Condensed consolidated interim financial statements to June Ares Allergy Holdings Plc

Transcription

1 Condensed consolidated interim financial statements to June 2015 Ares Allergy Holdings Plc

2 HALF-YEAR REPORT 2015 CONTENTS 1. GROUP OVERVIEW 1.1 Introduction Operational review Financial review FINANCIAL STATEMENTS 2.1 Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated cash flow statement SELECTED NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS 3.1 General information Basis of preparation First time adoption of IFRS Basis of consolidation Going concern New standards, amendments and interpretations issued but not yet adopted Accounting policies Translation methods Goodwill Intangible assets Property, plant and equipment (PPE) Leases Financial instruments Inventory Trade and other receivables Cash and cash equivalents Shareholders equity Income tax Deferred tax Trade and other payables Provisions Revenue recognition and accounting by expense allocation Net earnings per share Use of estimates and assumptions Transformation costs Operating segments Financial risk management

3 3.5 Transformation costs Called up share capital Intangible assets Property, Plant & Equipment (PPE) Inventories Finance expenses Financial liabilities Dividends paid and proposed Related party transactions Post-balance sheet events CERTIFICATION STATEMENTS 4.1 Statement of the person responsible for the half-year report Statutory Auditors report SHAREHOLDER INFORMATION

4 1 GROUP OVERVIEW Please note that these condensed consolidated financial statements do not include the full results of all the entities comprising the newly combined Group over the period from 1 January to 30 June They should be read in conjunction with the unaudited pro forma financial information of the Group for the period from 1 January to 30 June 2015 with 2014 comparatives from 6 December 2013 to 30 June 2014 included in Annex B and in the prospectus which received visa n from the Autorité des marchés financiers on September 3, A financial review based on the information contained within Annex B has been included in Annex A. 1.1 Introduction Ares Allergy Holdings PLC (formerly Ares Allergy Holdco Ltd) ( the Company ), together with its subsidiaries form the Ares Allergy Holdings PLC Group ( the Group ). Over the course of the first half of 2015, the Company underwent structural changes in preparation for the combination of Stallergenes SA with and into the Company, and listing on Euronext Paris, which occurred on 8 September As part of these structural changes, on 12 May 2015, all the shares of Finares Holding AG and 90% of the shares of Ares Allergy Holdings, Inc. were contributed to the Company (the remaining 10% of Ares Allergy Holdings, Inc. are held by Finares Holding AG). In addition, since 29 April 2013, Ares Allergy Holdings, Inc. has held all the shares of Albion Medical Holdings, Inc. which itself holds 100% of the share capital of Greer Laboratories, Inc., the main operating company in the United States. The financial results of Finares Holding AG and the Ares Allergy Holdings Inc. Group are included in these audited condensed consolidated financial statements of the Group. The combination with Stallergenes SA did not complete until 8 September 2015 and so its results are not included in these condensed consolidated financial statements. Unaudited pro forma financial information of the Group for the period from 1 January to 30 June 2015 with 2014 comparatives from 6 December 2013 to 30 June 2014, has been set out in Annex B hereto and may be found in Annex 7 (Unaudited pro forma financial information of the Group and Auditor report) of the Prospectus which received visa n from the French securities regulator (the Autorité des marches financiers or AMF ) on September 3, 2015*. This pro forma financial information consolidates the Group s financial information together with that of Stallergenes SA and its consolidated subsidiaries and has been prepared on an illustrative basis based on the following assumptions: (i) the contribution of the shares of Ares Allergy Holdings, Inc. and Finares Holding AG to the Company and the merger have been effected on January for the purposes of the income statements, and (ii) the merger has been effected on June for the purposes of the financial position. 1.2 Operational review and overview of the activities of the group In the period from incorporation to 12 May 2015 the Group s main activity was preparing for the combination with Stallergenes SA and preparing for the listing of the Company s shares on Euronext Paris. The acquisition of the Ares Allergy Holdings Inc. Group and Finares Holding AG represents the first step of the transaction process and as a result the Group has become fully dedicated to the diagnosis and treatment of allergies. It now provides a comprehensive approach to allergic diseases, offering allergy specialists a wide range of products, from diagnosis to sublingual and subcutaneous allergen immunotherapy. Each year, approximately 1.6 million patients are treated with products manufactured by the Group and Stallergenes SA. The Group is firmly focused on innovation, and as a result of its deep knowledge of allergens, the Group is well positioned to continue providing major contributions to the development of the allergen immunotherapy market, offering allergy sufferers a range of increasingly effective solutions tailored to their needs. *Please note that an immaterial amendment has been made to the unaudited pro forma statement of financial position at 30 June 2015 compared with the version published in the Prospectus. Full details of this amendment are included in note 1 of annex B. 3

