enhance develop grow - cyprotex annual...enhance develop grow annual report & accounts 2013...

Enhance Develop Grow

Annual Report & Accounts 2013

Annual R

eport & A

ccounts 2013

United Kingdom (Headquarters)

15 Beech Lane,Macclesfield,CheshireSK10 2DRUnited Kingdom

United States

313 Pleasant St.,Watertown,MassachusettsMA 02472USA

Contents

View us online: www.cyprotex.com

Cyprotex founded as a division of

Medeval

Cyprotex listed on AIM market of the London

Stock Exchange

The Story so Far

Launch of Cloe® PK “virtual human”

predictive software

Launch of high throughput ADME

screening platform at our UK facility

Apr 1999

Feb 2002

Jun 2003

Jul 2003

Jan-Dec 2008

Cyprotex announce first year of profitability

Business OverviewHighlights 1

Business Model 2

ReviewChairman and Chief Executive Officer’s Report 4

Market Overview 8

Our Strategy 12

Operational Review: ADME-Tox 14

Financial Review 20

GovernanceBoard of Directors 30

Strategic Report 32

Directors’ Report 35

Directors’ Remuneration Report 41

Directors’ Responsibilities Statement 45

Financial StatementsReport of the Independent Auditor 46

Consolidated Financial Statements 47

Notes to the Consolidated Financial Statements 51

Report of the Independent Auditor (Company) 91

Parent Company Balance Sheet 92

Notes to the Parent Company Accounts 93

Company InformationNotice of AGM 104

Shareholder Information 104

Directors and Advisors 105

Directors

Anthony Baxter (Chief Executive Officer) John Dootson (Chief Financial Officer) Ian Johnson (Non-Executive Director and Chairman) Christopher Mills (Non-Executive Director) Steve Harris (Non-Executive Director)

Secretary

Mark C. Warburton

Auditor

Ernst & Young LLP 100 Barbirolli Square Manchester M2 3EY

Registrars

Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA

Company Number

4311107

Nominated Advisors

N+1 Singer One Bartholomew Lane London EC2N 2AX

Registered Office

100 Barbirolli Square Manchester M2 3AB

Directors and Advisors

www.accruefulton.com

Designed and produced by

Cyprotex PLC I Company Information 105

17.3%

Revenue

2012: £8.33million 88%

Operating profits

2012: £0.33 million

59%

Underlying EBITDA*

2012: £0.97 million

0.36p0.45p

Loss per share

2012 Earnings per share: 0.09 pence

£9.77m £0.61m

£1.54m* excluding share-based payment charge and impairment of intangibles

Financial highlights

Cyprotex PLC I Business Overview 1

• £6.88 million (net) raised by Company in total in September 2013, by way of an issue of unsecured Convertible Loan Notes (£4 million) and separately an issue of unsecured Redeemable Loan Notes (£3 million)

• Exceptional finance charge relating to the issue of Loan Notes in the year of £1.6 million (2012: £nil)

• Adjusted earnings per share (excluding exceptional finance charge associated with the issue of Loan Notes) at 0.40 pence (2012: earnings per share 0.09 pence)

Launch of Cloe® Gateway

web portal

May 2009

Acquisition of Apredica and assets of Cellumen

Aug 2010

Expansion of US facility

Nov 2011

Investment of £7 million in Cyprotex led by Harwood Capital

Aug 2013

Cyprotex expand into

Alderley Park’s Biohub facility

Acquisition of business and

assets of CeeTox

Jan 2014

Oct 2013

• Won 136 new customers accounting for £1.76 million of revenue for the business.

• Expansion of UK facility into Biohub at Alderley Park.

• Awarded ‘Biomedical Service Provider of the Year’ at the Bionow Annual Awards Dinner.

• First to market with novel high throughput stem cell derived cardiomyocyte microelectrode array service (eCiphrCardio) in February 2013, following by launch of a neuronal microelectrode array service (eCiphrNeuro) in July 2013.

• Released highly successful educational guide ‘Mechanisms of Drug-Induced Toxicity’ resulting in > 1400 customer requests for the guide.

• Increased focus on Japanese market;

o by hosting highly successful symposium in Tokyo

o by signing distribution agreement with Intralink to expand recognition of the Cyprotex brand in Japan.

• Awarded contract by US Environmental Protection Agency related to their ongoing ToxCast Project.

• Investment of £1.60 million in state of the art liquid handling and analytical equipment.

Operational highlights

Business Model

Value Creation

Business Overview

Human Resource – Competencies, capabilities, experience and expertise of staff (74 in UK and 18 in USA)*• Scientists• Software engineers• Mathematical modellers• Management• Sales and marketing

Intellectual – Knowledge-based intangibles including IP, systems, procedures, protocols, brand and reputation• Cloe® PK and Cloe® HIA predictive models• Labsys™ laboratory information management system• CellCiphr® Premier toxicology prediction service• Cyprotex brand – leaders in ADME-Tox service provision

Physical Assets – Physical objects available for the use in the production and delivery and services, buildings, equipment etc• State of the art equipment• Expansion into Biohub at Alderley Park• Existing sites at Macclesfield, UK and Watertown, USA*

Social and Relationship – Key stakeholders• >800 clients from Pharmaceutical, Agrochemical and

Cosmetics Industries• Trusted partnership network (Sygnature Discovery,

Solvo Biotechnology, Sirius Analytical and Gentronix) • Collaborations (Pfizer)• Suppliers• Scientific community

– publications, recruitment of best talent• Regulators

– working on US EPA ToxCast Project – keeping industry informed of latest regulatory guidelines

Financial – Funding available• Profitable since 2008• Shareholders• Investment led by Harwood Capital of £7 million

What we do ADME to determine how the new chemical is ABSORBED, DISTRIBUTED, METABOLISED and EXCRETED from the body.

Our competitive advantage:

• Expertise

• Highly efficient automated procedures – rapid, cost effective, robust data

• State of the art liquid handling and bioanalytical equipment

Toxicology to assess the SAFETY of the new chemicals and their potential to cause ADVERSE EFFECTS.


• Proprietary CellCiphr® technology

• Cutting edge research in the field

In Silico predictive modelling – relating the laboratory data with the human clinical data via computer simulation methods


• Proprietary PBPK models, Cloe® PK and Cloe® HIA – available through software license or Cloe® Gateway pay-per-use option

• Only company with both in vitro and in silico capabilities – models based on robust in vitro data

Resources & Relationships

*As of 31st December 2013

Read more on page 16



R&D – development of new services for the industry

ACQUISITION – to diversify our offering and expand into new markets

2 Cyprotex PLC I Business Overview

Value Creation

How we create value Project Revenue Existing & new customer revenue Revenue from new services Revenue from strategic clients*

Focus on R&D Expansion of product portfolio Development of novel techniques Enhanced scientific credibility

State of the Art Equipment Enhanced quality of data Increased range of end points measured Improved cost efficiency through automation

*revenue >£200,000 per year

What do we do with the value?

Why we do it SPEEDING UP THE PROCESS OF BRING EFFECTIVE PRODUCTS TO MARKET Reducing late stage attrition

ADOPTING NEW REGULATIONS Tailoring our services to meet industry requirements

ENHANCING THE ABILITY TO PREDICT THE CLINICAL SITUATION FROM THE IN VITRO DATA Strong focus on R&D to develop enhanced scientific approaches

ADDRESSING ETHICAL ISSUES Providing in vitro alternatives to preclinical in vivo testing

SHARING KNOWLEDGE Using our knowledge for the benefit of the scientific community through publications, presentations and educational guides

Who we do it for PRIMARY MARKET Pharmaceutical and biotech

OTHER MARKETS Cosmetics, agrochemical and tobacco (helping reduce health risks associated with smoking)

Outcomes

Investment Raised

£7.0m

10%

Revenue from new customers

£1.76m2012: £1.60 million

88%

Operating Profit

+£0.61m2012: £0.33 million

49% 2012: £3.5 million

Revenue from strategic clients

£5.2m

Vision StatementCyprotex’s vision is to accurately predict the human clinical outcome following exposure to a chemical or drug using high quality, robust in vitro methods combined with in silico technology. Rather than being a pure data provider, we add value and relevance to the ADME-Tox data supplied to our customers in the Pharmaceutical, Cosmetics, Personal Care and Chemical Industries.

INTERNAL GROWTH – new equipment, more employees, expand facilities

3Cyprotex PLC I Business Overview

Review

A strong performance from all sectors of the business has resulted in record turnover and EBITDA. Significant investment from new shareholders enables implementation of a rapid growth strategy.

Cyprotex continued to deliver excellent growth in 2013, a record year for both turnover and EBITDA. All parts of our business performed well as we focused our efforts in selling our most popular assays in both ADME and toxicity services. During the year, we added two new toxicity assays, eCiphrCardio and eCiphrNeuro, for the effective prediction of cardiotoxicity and neurotoxicity respectively, which have seen rapid uptake from our client base.

Geographically, US customer revenues were 40.7% (2012: 39.9%) and in Europe customer revenues were 57.6% (2012: 56.6%), with our Macclesfield site delivering an increase of 19.4% in sales reflecting the continuing dominance of European customers to our revenue base. Whilst we saw a small improvement in US sales, we have made a deliberate attempt to redress this balance towards the world’s largest market for ADME-Tox through internal investments and acquisitions in the US.

We believe that the Asia Pacific region will become increasingly important to our revenues over the next few years and to this end we have commenced a sales drive in Japan with a specialist consultancy company. We expect to see rest of world revenues increase in the coming years as a result of this initiative.

As the business has grown we have expanded our main Macclesfield HQ site and this site is now almost at capacity. To take account of our strategy for future growth, we have commenced an expansion programme in the UK by initially leasing two laboratories and associated administration space in the new BioHub facility at the former AstraZeneca headquarters site in nearby Alderley Park, Cheshire, with the likelihood of further expansion in 2014. We have also continued to expand our Watertown, MA, US site in terms of people and equipment. A new replica of our Macclesfield high throughput ADME screening laboratory has been created which will come into operational effect in early 2014 to provide larger strategic ADME screening contracts for US based customers more reluctant to outsource overseas to the UK facility.

Anthony D Baxter

Chief Executive Officer

Ian Johnson

Non-Executive Chairman

“2013 has been an excellent year in terms of operational performance and internal expansion”

Ian Johnson


Chairman and Chief Executive Officer’s Report

4 Cyprotex PLC I Review

Our Board composition has changed this year with Mr Ian Johnson joining the Board as Chairman following Mr Steve Harris stepping down. We are delighted that Steve has remained with the Company as a Non-Executive Director and we are very grateful for his five year tenure as Chairman where he oversaw a significant transition bringing the business into growth and profitability.

We are also pleased to announce that funds managed by Harwood Capital LLP (‘Harwood’) have taken a significant holding in the Company and have replaced IPGL Ltd, Dr Katya Tsaioun and Mr Doug Bates as the largest investors in Cyprotex. As a result, we welcome Mr Christopher Mills to the Board as a Non-Executive Director. Mr Chris Clothier stepped down as a Non-Executive director of the Company in 2013 following our successful fundraising and we thank Chris for his services to the Company.

The acquisition of 29.0% of the issued share capital by funds managed by Harwood and additional significant purchases by other institutional investors has changed the investment profile of the business considerably. Furthermore, a fund raising exercise in August 2013 led by Harwood and one of its managed funds, Trident Private Equity Fund III LP, of £4.0 million via Convertible Loan Notes and £3.0 million via Redeemable Loan Notes has significantly strengthened the Company’s cash position. We have subsequently developed an investment strategy to expedite growth in Cyprotex involving a combination of focused internal service development together with acquisitions of businesses or assets which complement our current service offerings.

In line with this strategy we were pleased to announce the purchase of the trade and assets of CeeTox, Inc (‘CeeTox’) on 1 January 2014. CeeTox is a specialist in vitro toxicological screening business with an in silico prediction capability. Technically and strategically, CeeTox complements Cyprotex’s existing offering, not only by providing Cyprotex customers with new products and services, but through entry to the Personal Care, Cosmetics and Industrial Chemicals space, new territories for the Company. Many of the CeeTox assays are run under GLP (Good Laboratory Practice) guidelines, which is an area we have been keen to enter. Also like Cyprotex, CeeTox has previously announced a significant contract with the US Environmental Protection Agency which has the potential to

significantly grow revenues. CeeTox is a world leader in the provision of Endocrine Disruptor Screening Panels (‘EDSP’) which is also a highly valuable capability we wanted to acquire. This acquisition provides excellent sales synergies and opportunities for cross selling. The location of CeeTox in Kalamazoo, MI, USA expands our footprint in the key US territory and affords closer access to the Midwest pharma and biotech hubs.

Operational Performance

The excellent operational performance in 2013 was a reflection of an increase in revenues in the major customer territories. Our two operational sites grew their revenues with an outstanding performance by the Macclesfield site. The increased focus on diversifying our screening offerings, especially in toxicology, has seen a reduced dependence on our traditional customer base of pharma and biotech. There has been a concomitant increase in non-pharma based business, mainly in Personal Care, Cosmetics, Agrochemical and Industrial Chemical industries contributing £1.15 million in 2013 (£0.59 million for 2012). This deliberate diversification of the industry base of our customers is a response to the highly fragmented nature of the ADME-Tox CRO (‘Contract Research Organisation’) business segment to ensure further growth and revenue security. Similarly, we have seen our dependence on our largest single customer drop from 11.3% to below 10% for the first time, which is further evidence of our continuing efforts to reduce reliance and de-risk our revenues.

The total number of customers serviced during 2013 was 325 compared to 317 in 2012 with 136 new customers in the period. Revenues per customer for new clients significantly increased to an average of £13,000 compared to around £10,000 for 2012 which is indicative of improving quality of revenues per customer.

Expansion of our Macclesfield and Watertown sites, moving into Alderley Park and the acquisition of Kalamazoo facilities (CeeTox) has meant that our headcount has increased to over 100 for the first time in the Company’s history. We recognise that key to our business is continuing to grow our revenues whilst keeping costs and overheads under control and we are proud to have continued profitable trading since 2008.

CeeTox acquisition brings:

– Increased US footprint serving our largest potential market

– GLP capability

– Range of new services specifically targeting the Personal Care & Cosmetics markets

5Cyprotex PLC I Review

We have continued our investment in capital expenditure on both the UK and US sites. Notable purchases have been two further Waters Xevo® triple quadrupole mass spectrometers, two further Agilent Infinity UHPLC instruments, two further Tecan Freedom EVO® 200 liquid handling robots to further bolster capability in high throughput ADME assays and an AB Sciex QTRAP® to enhance our analytical platform at the Macclesfield site. We have, in replicating our high throughput ADME screening platform in Watertown, purchased, installed and validated two AB Sciex QTRAP® mass spectrometers, two Tecan Freedom EVO® 200 liquid handling robots and two Agilent Infinity UHPLC instruments. To enhance our radiochemical detection capability we have purchased a PerkinElmer MicroBeta® scintillation counter for our laboratories in the Alderley Park, BioHub facility. These investments totalled £1.6 million signifying a commitment to be at the leading edge of technical capability in the ADME-Tox services industry.

With our internal and external growth plans for 2014 and beyond already well defined and partly executed, we expect a similar spend on capital expenditure for 2014 and we will focus spending on where we can see a fast and high quality revenue return for these investments.

