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Water-based, clean technology solutions

for a safer, healthier world
2011 ANNUAL REPORT
PuriCore 2011 Annual Report
Headquarters
PuriCore, Inc.
508 Lapp Road
Malvern, PA 19355
USA
Phone: +1 484.321.2700
www.puricore.com
European Operations
PuriCore
Wolseley House, Dyson Way
Staffordshire Technology Park

Beaconside, Stafford ST18 0GA
UK
Phone: +44 1785 782420
PuriCore Labcaire

175 Kenn Road

Clevedon, North Somerset BS21 6LH

UK

Phone +44(0) 1275 7930000
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PuriCore advances human health through the control of infectious pathogens
PuriCore addresses the increasing spread of infectious pathogens. The growing demand for
PuriCore’s solutions to address this issue is fuelled by the decreasing effectiveness of antibiotics
and the increasing call by both regulatory authorities and consumers for safer, green solutions to
control the spread of infectious pathogens. PuriCore’s water-based clean technology solutions safely,
effectively, and naturally kill infectious pathogens across a broad range of applications without causing
harm to human health or the environment.
Supermarket Retail: Fresh Produce
Thousands of leading US and Canadian retail supermarkets rely on Sterilox as
the
de facto
standard to keep produce fresher longer and to address cross-
contamination.
Supermarket Retail: Floral
FloraFresh Systems aim to become the choice of leading supermarket and floral
chains to keep flowers fresher longer and reduce labour costs.
Wound Care
Leading hospitals, wound care centres, burn centres, and home healthcare
providers use Vashe Wound Therapy, a natural, safe, and effective treatment for
chronic and acute wounds.
R&D
PuriCore’s R&D efforts investigate promising new markets for the evolution of its
environmentally friendly, water-based antimicrobial technology in markets such as
agriculture and the oil and gas industry.
Endoscopy
PuriCore Endoscopy is the leading UK full-service provider of endoscopy
decontamination equipment and services portfolio, offering everything required
for a safe, efficient, and compliant endoscope reprocessing suite.
PuriCore Markets & Applications
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Contents
2011 Results 1
Operating & Financial Review 2
Board of Directors 5
Supermarket Retail 6
Endoscopy 7
Wound Care 8
R&D 9
Directors’ Report 10
Corporate Governance Statement 18
Directors’ Remuneration Report 22
Directors’ Responsibilities in the
Preparation of the Financial Statements 26
Independent Auditor’s Report to the
Members of PuriCore plc 27
Consolidated Statement of
Comprehensive Income 29
Consolidated Statement of Changes
in Equity 30
Company Statement of Changes
in Equity 31
Consolidated Statement of Financial
Position 32
Company Statement of Financial
Position 34
Consolidated Statement of Cash Flows 35
Company Statement of Cash Flows 36
Accounting Policies 37
Notes to the Financial Statements 42
Financial Calendar 69
2011 Financial Results
• Revenue increased 5% (3% at constant
currency) to $42.6m (2010: $40.5m)
• Supermarket Retail revenue up 30% to
$19.4m (2010: $14.9m)
• Endoscopy revenue down 11% (14% at
constant currency) to $22.5m (2010: $25.1m)
• Wound Care revenue up 60% to $0.7m
(2010: $0.4m)
• Operating loss* reduced by 52.4%to $2.2m
(2010: $4.2m)
• EBITDA
+
and cash flow positive from
operations in Q4
• Cash of $4.5 million at period end
Business and Operational Highlights
• Agreement for a two-year extension of the
repayment date to 31 December 2013 of
£7.95 million in Convertible Loan Notes
• Secured two debt facilities with Republic Bank
totaling for $5.4m to finance Sterilox Fresh
System installations
• Agreement on settlement of claim against
Misonix, Inc.
• Installed base increased by 1,106 Sterilox and
FloraFresh Systems during the year to 5,300
as at year end
• Received confirmation from the US EPA for
ActiVita Agriculture System as an on-site
generator of fungicidal crop protection
• Received confirmation for the US EPA for the
Aqualox System as an on-site generator of an
oil and gas biocide to treat hydraulic fracturing
(or frac) water in January 2012
• A research grant of £500,000 was awarded by
the Biotechnology and Biological Sciences
Research Council to The University of Oxford
to study PuriCore’s Activita Agricultural
Solution in January 2012
*
Excludes non-cash depreciation, amortisation, non-cash stock
compensation charges and capitalisation/amortisation of development
costs.
+ Earnings before interest, tax, depreciation, and amortisation.
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Operating & Financial Review
PuriCore achieved its financial goals for 2011, ending the year in a strong position with robust
order flow in the US Supermarket Retail sector, the early indications of a re-initiation of UK
National Health Service (NHS) spending in the UK, and strong growth in the Wound Care business
including initial distribution orders. Q4 full Group sales of $14.3 million, an increase of 39% over
Q4 2010, moved PuriCore to group EBITDA profitability for the quarter. Additionally in Q4, each
business division was profitable. For the full year, sales reached $42.6 million, an increase of 5%
(3% at constant currency) over 2010.
Operations
Supermarket Retail
PuriCore expanded market share with leading US and Canadian retail supermarkets for Sterilox Fresh and
FloraFresh Systems. For the full year, sales for Sterilox Fresh and FloraFresh increased 30% to $19.4 million
(2010: $14.9 million), and installations nearly doubled compared with 2010. Noteworthy sales included full
adoption in one regional division and expanded installations for the number-two US supermarket retailer,
enterprise-wide contracts with two new leading US supermarket customers, and approximately $5.5 million in
year-end orders for Sterilox Fresh and FloraFresh Systems for H1 2012 installations. During the fourth quarter
alone, the Supermarket Retail business achieved growth of 148% with $7.3 million in revenue (Q4 2010:
$2.9 million), providing a strong foundation for 2012.
The significant increase in installations in 2011 of 1,106 Sterilox Fresh and FloraFresh Systems increases the
aggregate total number of Systems sold or leased to date to more than 5,300. PuriCore now has Systems in
19% of the target market stores in the US and Canada. These customers and others in pilot programmes
represent 42% of the target market in total.
Endoscopy
The Endoscopy business in the UK improved profitability in 2011 over the prior year despite the reduced sales
revenues. The business continued to focus on increasing recurring revenues to reduce the potential impact of
capital spending delays by its primary customer, the UK National Health Service (NHS). Significant NHS capital
spending delays beginning in April 2011, the fiscal year start for the NHS, resulted in an 11% decrease (14% at
a constant currency) in sales (2011: $22.5 million; 2010: $25.1 million) for the year. In addition, public sector
spending restrictions led to pressure on capital spending in the Laboratory Clean Air segment of this division.
Whilst these purchasing delays contributed to lower than expected sales for the full year, the NHS capital
spending landscape improved in Q4 2011. Late in the year, PuriCore was awarded a significant contract valued
at £484,000 ($775,000) for the installation of ISIS automatic endoscope reprocessors in the OJEU tender
proposal for the Greater Glasgow Health Board to be installed in 2012. Even in light of revenue decreases,
PuriCore significantly increased its proportion of the spending that came through the NHS Supply Chain.
The focus on recurring revenues, including rentals and the newly launched PuriSept proprietary disinfectant
chemistry, accounted for more than three-quarters of division revenues. In 2011, recurring revenues continued
to increase, up 4% to $17.1 million (2010: $16.4 million), accounting for 76% of division sales for the year.
Wound Care
The Wound Care business continues to increase sales organically and through distribution. Revenues for
Wound Care (including Dental) increased 60% in 2011 to $0.7 million (2010: $0.4 million), with nearly all
growth attributable to the new bottled Vashe Wound Therapy. In late Q4, revenues also included initial
shipments to Misonix under the distribution agreement. Q4 sales increased 81% to $0.2 million (Q4 2010:
$0.1 million).
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PuriCore continued to introduce new size options of its bottled Vashe Wound Therapy and launched a new line
of products specifically for Instillation Applications. These products offer a controlled flow of Vashe solution,
addressing increasing prevalence of adjunctive therapies such as ultrasonic debridement and
negative-pressure wound therapy.
R&D
PuriCore continued to advance promising new applications of its water-based clean technology in two new
industries. In December, PuriCore received confirmation from the US Environmental Protection Agency (EPA)
for its ActiVita Agriculture System as a fungicidal crop protection device. Research continues on this potential
breakthrough application of PuriCore’s technology. In January 2012, the Biotechnology and Biological Sciences
Research Council (BBSRC) has awarded a £500,000 research grant to The University of Oxford for the study of
its ActiVita Agricultural Solution. The three-year grant will fund research focused on exploring the mode of
action of the ActiVita solution on major food crops including wheat, rice, and maize.
