SINCLAIR PHARMA PLC Shaping the future · in consumer marketing and physician promotion and training, a whole series of ... Sinclair Pharma plc | Annual Report and Accounts 2017 05

Annual Report and Accounts 2017

Shaping the futureS I N C L A I R P H A R M A P L C

Sinclair P

harma plc | A

nnual Report and A

ccounts 2017

Sinclair Pharma plc | Annual Report and Accounts 2017

I N T R O D U C T I O N

Strategic report

2017 Highlights 01

At a glance 02

Chairman’s statement 04

Market overview 06

Strategic review 08

Our products 10

Our flexible business model 16

Financial review 18

Principal risks and uncertainties 20

Corporate governance

Board of Directors 22

Senior management 24

Directors’ report 26

Corporate governance report 30

Remuneration report 32

Financial statements

Independent auditor’s report 36

Consolidated income statement 41

Consolidated statement of comprehensive income 41

Consolidated balance sheet 42

Company balance sheet 43

Consolidated statement of changes in equity 44

Company statement of changes in equity 45

Cash flow statements 46

Notes to the financial statements 47

Advisers 78

Silhouette Soft® See pages 10–11

Ellansé® See pages 12–13

Perfectha® See pages 14–15

Contents

Strategic report


Sinclair Pharma plc | Annual Report and Accounts 2017 01


* Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, impairment, share based payments, exceptional items and loss from discontinued items.

O P E R ATI N G H I G H LI G HT S

• Strong progress achieved in Brazil – Silhouette Soft® sales growth of 17% – Perfectha® re-registered successfully

and brought back to market in Q4 – Ellansé® granted ANVISA approval

post period end, on 16 January 2018 – Established exceptional Brazilian KOL

advisory board for Ellansé® • Established and launched South Korean

affiliate with repatriated local rights for Silhouette Soft® and Ellansé®

• FDA approved commercially significant label change for Silhouette InstaLift®, making the procedure simpler and cheaper to train doctors in the US

• Physician training continued strongly and to plan, with over 1,000 US physicians trained in calendar 2017. Re-order rates achieved by partner ThermiGen were disappointing

• Full portfolio sold in Mexico for the first time

• New European CE mark granted for Silhouette Soft®

• Sinclair Pharma’s physician congress (‘World Experts Meeting’) held in Barcelona and attended by around 1,000 aesthetic practitioners from around the world

2 017 H I G H L I G H T S

Financial highlights for the year ended 31 December 2017

£15.7mSilhouette Soft®

Sales up 12% (2016: £14.0 million)

£9.4mPerfectha®


£5.4mSculptra®

Sales down 14% (2016: £6.3 million)

£0.4mAdjusted EBITDA*

(2016: loss of £6.1 million)

£5.2mSilhouette InstaLift®

Initial sales (2016: £1.3 million)

Significant sales growth of 20% to £45.3 million, (2016: £37.8 million)

Gross profit increased 23% to £32.9 million (2016: £26.7 million) as gross margin improved to 72.6% (2016: 70.7%)

Net debt£3.0 million at 31 December 2017

£9.6mEllansé®


02 Sinclair Pharma plc | Annual Report and Accounts 2017

2017Revenue split by product

£45.3m

AT A G L A N C E

195Employees*

55 Countries where products available

6Products

SCULPTRA®

12.0%

SILHOUETTE INSTALIFT®

11.5%

PERFECTHA®

20.7%

ELLANSÉ®

21.1% SILHOUETTE SOFT®

34.7%

Highly differentiated aesthetics portfolio

A portfolio of next generation products supported by a significant body of technical, scientific and safety data addressing both

patient and physician demands

* As at 31 December 2017.

Strategic report




£20.9m2017 revenue

£9.4m2017 revenue

£9.6m2017 revenue

£5.4m2017 revenue

REPOSITIONING AND LIFTINGS I LH O U E T TE S O F T® A N D S I LH O U E T TE I N S TA L I F T®

Resorbable PLLA/PLGA sutures with bi-directional resorbable cones for skin repositioning and tightening.

• Redefined face, volume repositioned, reduced wrinkles• Long-lasting results• Immediate correction• Non-surgical procedure• Minimal downtime

VOLUMISINGP E R F E C TH A ®

Latest generation of biphasic hyaluronic acid (‘HA’) filler range for volume and contouring.

Leading viscoelastic profile.

• High volumising capacity• Easy to inject• Long-lasting correction• Provides complementary treatments for facial contouring

and fine-tuning

VOLUME REJUVENATION AND SHAPINGE LL A N S É ®

Ellansé® defines a new class of dermal fillers.

• Volume through regeneration of autologous type 1 collagen, fully integrated into dermal matrix

• Natural and natural looking results – both at rest and in motion (talking, smiling, laughing, crying, etc.)

• Tunable and longest lasting results of any resorbable (non-permanent) filler

• Unmatched safety – superior clinical (in-use) safety experience

DEEP TISSUE REGENERATIONS C U LP TR A ® / N E W - F I LL ®

Collagen stimulator made from PLLA for progressive correction*

• Deep tissue regeneration• Full facial approach• Gradual and natural results• Long-lasting correction up to 25 months • Recognisable brand

* Rights to Western Europe only


C H A I R M A N ’ S S TAT E M E N T

Our continued achievements

2017 was a year of good progress in most of our territories around the world. We reported sales of £45.3 million, representing 20% growth year on year and we

achieved a small EBITDA profit. An otherwise most encouraging year was marred by a disappointing performance in the US leading to the termination of our distribution agreement with ThermiGen in early 2018. However, as the sales line clearly shows, the rest of the world was able to deliver a more than satisfactory rate of growth to

help offset the underperformance in the US.

It should be noted that the small EBITDA profit was reached after investing significant discretionary funds in the Company’s operations globally, particularly in consumer marketing and physician promotion and training, a whole series of

innovative digital initiatives and importantly, ongoing product trials which will lead to future product and country launches. We expect all this investment to contribute

to further accelerated growth in 2018.

Grahame CookChairman

Strategic report




+20%Revenue growth

£45.3m, 2017: £37.8m

81%Two-year growth

from calendar year 2015–2017

Sinclair operates exclusively in high growth, self-pay markets with high gross margins. Our focused, complementary suite of products (Silhouette®, Ellansé®, Sculptra®/New-Fill® and Perfectha®) target unmet clinical needs for effective, longer duration, natural looking and minimally invasive aesthetics treatments. They also deliver compelling economics for physicians and have been received enthusiastically by clinicians and their clients around the world. We have chosen to remain outside the market for undifferentiated toxins and fillers and we have positioned ourselves in the ‘sweet spot’ in the aesthetics market where there is a premium for innovative products with proven clinical benefits. The market for non-invasive facial shaping is expanding rapidly, with many consumers who would never undertake facelift surgery happy to consider non-invasive treatments. We believe that the future of the aesthetic dermatology industry will be for longer duration products centred more on facial shape and a more natural and healthy look, including volumisation and definition, as opposed to filling wrinkles and lines. This strategy differentiates us from other industry players, with the focus of our marketing efforts based on collagen stimulation, combined with volume lifting and repositioning (Silhouette®) and natural volume creation (Ellansé®). Silhouette® also offers the exciting potential to develop non-facial multifilament products for the rest of the body.

US AThe US is the world’s leading aesthetics market, the size of the rest of the world combined. At the same time, there are fewer approved products and tighter regulation. Consequently, there is a significant opportunity for Silhouette InstaLift®, a first-in-class product fulfilling unmet clinical needs with a unique facial lifting claim. In the US, Silhouette InstaLift® is the only non-surgical technique to offer lifting and the only resorbable non-surgical solution.

ThermiGen delivered Silhouette InstaLift® revenues of £5.2 million in 2017 with almost 1,000 doctors attending training demonstrations. Unfortunately, the reorder rates were below ThermiGen’s forecasts mainly due to a lack of post-training support. We severed the agreement with ThermiGen at the end of March 2018 and took back the rights to

InstaLift®. We are ensuring that trained US physicians are receiving the necessary product support using our own salesforce and intend to rapidly grow this team during 2018 and the US affiliate is expected to be EBITDA positive in 2019. This option allows flexibility to introduce further products into the portfolio and potential future collaborations while maintaining control and capture of full gross margins in June 2017. The FDA approved a significant label change in the US which makes the procedure simpler and the training of physicians correspondingly easier. Although our US programme has been set back by about 12 months we remain convinced that Silhouette InstaLift® will be successful in the US; we continue to receive expert endorsements across the US and our experience of other territories such as South Korea, where Silhouette Soft® sales in 2017 grew by more than 90% year-on-year, supports our belief that the product has huge untapped potential. To date, Silhouette® has been used in around 200,000 procedures worldwide demonstrating excellent clinical outcomes and a strong safety profile. In addition, Ellansé® is on schedule for a very significant launch in the US, expected in late 2020/20121.

The third largest aesthetics market after the US and China is Brazil, which is our largest direct operation. We performed well, and the approval of Ellansé® in Brazil after the year end and the re-registration of Perfectha® and relaunch in Brazil in Q3 will further boost sales momentum in 2018. South America is becoming increasingly important for Sinclair. In addition to progress in the key market of Brazil we made several important product launches in South America such as Perfectha® in Chile and Ellansé® in Colombia. We are now able to offer the full range of product in Mexico, which as a country shows significant promise.

Progress has been encouraging in Asia. South Korea is one of the largest aesthetics market in the world and we acquired our South Korean distributor in 2017, enabling us to benefit from the whole value chain. We expect China to be a major growth driver following approvals of Silhouette Soft® and Ellansé®, expected to be in 2020, and we have already commenced registration activities. We are currently interviewing enthusiastic potential partners for China.

I should not omit to mention Europe, which after a fairly flat 2016 has been reorganised under a new management team and is now performing well in most of our key countries.

TA LE NTAs Sinclair has become a major player in global aesthetics markets we have managed to attract some outstanding talent to the Company. Amongst notable hires we were delighted to bring in Kamal Abbasi as Head of Asia Pacific, MENA, Central and Eastern Europe. Kamal is a medical doctor and was part of the senior management team at Galderma.

D I G ITA L I N IT I AT I V E SThe digital world is changing rapidly: Sinclair is embracing digital change as proactively as anyone in the industry. We have created digital support programmes for clinic and physicians; we now offer significant online training and education programmes, including ‘Sinclair College’ online. Our product websites have been translated into multiple languages. We are also creating a leading platform for lead sourcing and customer tracking.

TH E F UTU R EYour Board believes that the prospects for the Company are excellent. Over the last two years the Company has delivered revenue growth of more than 80% and this momentum is continuing thanks to our incredible people and an ongoing series of product launches and country initiatives. The US remains a strategic priority and we are devoting considerable efforts to building a world-class affiliate to distribute our products in the US.

We are encouraged by strong sales growth in the fourth quarter of 2017, which gives us good momentum going into 2018. Our gross margins remain high (2017: 72%), which means that a high proportion of additional sales in the future will fall through to the bottom line, known as operating leverage. As such, our objective is to deliver significant profitability to our shareholders, which should eventually be reflected in our share price.

I would like to thank shareholders for their support.

* The statistics are numbers quoted from Millennium Research Group.


M A R K E T O V E R V I E W

Sinclair’s global footprint

Headquartered in London, Sinclair operates globally through seven affiliates and a network of distributors selling into 55 countries around the world

A FA S T- G RO W TH , $ M U LT I - B I LL I O N G LO BA L I N D US TRY• Global facial aesthetic market expected to

grow by 9% pa through 2020 to $10.2 billion*• In 2016 there were 15.4 million procedures

in US alone* • Low penetration rates worldwide; US 3%,

Europe 1%, APAC 0.2% • Market driven by an increase in middle classes

with rising disposable incomes in both developed and emerging markets

• Defensive private pay-audience less impacted by pricing pressures

• Ageing population (core demographic 35–65 year olds growing 1.2% globally)

• Aesthetic procedures becoming more socially acceptable amongst young (25–35 year olds) women and by men

• Patient preference for minimally invasive procedures which are less risky, less expensive, long duration but non-permanent and more natural in appearance

• Physicians seeking unique, differentiated products with excellent economics

* Millennium Research Group.

I NJ E C TA B LE A E S TH E TI C M A R K E T TR E N D SInjectable aesthetic market growing at 10.6% CAGR* and will amount to half the global aesthetic market by 2020, driven by:• Desire for minimal invasion during treatment• Lower cost and lower risk• Natural looking results• Low penetration of addressable markets• Ageing population• Patients starting treatment earlier• Increasing social acceptance• Returning patients offer annuity stream

to doctors

* Millennium Research Group.

Mexico LATAM operations

Brazil Directly owned affiliate

California Directly owned affiliate

Company operations¢Direct product sales¢LATAM¢Intercontinental – CEE¢Canada 2019; China 2020¢Intercontinental – MEA¢Intercontinental – APAC

Strategic report




Singapore Asian operations

South Korea Directly owned affiliate

Chester Global technical operations

London Corporate head office UK operations

Madrid Spanish operations

Paris French operations Global marketing

Lyon Perfectha® manufacturing

Heidelberg German operations

Utrecht Ellansé® manufacturing

100+

Significant in-house sales and marketing infrastructure with 100+ highly experienced sales and marketing staff globally

Regional

Regional hubs in Singapore and Mexico, accelerating growth in APAC and LATAM markets

Capability and manufacturing

Complete in-house regulatory, R&D, supply chain, QA/QC capability and manufacturing


S T R AT E G I C R E V I E W

B US I N E S S B E C O M E S E B IT DA P OS IT I V E D U R I N G 2 017Sinclair continued to deliver substantial revenue growth resulting in a positive adjusted EBITDA for the first time since the disposal of the medicinal dermatology business in 2015, and in line with our guidance. The key 2017 trend was the acceleration of revenue growth through the period. First half reported revenue growth was up 16% on H1 2016 compared to an increase of 23% for the second half. In H1 2017, the Group reported an adjusted EBITDA loss of £1.7 million which compared to £0.4 million EBITDA profit for the year as a whole indicates a strong second half performance. In H2 2017, the combination of revenue growth and operational gearing resulted in the Group trading profitably at the adjusted EBITDA level outside the US. For the year as a whole, the Group achieved an adjusted EBITDA profit of £1.2 million outside the US and a loss of £0.8 million in the US as marketing contributions to Thermi offset the margins on sales of Silhouette InstaLift®.

Profitability throughout the business built during the year through a combination of strong sales growth, increasing gross profit and strong cost control, such that a 2016 adjusted EBITDA loss of £6.1 million, was converted to an adjusted EBITDA profit of £0.4 million. The Company believes the current rate of EBITDA conversion from additional sales (outside the US) is approximately 50%.

During H2 2017, the restructuring of the European operations enacted in H1 started to bear fruit, culminating in a notably strong fourth quarter. Our Brazilian affiliate also made good progress throughout the year, again resulting in a strong fourth quarter. Management took the decision to take advantage of the strength in the ex US business to reduce sales of Silhouette Soft® and Ellansé® to certain distributors ahead of creating its own affiliates/new distribution ventures.

During 2017, the Group continued to focus on driving growth and increasing efficiencies throughout its commercial operations. Marketing investment is now focused more towards consumers with less emphasis on physician training following three years of intensive investment in this activity. Concurrently, Sinclair has increased spend on digital and social media activity to complement its local field forces. The Group’s ambition is to create an industry leading digital platform for lead sourcing, customer tracking and physician training. The Sinclair College™ is the Group’s on-line training platform, and multiple modules regarding the products, the technologies, techniques and anatomy are already available in the languages of Sinclair’s leading markets.

C R E ATI O N O F O W N A F F I L I ATE S I N S O UTH KO R E A A N D B R A Z I LSinclair realised its strategic ambition to be directly present in South Korea at the end of 2017, through the acquisition of the commercial team of MDC Global, Sinclair’s local distributor.

Brazil is the world’s third largest injectable aesthetics market, with a fast-growing aspirational customer base. In July 2016, Sinclair created a new Brazilian affiliate to house the commercial infrastructure following the regained distribution rights for Silhouette Soft®. During the year Brazil became the Group’s largest direct operation in terms of sales and commercial staff numbers (42 direct and indirect reps), following the repatriation of Perfectha® rights in the final quarter. Post period, the ANVISA approval of Ellansé® means the operation commercialises all leading brands.

Sinclair’s annual ‘World Experts Meeting’ (‘WEM’) held in Barcelona and exclusively promoting Sinclair products to doctors from around the world has been enormously successful. Since inception in 2014 annual attendance numbers have exceeded 1000 physicians. With the Group’s LATAM business growing rapidly and the creation of our new wholly owned affiliate there and following approval of Ellansé® in Brazil, a LATAM WEM will be held in Rio de Janeiro during May 2018.

Chris SpoonerChief Executive Officer

Strategic report




Sculptra®/New-Fill®

Sinclair sells and markets Sculptra® and NewFill® (reimbursed prescription in France and the UK for facial lipodystrophy) in Western Europe, under a long-term distribution arrangement with Galderma. The product has a loyal physician following but with sales £5.4 million (-14%), is not a strategic product for the Group and suffers from limited promotion and Ellansé® competition. Sculptra®’s gross margin trails Sinclair’s other brands due to third party manufacturing and royalties payable to Galderma.

Silhouette Refine®

In May 2017, Sinclair acquired the FDA cleared Refine™ Support System (‘Refine’), indicated for reinforcement of soft tissue in plastic or reconstructive surgery. With this unique claim, Sinclair in conjunction with leading plastic surgeons has developed an industry first breast lifting procedure.

In Q3 2017 the Californian wildfires resulted in smoke damage to the Refine manufacturing facility. This has resulted in a severe delay to launch and the switch to a new commercial manufacturing partner. US launch is now anticipated in 2019, with the ex US development programme similarly delayed by around a year.

P OS T P E R I O D US S TR ATE GYAs previously announced Sinclair has been in advanced discussions to secure a new distribution agreement in the US and had a high level of confidence in securing a deal. In parallel with these discussions Sinclair has been assessing other commercialisation options for the US market.

However it is apparent that Silhouette InstaLift® has garnered a strong reputation with physician users and patients alike, and disappointing re-order rates have been largely a result of historic commercialisation issues. As a result, the Board has taken the decision to retain full control of the product and therefore not enter into another distribution agreement at the current time. The Board sees significant potential to drive attractive shareholder returns by investing in a controlled fashion in the creation of its own US direct operation.

Sinclair has experience in creating successful direct operations in large aesthetic markets with notable recent success in South Korea and Brazil. In terms of the US market we have the added benefit of existing demand from an already created customer base, large numbers of trained

physicians to follow up, sunk launch costs and a supportive and well respected advisory board giving a strong platform for our US management team led by Doug Abel, to build Sinclair’s own US sales network. To this end we have been pleased to hire eight of Thermi’s sales reps and we plan to increase the field force to 15 by the end of 2018 and believe that our US operations will be EBITDA positive in the year ending 31 December 2019 and will only generate modest losses through 2018. This option provides maximum flexibility to introduce further products into the portfolio and enables potential future collaborations while maintaining control and capture of full gross margins. Furthermore the Group will be well positioned to subsequently take the full benefit of launching Ellansé® in the US market currently expected to be in 2021.