We have continued our collaboration with Pfizer during 2013 and this has evolved from being a proof of principle agreement to performing dedicated support work for specific projects. We have also continued developing our dedicated ‘Federated’ approach to certain service offerings with Sygnature Discovery Limited (medicinal chemistry, integrated drug discovery services), Sirius Analytical Limited (high throughput physical chemistry), InSphero AG (3D microtissues), SOLVO Biotechnologiai ZRT (transporter assays) and Sigma-Aldrich, Inc (transporter assays).

Financial Performance

Group revenues grew by 17.3% in 2013 (2012: 5.3%) to £9.77 million (2012: £8.33 million) – a record turnover for the business. Given we are a highly operationally geared business this revenue translated to a record underlying EBITDA figures of £1.54 million (2012: £0.97million) and operating profit of £0.613 million (2012: £0.326 million). This is the sixth consecutive year of operational profitability.

Following the strong operational performance and the fundraising via £4 million of Convertible Loan Notes and £3 million of Redeemable Loan Notes, the balance sheet continues to be strong with net assets of £6.3 million (2012: £7.0 million) including cash of £7.1 million (2012: £0.9 million).

Whilst delivering two important new assays, R&D spend in 2013 was lowered to £0.331 million (2012: £0.443 million). As mentioned above, due to investment in our UK and US sites, we have spent over £1.6 million on essential CAPEX purchases (2012: £1.0 million). When non-cash items are deducted, the underlying EBITDA recorded for the year was £1.54 million (2012: £0.97 million). This remains a key indicator of the Group’s continuing ability to generate cash from its core operations. We have incurred additional cost to rent and run the additional laboratory facilities in the Alderley Park BioHub of £0.03 million per annum.

Immediately after the trading period we announced the purchase of the trade and assets of CeeTox, Inc. The initial purchase price of £0.61 million was funded by our own resources. There will be a further commission payment of 5% on certain sales of assays achieved in the next two years (to a maximum of £3.1 million) to the former owners of CeeTox Inc., North American Science Associate, Inc. We have agreed a rental payment of approximately £0.1 million per annum for the Kalamazoo facility and expect to continue trading on this site for at least a further 12 months before moving operations to our Watertown facility.

Outlook and Summary

2013 has been an excellent year in terms of operational performance and internal expansion which coupled with the recent acquisition is enabling us to build further value in our business. We have a clear vision to continue such growth strategies into 2014 and beyond, considerably aided by a successful fundraising of almost £7 million. Our aim is to deliver customer service of the highest standards through the development of new and innovative services to satisfy the needs of our widening client base.

Ian Johnson Dr Anthony D Baxter

Non-Executive Chairman Chief Executive Officer

25 March 2014

Chairman and Chief Executive Officer’s Report continued

Review

Cyprotex PLC I Review6

7

“ Record turnover and operating profit for the Group”

Cyprotex PLC I Review

Review

Market Overview

High Growth

The global ADME-Tox testing market is estimated to be US $5.7 billion in 2013 with the market forecasted to reach US $10.1 billion by the year 2018. The US is the largest market for this sector accounting for an estimated share of 53.2% of the global market in 2013. Europe is the second largest market accounting for 26.4% of the global market in 2013. The Asia Pacific region is expected to see the highest growth rate with the ADME-Tox testing market projected to reach US $937 million by 2018 from an estimated US $376 million in 2013 (Global Industry Analysts, Inc, 2013).

ADME testing alone accounts for approximately 49% of the global ADME-Tox testing market and toxicology testing accounts for the remaining 51%. In vivo toxicology testing still accounts for the majority (71.7%) of the toxicology testing market, however, this percentage is decreasing as there is a greater acceptance of in vitro models and ethical concerns grow with respect to preclinical in vivo toxicology studies. In silico technologies are also expected to grow substantially over the next few years (Global Industry Analysts, Inc, 2013).

Key Trends

Increase In Outsourcing – The Pharmaceutical Industry has been struggling over the past decade with a pronounced decrease in productivity caused by an increase in R&D spending yet a reduction in new drug approvals. Therapeutic innovation is becoming more challenging with a greater risk of late stage failure. The cost of bringing a Pharmaceutical product from discovery to launch increased by 18%, rising from $1.1 billion in 2010 to $1.3 billion in 2013 (Deloitte, 2013). In 2013, new drug approvals slipped to 27 – a figure which is considerably lower than the 37 drug approvals in 2012. This lack of productivity has led to a period of consolidation with closures

of R&D sites of many of the large companies in the past 5 years. By the Pharmaceutical Industry reducing their internal R&D capabilities and in an attempt to focus on their core business, the industry is now observing a growth in outsourcing to CROs. Organisations such as Cyprotex who have developed highly automated and efficient systems and specialise in their field are benefiting from this trend. Despite the growing popularity of outsourcing, in-house ADME-Tox testing still accounts for four fifths of the industry’s total expenditure.

Earlier Screening – Late stage failure of drugs is a major issue for the Pharmaceutical Industry with many instances of attrition only occurring during clinical trials or even post launch. The level of investment expended at this stage is huge and cannot be recovered. Many companies are still reliant on preclinical toxicity testing to identify safety liability which is too late and may not be able to accurately predict clinical toxicity due to species differences in physiology and drug metabolism. A publication authored by Kola and Landis in 2004 illustrated the benefit of early stage, and more standardised, ADME screening with attrition rates related to pharmacokinetics falling from around 40% in 1991 to <10% in 2000. It is hoped that a similar pattern may be observed with toxicity as in vitro toxicology models become more predictive and liabilities are assessed earlier. In 2010, Cyprotex acquired the US business Apredica LLC and the assets of Cellumen. Both these businesses had a strong focus in the in vitro toxicology field and through Cyprotex’s continued dedication to R&D, we are now considered to be industry leaders in this rapidly evolving discipline.

New Regulations – New guidelines released by the regulatory authorities are a key driver of Cyprotex’s business as well as the market in general. In 2012, the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA) both released revised guidelines on drug interactions. The revised documents have a much greater focus on drug transporters. The number of transporters which are recommended has increased from a single transporter (P-glycoprotein) in the previous guidelines to at least 7 clinically relevant transporters in the most recent guidance. There is a significant growth in this field as potential new drugs are required to undergo this assessment prior to being launched onto the market. Cyprotex will be expanding their range of transporter services in 2014 and have secured a laboratory within Biohub Alderley Park for this purpose.

INVESTMENT

£1.60mIN NEW EQUIPMENT


CeeTox, acquired by Cyprotex in January 2014, operate a Good Laboratory Practice (GLP) capability and this allows Cyprotex to comply with an extended range of regulatory requirements including the OECD guidelines for cosmetics testing (for example, skin irritation and corrosion and percutaneous absorption) and the US Environmental Protection Agency’s Endocrine Disruption Screening Program. These additional services allow us to diversify our offerings within new markets such as the Cosmetics, Personal Care and Chemical Industries.

Addressing Ethical Issues

In vivo toxicity testing is a major ethical issue. In Europe this has been addressed by a total ban on animal testing for the Cosmetics Industry. Groups such as EURL ECVAM are committed to validating new in vitro alternatives and have played a major role in the acceptance of these alternative methods. Cyprotex offers several of the recommended approaches for cosmetics testing including skin irritation and corrosion, phototoxicity and percutaneous absorption. Through the acquisition of CeeTox, Cyprotex can now offer these services under Good Laboratory Practice (GLP) which is often a requirement during registration of a new product.

Banning preclinical toxicity testing for pharmaceuticals is still some way off due to the greater risks when drugs reach the systemic circulation. However, as the industry develops more sophisticated in vitro approaches for identifying liability, it is entirely possible that the Pharmaceutical Industry will, in the future, follow the same track as the Cosmetics Industry.

Predicting the Clinical Situation

Developing more relevant in vitro methods and building in silico models to better correlate with the clinical outcome continues to be a major challenge and focus for the industry. We are seeing a trend for greater acceptance of PBPK (physiologically based pharmacokinetic) and QSAR (quantitative structure activity relationship) modelling techniques by the regulatory authorities.

Right from its inception, Cyprotex’s philosophy has been to develop better ways of predicting the human clinical outcome from the in vitro data generated. This has been achieved by a combination of;

• Building robust efficient methods – Cyprotex has invested heavily in building a highly automated screening facility which is underpinned by state of the art equipment and an internally developed and sophisticated LIMS (laboratory information management system). A team of software engineers work closely with the scientists to identify opportunities for improving efficiency. By developing these processes, large banks of robust data can be gathered quickly and cost-effectively which is ideal for predictive model building purposes.

• Research and development (R&D) – Cyprotex strives to keep itself at the forefront of the ADME-Tox field by investing in R&D and developing new improved in vitro methodologies to produce more reliable and representative data which can be extrapolated to the in vivo situation. In 2012, Pfizer signed a collaboration agreement to evaluate, further develop, and improve several of Cyprotex’s proprietary offerings in the area of predictive toxicology.

• Developing in silico predictive models – Cyprotex are one of the only companies to offer both in vitro and in silico predictive modelling capabilities. We specialise in physiologically based pharmacokinetic (PBPK) modelling approaches which combines the in vitro ADME data with anatomical, physiological, biochemical and chemical information to predict the plasma and tissue levels of drugs or chemicals in the body. We have developed our own proprietary PBPK models to predict whole body pharmacokinetics (Cloe® PK) or absorption in the human intestine (Cloe® HIA). Both these systems are available for use by our customers on our web portal, Cloe® Gateway www.cloegateway.com.

9

“Cyprotex strives to keep itself at the forefront of the ADME-Tox field by investing in R&D and developing new improved in vitro methodologies to produce more reliable and representative data which can be extrapolated to the in vivo situation.”

ADME-Tox testing market

2013 US $5.7 billion

2018 US $10.1 billion

Source – Global Industry Analysts Inc 2013


Review

Market Overview continued

New Markets

Traditionally, Cyprotex’s main customer base has been within the Pharmaceutical and Biotech Industry. As we expand our capabilities in the field of in vitro toxicology it has become apparent that the company needs to diversify into new markets and service offerings to remain competitive and drive growth. The Cosmetics / Personal Care and Chemical Industries have been targeted in this respect for the following reasons;

• The worldwide in vitro toxicology market for the Personal Care Industry is growing rapidly and is estimated to reach US $1.3 billion in 2015 which is significantly higher than the Pharmaceutical Industry which is expected to reach US $ 976 million in 2015. (BCC Research, 2010).

• Within the EU, there has been a ban on animal testing for the Cosmetics and Personal Care Industry, leading to an increased reliance on in vitro toxicology testing.

• Although the market value is lower, the worldwide in vitro toxicology market for the Chemicals Industry is also growing rapidly and expected to see an approximate 2.5 fold increase between 2010 and 2015 (BCC Research, 2010).

• There is an increased focus from the regulatory authorities on the environmental effects of chemicals in terms of their ability to disrupt the endocrine system.

Cyprotex’s acquisition of CeeTox has enabled us to widen our target market to cover the Personal Care, Cosmetics and Chemical Industry and expand our offering within these markets to include a wide range of skin and ocular tests as well as in vitro endocrine disruption screening as recommended by the Environmental Protection Agency (EPA). It also allows us to accommodate customers which require Good Laboratory Practice (GLP) which is often a requirement for regulatory studies.

Competitive Environment

The ADME market is well established with standardised protocols for many of the key tests. Interpretation and understanding of the data is typically more straightforward. For this reason, competition within the ADME screening arena is high, and only companies which offer significant advantages over the competition can survive. As a consequence, there has been a period of consolidation with several instances of contract research organisations being sold off to larger organisations (for example, Eurofins purchased Cerep in 2013, Galapagos acquired Argenta Discovery’s service operations in 2010).

The Western CRO companies are experiencing fierce competition from Asian companies predominantly in India and China. Due to the low wages in these regions, the costs associated with screening are significantly lower than can be offered in the West. This has proved attractive to the Pharmaceutical companies who are under pressure to reduce R&D spending. Although still a considerable threat, there remain a number of concerns to this outsourcing approach which include;

• Quality of data and level of experience

• Protection of intellectual property rights

• Rising costs as the Asian economy develops

• Communication issues

• Time differences

Apart from some of the regulatory assays for genotoxicity and hERG testing, the in vitro toxicology testing market is less well defined and protocols are still being developed for areas such as hepatotoxicity. As such, there is less competition and Cyprotex has been able to lead the way in terms of R&D in this field.


Our Competitive Advantage – Cyprotex has managed to remain ahead of market expectations due to its ability to differentiate itself over the competition by offering the following advantages;

• High Throughput Screening Approaches Cyprotex has focused heavily on improving efficiency of screening by developing high throughput screening approaches for its main ADME services. Cyprotex can therefore produce very reproducible, robust and cost effective data with a short turnaround.

• Add Value by Extrapolation of Results Cyprotex is the only company which offers both screening and in silico approaches enabling them to provide a more complete added value service where the results can be extrapolated to the human clinical situation.

• Highly Experienced Team Cyprotex has an enthusiastic and committed team of highly qualified and experienced scientists, molecular modellers and software engineers who work well together to address customer needs – excellence in customer service is a key focus for the company.

• Pioneering Technology and Processes Cyprotex has a strong focus on R&D. We have developed a number of novel technologies (e.g., CellCiphr® Premier, Cloe® PK) and were the first company to introduce a high throughput microelectrode array system for measuring cardiotoxicity using stem cell derived cardiomyocytes.

Cyprotex has managed to remain ahead of market

expectations due to its ability to differentiate itself over

the competition


Review

Our Strategy

• Cyprotex are planning to launch a high throughput laboratory in its Watertown facility in 2014 which will replicate the highly successful facility in the UK

• Continued focus on research and development during 2014 to enhance our scientific credibility in the field

• Further investment expected in 2014 especially in the bioanalytical and toxicology field as we expand our new service offerings

• Integration of CeeTox into Cyprotex

• Growth of CeeTox revenues through expansion of services and customer base

• Rebrand CeeTox services under Cyprotex name

• Continue to promote Cyprotex in existing and new markets

Objective

GROWING STRATEGIC CLIENT* BASE

• Target key large and medium sized companies

• Expand capabilities in US

RESEARCH AND DEVELOPMENT

• Remain at the forefront of scientific R&D

• Share our knowledge and expertise within industry

TECHNOLOGY

• Invest in the latest technology

• Support future R&D

NEW MARKETS

• Expansion into new markets in order to diversify offering

CYPROTEX BRAND

• Strengthen brand awareness and understanding internationally and in new markets

• Substantial growth in strategic client* revenue (£5.2 million in 2013 compared with £3.5 million in 2012)

• Number of strategic clients grew from 9 in 2012 to 13 in 2013

• Growth in strategic client base has led to a decision to expand US facility

• Revenue from new services** accounted for £1.34 million of revenue

• Launched new eCiphrCardio and eCiphrNeuro services

• Presented research at key conferences

• >1400 copies of our guide ‘Mechanisms of Drug Induced Toxicity’ requested in period Jul – Dec 2013

• Invested £1.60 million in new equipment in 2013, including state of the art bioanalytical, liquid handling, scintillation and microelectrode array equipment

• Acquiring business and assets of CeeTox in Jan 2014 has allowed us a foothold in the Personal Care/Cosmetics and Chemical Industries

• Apredica renamed as Cyprotex US LLC in Jan 2014 to assist in US recognition of Cyprotex brand

• Japanese Symposium held in April 2013

• External consultant used to expand Cyprotex services to Japanese market

• Promoting our company brand and services in new markets (e.g., Personal Care/Cosmetics) and new territories (e.g., Japan)

Progress in 2013 Outlook

*Strategic client categorised as generating revenues of >£0.2 million per annum ** New services defined as services launched in the last 2 years


Review

Operational Review: ADME-Tox

Cyprotex specialises in the field of ADME-Tox. This is an acronym for Absorption, Distribution, Metabolism, Excretion and Toxicity. ADME studies are typically performed in vitro (i.e., outside the body in tubes or in the wells of plates) in order to estimate pharmacokinetic behaviour (plasma and tissues concentrations with time) of a drug in vivo (i.e., inside the body). The implementation of in vitro ADME into the early drug discovery process is thought to be responsible for a decrease in drug attrition related to pharmacokinetics from approximately 40% in 1991 to below 10% in 2000. However, during this same period, attrition related to clinical safety and toxicology doubled. This has led to increased focus on developing enhanced in vitro models which can be used to predict clinical toxicology.

