertible loan facility granted by its exclusive distribution partner in Japan, Medico's Hirata Inc. The loan accrues interest of 3% per annum, payable when the loan is repaid or converted. The term is for a period of seven years from the receipt of regulatory approval for Aorfix in Japan, anticipated to be granted in 2014. Conversion of the loan is at Medico's Hirata Inc.'s discretion and will be based on the share price at the time of conversion.
At December 31, 2013, the amount outstanding comprised:
$'000
Face value of convertible loan notes issued
on March 28, 2013 2,500
Interest expense 58
Included in non-current liabilities 2,558
The convertible loan note is considered a financial liability with no equity component as there is a contractual obligation to deliver a variable number of shares at the market price if the loan note is converted. The fair value of the loan note is therefore the same whether the settlement of the obligation is made in cash or in shares at the time of repayment.
9 Trade and Other Payables
2012 2013
$'000 $'000
Current liabilities
Trade payables 1,305 1,846
Other taxation and social security 170 297
Other payables 212 168
Accruals and deferred income 2,076 4,268
3,763 6,579
Pension contributions of $43,000 (2012: $38,000) are included in other payables.
10 Financial Instruments
Capital Management
The Group considers capital to comprise the total equity and reserves of the group and long term debt financing, including convertible loans issued. The Group's objectives are to manage capital as a primary source of funding in conjunction with the ability to remain as a going concern.
Treasury Policy
The Group has financed its operations by a mixture of shareholders' funds, bank and other borrowings and loan notes, as required. The Group's objective has been to obtain sufficient funding to meet development activities and initial commercialization costs until the Group becomes profitable. During 2013 and for the foreseeable future the Group's objective in using financial instruments is to safeguard the principal for funds held on deposit and to minimize exchange-rate risk where appropriate.
The Group currently has no derivatives and there were no derivatives for the periods presented. It is not the Group policy to actively trade in derivatives.
Interest Rate Risk
The Group currently has outstanding fixed-rate loan notes with a principal of $2.5m and invests its surplus funds in money market and short-term bank deposits. In the past it has used a variety of fixed rate loans and floating rate debt as funding sources. The Group would review the balance between fixed and floating rate debt if it takes on any future debt.
Liquidity Risk
The Group prepares periodic working capital forecasts for the foreseeable future, allowing an assessment of the cash requirements of the Group, to manage liquidity risk. The Group also ensures that sufficient funds are available on 24 hours' notice to fund the Group's immediate needs (see note 1 - Basis of Preparation).
Currency Risk
The Group is currently exposed to limited currency risk through foreign currency transactions. As the Group's level of foreign currency transactions increases the currency risk will be managed by holding foreign currency deposits and seeking to hedge significant transactional exposures.
At 31 December 2013, if the GB Pound had weakened/strengthened by 5% against the US Dollar with all other variables held constant, post-tax loss for the year, in the primary functional currency used in the group, would have been approximately GBP89,000 higher/GBP80,000 lower (2012: GBP29,000 higher/GBP26,000 lower), as a net result of foreign exchange gains/losses on translation of US Dollar-denominated cash and cash equivalents, foreign exchange gains/losses on translation of US Dollar-denominated trade receivables, foreign exchange losses/gains on translation of US Dollar-denominated trade payables and increased/decreased losses from the translation of the US subsidiary's post-tax loss. At the annual exchange rates for each period this equates to $139,000 higher/$125,000 lower (2012: $46,000 higher/$41,000 lower).
At 31 December 2013, if the GB Pound had weakened/strengthened by 5% against the Euro with all other variables held constant, post-tax loss for the year, in the primary functional currency used in the group, would have been approximately GBP31,000 lower/GBP28,000 higher (2012: GBP37,000 lower/GBP34,000 higher), as a net result of foreign exchange gains/losses on translation of Euro-denominated cash and cash equivalents, foreign exchange gains/losses on translation of Euro-denominated trade receivables, foreign exchange losses/gains on translation of Euro-denominated trade payables and increased/decreased losses from the translation of the German subsidiary's post-tax loss. At the annual exchange rates for each period this equates to $48,000 lower/$44,000 higher (2012: $59,000 lower/$54,000 higher).
Credit Risk
The Group is exposed to credit risk from two sources: its cash investments and its customers. The Group minimizes the former risk by placing its cash deposits only with established financial institutions with a minimum credit rating of A- as defined by the three major credit rating agencies. It minimizes the latter risk by reviewing available information on the customer and closely monitoring the payment history and the age of the debts.