In addition, PuriCore is exploring additional R&D opportunities in the oil and gas industry. Early in 2012, the
Company received confirmation from the US EPA for its Aqualox System as an oil and gas biocide. The
Aqualox System generates on-site a proprietary, environmentally safe biocidal solution formulated for
applications including the treatment of hydraulic fracturing (or frac) water, which is used to open deep
subterranean natural gas reserves. The Directors believe that Aqualox could be a highly effective biocide that
does not damage fracking stimulation fluids and gel agents or cause corrosion. PuriCore will continue work in
2012 to evaluate this application and market opportunity.
Corporate
During the year, PuriCore successfully resolved two corporate issues. In July, the Company announced that it
reached a settlement with Misonix following legal action in January 2011 against Misonix, Inc., the seller of
the Labcaire business. PuriCore sought damages in excess of £2.1 million for breaches of warranty under the
Sale and Purchase Agreement (SPA) in connection with PuriCore’s acquisition of Labcaire in August 2009. As
part of the settlement, PuriCore is no longer liable for $1 million in commission payments as defined in the
SPA, and Misonix reimbursed PuriCore $650,000 towards costs and fees of the litigation. The companies
simultaneously agreed to enter into a distribution agreement for a private label version of PuriCore’s Wound
Care solution for use principally in conjunction with the Misonix line of ultrasonic systems. As part of this
agreement, Misonix has agreed either to purchase product or pay a minimum of $2 million in gross margin
value over a three-year period to PuriCore’s growing Wound Care division.
In addition, PuriCore reached an agreement in December with the requisite majority of holders of the
Convertible Loan Notes for a two-year extension of the repayment date, which will now be 31 December
2013. The Convertible Loan Notes, amounting to £7.95 million, were due to be repaid on 31 December 2011,
subject to the holders having the right to convert all or part of their holdings into ordinary shares of the
Company at a price (following the consolidation of the share capital on 14 June 2010) of 75p per share.
There have otherwise been no other changes to the terms of the Convertible Loan Notes. The Company is
negotiating additional funding lines and is considering raising further capital.
PuriCore continued to finance installations of its Sterilox Fresh and FloraFresh Systems. In September, the
Company successfully secured $1.9 million in debt facilities with Republic Bank for this purpose. This debt
facility was repaid and terminated effective from 15 December 2011. In December, PuriCore secured an
additional $3.5 million to finance Sterilox Fresh and FloraFresh System installations.
Financial Report
Income Statement
PuriCore increased sales in 2011 with revenues of $42.6 million, an increase of 5% (3% at constant currency)
over 2010 ($40.5 million). This growth was driven by strong year-end sales, moving all business divisions to
profitability, and moving the business as a whole to EBITDA profitability in the fourth quarter.
The gross profit margin for 2011 was 29.4% (2010: 33.6%). A change in sales mix, particularly in the UK, with
a reduction in capital sales versus prior year drove the decrease. The Company leveraged operating expense
reductions, which improved the Group’s operating loss to $6.7 million (2010: $8.2 million). Operating loss,
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excluding non-cash depreciation, amortisation, non-cash stock compensation charges, and
capitalisation/amortisation of development costs, improved to $2.2 million (2010: $4.2 million).
Operating Expense Controls
During the period, PuriCore remained focused on reducing operating expenses, resulting in further reductions
again this year. Net of depreciation, amortisation, and non-cash stock compensation, operating expenses
decreased 17.3% to $14.7 million (2010: $17.8 million). Operating expenses – comprising sales and marketing,
research and development (R&D), and general and administrative expenses – decreased 11.9% to
$19.2 million (2010: $21.8 million). Sales and marketing expenses in 2011 totalled $4.6 million (2010:
$5.7 million), a decrease of 20.3%. General and administrative expenses in 2011 totalled $10.2 million
compared with $11.2 million in 2010, driven by lower cost expenditures, offset by $0.9 million of costs related
to the potential sale of endoscopy business. R&D costs for the year decreased 9.6% to $4.4 million
(2010: $4.9 million). Net of amortisation of capitalised development costs, R&D costs decreased 9.8%.
PuriCore continues to decrease cash expenditures, appropriately reflecting the Company being predominantly
in a commercialisation phase and focusing its investments in core areas. The Company remains focused on
investment in engineering, clinical development, chemistry, and microbiology for existing product support and
projects with near-term revenue and the greatest potential for being cash flow positive.
Balance Sheet and Cash Flow
As at 31 December 2011, cash and cash equivalents were $4.5 million (as at 31 December 2010: $5.2 million
including restricted cash of $1.2 million).
PuriCore successfully completed several key financing arrangements in 2011. In December, PuriCore reached
an agreement with the requisite majority of holders of the Convertible Loan Notes for a two-year extension of
the repayment date, which will now be 31 December 2013. PuriCore continued to finance installations of its
Sterilox Fresh and FloraFresh Systems, completing two successful debt financings with Republic Bank during
the period: $1.9 million in September (which was repaid and terminated as at 15 December 2011), and an
additional $3.5 million in December.
Outlook
PuriCore’s business mix has been designed to deliver both robust growth and cash generation but continues
to maintain a prudent approach to costs in a business that is highly dependent upon NHS spending in the UK
and the strength of consumer spending that drives the US supermarket retail market.
In the Supermarket Retail sector, a strong sales pipeline of current and new customers at the end of 2011 is
expected to deliver top-line growth and market share expansion. In the UK, the Board is cautiously optimistic
regarding 2012 as this business remains focused on rigid cost controls and margins whilst continuing to
increase recurring revenues. In the Wound Care market, PuriCore will aim to further grow sales and focus on
business development partnerships, extending the Company’s market reach to drive rapid growth. In addition,
PuriCore will continue its promising R&D efforts in agriculture, and it is our intention to commence
partnership discussions by year end.
Although prospects for profitability of the Group are not certain for the full year, the Board will continue to
drive margins and remains confident of the Company’s potential to deliver sustainable top-line growth across
all its businesses.
We wish to thank the PuriCore team in the US and the UK for their outstanding work, diligence, and
determination to continue to improve PuriCore’s top- and bottom-line results. In addition, we thank our
shareholders for their continued commitment to the Company and their belief in the potential of PuriCore’s
technology.
Michael R.D. Ashton Greg T. Bosch
Non-Executive Chairman Chief Executive Officer
26 April 2012
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Board of Directors
Audit Committee Mr Birkett (chairman), Mr Ashton, Mr Hammond
Remuneration Committee Mr Ashton (chairman), Mr Hammond, Mr Sapountzoglou,
Dr Walsh
Nomination Committee Mr Ashton (chairman), Mr Birkett, Mr Bosch,
Mr Sapountzoglou
Michael R.D. Ashton Non-Executive Chairman
Mr Ashton, 65, joined PuriCore in February 2012 as Independent Non-Executive Director. He brings more than
30 years of pharmaceutical, biotechnology, and medical device industry experience including senior positions at
Merck Inc. and Pfizer Inc. as well as holding a number of CEO positions at Purepac Inc., Faulding Inc.,
SkyePharma plc, and most recently at LMA, NV. Mr. Ashton is also a Non-Executive Director of Hikma
Pharmaceuticals Plc, Proximagen Group Plc, and Transition Therapeutics Inc. and serves as a pharma consultant
to Nations Investment Company. Mr. Ashton holds a B. Pharma from Sydney University and an MBA from
Rutgers University.
Joseph William Birkett Independent Non-Executive Director
Mr Birkett, 64, joined PuriCore in 1999 as an Independent Non-Executive Director and was appointed Senior
Independent Non-Executive Director on 31 January 2008. Mr Birkett is an independent consultant and investor.
He is former Chairman of Chelford Group plc and former non-executive director of Monument Securities Ltd.
Following a BSc in Economics from Sheffield University, he qualified as an FCA with Touche Ross (now Deloitte
& Touche LLP) before pursuing a career in finance and global investment banking.
Gregory Todd Bosch Chief Executive Officer
Mr Bosch, 49, joined PuriCore in November 2004 as Chief Executive Officer. Prior to joining PuriCore, Mr Bosch
held a variety of management and leadership positions with Baxter International during his 19-year tenure
including Vice President and General Manager of Baxter’s BioSurgery division and board member of Baxter AG.
Mr Bosch received the 2006 Life Sciences CEO of the Year award from the Eastern Technology Council.
Mr Bosch earned his BA from Duke University and his MBA from DePaul University.
Matthew Hammond Non-Executive Director
Mr Hammond, 37, joined PuriCore in 2010 as a Non-Executive Director and brings more than 15 years
of financial banking and finance industry experience to the PuriCore Board of Directors. He is currently the
Group Managing director of Mail.ru, an $8bn mktcap internet business based in Russia. Before that he was
Group Strategist for Metalloinvest Holdings where he had broad-ranging responsibilities including equity
forecasting, modelling, marketing, asset origination, portfolio management, and M&A. He started his career
at Credit Suisse where he was an analyst for 11 years. He is also a non-executive director of Nautilus Minerals
and Strike Resources, and he serves on the audit committee of Nautilus Minerals, Strike Resources. Mr
Hammond earned a BA (Hons) in history and economics from Bristol University in 1997.