Technology Overview

ADME-Tox ExplainedFor a chemical compound to become a marketable drug, that compound must have favourable properties in addition to efficacy (its therapeutic effect). These properties are summarised in the acronym ADME-Tox, which refers to Absorption, Distribution, Metabolism, Excretion and Toxicity.

“ADME is an acronym for Absorption, Distribution, Metabolism and Excretion. These processes determine blood and tissue levels within the body and can therefore influence efficacy and toxicity of drugs.”

AbsorptionA compound’s ability to pass through barriers such as the intestinal lining, the nasal lining, the lungs, or the skin.

DistributionWhere the compound goes in the body and its propensity to accumulate in certain organs.

MetabolismHow the body breaks down the compound, normally by liver. The key issues are drug-drug interactions, and the effects of the metabolites (the new chemicals created as a result of metabolism).

ExcretionThe rate and process through which the compound exits the body.

ToxicityUndesirable effects that are harmful or even lethal to the patient.


CUSTOMER BASE

136NEW CUSTOMERS

“Cyprotex have built its own proprietary PBPK

models for predicting whole body pharmacokinetics

(Cloe® PK) and human intestinal absorption (Cloe® HIA)”

15Cyprotex PLC I Review 15

Review

Page Title continued

ADME

ADME is an acronym for Absorption, Distribution, Metabolism and Excretion. These processes determine blood and tissue levels within the body and can therefore influence efficacy and toxicity of drugs.

Cyprotex has focused on ADME services right from its inception. At this early stage, our primary focus was building a system where large banks of high quality robust data could be generated cost effectively. This involved considerable investment in state-of-the-art liquid handling and analytical equipment. Our team of software engineers at our Macclesfield facility have worked closely with the scientists to build a bespoke automated LIMS (laboratory information management system) known as Labsys™ for registration and ordering, barcoding and tracking, instrument scripting and data analysis and reporting.

By developing such a system, Cyprotex have produced an internally developed high throughput facility which is unrivalled within the CRO industry, and enables us to compete with the Asian CRO market for the larger scale deals. We continue to actively develop these systems but have also expanded by offering more later stage ADME studies as well as diversifying into the field of in vitro toxicology.

Many of our strategic clients (defined as those spending over £0.2 million per year) are choosing to use our high throughput facility for their screening activities on a routine basis. In 2013, the number of strategic clients increased to 13 (9 in 2012) with the revenue generated from these clients increasing by 50.4% to £5.2 million from £3.5 million in 2012.

Replicating our high throughput facility at our US site is currently underway with the launch planned for Q2 2014. This will allow US based companies to have easier access to our high throughput capabilities and it is expected that this will attract a greater number of strategic deals from this territory.

Regulatory guidance influences the market requirements and demand for particular services. In 2012, the US Food and Drug Administration (FDA) and the European Medicines Authority (EMA) released new guidelines for testing for potential drug interactions.

Although these regulations were updates from previously guidance documents, the most recent editions now have a much greater focus on the field of drug transporters (i.e., proteins responsible for the uptake or efflux of drugs into cells and tissues). It has been found over the past 5 years that these transporters can influence drug levels within the body and are susceptible to drug interactions if patients are on concomitant medication. If an interaction occurs, there is the potential for reduced efficacy or enhanced toxicity of the drug. Understanding the potential for these interactions is therefore important prior to drugs being launched onto the market. Establishing a greater range of these drug transporters services within Cyprotex’s facility in the UK is now a priority, and Cyprotex have secured a laboratory with Biohub at Alderley Park for this purpose. The new facility is covered by a radiochemical license which will allow Cyprotex to offer services not currently possible at our Macclesfield or Watertown sites.

Review

Operational Review: ADME-Tox continued

16 Cyprotex PLC I Review16

Toxicology

Understanding clinical safety and the potential for adverse reactions using in vitro models is growing in importance for the following reasons;

• Preclinical in vivo toxicology assessment does not always predict clinical toxicology, and is particularly poor in predicting hepatotoxicity.

• Drug attrition related to clinical safety and toxicology is rising.

• Ethical concerns over preclinical in vivo testing are growing.

• There has been a ban on in vivo testing for cosmetics and personal care products in Europe.

Within Europe, personal care and cosmetics companies have to rely on in vitro tests prior to launching their product on the market due to a complete ban on in vivo testing. For pharmaceutical drug testing, the assessment of toxicology is more stringent as the drug usually reaches the systemic circulation. Within this industry, toxicology assessment has traditionally been performed at a late stage in the drug development process using preclinical in vivo tests. This can be expensive and time consuming if problems are only uncovered at this stage, and this has led to a push for earlier testing using human relevant in vitro models. In this respect a number of new cellular models (e.g., stem cells and 3D models) and improved techniques (e.g., high content screening and microelectrode array) have been introduced over the past 5 years which show promise in predicting toxic effects.

In 2010, Cyprotex expanded its Macclesfield site to incorporate an in vitro toxicology laboratory. In the same year, the company acquired US based Apredica LLC and the assets of Cellumen. Both these companies had considerable presence in the field of toxicology with specialist expertise in the field of high content screening. Cellumen originally developed the CellCiphr® technology which is a unique system for predicting toxicology from in vitro high content screening data using multiple endpoints, cell types and time points. Cyprotex have spent considerable effort

in developing the CellCiphr® system. This includes optimising the number of time points, expanding the number of relevant endpoints, and normalising data for expected drug exposure levels. These developments have greatly improved the predictive power of the CellCiphr® technology, and led to a new version, CellCiphr® Premier, being released in September 2012. Our Information Systems team has played an important role in automating data processing workflow and this has helped to reduce subjectivity in data analysis and greatly improved efficiency.

Stem cells have shown considerable promise especially in the field of cardiotoxicity. Cardiomyocytes derived from stem cells can beat spontaneously, and new technologies such as high throughput microelectrode array (MEA) have been developed to monitor whole cell electrophysiology. In February 2013, Cyprotex were one of the first companies to introduce a high throughput microelectrode array service (eCiphrCardio) using induced pluripotent stem cell derived cardiomyocytes. Of particular significance is that, since launching the assay, the US FDA, HESI and CSRC have proposed a drastic change from current requirements for non-clinical cardiotoxicity testing which includes electrophysiological tests of stem-cell-derived cardiomyocytes (Nature Rev Drug Discov (2013) 12, 565-567). This is very much aligned with our eCiphr technology and it is expected that this approach will become a routine assay for detecting cardiotoxicity in the future. Following the eCiphrCardio launch, Cyprotex further developed and validated a neuronal microelectrode array service (eCiphrNeuro) which was launched in July 2013.

Developing new in vitro models to predict clinical toxicity is a key focus for Cyprotex. We are very much leading the way in terms of research in this field. Many of the developments have been made in collaboration with our customers. In October 2012, Cyprotex announced an 18 month collaboration agreement with Pfizer. This research based project involves evaluating, further developing and improving several of Cyprotex’s proprietary offerings in the area of predictive toxicology.


Review

Page Title continued

In Silico

Relating the in vitro data to clinical outcome is a key goal for Cyprotex. We are one of the only companies to offer both in vitro and predictive modelling approaches. This allows Cyprotex to provide an ‘added value’ service where, not only are we generating ADME data for our clients, but we are also helping to put these results into context and interpret what they mean.

Our Scientific Computing Group specialises in physiologically based pharmacokinetic (PBPK) modelling. This technique uses anatomical, physiological, biochemical and chemical data in combination with ADME data to model complex processes in the body and ultimately predict the pharmacokinetics of a drug in human and various species.

Cyprotex have built its own proprietary PBPK models for predicting whole body pharmacokinetics (Cloe® PK) and human intestinal absorption (Cloe® HIA). These models utilise in vitro ADME and physiochemical data produced in the laboratory. Considerable effort has been spent developing these models over the past 10 years enabling us to greatly improve the predictive power of these technologies. Recently, Cloe® PK has proved valuable when used in conjunction with our CellCiphr® technology. It is well recognised that drug-induced toxicity is highly dependent on the exposure of a drug (i.e., the plasma and tissue levels in the body). Therefore, the in vitro toxicity data generated needs to be normalised for exposure to understand the relevance to the in vivo outcome. Often, at an early stage in drug discovery, in vivo pharmacokinetic parameters are not available

and so Cloe® PK is a viable alternative for generating these data. Using this combined approach we have been able to significantly enhance the predictive capability of our CellCiphr® system.

In 2009, Cyprotex launched its new web portal, Cloe® Gateway (www.cloegateway.com). The portal allows online access to our Cloe® PK and Cloe® HIA technology on a cost effective pay per use license-free basis. This greatly reduces the barrier for use, especially for some of smaller clients.

The regulatory authorities are becoming increasingly aware of the value of PBPK modelling approaches in drug development, and they feature heavily in the guidelines for drug interactions. This very much plays to the strengths of Cyprotex as we are one of the only companies who specialise in both experimental and in silico approaches in the ADME field.

96 well plate

Review

Operational Review: ADME-Tox continued


REVENUE

49%FROM STRATEGIC CLIENTS*

“Cyprotex is one of the only companies to offer both in vitro

and in silico predictive modelling capabilities”

*revenue >£200,000 per year


Review

Financial Review

It is very pleasing to report that the Group recorded its sixth successive year of operational profitability and revenues have increased over 17% to record levels at £9.77 million in yet another challenging year within the industry, with the second half of the year at 53.4% of total revenue once again proving historically our strongest trading period in the financial year.

We made good progress on both continents with our UK site at Macclesfield experiencing an increase in revenues of over 19% whilst our US site at Watertown saw increased revenues of 11%. As a Group we made large gains in mainland Europe with revenues up 36% this year, this following on from a 12% increase in 2012. Significant progress was also made in the US with sales up close to 20%.

The Company raised £6.88 million, net of expenses, in September 2013 by way of issue of unsecured Redeemable and Convertible Loan Notes of 5 year term. Interest on these loans at the rate of 5% is in the form of ‘payment in kind’ (PIK) notes, resulting in additional Loan Notes being used to settle interest payments annually thus deferring any cash payments until maturity in September 2018. There are no financial covenants attached to either of the Loan Notes. We have sought to use part of these funds in addition to internal resources to accelerate our development programs and look to acquire complementary technologies and businesses.

As our service portfolio increases in breadth and following on from customer requirements we have continued to invest and are committed to invest significantly for a second successive year in the analytical platform in the UK and replicating the throughput capability in Watertown at a cost of over £2.0 million to be completed in 2014, adding further ‘state-of-the-art’ mass spectrometer and liquid handling robots. We have expanded our UK footprint with the addition of laboratory and office space at the BioHub in Alderley Park, Cheshire in October 2013, where we are undertaking multiple R&D programs specifically targeting transporter assays with a view to launching this service in-house in the second half of 2014.

Immediately post period end on 1 January 2014 the Group’s US subsidiary, Cyprotex US, LLC, under an asset purchase agreement (‘APA’), purchased certain assets and trade of CeeTox, Inc. (CeeTox) from North American Science Associates, Inc (‘NAMSA’).

CeeTox is based in Kalamazoo, Michigan, USA. The initial purchase price was approximately £0.61 million and was paid on completion. Under the APA the Group acquired fixed assets and working capital balances of approximately £0.25 million. The CeeTox acquisition gives us; an additional facility in the US, strengthens our offerings to Personal Care, Cosmetics and Industrial Chemical entities as well as adding a GLP laboratory to our portfolio.

The Group continues to be operationally profitable and cash generative with operating profits at £0.61 million (2012: £0.33 million) and cash generated from operations at £1.5 million, (2012: £0.6 million) and has through its continuing investments significantly increased its capability to service clients and grow revenues through 2014 and beyond.

The capital structure of the Company changed with the issue of the Redeemable and Convertible Loan Notes and the return given to Loan Note holders, in excess of underlying coupon, is designed to match shareholder returns by linking this to any movement in the share price of the Company beyond 6 pence by a broadly proportionate increase in the amounts due to Loan Note holders. For presentation in the financial statements this feature is described as an embedded derivative. With the share price of the Company at 31 December 2013, approximately 20% higher than the benchmark share price 6 pence, the value of this increase in share price leads to an additional finance charge being recorded in 2013 of £1.6 million to reflect the calculated fair value increase in debt due. Any further rise in share price in a subsequent accounting period would be reflected by the recording of an additional finance charge in that period. Conversely a fall in share price would effectively be recorded as a reduction in finance charge. There is no immediate cash settlement required of these fair value movements as any ultimate increase above the Company’s share price of 6 pence will only become due for payment on maturity of the Loan Notes on 30 September 2018.

Our Goal

Our objective is to be the world’s foremost ADME-Tox services company. We aim to provide market-leading scientific expertise, broadest services portfolio, fastest turnaround times, and most cost-effective ADME-Tox services.


Our Business Model

Cyprotex capitalises on the increasing trend of pharmaceutical and biotechnology companies of outsourcing ADME-Tox evaluation. The Group’s expertise and investments in ADME-Tox technologies allows us to provide a breadth, quality, speed, and cost-effectiveness of service superior to what our customers can achieve on their own. Organically, by acquisition and by partnership, we have continued to build and diversify our offerings to allow us to address our customers’ ADME-Tox requirements. As a Board, we remain confident that our outsourcing model in the ADME-Tox market based on rapid results, reproducibility and cost effectiveness is a highly valuable and specialist service and we remain committed to the creation of shareholder value.

The ADME-Tox Market

The global ADME-Tox testing market is estimated to be US $5.7 billion in 2013 with the market forecasted to reach US $10.1 billion by the year 2018. The US is the largest market for this sector accounting for an estimated share of 53.2% of the global market in 2013. Europe is the second largest market accounting for 26.4% of the global market in 2013 (Global Industry Analysts, Inc, 2013). Increased penetration of these substantial markets are a key financial objective.


During the drug development process, the attrition rate attributed to toxicology is approximately 30%. There is now a clear trend in the market to introduce in vitro screening approaches to eliminate toxic compounds earlier in the drug discovery phase, when costs are lower. Traditionally large companies have been reluctant to outsource toxicology with large internal toxicology departments maintained. However with enhanced capabilities and expertise within the CRO market, an increasing number of companies are outsourcing these requirements and have in some instances made decisions to close internal departments.