5 In the context of the combination, the Group decided to split its marketed products into four categories: (i) sublingual products, (ii) subcutaneous products, (iii) veterinary products and (iv) other products. While the merger was not yet consummated on 30 June 2015, this operational review adopts this classification in order to enhance comparability with future financial reports, it being understood that, as of June , Stallergenes SA is not part of the Group and therefore not included in the financial results. The product sales reflect the results of the Ares Allergy Holdings Inc. Group from 12 May The sublingual products represent the core product line of Stallergenes SA but a much smaller portion of the Ares Allergy Holdings Inc. sales. Sublingual products currently include two forms of treatment: liquid sublingual (drops placed under the tongue) and solid sublingual (rapidly dissolving tablets placed under the tongue). Over the course of the first half of 2015, the revenues of the sublingual products for the Group amounted to 83k or 1% of the total revenues of the Group. The Group also offers a range of subcutaneous allergen extracts. Over the course of the first half of 2015, the revenues of the subcutaneous products amounted to 9.4m or 73% of the total revenues of the Group. The Group sell products and services to veterinary dermatologists and reference laboratories on the U.S. market, and to non U.S. distributors. Bulk extracts represent the majority of sales to these customers; however ancillary products such as sterile empty vials are also sold. In addition to bulk extracts, the Group offers various components and prescription services to affiliate laboratories in a number of countries including Australia, Canada, France, Germany, Italy, Spain, the United Kingdom, and the United States. For the seven weeks to 30 June 2015, the revenues of the veterinary products amounted to 1.6m or 13% of the total revenues of the Group. In addition to the products developed in the main activities mentioned above, the Group has made available to the medical profession a wide range of in vivo tests and in vitro tests enabling the identification of the allergen or allergens responsible for the allergy. The Group has a fully licensed pharmacy that specializes in the compounding of allergy immunotherapy prescriptions for physicians and veterinarians in particular in Europe, the United States and Canada. The Group also proposes skin testing devices, sterile diluents and sterile empty vials, syringes, and other compendial products. Lastly, the Group is a global supplier of allergenic raw materials, such as pollens, molds, dust mites, danders, insects and foods, defatted or non-defatted powdered raw materials, or lyophilized or liquid extracts. For the seven weeks to 30 June 2015, the revenues of the other products amounted to 1.7m or 13% of the total revenues of the Group. 1.3 Financial review On 12 May 2015 the Company acquired the Ares Allergy Holdings Inc. Group which specialises in allergy immunotherapy. The financial results of both Ares Allergy Holdings Inc. and Finares Holding AG are included in the Group s condensed consolidated Income statement for the 7 weeks from acquisition to 30 June Sales revenues total 12.7 million for the period and reflect a solid growth performance for the Ares Allergy Holdings Inc. Group which saw sales grow by 13% in USD terms in the first half of 2015 compared with the same period in This growth is driven by both increased demand and price increases and follows a mild allergy season in 2014 which impacted all allergy immunotherapy manufacturers. The majority of sales in the period are for subcutaneous products representing 73% of total sales with the other sales being split evenly between veterinary and other products. Additionally, 91% of sales were made in the US. The other geographies represent a much smaller customer base outside the US with 5% of sales in Southern Europe, 2% in Northern and Central Europe and 2% in International markets. Following the combination with Stallergenes SA on 8 September 2015 the majority of sales are expected to be sublingual products, and sales by geography will reflect a truly global customer base. 4

6 The operating loss before exceptional items in the period was a loss of 1.5m due to a high level of expenses in the Ares Allergy Holdings Inc. Group in the period from 12 May to 30 June Included in cost of goods sold in the period are 676k of expenses related to the planned biannual shutdown activities for facility maintenance at the end of May. Additionally, in selling and marketing expenses the full cost of the Q sales commissions were recognised totalling 332k. The transformation costs of 6.6 million relate to the costs of the merger transaction incurred to 30 June These costs represent the one-off legal, tax, accounting and professional fees. The net loss for the period is 7.7 million due largely to these transaction costs. 2. FINANCIAL STATEMENTS 2.1 Consolidated balance sheet thousands Notes 30 June December 2014 Goodwill 169,119 Other intangible assets ,410 Property, plant and equipment ,058 Non current assets 277,587 - Inventories ,685 Trade receivables 9,156 3 Other current assets 3,304 1 Cash and cash equivalents 10, Current assets 48, Assets held for sale or exchange Total assets 325, thousands 30 June December 2014 Share capital 3.6 5, Share premium Reserves 269,455 Group net profit (7,650) (57) Group shareholders equity 267, Non-controlling interests Total shareholders equity 267, Non current financial liabilities ,584 Defered tax liabilities 28,457 Non currrent liabilities 41,041 - Trade payables 11, Current provisions - Current financial liabilities ,479 Income tax payable 598 Other current liabilities 2,533 Current liabilities 17, Liabilities held for sale or exchange Total equity and liabilities 325,

7 2.2 Consolidated income statement thousands Notes June 2015 June 2014 Net sales ,746 Other revenue - Total revenues 12,746 - Cost of goods sold (5,114) Gross margin 7,632 - Distribution costs (1,158) Selling and marketing expenses (2,419) Administrative expenses (4,783) Other general expenses (62) (9) Selling, general and administrative expenses (8,422) (9) Loss before R&D (790) (9) Research and development costs (R&D) (723) R&D-related income - Net R&D costs (723) - Operating loss before exceptional items (1,513) (9) Transformation costs 3.5 (6,621) Operating result (EBIT) (8,134) (9) Financial income - - Financial expenses 3.10 (71) Net financial income / (expense) (71) - Loss before tax and associates (8,205) (9) Income tax 555 Average income tax rate -6.8% 0.0% Share of profit (loss) from associated companies Net loss (7,650) (9) Attributable to minority interests Group share of net loss (7,650) (9) Net earnings & diluted net earnings per share (Group share) (1) The consolidated income statement at 30 June 2014 corresponds to that of the Company only, having no subsidiaries on that date. 6