Interest Rate Risk of Financial Assets
2012 2013
Cash at Bank and in Hand $'000 $'000
Floating rate-USD 846 4,721
Floating rate-EUR 787 1,429
Floating rate-GBP 2,817 34,716
4,450 40,866
The cash and bank balances earn interest at the prevailing short-term market interest rates.
Fair Values of Financial Assets and Financial Liabilities
The fair value of financial assets and liabilities is the same as the carrying value at the period end.
Cash deposits-the majority of the cash holdings are with two institutions which have a minimum short-term credit rating of A-, as defined by the three major credit rating agencies.
11 Equity
On March 22, 2013 and following the satisfaction of certain conditions, the Company issued 10,040,000 ordinary shares of 20 pence each to the investors in the second tranche of the May 2011 fundraising. The shares were priced at 140 pence each, being the lower of 140 pence (following the 2012 reverse stock split) and the prevailing market price on the day the second tranche was drawn down by the Company. Total proceeds were $21.2m before fundraising expenses.
On June 17, 2013, the Company issued 12,398,518 ordinary shares of 20 pence each to the investors in a placing, subscription and offer to qualifying participants. The shares were priced at 175 pence each, raising total proceeds of $34.1m before fundraising expenses.
Combined proceeds from issuing shares were therefore $55.3m in the year before expenses.
As part of the placing, subscription and offer, the Company agreed with Invesco, its largest shareholder, to a variation of the terms of the $4.8m of 8% Convertible Loan Notes issued on March 30, 2012. The variation allowed for the earlier conversion of the Convertible Loan Notes and notice of conversion was received from Invesco on June 6, 2013. As a result, on June 17, 2013 the Company issued 2,142,857 ordinary shares of 20 pence to Invesco and retired the Convertible Loan Notes.
i) Share Capital
2013
2012 2012 Number 2013
Number of Nominal of Nominal
Shares Value Shares Value
000s $'000 000s $'000
Allotted, called up and
fully paid
Ordinary shares of 20
pence each 20,162 6,425 44,743 14,031
A Deferred shares of 0.862
pence each 373,857 5,533 373,857 5,533
B Deferred shares of 1
pence each 136,186 2,562 136,186 2,562
C Deferred shares of 0.9
pence each 2,174,695 30,280 2,174,695 30,280
2,704,900 44,800 2,729,481 52,406
Rights-Ordinary Shares
Voting: in a show of hands every holder has one vote and in a poll each share has one vote.
Dividends: each ordinary share has the right to receive dividends.
Return on capital: each ordinary share has the right to share in a liquidation of the Company's assets.
Rights-Deferred Shares
Voting: deferred shares do not entitle the holders to attend or vote at any general meeting of the Company.
Dividends: deferred shares do not entitle the holder to receive any dividend or other distribution.
Return on capital: on a winding up the holders of deferred shares are only entitled to the amount paid up on each deferred share after the holders of the ordinary shares have received the sum of GBP1m for each ordinary share.
ii) Share Premium Account
This consists of the proceeds from the issue of shares in excess of their par value less associated issue costs.
iii) Other Reserves
This arose on the conversion of convertible preference shares to ordinary shares.
iv) Dividends
Dividends would be declared and paid in Sterling.
12 Segmental Information
The Group is engaged in a single business activity of cardiovascular devices and medical fabrics and the Group does not have multiple operating segments. The Group's cardiovascular devices and medical fabrics business consists of the development and commercialization of these products. The Executive Management team is the Group's chief operating decision-making body, as defined by IFRS 8, and all significant operating decisions are taken by the Executive Management team. In assessing performance, the Executive Management team reviews financial information on an integrated basis for the Group as a whole, substantially in the form of, and on the same basis as, the Group's IFRS financial information.
Geographical Areas
Geographical analysis based on the country in which the customer is located is as follows:
2011 2012 2013
$'000 $'000 $'000
------
Revenue by Destination
United Kingdom 2,020 2,016 1,808
Germany 667 872 1,205
Rest of Europe 2,588 2,509 2,540
United States of America 245 70 530
Rest of World 905 708 877
6,425 6,175 6,960
Revenue by Type
Product sales 6,415 6,165 6,950
Royalty and license income 10 10 10
6,425 6,175 6,960
The total of non-current assets located in the United Kingdom is $8,103,000 (2012: $4,576,000) and the total of non-current assets located in other countries is $553,000 (2012: nil).