The Pharmaceutical Industry has been struggling over the past decade with a pronounced decrease in productivity caused by an increase in R&D spending yet a reduction in new drug approvals. Therapeutic innovation is becoming more challenging with a greater risk of late stage failure. The cost of bringing a Pharmaceutical product from discovery to launch increased by 18%, rising from US $1.1 billion in 2010 to US $1.3 billion in 2013 (Deloitte, 2013). In 2013, new drug approvals slipped to 27 – a figure which is considerably lower than the 37 drug approvals in 2012. This lack of productivity has led to a period of consolidation with closures of R&D sites of many of the large companies in the past 5 years. By the Pharmaceutical Industry reducing their internal R&D capabilities and in an attempt to focus on their core business, the industry is now observing a growth in outsourcing to CROs. Organisations such as Cyprotex who have developed highly automated and efficient systems and specialise in their field are benefiting from this trend. Despite the growing popularity of outsourcing, in-house ADME-Tox testing still accounts for four fifths of the industry’s total expenditure. Currently, Cyprotex only taps into a small proportion of this market share, however, the potential for growth is strong over the coming years as our business expands and the market increases in size.

Performance

This year saw significant investment and commitments to invest in upgrading our bioanalytical platform and liquid handling capacity with expenditure in excess of £2.0 million, at both the Watertown and Macclesfield site. This investment will enable the Group to service larger contracts.

The Group showed growing resilience in 2013, widening and strengthening its customer base adding over 130 new accounts in 2013. For the first time, revenues from one customer fell below 10% of total revenue for the Group as the Company continues its de-risking strategy to avoid overreliance on a single customer, territory or market.

Cyprotex remains cash generative and has significant available liquid resources following its successful fundraising in September 2013. The Group is positioned to fund propriety developments to expand and diversify its offerings, and to actively seek opportunities for growth.


Review

Key Performance Indicators – Financial

The key financial performance indicators used by the Board in 2013 as a measure of the success of the business are as follows:

2013£m

2012£m

2011£m

Year on year growth/(fall)

Revenue 9.77 8.33 7.91 17%

Operating profit 0.61 0.33 0.67 88%

Cash inflow from operations 1.53 0.60 1.08 155%

Cash 7.09 0.86 1.13 724%

Underlying EBITDA^ 1.54 0.97 1.31 59%

(Loss)/earnings per share – basic (pence) (0.36)p 0.09p 0.39p (0.45)p

^ excluding share-based payment charges and impairment of intangibles

Revenues and profitability

Summary income statement2013

£m2012 £m

2011 £m

Revenue 9.77 8.33 7.91

Gross profit 7.81 6.82 6.58

Gross profit percentage 79.9% 81.9% 83.2%

Operating costs

– Staff costs (excluding share-based payment charge) (4.63) (4.19) (3.98)

– Share-based payment charge – (0.06) (0.14)

– Depreciation (0.65) (0.45) (0.36)

– Amortisation (0.15) (0.15) (0.14)

– Impairment of trade names (Apredica rebranding) (0.14) – –

– Other administrative expenses (1.63) (1.64) (1.29)

Operating profit 0.61 0.33 0.67

Net finance costs

– Loan Note related (1.70) – –

– Other interest (0.07) (0.08) (0.08)

(Loss)/profit before taxation (1.16) 0.25 0.59

Taxation credit/(charge) 0.36 (0.05) 0.29

(Loss)/profit after taxation (0.80) 0.20 0.88

(Loss)/EPS – basic (pence) (0.36)p 0.09p 0.39p

Financial Review continued


The Group achieved record revenue in the year of £9.77 million, an increase of 17.3% from the year ended 31 December 2012, with gross profits up £0.99 million at £7.81 million albeit with overall slightly lower margins due in part to an increase in shared sales agreements with our partners.

Cyprotex continued to significantly reduce its dependency on revenues from any single customer, with the proportion of 2013 revenues from the Group’s largest customer falling to below 10% for the first time in the Group’s history.

During the year the Board decided to rebrand its US operations. The Apredica trade name which was acquired in August 2010 was superseded and the US now trades as Cyprotex US, LLC. Accordingly the carrying amount associated with the Apredica trade name has been subject to full impairment in the year to 31 December 2013 and the remaining balance of £0.14 million written off.

EBITDA 2013

£m2012

£m2011

£m


add back

– Amortisation 0.15 0.15 0.14

– Impairment (Apredica brand name) 0.14 – –

– Share-based payment charge – 0.06 0.14

– Depreciation 0.65 0.45 0.36

– Profit on disposal of property, plant and equipment (0.01) (0.02) –

Underlying EBITDA – Group 1.54 0.97 1.31

Operating profit for the year was £0.61 million for the Group, almost double the prior year, reflecting a very creditable performance by the Group. Underlying EBITDA from operations (defined as EBITDA excluding expensed acquisition costs, share-based payment charges and impairment of intangibles (which are non-cash items) has remained very robust at a record £1.54 million compared with £0.97 million from the previous year. Once again this EBITDA measure confirms the continuing ability of the Group to generate cash from its core operations.

With a positive correlation between cash flow and profitability, the Group was again cash generative from operations at £1.53 million (2012: £0.60 million).

Due to an exceptional in nature finance charge of £1.6 million recorded this year, relating to the movement in the Company’s share price from a floor of 6 pence linked to the debt associated with the Company’s issued Loan Notes, the Group recorded a loss overall for the first time in six years with loss after taxation of £0.80 million in 2013 (2012: profit of £0.20 million; 2011: profit of £0.88 million). Despite a partial recognition of a deferred tax asset this year, earnings per share and post-tax profits have suffered substantially in 2013 from this exceptional finance charge and this lowered reported earnings per share to a loss per share of (0.36) pence down by 0.45 pence per share. Without the exceptional finance charge reported EPS would have been 0.40 pence for 2013.


Review

Capital Structure

A summary Group balance sheet is set out below:

Summary balance sheet2013 £m

2012 £m

2011 £m

Property, plant and equipment 3.8 2.7 2.1

Goodwill and other Intangibles 3.1 3.4 3.6

Current assets excluding cash 2.7 2.1 1.9

Current liabilities excluding debts (1.7) (0.9) (1.0)

Deferred taxation (net) 0.7 0.4 0.4

Contingent consideration (0.1) (0.2) (0.3)

Net assets before cash and (debt) 8.5 7.5 6.7

Cash 7.1 0.9 1.1

Debt due within one year (0.3) (0.3) (0.3)

Debt due within two to five years (9.0) (0.8) (0.3)

Debt due after five years – (0.3) (0.4)

Shareholders’ funds 6.3 7.0 6.8

At 31 December 2013, Shareholders’ funds were £6.3 million (2012: £7.0 million). The decrease was due principally to the exceptional (non-cash) finance charge recorded relating to issued Loan Notes offset by the Group’s continuing operational profitability and further partial recognition of a deferred tax asset.

Total Group debt at 31 December 2013 had increased from the prior year by £7.9 million, to £9.3 million. This net increase was principally due to the issue of Redeemable and Convertible Loan Notes in September 2013 which realised £6.9 million (net of issue expenses), subsequently recorded at fair value, additional lease finance agreements of £0.5 million, finance lease repayments totalling £0.3 million and loan repayments to the Company’s principal bankers of £0.6 million.

At 31 December 2013, debt comprised the following elements: Loan Notes at fair value of £8.4 million and finance lease obligations of £0.9 million. The £8.4 million relating to Loan Notes issued by the Company does not fall due until September 2018.



Cash Flows

A summary cash flow statement is set out below:

Summary cash flow2013

£m2012

£m2011

£m

Inflow from operational activities 1.53 0.60 1.08

Taxation (paid)/received – – –

Net cash flow before investing and financing 1.53 0.60 1.08

Finance charges paid (net) (0.07) (0.08) (0.07)

Capital expenditure (net of disposals) (1.61) (1.04) (0.31)

Expenditure on intangibles – (0.09) (0.17)

Net cash flow before financing (0.15) (0.61) 0.53

Debt proceeds 0.45 0.79 0.28

Loan Note proceeds (net of expenses) 6.88 – –

Repayment of property and term loans (0.61) (0.07) (0.06)

Other financing (0.34) (0.38) (0.66)

Net cash inflow /(outflow) 6.23 (0.27) 0.09

Opening cash 0.86 1.13 1.04

Closing cash 7.09 0.86 1.13

Cash in hand at year end amounted to £7.1 million (2012: £0.9 million).

Significant cash inflows this year were from the Group’s strong trading performance which resulted in a cash inflow from operations of over £1.5 million; the successful issue of Redeemable and Convertible Loan Notes which resulted in an inflow of £6.9 million (net) in September 2013 and two additional lease agreements taken out in the UK totalling £0.45 million. Principal cash outflows were in relation to continuing upgrades and additional capability focused on the Group’s analytical and robotic handling equipment in the UK and US of £1.6 million. Additionally, the Group took the opportunity to pay off early its property loan and term loan both from Bank of Scotland and secured on the Group’s operational premises in Macclesfield UK from the proceeds of Loan Note issues. Other than assets subject to finance lease arrangement no other assets of the Company are subject to any legal charge or similar pledge.

Principal Risks and Uncertainties

Management has attempted to minimise its exposure to identified external and internal variables that may have an effect on the operations of the Group. Where possible, measures to monitor and mitigate such risks have been enacted, and processes adopted to formally identify and examine such situations. The nature of Cyprotex’s operations nevertheless requires the Board and its investors to assess the principal risks facing its operations and these are considered below.

Business Evolution

Trading activity is dependent on continuing global investment in new drug discovery and development. Adoption of new practices for such development, or significant regulatory changes by authorities such as the FDA, or the supplanting of molecular compounds by means of electronic simulation or software emulation or prediction, would have a direct impact on likely revenues achieved by the Group.


Review

Economic Activity

Sales by territory – Group2013

%2012

%2011

%2010

%2009

%

United Kingdom 18 23 22 25 28

Rest of Europe 39 34 32 39 46

North America 41 40 44 35 24

Rest of the World 2 3 2 1 2

Total 100 100 100 100 100

The above analysis demonstrates that the business is not dominated by customers from any specific region, providing a degree of insulation from local variations. However, following the acquisition of Cyprotex US, LLC (formerly known as Apredica LLC) in August 2010, this has resulted in the Group earning its highest percentage of revenue in North America which is the largest global market for our services. Our internal target is to achieve Group sales revenues in this region closer to 50%.

In a more severe worldwide economic downturn than the one currently being experienced, marketing and pricing strategies would need to be modified to reflect those new conditions. Investment in drug discovery has the benefit of the fact that personal health and longevity has historically followed longer-term patterns and is made substantially by governments. As such, the business is not over reliant on short-term fluctuations in consumer confidence.

Fixed Overheads

A large proportion of the Group’s overheads are fixed. There is a potential risk that if revenues contract, these fixed costs will not be covered. The operating costs of the core operation have only limited scope for reduction without impacting the breadth and quality of services.

Seasonality

Variations in seasonal demand are driven by the budgeting, holiday, and project-planning cycles of the Group’s customer base. Historically, trade is strongest during the final quarter as annual projects complete. Trade slows in the third quarter due to summer holidays, and briefly in the weeks immediately after the New Year. During the slower periods the Group utilises surplus resources for its internal research and product development programmes.

Revenue 2013

£m2012

£m2011

£m2010

£m2009

£m

– First half year 4.55 3.72 3.54 2.48 2.45

– Second half year 5.22 4.61 4.37 3.44* 2.55

Total 9.77 8.33 7.91 5.92 5.00

Revenue 2013

%2012

%2011

%2010

%2009

%

– First half year 46.6 44.7 44.8 41.9 48.9

– Second half year 53.4 55.3 55.2 58.1* 51.1

Total 100.0 100.0 100.0 100.0 100.0

* Includes Cyprotex US, LLC revenues for five months

The table above highlights the bias towards improving sales performance as the year progresses.



Competition

The market in which the Group operates is competitive, highly fragmented, and subject to in-sourcing. Through technological and process innovation and investment, the Group endeavours to offer a breadth and quality of service unsurpassed by its competitors. The Group competes for market share not only with other contract research organisations, but also potential customers’ own in-house ADME-Tox departments.

Product Obsolescence

The Group offers highly technological services. Having developed a high degree of expertise and efficiency in delivering these services, management is confident of the Group’s ability to remain competitive.

Fluctuations in Commodity Prices

The completion of our services relies on materials that are specific and specialist by nature. The prices of such products are susceptible to fluctuations dependent upon market conditions. To mitigate the impact of such price movements, management has established a number of regular supply arrangements that provide some forward visibility.

Fluctuations in Currency Exchange Rates

Sales by currency2013

%2012

%2011

%2010

%2009

%

Sterling GBP 26 45 44 47 50

US dollar USD 48 43 49 36 25

Euro EUR 26 12 7 16 23

Swiss franc CHF n/a n/a n/a 1 2

Total 100 100 100 100 100

Approximately 74% of the Group’s revenue (2012: 55%; 2011: 56%) was derived in US dollars, Euros, or Swiss francs, a sizeable shift from prior years reflecting our success in selling into mainland Europe and the US. With the majority of operating costs incurred in Sterling, the Group could be exposed to foreign currency fluctuations. The acquisition of a US base in 2010 helps diminish this exposure. Additionally, some costs are hedged naturally. Forward book visibility is limited to a number of weeks. Whilst larger customers agree in principle to the volumes of compounds to be screened each year, workflows have no absolute certainty. It is against this operational background that the Group currently does not sell currency forward.

Regulatory Changes Affecting the Business

The industry in which the Group operates is strictly regulated. Regulatory changes may increase or decrease revenues and/or expenditures. Management aims to mitigate such risks by keeping aware of potential regulatory changes. Currently, management foresees no such regulatory change likely to adversely affect its operations; rather, management anticipates regulatory guidance toward independent and more thorough verification to work in the Group’s favour.

Our People

The success of the Group is highly dependent upon the recruitment and retention of highly qualified and skilled staff. They are the key drivers of profitability and growth. Remuneration schemes are in place to mitigate the risk of losing key individuals and to reduce the risk arising from the absence of suitable resources.

Pension Funding

The Group does not have a defined benefit pension scheme for any of its employees.


Review

Treasury Policies and Financial Risk

Surplus funds are intended to support the Group’s working capital requirements and provide adequate resources to expand its service offerings, both organically and by acquisition. These funds are invested through the use of short-term and period deposits of up to three months. It is not Group policy to use financial derivatives to routinely manage exposure and other financial assets and liabilities. Financial risks are considered on a regular basis by the Board, including future interest rates, liquidity, credit and foreign currency risk. Apart from using short-term and period deposits, interest-rate risks are limited to the fixed element of Loan Notes, finance lease or hire purchase agreements that the Group has used, and historically base-rate risk on bank loans.