Management’s continued confidence in the potential for Instalift® is supported by new data as well as investigatory work by the Company’s financial backers. A recently published 100 patient study led by leading plastic surgeon Julius Few, Clinical Professor of the Division of Plastic and Reconstructive Surgery at The University of Chicago, published in The Aesthetic Surgery Journal (ASJ) demonstrated high patient satisfaction with Silhouette InstaLift® for lifting of the mid-face while improving a number of age related changes. Further data was presented at the International Masters Course on Aging Skin (IMCAS) in Q1 2018. Dr Mark Nestor, Chairman of the Silhouette InstaLift® advisory board, presented 12 month US data confirming the products safety and longevity, and high patient satisfaction rate.

BOA R D / M A N AG E M E NT U P DATE The Board expects to appoint a new Non-executive Director and will make an announcement in due course.

In December the Board was delighted to announce the appointment of Kamal Abbasi as Head for the Asia Pacific, MENA, Central and Eastern Europe. Kamal is a medical doctor and has held several senior positions within healthcare and aesthetic dermatology. Prior to joining the Company, he was head of APAC for Nestlé Skin Health (Galderma). Kamal’s Sinclair role is to drive growth and profitability by the implementation of the global strategy for the region. This involves working closely with the local managers and key partners in the regions, as well as building a strong network across geographies with key external stakeholders.

O UTLO O K Over the last two years the Company has delivered total revenue growth in excess of 80% in the aesthetics portfolio. 2017 was another year of significant progress for Sinclair, notably achieving the stated aim to return to adjusted EBITDA profit following the 2015 disposal of the non-aesthetics business.

Ex US, the Board expects to deliver at least mid-teens percentage revenue growth in 2018 with high marginal profitability. As in 2017 the Group’s revenues will be second half weighted.Headline US revenue performance in 2018 will mask more complex underlying trends. There have been no InstaLift® sales in Q1 2018 as a result of over stocking in 2017. As previously announced Sinclair took direct control of the product from 1 April 2018 and has acquired Thermi’s remaining inventory. While Sinclair now records full in-market revenues, gross margins will be reduced for the rest of 2018 as a result of the cost of buying back inventory, and in addition the Company will record an inventory write down of approximately £1.5 million in H1 2018. The Board expects US sales of approximately £3.0 million (on a constant currency basis) in 2018 and that the US direct operation will be EBITDA profitable in the year ending 31 December 2019.

At the adjusted EBITDA level, the Board expects the Group to remain profitable in 2018 despite the reduction of sales in the US, significant Ellansé® launch costs in Brazil and the incremental costs of the direct operation in South Korea.In summary, the Board believes that the difficulties in the US, while disappointing, are nonetheless temporary and the Silhouette InstaLift® opportunity remains significant. The Board continues to expect an acceleration in revenue growth and operating leverage in 2019 as the business gains momentum in its key strategic markets including the US, Brazil, South Korea and the Middle East. In the medium to longer term, launches of Perfectha® Lidocaine, Silhouette Refine™, Ellansé® in the US and China, and Silhouette InstaLift® in China, supported by robust aesthetic market fundamentals, are expected to drive sustainable premium growth for the Group.


O U R P R O D U C T S

A unique and highly differentiated

technologySilhouette Soft® delivered revenues of £15.7 million for the 12 months to

December 2017, growth of 12%. Silhouette InstaLift® sales reached sales of £5.2 million in the first full year following US launch in August 2016

£15.7mRevenue

Silhouette Soft®

2016: £14.0 million

£5.2mRevenue

Silhouette InstaLift®

2016: £1.3 million

Strategic report




2014 2015 2016 2017

5.9

10.1

15.3

20.9

Performance was somewhat mixed geographically, but improved during the period, with a marked acceleration of growth following restructuring in Europe, the roll-out of multiple new marketing and digital initiatives, and the benefit of LATAM seasonality. Silhouette Soft® continues to be a market-leading aesthetic suture which we estimate has a 30% share of the European market. The product is firmly placed as a premium brand which both suspends and rejuvenates. While several new suture brands have been launched in the past two years, the Company has successfully generated considerable data to demonstrate the product’s clinical superiority and value. Moreover, there has been extensive clinical work by Sinclair’s key opinion leaders around implantation techniques in order to both simplify the procedure and improve clinical results and longevity. Training techniques now only focus on the use of multiple suture procedures (six or more), with ‘straight line’ implant vectors. The Company believes that improved physician technique is key to maximising the product’s clinical potential and driving product use.

Brazil was strong under Sinclair’s newly created local affiliate, with sales up 117% in 2017 to £5.0 million (2016: £2.3 million) to become the product’s biggest individual market. A generally strong growth rate elsewhere in multiple markets including Spain, the Middle East and various APAC markets was reduced by underperformance in the UK and France, linked to local issues, which have been largely resolved following the restructuring of these operations. In the UK, a new aesthetics commercial team was created during the period, which resulted in a substantial improvement in sales performance towards the

Silhouette® product growth (sales £m)year end, and which has continued into the current period. Similarly, in France there was a notable improvement towards year end, albeit behind the UK, with the full team rebuild expected by mid-2018. Fourth quarter pre-marketing activity by distributors MDC Global generated strong physician interest ahead of Sinclair’s South Korea launch and has to date resulted in a successful product launch.

As previously announced, the sudden closure of several European medical device Notified Bodies in 2016 threatened the loss of the Silhouette Soft® CE mark. In October 2017, a new CE mark was granted for Silhouette Soft® under the Group’s new Notified Body. The CE mark renewal process did not affect supply of Silhouette Soft®.

Following the launch by our partner ThermiGen in the US in August 2016, revenue for sales of Silhouette InstaLift® for the period reached £5.2 million. Doctor training continued its rapid roll-out, with over 1,000 physicians attending educational events in the 12 months to 31 December 2017. However, as reported by Sinclair in January 2018, product re-order rates during the period were disappointing despite the high rate of physician training. Product volumes acquired by ThermiGen during the period were in excess of in-market demand, and this will result in a de-stock in the current 2018 period.

Silhouette Soft®’s innovative cone technology provides minimally invasive

face and neck reshaping by safely lifting tissues to their desired location, stimulating the production of natural collagen and enhancing skin quality; uniquely building value through high

patient satisfaction.

LiftingCheeks, eyebrows,

jawline, neck

Volume restorationMalar and submalar area



Safe, natural, regenerative

Ellansé® delivered sales of £9.6 million for the 12 months to 31 December 2017, growth of 18%

£9.6mRevenue

2016: £8.1 million

18%Sales growth

Strategic report




2014 2015 2016 2017

3.94.4

8.1

9.6

Ellansé® creates the most natural looking, safest, and longest-lasting results. Ellansé®

naturally regenerates the volume and restores the shape that time has taken away.

Ellansé® is uniquely able to achieve this through regeneration of the body’s own, new

type 1 collagen that is fully integrated into the dermal matrix.

Ellansé® product growth (sales £m) Growth remains broad-based across multiple markets, notably Spain, Mexico and Iran. The Board remains highly confident in the future prospects for this brand and continues to believe that sales will surpass those of Silhouette Soft® in the medium term as a result of its comparative ease of use and consequent larger pool of physicians able to use the product.

In 2017, as with Silhouette Soft®, reported sales were impacted by restructuring in Europe, with a good recovery seen towards the end of the period. Further, South Korea, which continues to be the single largest market for the product, was de-stocked in the fourth quarter ahead of the creation of Sinclair’s local affiliate.

Key to a step change in sales volumes for Ellansé® will be the commercialisation of the brand in the world’s largest aesthetic markets, the US, China and Brazil, and further generation of data to compare the clinical benefit and longevity of Ellansé® with the industry’s leading filler brands. The Company continues to believe that Ellansé® is well positioned to meet a largely patient-driven evolution in the aesthetics market for long-lasting, yet non-permanent products, and for natural-looking volumisation. Moreover, the strength of Ellansé® in the Taiwanese market augurs well for an eventual launch into the Mainland China market, where facial shape and volumisation are the primary clinical goals.

Prior to the anticipated regulatory approval for Ellansé® in Brazil, (granted in Q1 2018) the Company formed a distinguished KOL Advisory Board comprising of some of the most influential plastic surgeons and dermatologists in that market and chaired by eminent plastic surgeons Dr Reinaldo Tovo, (Hospital Sírio Libanês, São Paulo) and plastic surgeon Dr Antonio Graziosi (Hospital Albert Einstein, São Paulo). Congress activity and pre-launch promotion has created a great deal of excitement around Ellansé®, which was approved by ANVISA on 16 January 2018. Sinclair is optimistic about prospects for this product for the year ahead and beyond.



Long-lasting range of HA dermal fillers

Perfectha® achieved £9.4 million of sales for the 12 months to 31 December 2017, growth of 16%

+16%Sales growth

£9.4mRevenue

2016: £8.1 million

Strategic report




2014 2015 2016 2017

7.6

5.7

8.1

9.4

Perfectha® product growth (sales £m)Perfectha® performed well, notably in certain Asian markets (including South Korea which remains Perfectha®’s largest market under distributor DNC), the Middle East and Mexico, but was depressed temporarily by the transition from distributor to the Group’s new affiliate in Brazil, which resulted in zero sales in that market for much of the year, but which has since recovered strongly. Headline sales were also slightly reduced by the cessation of two long-term low-price/high volume supply arrangements in Europe, but which had minimal impact on overall gross profit contribution.

From ongoing regulatory work during the period, Sinclair expects to launch its Perfectha® Lidocaine line extension in several markets during 2019. This is anticipated to be a highly significant step in addressing markets where the direct combination of HA and anaesthetic is perceived to be key, including the UK, Germany, Spain and South Korea.

Sinclair is actively developing a new range of Perfectha® formulations, the first of which, slated for 2020/21 launch, will be a product specifically designed for use in the (soft) volumisation of lips.

Where an HA is the preferred option, Perfectha® is a tailor-made range of ‘Made in France’ HA dermal fillers,

designed for wrinkle correction, facial contouring and volume restoration,

combining ease of injection and long-lasting effect, with good

value for money.


O U R F L E X I B L E B U S I N E S S M O D E L

This enables us to leverage our brand and expertise into new and emerging markets that will generate value for healthcare providers

and our shareholders.

Our strengthsLeading brands and innovative aesthetics portfolio

We have a focused operation of four private-pay brands, Silhouette Soft®, Ellansé®, Perfectha® and Silhouette InstaLift®. Our focus on collagen stimulation, using the body’s natural response to treat the underlying causes of facial ageing, helps deliver unmatched patient outcomes.

Global reach

We have an extensive office network in the territories where our products are sold. Directly in the UK, France, Germany, Spain and Brazil and through distributors around the world, notably the US, South Korea, the Middle East, Russia and Central America. Staffed by highly experienced teams, this network ensures outstanding outcomes for both physicians and patients.

Value proposition

We offer high-margin, high-value products at the premium end of the aesthetic dermatology market. This gives physicians a point of differentiation and enhanced returns.

Strategic report




ApproachIntegrated marketing

During 2017 the Company has evolved its marketing strategy, with a shift of resources towards the end customer. There has been significant investment in a new digital platform and implementation of a strategy that ensures solid practice development, a consistent pricing strategy and an innovative and dynamic management programme. This approach, combined with Sinclair’s unique product suite, exceptional practice support and ongoing skill development, helps deliver unmatched patient outcomes and creates enhanced practice values.

Key opinion leader engagement

We pride ourselves on attracting the most highly regarded plastic surgeons and aesthetic dermatologists from around the world to endorse and promote our products. Our unique and innovative technology and outstanding patient outcomes have helped us recruit some of the most high profile practitioners in the field of aesthetic dermatology.

Training

Sinclair prides itself on its rigorous training methods and sells products only to doctors who have been trained to use its products correctly. By holding workshops, one-on-one training sessions and live demonstrations, Sinclair educates users to a very high standard. This leads to low numbers of adverse events, high patient satisfaction and excellent clinical results.

BenefitsPhysicians and patients

We offer healthcare providers effective, high-quality, non-invasive treatment. We provide customers with clinically proven aesthetics technologies and products focused on improving facial shape and volumisation.

Employees

Our success is dependent upon our people, and as such we are fully committed to investing in staff development and training. 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 and training courses, and providing help in seeking necessary professional qualifications to further their careers.

Investors

Sinclair’s objective is to generate sustainable growth for our shareholders by creating and maintaining positions of market leadership in established and developing markets. Underpinning this is a sound financial position and a strong and experienced management team.


F I N A N C I A L R E V I E W

C H A N G E O F AC C O U NTI N G R E F E R E N C E DATEIn 2016, The Group changed its accounting reference from 30 June to 31 December following the disposal of the non-aesthetics business in order to align its reporting calendar with industry peers. The comparative period financial information within the financial statements therefore covers the 18-month period ended 31 December 2016. The financial review below includes audited numbers for the 12 months ended 31 December 2017 and comparatives for the unaudited 12 months ended 31 December 2016 as this provides a more meaningful comparison and reflects the annual 12-month period for the Group going forward.

Audited12 months ended

31 December 2017£’000

Unaudited12 months ended

31 December 2016£’000

Audited18 months ended

31 December 2016£’000

Continuing operationsRevenue 45,300 37,817 45,489 Cost of sales (12,414) (11,091) (13,674)

Gross profit 32,886 26,726 31,815 72.6% 70.7% 69.9%

Selling, marketing and distribution costs (21,936) (21,690) (29,799)Administrative expenses (17,125) (18,391) (27,289)Exceptional administrative expenses (credit) 4,016 6,538 7,037

Operating loss (2,159) (6,817) (18,236)

Total finance costs (2,184) (4,742) (15,794)Loss before taxation (4,343) (11,559) (34,030)Taxation 3,669 428 634

Loss for the period from continuing operations (674) (11,131) (33,396)

Reconciliation of adjusted EBITDA to operating lossAdjusted EBITDA* 397 (6,124) (14,890)Depreciation (423) (476) (707)Amortisation and impairment (5,001) (4,933) (7,001)Exceptional items 4,016 6,538 7,037Share-based payments (1,148) (1,822) (2,675)

Operating loss from continuing operations (2,159) (6,817) (18,236)

Net cash outflow from operations before exceptional items (continuing) (3,615) (7,002) (16,077)

* Adjusted EBITDA defined as earnings before interest, tax, depreciation, amortisation, impairment, share based payments, exceptional items and loss from discontinued items. Adjusted EBITDA provides a more consistent measure of the underlying performance of the business by removing non-cash accounting items.

The Group achieved an improved financial performance in the year with revenue growth of 20% to £45.3 million, gross margin expansion to 72.6% and a return to adjusted EBITDA profit, achieving a key milestone for the Group.

Revenue increased to £45.3 million (2016: £37.8 million) representing 20% headline growth for the year, and 81% over the last two years. On a constant currency basis, revenues were £43.1 million, the weakness of Sterling during the period contributed an additional £2.2 million to reported revenues.

Gross profit increased faster than sales by 23% to £32.9 million (2016: £26.7 million), driven by a continued improvement in sales mix. The gross margin for 2017 of 72.6% is the best achieved to date by the Group and improved from 70.7% in 2016 as a result of the growth in sales of higher margin Silhouette®, especially in the US and Brazil. With sales of Silhouette® and Ellansé® expected to drive the bulk of the Group’s medium-term growth, and by capturing the full margin through our direct operation in South Korea, the Board expects gross margins to continue to improve in the coming periods.

Selling, marketing and distribution costs increased by 1% to £21.9 million in 2017. While costs increased as a result of the full year presence in Brazil (+£1.6 million) and due to the weakness of Sterling (+£0.7 million), savings were achieved elsewhere to largely offset these increases. In the US, the one-off pre-launch costs for Silhouette InstaLift® of £1.7 million in 2016 were not repeated and in the Group’s European affiliates efficiencies were delivered through the centralisation of much of the marketing activity in the Global marketing team.

However, the Group expects marketing spend will be circa £3 million higher in 2018 due to the costs of the South Korea affiliate, launch of Ellansé® in Brazil, and incremental digital marketing spend. The impact of marketing costs associated with the direct presence in the US following the termination of the Thermi agreement will be broadly in line with the level of 2017 spend which included marketing contributions to Thermi.

Administrative expenses, pre-exceptional items, were £17.1 million to 31 December 2017, reduced from £18.4 million in 2016, a fall of 7%. This is a result of the restructuring implemented in 2016 following the disposal of the non-aesthetics business, combined with a continuing drive to control costs and focus investment on sales and marketing activities that will support revenue growth.

Strategic report




Operating loss, pre-exceptional items, for the year ended 31 December 2017 was £6.2 million (2016: £13.4 million). Adding back depreciation, amortisation, impairment and share-based payments derives an adjusted EBITDA profit for 2017 of £0.4 million, a significant improvement from the EBITDA loss of £6.1 million in 2016.

F I N A N C E C OS T S Finance costs reduced to £2.2 million (2016: £4.7 million) and consist of £1.9 million of non-cash discount unwind charges linked to deferred consideration liabilities, and £0.2 million interest payable on borrowings drawn in the year.

TA X ATI O N A tax credit of £3.7 million (2016: £0.4 million) has been recorded for the year to 31 December 2017. This is made up of UK research and development tax credits of £0.3 million (2016: £nil) overseas corporation tax charges of £0.7 million (2016: £1.0 million) and net deferred tax credits of £4.0 million (2016: £1.6 million). The deferred tax credits arise from the amortisation of intangible assets acquired through business combinations and a one-off credit from the reduction in tax rates in Spain and France.

LOS S F RO M C O NTI N U I N G O P E R ATI O N S There has been a further significant reduction in the statutory loss for the year to £0.7 million from £11.1 million in 2016 which has been driven by the growth in revenues and gross profitability, fall in administrative expenses, reduction in finance costs and increased tax credit in the year.

E XC E P TI O N A L ITE M S There are a couple of exceptional items recorded in the year which result in a net credit to the income statement of £4.0 million. These are:• Acquisition costs of £0.1 million relating to the transaction to repatriate the rights to Silhouette Soft® in South Korea and the establishment of a direct

operation in this key market.• A credit of £4.1 million has arisen from adjustments to the value and expected timing of deferred considerations relating to the acquisitions of Silhouette

Lift® and Obvieline as a result of revised forecasts of future sales for Silhouette InstaLift® and Perfectha®. The majority of this credit (£3.9 million) results from revised revenue forecasts following the termination of the Thermi distribution agreement effective 31 March 2018.