Michael Dimitrios Sapountzoglou Non-Executive Director
Mr Sapountzoglou, 50, joined PuriCore in 1999 as a Non-Executive Director. Mr Sapountzoglou is currently the
Finance Director for Metrostar Management Corp., the shipping arm of the Angelopoulos group, and serves as
the corporate finance and investment adviser for the group. Previously, he was a co-founder of Gamma
Research and the Investment Manager for Star Maritime S.A. Mr Sapountzoglou is also an investment adviser
to Gacita Limited.
James Walsh, PhD Senior Independent Non-Executive Director
Dr. Walsh, 53, joined PuriCore in March 2012 as Senior Independent Non-Executive Director, previously serving
as Independent Non-Executive Director from September 2006 to July 2010. Dr. Walsh has 25 years of general
management experience in the healthcare industry with particular experience in diagnostics. He is an Executive
Director and Chief Scientific Officer of Trinity Biotech plc, an Irish diagnostics company quoted on NASDAQ.
Dr. Walsh is Chairman of Biosensia Limited and GenCell Biosystems Limited, both early-stage life sciences
companies. He also holds Non-Executive Director positions with a number of early-stage biotechnology
companies. Dr. Walsh is a graduate of the National University of Ireland and holds a Doctorate in Inorganic
Chemistry and Post-Doctorate qualifications in Immunochemistry.
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2011 Highlights
Increased the installed base by
1,106 systems during
the year
• Installed more than 400
systems for the second largest
US supermarket retailer
(with total of more than 625
Systems in this retailer at year end)
• Secured two additional leading
US regional retailers
• Secured approximately $5.5 million
in year-end orders for H1 2012
installations
• More than 5,300 total Systems sold
or leased as at 31 December 2011
• More than 42% of the target
market is now either a customer
or is in a pilot programme with
the Company
Sterilox Fresh Systems enhance the quality and freshness of fresh
produce whilst providing critical safety and quality assurances for
supermarket chains. The Sterilox Solution is a proven cost-saving measure
to improve store profitability. Retailers use the Sterilox Solution in
produce crisping (rinsing and rehydrating) and in produce misting systems
to eliminate pathogens and address cross-contamination.
In addition, the floral departments of these leading supermarket retailers
offer an opportunity for a second system. PuriCore’s FloraFresh System
addresses microbial growth in supermarket floral operations and keeps
flowers fresher longer whilst significantly reducing cleaning labour
required to remove microorganisms, including mold and mildew, from
fresh floral displays and flower buckets. This system is based upon a new
significant chemical variation of PuriCore’s proven core Sterilox technology
for use on fresh cut floral and living plants.
2011 Report
Sales in this division, comprising Sterilox Fresh and FloraFresh Systems
sold to retail supermarkets, increased 30% in 2011 to $19.4 million (2010:
$14.9 million). Sterilox Systems are becoming the de facto standard for
leading US and Canadian retail supermarkets. Adoption in one US regional
division and expanded installations for the number-two US supermarket
retailer, enterprise-wide contracts with two new leading US supermarket
customers, and approximately $5.5 million in year-end orders accounted
for the majority of the year’s sales and installation of 1,106 Systems. The
year finished very strong, resulting in Q4 sales growth of 148% sales
with $7.3 million in revenue (Q4 2010: $2.9 million), achieving division
profitability for the quarter, and establishing a strong foundation for sales
in 2012.
As at 31 December 2011, PuriCore has sold or leased more than 5,300
Sterilox Fresh and FloraFresh Systems, comprising 19% of the 28,000
target market stores in the US and Canada. These total existing
customers have a combined potential installation base representing 37%
of the target market. The Company also has sales opportunities with
other customers in various stages of negotiations, trials, or discussions,
which could represent an additional 33% of the market.
Supermarket Retail
The Supermarket Retail industry faces multiple challenges: food safety, freshness, and the
control of loss from spoilage. As the last link in the food supply chain, these retailers must
control and protect against cross contamination of harmful pathogens in their fresh products
before they reach customers to maintain consumer confidence. In this market, the perceived
freshness and quality of produce is a determining factor in securing retail customer loyalty. For
these reasons, leading supermarkets increasingly rely on Sterilox Fresh Systems as the de facto
standard for food safety and freshness for produce.
“The use of Sterilox furthers our
commitment to rigorous quality
and food safety standards.”
Jerry Noland
Group Vice President
Quality Assurance & Consumer
Protection
Safeway Inc.
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Endoscopy
Flexible endoscopes, commonly used in medical procedures such as colonoscopies, are large,
delicate, complex, and expensive instruments that cannot be steam-sterilised between clinical
procedures. Strict regulations govern the cleaning processes that ensure adequate safety and
quality controls to prevent pathogen transmission and to protect patients. PuriCore leads the UK
market in offering a complete portfolio of compliant products and services for endoscopy
reprocessing suites.
2011 Highlights
• Endoscopy 2011 recurring revenues
increased 4% to $17.1 million (2010:
$16.4 million), accounting for 76%
of division sales
• Awarded a £484,000 ($775,000)
contract for the installation of ISIS
automatic endoscopy washers in
the OJEU tender proposal for the
Greater Glasgow Health Board for
delivery in 2012
• Launched and received first orders
for PuriSept proprietary disinfection
chemistry
• Continued reorganisation of the
division to improve business
efficiency, reduce costs, and create
sustainable profitability based on
recurring revenues
• Increased profitability in FY 2011
over 2010 despite lower overall
sales revenues
• Increased cash generation in FY
2011 over 2010
PuriCore Endoscopy offers a fully
integrated product and service
portfolio for its customers’
endoscope decontamination
needs, from automated
endoscope reprocessors (AERs),
disinfectant chemistries, storage
cabinets, and bacteria-free rinse
water to services including
maintenance, training, and
validations. PuriCore also offers a
range of air-handling equipment
for laboratories.
PuriCore primarily targets the
approximately 500 UK NHS
hospitals with endoscopy
departments with its portfolio
comprising capital equipment
and an expanding offering of
leases, supplies, chemistries, and support services. PuriCore also serves
the scientific and laboratory market with its clean-air equipment both in
the UK and internationally.
2011 Report
Whilst the UK Endoscopy division was profitable for the fourth quarter of
2011, sales for the year decreased 11% (14% at a constant currency) to
$22.5 million (2010: $25.1 million). This decrease was as a result of
spending downturn by the primary UK customer, the NHS. From the start
of its fiscal year in April, the NHS initiated capital spending constraints,
and this pressure continued during the calendar year. Further public sector
spending restrictions led to similar pressure on capital spending in the
Scientific and Laboratory Clean Air segment of this division.
These purchasing delays for both segments of the UK business resulted
in lower than expected sales for full year 2011. However, later in the year,
there were clear signs that the spending restrictions for NHS eased:
PuriCore was awarded a significant contract valued at >£484,000
($775,000) for the installation of eight ISIS automatic endoscopy washers
in the OJEU tender proposal for the Greater Glasgow Health Board in
2012.
Strategically, PuriCore continued to focus on growing recurring revenues,
including rentals and the newly launched PuriSept proprietary disinfectant
chemistry, to ease the reliance on capital sales. In 2011, recurring
revenues accounted for 76% of division sales, and the Directors expect
this strategy to provide a long-term sustainable profitable growth for the
division.
“The department is excellent.
The layout and working
environment is a paradise. You
can’t beat these machines!”
Duane Lynch,
Endoscopy technician
QE Birmingham
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Wound Care
The increased incidence of chronic and acute wounds is fuelled in part by the 9% annual growth
rate in those afflicted with diabetes, 15% of which suffer from foot ulcers at some point. In
addition, the risk of infection in all wound types continues to rise with the increasing presence of
pathogens including MRSA, Clostridium difficile, and Pseudomonas aeruginosa. PuriCore’s Vashe
Wound Therapy is a scientific breakthrough for wound care.
2011 Highlights
• Launched new Vashe Wound
Therapy for Instillation
Applications suitable for
adjunctive therapies including
ultrasonic debridement
and negative-press
wound therapy
• Initiated shipment of units of
Wound Care solution under a
distribution agreement with
Misonix for a private label
version as part of a
settlement claim
PuriCore’s patented wound care
technology, Vashe Wound
Therapy, is used by leading
hospitals and wound care
centres across the US to treat
chronic and acute wounds.
Vashe addresses wound
cleansing and debridement, the
precursor step for wound
healing, and provides
unparalleled patient safety.
Vashe Wound Therapy is an
FDA-cleared medical device
used for moistening, irrigating,
cleaning, and debriding acute
and chronic wounds including
stage I through IV pressure
ulcers, stasis ulcers, diabetic
ulcers, post-surgical wounds, first- and second-degree burns, abrasions,
and minor irritations of the skin.