Convertible and Redeemable Loan Notes

The Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes (“Redeemables”) and £4 million of unsecured Convertible Loan Notes (“Convertibles”) in September 2013. By way of an Open Offer the Company issued £4 million nominal value of Convertible Loan Notes at par. Additionally it also, by way of subscription, issued £3 million nominal value of Redeemable Loan Notes at par. Details of these fundraising where sent to all shareholders by way of a circular. Both instruments pay interest in the form of ‘payment in kind’ (‘PIK’) notes at the rate of 5% per annum on a compound basis, payable on each anniversary of issue for a period of five years. Convertible Loan Notes were offered and issued such that each shareholder would be entitled to 0.01783003 of nominal value £1.00 Convertible Loan Notes. Convertible Loan Notes are convertible at 6 pence per share. Redeemable Loan Notes were issued subject to a Notional Conversion price of 6 pence per ordinary share. Issue costs associated with this fundraising amounted to £122,000. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The repayment value of the Loan Notes are linked to the movement in the Company’s share price from a base value of 6 pence. Any increase is reflected as an increase in debt repayment with a corresponding finance charge. Any subsequent decrease would lead to a reduction in finance charge. This is due to embedded derivatives attached to the issued Loan Notes being linked to the Company’s share price movements and these are likely to increase the volatility of reported earning as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below. Whilst these fluctuations currently have no impact on the Group’s liquidity, they may on ultimate redemption.

Finance lease arrangements

Typically, the Group arranges lease finance and hire purchase for fixed periods ranging from three to five years, to enable acquisition of assets where it is considered to be an effective use of funds.

Property and term loan arrangements

On 17 January 2005, Cyprotex entered a 20-year mortgage facility of £704,000 with Bank of Scotland to substantially fund the acquisition of a long-leasehold interest in its UK operational premises. Interest was payable on this bank loan at 1.75% over the bank’s base rate. The loan was repaid in full during the year.

On 17 May 2011 the Group entered into a 5-year term loan with Bank of Scotland for £200,000 repayable in equal monthly instalments from the date the loan commenced with final repayment due in May 2016. This term loan has a fixed rate interest of 5.42%. The loan was repaid in full during the year.



Liquidity Risk

Surplus funds are invested on a short-term basis at money-market rates making such funds available at short notice.

Foreign Currency Risk

The Group has considerable potential exposure to foreign currency fluctuations as around 74% of revenues are now denominated in US dollars, Euros, and Swiss francs. To limit this exposure the Group has sales price agreements with major customers. These agreements do not exceed one year and are not coterminous. Additionally, individual service contracts (known internally as ‘Rounds’) are short in time frame and normally completed within ten working days of a compound arriving on site. Control over debtor management within the Group is strong. Surplus currency is sold on receipt.

Financial Overview

The year ended 31 December 2013 was another challenging year for companies within the preclinical contract research market. Cyprotex finished the year with record revenues and registered a sixth year of operating profitability. The successful fundraising in September 2013 which raised £6.88 million has given us the ability to accelerate management’s strategy for growth organically, by internal R&D and by acquisition. The year saw yet further significant expenditure on upgrading and increasing the bio-analytical capability and liquid handling facilities in both the UK and US which, when completed, gives us added capacity and capability to readily meet customer requirements and service greater demands. With the acquisition of the trade and assets of Ceetox immediately post period end, on 1 January 2014, this gives the Group an enlarged footprint in the US, a GLP facility and a wider portfolio of assays affording further targeting in particular of the Cosmetic, Personnel Care and Industrial Chemical markets; the business remains well placed to grow and develop further in 2014 supported by a sound financial framework.

John K. Dootson

Chief Financial Officer


Governance

Dr Anthony Baxter (54)


Appointed: 3 June 2008

Dr Anthony Baxter was formerly the founding CEO of Argenta Discovery Limited, a leading drug discovery services and proprietary therapeutics company backed by substantial venture capital investment. In less than four years from the company’s start-up in 1999, he grew services revenue to over £9 million, which included building a pipeline of novel therapeutic programmes. He then led the successful merger of the business with biotech company, Etiologics Limited.

Prior to this, Dr Baxter was Chief Scientific Officer of Oxford Asymmetry International plc and helped build the business from an early-stage company to its flotation on the LSE and then to its eventual merger with Evotec in 2000 at a valuation of £316 million. More recently, Dr Baxter led the turnaround of deltaDOT Limited, a proteomics/genomics platform technology company, which involved fundraising of £8.3 million. He is also currently Executive Chairman of Equinox Pharma Limited, an Imperial College spin-out company focussing on development of machine learning for iterative and multi-parametric drug-discovery projects and Executive Chairman of Glythera Ltd, a Newcastle upon Tyne based spin-out company which has novel protein glycosylation techniques as its technology base.

Dr Baxter started his career with Glaxo Group Research (now GSK) and Ciba Central Research (now Novartis).

John Dootson (52)


Appointed: 3 March 2009

John Dootson has over 25 years’ experience in both professional practice and in industry. He trained with Tenon and Ernst & Young.

John has extensive managerial experience in major accounting practices and has worked on a wide range of projects, including London Stock Exchange flotations and circulars, corporate governance, company acquisitions and disposals, and specialist advice to growing SME’s. John has worked in a number of roles in industry at Financial Controller and Director level, including seven years within the senior head office finance team of BTP plc, a former FTSE 250 speciality chemical manufacturer with over 50 sites worldwide prior to its sale to Clariant AG for £1.1 billion.

John is a Fellow of the Institute of Chartered Accountants in England and Wales, and for the last eight years he has assisted Cyprotex firstly in a management consultative role and lately as Finance Director. The roles have included all aspects of finance and reporting.

Board of Directors – Executive Directors

30 Cyprotex PLC I Governance

Ian Johnson (60)


(appointed 26 September 2013)

Ian has spent his business career in life science and was founder and CEO of Biotrace International Plc, which was a listed company until its sale to 3M in December 2006. Ian is currently non-executive chairman of Celsis Group Ltd and Finance Wales plc and a non-executive director of life science companies Lumora Ltd and ToxiMet Ltd. He has served on the boards of various public and private companies in strategic consultancy and business development capacities including: Evans Analytical Group, MyCelx Technologies Corporation and AOI Medical Inc. each AIM traded companies. Ian studied at Cardiff University obtaining a B.Sc. and M.Sc. in Microbiology. He is a chartered biologist, a member of the Institute of Biology and the Institute of Directors.

Christopher Mills (61)

Non-Executive Director

(appointed 24 August 2013)

Christopher Mills is Chief Investment Officer of Harwood Capital LLP, an FCA authorised investment management firm which manages a number of funds including North Atlantic Smaller Companies Investment Trust Plc, Oryx International Growth Fund Limited (‘Oryx’) and Trident Private Equity Fund III LP (‘TPE3’) as well as a number of private discretionary clients. Oryx and TPE3 have a combined stake of 29% in Cyprotex. He brings a wealth of experience to the Board, having been a Director for the last four years of Celsis Group Limited (‘Celsis’), which was the owner of In Vitro Technologies, the leading supplier of cryopreserved human liver cells to the ADME-Tox testing industry including Cyprotex, until it was sold by Celsis in June 2013. Christopher was also a Director of Bionostics Holdings Limited, an analytical life science manufacturer of in vitro diagnostic quality controls, for five years until its sale in July 2013. He was also a Director of medical materials supplier Orthoproducts Ltd for nearly ten years until its sale in October 2013.

Steve Harris (71)



Steve Harris is an experienced Non-Executive Director with a range of private and public companies in the life sciences sector. He has a wide experience in fundraising and IPO’s, and extensive international pharmaceutical and biotech experience with particular focus on business development and licensing. His present roles include being Non-Executive Chairman of Proteome Sciences plc, a proteomics company listed on AIM and Domainex Ltd as a Non-Executive Director. Domainex Ltd is a private company undertaking drug discovery in the epigenetic field and medicinal chemisty on a contract basis.

Non-Executive Directors

member of the audit committee

member of the remuneration committee

31Cyprotex PLC I Governance

Governance

The Directors present their strategic report for the year ended 31 December 2013.

Principal Activities

Cyprotex PLC (‘Cyprotex’) and subsidiaries’ (together ‘the Group’) principal activity is the provision of in vitro and in silico ADMET/PK (Absorption, Distribution, Metabolism, Excretion, Toxicity/Pharmacokinetic) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Review of the business

Key financial performance indicators during the year were as follows:

2013£m

2012£m


Revenue 9.77 8.33 17%

Operating profit 0.61 0.33 88%

Cash inflow from operations 1.53 0.60 155%

Cash 7.09 0.86 724%

Underlying EBITDA^ 1.54 0.97 59%

(Loss)/earnings per share – basic (pence) (0.36)p 0.09p (0.45)p

^ excluding share-based payment charge and impairment of intangibles

Revenue increased by 17% or £1.44 million in the year with a 19% increase recorded at the UK site and 11% at our US site. This increase was driven principally by further gains from European based customers up £0.91 million and US customers up £0.65 million.

With a relatively high percentage of fixed costs this increase in revenues translated into higher operating profitability up 88% or £0.28 million. This would have been a further £0.14 million higher as the Group recorded an exceptional charge relating to an impairment of the Apredica trade name in the year after rebranding its US operations under the core brand as Cyprotex US, LLC.

The Group’s strong trading performance was reflected in reporting a record underlying EBITDA of £1.54 million and also cash inflow from operations of over £1.5 million.

Cash balances were further strengthened when the Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was that in September 2013: we issued £3 million of unsecured Redeemable Loan Notes (“Redeemables”); and £4 million of unsecured Convertible Loan Notes (“Convertibles”), by way of an Open Offer. Each Loan Note has a minimum 5 year term, unless an offer is received for the Company or a scheme of arrangement is put in place. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The Group’s aim is to utilise these funds is three ways namely; to grow organically by accelerating R&D programs, to invest in ‘state-of -the –art’ analytical equipment to support a wider breadth of service offerings and customers, and to acquire complementary technologies and businesses. The Group is committed to spending over £2.0 million on equipment, with £1.6 million spent in 2013, this program of spending includes building a high throughput capability in Watertown to be operational in Q2 2014. The Group has rented additional laboratory space at BioHub, Alderley Park to be dedicated to internal R&D programs in 2014. On 1 January 2014, post period end, the Group acquired the trade and assets of Ceetox for an initial cost of £0.61 million, this gives the Group an enlarged footprint in the US, a GLP facility and a wider portfolio of assays affording further targeting in particular of the Cosmetic, Personnel Care and Industrial Chemical markets.

Strategic Report


Both types of Loan Notes issued also contain an embedded derivative due to conversion or nominal conversion rights being linked to the Company’s share price via a notional issue price of 6 pence.

With the share price being around 20% higher than the notional issue price on average, prior to the year end, this results in a broadly proportionate increase in the value of the debt instruments and the recording of an exceptional finance charge in the year of £1.6 million the impact of which reduces EPS by 0.71 pence. This is the major factor why we have recorded a loss after taxation for the year of £0.8 million and a loss per share of 0.36 pence. Embedded derivatives linked to the Company’s share price movements are likely to increase the volatility of reported earnings as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below.

A summary of major movements in the principal categories of assets and liabilities is set out below:

Financial position – summarised2013

£m2012

£mmovement

£m


Goodwill and other intangibles 3.1 3.4 (0.3)

Current net assets excluding cash & debt 1.0 1.2 (0.2)

Deferred taxation & contingent consideration 0.6 0.2 0.4


Cash 7.1 0.9 6.2

Debt (9.3) (1.4) (7.9)

Shareholders’ funds 6.3 7.0 (0.7)

The overall decrease in shareholders’ funds relates to the recorded loss after taxation. Of the total debt balance of £9.3 million due at 31 December 2013, £8.4 million relating to Loan Notes issued by the Company does not fall due until September 2018.

Principal risks and uncertainties

The Company maintains risk registers at each operational site which are reviewed by the Board at six-monthly intervals. The key risks and uncertainties facing the Group are Business Evolution, Competition, Product Obsolescence, Regulatory and Financial.

Business evolution


Competition



Governance

Strategic Report continued

Product obsolescence


Regulatory

The industry in which the Group operates is strictly regulated. Regulatory changes may increase or decrease revenues and/or expenditures. Management aims to mitigate such risks by keeping aware of potential regulatory changes and anticipates regulatory guidance toward independent and more thorough verification to work in the Group’s favour.

Financial risk

Financial risks include future interest rates, liquidity, credit and foreign currency risk. Apart from using short-term and period deposits, interest-rate risks are limited to the fixed element of Loan Notes, finance lease or hire purchase agreements that the Group has used, and historically base-rate risk on bank loans.


The Company has embedded derivatives attached to its issued Loan Notes linked to the Company’s share price movements and these are likely to increase the volatility of reported earnings as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below. Whilst these fluctuations currently have no impact on the Group’s liquidity, they may on ultimate redemption.

By order of the Board

Mark C. Warburton

Company Secretary

25 March 2014


Directors’ Report

The Directors of Cyprotex PLC present their report to the shareholders, together with the audited financial statements, for the year ended 31 December 2013.

Results and Dividends

The loss for the year, after taxation, was £796,948, (2012: profit £202,502; 2011: profit £877,335) and an equivalent amount has been transferred to reserves.

The Directors do not propose the payment of a dividend. A financial review of the results is included on pages 20 to 29.


Cyprotex PLC is a holding company. Its primary trading subsidiaries are Cyprotex Discovery Limited, based in Macclesfield UK, and Cyprotex US, LLC, based in Watertown (near Boston), Massachusetts, USA. The principal activities of the Group are that of providing in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity and Pharmacokinetics) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Business Review and Future Developments

Details of the Group’s performance during the year, a review of the business’s expected future developments, and the principal risks and uncertainties facing the Group are contained in the Chairman and Chief Executive Officer’s Report set out on pages 4 to 7 and the Financial Review set out on pages 20 to 29.

Accounting Standards and IFRS

For Group financial statements the Company reports under International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. The Parent Company accounts continue to be reported under United Kingdom generally accepted accounting practice (‘UK GAAP’).

Financial Instruments

The Group’s financial risk management, objectives, and policies are discussed in the treasury policies and financial risk sections of the Financial Review on pages 20 to 29 and further detailed disclosure are given in note 29.

Going Concern

The financial position of the Group, including its cash flows, liquidity situation and borrowing facilities are set out in the business review. The business review on pages 4 to 29 sets out the Group’s trading situation and highlights the principal risks and uncertainties that could impact on the future development of the Group’s operating and financial performance. The general economic environment in its main European and US markets could adversely affect demand for the Group’s products and there is the possibility that the Group’s actual trading performance during the coming year may be different from management’s expectation.

Whilst the Group recorded a loss after taxation of £796,948 in the year ended 31 December 2013, this included an exceptional finance charge of £1,592,319 based upon a valuation of an embedded derivative associated with the issue of Loan Notes by the Company in the year. The value of this embedded derivative is based upon the share price performance of the Company and only crystallises at the maturity date of 30 September 2018. Cash inflows from operations in the year ended 31 December 2013 are a record at £1,533,179. Cash and deposits at 31 December 2013 are £7,094,608. The Directors have reviewed the budget, financial forecasts including cash flow forecasts and other relevant information. They believe that the Group has adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual financial statements.

(registered number 4311107)


Governance

Directors’ Report continued

Directors

The Directors of the Company who served throughout the year, except as noted, were as follows:

Executive

Dr A. Baxter (Chief Executive Officer) Mr J.K. Dootson (Chief Financial Officer)

Non- Executive

Mr I.R. Johnson (Chairman, appointed 26 September 2013) Mr R.S. Harris Mr C. Mills (appointed 24 August 2013) Mr C. Clothier (resigned 26 September 2013)

All Directors are subject to re-election and election at intervals of no more than three years.