D I S C O NTI N U E D O P E R ATI O N SA profit on discontinued operations of £0.6 million has arisen in the year (18-month period to 31 December 2016: £3.8 million). This is a result of the release of tax provisions for overseas operations sold along with the non-aesthetics business in December 2015, which are no longer required.

C A S H FLO W Net cash outflow for continuing operations pre-exceptional items was significantly reduced to £3.6 million in 2017 (2016: £7.0 million) as a result in the return to an adjusted EBITDA profit (£0.4 million in 2017 versus loss of £6.1 million in 2016) offset by increases in working capital.

In addition, there were operating cash outflows in the year for exceptional items of £1.2 million (2016 exceptional restructuring charges) and discontinued operations of £5.7 million, which included the £4.0 million warranty claim settlement linked to the sale of the non-aesthetics business.

Investing activities cash outflows of £8.8 million in the year included deferred consideration payments of £6.1 million and capital expenditure of £2.7 million which included the initial purchase price for the Refine assets as well as capitalised development expenditure which mainly relates to Ellansé® and Silhouette® development projects.

BO R RO W I N G SIn March 2017, the Group entered into a new debt facility of up to £10 million with Silicon Valley Bank (‘SVB’) to fund investment in future growth. The facility consists of a £5.0 million term loan maturing in September 2020 and £5.0 million two-year working capital facility. Availability under the working capital facility was linked to the Group’s receivables balances in certain markets. As revenue growth has disappointed in some of these markets, particularly in the US, funds available for drawing from the working capital facility were significantly less than the £5.0 million potentially available.

E W H E A LTH C A R E PA R TN E R S C O N V E R TI B LE LOA N In February 2018, the Group announced a $5.0 million investment in the Group via the issue of a $5.0 million convertible loan to EW Healthcare Partners (‘EW’). The proceeds of this investment were used to settle the one-off payment and acquisition of inventory arising from the early termination of the distribution agreement with Thermi for Silhouette InstaLift™ in the US. EW is a specialist investor focused on rapidly growing healthcare companies and holds several investments in medical aesthetics. Interest accrues on the convertible loan at 8%, compounded annually, and if not converted the loan is repayable not before 1 September 2020. The loan is capable of conversion three months from the date of issue at a price of 28p per ordinary share and is secured by way of a second ranking charge over Sinclair’s assets.

N E W D E BT FAC I L IT YThe Group has today announced a refinancing of the SVB facility with a new five-year term loan from Hayfin Capital Management. The facility of €23.0 million is provided on more flexible terms than the SVB facility. Proceeds of the facility will be utilised to: repay the SVB borrowings of £5.0 million; fund the Group’s growth, particularly its direct operations in the US and South Korea; settle deferred consideration liabilities as they come due; and to invest in expanding as well as upgrading and increasing manufacturing capacity and pre-US clinical trial development activities for Ellansé®. The facility is secured by way of a first ranking charge over the Group’s assets.


P R I N C I PA L R I S K S A N D U N C E R TA I N T I E S

Area Risk associated with commercial success of products

Interruption to product supply Product liability risk Competition and intellectual property risk

Regulatory risk Liquidity risk Foreign exchange risk

Principal risk The Group’s revenues are 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 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. Lack of commercial success could result in low profits and the potential impairment of goodwill and intangible assets.

The Group relies on third-party manufacturers for the supply of the majority of its products. Problems at manufacturers’ facilities may lead to delays and disruptions in the supply chain which could have significant negative impact on the Group.

The Group’s products may produce unanticipated adverse side effects that may hinder their marketability.

The 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 is required to comply with a number of different regulatory authorities to maintain product marketing licences. If there is a breach of regulatory requirements,or the registration of licenses is not adequately maintained, products may be required to be withdrawn from certain markets.

The Group is operating in high-growth markets and the Board has developed a strategy to meet anticipated demand within these markets. If expected demand levels are not fulfilled, this could create pressure on the liquidity of the Group.

The Group has transactional currency exposures as the majority of revenues, expenditures and deferred consideration liabilities are in Euros, US Dollars and Brazilian Reals. Fluctuations in exchange rates between Sterling and these currencies could adversely impact financial results.

Mitigation The Group manages these risks through regular reviews of the performance of its direct affiliates and partners. In-market sales data is closely monitored in order to assess products and partner performance and guide any corrective actions that may be required.

The Group maintains a close dialogue with key suppliers and rigorously monitors inventory levels and customer demand to ensure that any interruption to product supply can be managed.

Sinclair maintains product liability insurance and operates quality systems relating to the manufacture of its products and a pharmacovigilance system to monitor safety of its marketed products.

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.

The Group has an in-house regulatory and quality department, which maintains a close dialogue with regulatory authorities and reports any issues to the Board on a regular basis.

The Board regularly reviews cash flow forecast models, which include sensitivities to key assumptions. This enables the Group to take timely mitigating actions such as controlling costs and capital spend, or seeking alternative sources of finance to meet anticipated liquidity requirements.

Sinclair seeks to match currency receipts and expenditure as far as possible with deferred consideration liabilities denominated in the functional currency of the underlying businesses acquired. The Group may also engage in short-term hedging transactions in order to hedge against changes in exchange rates during the financial year.

Sinclair Pharma plc is a business that depends on product revenues generated through its own operations and marketing partners to build future revenues. The Group’s performance and future prospects may be affected by risks and uncertainties relating to our business environment. Our internal controls include a risk management process to identify key risks and, where possible, manage those risks through systems and processes and by implementing specific mitigation strategies.

The most significant identified risks that could materially affect the Group’s ability to achieve its financial and operating objectives are summarised below.

Strategic report




Area Risk associated with commercial success of products

Interruption to product supply Product liability risk Competition and intellectual property risk

Regulatory risk Liquidity risk Foreign exchange risk

Principal risk The Group’s revenues are 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 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. Lack of commercial success could result in low profits and the potential impairment of goodwill and intangible assets.

The Group relies on third-party manufacturers for the supply of the majority of its products. Problems at manufacturers’ facilities may lead to delays and disruptions in the supply chain which could have significant negative impact on the Group.

The Group’s products may produce unanticipated adverse side effects that may hinder their marketability.

The 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 is required to comply with a number of different regulatory authorities to maintain product marketing licences. If there is a breach of regulatory requirements,or the registration of licenses is not adequately maintained, products may be required to be withdrawn from certain markets.

The Group is operating in high-growth markets and the Board has developed a strategy to meet anticipated demand within these markets. If expected demand levels are not fulfilled, this could create pressure on the liquidity of the Group.

The Group has transactional currency exposures as the majority of revenues, expenditures and deferred consideration liabilities are in Euros, US Dollars and Brazilian Reals. Fluctuations in exchange rates between Sterling and these currencies could adversely impact financial results.

Mitigation The Group manages these risks through regular reviews of the performance of its direct affiliates and partners. In-market sales data is closely monitored in order to assess products and partner performance and guide any corrective actions that may be required.

The Group maintains a close dialogue with key suppliers and rigorously monitors inventory levels and customer demand to ensure that any interruption to product supply can be managed.

Sinclair maintains product liability insurance and operates quality systems relating to the manufacture of its products and a pharmacovigilance system to monitor safety of its marketed products.

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.

The Group has an in-house regulatory and quality department, which maintains a close dialogue with regulatory authorities and reports any issues to the Board on a regular basis.

The Board regularly reviews cash flow forecast models, which include sensitivities to key assumptions. This enables the Group to take timely mitigating actions such as controlling costs and capital spend, or seeking alternative sources of finance to meet anticipated liquidity requirements.

Sinclair seeks to match currency receipts and expenditure as far as possible with deferred consideration liabilities denominated in the functional currency of the underlying businesses acquired. The Group may also engage in short-term hedging transactions in order to hedge against changes in exchange rates during the financial year.

On behalf of the board

Chris SpoonerChief Executive Officer3 May 2018


B O A R D O F D I R E C T O R S


Grahame CookNon-executive Chairman

Grahame 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. He 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 Director at Draper Esprit plc, Horizon Discovery Group Plc, Morgan Rossiter Ltd, Pirtsemit Ltd and Morphogenesis inc.

Chris joined Sinclair In December 2009 following a career in financial services, most recently as founder and CEO of HealthCor Management UK, a dedicated healthcare hedge fund and the European division of HealthCor L.P. Prior to that he 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.

He is currently a Non-executive Director of Pirtsemit Limited.

Strategic report




Jeff ThompsonNon-executive Director

Alan OlbyChief Financial Officer

Alan joined the Board in July 2016. He joined Sinclair in September 2005 and was promoted to his current position of Chief Financial Officer in December 2009. He is responsible for all finance activities of the Group as well as supply chain and manufacturing activities. Prior to joining Sinclair, Alan gained experience in the biotech sector working at Xenova Group plc and KS Biomedix plc. 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.

Jeff joined the Board in September 2014. He has many years of experience in the US dermatology industry having served on the Board of Directors for, and as COO, of Stiefel Laboratories, Inc., and currently holds various directorships including President/CEO/Chairman of Enaltus (dermatology, pvt) and Non-executive Director of Anika Therapeutics, Inc., a US publicly traded (NASDAQ: ANIK) biotechnology company based in Bedford, Massachusetts, which develops, manufactures and commercialises hyaluronic acid based products.


S E N I O R M A N A G E M E N T

Jayne joined Sinclair in January 2015 having spent 12 years at Iceland Foods, the frozen food retailer where she was Head of Legal from 2005 and Company Secretary of a number of associated businesses before being promoted to Group General Counsel and Company Secretary in April 2011. She is responsible for all legal and company secretarial matters across the Sinclair Group as well as HR. Jayne qualified as a solicitor specialising in intellectual property law at the international law firm Eversheds.

In 2000 she gained a diploma in intellectual property law and practice at the University of Bristol before moving in-house to British Nuclear Fuels and then to Iceland Foods where she was involved in a number of key disposals and acquisitions including the £1.55bn MBO and £950m high yield bond refinancing.

Doug joined Sinclair in November 2015 having supported Sinclair’s US launch activities as a consultant and brings over 25 years of experience in both commercialisation and executive leadership in medical devices, specialty pharma, and biotechnology. The majority of Doug’s career has been focused on aesthetics and dermatology and on launching new products and companies.

He lead the initial commercial efforts to bring BOTOX® to the aesthetic community while with Allergan and subsequently held senior leadership positions, including CEO roles, at a number of startup businesses and startup divisions of larger companies including Biogen and Suneva Medical. Doug’s experience spans leadership in sales and marketing, product development, and executive level oversight of all stages of the regulatory approval process, manufacturing, and finance. He holds a BA in Chemistry from Lafayette College and an MBA from Temple University.

Nairn joined Sinclair following the merger with IS Pharmaceuticals in May 2011 and has been responsible for the business development activities at Sinclair and recently became head of intercontinental operations. Nairn holds a degree in Biochemistry and Pharmacology and with 18 years’ experience in the pharmaceutical industry has held a number of commercial and business development positions in Sanofi, Link Pharmaceuticals and Archimedes.

Jayne BurrellGroup General Counsel and Company Secretary

Doug AbelHead of North America

Nairn McMasterHead of Latin America

Strategic report




Louis joined Sinclair in July 2014 and is responsible for business and corporate development. Louis has more than 10 years’ experience in the Asia Pacific region. He has previously held positions in business and corporate development at Novartis and Menarini and also has a background in corporate finance. Louis holds a Post Doctoral Fellowship with the Institute of Molecular and Cell Biology and is a Doctor of Medicine.

Emilie joined Sinclair in 2005 and leads the Company’s European operations in France, Spain, Germany and the UK. In addition she is head of global marketing. Before joining Sinclair she took part in a cooperation programme from the Spanish foreign affairs ministry in Panama and worked in a PR agency, Burson-Marsteller, part of Young & Rubicam/WPP Group. She studied for a Master in Public Law at la Sorbonne University and has a Masters degree from Paris Institute of Political Studies.

Kamal Abbasi joined Sinclair in January 2018, his role is to drive growth and profit by implementation of the global strategy for the region. This involves working closely with the local managers and key partners in the Regions, as well as building a strong network across geographies with key external stakeholders. In this dynamic region, Sinclair is always on the lookout for new ways of generating business which not only drive growth and profit, but also help to raise the Company’s profile, while keeping people development as a key priority. Strengthening and establishing Sinclair’s footprint in the current, as well as in new markets, and ensuring access to Sinclair’s innovative product portfolio are strategic imperatives for the territories.

Kamal Abbasi has held several positions before joining Sinclair with most recent being Area Vice President APAC for Nestle Skin Health (Galderma) where he worked for 17 years. Before joining Galderma, Kamal worked at Reckitt Benckiser, first based in Pakistan and later in the UK.

Kamal is a Medical Doctor. He obtained his degree from the Sindh Medical University in Karachi (Pakistan). Kamal currently is based in Singapore.

Louis PayetHead of Business Development

Emilie CroissantHead of Europe, Head of Global

Marketing

Kamal AbbasiHead of APAC, MENA, CEE


D I R E C T O R S ’ R E P O R T

The Directors present their Annual Report on the affairs of the Company and the Group, together with the audited consolidated financial statements for the 12-month period ended 31 December 2017. The strategic review of the business and the Company and its subsidiaries is given on pages 4 to 21. Certain information required for disclosure in this report is provided in other sections of this Annual Report. These include the Strategic Report, the Corporate Governance Report, the Remuneration Report and disclosures on financial risks included in note 23 of the Notes to the Financial Statements, and these are, accordingly, incorporated into this report by reference. An indication of the likely future developments of the business are included in the Strategic Report.

Key performance indicatorsThe Board measures the Group’s performance according to a wide range of key performance indicators (‘KPIs’). The main KPIs at a Group level are as follows, and are measured for the 12-month period ending 31 December 2017, and 31 December 2016:

KPI 2017 2016 Definition, method of calculation and analysis

Revenue £45.3m £37.8m Reported revenue grew by 20% in 2017 driven mainly by growth in Silhouette InstaLift® and Silhouette Soft®. Currency translation differences provided a revenue benefit of £2.2 million. On a constant currency basis revenue growth was 14%. Details of the performance of each brand are set out in the Strategic Report.

Gross margin 72.6% 70.7% Gross margins increased again in 2017 as a result of increasing sales of Silhouette (Soft® and InstaLift®) and Ellansé®, the Group’s two strategic brands and highest margin products. In 2017 these brands contributed 67% of total revenues (2016: 62%). Increasing direct sales via the establishment of Sinclair Brazil has also contributed to the improved gross margin in 2017.

Adjusted EBITDA/(loss) £397,000 (£6,124,000) Adjusted EBITDA is total earnings of the Group before interest, tax, depreciation, amortisation, impairment, share-based payments, exceptional items and profit from discontinued operations.

As expected, the Group returned to EBITDA profitability in 2017 as a result of growth in revenue, improved gross margin and strong cost control.

Results, earnings and dividendsThe loss for the 12-month financial period ending 31 December 2017 was £39,000 (18-month period ended 31 December 2016: £29,575,000). The Directors do not recommend a dividend (2016: £nil).

Risk managementThe Group’s operations expose it to a variety of financial risks, including the effects of changes in currency exchange rates, credit exposure and liquidity. More details can be found in note 23 to the financial statements. Going concernThe Directors are satisfied, after making appropriate enquiries, that the Group has adequate resources to continue in business for at least 12 months and accordingly considers that it is appropriate to adopt the going concern basis in preparing the financial statements.

DirectorsThe Directors of the Company who served during the year and up to the date of this report were:Grahame Cook Non-executive ChairmanChris Spooner Chief Executive OfficerAlan Olby Chief Financial Officer Jeff Thompson Non-executive Director

Jeff Thompson will retire by rotation, and will be available for reappointment at the Annual General Meeting (‘AGM’). Details of the resolution to reappoint him are contained in the AGM notice.

Strategic report




Directors’ interestsDetails of Directors’ interests in the share capital of the Company, together with details of the share incentives granted to them, are disclosed in the Remuneration Report on pages 32 to 35.

At the date of this report, the Directors of the Company had an interest, beneficially and non-beneficially, in an aggregate of 11,958,779 Ordinary shares, representing 2.4% of the Company’s total voting rights.

Directors’ and officers’ liability insuranceThe Company had in place qualifying third party indemnity insurance for all Directors throughout the period and to the date of 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 31 December 2017, the issued share capital was £5,037,690 comprising 503,768,952 1p Ordinary shares (2016: 502,198,442) 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 26 April 2017, shareholders gave authority for the Directors to allot relevant securities up to £1,673,995 and to allot for cash equity securities having a nominal amount not exceeding in aggregate £502,198 (being 10% of the issued share capital).

Substantial shareholdingsAt 20 April 2018, the Company has been notified (or are otherwise aware) of the following interests in 3% or more of the Ordinary share capital.

Shareholding %

Toscafund Asset Management 148,113,603 29.4

Lansdowne Partners 59,987,523 11.9

Abingworth Management 28,889,270 5.7

Fidelity Management & Research 38,126,680 7.8

Stuart Swanson 21,000,000 4.2

Schroder Investment Management 19,848,942 3.9

Soros Fund Management 19,456,023 3.9

Change of controlThe Company, and various subsidiaries, are party to a number of agreements which have change of control clauses. If triggered, these could lead to the repayment and early settlement of charges under debt facility agreements and vesting of certain awards under employee bonus and share plans. There are no agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment following a takeover of the Company.

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 products and line extensions during the period, details of which can be found in the ‘Our product‘ sections.


D I R E C T O R S ’ R E P O R T C O N T I N U E D

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.

Political donations The Group made political donations totalling £nil (2016: £nil).

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

Statement as to disclosure of information to auditorsThe Directors, in office at the date of this report, have confirmed that:• so far as they are aware, there is no relevant audit information of which the Company’s auditors are unaware; and• 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.

Statement of Directors’ ResponsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union 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 Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing the financial statements, the Directors are required to:• select suitable accounting policies and then apply them consistently;• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by

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

• make judgements and accounting estimates that are reasonable and prudent; and• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

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

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s performance, business model and strategy.

Strategic report




Each of the Directors, whose names and functions are listed in Annual Report and Accounts 2017 confirm that, to the best of their knowledge:• the Parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair

view of the assets, liabilities, financial position and loss of the Company;• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the

assets, liabilities, financial position and loss of the Group; and• the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group and Company, together

with a description of the principal risks and uncertainties that it faces.

Annual General MeetingThe AGM of the Company will be held at the offices of Eversheds Sutherland LLP on 13 June 2018 at 10am. 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

Alan OlbyChief Financial Officer3 May 2018


C O R P O R AT E G O V E R N A N C E R E P O R T

Compliance with the UK Corporate Governance CodeThe Board is accountable to the Company’s shareholders for good governance. The following statement describes the key corporate governance policies that have been adopted by the Company. The Company is not required to follow, and does not claim compliance with, the UK Corporate Governance Code (the ‘Code’). Nevertheless, the Board supports the ideals of the Code and is committed to high standards of corporate governance which it considers are critical to business integrity and to maintaining investors’ trust.