13 Operating Loss
2011 2012 2013
$'000 $'000 $'000
------
Operating loss is stated after charging/(crediting):
Depreciation of property, plant and equipment
(note 4) 162 246 430
Amortization of licenses and software (note
3) 67 64 143
Research and development expenditure 10,524 7,300 6,963
Grant income (53) - -
Foreign exchange loss 123 52 95
Operating lease rentals
* Motor vehicles 72 111 136
* Land and buildings 332 283 347
* Other assets 6 8 29
Share-based compensation expense/(credit) 417 (410) 1,176
Impairment provision-investment 1,361 - -
Gain on disposal of OEM business (note
7) - - (653)
On December 20, 2013 the company sold the trade and assets of its OEM business, which resulted in a gain on disposal of $653,000. Deferred consideration totals $990,000, which falls due in four equal annual instalments starting on the anniversary of the sale until December 20, 2017. The consideration has been discounted (see note 7).
In the year ended December 31, 2011, due to uncertainties regarding the after tax profitability of an investment held in an unlisted entity and the investment not being readily realizable, the value of the investment was fully provided for.
14 Finance Costs
2011 2012 2013
$'000 $'000 $'000
------
Convertible loan notes - 666 449
Other interest payable - 3 -
- 669 449
15 Directors' Compensation
2011 2012 2013
$'000 $'000 $'000
------
Fees 370 283 319
Salary 701 699 729
Bonuses 253 214 263
Compensation for loss of office 29 - --
Pension contributions 80 68 73
Benefits 58 51 56
1,491 1,315 1,440
The above disclosure includes all executive and non-executive directors of the company, three of which are also included in the key management personnel disclosed in note 16.
The highest paid Director received compensation of $449,556 (2012: $401,686) and pension contributions of $29,573 (2012: $28,578).
The remuneration of the Executive Directors is set by the Remuneration Committee.
Three (2012: Three) Directors are accruing benefits under money purchase pension schemes.
16 Employee Information
The average monthly number of people (including Executive Directors) employed by the Group is as follows
2011 2012 2013
By activity NUMBER Number Number
---------
Manufacture 35 33 36
Selling, marketing and distribution 12 17 34
Research and development 28 35 27
Administration 13 12 14
88 97 111
Staff costs for the above persons were:
2011 2012 2013
$'000 $'000 $'000
------
Wages and salaries 7,495 7,632 11,128
Social security costs 617 826 1,091
Pensions costs 280 264 338
Termination cost 146 62 313
Share-based compensation (credit)/expense 417 (410) 1,176
8,955 8,374 14,046
2011 2012 2013
Key Management Compensation $'000 $'000 $'000
-------
Salaries and short-term benefits 1,219 1,307 1,279
Post-employment benefits 70 68 77
Share-based compensation expense 96 - 611
1,385 1,375 1,967
Key Management consists of the Chief Executive Officer, Chief Financial Officer, Chief Technology Officer and Chief Operating Officer.
17 Taxation on Loss on Ordinary Activities
The credit comprises:
2011 2012 2013
$'000 $'000 $'000
------
UK research and development claim:
For the current year 1,841 913 938
For prior years 274 (341) 233
2,115 572 1,171
Overseas taxation charge (62) (16) (56)
Total tax credit 2,053 556 1,115
The UK research and development claim relates to the utilization of UK tax losses from research and development expenditure.
Taxation losses carried forward at the end of the year amounted to approximately $107.7m (2012: $92.3m) and the unrecognized deferred tax asset at 20% (2012: 23%) is approximately $21.5m (2012: $21.1m). No deferred tax asset has been recognized in respect of these losses as the Directors consider it is, as yet, uncertain whether the losses will be utilized. Tax losses would be utilized in future periods against trading profits. The unrecognized deferred tax asset in respect of other temporary differences is $0.7m (2012: $0.6m).
During the year there was a change in the UK main corporation tax rate to 23%, which was effective from April 1, 2013. Further reductions to the UK corporation tax rate were announced in the March 2013 Budget, which will reduce the rate to 21% by April 1, 2014 and 20% by April 1, 2015.