Mr Harris and Mr Dootson were re-elected on 17 July 2012. Dr Baxter was re-elected at last year’s Annual General Meeting on 16 July 2013. Mr I.R. Johnson and Mr C. Mills will seek election at this year’s Annual General Meeting.

Further details of the Directors, their service agreements, remuneration and fees are set out on pages 41 to 44.

All Directors benefited from qualifying third party indemnity provisions in place during the financial year and these remain in force at the date of this report.

Directors and their interests

The Directors at 31 December 2013 and their interests in the share capital of the Company (all beneficially held) are as follows:

Share Capital

At 31 December 2013 At 1 January 2013

Percentage holding

Number of ordinary

sharesPercentage

holding

Number of ordinary

shares

Mr I.R. Johnson – – – –

Mr C. Mills – – – –

Mr R.S. Harris 0.72% 1,605,142 0.67% 1,507,142

Dr A.D. Baxter 0.48% 1,067,685 0.48% 1,067,685

Mr J.K. Dootson 0.26% 589,285 0.26% 589,285

The Directors at 31 December 2013 and their interests in the convertible Loan Notes of the Company (all beneficially held) are as follows:

Convertible Loan Notes


Percentage holding

Nominal Value of


Percentage holding

Nominal Value of




Mr R.S. Harris 0.36% 14,264 – –

Dr A.D. Baxter 0.32% 12,748 – –

Mr J.K. Dootson 0.31% 12,289 – –


Value Creation Plan (VCP)

The Group adopted a Value Creation Plan (VCP) on 7 October 2009, details of which are given in note 28. The plan ceased during the previous year with no awards being made under the VCP.

The Board

The Board currently comprises two Executive Directors, and three Non-Executive Directors including the Chairman. The members have a clear division of duties. The Board meets regularly throughout the year to direct and control the strategy and operating performance of the Group. The following committees deal with specific aspects of the Group’s affairs:

Audit Committee – comprises two Non-Executive Directors, Mr R.S Harris and Mr C. Mills, with Mr C. Mills, as Chairman. The Auditor attends the meetings and reports as appropriate. The Committee reviews the Group’s accounting policies, financial reporting, internal control, and risk management processes. It also considers the appointment and fees of the Auditor, and ensures that auditor objectivity and independence have not been compromised. The Committee meets at least twice during the year.

Remuneration Committee – comprises two Non-Executive Directors, Mr R.S. Harris and Mr C. Mills, with Mr R.S. Harris as Chairman. It recommends to the Board the policy for Executive remuneration and it determines, on behalf of the Board, the terms and conditions of service of the Executive Directors. The Report on Directors’ Remuneration is set out on pages 41 to 44.

Internal Control

The Board is responsible for establishing and maintaining the Group’s system of internal control, which is designed to meet the particular needs of the Group and the risks to which it is exposed. Such a system is designed to manage these risks, to provide reasonable but not absolute assurance against material misstatement or loss, and to maintain proper accounting records to ensure the integrity of financial information used within the business and for external publication.

The Board has reviewed the effectiveness of its system of internal control as it operated during the period. The Board has considered whether the Group’s internal control processes would be significantly enhanced by an Internal Audit Function and has taken the view that at the Group’s current stage of development, this is not required. The Board will review this matter each year. The key procedures that the Board has established include the following:

• Clearly defined authorisation limits and procedures.

• Budgets are reviewed and approved by the Board, and regularly monitored against monthly performance and forecasts.

• The Group’s financial and operating performance is closely monitored at regular Board meetings with formal Board reports from each Executive Director covering their areas of business responsibility.

• The Board conducts ongoing reviews of the internal control systems and business processes to ensure that they remain appropriate to the needs of the Group.


Governance

Relations with Shareholders

The Board recognises the importance of continual communications with shareholders and maintains a programme of institutional dialogue, including presentations following the Company’s announcements of its final full year figures and of the half-year results.

There is also an opportunity, at the Company’s Annual General Meeting, for individual shareholders to raise general business matters with the Board. Notice of the Company’s Annual General Meeting is circulated to all shareholders at least twenty-one working days before such meeting. The annual report is to be published on the Company’s website, www.cyprotex.com, which also includes press releases and other announcements during the year.

Policy in Respect of Supplier Payments

The Company and its principal subsidiary undertakings agree terms and conditions for transactions with suppliers, and pay suppliers within the agreed terms, provided that suppliers comply with those terms and conditions. At 31 December 2013, the Group had an average of 35 days purchases (2012: 32 days; 2011: 30 days) outstanding in trade payables. The Company had an average of nil days (2012: nil days; 2011: nil days) purchases outstanding in trade payables.

Research and Development

Research and development activities are essential for Cyprotex’s growth and expansion. As well as enabling Cyprotex to offer new products and services to its customers, it allows Cyprotex to increase its scientific credibility in the field – ensuring that we are not just recognised as a service provider but as a leader in ADME-Tox research. During 2013, Cyprotex focused on the introduction of several new technologies as well as improvements to, and expansion of, existing technologies.

In February 2013, Cyprotex was first to market with a novel high throughput stem cell derived cardiomyocyte service (eCiphrCardio) which utilises microelectrode array. The service allows electrophysiological effects to be observed on beating cardiac cells (cardiomyocytes) in culture. Later in the year in July, we introduced a neuronal service (eCiphrNeuro) using the same microelectrode array technology. Potential applications of the eCiphr services include screening for cardiotoxicity/neurotoxicity, or development of potential new cardiac- or CNS-acting drugs.

We continue to develop our key technologies such as Cloe® PK and CellCiphr® Premier, improving the ability of these tools to predict in vivo pharmacokinetics and drug-induced toxicity. In addition, Cyprotex have secured a facility at Biohub at Alderley Park in the UK for expanding its range of drug transporter services. This is in direct response to new guidelines on drug interactions released by the regulatory authorities.

Charitable and Political Contributions

Charitable contributions amounted to £nil (2012: £nil; 2011: £350), all made to local charities. The Group made no political contributions (2012: £nil; 2011: £nil).



Employee Involvement

The Group recognises and seeks to encourage the involvement of its employees, with the aim being the recruitment, motivation, and retention of quality employees throughout the Group. An unapproved share option scheme is in place, operated within the Enterprise Management Incentive Scheme where applicable. The Group’s employment policies, including the commitment to equal opportunity, are designed to attract, retain, and motivate employees regardless of sex, race, religion, or disability. The Group is committed to ensuring and communicating the requirements for a safe and healthy working environment for all employees, consistent with health and safety legislation and, wherever practicable, giving full and fair consideration to applications for employment from disabled persons. The Group is committed to ensuring equal opportunities for all current and potential members of staff. It is committed to the promotion of standards of personal conduct based on respect for and the dignity of individuals. It is the Company’s policy to provide a working environment free from discrimination. All employees in the Group are expected to support and contribute to the maintenance of this policy.

Quarterly meetings are scheduled to inform all employees of the key performance issues arising in the Group, all employees attend covering both sites, and the meeting includes an open forum for discussion by the employees with senior executives.

Employee Share Schemes

Employee involvement in financial performance is encouraged in the UK through participation in the Company’s share option schemes. At 31 December 2013, 12 employees, three ex Non-Executive Directors, and one overseas consultant to the Company held options over 2,920,655 ordinary shares under the unapproved share option scheme (2012: 13,3,1 & 3,573,739 respectively; 2011: 13,3,1 & 3,573,739 respectively). Further information on share options is shown in note 26.

Annual General Meeting

The Annual General Meeting of the Company is scheduled to be held at 10:00am on Thursday 24 July at the offices of N+1 Singer Advisory LLP, One Bartholomew Lane, London EC2N 2AX. The notice of the Annual General Meeting will be forwarded to shareholders as a separate document.


Governance


Major interests in shares

At 1 March 2013 the following persons held interests in excess of 3% of the ordinary share capital of the Company:

Percentage holding

Number of ordinary

shares

Trident Private Equity Fund III LP 18.28% 41,000,000

Oryx International Growth Fund Limited 10.73% 22,515,000

G.L.A. Dow 8.81% 19,792,115

R. J. Koch 7.48% 16,748,868

Henderson Global Investors 6.95% 15,600,000

Hargreaves Hale Limited 5.33% 11,964,634

R. Sneller 5.13% 11,500,000

D.E Leahy 4.64% 10,401,600

R. Long 3.57% 8,000,000

There were 224,340,569 ordinary shares in issue at 1 March 2014, no ordinary shares being issued since 31 December 2013.

No other person has notified an interest in the ordinary shares of the Company required to be disclosed to the Company in accordance with the Disclosure and Transparency Rules, DTR 5.

Directors’ Statement as to Disclosure of Information to the Auditors

So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow Directors and the Group’s auditor, each Director has taken all the steps that he is obliged to take as a Director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information.

Auditors

A resolution to reappoint Ernst & Young LLP as auditors and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Post balance sheet event.

On 1 January 2014 the Group’s US subsidiary, Cyprotex US, LLC, under an asset purchase agreement (‘APA’), purchased certain assets and trade of Ceetox, Inc. (CeeTox) from North American Science Associates, Inc (‘NAMSA’). CeeTox is based in Kalamazoo, Michigan, USA. The initial purchase price was approximately £610,000 and was paid on completion. Under the APA the Group acquired fixed assets and working capital balances of approximately £250,000 and the balance of the purchase price and any additional consideration in excess of the fair value of assets acquired will be allocated to intangibles and goodwill. There is potentially further consideration payable to NAMSA at a rate of 5% of net sales until 30 September 2015 if sales of certain identified assays exceed the level achieved in the year to 30 September 2013 in subsequent 12 month periods to a maximum of £3.1 million. In the year to 30 September 2013, CeeTox recorded total revenues of £2 million and reported an operating loss of £1 million.


Mark C. Warburton

Company Secretary

25 March 2014


Directors’ Remuneration Report

Remuneration Committee

The Remuneration Committee currently comprises two Non-Executive Directors, Mr R.S. Harris, as Chairman, and Mr C Mills. The Committee provides advice and recommendations to the Board regarding the framework for executive remuneration and the individual remuneration package for each Executive Director.

Remuneration Policy

The remuneration policy for Executive Directors is to provide competitive remuneration packages to attract, retain, and motivate high-quality people in competition with comparable companies. The main components of the remuneration of Executive Directors comprise:

Service contracts – the Executive Directors have service contracts with a notice period of between three and six months to be given by either the Director or the Company. The service contract of all Executive Directors provides that in the event of a change of control in the ownership of the Company the notice period increases twofold. The Remuneration Committee considers the circumstances of individual cases of early termination and determines compensation payments accordingly. Non-Executive Directors do not have service contracts but do have agreements that are terminable upon a three-month notice period by either themselves or by the Company. These agreements provide for the attendance at Board meetings, an undertaking to advise the Company with respect to the management and conduct of business, and the attendance at meetings of the Audit and Remuneration Committees of the Board as required. The Executive Directors determine the remuneration of the Non-Executive Directors without reference to the Remuneration Committee.

Basic salary and benefits – basic salaries of Executive Directors are determined annually after a review of the performance of each individual. Benefits in kind principally comprise private healthcare, death in-service, and disability in-service cover.

Bonuses – the Executive Directors are eligible for bonus payments at the discretion of the Remuneration Committee and such discretion will be exercised based upon the performance of the Group up to 50% of their standard remuneration. A bonus of £59,486 was awarded to Dr A Baxter and £38,741 to Mr J.K. Dootson. In the year ended 31 December 2012, a bonus of £20,000 was awarded to Dr A. Baxter and £7,000 to Mr J.K. Dootson. No bonuses were awarded in the year ended 31 December 2011.

Share options – the Company has an unapproved share option scheme whereby options to acquire ordinary shares may be granted at the discretion of the Board, with the approval of the Remuneration Committee, to Directors and employees of the Company. Further details of the awards to Directors are set out in note 26 and 27. There have been no gains on exercise of share options by Directors in the current or previous two years.

Value Creation Plan (VCP) – the Company had a value creation plan whereby nil-cost options may vest dependent upon the growth in share price of the Company. Participants to this plan are key management including the Executive Directors. Further details of the plan are given in note 28 to the accounts. The costs of awards to Directors are set out below in this report. The VCP ceased in the previous year and no awards have been made under the VCP whilst it was in operation.

Pensions – during the year, Mr J.K. Dootson and Dr A. Baxter have been beneficiaries of a defined contribution personal pension scheme; the Company’s contributions are up to 20% of total pensionable earnings. It is the intention of the Remuneration Committee to review the remuneration packages of the Executive Directors during the forthcoming financial year and to make recommendations to the Board of Directors for the introduction of an appropriate bonus incentive scheme, linked to personal and Group targets for both Executive Directors and staff.


Governance

Directors’ Remuneration Report continued

Directors’ Remuneration

2013 NoteSalary/fee

£Bonus

£Benefits

£

Compensation for loss

of office£

2013 total

£

2013 pension

£

Executive Directors

A.D. Baxter 169,538 59,486 2,357 – 231,381 16,954

J.K. Dootson 97,915 38,741 3,691 – 140,347 23,144

Sub total 267,453 98,227 6,048 – 371,728 40,098


I.R. Johnson c 7,846 – – – 7,846 –

R.S. Harris 35,004 – – – 35,004 –

C. Mills b, e 6,617 – – – 6,617 –

C. Clothier a, d 9,000 – – – 9,000 –

Sub total 58,467 – – – 58,467 –

Total 325,920 98,227 6,048 – 430,195 40,098

a part year only, resigned 26 September 2013

b part year only, appointed 24 August 2013, ongoing salary of £15,000 per annum

c part year only, appointed 26 September 2013, ongoing salary of £30,000 per annum

d paid direct to principal employer IPGL Limited

e paid direct to principal employer Harwood Capital, LLP

During the year two Directors (2012: three Directors; 2011: four Directors) participated in defined contribution pension schemes.

The highest paid Director in 2013, 2012 and 2011 was Dr A.D. Baxter.

2012 NoteSalary/fee

£Bonus

£Benefits

£


of office £

2012total

£

2012 pension

£

Executive Directors

A.D. Baxter 164,167 20,000 2,299 – 186,466 16,417

K. Tsaioun a 84,478 – 19,648 63,532 167,658 10,248

J.K. Dootson c 96,006 – 2,773 – 98,779 26,201

Sub total 344,651 20,000 24,720 63,532 452,903 52,866

Non–Executive Directors

R.S. Harris 35,000 – – – 35,000 –

C. Clothier b 12,000 – – – 12,000 –

Sub total 47,000 – – – 47,000 –

Total 391,651 20,000 24,720 63,532 499,903 52,866

a part year only, resigned 31 August 2012

b paid direct to principal employer IPGL Limited

c pension payments include bonus element of £7,000


2011 NoteSalary/fee

£Bonus

£Benefits

£


of office£

2011 total

£

2011 pension

£

Executive Directors

A.D. Baxter 155,000 – 442 – 155,442 15,500

K. Tsaioun 125,480 – 4,071 – 129,551 12,548

J.K. Dootson 92,470 – 3,111 – 95,581 18,494

D.C. Bates a, c, d 63,361 – – 42,900 106,261 6,336

Sub total 436,311 – 7,624 42,900 486,835 52,878


R.S. Harris 35,000 – – – 35,000 –

C. Clothier b 12,000 – – – 12,000 –

Sub total 47,000 – – – 47,000 –

Total 483,311 – 7,624 42,900 533,835 52,878

a part year only


c Doug Bates entered a compromise agreement with the Group on resignation which provided for a payment of £7,150 per month for a duration of six months

d Doug Bates also has a consultancy agreement with the Group to provide marketing consultancy services. The agreement provides for twelve months of services from date of resignation. At £nil consideration for the first six months and thereafter the agreed monthly rate is £2,860 per month for the remaining six months.