Wound care centres and hospitals throughout the US use this clinically
proven, tissue-friendly solution every day as a biocompatible alternative to
commonly used irrigating and cleansing solutions that inhibit healing.
2011 Report
Wound Care sales (which include Dental) grew rapidly in 2011, increasing
60%, despite limited investment in this division as the Company
continued to focus on its two core businesses. Nearly all of this growth is
due to the availability of bottled Vashe Wound Therapy. At year end,
PuriCore initiated shipments to Misonix under the distribution agreement,
which contributed to revenues in the fourth quarter growing 81%.
During the year, PuriCore continued new product development, expanding
the size offerings of its Vashe product line as well as launching a new line
of products suitable for prevalent adjunctive wound care therapies. Vashe
Wound Therapy for Instillation Applications offers a controlled flow of
Vashe solution for the rapidly growing use of ultrasonic debridement and
negative-pressure wound therapy.
“We serve very diverse
populations in our wound care
clinics and treat the full spectrum
of wounds and burns. With the
addition of solutions containing
hypochlorous acid to our
treatment protocol, we have
reduced our supply costs by
86%. As Vashe Wound Therapy is
nontoxic to tissue, it is safe to
use at all of life stages and
anywhere on the body, even
around eyes, nose and mouth.”
Cheryl Bongiovanni, PhD, RVT,
CWS, FASA, FACCWS
Lake Wound Clinic,
Klamath Falls, OR
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9
2011 Highlights
• Received confirmation from the US
EPA for ActiVita Agriculture System
as an on-site generator of fungicidal
crop protection
YTD 2012 Highlights
• Received confirmation from the
US EPA for Aqualox System as an
on-site generator of oil and gas
biocide to treat hydraulic fracturing
(or frac) water in January 2012
• Awarded £500,000 by the
Biotechnology and Biological
Sciences Research Council
(BBSRC) in a research grant to The
University of Oxford for the study of
PuriCore’s ActiVita Agricultural
Solution
Agriculture: Broad-Spectrum Fungicide
Fungi are the most prolific, widespread, and
damaging agents of plant disease. Each major
food crop is challenged by extant fungal
strains and threatened by the emergence of
new aggressive strains. Ensuring global food
security from both plant disease and human
mycoses (the transfer of fungal infections
such as Candida, Cryptocoocus, and
Aspergillus to humans) is a major challenge,
especially as the demand for crop yields rise
as the world’s population continues to
increase.
Based on the successful new formulation of
its solution for floral application and advances in the stability and
concentration of PuriCore’s biocidal solutions, the Company continued to
advance its agricultural R&D efforts including the ability to address food
borne diseases, spoilage organisms, and pathogens potentially
throughout the food supply chain, from farm to table.
In December, PuriCore received confirmation from the US Environmental
Protection Agency (EPA) for its ActiVita Agriculture System as an on-site
generator of fungicidal crop protection. Research continues on this
potential breakthrough application of PuriCore’s technology. In January
2012, the Biotechnology and Biological Sciences Research Council
(BBSRC) awarded a £500,000 research grant to The University of Oxford
for the study of its ActiVita Agricultural Solution. The three-year grant will
fund research focused on exploring the mode of action of the ActiVita
solution on major food crops including wheat, rice, and maize. The
research will be led by Sarah Gurr, PhD, Professor of Molecular Plant
Pathology at The University of Oxford, a specialist in crop disease, plant
pathogenic fungi, and fungal biotechnology.
Oil & Gas Industry: Frac Water Treatment
In addition, PuriCore is exploring use of its environmentally friendly
technology in the oil and gas industry for fracking applications. In January
2012, the Company received confirmation from the US EPA for its Aqualox
System as an oil and gas biocide generator. The Aqualox System
generates on-site a proprietary, environmentally safe biocidal solution
formulated for applications including in the oil and gas industry to treat
hydraulic fracturing (or frac) water, which is used to open deep
subterranean natural gas reserves. Aqualox is a highly effective biocide
that does not damage fracking stimulation fluids and gel agents or cause
corrosion. PuriCore will continue work in 2012 toward evaluating this
application and the market opportunity.
R&D
Scores of markets and applications could benefit from PuriCore’s safe and effective antimicrobial
technology. Remarkable effectiveness combined with environmental friendliness is an appealing
feature set for many markets. PuriCore’s R&D efforts focus on those markets that offer the best
combination of short-term cash flow and long-term profitability, currently targeting applications in
the agricultural sector and the oil and gas industry.
“Extant fungal strains, and now
even more aggressively
threatening emerging strains,
pose a serious threat to our
annual harvests and so challenge
global food security. Several fungi
have become resistant to single-
target site fungicides. Our
research reveals that ActiVita is a
potent antifungal and shows
potential to protect plants from
these devastating pathogens. We
believe ActiVita could represent a
major breakthrough as a safe and
effective fungicide.”
Sarah Gurr, PhD, Profession of
Molecular Plant Pathology,
The University of Oxford
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10
PRINCIPAL ACTIVITIES
The principal activity of PuriCore plc and its subsidiaries (collectively, the
“Group”) is developing and commercialising water-based, clean
technology proprietary products that safely, effectively, and naturally kill
pathogens and are designed to limit the spread of infectious disease.
The Group’s solutions are highly effective in killing bacteria, viruses, and
fungal spores, targeting a broad range of markets that depend upon
controlling contamination including food safety in retail supermarkets,
floral quality care, medical device disinfection, wound care, and
agriculture, amongst others.
REVIEW OF BUSINESS
A review of the business for the year ended 31 December 2011 is
included within the Operating & Financial Review set out on pages 2 to 4.
RESULTS
The Group’s trading loss for the year ended 31 December 2011 was
$9.1 million. The financial results are shown in the Consolidated Financial
Statements on pages 29 to 66.
DIVIDENDS
The Directors do not recommend the payment of a dividend (2010: $nil).
RISKS AND UNCERTAINTIES
Risk management is seen as an important element of internal control and
is used to mitigate the Group’s exposure to such risks. Further
information on internal controls is contained within the Corporate
Governance Statement on page 20.
The risks included here are not exhaustive. The Group operates in a
competitive and rapidly changing environment. New risks emerge
periodically, and it is not possible to predict all such risk factors for the
Group’s business or the extent to which any factor or combination of
factors might cause actual results to differ materially from those
contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results.
RISKS RELATING TO THE GROUP’S BUSINESS
The Group is reliant on its core technology and development.
The Group is reliant on its core technology platform and is subject to
competition from companies that might have existing products in
development or commercially available that are more advanced and/or
less expensive. The Group manages and endeavours to mitigate these
concerns through its hiring of employees and advisers who assist with
product development, quality, engineering, business strategy, marketing,
filing of patents, and management and protection of intellectual property.
The Group’s products are subject to US, European, and other
legislative and regulatory requirements.
If the Group or its third-party manufacturers fail to satisfy legislative and
regulatory requirements, this could result in the imposition of sanctions
on the Group, including fines, injunctions, civil penalties, import bans,
delays, suspension or withdrawal of approvals, license revocation,
seizures or recall of products, operating restrictions, and criminal
prosecutions, any of which could materially harm the Group’s product
development and commercialisation efforts. The Group manages and
endeavours to mitigate these risks through effective management and
staffing of appropriate quality, regulatory, legal, and engineering
personnel who confer with appropriate professional advisers on an
ongoing basis.
The Group is dependent on a limited number of sub-contract
manufacturers to assemble many of its products and to produce
certain components within these products.
Although the Group expects that its products will be manufactured,
assembled, and tested as is currently done for the foreseeable future,
there is no guarantee that its sub-contractors will continue to devote
adequate resources to the production of the Group’s devices and
components or deliver sufficient quantities of finished devices on a
timely basis or at an acceptable cost or to enable the Group to maintain
sufficient inventory to meet customer demand. The Group manages and
endeavours to mitigate these concerns by maintaining effective and
positive communication and relationships with its existing sub-contract
manufacturers and regularly considers dual sourcing and potential
alternate sub-contract manufacturers. Furthermore, the Group continues
to strengthen its operations regarding supply chain, order management,
and quality control and to assess potential related risks.
The Group is dependent on key personnel.
Competition for qualified employees and personnel in scientific research
and life science industries is intense and there are a limited number of
persons with knowledge appropriate to, and experience within, such
industries. Identifying personnel with the necessary skills and attributes
required to enable the Group to carry out its strategy is difficult and can
often entail a lengthy search process. There is no guarantee, therefore,
that the Group will be successful in attracting and retaining qualified
executives, scientists, and other personnel. In addition, there can be no
assurance that the Group will continue to attract persons of sufficient and
appropriate experience to serve as executives and Directors. The loss of
the services of key personnel or the inability to attract additional qualified
personnel could have a material adverse effect on the business, financial
condition, results of operations, and cash flows of the Group. The Group
endeavours to mitigate this risk by implementing personnel retention
strategies.