8 2.3 Consolidated statement of comprehensive income 30 June 30 June thousands Consolidated net profit for the year (7,650) (9) Translation adjustment 1,161 - Revaluation of financial assets available for sale Income tax on items liable to be reclassified to the income statement Total items liable to be reclassified to the income statement 1,161 - Actuarial gains and losses Income tax on items not liable to be reclassified to the income statement Total items not liable to be reclassified to the income statement - - Gains and losses directly taken to equity 1,161 - Consolidated comprehensive income (6,489) (9) 2.4 Consolidated statement of changes in equity The changes were as follows: thousands Share capital Share premium Treasury shares Reserves and consolidated earnings Shareholders' equity Group share Minority interests At 6 December Net loss for period (9) (9) - Capital increase At 30 June (9) 66 - Net loss for period (48) (48) - Capital increase At 31 December (57) 18 - Net loss for period (7,650) (7,650) - Gains and losses taken directly to equity 1,161 1,161 - Issue of shares 5, , ,825 - Share premium reduction (541,167) 541, Loan write off to reserves Impact of combinations under common control (273,372) (273,372) - At 30 June , , ,538 - Further details regarding the changes in equity can be found in note

9 2.5 Consolidated cash flow statement thousands June 2015 June 2014 Cash flow from operating activities Operating result (EBIT) (8,134) (9) Amortisation and depreciation charges 1,778 - Movement in working capital 9,064 - Net cash flow from operating activities 2,708 (9) Cash flow from investing activities Purchases of Property, plant & equipment (577) - Cash acquired on acquisition of subsidiaries 8,730 - Net cash flow from investing activities 8,153 - Free cash flow after investment activities 10,861 (9) Cash flow from financing activities Proceeds from issues of ordinary share capital - 75 Net financial interest received (paid) (71) 0 Repayment of borrowings (626) Net cash flow from financing activities (697) 75 Net change in cash and cash equivalents 10, Cash and cash equivalents - opening balance /- Effect of translation adjustment on foreign currency-denominated cash 38 - = Cash and cash equivalents - closing balance 10,

10 3. SELECTED NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS 3.1 General information The Ares Allergy Holdings PLC Group (formerly Ares Allergy Holdco Ltd) is dedicated to the diagnosis and treatment of allergies. The Group provides a comprehensive approach to allergic diseases, offering allergy specialists a wide range of products, from diagnosis to sublingual and subcutaneous allergen immunotherapy medicines, the only long-term allergy treatment to rebalance the immune system. Ares Allergy Holdings PLC (the Company ) is a public limited company incorporated and domiciled in the United Kingdom. In these condensed consolidated interim financial statements ( Interim Financial Statements ), the Group means the Company and all its subsidiaries. Its head office is located in London at 1 Curzon Street, London, W1J 5HD. On 8 September 2015 the Company was listed on Compartment B of the Euronext Paris Stock Exchange. Ares Allergy Holdings PLC consolidated half-year financial statements at 30 June 2015 were approved by the Board of Directors on 29 September They are expressed in thousands of euros Basis of preparation These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as published by the IASB, as adopted by the European Union. These interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss. The Financial Statements of the Group and Company are presented in Euros ( ). Ares Allergy Holdings Plc was incorporated on 6 December On 12 May 2015 Ares Allergy Holdings Plc acquired Ares Allergy Holdings Inc and Finares Holding AG and their subsidiaries including Greer Laboratories Inc, from its immediate parent, Ares Life Sciences 1 Sarl. This is a common control transaction and is therefore outside the scope of IFRS 3 Business combinations. The directors have considered the guidance in IAS 8 regarding the selection of an appropriate accounting policy and have accounted for Ares Allergy Holdings Inc and Finares Holding AG from the date of the transaction. On 16 July 2015 Ares Allergy Holdings Plc reregistered as a public limited company. The financial information herein has been prepared on the basis of the accounting policies set out below. The significant judgments made by management in applying the Group s accounting policies and the key sources of estimation uncertainty are also set out below. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements. The interim condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRS. These interim condensed consolidated financial statements have been reviewed and not audited. 9