The UK tax credit of $1,115,000 (2012: $556,000; 2011: $2,053,000) is higher than the standard UK corporation rate of 23.25% (2012: 24.5%; 2011: 26.5%) applied to the loss for the year. The differences are explained below:
2011 2012 2013
$'000 $'000 $'000
---------
Loss before tax for the period at 23.25%
(2012: 24.5%; 2011: 26.5%) (4,833) (3,361) (4,724)
Additional deduction for research and development
expenditure (1,859) (1,145) (1,185)
Amounts not deductible for tax purposes 557 27 530
R&D credit recoverable at a lower effective
rate of 11% (2012: 11.375%; 2011: 12.88%) 2,047 1,172 944
Losses not recognised 2,247 2,394 3,497
Overseas taxation charge 62 16 56
Adjustments in respect of prior years (274) 341 (233)
Tax credit for year (2,053) (556) (1,115)
18 Loss per Share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares. A, B and C deferred shares are not included in the calculation as holders have no right to receive any dividend or other distribution. The diluted earnings per ordinary share are identical to those used for the basic earnings per ordinary share as the exercise of share options and warrants or conversion of convertible loan would have the effect of reducing the loss per ordinary share and are therefore not dilutive.
The calculations for Loss per Share are set out below:
2011 2012 2013
--------
Loss for the financial year $'000 (16,184) (13,162) (19,204)
Weighted average number of shares ('000) 16,319 20,162 35,889
Basic and diluted loss per share (cents) (99.2) (65.3) (53.5)
The weighted average number of shares figure for 2012 reflects the 2012 reverse stock split of one new ordinary share for every 200 existing ordinary shares. The 2011 comparative has been recast retrospectively for the effect of the reverse stock split, to allow comparability.
19 Share Options
Options
The Company's Directors, officers, employees and certain former employees and former Directors hold options under the Lombard Medical Technologies PLC Share Option Plan (2005), known as the "2005 Plan", to subscribe for ordinary shares in the Company as shown below.
2011 2012 2013
------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Shares Exercise Shares Exercise Shares
Price Under Price Under Price Under
(pence) Option (pence) Option (pence) Option
At beginning
of year 1.121 277,034,097 0.808 446,591,287 160 2,334,830
Options granted
(0.1p ordinary
shares) 0.715 401,653,514 - - - --
Options lapsed/cancelled
(0.1p ordinary
shares) 1.022 (232,096,324) 0.771 (7,123,541) -- ---
Options consolidated
for reverse
stock split
(0.1p ordinary
shares) - - - (437,270,422) --- ----
Options granted
(20p ordinary
shares) - - 145 201,618 176 4,037,141
Options lapsed/cancelled
(20p ordinary
shares) - - 187 (64,112) 172 (476,265)
At end of
year 0.808 446,591,287 160 2,334,830 170 5,895,706
The outstanding options at December 31, 2013 were granted as follows:
Exercise Exercise
Price post Price pre Exercise 2011
Date of Grant split (pence) split (pence) Period Numbers 2012 Numbers 2013 Numbers
July 17, 2007 4,600 23.0000 2010-2017 401,087 2,005 -
January 28, 2009 225 1.1250 2012-2019 29,862,500 139,010 137,510
February 5, 2010 208 1.0420 2012-2020 51,189,061 220,377 183,510
June 21, 2010 205 1.0250 2012-2020 10,873,475 54,367 54,367
September 22,
2010 200 1.0000 2012-2020 1,000,000 5,000 -
August 26, 2011 140 0.7000 2012-2021 243,957,823 1,188,419 898,921
September 8,
2011 150 0.7500 2012-2021 104,266,888 498,832 428,971
October 3, 2011 136 0.6800 2012-2021 5,040,453 25,202 25,202
April 5, 2012 145 2012-2022 - 201,618 201,618
June 13, 2013. 177.5 2013-2023 - - 3,137,860
September 25,
2013 168 2013-2023 - - 783,004
November 6, 2013 202 2013-2023 - - 44,743
446,591,287 2,334,830 5,895,706
Weighted average remaining contractual 9.3 years
life 8.4 years 8.8 years
The options were consolidated during 2012 in line with the 1 for 200 share reverse stock split.
None (2012: 2,005) of the outstanding options were exercisable at December 31, 2013 at a weighted average exercise price of nil (2012: 4,600 pence).
Due to FDA approval for Aorfix being received later than anticipated, the previous performance conditions were deemed to be no longer achievable. As a result, in June 2013 the performance conditions for the existing outstanding options were amended by the remuneration committee, following consultation with the Company's major shareholders, to reflect the Company's current and future business plans, these performance conditions are based on the achievement by the company of a majority of budgeted revenue in each of the financial years 2013 to 2015.
The majority of the outstanding options will vest in three equal installments based on the achievement by the Company of a majority of budgeted revenue in each of 2013, 2014 and 2015. The 2013 performance condition was achieved and the first third will vest on April 1, 2014.