The Group is subject to inventory risks because it builds its Systems
based on forecasts and may continue to place purchase orders with
sub-contract manufacturers before orders from its customers are
received.
The Group develops forecasts and usually places purchase orders with its
sub-contractors for its devices before the Group receives purchase orders
from its own customers. This limits the Group’s ability to react to
fluctuations in demand for its devices and may cause the Group to have a
shortage or an excess at any given time. As a result of the variations in
lead time for ordering and obtaining the components and services
required to build the devices, the Group may from time to time be unable
to meet customer orders, which could have a material adverse effect on
the Group’s business, financial condition, and results of operations. The
Group endeavours to mitigate these risks by negotiating cancellation
terms in supplier contracts and by drawing down in appropriate
increments on blanket purchase orders so as to limit inventory being
carried.
Directors’ Report
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11
The Group’s future operating results will be highly dependent on
how well it manages the expansion of its operations.
The Group has experienced, and may continue to experience, periods of
rapid growth in the number of its customers and the number of systems
that it installs. This, in turn, would likely necessitate an increase in the
number of the Group’s employees, its operating and financial systems,
sub-contract manufacturers, and the geographic scope of its operations.
This growth and expansion may place a significant strain on the Group’s
financial, management, or other resources. To manage its expanded
operations effectively, the Group will be required to continue to improve
its existing operational, financial, and management processes and to
implement new systems.
RISKS RELATING TO FUNDING
The Group may not be able to satisfy the £7.95 million Convertible
Loan Notes which are due as at 31 December 2013.
The Group issued £7.95 million in Convertible Loan Notes on 14 June
2010, which were due to be repaid or converted to shares, at a price of
75 p per share, as at 31 December 2011. The Group announced on
13 December 2011 that it had reached an agreement with the requisite
majority of note holders for a two-year extension of the repayment date,
which will now be 31 December 2013. The Group also announced that it
is currently negotiating additional funding lines and is considering raising
further capital and that any issue of new equity may be undertaken in
conjunction with a renegotiation of the Convertible Loan Notes to include
a reduction in the conversion price (if appropriate) to reflect market
conditions and to provide an incentive for early conversion. The Group
may not be able to provide sufficient incentive or the market conditions
may not be advantageous to result in a conversion of the Notes to
shares. Under these circumstances, the Group may not have sufficient
cash to repay the Notes.
The Group might be unable to raise future funding should the need
arise.
The Directors have prepared cash flow forecasts to 31 December 2013.
These forecasts make a number of assumptions, the most significant of
which relate to the extension of the June 2012 bank line of credit to June
2013 on similar terms, the release of commitments on approximately
$0.5 million of the $1.0 million invested cash, and the projected level of
future revenue from the business. The forecasts include planned
repayments of the bank loans and other loan notes in full as they fall due
and assumes that all of the convertible loan notes will be converted into
shares.
Further details are included on page 37 and in the basis of preparation
note to the financial statements.
RISKS RELATING TO THE GROUP’S FINANCIAL POSITION
The Group is operating during a period of significant macro global
economic pressures.
The Group recognises that the global economic dynamics have changed
greatly over the past few years and that continuing economic pressures
have contributed to slower revenue growth. The Group endeavours to
mitigate this concern by monitoring, managing, and adjusting all costs
across the business and by ensuring its cash deposits are conservatively
managed and invested. Further, the Directors believe that the cost
savings provided to customers by PuriCore’s products will continue to be
an effective value proposition for its core markets.
Failure to use each System for its full budgeted lifespan could cause
the Group to incur losses.
As at 31 December 2011, the Group had approximately 37% of its
installed US System base on lease contracts. The Group depreciates each
leased US System over an operating life of five years. If a rental contract
is terminated by the customer prior to the term of the lease agreement
and/or the Group fails to gain customer renewals or find for any reason an
alternative customer for such System, it could result in the Group writing
off the remaining net book value of the System. Furthermore, if a System
becomes incapable of operating to the required standard before the
expiry of its accounted lifespan and it is not possible to or it is
prohibitively expensive to remedy the problem, the Group will lose
revenue in respect of such a device. In the event that such a device had
been used as security in conjunction with a third-party financing
arrangement, the Group would still have the obligation to service the
financing arrangement without having the associated benefits of the
rental income. Any of these factors could result in the Group incurring
losses. The Group manages and endeavours to mitigate this concern by
continuously monitoring the performance of existing Systems, providing
appropriate service and focusing on the quality of both the manufacture
and the design of its Systems.
The Group relies on third-party vendor financing to fund part of the
capital costs of its equipment.
PuriCore’s sales are principally in two forms: capital purchases and lease
agreements. If the Group loses the benefit of its third-party finance
relationships, it might not be able to source alternative financing on
similar terms. Furthermore, if the Group chooses to fund the costs of its
equipment itself, it would result in considerable levels of cash out-flow,
which might in turn have a material adverse effect on the Group’s
business, financial condition, and results of operations. The Group
manages and endeavours to mitigate this concern by targeting high
quality customers including the leading US and Canadian retail
supermarket chains to assure third-party financiers of the economic
stability of the Group’s customers, by continuously evaluating alternate
financial arrangements and business partners, and by engaging in
discussions and networking with other financial providers and advisers.
The Group has significant lease and service contracts with several
customers.
The Group expanded its Supermarket Retail customer base from 2005
through 2011 and it has entered into lease contracts and service
agreements that are significant in nature with several customers. Failure
to deliver products and/or service to such customers or termination by
any of these customers of its agreements with the Group could have a
material adverse effect on the Group’s results or operations or financial
condition.
The Group is exposed to foreign exchange fluctuations.
As a consequence of the international nature of its business, the Group is
exposed to risks associated with foreign currency exchange rates. The
Group’s corporate headquarters are located in the US and it presents
financial statements in US dollars. The Group expects its future revenues
to be denominated in several currencies, in particular the US dollar, Euro,
and pounds sterling. Therefore, movements in foreign currency exchange
rates may have an impact on the Group’s reported results of operations,
financial position, and cash flows that are not necessarily related to the
Group’s results of operations.
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12
Directors’ Report
(continued)
To date, the Group has not entered into any currency transactions to
hedge its fixed costs exposures nor has it any plans to do so, although it
may enter into such transactions in the future. However, the Group
cannot assure investors that such hedging transactions will be available
at a reasonable cost or will be successful in reducing these exposures.
Any losses incurred in connection with such hedging transactions could
have a material adverse effect on the Group’s business, financial
condition and results of operations.
RISKS RELATING TO INTELLECTUAL PROPERTY AND LITIGATION
The Group might be unable to protect adequately its intellectual
property, proprietary information, and know-how or be subject to
third-party infringement actions.
The Group is the owner of intellectual property rights, including patents,
trademarks, designs, copyright, trade secrets, unpatented proprietary
technology, processes, know-how, and other confidential information.
Whilst it might apply from time to time to register additional patents,
trademarks, designs, and copyright and take reasonable steps to protect
its proprietary information, there can be no assurance that any of its
intellectual property rights will not be successfully challenged or that third
parties will not misappropriate such secrets and information. The Group
relies to a great extent on its patents and know-how and whilst no valid
challenges have previously been made, there is no guarantee that they
will not be made in the future. Any misappropriation or challenge or
failure to obtain a license could have a material adverse effect on the
Group’s business, financial condition, and results of operations and might
require it to engage in litigation. The Group manages and endeavours to
mitigate these risks by implementing appropriate ongoing legal and
managerial oversight of the intellectual property portfolio, by utilising
confidentiality agreements with customers, suppliers, and employees,
and by working with advisers.
DIRECTORS
The Directors of PuriCore plc:
Michael R.D. Ashton
(appointed 1 February 2012)
Non-Executive Chairman
Joseph William Birkett
(re-appointed 5 June 2009)
Independent Non-Executive Director
Gregory Todd Bosch
(re-appointed 30 June 2010)
Chief Executive Officer
Matthew Hammond
(re-appointed 15 June 2011)
Non-Executive Director
Michael Dimitrios Sapountzoglou
(re-appointed 30 June 2010)
Non-Executive Director
James Walsh
(appointed 29 March 2012)
Senior Independent Non-Executive Director
Darren Douglas Weiss
(resigned 7 October 2011)
Chief Financial Officer
Christopher Paul James Wightman
(resigned 29 March 2012)
Executive Chairman
Details of Directors’ Interests can be found on page 25 within the
Directors’ Remuneration Report.
In accordance with the Group’s Articles of Association, at the
forthcoming Annual General Meeting a resolution will be proposed for
the re-appointment, by shareholders, of three Directors: Mr Ashton,
Mr Birkett, and Dr Walsh.