11 3.1.2 First time adoption of IFRS These consolidated financial statements for the period from 1 January to 30 June 2015 are prepared in accordance with IFRS. The consolidated financial statements were previously prepared under United Kingdom (UK) GAAP and the consolidated financial statements for the Groups first reporting period from 6 December 2013 to 31 December 2014 were approved on 21 April 2015 and submitted to Companies House. The Group changed accounting framework from UK GAAP to IFRS from 1 January This transition has been accounted for in accordance with IFRS 1 First time adoption of IFRS. The adoption of IFRS did not give rise to differences in measurement compared with the previous financial statements prepared under UK GAAP. The consolidated financial statements for the period from 1 January to the 31 December 2014 were prepared in accordance with IFRS and included within the Prospectus which received visa n from the French securities regulator (the Autorité des marches financiers or AMF ) on September 3, Basis of consolidation Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. The Group financial statements consolidate the financial statements of Ares Allergy Holdings PLC and its subsidiary, Ares Allergy Applied Research SAS (incorporated in France), for the full period. The Company owns 100% of the ordinary share capital in Ares Allergy Applied Research SAS, which is a dormant company. The Group financial statements also consolidate Ares Allergy Holdings Inc and Finares Holding AG since the date of acquisition on 12 May The Company owns 100% of the share capital directly and indirectly of the two entities. The current accounting period for both entities is from 1 January 2015 to 31 December Going concern The consolidated financial statements have been prepared on the going concern basis as the directors are confident that the Group has sufficient funds to meet its liabilities as they fall due. At 30 June 2015 the Group had an external debt balance of 15,064k and paid interest for the period of 71k. The Group has a cash balance of 10,260k. On 8 September 2015 the Company merged with Stallergenes SA and as a result the Group s net assets significantly increased. Stallergenes SA had cash of 193.4m and no debt as at 30 June A set of pro forma accounts have been included in an appendix to these consolidated financial statements illustrating the results of the Group including Stallergenes SA for the entire period ended 30 June 2015 and the comparative period as if the Group had been in existence in its current form from 1 January New standards, amendments and interpretations issued but not yet adopted a) IFRS 9 Financial instruments IFRS 9 addresses the classification and measurement of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through Other Comprehensive Income (OCI) and fair value through profit and loss. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit and loss with the irrevocable option at inception to present changes in fair value in OCI but not recycling. There is now a new expected credit losses model that 10

12 replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit and loss. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted, subject to EU endorsement. The Group is currently assessing IFRS 9 s full impact. b) IFRS 15 Revenue recognition 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 standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted, subject to EU adoption. The Group is currently assessing the impact of IFRS Accounting policies Translation methods Items included in the financial statement of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Euros (EUR), which is the Group and Company s presentation currency. a) Foreign currency denominated transactions Expenses and revenues denominated in a currency other than the Group entities functional currency are converted using the average exchange rate of transactions carried out during the period. Foreign currency-denominated liabilities and receivables are converted at the exchange rate prevailing at the balance sheet date. Exchange differences resulting from these transactions are accounted for in the income statement. b) Translation of foreign entities financial statements The presentation currency of the consolidated financial statements is the Euro. The assets and liabilities of foreign subsidiaries (US Dollars) are translated at the prevailing exchange rate on the balance sheet date and their income statement is translated at the average rate for the period. Translation adjustments resulting from this conversion are directly allocated to a separate item of comprehensive income. Upon the partial or complete disposal of a foreign subsidiary, the translation differences accumulated under equity are taken to other items of comprehensive income Goodwill Positive goodwill is posted to the balance sheet at cost less accumulated impairment. An impairment test is carried out once a year or more frequently if events or changes in circumstances indicate that goodwill may have been impaired. For the purpose of the test, goodwill is allocated by Cash Generating Unit (or CGU) on a reasonable and consistent basis. As at 30 June 2015 the Group considers there to be only one CGU. Impairment is recognised as soon as the book value of the CGU to which the goodwill belongs exceeds the recoverable value. Recoverable value is defined as being the maximum of value in use and fair value less coats of disposal. Impairment is expensed through the income statement and may not be reversed subsequently where the recoverable value of the CGU exceeds once again its book value. Negative goodwill is directly taken to the income statement for the year. 11

13 3.2.3 Intangible assets Intangible assets are valued at the Group s acquisition cost or production cost. This cost includes all costs directly attributable to commissioning these intangible assets. Accumulated amortisation and write-downs, if applicable, are deducted from this cost. The amortisation method and periods of use are reviewed at each balance sheet date. Intangible assets with a finite value useful life are amortised over this period. An impairment test is carried out when there is an internal or external indication of impairment. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the assets fair value less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). a) In-house Research and Development costs Internally-developed Research and Development costs are recognised as intangible assets when it is probable that the future economic benefits expected from the asset will flow to the Group and its cost can be measured reliably. These conditions are fulfilled if all of the following criteria are met: (a) technical feasibility necessary to complete the development project, (b) intention of the Group to complete the project, (c) ability of the Group to use the intangible asset, (d) evidence of the likelihood of future economic benefits attached to the asset, (e) availability of technical, financial and other resources to complete the project, and (f) reliable measurement of development costs. Due to the risks and uncertainties relating to regulatory authorisations and the Research and Development process, capitalisation criteria are not considered fulfilled until regulatory authorisation to market the products has been granted. Other in-house Research and Development costs are expensed. b) Other intangible assets Other intangible assets include: marketing licences and other contractual commitments received from non-group commercial partners, when they have a value in use for the Group; brands/trademarks; customer lists; proprietary technology; software, either purchased or designed in-house and software licences. Marketing licences and other contractual commitments are capitalised based on their acquisition cost, which includes costs directly attributable to their acquisition. They are amortised on a straightline basis over years, which corresponds to their useful lives. Brands/trademarks are capitalised based on their acquisition cost and amortised on a straight-line basis over their useful lives. If they are deemed to have an indefinite useful life they are not amortized but are tested for impairment at least annually and when there is an external or internal indication of impairment. Customer lists are amortised on a straight-line basis over 12 years, which corresponds to their probable useful life. 12