Share Options

No director held any share options at 31 December 2013, 31 December 2012 or 31 December 2011. Consequently no gains or losses have been realised in the year.

A total of 450,000 share options at an option price of 11 pence are held by three former Non-Executive Directors of the Company.


Governance

Value Creation Plan

Details of the charge to the income statement in the year are set out below:

2013 £

2012 £

2011 £

Executive Directors

A.D. Baxter – 27,348 64,395

J.K. Dootson – 10,028 23,611

– 37,376 88,006

The charge in the above table represents the IFRS 2 charge recorded in the income statement for the Directors in the respective year. This is a non-cash item which reflects part of the movement in the share-based payment reserve. The plan ceased during the previous year with no awards being made.

Share Price Information

2013pence

2012pence

2011pence

At 31 December 7.63 3.75 4.00

High in year 7.75 6.50 5.38

Low in year 3.38 3.38 2.88


Mark C. Warburton

Company Secretary

25 March 2014



The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable United Kingdom laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, and as required by the AIM Rules, the Directors have elected to prepare Group financial statements in accordance with those International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under that law, the Directors have elected to prepare Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the Group and Company financial statements unless they are satisfied that they give a true and fair view of the state of affairs, and of the profit or loss of the Group and Company for that period. The Directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those Group financial statements the Directors are required to:

• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors, and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;

• make judgements and estimates that are reasonable and prudent;

• state that the Group has complied with IFRSs as adopted by the European Union; and

in preparing the Company financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent; and

• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

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

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

Directors’ Responsibilities Statement


Review

Financial Review

It is very pleasing to report that the Group recorded its sixth successive year of operational profitability and revenues have increased over 17% to record levels at £9.77 million in yet another challenging year within the industry, with the second half of the year at 53.4% of total revenue once again proving historically our strongest trading period in the financial year.

We made good progress on both continents with our UK site at Macclesfield experiencing an increase in revenues of over 19% whilst our US site at Watertown saw increased revenues of 11%. As a Group we made large gains in mainland Europe with revenues up 36% this year, this following on from a 12% increase in 2012. Significant progress was also made in the US with sales up close to 20%.

The Company raised £6.88 million, net of expenses, in September 2013 by way of issue of unsecured Redeemable and Convertible Loan Notes of 5 year term. Interest on these loans at the rate of 5% is in the form of ‘payment in kind’ (PIK) notes, resulting in additional Loan Notes being used to settle interest payments annually thus deferring any cash payments until maturity in September 2018. There are no financial covenants attached to either of the Loan Notes. We have sought to use part of these funds in addition to internal resources to accelerate our development programs and look to acquire complementary technologies and businesses.

As our service portfolio increases in breadth and following on from customer requirements we have continued to invest and are committed to invest significantly for a second successive year in the analytical platform in the UK and replicating the throughput capability in Watertown at a cost of over £2.0 million to be completed in 2014, adding further ‘state-of-the-art’ mass spectrometer and liquid handling robots. We have expanded our UK footprint with the addition of laboratory and office space at the BioHub in Alderley Park, Cheshire in October 2013, where we are undertaking multiple R&D programs specifically targeting transporter assays with a view to launching this service in-house in the second half of 2014.

Immediately post period end on 1 January 2014 the Group’s US subsidiary, Cyprotex US, LLC, under an asset purchase agreement (‘APA’), purchased certain assets and trade of CeeTox, Inc. (CeeTox) from North American Science Associates, Inc (‘NAMSA’).

CeeTox is based in Kalamazoo, Michigan, USA. The initial purchase price was approximately £0.61 million and was paid on completion. Under the APA the Group acquired fixed assets and working capital balances of approximately £0.25 million. The CeeTox acquisition gives us; an additional facility in the US, strengthens our offerings to Personal Care, Cosmetics and Industrial Chemical entities as well as adding a GLP laboratory to our portfolio.

The Group continues to be operationally profitable and cash generative with operating profits at £0.61 million (2012: £0.33 million) and cash generated from operations at £1.5 million, (2012: £0.6 million) and has through its continuing investments significantly increased its capability to service clients and grow revenues through 2014 and beyond.

The capital structure of the Company changed with the issue of the Redeemable and Convertible Loan Notes and the return given to Loan Note holders, in excess of underlying coupon, is designed to match shareholder returns by linking this to any movement in the share price of the Company beyond 6 pence by a broadly proportionate increase in the amounts due to Loan Note holders. For presentation in the financial statements this feature is described as an embedded derivative. With the share price of the Company at 31 December 2013, approximately 20% higher than the benchmark share price 6 pence, the value of this increase in share price leads to an additional finance charge being recorded in 2013 of £1.6 million to reflect the calculated fair value increase in debt due. Any further rise in share price in a subsequent accounting period would be reflected by the recording of an additional finance charge in that period. Conversely a fall in share price would effectively be recorded as a reduction in finance charge. There is no immediate cash settlement required of these fair value movements as any ultimate increase above the Company’s share price of 6 pence will only become due for payment on maturity of the Loan Notes on 30 September 2018.

Our Goal

Our objective is to be the world’s foremost ADME-Tox services company. We aim to provide market-leading scientific expertise, broadest services portfolio, fastest turnaround times, and most cost-effective ADME-Tox services.


Our Business Model

Cyprotex capitalises on the increasing trend of pharmaceutical and biotechnology companies of outsourcing ADME-Tox evaluation. The Group’s expertise and investments in ADME-Tox technologies allows us to provide a breadth, quality, speed, and cost-effectiveness of service superior to what our customers can achieve on their own. Organically, by acquisition and by partnership, we have continued to build and diversify our offerings to allow us to address our customers’ ADME-Tox requirements. As a Board, we remain confident that our outsourcing model in the ADME-Tox market based on rapid results, reproducibility and cost effectiveness is a highly valuable and specialist service and we remain committed to the creation of shareholder value.

The ADME-Tox Market

The global ADME-Tox testing market is estimated to be US $5.7 billion in 2013 with the market forecasted to reach US $10.1 billion by the year 2018. The US is the largest market for this sector accounting for an estimated share of 53.2% of the global market in 2013. Europe is the second largest market accounting for 26.4% of the global market in 2013 (Global Industry Analysts, Inc, 2013). Increased penetration of these substantial markets are a key financial objective.


During the drug development process, the attrition rate attributed to toxicology is approximately 30%. There is now a clear trend in the market to introduce in vitro screening approaches to eliminate toxic compounds earlier in the drug discovery phase, when costs are lower. Traditionally large companies have been reluctant to outsource toxicology with large internal toxicology departments maintained. However with enhanced capabilities and expertise within the CRO market, an increasing number of companies are outsourcing these requirements and have in some instances made decisions to close internal departments.

The Pharmaceutical Industry has been struggling over the past decade with a pronounced decrease in productivity caused by an increase in R&D spending yet a reduction in new drug approvals. Therapeutic innovation is becoming more challenging with a greater risk of late stage failure. The cost of bringing a Pharmaceutical product from discovery to launch increased by 18%, rising from US $1.1 billion in 2010 to US $1.3 billion in 2013 (Deloitte, 2013). In 2013, new drug approvals slipped to 27 – a figure which is considerably lower than the 37 drug approvals in 2012. This lack of productivity has led to a period of consolidation with closures of R&D sites of many of the large companies in the past 5 years. By the Pharmaceutical Industry reducing their internal R&D capabilities and in an attempt to focus on their core business, the industry is now observing a growth in outsourcing to CROs. Organisations such as Cyprotex who have developed highly automated and efficient systems and specialise in their field are benefiting from this trend. Despite the growing popularity of outsourcing, in-house ADME-Tox testing still accounts for four fifths of the industry’s total expenditure. Currently, Cyprotex only taps into a small proportion of this market share, however, the potential for growth is strong over the coming years as our business expands and the market increases in size.

Performance

This year saw significant investment and commitments to invest in upgrading our bioanalytical platform and liquid handling capacity with expenditure in excess of £2.0 million, at both the Watertown and Macclesfield site. This investment will enable the Group to service larger contracts.

The Group showed growing resilience in 2013, widening and strengthening its customer base adding over 130 new accounts in 2013. For the first time, revenues from one customer fell below 10% of total revenue for the Group as the Company continues its de-risking strategy to avoid overreliance on a single customer, territory or market.

Cyprotex remains cash generative and has significant available liquid resources following its successful fundraising in September 2013. The Group is positioned to fund propriety developments to expand and diversify its offerings, and to actively seek opportunities for growth.


Review

Key Performance Indicators – Financial

The key financial performance indicators used by the Board in 2013 as a measure of the success of the business are as follows:

2013£m

2012£m

2011£m


Revenue 9.77 8.33 7.91 17%

Operating profit 0.61 0.33 0.67 88%

Cash inflow from operations 1.53 0.60 1.08 155%

Cash 7.09 0.86 1.13 724%

Underlying EBITDA^ 1.54 0.97 1.31 59%

(Loss)/earnings per share – basic (pence) (0.36)p 0.09p 0.39p (0.45)p

^ excluding share-based payment charges and impairment of intangibles

Revenues and profitability

Summary income statement2013

£m2012 £m

2011 £m

Revenue 9.77 8.33 7.91

Gross profit 7.81 6.82 6.58

Gross profit percentage 79.9% 81.9% 83.2%

Operating costs

– Staff costs (excluding share-based payment charge) (4.63) (4.19) (3.98)

– Share-based payment charge – (0.06) (0.14)

– Depreciation (0.65) (0.45) (0.36)

– Amortisation (0.15) (0.15) (0.14)

– Impairment of trade names (Apredica rebranding) (0.14) – –

– Other administrative expenses (1.63) (1.64) (1.29)


Net finance costs

– Loan Note related (1.70) – –

– Other interest (0.07) (0.08) (0.08)

(Loss)/profit before taxation (1.16) 0.25 0.59

Taxation credit/(charge) 0.36 (0.05) 0.29

(Loss)/profit after taxation (0.80) 0.20 0.88

(Loss)/EPS – basic (pence) (0.36)p 0.09p 0.39p



The Group achieved record revenue in the year of £9.77 million, an increase of 17.3% from the year ended 31 December 2012, with gross profits up £0.99 million at £7.81 million albeit with overall slightly lower margins due in part to an increase in shared sales agreements with our partners.

Cyprotex continued to significantly reduce its dependency on revenues from any single customer, with the proportion of 2013 revenues from the Group’s largest customer falling to below 10% for the first time in the Group’s history.

During the year the Board decided to rebrand its US operations. The Apredica trade name which was acquired in August 2010 was superseded and the US now trades as Cyprotex US, LLC. Accordingly the carrying amount associated with the Apredica trade name has been subject to full impairment in the year to 31 December 2013 and the remaining balance of £0.14 million written off.

EBITDA 2013

£m2012

£m2011

£m


add back

– Amortisation 0.15 0.15 0.14

– Impairment (Apredica brand name) 0.14 – –

– Share-based payment charge – 0.06 0.14

– Depreciation 0.65 0.45 0.36

– Profit on disposal of property, plant and equipment (0.01) (0.02) –

Underlying EBITDA – Group 1.54 0.97 1.31

Operating profit for the year was £0.61 million for the Group, almost double the prior year, reflecting a very creditable performance by the Group. Underlying EBITDA from operations (defined as EBITDA excluding expensed acquisition costs, share-based payment charges and impairment of intangibles (which are non-cash items) has remained very robust at a record £1.54 million compared with £0.97 million from the previous year. Once again this EBITDA measure confirms the continuing ability of the Group to generate cash from its core operations.

With a positive correlation between cash flow and profitability, the Group was again cash generative from operations at £1.53 million (2012: £0.60 million).

Due to an exceptional in nature finance charge of £1.6 million recorded this year, relating to the movement in the Company’s share price from a floor of 6 pence linked to the debt associated with the Company’s issued Loan Notes, the Group recorded a loss overall for the first time in six years with loss after taxation of £0.80 million in 2013 (2012: profit of £0.20 million; 2011: profit of £0.88 million). Despite a partial recognition of a deferred tax asset this year, earnings per share and post-tax profits have suffered substantially in 2013 from this exceptional finance charge and this lowered reported earnings per share to a loss per share of (0.36) pence down by 0.45 pence per share. Without the exceptional finance charge reported EPS would have been 0.40 pence for 2013.


Review

Capital Structure

A summary Group balance sheet is set out below:

Summary balance sheet2013 £m

2012 £m

2011 £m


Goodwill and other Intangibles 3.1 3.4 3.6

Current assets excluding cash 2.7 2.1 1.9

Current liabilities excluding debts (1.7) (0.9) (1.0)

Deferred taxation (net) 0.7 0.4 0.4

Contingent consideration (0.1) (0.2) (0.3)


Cash 7.1 0.9 1.1

Debt due within one year (0.3) (0.3) (0.3)

Debt due within two to five years (9.0) (0.8) (0.3)

Debt due after five years – (0.3) (0.4)

Shareholders’ funds 6.3 7.0 6.8

At 31 December 2013, Shareholders’ funds were £6.3 million (2012: £7.0 million). The decrease was due principally to the exceptional (non-cash) finance charge recorded relating to issued Loan Notes offset by the Group’s continuing operational profitability and further partial recognition of a deferred tax asset.

Total Group debt at 31 December 2013 had increased from the prior year by £7.9 million, to £9.3 million. This net increase was principally due to the issue of Redeemable and Convertible Loan Notes in September 2013 which realised £6.9 million (net of issue expenses), subsequently recorded at fair value, additional lease finance agreements of £0.5 million, finance lease repayments totalling £0.3 million and loan repayments to the Company’s principal bankers of £0.6 million.

At 31 December 2013, debt comprised the following elements: Loan Notes at fair value of £8.4 million and finance lease obligations of £0.9 million. The £8.4 million relating to Loan Notes issued by the Company does not fall due until September 2018.



Cash Flows

A summary cash flow statement is set out below:

Summary cash flow2013

£m2012

£m2011

£m

Inflow from operational activities 1.53 0.60 1.08

Taxation (paid)/received – – –

Net cash flow before investing and financing 1.53 0.60 1.08

Finance charges paid (net) (0.07) (0.08) (0.07)

Capital expenditure (net of disposals) (1.61) (1.04) (0.31)

Expenditure on intangibles – (0.09) (0.17)

Net cash flow before financing (0.15) (0.61) 0.53

Debt proceeds 0.45 0.79 0.28

Loan Note proceeds (net of expenses) 6.88 – –

Repayment of property and term loans (0.61) (0.07) (0.06)

Other financing (0.34) (0.38) (0.66)

Net cash inflow /(outflow) 6.23 (0.27) 0.09

Opening cash 0.86 1.13 1.04

Closing cash 7.09 0.86 1.13

Cash in hand at year end amounted to £7.1 million (2012: £0.9 million).