Under the UK Corporate Governance Code, Mr Sapountzoglou, having
served as a Director for more than nine years, will be retiring at the
forthcoming Annual General Meeting and a resolution will be proposed
for his re-appointment by shareholders.
Brief biographical information of all current Directors can be found on
page 5.
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SUBSTANTIAL SHARE HOLDINGS
Excluding Directors’ holdings, these are the shareholders we understand to hold more than 3% of the Group’s Issued Share Capital (“ISC”) as at the
dates indicated:
Major Shareholders Type As at 13 April 2012 As at 31 December 2011
No. of Shares % of ISC No. of Shares % of ISC
Invesco Perpetual Fund Manager 4,345,766* 17.18% 3,961,066** 15.66%
Woolwich International Holdings Limited Owner 2,727,573 10.78% 2,727,573 10.78%
Kanton Services Limited Owner 2,050,087 8.11% 2,050,087 8.11%
Oracle Management Limited Fund Manager 1,604,725 6.34% 1,604,725 6.34%
Gacita Limited Owner 1,268,898 5.02% 1,268,898 5.02%
Brooks Macdonald Asset Management Fund Manager 1,154,132 4.56% 1,154,132 4.56%
Mr Stewart Newton Owner 1,096,732 4.34% 1,021,732 4.04%
Incore Bank, Zurich (AB) Fund Manager *** 775,000 3.06%
* Includes the holdings of Perpetual Income & Growth Investment Trust plc (2,439,716 shares; 9.65%); Keystone Investment Trust (823,136 shares; 3.25%),
Invesco Perpetual UK Strategic Income (779,534 shares; 3.08%), Invesco Perpetual Select Trust plc (293,178 shares; 1.16%), and Invesco Funds (10,202
shares; 0.04%).
** Includes the holdings of Perpetual Income & Growth Investment Trust plc (2,118,809 shares; 8.47%); Keystone Investment Trust (797,622 shares; 3.19%),
Invesco Perpetual UK Strategic Income (760,544 shares; 3.04%), AND Invesco Perpetual Select Trust plc (284,091 shares; 1.14%),
*** Less than 3% holdings as at 13 April 2012.
SHARE CAPITAL
The share capital of PuriCore plc comprises ordinary shares of 10p each;
each share carries one vote per share and is entitled to dividends at the
discretion of the Directors. The issued share capital of PuriCore plc,
together with the movements in PuriCore plc’s issued share capital
during the year, are shown in note 23.
TAKEOVER DIRECTIVE
Regulations made pursuant to the Companies Act 2006 require the
Company to disclose certain information. These requirements are dealt
with elsewhere in the Annual Report, however the following additional
disclosures are required:
The Company’s Articles of Association (“Articles”) give power to the
Board to appoint Directors but require Directors to submit themselves for
election at the first Annual General Meeting following their appointment.
In addition, any Director not appointed or reappointed at either of the
previous two Annual General Meetings must retire by rotation. The
Articles may be amended by special resolution of the shareholders.
The Board of Directors is responsible for the management of the
business of PuriCore plc and may exercise all the powers of PuriCore plc
subject to the provisions of the relevant statutes, the Articles, and any
directions given by special resolution of the Company. The Articles
contain specific provisions and restrictions regarding PuriCore plc’s power
to borrow money. Powers relating to the issuing and buying back of
shares are also included in the Articles. The authority to issue shares is
renewed by shareholders each year at the Annual General Meeting.
Subject to applicable statutes, shares may be issued with such rights and
restrictions as the Company may by ordinary resolution decide, or (if
there is no such resolution or so far as it does not make specific
provision) as the Board may decide. Holders of ordinary shares are
entitled to attend and speak at general meetings of the Company, to
appoint one or more proxies and, if they are corporations, corporate
representatives and to exercise voting rights. Holders of ordinary shares
may receive a dividend and on liquidation may share in the assets of the
Company. Holders of ordinary shares are entitled to receive the
Company’s annual report and accounts. Subject to meeting certain
thresholds, holders of ordinary shares may requisition a general meeting
of the Company or the proposal of resolutions and Annual General
Meetings.
On a show of hands at a general meeting of the Company, every holder
of ordinary shares present in person or by proxy and entitled to vote has
one vote and on a poll every member present in person or by proxy and
entitled to vote has one vote for every ordinary share held.
There are no restrictions on the transfer of ordinary shares in the
Company other than:
• certain restrictions may from time to time be imposed by laws and
regulations (for example, insider trading laws);
• pursuant to the Company’s share dealing code whereby the directors
and certain employees of the Company require approval of the
Company to deal in the Company’s shares; and
• where a person with at least a 0.25% interest in the Company’s
certificated shares has been served with a disclosure notice and has
failed to provide the Company with information concerning interests in
those shares.
The Company is not aware of any arrangements between shareholders
that may result in restrictions on the transfer of ordinary shares and on
voting rights.
The rights and obligations attaching to the ordinary shares are set out in
the Company’s Articles, copies of which can be obtained from
Companies House in the UK or by writing to the Company Secretary.
The Company issued a convertible loan note instrument on 14 June 2010.
The convertible loan notes may be redeemed at par together with
accrued but unpaid interest by noteholders if there is a change of control
of the Company.
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Directors’ Report
(continued)
CORPORATE AND SOCIAL RESPONSIBILITIES
PuriCore Core Purpose, Commitment, and Values
The foundation of PuriCore’s Corporate Social Responsibility is
intrinsically tied to its Core Purpose and Core Values. Throughout the
organisation and in business dealings, PuriCore is driven by its Core
Purpose: to generate water-based clean technology solutions for a safer,
healthier world. To achieve this Core Purpose, PuriCore develops
solutions that advance human health through the control of infectious
pathogens – including major public health threats – without harm to
people or to the environment. The Company’s technology and solutions
are used in a broad range of applications that depend upon controlling
contamination including food safety, medical device disinfection, wound
care, agriculture.
The driving forces behind PuriCore and the achievement of its Core
Purpose are the people and how they conduct business. PuriCore is
committed to creating a culture that values individual and collective
energy, spirit, leadership, and innovation. To realise its Core Purpose and
to facilitate such a culture, the Company has developed the PuriCore
Commitment and Core Values. The Company has reinforced these core
values in the PuriCore Code of Conduct, to which all employees have
committed themselves to adhere.
The PuriCore Commitment is a promise to customers, employees,
communities, and stakeholders that the Company will strive to make a
positive contribution to the world whilst delivering exceptional business
results. PuriCore will build a Company that customers and suppliers
respect as a strategic partner, that employees are proud to work for, that
competitors want to emulate, that communities recognise as a
contributor, and that investors value.
The following Core Values are the foundation of its corporate and social
responsibilities.
PuriCore focuses on quality and endeavours to meet and exceed the
needs of its customers. Similarly, the Company strives to outperform the
competition to earn customer loyalty, providing them with value and
service beyond their expectations. PuriCore endeavours to have suppliers
seek it out as a trusted, reliable partner. Continual innovation, spirit of
integration, and high standards improve quality throughout every aspect
of the organisation.
The Company demands of itself the highest level of integrity and
professionalism in all dealings with each other, customers, suppliers, and
other business partners. PuriCore respects the contribution that each
member of its team makes to its success. To be an effective team at all
levels in the organisation, the Company establishes an environment of
trust. All team members carry themselves with the pride that comes
from respecting themselves and others.
Respect and Integrity
Quality
PuriCore recognises that it is stronger and more effective as a team than
as individuals. The Company supports an open, communicative culture in
which individuals are encouraged to offer suggestions for improvement.
The Company recognises that diversity is a source of strength and listens
to differing viewpoints so management can constructively solve
problems. Fostering strong teamwork allows an opportunity for each
individual’s suggestions to be heard, empowering employees and
encouraging necessary risk-taking.
PuriCore is accountable to its customers, employees, communities, and
stakeholders. Personal accountability is expected and determines the
strength of PuriCore through positive contributions by individuals. The
Company celebrates and recognises individual contributions. At the same
time, it is not afraid to acknowledge, correct, and learn from mistakes.
Individual commitment and performance allow the Company to pay
attention to the details that will ensure quality throughout each aspect of
the organisation.
What PuriCore does makes a difference. The Company is passionate
about the contribution it makes to the life science and clean technology
communities. PuriCore conveys its enthusiasm and passion in all our
communications and professional interactions. Taking pride in the work
allows all team members to constantly strive to develop and improve.
Employment
PuriCore’s Core Values are the foundation of its human capital force and
organisational culture. Each PuriCore employee makes a commitment to
adhere to the Core Values, and they are one component upon which
employee performance is measured. In addition, each employee receives
and acknowledges compliance with PuriCore’s Code of Conduct.
PuriCore’s human capital strategy is detailed in the Employee Practices
section on page 15.