14 Proprietary technology is capitalised based on its acquisition cost. It is amortised on a straight-line basis over 10 years. Software has a finite useful life: it is therefore amortised on a straight-line basis from the time the asset is ready to be commissioned, over a period of three to five years, except for integrated professional management software of the ERP category, which are amortised over 8 years due to their operational significance and probable useful life Property, plant and equipment (PPE) Property, plant and equipment is recognised at acquisition cost, less, if applicable, accumulated depreciation and write-downs. The acquisition cost of property, plant and equipment includes all costs directly attributable to its creation or acquisition and its transfer to the location of operation for commissioning as intended by management. In accordance with revised IAS 23, interest costs are included in asset costs when justified by the significance and timeframe for completion of the relevant non-current assets. Investment grants relating to property, plant and equipment are posted to balance sheet liabilities under Grants and consistently spread over the financial year corresponding to the costs they offset in the income statement. Significant components of property, plant and equipment that have been identified to have different useful lives are recognised separately. Costs relating to the replacement or renewal of a property, plant or equipment component are recognised as separate assets and the replaced asset is disposed of. Other subsequent expenses relating to property, plant and equipment are only recognised under assets when it is likely that future economic benefits associated with these costs will flow to the Group and the costs may be measured reliably. All other subsequent expenses are recognised as an expense in the financial year they are incurred. Land is not depreciated. Other assets are depreciated on a straight-line basis when the asset is ready to be commissioned in order to bring the cost of each asset (or its re-valued amount) down to its residual value by recognising a constant annual depreciation charge, based on the following useful lives: buildings years machinery and tools 5-10 years motor vehicles 3-5 years office furniture, fixtures and equipment 3-10 years Depreciation of property, plant and equipment is recognised under the various functional captions of the income statement. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). A provision for write-down is then recognised when the recoverable value of the concerned assets falls below its net book value. Capital gains and losses on property, plant and equipment are measured by the difference between the price and the net book value. They are therefore recognised in the income statement under Other general expenses. 13

15 3.2.5 Leases a) Operating leases Leases for which a substantial portion of the risks and rewards incident to ownership of the assets is effectively retained by the lessor are classified as operating leases. Payments made in respect of contracts of this nature are recognised in the income statement as an expense for the period and on a straight-line basis over the term of the lease Financial instruments a) Financial assets Financial assets are designated and classified on initial recognition. They are reviewed at each balance sheet date. On initial recognition, the Group recognises financial assets on the date the Group becomes a party to the contractual provisions of these financial assets. These are measured at fair value, increased by direct transaction costs when not classified as financial assets measured at fair value through the income statement. Transaction costs associated with equity instruments (shares) recorded as financial assets available for sale are deferred and recorded under other items of comprehensive income. They are only transferred to the income statement when the corresponding shares are sold or written down. Available for sale financial assets are initially recognized at fair value plus transaction costs. Transaction costs of debt instruments classified as held to maturity instruments are recorded in the income statement on an actuarial basis over the life of the instrument, using the effective interest method The Group manages several categories of financial instruments. Their classification is dependent on the purpose of each acquisition. These categories are as follows: i. Deposits held to maturity: include financial assets, other than non-derivative financial instruments, featuring determined or determinable instalments and a fixed term, which the Group intends and has the capacity to retain until maturity. They are valued at amortised cost, using the effective interest rate method, and potential impairment is offset against Financial expenses in the income statement. ii. Loans and receivables (excl. trade receivables): include financial assets, other than nonderivative financial instruments, featuring determined or determinable instalments and which are not listed on an active market. They are valued at amortised cost using the effective interest rate method and potential impairment is offset against other financial income and expenses in the income statement. iii. Financial assets at fair value through the income statement: include financial assets which the Group intends from inception to resell in the short term, generally within 12 months. Fair value movements are recognised in the income statement of the period in which they occur. This category notably includes money market funds and derivative instruments. iv. Financial assets available for sale: include financial assets, other than derivative financial instruments, that do not feature in other categories. Fair value movements are recorded under other items of comprehensive income in the period they occur, except for impairment. When financial assets available for sale are sold or written down, cumulative fair value movements recognised under other items of comprehensive income are transferred to the income statement. Impairment is recognised when there is an objective indication that an asset has been impaired. Impairment indicators are examined for all financial assets at each balance sheet date. These indicators include failure to meet contractual payments, significant financial difficulties of the issuer or debtor, probable bankruptcy or a long-lasting or significant fall in the share price. 14