Board and Board CommitteesThe Board of DirectorsThe Board of the Company is responsible for the Group’s system of corporate governance. At 31 December 2017, the Board comprised four Directors: an Executive Chief Executive Officer, Chris Spooner; a Chief Financial Officer, Alan Olby and two Non-executive Directors, Grahame Cook and Jeff Thompson. It remains a high priority in 2018 to add a new non-executive to the Board.

All 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 nine formal meetings during the period and they were all fully attended.

The Board is supplied in a timely manner with information in a form and of quality appropriate to enable it to discharge its duties. The Company Secretary is responsible for ensuring the Directors receive accurate, timely and clear information, which is provided by the executive management team.

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 committees are available for inspection on the Company’s website (www.sinclairpharma.com) and at the Annual General Meeting (‘AGM’) (for 15 minutes prior to the meeting and during the meeting).

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 or Remuneration Committees, but others may attend at invitation of the Committee.

Audit Committee and auditorsThe Audit Committee is composed entirely of independent Non-executive Directors. 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 Officer, the Chief Financial Officer and representatives of the external auditors. The Audit Committee meetings were fully attended in the period.

Main activities of the Committee during the yearDuring the period, and through to the approval of these financial statements, the Committee carried out the following reviews in line with its role and responsibilities, in all cases having due regard to the interests of shareholders:• Reviewed and challenged with management

and the external auditor the appropriateness of the Interim Statement and the annual financial statements, clarity and adequacy of disclosures and the material judgements made

• Reviewed the annual financial statements to ensure that they were fair, balanced and understandable

• Reviewed the reports produced by the external auditor setting out their approach for reviewing the interim and auditing the annual financial statements as well as their findings and recommendations, particularly the key audit areas relating to revenue recognition, acquisition accounting, going concern and impairment reviews

• Reviewed the effectiveness of the external audit process and the external auditor

• Reviewed draft regulatory news announcements in respect of the interim statement and annual financial statements

• Monitored the quality of internal controls, ensuring that the financial performance of the Group is properly measured and reported on

AuditorThe Audit Committee also oversees the relationship with the Group’s external auditor, PricewaterhouseCoopers LLP, including approval of remuneration levels, approval of terms of engagement and assessment of their independence and objectivity. The Audit Committee considers that the relationship with the Group’s auditor is working well and it remains satisfied with their effectiveness. Accordingly, it has not been considered necessary to perform a tender which was last performed in 2005 when PricewaterhouseCoopers LLP were appointed.

Remuneration CommitteeThe Remuneration Committee is made up entirely of independent Non-executive Directors. All meetings in the period were fully attended by all members. The Committee’s responsibilities are outlined within the Directors remuneration report on pages 32 to 35.

Internal controlThe Board, assisted by the Audit Committee, is responsible for regularly reviewing the operation and effectiveness of the Group’s internal controls. The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable assurance, and not absolute assurance, against material errors, losses or fraud. The Board is also responsible for ensuring that appropriate systems are in place to enable it to identify, assess and manage key risks.

The financial reporting process and control system (which includes the preparation of consolidated financial statements) is monitored and maintained through the use of internal control frameworks which address key financial reporting risks, including risks arising from changes in the business or accounting standards. Effectiveness is assessed through self-certification and independent testing of the controls by the head office finance function.

Strategic report




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 technical 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 Company’s website (www.sinclairpharma.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. Graham Cook, the Non-executive Chairman, 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.

By order of the Board

Alan Olby Chief Financial Officer3 May 2018


R E M U N E R AT I O N R E P O R T

Dear ShareholderOn behalf of the Board, I am pleased to introduce the Directors’ Remuneration Report for the 12-month period ended 31 December 2017. This report has been prepared by the Remuneration Committee (the ‘Committee’) and approved by the Board.

Committee membersThe Committee members are Jeff Thompson and Grahame Cook, both of whom are independent Non-executive Directors on appointment and do not participate in discussions in respect of matters relating directly to their own remuneration.

The Committee held one formal meeting in the financial year which was attended by all Committee members.

Role of the Committee and activitiesThe Committee is responsible for recommending to the Board the remuneration policy for Executive Directors and senior management and for setting the remuneration packages for each Executive Director. The Committee also has oversight of the remuneration policy and packages for other senior members of staff.

The written terms of reference of the Committee are available on the Company’s website.

The Committee’s main activities during the financial period included: • Determining bonus payments in relation

to the financial period; and• Reviewing base salaries for Executive

Directors and senior management.

The Committee received external advice in the period from PricewaterhouseCoopers LLP, who were appointed by the Committee and are considered objective and independent.

Remuneration policyThe Committee determines the remuneration policy for the Executive Directors, Chairman and other senior executives for current and future periods and this is reviewed on an annual basis. The remuneration policy is designed to support the strategic objectives of the Company and to allow the business to attract, retain and motivate the quality of senior management needed to shape and execute strategy and deliver shareholder value.

The policy is designed around the following key principles:• Ensure a strong link between reward and

individual and Company performance to align the interests of senior executives with those of shareholders;

• Maintain a competitive package against businesses of a comparable size and comparable peer group businesses in the sector with reference to the breadth of the role and experience the role holder brings to the Company;

• Operate a consistent reward and performance philosophy throughout the business, taking into account the pay and conditions of other employees of Sinclair;

• Encourage a material, personal stake in the business and a long-term focus on sustained growth through long-term shareholding;

• Provide a balanced package with a focus on variable pay; and

• Take into account the associated risks of each aspect of remuneration.

The Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the Company’s business environment and in remuneration practice.

External appointmentsThe Committee recognises that Executive Directors may be inclined to take up Non-executive Directorships or public sector and not-for-profit appointments, and that these can broaden the experience, network and knowledge of the Director, from which the Group can benefit. Executive Directors may therefore accept such appointments only after they have obtained prior written approval of the Board and that the Board is satisfied that there is no conflict of interest and that the appointment will not detract from the Executive’s performance for the Company. Executive Directors are allowed to retain any fees paid under such appointments.

During the year under review, Chris Spooner held a Non-executive Directorship with Pirtsemit Limited. Chris did not receive any remuneration from this external appointment. Alan Olby did not hold any external appointments. Key components of the remuneration policyThere are four main elements of the remuneration package for Executive Directors:

(i) Basic salary and benefitsBasic salaries are recommended to the Board by the Remuneration Committee, taking into account the individual performance and experience of the Executive Director, rates for similar positions in comparable companies, pay and conditions for employees across the Group, the general performance of the Group and the economic environment. Salaries are set at a level that can attract and retain Executive Directors and recognises the status and responsibility required to deliver the strategy.

Executive Directors may receive a benefits package which includes health insurance for themselves and their family, and other benefits as provided by the Company from time to time.

(ii) PensionThe Executive Directors are entitled to receive contributions under the Company’s defined contribution pension scheme. Chris Spooner elected not to receive any pension contributions in the period.

Strategic report




YEAR 3

- - - - -

50% of nil-cost optionsbanked are exercisable at

the end of Year 5 and 50% on first anniversary

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

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

(iii) BonusThe Group operates the Sinclair Pharma plc 2013 Bonus Plan (‘2013 Bonus Plan’) to align rewards for Executive Directors and senior managers to key objectives relating to the Group’s financial performance and operational strength. The performance period is one financial year with pay-out determined by the Committee following the year end, based on achievement against performance targets. These targets, and their relative weighting, are set by the Committee annually based on a range of financial and operational measures to ensure that they support the business strategy and objectives for the relevant year. The maximum annual bonus level for Executive Directors is up to 150% of salary. At present the maximum bonus entitlement is capped at 130% of basic salary for the CEO and 100% for the CFO.

The 2013 Bonus Plan requires 50% of the annual bonus awarded to Executives to be deferred into a plan account. The deferred element of the annual contribution is in notional shares and added to each participant’s account. The notional shares in each plan account are revalued annually based on the Company’s average share price over the last month of the financial year. Participants are entitled to an annual payment of 50% of the balance of their plan account at the end of each financial year. This continues for three years with the remaining balance paid out in shares in year four when the bonus plan ends. Each year, 50% of the unpaid balance of a participant’s plan account will be at risk of annual forfeiture. The

rolling deferral into shares assists with the retention of Executive Directors and aligns their interests with those of shareholders.

(iv) Value Creation PlanThe Group operates a Value Creation Plan (‘VCP’) which grants VCP units to Executive Directors and certain senior managers of the Group. These long-term incentive arrangements are structured so as to align the incentives of the VCP participants with the long-term performance of the business and to motivate and retain key members of staff.

VCP units have no value on grant but may convert into nil-cost options over Ordinary shares in the Company subject to the Group’s share price reaching certain targets at five separate dates (Measurement Dates) over a five-year performance period. 50% of any nil cost options granted vest after the fifth Measurement Date and the remaining 50% vest on the first anniversary of the fifth Measurement Date. If the share price targets are not met, the VCP does not pay out for performance in that period. The overall effect of the VCP is that the Executive Directors and other participants will be able to earn shares equivalent to 15% of any total shareholder return created above pre-determined hurdle (Threshold Price) at the five Measurement Dates. The Measurement Date in each year is the date on which the Group’s annual results are announced. Pay-out under the VCP is capped to ensure that participants do not share in a disproportionate amount of the value created for shareholders.

The allocation of VCP units to Executive Directors is as follows: Chris Spooner – 40%, Alan Olby – 12%.

In aggregate, participants will be able to earn nil cost options equivalent to 15% of any total shareholder return created above the Threshold Price at each Measurement Date. In the event that the Measurement Price is not above the Threshold Price, the VCP will not pay out for that performance period. The Measurement Price at each Measurement Date will be calculated using the average share price over the 30 days following the announcement of the Group’s financial results for the relevant financial year plus the dividends paid per share. The Threshold Price for the next Measurement Date in March 2019 is 50.1p, 8% growth on the Threshold Price in March 2018.

Remuneration policy for Non-executive DirectorsThe Group sets fee levels necessary to attract and retain experienced and skilled Non-executive Directors to advise and assist with establishing and monitoring the strategic objectives of the Group. Non-executive Directors are paid a base fee and additional fees may be paid for chairmanship of Committees. Non-executive Directors do not receive any bonus, do not participate in awards under the Group’s share plans, and are not eligible to join the Group’s pension scheme.

The diagram below outlines the operation of the VCP:


R E M U N E R AT I O N R E P O R T C O N T I N U E D

Annual remunerationSingle total figure of remuneration (audited)Particulars of Directors’ emoluments are as follows:

12 months ended 31 December 2017

Executive Director (£’000)Salary

and feesTaxable

benefits BonusLong-term incentives Pension

Total 2017

18 months ended

31 December 2016

Chris Spooner 384 2 100 101 – 587 1,385Alan Olby 218 2 51 42 7 320 281Christophe Foucher – – – – – – 2,036

Non-executive Director (£’000)

Grahame Cook 75 – – – – 75 96Jeff Thompson 45 – – – – 45 54Jean-Charles Tschudin – – – – – – 47

Notes on remuneration for the 18 months ended 31 December 20161 Bonuses in 2016 included a cash bonus equal to 130% (£279,000) and 120% (£152,000) of basic salary for Chris Spooner and Christophe Foucher for the six-month period ended 31 December

2015 following completion of the disposal of the non-aesthetics business. 2 Salary and taxable benefits for Christophe Foucher were paid in Euros and translated at the average rate for the period 2015–16 €1.30 3 Salary and taxable benefits for Alan Olby are shown from the date of appointment as a Director, 19 July 20164 Remuneration for Christophe Foucher in 2016 included compensation payments on loss of office which were calculated in accordance with French employment law, and also included £323,000 in

respect of rights accrued under the VCP scheme.

Annual bonus plan outcomeIn determining the award for 2017, the Committee took into account the Group financial performance and achievement against the Group’s strategy.

2017 represents the second year of a four year cycle under the 2013 Bonus Plan, the earned bonus for the year is added to each individual Executive Director’s plan account. 50% of the balance on the plan account at the end of the financial year is released and 50% deferred in the form of notional shares which are revalued at the end of each year. The deferred balances on each Executive Director’s plan account as at 31 December 2017 are set out below:

Executive Director

a. Plan account brought forward

(notional shares)

b. Plan account brought forward

c. Contribution to plan

account for 2017

d. Plan account balance

after 2017 contribution

e. Amount released in

2017 (50% of column c)

f. Amount released in relation to

performance in prior years

g. Plan account carried forward

h. Plan account carried forward

(notionalshares)1

Chris Spooner 773,273 £202,730 £199,736 £402,466 £(99,868) £(101,365) £201,233 767,563Alan Olby 317,460 £83,229 £102,500 £185,729 £(51,250) £(41,614) £92,864 354,213

Notes1 Plan account carried forward notional shares calculated using average share price for the month of December 2017 of 26.2p.

Strategic report




VCPAt the second Measurement Date, in March 2017, the Threshold Price under the VCP was 43.0p and as a result no nil cost options were awarded. The Threshold Price at the third Measurement Date (April 2018) will be 46.4p. The following nil cost options were previously awarded under the terms of the VCP:

Executive DirectorNil cost options brought forward

Nil cost options awarded

Nil cost options exercised

Value of share options

exercisedNil cost optionscarried forward1

Chris Spooner 1,912,528 – – – 1,912,528Alan Olby 425,006 – – – 425,006

Executive/Non-executive DirectorOrdinary shares at31 December 20171

Ordinary shares at 31 December 2016

Number of Bonus Plan notional shares

subject to conditions

Number of VCP nil cost options

subject to conditions2

ExecutiveChris Spooner 10,240,479 10,240,479 767,563 1,912,528Alan Olby 468,300 468,300 354,213 425,006

Non-executiveGrahame Cook 700,000 700,000 – –Jeff Thompson 150,000 150,000 – –

Notes1 Subsequent to 31 December 2017, Chris Spooner and Jeff Thompson have each acquired a further 200,000 Ordinary shares, taking their total holdings to 10,440,479 and 350,000 respectively.2 Share options issued under the VCP scheme were awarded following the first Measurement Date at 31 December 2016 when the share price was 39.5p and the Threshold Price was 37.0p.

The Directors’ Remuneration Report has been approved by the Board of Sinclair Pharma plc.

On behalf of the Board

Jeff ThompsonChairman, Remuneration Committee3 May 2018


Report on the audit of the financial statementsOpinionIn our opinion, Sinclair Pharma plc’s Group financial statements and Company financial statements (the ‘financial statements’):• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s loss and the Group’s and the

Company’s cash flows for the year then ended;• have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company’s financial statements, as applied

in accordance with the provisions of the Companies Act 2006; and• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Accounts 2017 (the ‘Annual Report’), which comprise: the consolidated and Company balance sheets as at 31 December 2017; the consolidated income statement and consolidated statement of comprehensive income, the consolidated and Company cash flow statements, and the consolidated and Company statements of changes in equity; and the notes to the financial statements, which include a description of the significant accounting policies.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

IndependenceWe remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our audit approachOverview

Materiality

Audit scope

Key audit matters

• Overall Group materiality: £418,000 (2016: £750,000 for the 18 month period), based on 5% of loss before tax and exceptional items.

• Overall Company materiality: £397,000 (2016: £358,000 for the 18 month period), based on the lower of statutory and component materiality (statutory materiality based on 1% of total assets).

• We have performed full scope audit work over Sinclair Pharma plc (the parent company of the Group), Sinclair Pharmaceuticals Limited and Sinclair Brazil (Building Health Distribuidora de Produtos Para a Saude Ltda).

• We have performed limited scope audit work over a further seven entities within the Group.

• Business combinations and significant acquisitions (Group).• Valuation of goodwill and investments (Group and Company).• Going concern (Group and Company).

The scope of our auditAs part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our, audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit mattersKey audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S I N C L A I R P H A R M A P L C

Strategic report




Key audit matter How our audit addressed the key audit matter

Business combinations and significant acquisitionsRefer to note 32 Business combinations and note 14 Intangible assets.

During the year the Group acquired:• a South Korean entity, accounted for as a business

combination; and• the intellectual property related to the Refine Support

System, accounted for as an asset acquisition.

The assets acquired are material to the Group financial statements and the valuation of these assets has required management to make a number of estimates and judgements, including:• determining whether the transactions should be accounted

for as business combinations or asset purchases;• valuing contingent consideration included within the

acquisition agreements; and• identifying and valuing intangible assets acquired.

We have performed the following work in relation to the acquisition of the South Korean business:

• Understood the terms of the acquisition, with reference to the acquisition agreement, including the nature of the assets acquired and liabilities assumed to confirm that accounting for as a business combination is appropriate.

• Tested the cost of the acquisition, including tracing cash paid to bank statements and comparing future milestone payments to the acquisition agreement.

• Understood the nature of the intangible assets that have been recognised as part of the acquisition and compared these to a list of potential intangible assets that could be recognised.

• Tested the value of intangible assets acquired including the appropriateness of key assumptions used in the valuation model, being – Forecast cash flows; – Discount rate; – Terminal value growth rate; and – Useful economic life.

• We have compared these assumptions to market data, other similar acquisitions and previous acquisitions made by the Group.

• We have compared the cash flows used in determining the valuation of contingent consideration and the intangible assets acquired to internal forecasts prepared at the time of the acquisition.

We have performed the following work in relation to the acquisition of the Refine Support System intellectual property:• Understood the terms of the acquisition and the nature of the assets acquired to confirm

that accounting for as an asset purchase is appropriate;• Tested the cost of the purchase, including tracing cash paid to bank statements and

comparing future milestone payments to the acquisition agreement; and• We have compared the cash flows used in determining the valuation of contingent

consideration to internal forecasts prepared at the time of the purchase.

Valuation of goodwill and investmentsRefer to note 13 Goodwill and note 33 Investments.

Goodwill of £58.6m (2016: £65.2m) and investments £130.0m (2016: £214.3m) are material to the Group and Company financial statements respectively.

The carrying values of these assets are considered annually for impairment with reference to a value in use model. This model incorporates a number of estimates, including:• Forecast cash flows for the five years subsequent to the

balance sheet date;• Long term growth rates; and• Discount rates.

In addition, the Directors have also prepared a sensitised impairment model that takes into account the financial impacts of a number of risks that the Directors believe have a reasonable likelihood of occurrence.

No impairment charges have been recorded in the current year.

We evaluated and assessed the Group’s future cash flow forecasts and the process by which they were drawn up and tested the underlying value in use calculations. We compared the Group’s forecasts to the latest Board approved budget and found them to be consistent.

We also assessed:• The cash flows forecasts through discussion with management, comparing the forecast

trends to the current actual sales rates and comparing these to external market research where available. We have confirmed that these cash flows are consistent with those used to assess going concern and calculate contingent consideration;

• Management’s key assumptions for long-term growth rates in the Group’s forecasts by understanding and assessing through discussion with management and comparing with external forecasts of long-term growth rates; and

• The discount rates used by assessing the cost of capital calculations for the Company and comparing against comparable organisations.