Health and Safety
PuriCore is committed to providing a safe and healthy work environment
for all team members. Health and Safety Policies are communicated to all
employees. These policies are robust and continuously improved to
complement PuriCore’s business as it develops. In these policies,
PuriCore has committed to operate each PuriCore facility in accordance
with applicable legal and regulatory guidelines. PuriCore also recognises,
promotes, and reinforces the responsibility of employees, consultants,
and visitors to work safely and follow procedures.
Environment
PuriCore’s Core Purpose is to contribute to a safer, healthier world. As
part of this Core Purpose, the Company’s driving force is to deliver
antimicrobial products that control the spread of pathogens without
causing harm to human health or the environment, a unique proposition
in a world that still relies upon dangerous chemicals for infection control.
Many of these competitive disinfectant products require special safety
clothing for use and cumbersome disposal procedures to protect the
environment. PuriCore’s hypochlorous solutions, derived from salt, water,
and electricity, are completely safe to people – even on open wounds and
in the mouth – and the environment. These products require no additional
Passion and Pride
Accountability
Teamwork
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15
safety equipment, procedures, or clothing and have been reviewed and
approved by regulatory authorities to be safe to be poured directly to
drain, to be used on chronic and acute wounds, and to be used directly
on food. Further, PuriCore’s products also directly contribute to the
sustainability efforts of its Supermarket Retail customers, significantly
prolonging the self-life of fresh produce and floral products and thereby
reducing waste.
Throughout its business activities, PuriCore is committed to the basic
tenets of conservation: reduce, reuse, recycle. As part of PuriCore’s
conservation and recycling programme, PuriCore has committed itself to:
• Offering its bottled products in recyclable plastic bottles and
encouraging its customers to recycle them
• Recycling paper, plastic, glass, and tins throughout all facilities
• Limiting the printing of documents and instead sending information via
electronic format when possible
• Using recycled paper in copiers and printers throughout all facilities
• Printing the Company’s Annual Report and other business and
marketing materials on recycled paper stock whenever feasible
• Switching off all electric items when they are not needed
• Recycling used office equipment
• Minimising packaging and waste
• Eliminating the consumption of bottled water at its facilities
Communities
PuriCore supports its local communities by maintaining sound business
practices and by acting as a good corporate citizen and a valued
employer. PuriCore is a responsible member of its local business
communities, an active participant in policy development to safely control
the spread of infectious pathogens, and an active member of business
organisations that advance human health. Additionally, PuriCore provides
corporate support for certain local charitable causes such as food drives,
support for needy families during the holiday season, and Earth Day
activities, and encourages all team members to actively participate in and
support charitable causes of their choice.
Business Practices
PuriCore is committed to providing innovative clean technology solutions
that control the spread of infectious pathogens benefiting a variety of
healthcare and commercial markets. The Company’s solutions not only
directly protect its customers and their employees but also protect their
own customers at the consumer level and thus their brand value and
stakeholder loyalty. PuriCore will continue to invest in research and
development for new markets and applications of its pathogen-control
technology and solutions.
PuriCore is committed to providing its shareholders, Directors,
employees, consultants, clients, suppliers, and the public with timely and
accurate information. The Company strives to maintain the highest levels
of integrity in its Company records, business communication practices,
and scientific information. PuriCore is dedicated to honesty and fairness
in all aspects of its business and expects the same from those with
whom it does business.
The Company also focuses on preventing and correcting problems and
has dedicated quality control teams. PuriCore has a formal system for
analysis, correction, and feedback regarding problems that can be
prevented or corrected.
PuriCore and its employees are expected to comply with the laws of all
jurisdictions in which they operate and with applicable international and
national industry codes of practice. PuriCore complies with the applicable
US, UK, and European Union securities laws, anti-bribery, antitrust, and
state laws relating to duties owed by corporate Directors and officers.
The Company complies with all applicable government regulations and
standards, including those issued by the FDA, EPA, ISO, UL, NSF, FCC,
MDD, MHRA, and CE Marking. Accounting records and supporting
documents are designed to accurately describe and reflect the business
transactions and conform to IFRS as adopted by the EU.
Human Rights
PuriCore does not use any form of forced, compulsory, or child labour.
PuriCore supports the Universal Declaration of Human Rights of the
United Nations and respects human rights, the dignity and privacy of the
individual, the right of employees to freedom of association, freedom of
expression, and the right to be heard.
EMPLOYEE PRACTICES
PuriCore’s human capital strategy and programmes are designed to
support a positive organisational culture guided by its Core Values and
focused on the achievement of its business objectives. The strategy
focuses on four key areas: organisational planning, recruitment and equal
opportunity, reward and recognition, and communication.
Organisational Planning
As an expanding organisation, one of the Company’s key priorities is to
establish an infrastructure to enable growth considering both short- and
long-term goals. PuriCore continually evaluates the resources that are
most vital to grow its core markets whilst identifying additional expertise
needed to support new market opportunities. The Company annually
assesses talent across the business to understand better its
organisational strengths and knowledge gaps. The Company also reviews
the structure of the organisation and reporting relationships to maximise
the effectiveness of its work structure and the way it delivers services to
its customers.
Recruitment
The Group is committed to the principle of equal opportunity in
employment and to ensuring that candidates for employment are hired
and employees are advanced based on capabilities and demonstrated
results. PuriCore encourages employees to apply for positions when
ones become available for which their skills and experience might be
suitable. The Company employs a rigorous evaluation process for
applicants, including consideration of demonstrated prior results, related
Company experience, the extent to which they embody PuriCore’s Core
Values, and their passion for life sciences. PuriCore seeks, where
practical, to identify a diverse pool of applicants for new positions. The
Company customises new employee training process based on the role
new team members will play in the organisation and provides them
access to resources and other team members to help them make an
informed and smooth transition to their new positions and to the Group.
Full and fair consideration is given to applications for employment made
by disabled persons having regard to their particular aptitudes and
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Directors’ Report
(continued)
abilities. The Company is prepared to offer appropriate training for
disabled persons, including retraining for alternative work for employees
who become disabled to promote their career development within the
organisation.
Reward and Recognition
Through a variety of feedback and reward mechanisms, PuriCore is
focused on a performance-driven culture. The Company understands that
a reward and recognition system with focused goals and the identifiable
ability to impact those goals will attract, retain, and motivate employees.
PuriCore employs a combination of approaches, based on the
circumstance, to reward performance, including cash compensation
(base pay), cash incentives tied to achieving company goals, equity,
development assignments, and individual recognition. The Company’s
performance feedback processes provide periodic and annual
assessments of performance based on established goals. In setting
goals, PuriCore has a cascading approach in which senior managers share
their business goals with their direct reports who then share them with
their direct reports and so on. In this way, the Company ensures
uniformity of priorities and objectives. The Group has also implemented
Balanced Scorecards to increase visibility of key objectives amongst
employees and to ensure activities and results are tracked against goals.
Communication
The Group recognises the value of communication in fostering
teamwork, promoting employee morale, and managing the business. The
Group’s policy is to discuss with employees the status of the business
and strategies for the future as well as other matters likely to affect
employees’ interests. Information is provided to achieve a common
awareness on the part of all employees of the regular and frequent
financial and economic factors affecting the Group’s performance and to
share how they can contribute to the Group’s success.
PuriCore strives for a culture of open communication, free exchange of
ideas, and innovation through thought and dialogue. The Company
regularly and actively engages its team members through timely
communication of Company news and information in a variety of formats.
The internal communication strategy includes written employee updates,
employee meetings, and lunchtime sessions that educate employees on
various aspects of the Company’s technology, business, markets, and
customers. Management solicits and encourages feedback from all team
members and actively engages in dialogue across all management levels.
The Company maintains a policy of accessibility of senior management to
all staff.
RESEARCH AND DEVELOPMENT (R&D)
PuriCore believes that maintaining strong development capabilities is
essential to successful innovation to build on the Company’s competitive
position in its core businesses, thereby creating new and improved
products tailored to meet the requirements of new and existing
customers. The Company’s R&D effort is focused primarily on its current
core platforms and its potential use in new market segments. In addition
to life cycle management of existing Systems, the Company is pursuing a
number of research and development opportunities from which the
Directors believe the Company’s technology can extract significant value.
In particular, the Company’s efforts focus on the development of new
Systems and product offerings for the control of infectious pathogens
across existing and potential new markets; the improvement of current
product offerings in particular cost effectiveness, reliability, and
maintenance processes; and microbiological research on a broad range of
potential outbreak pathogens including H1N1 swine influenza, H5N1
avian influenza, Salmonella, C.difficile, MRSA, E.coli, VRE, TB,Hepatitis A
and B, Norovirus, and Magnaporthe orzae.