16 Impairment is measured and recognised as follows: - impairment of loans and receivables and assets held until maturity, which are recognised at amortised cost, is equal to the difference between the book value of the assets and the value of estimated future cash flow, discounted at the original effective interest rate. - in relation to equity instruments, impairment of financial assets available for sale corresponds to the change in their fair value. In relation to debt instruments, impairment should only be recognised though the income statement where the loss in value of the security is linked to an objective indication that the amounts due may not be recovered. Increases in value occurring after impairment is recognised and relating to a reversal in the financial situation of the issuer are recognised through the income statement for debt instruments (bonds and other), or through other items of comprehensive income for equity instruments (shares and other). b) Financial liabilities Financial liabilities are initially recognised at the fair value of the counterpart received, less transaction costs directly attributable to the transaction. They are subsequently measured at amortised cost using the effective interest rate method. c) Financial instrument fair value Financial instruments are carried at fair value, which is determined by the following methods, by preference: - 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 fair value of trade receivables, other current assets, cash and cash equivalents, trade payables, financial liabilities and other current liabilities approximate to their carrying amount. d) Derecognition The Group derecognises financial assets when the contractual rights to receive the cash flow of these assets have ceased or have been transferred and the Group has transferred virtually all the risks and rewards incident to ownership of the assets. Moreover, if the Group neither transfers nor retains virtually all the risks and rewards incident to ownership of the financial assets, the latter are derecognised when control is lost. Financial liabilities are derecognised when contractual obligations are waived, cancelled or extinguished Inventory Inventories are held at the lower of cost or net realisable value. Raw materials and other supplies are valued at cost, which includes the purchase price and ancillary expenses. Inventories of finished goods and work in progress are valued at production cost, which includes the purchase of raw materials and direct production costs, as well as a portion of indirect production costs based on the normal activity level of the facility. The net realisable value represents the estimated selling price under normal business conditions, after deducting selling expenses Trade and other receivables Trade receivables are initially recognised at fair value and subsequently at amortised cost, after deducting provisions for bad debts. A provision for bad debts is recognised when there is an objective indication that the Group may be unable to collect receivables in full as per the conditions 15

17 initially set down for the transaction. The value of the provision represents the difference between the book value of the asset and estimated future cash flows, discounted at the initial effective interest rate. The value of the provision is recognised in the income statement under selling and marketing expenses Cash and cash equivalents Cash and cash equivalents include cash, sight deposits and other short-term, highly liquid deposits with initial maturity of 3 months or less. Bank overdrafts are included under current liabilities in the balance sheet under Current borrowings Shareholders equity In accordance with IAS 32, Ares Allergy Holdings PLC treasury shares are deducted from equity regardless of the purpose for which they are held. No gain or loss is recognised in the income statement when purchasing, selling, writing down or cancelling treasury shares. Dividends to be paid by the Group are recognised as a liability in the period they were approved by the shareholders Annual General Meeting Income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss Deferred tax The deferred tax assets and liabilities of consolidated entities are presented under non-current assets and non-current liabilities, respectively. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in conjunction with the initial recognition of goodwill on acquisitions: Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. The carrying amount of deferred tax assets is reviewed at each reporting date and impaired to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Assets and liabilities are offset when income tax is collected by the same tax authority and if it is authorised by local tax authorities. 16

18 Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business form suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method Provisions When the Group has an actual, legal or implicit obligation resulting from a past event, the value of which can be measured reliably and the settlement of which is expected to result in an outflow from the Group of resources embodying economic benefits. Forecast outflows likely to occur in more than twelve months are classified as non-current liabilities. Other provisions are classified as current liabilities. Charges and reversals relating to the use of other provisions are recognised in the functional items of the income statement. Reversals of lapsed provisions are classified as Other general expenses Revenue recognition and accounting by expense allocation Revenues arising from product sales are recognised as "Sales" when the significant risks and rewards incident to ownership of the products have been transferred to a third party. The Group has a contract with DBV Technologies to provide and monitor the Active Pharmaceutical Ingredient (API) that DBV Technologies uses in their clinical trials. Revenues on sales of API are accounted for in the income statement when significant risks and rewards incident to ownership of the products have been transferred to DBV Technologies and income related to the monitoring of the API is recognised as R&D income on a monthly basis in accordance with the service contract. The milestone payment paid to Stallergenes SA following approval of the marketing authorisation of Oralair in the US market has been recognised as an intangible asset and amortised over 10 years, which corresponds to the marketing period stipulated in the contract. Analytical cost classification complies with the principles of activity-based costing: Expenses corresponding to the cost of resources used by the various departments are classified as Cost of goods sold, Distribution costs, Selling and marketing expenses, Administrative expenses, Research and development costs, based on an analysis of their activities; General expenses that cannot be attributed to the operations of the various departments are classified as Other general expenses. They notably include translation differences, capital gains and losses on non-current assets and income and charges not directly relating to the activities of operational departments (costs or income from litigations and restructuring costs) Net earnings per share Earnings per share correspond to the Group share of net profit divided by the weighted average number of shares outstanding during the period, reduced by the average number of treasury shares. There are no dilutive equity instruments in issue Use of estimates and assumptions During the preparation and presentation of the financial statements, Group Management uses its own judgement to value or estimate certain items presented in the financial statements. The 17

19 likelihood that future events will occur is also assessed. These valuations and estimates are reviewed at each balance sheet date and compared to actual events, in order to restate the assumptions made if necessary Transformation costs Transformation costs represent significant expenses that are exceptional in nature. These include one-off items such as transaction fees and restructuring costs. 3.3 Operating segments Internal reporting put at the disposal of the Executive Committee in its capacity as Chief Operating Decision Maker is consistent with the Group s management structure, which is based on the allergen immunotherapy sector in which the Group operates. The Executive Committee replaced Mr Theurillat as the Chief Operating Decision Maker following his resignation on 16 July There is only one operating segment as defined under IFRS 8. Revenues for this operating segment are analysed into four product lines and four geographic regions as disclosed below. Net sales were as follows, by product line: ( thousands) HY % HY Sublingual route Subcutaneous route 9, Other products 1, Veterinary 1, Sales 12, Net sales and non-current assets were as follows, by geographic region: 18