The Board has discretion to amend the performance conditions if events occur which cause the Board to consider that any of the terms of the Exercise Condition have become unfair or impractical, provided such discretion is exercised fairly and reasonably and provided that any terms which are so amended or relaxed are not more difficult to satisfy than the existing terms.
The fair value of the options was determined using the Black-Scholes pricing model in 2013 and Hull-White in prior years. The share-based compensation expense for the year is $1,176,000 (2012: $410,000 credit; 2011: expense $417,000). The main assumptions used in the fair value calculations are noted in the tables below;
Year of grant
2005 Plan 2011 2012 2013
Weighted average share price of grants
during the year 0.715p 145p 176p
Weighted average fair value of share
options issued during the year 0.4p 48p 32p
Expected volatility 50-80% 46% 19-27%
Option life Ten years Ten years Ten years
Expected dividends None None None
Risk-free interest rate 2.8-4.5% 1.36% 0.41-1.1%
Estimated life to exercise 4.6 to 8.3 to 8.5 1.4 to 3.8
8.2 years years years
Expected volatility has been calculated by reference to the Company's historic share price and industry norms. The risk-free interest rate is calculated by reference to UK government bonds. Expectation of the cancellation of options has been considered in determining the fair value expense charge in the statement of comprehensive income.
20 Reconciliation of Loss before Taxation to Net Cash Outflow from Operating Activities
2011 2012 2013
$'000 $'000 $'000
--------
Loss before taxation (18,237) (13,718) (20,319)
Depreciation and amortization of licenses,
software and property plant and equipment 229 310 573
Share-based compensation credit/(expense) 417 (410) 1,176
Impairment provision-investment 1,361 - -
Net finance expense/(income) (94) 632 285
Decrease/(increase) in inventories (991) 560 (122)
Decrease/(increase) in receivables (638) 519 (1,922)
(Decrease)/increase in payables 589 (1,030) 2,601
Net cash used in operating activities (17,364) (13,137) (17,728)
21 Related Party Disclosures
Fundraising
Timothy Haines had an interest in the VC Subscription Agreement as a Director of Abingworth LLP ('Abingworth'). On March 22, 2013 Abingworth subscribed for 3,200,000 ordinary shares of 20 pence each, as part of the second tranche of the May 2011 fundraising. The shares were priced at 140 pence each, being the lower of 140 pence and the prevailing market price on the day the second tranche was drawn down by the Company. Subsequently, Abingworth subscribed for 2,270,440 ordinary shares at a price of 175 pence as part of the placing on June 17, 2013.
On March 22, 2013, other Directors of the Company subscribed for 22,000 ordinary shares of 20 pence, as part of the second tranche of the May 2011 fundraising. Subsequently, other Directors of the Company subscribed for 41,428 ordinary shares at a price of 175 pence as part of the placing on June 17, 2013.
Borrowings
Convertible loan notes with a face value of $4.86m were issued to Invesco, the Company's largest shareholder (holding 39% of the Company's shares), on March 30, 2012. The loan notes pay interest of 8% per annum and are repayable at the Company's discretion at any time until July 1, 2013. The loan notes are repayable or convertible at the holder's discretion at any time between July 1, 2013 and September 1, 2013 or on certain other events as noted in the shareholder circular dated March 9, 2012. In the case of conversion, the conversion share price is 140 pence per share.
On May 24, 2013, as part of the placing, subscription and offer, the Company and Invesco agreed to vary the convertible loan to allow for earlier conversion, this did not impact the valuation of the note. Notice of conversion was received from Invesco on June 6, 2013. As a result, on June 17, 2013 the Company issued 2,142,857 ordinary shares of 20 pence to Invesco and retired the Convertible Loan Notes.
Interest of $159,000 (2012: $289,000) was paid during the year and the remaining principal of the loan at the year end was $0 (2012: $4,860,000).
22 Financial Commitments and Contingent Liabilities
At December 31, 2013, the Group was committed to make the following aggregate minimum payments in respect of non-cancellable operating leases:
2011 2012 2013
------------------
Land and Land and Land and
Buildings Other Buildings Other Buildings Other
$'000 $'000 $'000 $'000 $'000 $'000
No later than
one year 169 55 277 24 420 165
1-5 years - 49 384 81 451 61
169 104 661 105 871 226
23 Capital Commitments
At December 31, 2013, the Group had capital commitments of $78,000 (2012: $241,000; 2011: $353,000).
24 Post Balance Sheet Events
There are no post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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