We compared the current period’s actual results with previous forecasts to assess historical accuracy of the forecasts and used the rate of historic difference identified to sensitise the projected budgets.

We have considered management’s analysis of the potential impact of reasonably possible changes in key assumptions. This work included consideration of all key assumptions and changes that could be considered to be reasonably possible based on the related risks.

We have also reviewed the disclosures made regarding the assumptions and the sensitivities which draw attention to the more significant areas of judgement sensitive to change.


Key audit matter How our audit addressed the key audit matter

Going concernRefer to note 2 Basis of preparation.

The Group financial statements have been prepared on the going concern basis, meaning that the Directors believe that the Group will have the cash resources it requires to settle its liabilities for the period extending 12 months from the date of approval of the financial statements.

In concluding on this basis of preparation, the Directors have prepared a cash flow forecast for the period extending to 31 December 2020, with particular focus on the twelve month period to 30 April 2019. This forecast is based on the Directors’ best estimate of the expected financial performance of the Group.

In addition, the Directors have also prepared a sensitised cash flow forecast, covering the same period, that takes into account the financial impacts of a number of risks that the Directors believe have a reasonable likelihood of occurrence.

The Group has an external financing facility agreement which includes a number of financial covenants. The forecast financial information prepared by the Directors includes forecast performance against all covenants.

We evaluated and assessed the Group’s future cash flow forecasts and the process by which they were drawn up. We compared the Group’s forecasts to the latest Board approved budget and found them to be consistent.

Our testing was focused on the key judgements and assumptions as follows:• We have considered the revenue growth assumptions and where these have been

forecast with reference to previous performance, we have compared these forecasts to equivalent amounts recognised in previous years and discussed with management the reasons for any significant variances. Where possible, we have compared internal forecasts to independently prepared market analysis;

• We have compared forecast costs to equivalent amounts incurred in previous years and discussed with management the reasons for any significant variances;

• We have challenged management’s sensitivity analysis in light of our understanding of the business and its environment, including matters that have arisen subsequent to the preparation of management’s forecasts. We have found the sensitivity analysis performed to be sufficiently robust;

• We have compared the forecast cash outflows related to contingent consideration to the forecasts used in calculating the related liabilities and found these to be consistent; and

• We have reviewed the terms of the Group’s financing facility that was entered into subsequent to the year end and confirmed that there are no restrictions to draw down outside of the control of the Group. We have compared forecast cash flows related to this financing facility to the related terms of the agreement and found these to be consistent.

How we tailored the audit scopeWe tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.

We have performed full scope audit work over Sinclair Pharma plc (the parent company of the Group), Sinclair Pharmaceuticals Limited and Sinclair Brazil (Building Health Distribuidora de Produtos Para a Saude Ltda). We have performed limited scope audit work over a further seven entities within the Group. These components accounted for 74% of the revenue and 80% of profit before tax for the group.

All audit work has been performed by the Group audit team with the exception of the full scope audit of Sinclair Brazil which was performed by PwC Brazil.

MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements Company financial statements

Overall materiality £418,000 (2016: £750,000 for the 18 month period). £397,000 (2016: £358,000 for the 18 month period).

How we determined it 5% of loss before tax and exceptional items. Based on the lower of statutory and component materiality (statutory materiality based on 1% of total assets).

Rationale for benchmark applied

We consider loss before tax and exceptional items to be an appropriate benchmark as the Group is profit orientated. Loss before tax and exceptional items is a measure used both internally and externally to assess the performance of the Group.

We believe that calculating statutory materiality based on 1% of total assets is appropriate as total assets is a typical primary measure for users of the financial statements of holding companies, and is a generally accepted auditing benchmark.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £250,000 and £400,000.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £21,000 (Group audit) (2016: £37,500) and £20,000 (Company audit) (2016: £17,900) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S I N C L A I R P H A R M A P L C C O N T I N U E D

Strategic report




Conclusions relating to going concernWe have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s and

Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern.

Reporting on other informationThe other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below.

Strategic Report and Directors’ ReportIn our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.

Responsibilities for the financial statements and the auditResponsibilities of the directors for the financial statementsAs explained more fully in the Statement of Directors’ responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view.

The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.


Use of this reportThis 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.

Other required reportingCompanies Act 2006 exception reportingUnder the Companies Act 2006 we are required to report to you if, in our opinion:• we have not received all the information and explanations we require for our audit; or• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by

us; or• certain disclosures of directors’ remuneration specified by law are not made; or• the Company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Graham Parsons (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsManchester3 May 2018

I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F S I N C L A I R P H A R M A P L C C O N T I N U E D

Strategic report




C O N S O L I D AT E D I N C O M E S TAT E M E N T

For the year ended 31 December 2017

Note

12 months ended 31 December 2017 18 months ended 31 December 2016

Pre-exceptional

items £’000

Exceptional items

(note 5) £’000

Total £’000

Pre- exceptional

items £’000

Exceptional items

(note 5) £’000

Total £’000

Continuing operationsRevenue 4 45,300 – 45,300 45,489 – 45,489Cost of sales (12,414) – (12,414) (13,674) – (13,674)

Gross profit 32,886 – 32,886 31,815 – 31,815Selling, marketing and distribution costs (21,936) – (21,936) (29,799) – (29,799)Administrative expenses (17,125) 4,016 (13,109) (27,289) 7,037 (20,252)

Operating loss 7 (6,175) 4,016 (2,159) (25,273) 7,037 (18,236)Finance expense 9 (2,184) – (2,184) (12,933) (2,861) (15,794)

Loss before taxation (8,359) 4,016 (4,343) (38,206) 4,176 (34,030)Taxation 10 3,669 – 3,669 634 – 634

Loss for the period from continuing operations (4,690) 4,016 (674) (37,572) 4,176 (33,396)

Discontinued operationsProfit for the period from discontinued operations 6 635 3,821

Loss attributable to the owners of the parent (39) (29,575)

(Loss)/earnings per share (basic and diluted) 12From continuing operations (0.13p) (6.71p)From discontinued operations 0.12p 0.77p

Loss per share for the period (0.01p) (5.94p)

C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E



£’000


£’000

Loss for the period (39) (29,575)Other comprehensive (expense)/income (Items that may subsequently be reclassified to the income statement)Currency translation differences (2,386) 14,347Reclassification adjustment relating to foreign operations disposed of in the period – 7,703

Total other comprehensive (expense)/income (2,386) 22,050

Total comprehensive expense for the period attributable to the owners of the parent (2,425) (7,525)

Total comprehensive income/(expense) arises from:Discontinued operations 635 11,524Continuing operations (3,060) (19,049)

(2,425) (7,525)

The notes on pages 47 to 77 form an integral part of these consolidated financial statements.


C O N S O L I D AT E D B A L A N C E S H E E T

As at 31 December 2017

Note

31 December 2017

£’000

31 December 2016 £’000

Non-current assetsGoodwill 13 63,425 65,230Intangible assets 14 80,668 83,650Property, plant and equipment 15 1,574 1,679Other financial assets 167 102

145,834 150,661

Current assetsInventories 16 4,266 3,840Trade and other receivables 17 16,940 13,329Cash at bank 1,837 16,769

23,043 33,938

Total assets 168,877 184,599

Current liabilitiesBorrowings 19 (1,039) – Trade and other payables 18 (13,789) (19,582)Other financial liabilities 20 (4,311) (5,421)Current tax liabilities (603) (1,122)Provisions 21 (423) (758)

(20,165) (26,883)

Non-current liabilitiesBorrowings 19 (3,763) – Trade and other payables 18 (884) (1,000)Other financial liabilities 20 (25,261) (32,325)Deferred tax liabilities 22 (19,621) (24,071)

(49,529) (57,396)

Total liabilities (69,694) (84,279)

Net assets 99,183 100,320

EquityShare capital 24 5,038 5,022Share premium 86,625 86,128Merger reserve 97,141 97,141Other reserves 12,936 15,322Accumulated losses (102,557) (103,293)

Total shareholders’ equity 99,183 100,320


The financial statements on pages 41 to 77 were approved by the Board of Directors on 3 May 2018 and signed on its behalf by:


Sinclair Pharma plc registered number 03816616

Strategic report




C O M PA N Y B A L A N C E S H E E T

As at 31 December 2017

Note

31 December 2017

£’000

31 December 2016£’000

Non-current assetsInvestments 33 129,936 214,284

129,936 214,284

Current assetsTrade and other receivables 17 2 363Cash at bank 12 11,155

14 11,518

Total assets 129,950 225,802

Current liabilitiesBorrowings 19 (1,039) –Trade and other payables 18 (1,830) (1,590)Current tax liability – (539)

(2,869) (2,129)

Non-current liabilitiesBorrowings 19 (3,763) (99,703)

Total liabilities (6,632) (101,832)

Net assets 123,318 123,970

EquityShare capital 24 5,038 5,022Share premium 86,625 86,128Merger reserve 102,241 102,241Accumulated losses

At start of period (69,421) (62,789) Loss for the period attributable to the owners (1,940) (8,857) Other changes in retained earnings 775 2,225

(70,586) (69,421)

Total shareholders’ equity 123,318 123,970


The financial statements on pages 41 to 77 were approved by the Board of Directors on 3 May 2018 and signed on its behalf by:


Sinclair Pharma plc registered number 03816616


C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y


Share capital £’000

Share premium

£’000

Merger reserve £’000

Other reserves £’000

Accumulated losses£’000

Total equity £’000

Balance at 1 July 2015 4,974 86,128 97,141 (6,728) (75,943) 105,572Exchange differences arising on translation of overseas subsidiaries – – – 14,347 – 14,347Reclassification of foreign currency reserves relating to overseas

operations disposed of in the period – – – 7,703 – 7,703Loss for the period – – – – (29,575) (29,575)

Total comprehensive expense for the period – – – 22,050 (29,575) (7,525)

Share-based payments – – – – 2,225 2,225Issue of share capital (note 24) 48 – – – – 48

Total transactions with owners recognised directly in equity 48 – – – 2,225 2,273

Balance at 31 December 2016 5,022 86,128 97,141 15,322 (103,293) 100,320Exchange differences arising on translation of overseas subsidiaries – – – (2,386) – (2,386)Loss for the year – – – – (39) (39)

Total comprehensive expense for the year – – – (2,386) (39) (2,425)

Share-based payments – – – – 775 775Issue of share capital (note 24) 16 497 – – – 513

Total transactions with owners recognised directly in equity 16 497 – – 775 1,288

Balance at 31 December 2017 5,038 86,625 97,141 12,936 (102,557) 99,183


Strategic report




C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y


Sharecapital £’000

Sharepremium

£’000

Mergerreserve £’000

Accumulated losses£’000

Total equity £’000

Balance at 1 July 2015 4,974 86,128 102,241 (62,789) 130,554Loss for the period – – – (8,857) (8,857)

Total comprehensive expense for the period – – – (8,857) (8,857)

Share-based payments – – – 2,225 2,225Issue of share capital (note 24) 48 – – – 48

Total transactions with owners recognised directly in equity 48 – – 2,225 2,273

Balance at 31 December 2016 5,022 86,128 102,241 (69,421) 123,970Loss for the year – – – (1,940) (1,940)

Total comprehensive expense for the year – – – (1,940) (1,940)

Share-based payments – – – 775 775Issue of share capital (note 24) 16 497 – – 513

Total transactions with owners recognised directly in equity 16 497 – 775 1,288

Balance at 31 December 2017 5,038 86,625 102,241 (70,586) 123,318



C A S H F L O W S TAT E M E N T S


Group Company

Note

12-month period ended

31 December 2017 £’000


31 December 2016 £’000


31 December 2017 £’000


31 December 2016 £’000

Cash flows from operating activities including discontinued operations

Net cash outflow from operations 26 (10,532) (16,331) (1,800) (5,420)Interest paid (355) (2,850) (358) (2,850)Taxation paid (135) (97) 90 539

Net cash used in operating activities (11,022) (19,278) (2,068) (7,731)

Investing activitiesInterest received – 47 5 38Purchases of property, plant and equipment (274) (704) – –Purchase of intangible assets (2,441) (1,230) – –Proceeds on settlement of financial instrument – 19 – –Net cash inflow from disposal of subsidiary undertakings – 134,114 – –Payment of deferred and contingent consideration (6,088) (46,255) – –(Repayment)/advance of intra-Group loans – – (14,080) 74,411Acquisition of subsidiary undertakings, net of cash acquired 32 (29) (6,759) – –

Net cash (used in)/generated from investing activities (8,832) 79,232 (14,075) 74,449

Financing activitiesProceeds from borrowings 19 5,000 – 5,000 – Repayment of borrowings – (56,671) – (56,671)

Net cash generated from/(used in) financing activities 5,000 (56,671) 5,000 (56,671)

Net (decrease)/increase in cash and cash equivalents (14,854) 3,283 (11,143) 10,047

Cash and cash equivalents at start of period 16,769 12,661 11,155 803Exchange (losses)/gains on cash and cash equivalents (78) 825 – 305

Cash and cash equivalents at end of period 1,837 16,769 12 11,155


Strategic report




1. General informationSinclair Pharma plc (the ‘Company’) is an international speciality pharmaceutical company focused on aesthetics. The Group has a direct sales and marketing presence in the UK, Spain, France, Germany, Brazil and South Korea and a rapidly growing international division concentrated on key emerging markets through long-term multi-product and multi-country sales, marketing and distribution deals with key strategic partners.

The principal activities of the Group are the manufacture, commercialisation and sale of aesthetic products. The Group is also engaged in research and development and owns various product rights and licences in different territories.

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

The consolidated and Company financial information is presented in Sterling, which is also the functional currency of the Parent Company, and has been rounded to the nearest thousand (£’000).

Change of accounting reference dateDuring the prior period, the Group and Company changed its accounting reference date from 30 June to 31 December. The financial information in the Annual Report therefore covers the year ended 31 December 2017, with the comparative period covering the 18 months ended 31 December 2016.

2. Accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparationThe financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) and IFRS Interpretations Committee (‘IFRS IC’) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. The consolidated 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 IFRSs 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.

Under Section 479A of the Companies Act 2006, exemptions from an audit of the financial statements for the financial period ending 31 December 2017 have been taken by Sinclair Pharma Holdings Limited (08871117), Sinclair Pharma Management Limited (09142486), Sinclair Pharmaceuticals Limited (01007146), IS Pharmaceuticals Limited (02685820), IS Pharma Limited (03337415) and Acorus Therapeutics Limited (03976183). As required, the Company guarantees all outstanding liabilities to which the subsidiary companies listed above are subject at the end of the financial year, until they are satisfied in full and the guarantee is enforceable against the parent undertaking by any person to whom the subsidiary companies listed above is liable in respect of those liabilities.

Going concernThe Directors are satisfied, after making appropriate enquiries that the Group has adequate resources to continue in business for the foreseeable future and accordingly considers that it is appropriate to adopt the going concern basis in preparing the financial statements.

Basis of consolidationThe consolidated financial statements of the Company 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 when the Group is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are deconsolidated from the date on which control ceases. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group

All transactions, balances and unrealised gains between Group companies are eliminated on consolidation. Unrealised losses are also eliminated except to the extent they provide evidence of impairment of the asset transferred.

Business combinationsThe acquisition method of accounting is applied to all business combinations made by the Group. The cost of an acquisition is measured as the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, at the rate of exchange (where applicable) on the date of acquisition. Acquisition costs are expensed as incurred and recognised within exceptional items.

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, based on the rate of exchange (where applicable) on the date of acquisition. 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.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S



N O T E S T O T H E F I N A N C I A L S TAT E M E N T S C O N T I N U E D


2. Accounting policies continuedSegment 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). This team reviews the Group’s internal reporting in order to assess performance and allocate resources. The executive management team has determined that, following the disposal of the non-aesthetics business, the continuing business consists of one reportable segment, which is Aesthetics, based on these internal reports.

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). 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 included within ‘Other Reserves’. There is no tax impact on these transactions. Exchange differences on intra-Group loan balances are taken to the income statement, unless they are considered long-term equity 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. These payments are recognised as revenue in the period in which they are earned. 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.

Discontinued operationsA discontinued operation is a component of our business that represents a separate major line of business or major geographical area of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statement of income and statement of cash flows are reclassified as if the operation had been discontinued from the start of the comparative period.

GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, and is 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 assets(i) 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 (10 to 20 years) from the time they are available for use. Amortisation is included within Administrative expenses.

(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.

Strategic report




2. Accounting policies continuedProperty, plant and equipmentAll property, plant and equipment are 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:• Leasehold improvements expensed over period of lease; and• Office and laboratory equipment depreciated at 15% to 50% 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.

ImpairmentGoodwill is tested annually for impairment and other intangible assets are tested where there is an indication of impairment. 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 (‘CGU’) 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 CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (CGU) 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 (CGU) 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 (CGU) 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.

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.

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are certain transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determinations is made.

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.




2. Accounting policies continuedDeferred 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 determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. 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 payments(i) Value Creation PlanThe Group 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 over a five-year measurement period. Half the units vest after five years from grant and the remaining half vest after six years from grant. The fair value of the VCP units granted is then recognised as an expense over the vesting period with a corresponding increase in equity. 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.

In the event that the conditions covering the VCP units are amended, the fair value is remeasured at the date of the amendment. Any incremental increase in the fair value of the amended VCP units is then recognised as an expense over the remaining vesting period with a corresponding increase in equity.

(ii) 2013 Bonus PlanThe Group also operates a bonus plan which requires 50% of the annual bonus awarded to Executives and certain employees to be deferred into a plan account. The deferred element of the annual contribution will be in shares, the number of which will be calculated based on the 30-day average share price at the end of the plan year and added to the deferred balance in the participant’s account.

Participants are entitled to an annual payment of 50% of the balance of their plan account at the end of each financial year. This continues for three years with the remaining balance paid out in shares in year four when the bonus plan ends. The value held in a participant’s plan account may be reduced by 50% if certain Forfeiture Thresholds are not met.

The fair value of each notional share is initially measured at the date of the award. As the timing of the allocations of notional shares into the bank and the payments to participants vary, each tranche is recognised as an expense on a straight-line basis over the period during which employees provide services for the awards (i.e. from the beginning of the year in which bonus is earned to the point it is paid from the bank). The fair value of the element of the award which is settled in cash is remeasured annually. The fair value of the notional shares is determined using the 30-day average share price at the end of the plan year in which the awards are banked and each year subsequently if the deferred element is to be settled in cash. Any incremental increase in the fair value is recognised immediately as an expense. As the timing of the allocations of notional shares into the bank and the payments to participants vary, each tranche is recognised as an expense on a straight-line basis over the period during which employees provide services for the awards (i.e. from the beginning of the year in which bonus is earned to the point it is paid from the bank).