20 ( thousands) HY % HY Southern Europe (1) Northern and Central Europe (2) International markets US 11, Sales 12, Southern Europe (1) 0 - Northern and Central Europe (2) 0 - International markets 0 - US 277, Net non-current assets (3) 277, (1) Portugal, Spain France, Italy (2) Greece and Switzerland included; (3) excluding deferred taxation and rights attached to insurance policies The products marketed by the Group are split into four categories: sublingual products, which include Oralair ; subcutaneous products, veterinary products and other products, which include diagnostic and ancillary products. The Group s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group monitors its risks on a regular basis assessing the likelihood of the risk occurring and its potential impact. It seeks to minimise potential adverse effects on the Group s performance. 3.4 Financial risk management a) Market risks The Group is exposed to foreign exchange risk as 100% of its income and 94% of expenses were incurred in USD (excluding the one-off transformation costs) in the period. No hedging instruments are currently used, but it is anticipated that this will be reviewed regularly where required to mitigate foreign exchange exposure and specifically when the foreign exchange markets are particularly volatile. In particular following the combination with Stallergenes SA the Group will reassess its foreign currency risk and hedging requirements. Net foreign exchange losses for the period are included in administrative expenses. b) Credit risk The credit risk on trade receivables primarily concerns hospitals and distributors. These are longterm partners and no significant default has been noted over the past 10 years. Any significant delay in payment is subject to corrective action and, if applicable, provisions are recognised by the sales department. The credit risk on financial deposits is managed by only dealing with first-rate banking institutions. 19

21 c) Interest rate and liquidity risk As at 30 June 2015 the Group s interest bearing debt totalled 15.1m. A change in the interest rate level by one percentage point would consequently equal a change of interest expense in the period by 22k. The interest rate exposure is not currently hedged but this will be reviewed as required. 3.5 Transformation costs The transformation costs of 6.6m in the income statement reflect the costs of the merger transaction with Stallergenes SA incurred in the period from 1 January to 30 June This cost includes legal, tax and accounting advice and other professional fees associated with the transaction. In addition Stallergenes SA has recognised 2.6m of transaction costs in its income statement for the same period. No costs were recognised in relation to the transaction by the Company in Called up share capital The Company is authorised to issue an unlimited number of ordinary shares at no par value. All of the shares of the Company are classed as Equity. The ordinary shares have attached to them full rights in respect of voting and participation in dividends or distributions of capital (including on winding up). The ordinary shares do not confer any rights of redemption. At a general meeting of the Company, on a vote on a show of hands, every member present in person or by proxy shall have one vote, and on a vote on a poll, every member present in person or by proxy shall have one vote for every share of which they are the holder or the duly appointed proxy. Voting rights attached to a share shall not be exercisable at any general meeting, adjournment thereof or on a poll called at or in relation to that meeting unless all amounts payable to the Company in respect of that share have been paid. a) Movements on share capital in the period from incorporation to 31 December 2014 On 6 December 2013, the Company was incorporated by Ares Life Sciences LP, the parent company of Ares Life Sciences 1 Sarl, with 25,000 ordinary shares of US$1 each. On 19 March 2014, the initial share capital of 25,000 ordinary shares of US$1 was re-denominated into 25,000 ordinary shares of , and then sub-divided into 182,325 ordinary shares of EUR 0.1 each. A further 567,675 ordinary shares of EUR 0.1 each were then issued to Ares Life Sciences L.P. The aggregate numbers of shares then in issue, being 750,000 ordinary shares of EUR 0.1 each, were consolidated into 75,000 ordinary shares of EUR 1 each in the capital of the Company. The total issued share capital was fully paid at 31 December b) Movements on Share capital in the period to 30 June 2015 On 12 May 2015, the Company issued shares with a nominal value of 5,658,440 (5,658,440 ordinary shares at 1 each) to its immediate parent, Ares Life Sciences 1 Sarl. in exchange for the total issued share capital of Ares Allergy Holdings Inc and Finares AG., 541,166,652 was also recorded in share premium. On 3 June 2015, the Company enacted a capital reduction in which the entirety of the share premium account ( 541,166,652) was cancelled and transferred to reserves. 20

22 3.7 Intangible assets They have evolved as follows: thousands Product technology Other intangible rights Total intangible assets Gross value at end Net value at end Addition on acquisition 21,710 68,649 90,359 Translation adjustment Gross value at June ,831 69,016 90,847 Amortisation (455) (899) (1,353) Translation adjustment (23) (60) (84) Net value at June ,353 68,057 89, Property, plant and equipment (PPE) Property, plant and equipment are summarized as follows: thousands Land and buildings Fixtures and fittings Machinery and equipment Office equipment Other In progress Total property, plant and equipment Gross value at end Accumulated depreciation Net value at end Additions on acquisition 6, ,547 1, ,281 18,821 Additions Translation adjustment Gross value at June , ,598 1, ,867 19,503 Depreciation (31) (0) (299) (84) (10) 0 (424) Translation adjustment (1) (0) (17) (3) (0) (21) Net value at June , ,282 1, ,867 19, Inventories They have evolved as follows: thousands Raw materials Merchandise In progress Finished goods Total inventories Gross value at end 2014 Provisions Net value at end 2014 Inventory movements (498) Additions on acquisition (net of provision) 13,584 2,257 1,377 8,348 25,566 Translation adjustment Net value at June ,147 2,398 1,407 8,733 25, Finance expenses Finance expenses of 71k in the period (2014 NIL) represent the interest payable on an external bank loan. Further details of the loan are detailed in note