POLICY ON PAYMENT OF CREDITORS
It is Group policy to agree and clearly communicate the terms of
payment as part of the commercial arrangement negotiated with
suppliers and then to endeavour to pay according to those terms based
on the timely receipt of an accurate invoice. The Group and its UK based
businesses follow the CBI Prompt Payers Code. A copy of the code can
be obtained from the CBI at Centre Point, 103 New Oxford Street,
London, WC1A 1DU.
Group trade creditor days based on creditors at 31 December 2011 were
59 days.
GOING CONCERN
The financial statements have been prepared on a going concern basis,
which the Directors believe to be appropriate for the reasons set out in
the basis of preparation note to the financial statements.
On the basis that the Group is able to procure the extension to the June
2012 bank line of credit and the release of the commitments on
approximately $0.5 million of the $1.0 million invested cash, the Directors
consider that the Group will continue to operate with sufficient funding
for at least 12 months from the date of approval of these financial
statements. However, the Directors acknowledge that there can be no
certainty in relation to these matters.
In the medium-term, the Directors intend to expand the US operations to
encompass new markets, in order to achieve the critical mass required to
become cash positive. This will entail developing new applications for
PuriCore systems and penetrating related markets.
The Directors have concluded that the ability to generate the forecast
revenue growth, the ability to secure the extension to the June 2012
bank line of credit and the ability to secure the release of the
commitments on approximately $0.5 million of the $1 million invested
cash do not represent material uncertainties that may cast significant
doubt on the Group’s and the Company’s ability to continue to operate as
a going concern. The financial statements do not contain any adjustments
that would result from the basis of preparation being inappropriate.
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POST BALANCE SHEET EVENTS
• The Group received confirmation for the US EPA for the Aqualox
System as an on-site generator of an oil and gas biocide to treat
hydraulic fracturing (or frac) water.
• A research grant of £500,000 was awarded by the Biotechnology and
Biological Sciences Research Council to The University of Oxford to
study PuriCore’s Activita Agricultural Solution.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Group will be held at 9.00 am BST on
Tuesday, 12 June 2012, at the offices of CMS Cameron McKenna LLP,
Mitre House, 160 Aldersgate Street, London EC1A 4DD. The Notice of
Annual General Meeting accompanies this document.
SPECIAL BUSINESS
Details of special business at the Annual General Meeting are disclosed
in the notice of the Annual General Meeting, which is provided as a
separate document for shareholders.
DISCLOSURE OF INFORMATION TO AUDITOR
The Directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s auditor is unaware; and each
Director has taken all the steps that he ought to have taken as a Director
to make himself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
AUDITOR
A resolution to reappoint KPMG Audit Plc as Auditor will be put to the
members at the Annual General Meeting.
By order of the Board
Michael R.D. Ashton
Non-Executive Chairman
Wolseley Court
Staffordshire Technology Park
Stafford
ST18 0GA
United Kingdom
26 April 2012
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PRINCIPLES OF CORPORATE GOVERNANCE
The Group is firmly committed to business integrity, high ethical values,
and professionalism in its activities and operations. As an essential part
of this commitment, the Board endorses the highest standards of
corporate governance and is accountable to the Group’s shareholders.
The role of the Board is to provide entrepreneurial leadership of the
Group within a framework of prudent and effective controls, which
enables risk to be assessed and managed. The Board sets the Group’s
strategic aims, ensures that the necessary financial and human
resources are in place for the Group to meet its objectives, and reviews
management performance.The Board sets the Group’s values and
standards and ensures that its obligations to its shareholders and others
are understood and met.
STATEMENT BY THE DIRECTORS ON COMPLIANCE WITH THE
PROVISIONS OF THE UK CORPORATE GOVERNANCE CODE
From 1 January 2011 through 31 December 2011, the Group complied
with the code of best practice set out in Section 1 of the UK Corporate
Governance Code (issued in June 2010 by the Financial Reporting
Council), save where detailed below, and as detailed in the Directors’
Remuneration Report on pages 22 to 25.
BOARD STRUCTURE
The Group is currently led and controlled by a Board comprising six
Directors: the Chairman, the Senior Independent Director, one Executive
Director, and three Non Executive Directors. Mr Wightman served as
Executive Chairman until his resignation on 29 March 2012. Mr Ashton
assumed the role of Non-Executive Chairman on 29 March 2012, after
having been appointed Non-Executive Director on 1 February 2012.
Dr Walsh was appointed Senior Independent Director on 29 March 2012.
Mr Weiss resigned with effect from 7 October 2011.
The Board considers the issue of independence on an annual basis. The
Board reviewed the independence of the Non-Executive Directors and
the former Senior Independent Director Mr Birkett in 2011 and concluded
that only Mr Birkett demonstated the characteristics considered to be
essential indicators of independence. Therefore, the Board was not
compliant with the UK Corporate Governance Code (B.1.2) as there were
not at least two independent directors in 2011.
The Board reviewed the independence of Non-Executive Directors and
the current Senior Independent Director, Dr Walsh, again in 2012
following the new appointments and concluded that Mr Ashton, Mr
Birkett, and Dr Walsh demonstrate the characteristics it considers to be
essential indicators of independence. Mr Ashton, Mr Birkett, and Dr
Walsh are considered by the Board to be independent of management
and free of any business or other relationship that could materially
interfere with the exercise of their independent judgement. The Senior
Independent Director will be awarded share options in the Group;
however, the Board does not consider this to bias his independence. Two
of the Non-Executive Directors, Mr Hammond and Mr Sapountzoglou, are
not considered independent as each of them represents a significant
shareholder of the Group.
The Board has concluded the following behaviours are essential for the
Board to consider a Director to be independent and assesses the Senior
Independent Director and each Non-Executive Director against these
criteria:
• Provides objective challenge to management
• Is prepared to challenge others’ assumptions, beliefs, or viewpoints as
necessary for the good of the organisation
• Questions intelligently, debates constructively, challenges rigorously,
and decides dispassionately
• Is willing to stand up to defend one’s own beliefs and viewpoints to
support the ultimate good of the organisation
• Has a good understanding of the organisation’s businesses and affairs
enabling proper evaluation of the information and responses provided
by management
Current director biographies appear on page 5. All Directors are subject
to re-election at least once every three years. Further, under the UK
Corporate Governance Code, Directors having served for more than nine
years are subject to re-election annually. The Board is responsible to
shareholders for the proper management of the Group. A statement of
Directors’ responsibilities in respect of the accounts is set out on page
26. The differing roles of Executive Directors and Non-Executive Directors
are clearly delineated, with both having fiduciary duties towards PuriCore
plc. The Executive Director is responsible for the operation of the
business, whilst the Non-Executive Directors bring third-party, objective
judgement to bear on Board decisions by constructively challenging
management and ensuring that the strategies proposed by the Executive
Director are fully considered. To enable the Board to discharge its duties,
all Directors have full and timely access to all relevant information, and
there is a procedure for all Directors, in furtherance of their duties, to
take independent professional advice, if necessary, at the expense of the
Group. All Board members have access to advice of the Company
Secretary.
PuriCore’s products do not have the potential for industrial pollution.
PuriCore’s main products are based on electrochemical technologies that
produce hypochlorous acid solutions, which are considered safe for
humans and the environment. PuriCore works to ensure all of its offices
minimise any potential environmental impact, and the Company is
committed to working with suppliers to help understand and reduce their
environmental impact. The Board has appointed Ms Thorell, Vice
President and Company Secretary, to ensure compliance with the
Company’s environmental policy. Further information on PuriCore’s
environmental policies are provided on pages 14 to 15 or at
www.puricore.com.
Corporate Governance Statement
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PuriCore maintains a strong and ongoing commitment to Quality, one of
its five Core Values. PuriCore endeavours to provide safe and effective
products and services that meet or exceed its customers’ expectations.
Specifically, PuriCore is committed to continuous improvement and
innovation, meeting or exceeding quality and regulatory requirements,
and maintaining individual and collective accountability for realising the
goals of the Quality Policy. PuriCore’s Quality System is maintained
through periodic evaluations and updates to meet the changing needs of
our customers, employees, products, industry standards, and other
stakeholders. Quality objectives are derived from PuriCore’s annual
planning process and documented in a Quality Plan. Quarterly Quality
Management Reviews evaluate the suitability, adequacy, and
effectiveness of the Quality System; identify opportunities for
improvement of the Quality System, processes, and products; assure
compliance with corporate policies and government regulations; and
identify resource needs. The results of these reviews are documented.
Mr Bosch is the Director responsible for PuriCore ensuring compliance
with its Quality Policy.
The Board has a formal schedule of matters reserved to it and usually
meets at least bi-monthly, with eleven Board meetings occurring in and
from 1 January 2011 through 31 December 2011.
The chart below summarises the attendance of Directors at the full Board meetings and Committee members at the respective Committee meetings:
Nomination Remuneration
Full Board Committee Committee Audit Committee
Eligible Eligible Eligible Eligible