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.

Strategic report




2. Accounting policies continuedFinancial instrumentsNon-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash 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. These items are subject to insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement only.

BorrowingsBorrowings 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.

Derivative financial instruments and hedgingDerivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.

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 leasehold properties.

EquityEquity comprises the following:• ‘share capital’ represents the nominal value of equity shares; • ‘share premium’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue; • ‘merger reserve’ represents the share premium in connection with historic acquisitions;• ‘other reserves’ comprises all foreign exchange differences arising from the translation of foreign operations; and • ‘accumulated losses’ represents cumulative retained losses.

New IFRS standards and interpretationsNo new standards, amendments, or interpretations, effective for the first time for the financial year beginning on 1 January 2017, have had a material impact on the Group or Parent Company.

The following standards and interpretations were issued by the IASB and IFRS IC, but have not been adopted either because they were not endorsed by the EU at 1 January 2017 or they are not yet mandatory and the Group has not chosen to early-adopt them. • IFRS 9 Financial instruments (effective 1 January 2018)• IFRS 15 Revenue from contracts with customers (effective 1 January 2018)• IFRS 2 (amendment) Share based payments (effective 1 January 2018)• IFRS 16 Leases (effective 1 January 2019)• IFRIC 22 Foreign currency transactions and advance consideration (effective 1 January 2018)




2. Accounting policies continuedThe impact on the Group’s financial statements of the future standards, amendments and interpretations is still under review, but, with the exception of those detailed below, the Group does not expect any of these changes to have a material impact on the results or the net assets of the Group.

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. An expected credit losses model replaces the incurred loss impairment model used in IAS 39. The Group has implemented IFRS 9 on 1 January 2018. It anticipates that the classification and measurement basis for its financial assets and liabilities will be largely unchanged by adoption of IFRS 9. The main impact of adopting IFRS 9 is likely to arise from applying the expected loss model to the provision for impairment of trade receivables. Based on initial calculations, the Directors do not expect the impact at 1 January 2018 to be material, with a decrease to retained earnings of less than £20,000. No material impact on profit for future periods is expected.

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The Group has implemented IFRS 15 on 1 January 2018 and has carried out a review of existing contractual arrangements as part of this process. Based on initial calculations, the Directors do not expect the impact at 1 January 2018 to be material, with an increase to retained earnings of £nil. The impact on earnings in 2018 will depend on an assessment of any new contracts entered into up to that date, but based on existing contracts would not be material.

IFRS 16 Management has not yet performed a full assessment to quantify the financial impact of IFRS 16, but all operating leases, with the exception of short-term leases, will be accounted for on the balance sheet. IFRS 16 will therefore result in an increase in both assets and liabilities in the balance sheet, a decrease in operating loss and an increase in finance expenses in the income statement.

3. Critical accounting estimates and judgementsPreparation of the Group’s financial statements requires the use of estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. The Board bases its estimates and judgements on historic experience and on various other assumptions that it considers reasonable. Actual results may differ from these estimates under different assumptions and conditions. 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.

EstimatesImpairment of goodwillDetermining whether goodwill and other intangibles are impaired requires an estimation of the value in use of the CGUs to which goodwill or other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value. There is a risk of a material adverse impact on the income statement should an impairment adjustment be required. The carrying value of goodwill at 31 December 2017 is £63,425,000 (2016: £65,230,000) (note 13).

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 estimates 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. The carrying value of intangible assets acquired in business combinations during the year ended 31 December 2017 is £2,188,000 (18 month period to 31 December 2016: £5,818,000). An increase/(decrease) of 2% to forecast sales would lead to an increase/(decrease) to the value of the intangible asset of £256,000/(£215,000).

Valuation of contingent considerationDetermining the fair value of contingent consideration requires estimation of the probability and timing of future events such as regulatory approvals and sales milestones being achieved resulting in deferred consideration becoming payable. A suitable discount rate is then applied to the expected cash flows to calculate the present value. There is a risk of a material impact on the income statement in future periods should any key assumptions change which result in the expected value of the final consideration payable increasing or decreasing. The value of contingent consideration at 31 December 2017 is £27,683,000 (2016: £37,746,000). An increase/(decrease) of 10% to forecast sales would lead to an increase/(decrease) in deferred consideration of £638,000/(£654,000).

JudgementsRecoverable amounts of accounts receivableJudgements have been made taking into account the age of overdue debt, order patterns, forecast trade, and the creditworthiness of specific customers in order to assess the recoverable amount of accounts receivable balances. The carrying value of trade receivables at 31 December 2017 is £15,027,000 (2016: £11,183,000).

Strategic report




4. Segment informationThe chief operating decision maker has been identified as the Board of Directors. The Board reviews the Group’s internal reporting in order to assess performance and allocate resources. Based on this, management has determined that following the disposal of the non-aesthetics business that the continuing business consists of one reportable segment, which is Aesthetics.

The Board assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation, amortisation, impairment, discontinued operations exceptional items and share-based payments.

Continuing operations


£’000


£’000

Revenue 45,300 45,489

Cost of goods sold (12,414) (13,674)

Gross profit 32,886 31,815

Adjusted EBITDA 397 (14,890)

The executive management team also monitors business performance based on geographic destination of sales. Revenues on a geographic basis were as follows:


£’000


£’000

European affiliates 13,654 18,952Asia Pacific 9,590 10,051Brazil 6,133 2,946United States of America 5,206 1,446Rest of World 10,717 12,094

Total revenue 45,300 45,489

In the year, sales to ThermiGen of £5,206,000 exceeded 10% of total sales. In 2016, no single customer comprised more than 10% of revenue.

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


£’000


£’000

Adjusted EBITDA 397 (14,890)Depreciation (423) (707)Amortisation (5,001) (6,521)Impairment – (480)Exceptional items (note 5) 4,016 7,037Share-based payments (1,148) (2,675)

Operating loss from continuing operations (2,159) (18,236)




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 period, so as to facilitate comparison with prior periods and to better assess trends in financial performance.


£’000


£’000

Acquisition and business development costs (50) (351)Adjustments to the value of contingent consideration 4,066 13,631Impairment charges – (1,545)Restructuring costs – (2,898)Inventory provision – (1,800)

Exceptional administrative expenses 4,016 7,037Prepaid arrangement fees – finance costs – (2,861)

Total exceptional costs 4,016 4,176

Acquisition and business development costs in the 12 months to 31 December 2017 includes £50,000 relating to the acquisition of Sinclair Korea Ltd. In the 18-month period to 31 December 2016, acquisition and business development costs include £224,000 relating to the acquisition of Sinclair Pharma Brasil Ltda, and £127,000 of other costs arising on acquisitions from prior periods.

Adjustments to contingent consideration in the twelve months to 31 December 2017 includes a credit of £3,880,000 (2016: £2,301,000) as a result of changes to the forecast timing of contingent consideration payments for the acquisition of Silhouette Lift SL, following a reassessment of the growth profile of Silhouette InstaLift® in the USA.

The remaining credit of £186,000 (2016: £700,000 ) follows changes to the profile of contingent consideration relevant to acquisition of Obvieline SAS.

Adjustments to contingent consideration in the 18 months to 31 December 2016 also included a credit of £8,539,000 following early settlement of all remaining milestones on the acquisition of Aqtis Medical BV resulting in a reduction to the total purchase consideration.

Further adjustments to contingent consideration in the 18-month period to 31 December 2016 included a credit of £2,091,000 following a reduction in the contingent purchase consideration of Juvinessence Limited which held the distribution rights for Silhouette® in the UK. This adjustment followed a review of the forecast value of royalty payments. This was offset by an impairment charge of £1,545,000 relating to the corresponding intangible asset recognised on the repurchase of these rights in 2014.

All adjustments to contingent purchase consideration have been credited to the income statement as the changes were triggered more than 12 months after the original acquisition completion date. There is no tax impact of these adjustments.

During the 18-month period ended 31 December 2016 the Group undertook an internal restructuring following the disposal of the non-aesthetic products to create a focused aesthetics business. This resulted in £2,898,000 of one-off severance and redundancy costs being incurred.

In the 6-month period ended 31 December 2015, the Group took a decision to de-stock its distribution partners. As a result, during this period of below average sales the Group’s inventory increased and aged. A decision was then made to withdraw inventory with a limited shelf life from commercial sale in order to provide partners and doctors product with as long a shelf life as possible. This resulted in a provision for short life inventory of £1,800,000 in the 18 months ended 31 December 2016.

Prepaid arrangement fees on the Group’s debt facility totalling £2,861,000 were expensed to the income statement on the repayment of borrowings in December 2015. This charge was deductible for tax.

Strategic report




6. Discontinued operationsOn 26 November 2015, the Group entered into a sale agreement to dispose of all of the non-aesthetics business of the Group to Alliance Pharma Plc (‘Alliance’) in order to create a fast-growing, pure-play aesthetics business. The disposal completed on 17 December 2015, on which date control of the non-aesthetics business passed to Alliance. The disposal included the Group’s interest in Sinclair Pharma France SAS, Advanced Bio-Technologies Inc, Sinclair Pharma srl, and Maelor Laboratories Limited, as well as certain IP assets.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:


£’000


£’000

Revenue – 15,211Cost of sales – (7,421)

Gross profit – 7,790

Selling, marketing and distribution costs – (1,791)Administrative expenses – (4,785)

Operating profit and profit before taxation – 1,214Taxation 635 62

Profit for the period from discontinued operations 635 1,276Pre-tax loss on disposal of non-aesthetic business (note 31) – (797)Attributable taxation credit – 3,342

Profit for the period from discontinued operations (attributable to owners of the Company) 635 3,821

Cash flows from discontinued operations


£’000


£’000

Net cash (outflows)/inflows from operating activities (note 26) (5,737) 2,647Net cash inflows from investing activities – 134,561

(5,737) 137,208

7. Operating lossThe operating loss is stated after charging/(crediting):


£’000


£’000

Continuing operations:Cost of inventory recognised as an expense 10,044 10,677Depreciation of owned property, plant and equipment 423 707Amortisation of intangible assets1 5,001 6,521Impairment of intangible assets – 480Employee benefit expense excluding share-based payment expense (note 8) 12,993 16,910Foreign exchange losses/(gains) 70 (780)Operating leases – land and buildings 1,287 1,055Operating leases – other 15 25Research and development (excluding salary costs) 696 747Loss on disposal of intangible assets – 30Share-based payments 1,148 2,675

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




7. Operating loss continuedServices provided by the Group’s auditorDuring the period the Group obtained services from the Group’s auditor as described below:


£’000


£’000

Fees payable to Company’s auditor for the audit of Parent Company and consolidated financial statements 322 317Fees payable to Company’s auditor and its associates for other servicesAudit of the financial statements of the Group’s subsidiaries pursuant to legislation 19 33Services relating to corporate finance transactions entered into or proposed to be entered into by the Group – 314Tax compliance services 27 47Tax advisory services 35 83All other services 8 31

411 825

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

Group Company


£’000


£’000


£’000


£’000

Sales and marketing 75 74 – –Production 31 27 – –Regulatory and quality 26 17 – –Administration 55 55 4 3

Continuing operations 187 173 4 3

For the period prior to disposal, discontinued operations had an average headcount in 2017 of nil (2016: 39).

Group Company





Continuing £’000

Discontinued £’000

Continuing £’000


Continuing £’000


Continuing £’000


Wages and salaries 10,444 – 15,632 1,930 1,025 – 1,541 –Social security costs 2,439 – 3,207 396 144 – 239 –Other pension costs 534 – 861 106 29 – 79 –Share-based payments 1,148 – 2,675 – 888 – 1,467 –

14,565 – 22,375 2,432 2,086 – 3,326 –

At 31 December 2017, the Group had unpaid pension contributions of £51,000 (2016: £99,000).

In the 12-month period to 31 December 2017, the above staff costs include £424,000 (2016: £3,007,000) in respect of termination payments, of which £nil (2016: £2,790,000) is included within continuing exceptional items and £nil (2016: £217,000) is in discontinued operations.

Strategic report




8. 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


£’000


£’000


£’000


£’000

Salaries and short-term employee benefits 1,873 3,832 983 2,069Post-employment benefits 47 116 24 94Compensation for loss of office – 1,640 – –Share-based payments 1,023 2,244 847 1,467

2,943 7,832 1,854 3,630

Highest paid DirectorThe amounts of the highest paid Director are as follows:


£’000


£’000

Total emoluments and amounts receivable under long-term incentive schemes 587 2,036

Full details of the Directors’ remuneration are set out in the Directors’ Remuneration Report (page 34). During the period, nil (2016:one) Directors exercised share options.

9. Finance expense


£’000


£’000

Finance incomeOther finance income 16 45

Finance expenseDiscount unwind on deferred consideration (1,917) (8,489)Net foreign exchange losses on financing activities – (1,770)Interest on bank loans and overdrafts (247) (2,651)Other finance charges (36) (68)

Total finance expense (pre-exceptional items) (2,200) (12,978)Exceptional finance costs – (2,861)

Finance expense (2,184) (15,794)

Discount unwind costs represent non-cash charges for the reversal of discounting on the Group’s deferred consideration liabilities which are carried at their net present value – see note 20 for further details.

Net foreign exchange gains of £nil (2016: £1,770,000) arise from the difference in the Sterling: Euro and the Sterling: US Dollar exchange rates on borrowings from the date of drawdown and the period end or date of repayment.




10. Taxation

12 months ended 31 December 2017 18 months ended 31 December 2016


£’000

Discontinued operations

£’000 Total

£’000


£’000

Discontinued operations

£’000 Total

£’000

Current tax UK corporation tax 326 – 326 – 15 15 Overseas tax (694) 635 (59) (985) (231) (1,216)

(368) 635 267 (985) (216) (1,201)Deferred tax (note 22) Origination and reversal of temporary differences 1,337 – 1,337 1,619 150 1,769 Change in overseas tax rates 2,700 – 2,700 – – – Disposal of discontinued operations – – – – 3,470 3,470

4,037 – 4,037 1,619 3,620 5,239

Tax credit on loss before taxation 3,669 635 4,304 634 3,404 4,038

Factors affecting the total tax charge for the periodThe tax credit assessed on the loss on ordinary activities for the period differs from the standard rate of corporation tax in the UK of 19.25% (2016: 20%). The differences are reconciled below:


£’000


£’000

Loss on ordinary activities before tax from continuing and discontinued operations (4,343) (33,613)

(836) (6,723)Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 19.25%

(2016: 20%) 422 1,041Amortisation not allowed for tax purposes (552) 7,455(Income not assessable)/expenses not deductible for tax purposes (183) (9,563)Tax losses utilised in the period previously not recognised (218) 124Reinvestment relief 1,234 4,638Tax losses arising in the year not recognised (176) (840)Tax rate difference (2,700) –Change in overseas tax rates (888) 62Under/(over) provided in previous periods (407) (232)Research and development tax credits (4,304) (4,038)

Total tax credit (4,304) (4,038)

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2017 (on 6 September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

11. Loss for the financial periodAs 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 12 months ended 31 December 2017 was £1,940,000 (18 months ended 31 December 2016: £8,857,000).

Strategic report




12. Loss per shareThe basic loss per share has been calculated by dividing the loss for the period by the weighted average number of shares in existence for the period. 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 31 December 2017 and 31 December 2016, as the exercise of share options would have the effect of reducing the loss per share and therefore is not dilutive.

12 months ended 31 December

2017

18 months ended 31 December

2016

Loss attributable to equity shareholders (£’000) (39) (29,575)Weighted average number of shares (number) 503,360,189 497,791,375Diluted weighted average number of shares (number) 503,360,189 497,791,375Basic and diluted loss per share (pence) (0.01)p (5.94)pLoss from continuing activities (£’000) (674) (33,396)Basic and diluted loss per share from continuing activities (pence) (0.13)p (6.71)pProfit from discontinued activities (£’000) 635 3,821Basic and diluted earnings per share from discontinued activities (pence) 0.12p 0.77p

13. Goodwill

31 December 2017

£’000

31 December 2016

£’000

CostAt start of period 65,230 128,628Additions (note 32) 750 2,281Adjustments to provisional goodwill – (604)Disposals (note 31) – (79,852)Exchange adjustments (2,555) 14,777

At 31 December 63,425 65,230

Accumulated impairmentAt start of period – 6,556Disposals (note 31) – (6,556)

At 31 December – –

Net book value at period end 63,425 65,230

During the year ended 31 December 2017, the Group acquired Sinclair Korea Ltd (note 15). The goodwill valuation for this acquisition remains provisional.

During the period ended 31 December 2016, the Group acquired Sinclair Pharma Brasil Ltda.

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

Goodwill has been allocated to cash generating units (‘CGU’s) on a product basis as these form an easily identifiable group of assets with independent cash flows.

Goodwill has been allocated to the following CGUs:

31 December 2017

£’000

31 December 2016

£’000

Silhouette® 36,454 39,909Ellansé® 14,404 13,175Perfectha® 12,567 12,146

63,425 65,230




13. Goodwill continuedGoodwill 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 each CGU.

The cash flows, which have been approved by the Board, have been projected over five years for all CGUs, representing the Director’s best estimate of future product revenues and margins. The cash flows are based on a combination of past experience and current industry trends. Growth rate assumptions have been applied at an individual product and market level. Long-term growth rate assumptions beyond year five are consistent with forecasts used in industry reports for aesthetic products and reflect growth rates in emerging markets. The key assumptions for each CGU are as follows:

2017 2016

Pre-tax discount rate

%

Five-year compound

growth rate %

Long-term growth rate

%

Pre-tax discount rate

%

Five-year compound

growth rate %

Long-term growth rate

%

Silhouette® 12.4 15.0 3.1 11.8 30.6 3.0Ellansé® 12.9 29.1 3.1 11.8 24.3 3.0Perfectha® 13.9 12.8 3.2 11.8 11.8 3.0

14. Intangible assets

Licences and product rights

£’000Other £’000

Total £’000

CostAt 1 July 2015 147,629 3,278 150,907Additions 1,602 9 1,611Additions arising on business combinations 5,818 – 5,818Disposals (72,887) (1,730) (74,617)Adjustments arising on business combinations (1,060) – (1,060)Exchange adjustments 17,251 73 17,324

At 31 December 2016 98,353 1,630 99,983Additions 2,493 117 2,610Additions arising on business combinations (note 32) 2,188 – 2,188Exchange adjustments (3,232) 9 (3,223)

At 31 December 2017 99,802 1,756 101,558

Accumulated amortisation and impairmentAt 1 July 2015 38,555 2,142 40,697Charge for the period 8,164 197 8,361Impairment charge 2,025 – 2,025Eliminated on disposal (34,956) (1,666) (36,622)Exchange adjustments 1,820 52 1,872

At 31 December 2016 15,608 725 16,333Charge for the period 4,946 55 5,001Exchange adjustments (450) 6 (444)

At 31 December 2017 20,104 786 20,890

Net book valueAt 31 December 2017 79,698 970 80,668

At 31 December 2016 82,745 905 83,650

Additions arising on business combinations are the fair value of the identifiable intangible assets acquired which primarily relate to the product rights and trademarks covering the acquired products. The amount recognised of £2,188,000 in the 12 months to 31 December 2017 is in respect of Sinclair Korea Ltd (2016: £5,818,000 in respect of Sinclair Pharma Brasil Ltda), details of which are in note 32.