23 3.11 Financial liabilities The Group has non-current financial liabilities of 12.6m and current financial liabilities of 2.5m which represent a term loan with a bank in the US. A credit agreement was entered into by the Ares Allergy Holdings Inc. Group on 20 December 2013 and includes a terms loan and a revolving credit facility. The Credit Agreement is collateralized by substantially all assets of the Ares Allergy Holdings Inc. Group. The Term Loan had an original principal amount of $10m. On 2 January 2015 the Ares Allergy Holdings Inc. Group borrowed an additional $10m. The Group is required to pay $714k per quarter in principal payments plus interest based on one-month London Interbank Offer Rate (LIBOR) plus 2.25% per annum (2.50% as of June 2015). For the period the repayment made against the principal sum was the full $714k or 626k. The required payments commenced on 31 March The Term Loan matures on 15 January Under the Credit Agreement, the Group has an option to borrow up to a maximum aggregate term principal amount of $25m. The Revolving Credit Facility provides for loans or letters of credit up to $20m and matures on 13 January Interest is payable quarterly based on one-month LIBOR plus 2.00% per annum. As of December 31, 2014 and 2013, the Group had not drawn against this facility, and there were no outstanding letters of credit. The Revolving Credit Facility includes an unused line fee of 0.25%. The Credit Agreement contains certain quantitative covenants related to debt coverage and net worth. In addition, the agreements contain certain restrictions which, among other things, limit the amounts of annual capital expenditures of the Ares Allergy Holdings Inc. Group. The Group was not in violation of its quantitative covenants as of 30 June Dividends paid and proposed No dividends have been paid or proposed in the period to 30 June 2015 or in the prior period from incorporation Related party transactions In the period entities under common control paid disbursements on behalf of the Company for 1,794 k ( NIL), the full amount was outstanding at period end. In the period entities under common control charged the Company 269k (2014 NIL) for supply of staff and shared services. An amount of 211k was outstanding at period end. Ares Allergy Holdings Inc. purchased a license from Stallergenes SA, a company under common control, to distribute Oralair in the US. This license was purchased for an initial payment of $5.0m to Stallergenes SA in 2013 with a further milestone payment of $10.0m on receipt of FDA approval in April The milestone payment of $10.0m dollars was paid in full in early The license payment of $10.0m has been amortized from the date of FDA approval over the life of the license to distribute. The amortisation expense in the period from 12 May to 30 June 2015 was 114k and the value of the intangible asset at 30 June 2015 was 6.4m. In addition the agreement with Stallergenes SA includes a cost sharing arrangement whereby the Group and Stallergenes SA will share 50/50% of the costs of phase iv trials required by the FDA as part of the approval of Oralair in the US. It is anticipated that these trials will be complete in 2018 and on completion Stallergenes SA will invoice the Group its share of these costs. To date no costs have been accrued. In the period the Group made sales of 450k to entities within the Stallergenes SA Group. At 30 June 2015 $550k was receivable from these entities and included in trade receivables. On 18 May Ares Life Sciences L.P., the immediate parent company of Ares Life Sciences I Sarl, forgave a shareholder loan of $222.0m or 197m in respect of Finares Holding AG which has been credited to reserves as a capital contribution. This loan was interest free, payable in 99 years and contained a none-fixed-for-fixed conversion option which has been separated from the host contract at initial recognition and accounted as an embedded derivative at fair value through profit or loss. Therefore, at the date of conversion, the fair value of the loan written-off was $556k or 22

24 497k, and of the total amount written off materially all related to the embedded derivative. These amounts were credited to other reserves in the period. Directors and other key management personnel were remunerated by affiliates of the general partner/fund manager of Ares Life Sciences L.P. Thus. The Group did not incur any costs in respect of these services for the period to 30 June 2015 except those paid to third parties indicated above. Details of other related party transactions are included in note Post balance sheet events On 18 May 2015 the Company and Stallergenes SA entered into a cross-border merger agreement. The share exchange ratio adopted provided for the issuance of one (1) new Ares Allergy Holdings PLC share for one (1) existing Stallergenes SA share (excluding treasury shares). This merger completed on 8 September 2015 and on the same day the newly merged Ares Allergy Holdings PLC Group was listed on the Euronext, Paris. On 3 July 2015 the Company bought back 60,670 ordinary shares from Ares Life Sciences I Sarl for 1. These shares are held as Treasury shares by the Company. Included in the appendix to these accounts is pro forma financial information for the six months from 1 January to 30 June 2015 with 2014 comparatives illustrating the financial position of the Group had the combination of Stallergenes SA and Ares Allergy Holdings Inc. taken place on 1 January

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