Additions in the period include £924,000 for the Refine Support System, a patented and FDA cleared, suture-based product, acquired by the Group on 19 June 2017.

Strategic report




14. Intangible assets continuedFurther additions to licences and product rights includes capitalised development costs in relation to obtaining regulatory approval for Ellansé® in Brazil and other Ellansé® development programmes including the US launch (2016: £1,602,000 represents payments to acquire direct distribution rights for Silhouette®, Perfectha®, and Ellansé® in certain markets).

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

In 2016, adjustments to business combinations of £1,060,000 represents a change in the intangible asset arising on acquisition of Arkea BV, following a reappraisal of the asset valuation during the 12-month period subsequent to acquisition.

Included in the impairment charge in the period to 31 December 2016, is £1,545,000 recognised in exceptionals (note 5) and £480,000 in respect of development costs for other products which have not been launched.

15. Property, plant and equipment

Freehold land and buildings

£’000

Leasehold improvements

£’000

Office and laboratory equipment

£’000Total

£’000

CostAt 1 July 2015 658 378 3,438 4,474Additions – – 792 792Additions arising on business combinations – – 5 5Disposals (641) (219) (898) (1,758)Exchange adjustments (17) – 486 469

At 31 December 2016 – 159 3,823 3,982Additions – – 286 286Disposals – – (164) (164)Exchange adjustments – – 83 83

At 31 December 2017 – 159 4,028 4,187

Accumulated depreciationAt 1 July 2015 641 174 1,947 2,762Charge for the period – 13 743 756Disposals (625) (28) (780) (1,433)Exchange adjustments (16) – 234 218

At 31 December 2016 – 159 2,144 2,303Charge for the period – – 423 423Disposals – – (164) (164)Exchange adjustments – – 51 51

At 31 December 2017 – 159 2,454 2,613

Net book valueAt 31 December 2017 – – 1,574 1,574

At 31 December 2016 – – 1,679 1,679




16. Inventories

Group

31 December 2017

£’000

31 December 2016

£’000

Raw materials 2,394 1,752Finished goods 1,872 2,088

4,266 3,840

The cost of inventories as an expense includes £72,000 (2016: £1,351,000) in respect of write-downs of inventory to net realisable value.

17. Trade and other receivables

Group Company

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

Trade receivables 15,899 11,883 – –Less provision for impairment of trade receivables (872) (700) – –

Trade receivables – net of provision 15,027 11,183 – –Amounts due from Group undertakings – – – 268Other receivables 944 1,343 – 95Prepayments and accrued income 969 803 2 –

16,940 13,329 2 363

The fair value of trade receivables, other receivables and accrued income is considered to be equal to their carrying value.

Before accepting any new customers, the Group internally assesses the potential customer’s credit quality and defines credit limits by customer.

At 31 December 2017, trade receivables of £5,906,000 (2016: £3,535,000) were past due, but not impaired. These relate to wholesalers and marketing partners for whom there is no recent history of default. All trade receivables, whether current or past due, are reviewed for impairment on a case by case basis to identify impairment, taking into account the ageing of the debt, the likelihood of recoverability and other external factors.

The ageing analysis of trade receivables which are past due but not impaired is as follows:

Group

31 December 2017

£’000

31 December 2016

£’000

Up to three months past due 4,861 3,038Between three months and six months 913 400Between six months and one year 132 97

5,906 3,535

At 31 December 2017, provision for impairment of trade receivables amounted to £872,000 (2016: £700,000).

Strategic report




17. Trade and other receivables continuedMovements on the Group’s provision for impairment of trade receivables are as follows:

Group

31 December 2017

£’000

31 December 2016

£’000

At start of period 700 483Provision for receivables impairment 200 246Receivables written off during the period as uncollectable (28) –Exchange adjustments – (29)

At 31 December 872 700

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

Group Company

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

GBP 952 1,350 2 151EUR 8,938 8,031 – –USD 3,998 2,805 – 212BRL 2,523 1,143 – –KRW 529 – – –

16,940 13,329 2 363

18. Trade and other payables

Current liabilities

Group Company

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

Trade payables 6,742 4,880 74 79Other taxes and social security costs 344 853 – –Other payables 350 780 – –Accruals and deferred income 6,353 13,069 1,262 1,194Amounts due to Group undertakings – – 494 317

13,789 19,582 1,830 1,590

Non-current liabilitiesAccruals and deferred income 884 1,000 – –

Total 14,673 20,582 1,830 1,590




19. Borrowings

Group Company

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

Bank loans 3,889 – 3,889 –Deferred arrangement costs (126) – (126)Amounts due to Group undertakings – – – 99,703

Non-current borrowings 3,763 – 3,763 99,703

Bank loans 1,111 – 1,111 –Deferred arrangement costs (72) – (72) –

Current borrowings 1,039 – 1,039 –

Total net borrowings 4,802 – 4,802 99,703

Borrowings are repayable as follows:On demand or within one year 1,111 – 1,111 –Over one and under two years 2,222 – 2,222 –Over two and under five years 1,667 – 1,667 –Over five years – – – 99,703

Total gross borrowings 5,000 – 5,000 99,703

In March 2017, the Group entered into a new £10 million debt facility with Silicon Valley Bank to fund investment in future growth. The facility consisted of a £5.0 million term loan maturing in September 2020 and a £5.0 million two year working capital facility. At 31 December 2017, £5.0m has been drawn down against the term loan, and the capital is to be repaid in 30 equal monthly instalments, commencing July 2018. There are no drawings on the working capital facility.

Interest on the term loan is charged at LIBOR + 5.75% and payable monthly in arrears. Interest on the working capital facility is charged at Euro Base Rate + 7% or Wall Street Prime rate plus 3.25% for drawings in Euro or USD respectively . The facility is secured by a fixed and floating charge over the assets of the Group.

Direct issue costs of £198,000 (2016: £nil) have been offset against the gross liability and are being amortised over the remaining life of the facility. The fair value of current borrowings equals their carrying amount, as the amounts are not discounted.

All of the Group’s borrowings are denominated in GBP.

Movement in net debt for the Group is analysed as follows:

At 1 January

2017 Cash flows

Non-cash changes

At

31 December 2017

Addition of prepaid

arrangement fees

Amortisation of prepaid

arrangement fees

Exchange adjustments

Bank borrowings – (5,000) 308 (110) – (4,477)Cash and cash equivalents 16,769 (14,854) – – (78) 1,837

Total net debt 16,769 (19,854) 308 (110) (78) (2,640)

Strategic report




20. Other financial liabilitiesOther financial liabilities include deferred and contingent purchase considerations which are due as follows:

31 December 2017

£’000

31 December 2016

£’000

Obvieline SAS 1,741 –Silhouette Lift SL 2,019 4,400Sinclair Korea Ltd 320 –Other deferred and contingent consideration 231 1,021

Total current 4,311 5,421Obvieline SAS 5,937 7,146Silhouette Lift SL 35,844 39,649Sinclair Korea Ltd 3,016 –Other deferred and contingent consideration 231 446

Total non-current 45,028 47,241Discount (19,767) (14,916)

Total other financial liabilities 29,572 37,746

Items of deferred and contingent consideration represents the Directors’ estimate of the fair value of the assumed contractual minimum liabilities discounted to their net present value.

Other includes:Deferred consideration payable to the previous owner of SEPI AG, the original developers of Haemopressin, in annual instalments until March 2017. At 31 December 2017 the balance outstanding is £nil (2016: £798,000 in current liabilities).

Deferred consideration is payable to the vendors of Medicalio, the former distributors of Silhouette® in Spain. On 31 December 2017, £231,000 is current (2016: £223,000) and £179,000 is non-current (2016: £340,000).

Deferred and contingent consideration is payable as follows:

31 December 2017

£’000

31 December 2016

£’000

On demand or within one year 4,311 5,421Over one and under two years 5,943 10,564Over two and under five years 14,242 22,945Over five years 24,843 13,732Discount (19,767) (14,916)

Total other financial liabilities 29,572 37,746

21. Provisions

Other £’000

Legal £’000

Total £’000

At 1 January 2017 222 536 758Charged to the income statement – 300 300Utilised (222) (413) (635)

At 31 December 2017 – 423 423

All provisions relate to ongoing legal disputes and are expected to be utilised within the next year.




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

Group

31 December 2017

£’000

31 December 2016

£’000

Deferred tax liabilities:– Deferred tax liability to be recovered after more than 12 months (18,504) (22,526)– Deferred tax liability to be recovered within 12 months (1,117) (1,545)

Total deferred tax liabilities (19,621) (24,071)

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.

Deferred tax liabilitiesBusiness

combinations £’000

Reinvestment relief

£’000Total

£’000

At 1 January 2017 21,666 2,405 24,071Additions arising from business combinations 481 – 481Exchange differences (894) – (894)Change in tax rates (2,700) – (2,700)Amortisation of deferred tax liabilities (1,119) (218) (1,337)

At 31 December 2017 17,434 2,187 19,621

The deferred tax liability arising on business combinations relates to the fair value adjustment to the carrying value of intangible assets recognised on historic acquisitions and the subsequent disposal, amortisation, exchange movement 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.

The movement in deferred tax of £2,700 is due to a change in overseas tax rates expected to apply when the liability is settled.

Foreign exchange differences of £894,000 (2016: £4,331,000) arising on deferred tax liabilities from overseas business combinations are recognised as part of the movement in other reserves. All other movements are recognised in the income statement.

Unrecognised deferred taxThe Group and Company have potential deferred tax assets, which have 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:

Group Company

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

Tax losses 5,123 5,980 – –Decelerated capital allowances 352 352 – –Future tax relief for share-based remuneration 196 196 196 196

Unrecognised deferred tax asset 5,671 6,528 196 196

The tax losses have no expiration date.

Strategic report




23. Financial instrumentsThe Group’s activities expose it to a variety of financial risks. The main financial risks faced by the Group relate to the risk of default by counterparties to financial transactions, the availability of funds to meet business needs, foreign exchange movements and interest rate movements. These risks are managed as described below. Monitoring of financial risk is part of the Board’s ongoing risk assessment process. The Group does not use financial derivatives, other than foreign exchange hedging contracts, and it is the Group’s policy not to undertake any trading in speculative financial instruments.

Market riskMarket risk is the risk that changes in market prices such as foreign exchange rates or interest rates will affect the Group’s net income or value of its assets and liabilities.

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.

The Group finances the majority of its activities in Europe, Brazil, South Korea and the US in the local currency, out of revenue receipts, and excess currency receipts are then translated into Sterling either at the spot rate or through forward contracts. At 31 December 2017, the Group had a Euro forward contract to sell 3,000,000 (2016: £nil) during 2018. Where subsidiaries are funded centrally, this is achieved by the use of long-term loans, on which exchange translation differences are taken to reserves.

The Group’s other financial liabilities include deferred and contingent consideration which is denominated in Euros and US Dollars. Cash reserves are held on deposit in US Dollars to hedge against the foreign exchange risk on items of deferred and contingent consideration payable in US Dollars, which are expected to be settled over the next 12 months. Any future surpluses may be held on currency deposit to meet future contingent consideration liabilities.

At 31 December 2017, if the Euro had strengthened/weakened by 5% against Sterling, with all other variables held constant, loss after tax would have been £(718,000)/£650,000 (higher)/lower (2016: £(101,000)/£92,000 (higher)/lower). The impact on total equity would have been £1,453,000/(£1,315,000) higher/(lower) (2016: £1,660,000/(£1,505,000) higher/(lower)).

At 31 December 2017, if the US Dollar had strengthened/weakened by 5% against Sterling, with all other variables held constant, loss after tax would have been £226,000/(£205,000) lower/(higher) (2016: £244,000/(£221,000) lower/(higher)). The impact on total equity would have been £2,175,000/(£1,968,000) higher/(lower) (2016: £2,247,000/(£2,033,000) higher/(lower)).

Foreign currency exposureAt 31 December 2017, the Group’s operating companies have financial instrument assets of £3,981,000 (2016: £4,130,000) and financial instruments’ liabilities of £24,501,000 (2016: £33,155,000) denominated in US Dollars, financial instrument assets of £8,804,000 (2016: £10,546,000) and financial instrument liabilities of £11,266,000 (2016: £14,290,000) denominated in Euros.

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. At 31 December 2017, 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 £9,000 (2016: £95,000) higher/lower.

Interest-bearing financial liabilities are made up as follows:

31 December 2017 31 December 2016

Financial liabilitiesFixed £’000

Floating £’000

Fixed £’000

Floating £’000

Borrowings – bank loan – 5,000 – –

The effective interest rates on financial liabilities as at the balance sheet date are as follows:

31 December 2017 31 December 2016

Fixed Floating Fixed Floating

Revolving credit facility – 15.9% – –

Bank loan – LIBOR + 5.75% – –

Trade and other receivables, trade and other payables and other non-current assets, liabilities and provisions are not interest-bearing.




23. Financial instruments continuedCredit 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 creditworthiness of customers is assessed by reference to publicly available information, or information supplied by those customers.

Surplus cash deposits are invested with institutions which have a higher credit rating than A.

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

Price riskThe Group is not exposed to significant 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 such that pricing mechanisms are controlled by contract, forecast demand is scheduled up to 12 months prior to delivery, and actual demand is confirmed in advance through purchase orders in accordance with pre-agreed pricing lists.

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 and can generate sufficient cash flows to meet covenant targets, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Board reviews the forecast liquidity and covenant headroom at every Board meeting using cash flow forecasts which are updated on a regular basis in line with the business plan. The Group complied with the covenants on its borrowings throughout the period.

At 31 December 2017, the net cash balance is £2m (2016: £17m).

Capital managementThe Group defines the capital that it manages as the Group’s total equity. The Group and Company’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, which were complied with fully throughout the period.

The Group believes it has sufficient ongoing cash and cash equivalents to meet its stated capital management objectives and the Directors believe that the capital management objectives have been met throughout the financial period.

Fair value estimationThe Group analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,

derived from prices) (Level 2).• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The Group’s financial assets and liabilities measured at fair value at 31 December 2017:

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

LiabilitiesFinancial liabilities at fair value through the profit or loss– Contingent consideration from business combinations – – 27,683 27,683

The Group’s financial assets and liabilities measured at fair value at 31 December 2016:

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

LiabilitiesFinancial liabilities at fair value through the profit or loss

– Contingent consideration from business combinations – – 36,385 36,385

Strategic report




23. Financial instruments continued(a) Financial instruments in Level 1The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. At 31 December 2017 and 31 December 2016 there were no financial instruments at Level 1.

(b) Financial instruments in Level 2The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include:• The fair value of interest rate caps is calculated as the present value of the estimated future cash flows based on observable yield curves;

(c) Financial instruments in Level 3The fair value of contingent consideration at 31 December 2017 related to the acquisitions of Obvieline SAS, Silhouette Lift SL and Sinclair Korea Ltd. The fair value is calculated with reference to discounted future cash flows, which represent management’s best estimate of the amount payable.

The following table presents the changes in Level 3 instruments for the period ended 31 December 2017:

Contingent consideration in a business combination

Opening balance 36,385Reclassified to deferred consideration (1,479)Arising on business combinations 2,457Foreign exchange movements (2,411)Adjustments to fair value (4,064)Payments (5,053)Gains and losses recognised in profit or loss 1,848Closing balance 27,683

Change in unrealised gains or losses for the period included in profit or loss for assets held at the start and end of the reporting period 1,848

The 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 had the following financial instruments at the period end:

Assets Liabilities

31 December 2017

£’000

31 December 2016

£’000

31 December 2017

£’000

31 December 2016

£’000

Loans and receivablesOther non-current financial assets 167 102 – –Cash at bank 1,837 16,769 – –Trade and other receivables 15,074 11,264 – –Financial liabilities measured at amortised costTrade and other payables – – 13,980 18,264Other financial liabilities – – 29,572 37,746Borrowings – bank loans – – 4,802 –

17,078 28,135 48,354 56,010

The following table details the Group’s maturity analysis of its financial liabilities. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments.




23. Financial instruments continued

31 December 2017

Less than 1 month £’000

1–3 months

£’000

3 months to 1 year

£’000

1–5 years £’000

Over 5 years £’000

Total £’000

Trade and other payables 2,171 4,412 2,335 4,058 1,004 13,980Other financial liabilities – 568 3,743 20,185 24,843 49,339Borrowings – bank loans – – 1,111 3,889 – 5,000

2,171 4,980 7,189 28,132 25,847 68,319

31 December 2016

Less than 1 month £’000

1-3 months £’000

3 months to 1 year

£’000

1-5 years

£’000

Over 5 years

£’000Total

£’000

Trade and other payables 834 7,943 7,440 1,424 623 18,264Other financial liabilities – 935 4,486 33,509 13,732 52,662

834 8,878 11,926 34,933 14,355 70,926

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 31 December 2017 or 31 December 2016. 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 19.

CompanyThe Company had the following financial instruments at the period end:

Assets Liabilities

2017 £’000

2016 £’000

2017 £’000

2016 £’000

Cash at bank 12 11,155 – –Trade and other receivables 2 3 – –Borrowings – amounts due from Group undertakings 16,554 101,166 – –Trade and other payables – – 1,830 1,273Borrowings – – 4,802 –Borrowings – amounts due to Group undertakings – – – 99,703

16,568 112,324 6,632 100,976

Amounts due to Group undertakings are unsecured and interest free.

Trade and other payables and other non-current liabilities are non-interest-bearing. The Directors consider that the fair value of the Company’s financial instruments do not differ significantly from their book values, other than bank loans, as set out in note 19.

Foreign currency exposureAt 31 December 2017, the Company has financial instrument assets of £nil (2016: £942,000) denominated in US Dollars and financial instrument assets of £9,385,000 (2016: £9,536,000) and financial instrument liabilities of £nil (2016: £331,000) denominated in Euros.

24. Share capital

Group and Company2017

Number2016

Number2017

£’0002016

£’000

Issued and fully paidOrdinary shares of 1.0pAt start of period 502,198,442 497,414,773 5,022 4,974Issue of shares 1,570,510 4,783,669 16 48

At 31 December 503,768,952 502,198,442 5,038 5,022

On 5 April 2017, the Company issued 1,570,510 new Ordinary shares of 1p each, with a par value of £15,705, and immediately allotted them to Christophe Foucher, former COO, in settlement of the remainder of his severance package. The excess of the fair value of these shares, amounting to £497,000, was credited to share premium.

Strategic report




25. Share-based paymentsValue Creation PlanThe Sinclair Pharma plc 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.

Out of a total pot of 10,000 VCP units, 9,500 were granted to Executive Directors and senior management on 12 May 2011 of which 500 (2016: 500) remained outstanding at 31 December 2017.

Of these units, 9,500 lapsed during the period (2016: nil).

On 17 July 2014, 6,850 of the units granted in 2011 were modified and were replaced with amended units and a further 1,205 options were granted to Executive Directors and members of senior management. These units were modified again on 17 November 2014 and a further 690 options were granted to Directors.

On 21 September 2016, certain senior managers and Directors left the scheme as part of a Group restructuring exercise. Their allocation over 720 options were reallocated to certain members of the plan and a further 1,175 units were also awarded to Executive Directors and members of senior management.

On 16 June 2017, following the departure of C Foucher from the scheme, 2,250 options were reallocated to certain members of the plan and a further 80 units were also awarded to Executive Directors and members of senior management.

On 14 December 2016, amendments were made to reduce the annual growth rate in the Threshold Price hurdle from 16.0% to 8.0% and to introduce a cap on the maximum value of nil cost options that can be issued of £30m.

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

12 May 2011

17 July 2014

17 November 2014

21 September 2016

14 December 2016

16 June 2017

Share price on award date 32.5p 30.25p 28.3p 27.0p 30.25p 33.5Base price 28.0p 37.0p 37.0p 49.8p 39.81p 43.0Number of simulations 10,000 10,000 10,000 10,000 10,000 10,000Expected life of options 5 years 5 years 5 years 4.5 years 4.5 years 2.8 yearsDividend yield Nil Nil Nil Nil Nil NilRisk free interest rate 1.09% 2.00% 2.00% 2.00% 2.00% 0.18%Sinclair Pharma plc share price volatility 35% 31% 30% 35% 35% 35%Share price hurdle per measurement period 20% 16% 16% 16% 8% 8%Pay-out over share price hurdle 15% 15% 15% 15% 15% 15%Shares in issue on award date 380,812,790 497,414,773 497,414,773 502,089,508 502,198,442 503,768,952

The charge for the period to the income statement in relation to these VCP awards amounted to £660,000 (2016: £1,780,000).




25. Share-based payments continued 2013 Bonus PlanCertain employees of the Group are eligible to participate in the 2013 Bonus Plan, which is described in note the Directors Remuneration Report.

At 31 December 2017, bonus awards with a value of £1,229,000 (2016: £709,000) have been deferred under the current cycle of the 2013 Bonus Plan. The fair value of £1,229,000 is based on the cash value at 31 December 2017 which is converted into 4,707,302 (2016: 2,240,126) notional 1.0p Ordinary shares in the Company with a share value of 26.12p (2016: 31.65p), being the mid-market value of the Company’s shares for the 30-day period ending on the Measurement Date of 31 December 2017 (31 December 2016).

The fair value will be charged to the income statement over the next three years as the notional shares are converted into cash payments.

The total charge for the period relating to the bonus awards was £488,000 (2016: £986,000) of which £nil (2016: £746,000) was settled in shares during the period; £373,000 (2016: £236,000) is expected to be settled in cash in future periods and has been recognised in liabilities and £115,000 (2016: £44,000) is expected to be converted into shares at the end of the scheme and has been recognised in equity.

Share OptionsA reconciliation of share option movements is set out below:

2017 2016

Number

Weighted average exercise

price (pence) Number


price (pence)

Outstanding at start of period 3,068,012 0.0p 155,963 1.2pIssued – – 4,645,847 0.0pExercised – – (1,686,769) 0.0pLapsed – – (47,029) 1.7p

Outstanding at 31 December 3,068,012 0.0p 3,068,012 0.0p

Exercisable at 31 December – – – –

The following table summarises information about the range of exercise prices for share options outstanding at 31 December 2017 and 31 December 2016.

2017 2016

Range of exercise prices


priceNumber of

shares

Weighted average remaining life (years)


priceNumber of

shares

Weighted average remaining life (years)

Expected Contractual Expected Contractual

Under 40p 0p 3,068,012 2.5 2.5 0p 3,068,012 3.5 3.5

The total charge for the 12-month period relating to employee share options was £1,148,000 (2016: £2,675,000), all of which related to the above equity-based transactions.

Strategic report




26. Cash flows from operating activities

Group Company


£’000


£’000


£’000


£’000

Continuing operationsLoss before tax (4,343) (34,030) (2,473) (8,857)Exceptional items (4,016) (4,176) – 3,875

Loss before tax and exceptional items (8,359) (38,206) (2,473) (4,982)

Adjustments for: Finance income – – (712) (1,876) Finance costs 2,184 12,933 264 7,323 Share-based payments 1,148 2,675 888 697 Depreciation 423 707 – – Amortisation of intangible assets 5,001 6,521 – – Impairment recognised in administrative expenses – 480 – – Loss on disposal of intangible assets – 30 – – Exchange gains – – (308) (4,203)Changes in working capital Increase in inventory (342) (232) – – (Increase)/decrease in receivables (3,835) 5,751 361 1,296 Increase/(decrease) in payables 295 (6,644) 233 (208) Decrease in provisions (130) (92) – –

Net cash outflow from continuing operations before exceptional items (3,615) (16,077) (1,747) (1,953)

Exceptional costs paid (1,180) (2,901) – (3,467)

Net cash outflow from continuing operations (4,795) (18,978) (1,747) (5,420)

Discontinued operationsProfit/(loss) before tax – 417 (53) –Adjustments for:Depreciation – 49 – –Amortisation of intangible assets – 1,840 – –Loss on disposal – 797 – –

Changes in working capitalDecrease in receivables – 5,692 – –Decrease in payables (5,515) (6,370) – –(Decrease)/increase in provisions (222) 222 – –

Net cash (outflow)/inflow from discontinued operations (5,737) 2,647 (53) –

Cash used in operations including discontinued operations (10,532) (16,331) (1,800) (5,420)

27. Operating lease commitmentsAt 31 December 2017, the Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

2017 2016

Group

Land and buildings

£’000Equipment

£’000Total

£’000

Land and buildings

£’000Equipment

£’000Total

£’000

Commitments under non-cancellable operating leasesWithin one year 709 7 716 650 14 664Between one and two years 380 – 380 347 5 352Between two and five years 438 – 438 776 – 776After five years – – – 41 – 41

1,527 7 1,534 1,814 19 1,833

There were no operating lease commitments for the Company at 31 December 2017 (2016: £nil).




28. Capital commitmentsThe Group and Company had no capital commitments at 31 December 2017 (2016: £nil).

29. Post Balance Sheet EventsFinancingIn February 2018, the Group announced a $5 million investment in the Group via the issue of a $5.0 million convertible loan to EW Healthcare Partners (‘EW’). Interest will accrue at 8%, compounded annually, and if not converted into ordinary shares, will mature no earlier than 1 September 2020. The convertible loan will be secured by way of a second ranking charge over Sinclair’s assets. The proceeds of the investment were used to finance the one-off payment and acquisition of inventory following the termination of the distribution agreement with ThermiGen LLC.

In April 2018, the Group refinanced the SVB facility with a new five-year term loan from Hayfin Capital Management. Proceeds of the facility will be utilised to repay the SVB borrowings, fund growth (particularly in the Group’s direct operations in the US and South Korea), settle deferred consideration liabilities as they come due and to invest in expanding as well as upgrading and increasing Ellansé® manufacturing capacity and pre-US clinical trial development activities for Ellansé®.

The facility is available in two tranches, the first £15m to be drawn immediately, and a further £5m before 31 March 2019, with a five-year term ending in April 2023. Interest is charged at EURIBOR+9.0% (with a EURIBOR floor of 0.75%). The facility is secured by a fixed and floating charge over the assets of the Group.

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

(a) Refine Support SystemOn 19 June 2017, the Group acquired the Refine Support System, a patented and FDA cleared, suture-based product primarily used in breast cosmetic and reconstructive procedures, from Refine LLC (note 14). Jeff Thompson, Non-executive Director of Sinclair, has a beneficial interest of 52% in Refine LLC.

At 31 December 2017, the total value of the Refine asset is £924,000. The acquisition agreement includes conditions for future payments which are contingent on achieving certain regulatory and sales-based milestones and royalties. These have a maximum gross value of £7,775,000, but due to uncertainty in timings and amounts, have not been recognised in the financial statements at 31 December 2017.

(b) Key management compensationThe compensation paid to key management for employee services is set out in note 8.

(c) DirectorsRefer to the Director’s interests disclosed in the Director’s Report and 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, and details of inter-company loans are set out in note 19.

Trade receivables and trade payables due from or to Group undertakings arise from the recharge of corporate services. Details of inter-company trade receivables and payables are set out in notes 17 and 18.

Amounts owed to and due from Group undertakings are unsecured, interest-bearing and have no fixed repayment dates, but are not expected to be repaid within 12 months. Details of guarantees confirmed to subsidiary companies are provided in note 2 of the financial statements.

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 £264,000 (2016: £1,123,000).

Strategic report




31. Disposal of non-aesthetic businessAs referred to in note 6, on 17 December 2015 the Group completed the disposal of its non-aesthetics business to Alliance Pharma Plc. The net assets of the non-aesthetics business at the date of disposal were as follows:

£’000

Attributable goodwill 73,296Intangible assets 37,989Property, plant and equipment and other non-current assets 402Inventories 5,169Trade and other receivables 12,123Cash and cash equivalents 541Trade and other payables (10,953)Foreign currency reserves 7,703

Net assets 126,270Other disposal costs 4,182Loss on disposal recognised in profit for the prior period from discontinued operations (note 6) (797)

Total consideration 129,655

Satisfied byCash and cash equivalents 129,655

32. Business combinationsSouth KoreaOn 2 August 2017, the Group acquired the South Korean distribution rights for Silhouette® (direct sales) and Ellansé® (indirect sales) from MDC Global Ltd. All related trade and assets were transferred into a newly incorporated South Korean entity, MDC Asia Ltd, (which has subsequently been renamed Sinclair Korea Ltd) which is a wholly owned subsidiary of Sinclair Holdings Ltd.

The goodwill of £750,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette® through the Group’s direct salesforce in South Korea. Goodwill is not deductible for tax purposes.

Details of the consideration paid, the provisional fair value of assets acquired and liabilities assumed, and goodwill arising are as follows:

Book value£’000

Adjustments£’000

Fair values£’000

Intangible assets – 2,188 2,188Inventory 35 – 35Deferred tax liability – (481) (481)

Net assets 1,742Goodwill 750

Total consideration 2,492

Satisfied by:Deferred consideration 2,492

Net cash outflow arising on acquisitionAcquisition costs recognised within exceptional items 29

29

Sinclair Korea Ltd contributed £709,000 revenue and a profit before tax of £244,000 to the Group’s loss for period from the date of acquisition to 31 December 2017.

If Sinclair Korea Ltd had been acquired on 1 January 2017, additional revenue of £1,701,000 and a profit before tax of £585,000 would have been included in the Group financial statements.




32. Business combinations continuedSinclair Pharma Brasil LtdaOn March 29 2016, the Company acquired 100% of the share capital of ‘Building Health Distribuidora de Produtos para a Saude Ltda’, an off-the-shelf company registered in Brazil, which will subsequently be renamed ‘Sinclair Pharma Brasil Ltda’ (Sinclair Brazil). On 30 June 2016, the Company completed its re-acquisition of the distribution rights for Silhouette Soft® in Brazil and has transferred all related trade and assets into the acquired entity.

As a result of the acquisition, the Group now has a direct presence for Silhouette® in the key Brazilian market via a 16 reps salesforce, and is now additionally using the salesforce to launch Perfectha®. The goodwill of £2,281,000 arising from the acquisition is attributable to the economies of scale expected from selling Silhouette® and Perfectha® through the Group’s direct salesforces in Brazil. Goodwill is not deductible for tax purposes.

Details of the consideration paid, the final fair value of assets acquired and liabilities assumed, and goodwill arising, are as follows:

Fair values£’000

Intangible assets 5,818Property, plant and equipment 5Inventory 402Deferred tax liability (1,971)

Net assets 4,254Goodwill 2,281Total consideration 6,535

Satisfied by:Cash consideration 6,535

Net cash outflow arising on acquisitionCash consideration 6,535Acquisition costs recognised within exceptional items 224

6,759

33. Investments

Shares in subsidiary

undertakings £’000

Loans to Group

undertakings £’000

Total £’000

CostAt 1 July 2015 120,587 87,337 207,924Additions, net of loan repayments – 39,836 39,836Disposals – (31,864) (31,864)Interest charged on loans to Group undertakings – 1,876 1,876Capital contribution re employee share options 1,123 – 1,123Exchange adjustments – 4,204 4,204

At 31 December 2016 121,710 101,389 223,099Net loan repayments – (85,626) (85,626)Interest charged on loans to Group undertakings – 706 706Capital contribution re employee share options 264 – 264Exchange adjustments – 308 308

At 31 December 2017 121,974 16,777 138,751

Accumulated impairment

At 31 December 2017 and 31 December 2016 8,592 223 8,815

Net book valueAt 31 December 2017 113,382 16,554 129,936

At 31 December 2016 113,118 101,166 214,284

Strategic report




33. Investments continuedThe Company’s 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 France Holding SAS France Ordinary shares 100% Holding companySinclair Pharmaceutical Espana SL Spain Ordinary shares 100% Pharmaceutical productsSinclair Pharma GmbH Germany Ordinary shares 100% Pharmaceutical productsIS Pharma Limited England Ordinary shares 100% DormantIS Pharmaceuticals Limited England Ordinary shares 100% DormantAcorus Therapeutics Limited England Ordinary shares 100% DormantSinclair Life Sciences India Private Limited India Ordinary shares 100% DormantSinclair Pharma Holdings Limited England Ordinary shares 100% Holding companySinclair Pharma Management Limited England Ordinary shares 100% Investment companyObvieline SAS France Ordinary shares 100% Pharmaceutical productsSinclair Holdings BV Netherlands Ordinary shares 100% Holding companyAQTIS Holdings BV Netherlands Ordinary shares 100% Holding companyAQTIS Medical BV Netherlands Ordinary shares 100% Pharmaceutical productsAQTIS IP BV Netherlands Ordinary shares 100% Pharmaceutical productsBuilding Health Distribuidora de Productos para a Saude Ltda Brazil Ordinary shares 100% Pharmaceutical productsSpeciality European Pharmaceutical International AG Switzerland Ordinary shares 100% DormantSinclair Korea Limited Republic of Korea Ordinary shares 100% Pharmaceutical productsSilhouette Holding Iberia SL Spain Ordinary shares 100% Holding companySilhouette Lift SL Spain Ordinary shares 100% Pharmaceutical companyMedicalio SL Spain Ordinary shares 100% DormantSilhouette Lift Inc USA Ordinary shares 100% Pharmaceutical company

The investment in Sinclair Pharma Management Limited is held directly by the Company. The investments for all other subsidiaries are held indirectly through Sinclair Pharma Management Limited.

34. Registered addressesThe registered addresses of the Group’s subsidiary companies are as follows:

Sinclair Pharmaceuticals Limited Eden House, Lakeside, Chester Business Park, Chester, CH4 9QT, UKSinclair Pharma France Holding SAS 44 Rue de la Bienfaisance, 75008 Paris, FranceSinclair Pharmaceutical Espana SL Av De Castilla, Edeficio Dublin Planta 2, San Fernando De Henares, Madrid 28830, SpainSinclair Pharma GmbH Kurfursten Anlage 3, 69115 Heidelberg, GermanyIS Pharma Limited Eden House, Lakeside, Chester Business Park, Chester, CH4 9QT, UKIS Pharmaceuticals Limited Eden House, Lakeside, Chester Business Park, Chester, CH4 9QT, UKAcorus Therapeutics Limited Eden House, Lakeside, Chester Business Park, Chester, CH4 9QT, UKSinclair Life Sciences India Private Limited Topiwala Center, CTS no. 746/7, Village-Pahadi, Goregaon (W), Mumbai City, MH 400062, IndiaSinclair Pharma Holdings Limited 1st Floor, Whitfield Court, 30–32 Whitfield Street, London W1T 2RQ, UKSinclair Pharma Management Limited 1st Floor, Whitfield Court, 30–32 Whitfield Street, London W1T 2RQ, UKObvieline SAS 8 Chemin du Jubin, 69570 Dardilly, FranceSinclair Holdings BV Prins Bernhardplein 200, 1097 JB, Amsterdam, NetherlandsAQTIS Holdings BV Yalelaan 44, 3584 CM, Utrecht, NetherlandsAQTIS Medical BV Yalelaan 44, 3584 CM, Utrecht, NetherlandsAQTIS IP BV Yalelaan 44, 3584 CM, Utrecht, NetherlandsBuilding Health Distribuidora de Productos para a Saude Ltda Rua Baraldi, 894, 1o Andar – Sala 1, Sao Caetano do Sul - SP, CEP 09510-005, BrazilSpeciality European Pharmaceutical International AG Florenz-Strasse 7, 4142 Munchenstein, SwitzerlandSinclair Korea Limited (Suseo-dong)#202, 8-13, Gwangpyeong-ro 56-gil, Gangnamgu, Seoul, Republic of KoreaSilhouette Holding Iberia SL Av De Castilla, Edeficio Dublin Planta 2, San Fernando De Henares, Madrid 28830, SpainSilhouette Lift SL Gran Via de les Corts, Catalanes 630, Barcelona 08007, SpainMedicalio SL Av De Castilla, Edeficio Dublin Planta 2, San Fernando De Henares, Madrid 28830, SpainSilhouette Lift Inc 1 Technology Drive, STE F211, Irvine, CA 92648-5536, USA


Independent AuditorPricewaterhouseCoopers LLP1 Spinningfields Hardman SquareManchesterM3 3EB

NOMAD and BrokerPeel Hunt LLP120 London WallLondonEC2Y 5ET

Joint Broker RBC Capital MarketsThames Court1 Queenhithe LondonEC4V 3DQ

BankersSilicon Valley Bank14–18 Finsbury SquareLondonEC2A 1BR

RegistrarsLink Asset ServicesThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU

Registered officeWhitfield Court30–32 Whitfield StreetLondonW1T 2RQ

A D V I S E R S

Strategic report




Company informationSinclair 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.

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

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

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


N O T E S

Sinclair Pharma plc

1st Floor Whitfield Court 30–32 Whitfield Street London W1T 2RQ United Kingdom

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

sinclairpharma.com

Sinclair P

harma plc | A

nnual Report and A

ccounts 2017

Documents

SINCLAIR PHARMA PLC Shaping the future · in consumer marketing and physician promotion and training, a whole series of ... Sinclair Pharma plc | Annual Report and Accounts 2017 05