Significant cash inflows this year were from the Group’s strong trading performance which resulted in a cash inflow from operations of over £1.5 million; the successful issue of Redeemable and Convertible Loan Notes which resulted in an inflow of £6.9 million (net) in September 2013 and two additional lease agreements taken out in the UK totalling £0.45 million. Principal cash outflows were in relation to continuing upgrades and additional capability focused on the Group’s analytical and robotic handling equipment in the UK and US of £1.6 million. Additionally, the Group took the opportunity to pay off early its property loan and term loan both from Bank of Scotland and secured on the Group’s operational premises in Macclesfield UK from the proceeds of Loan Note issues. Other than assets subject to finance lease arrangement no other assets of the Company are subject to any legal charge or similar pledge.

Principal Risks and Uncertainties

Management has attempted to minimise its exposure to identified external and internal variables that may have an effect on the operations of the Group. Where possible, measures to monitor and mitigate such risks have been enacted, and processes adopted to formally identify and examine such situations. The nature of Cyprotex’s operations nevertheless requires the Board and its investors to assess the principal risks facing its operations and these are considered below.

Business Evolution



Review

Economic Activity

Sales by territory – Group2013

%2012

%2011

%2010

%2009

%

United Kingdom 18 23 22 25 28

Rest of Europe 39 34 32 39 46

North America 41 40 44 35 24

Rest of the World 2 3 2 1 2

Total 100 100 100 100 100

The above analysis demonstrates that the business is not dominated by customers from any specific region, providing a degree of insulation from local variations. However, following the acquisition of Cyprotex US, LLC (formerly known as Apredica LLC) in August 2010, this has resulted in the Group earning its highest percentage of revenue in North America which is the largest global market for our services. Our internal target is to achieve Group sales revenues in this region closer to 50%.

In a more severe worldwide economic downturn than the one currently being experienced, marketing and pricing strategies would need to be modified to reflect those new conditions. Investment in drug discovery has the benefit of the fact that personal health and longevity has historically followed longer-term patterns and is made substantially by governments. As such, the business is not over reliant on short-term fluctuations in consumer confidence.

Fixed Overheads

A large proportion of the Group’s overheads are fixed. There is a potential risk that if revenues contract, these fixed costs will not be covered. The operating costs of the core operation have only limited scope for reduction without impacting the breadth and quality of services.

Seasonality

Variations in seasonal demand are driven by the budgeting, holiday, and project-planning cycles of the Group’s customer base. Historically, trade is strongest during the final quarter as annual projects complete. Trade slows in the third quarter due to summer holidays, and briefly in the weeks immediately after the New Year. During the slower periods the Group utilises surplus resources for its internal research and product development programmes.

Revenue 2013

£m2012

£m2011

£m2010

£m2009

£m

– First half year 4.55 3.72 3.54 2.48 2.45

– Second half year 5.22 4.61 4.37 3.44* 2.55

Total 9.77 8.33 7.91 5.92 5.00

Revenue 2013

%2012

%2011

%2010

%2009

%

– First half year 46.6 44.7 44.8 41.9 48.9

– Second half year 53.4 55.3 55.2 58.1* 51.1

Total 100.0 100.0 100.0 100.0 100.0

* Includes Cyprotex US, LLC revenues for five months

The table above highlights the bias towards improving sales performance as the year progresses.



Competition


Product Obsolescence


Fluctuations in Commodity Prices

The completion of our services relies on materials that are specific and specialist by nature. The prices of such products are susceptible to fluctuations dependent upon market conditions. To mitigate the impact of such price movements, management has established a number of regular supply arrangements that provide some forward visibility.

Fluctuations in Currency Exchange Rates

Sales by currency2013

%2012

%2011

%2010

%2009

%

Sterling GBP 26 45 44 47 50

US dollar USD 48 43 49 36 25

Euro EUR 26 12 7 16 23

Swiss franc CHF n/a n/a n/a 1 2

Total 100 100 100 100 100


Regulatory Changes Affecting the Business

The industry in which the Group operates is strictly regulated. Regulatory changes may increase or decrease revenues and/or expenditures. Management aims to mitigate such risks by keeping aware of potential regulatory changes. Currently, management foresees no such regulatory change likely to adversely affect its operations; rather, management anticipates regulatory guidance toward independent and more thorough verification to work in the Group’s favour.

Our People

The success of the Group is highly dependent upon the recruitment and retention of highly qualified and skilled staff. They are the key drivers of profitability and growth. Remuneration schemes are in place to mitigate the risk of losing key individuals and to reduce the risk arising from the absence of suitable resources.

Pension Funding

The Group does not have a defined benefit pension scheme for any of its employees.


Review

Treasury Policies and Financial Risk

Surplus funds are intended to support the Group’s working capital requirements and provide adequate resources to expand its service offerings, both organically and by acquisition. These funds are invested through the use of short-term and period deposits of up to three months. It is not Group policy to use financial derivatives to routinely manage exposure and other financial assets and liabilities. Financial risks are considered on a regular basis by the Board, including future interest rates, liquidity, credit and foreign currency risk. Apart from using short-term and period deposits, interest-rate risks are limited to the fixed element of Loan Notes, finance lease or hire purchase agreements that the Group has used, and historically base-rate risk on bank loans.

Convertible and Redeemable Loan Notes

The Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes (“Redeemables”) and £4 million of unsecured Convertible Loan Notes (“Convertibles”) in September 2013. By way of an Open Offer the Company issued £4 million nominal value of Convertible Loan Notes at par. Additionally it also, by way of subscription, issued £3 million nominal value of Redeemable Loan Notes at par. Details of these fundraising where sent to all shareholders by way of a circular. Both instruments pay interest in the form of ‘payment in kind’ (‘PIK’) notes at the rate of 5% per annum on a compound basis, payable on each anniversary of issue for a period of five years. Convertible Loan Notes were offered and issued such that each shareholder would be entitled to 0.01783003 of nominal value £1.00 Convertible Loan Notes. Convertible Loan Notes are convertible at 6 pence per share. Redeemable Loan Notes were issued subject to a Notional Conversion price of 6 pence per ordinary share. Issue costs associated with this fundraising amounted to £122,000. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The repayment value of the Loan Notes are linked to the movement in the Company’s share price from a base value of 6 pence. Any increase is reflected as an increase in debt repayment with a corresponding finance charge. Any subsequent decrease would lead to a reduction in finance charge. This is due to embedded derivatives attached to the issued Loan Notes being linked to the Company’s share price movements and these are likely to increase the volatility of reported earning as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below. Whilst these fluctuations currently have no impact on the Group’s liquidity, they may on ultimate redemption.

Finance lease arrangements

Typically, the Group arranges lease finance and hire purchase for fixed periods ranging from three to five years, to enable acquisition of assets where it is considered to be an effective use of funds.

Property and term loan arrangements

On 17 January 2005, Cyprotex entered a 20-year mortgage facility of £704,000 with Bank of Scotland to substantially fund the acquisition of a long-leasehold interest in its UK operational premises. Interest was payable on this bank loan at 1.75% over the bank’s base rate. The loan was repaid in full during the year.

On 17 May 2011 the Group entered into a 5-year term loan with Bank of Scotland for £200,000 repayable in equal monthly instalments from the date the loan commenced with final repayment due in May 2016. This term loan has a fixed rate interest of 5.42%. The loan was repaid in full during the year.



Liquidity Risk


Foreign Currency Risk

The Group has considerable potential exposure to foreign currency fluctuations as around 74% of revenues are now denominated in US dollars, Euros, and Swiss francs. To limit this exposure the Group has sales price agreements with major customers. These agreements do not exceed one year and are not coterminous. Additionally, individual service contracts (known internally as ‘Rounds’) are short in time frame and normally completed within ten working days of a compound arriving on site. Control over debtor management within the Group is strong. Surplus currency is sold on receipt.

Financial Overview

The year ended 31 December 2013 was another challenging year for companies within the preclinical contract research market. Cyprotex finished the year with record revenues and registered a sixth year of operating profitability. The successful fundraising in September 2013 which raised £6.88 million has given us the ability to accelerate management’s strategy for growth organically, by internal R&D and by acquisition. The year saw yet further significant expenditure on upgrading and increasing the bio-analytical capability and liquid handling facilities in both the UK and US which, when completed, gives us added capacity and capability to readily meet customer requirements and service greater demands. With the acquisition of the trade and assets of Ceetox immediately post period end, on 1 January 2014, this gives the Group an enlarged footprint in the US, a GLP facility and a wider portfolio of assays affording further targeting in particular of the Cosmetic, Personnel Care and Industrial Chemical markets; the business remains well placed to grow and develop further in 2014 supported by a sound financial framework.

John K. Dootson



Governance

Dr Anthony Baxter (54)


Appointed: 3 June 2008

Dr Anthony Baxter was formerly the founding CEO of Argenta Discovery Limited, a leading drug discovery services and proprietary therapeutics company backed by substantial venture capital investment. In less than four years from the company’s start-up in 1999, he grew services revenue to over £9 million, which included building a pipeline of novel therapeutic programmes. He then led the successful merger of the business with biotech company, Etiologics Limited.

Prior to this, Dr Baxter was Chief Scientific Officer of Oxford Asymmetry International plc and helped build the business from an early-stage company to its flotation on the LSE and then to its eventual merger with Evotec in 2000 at a valuation of £316 million. More recently, Dr Baxter led the turnaround of deltaDOT Limited, a proteomics/genomics platform technology company, which involved fundraising of £8.3 million. He is also currently Executive Chairman of Equinox Pharma Limited, an Imperial College spin-out company focussing on development of machine learning for iterative and multi-parametric drug-discovery projects and Executive Chairman of Glythera Ltd, a Newcastle upon Tyne based spin-out company which has novel protein glycosylation techniques as its technology base.

Dr Baxter started his career with Glaxo Group Research (now GSK) and Ciba Central Research (now Novartis).

John Dootson (52)


Appointed: 3 March 2009

John Dootson has over 25 years’ experience in both professional practice and in industry. He trained with Tenon and Ernst & Young.

John has extensive managerial experience in major accounting practices and has worked on a wide range of projects, including London Stock Exchange flotations and circulars, corporate governance, company acquisitions and disposals, and specialist advice to growing SME’s. John has worked in a number of roles in industry at Financial Controller and Director level, including seven years within the senior head office finance team of BTP plc, a former FTSE 250 speciality chemical manufacturer with over 50 sites worldwide prior to its sale to Clariant AG for £1.1 billion.

John is a Fellow of the Institute of Chartered Accountants in England and Wales, and for the last eight years he has assisted Cyprotex firstly in a management consultative role and lately as Finance Director. The roles have included all aspects of finance and reporting.

Board of Directors – Executive Directors


Ian Johnson (60)


(appointed 26 September 2013)

Ian has spent his business career in life science and was founder and CEO of Biotrace International Plc, which was a listed company until its sale to 3M in December 2006. Ian is currently non-executive chairman of Celsis Group Ltd and Finance Wales plc and a non-executive director of life science companies Lumora Ltd and ToxiMet Ltd. He has served on the boards of various public and private companies in strategic consultancy and business development capacities including: Evans Analytical Group, MyCelx Technologies Corporation and AOI Medical Inc. each AIM traded companies. Ian studied at Cardiff University obtaining a B.Sc. and M.Sc. in Microbiology. He is a chartered biologist, a member of the Institute of Biology and the Institute of Directors.

Christopher Mills (61)



Christopher Mills is Chief Investment Officer of Harwood Capital LLP, an FCA authorised investment management firm which manages a number of funds including North Atlantic Smaller Companies Investment Trust Plc, Oryx International Growth Fund Limited (‘Oryx’) and Trident Private Equity Fund III LP (‘TPE3’) as well as a number of private discretionary clients. Oryx and TPE3 have a combined stake of 29% in Cyprotex. He brings a wealth of experience to the Board, having been a Director for the last four years of Celsis Group Limited (‘Celsis’), which was the owner of In Vitro Technologies, the leading supplier of cryopreserved human liver cells to the ADME-Tox testing industry including Cyprotex, until it was sold by Celsis in June 2013. Christopher was also a Director of Bionostics Holdings Limited, an analytical life science manufacturer of in vitro diagnostic quality controls, for five years until its sale in July 2013. He was also a Director of medical materials supplier Orthoproducts Ltd for nearly ten years until its sale in October 2013.

Steve Harris (71)



Steve Harris is an experienced Non-Executive Director with a range of private and public companies in the life sciences sector. He has a wide experience in fundraising and IPO’s, and extensive international pharmaceutical and biotech experience with particular focus on business development and licensing. His present roles include being Non-Executive Chairman of Proteome Sciences plc, a proteomics company listed on AIM and Domainex Ltd as a Non-Executive Director. Domainex Ltd is a private company undertaking drug discovery in the epigenetic field and medicinal chemisty on a contract basis.


member of the audit committee

member of the remuneration committee


Governance

The Directors present their strategic report for the year ended 31 December 2013.


Cyprotex PLC (‘Cyprotex’) and subsidiaries’ (together ‘the Group’) principal activity is the provision of in vitro and in silico ADMET/PK (Absorption, Distribution, Metabolism, Excretion, Toxicity/Pharmacokinetic) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Review of the business

Key financial performance indicators during the year were as follows:

2013£m

2012£m


Revenue 9.77 8.33 17%

Operating profit 0.61 0.33 88%

Cash inflow from operations 1.53 0.60 155%

Cash 7.09 0.86 724%

Underlying EBITDA^ 1.54 0.97 59%

(Loss)/earnings per share – basic (pence) (0.36)p 0.09p (0.45)p

^ excluding share-based payment charge and impairment of intangibles

Revenue increased by 17% or £1.44 million in the year with a 19% increase recorded at the UK site and 11% at our US site. This increase was driven principally by further gains from European based customers up £0.91 million and US customers up £0.65 million.

With a relatively high percentage of fixed costs this increase in revenues translated into higher operating profitability up 88% or £0.28 million. This would have been a further £0.14 million higher as the Group recorded an exceptional charge relating to an impairment of the Apredica trade name in the year after rebranding its US operations under the core brand as Cyprotex US, LLC.

The Group’s strong trading performance was reflected in reporting a record underlying EBITDA of £1.54 million and also cash inflow from operations of over £1.5 million.

Cash balances were further strengthened when the Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was that in September 2013: we issued £3 million of unsecured Redeemable Loan Notes (“Redeemables”); and £4 million of unsecured Convertible Loan Notes (“Convertibles”), by way of an Open Offer. Each Loan Note has a minimum 5 year term, unless an offer is received for the Company or a scheme of arrangement is put in place. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The Group’s aim is to utilise these funds is three ways namely; to grow organically by accelerating R&D programs, to invest in ‘state-of -the –art’ analytical equipment to support a wider breadth of service offerings and customers, and to acquire complementary technologies and businesses. The Group is committed to spending over £2.0 million on equipment, with £1.6 million spent in 2013, this program of spending includes building a high throughput capability in Watertown to be operational in Q2 2014. The Group has rented additional laboratory space at BioHub, Alderley Park to be dedicated to internal R&D programs in 2014. On 1 January 2014, post period end, the Group acquired the trade and assets of Ceetox for an initial cost of £0.61 million, this gives the Group an enlarged footprint in the US, a GLP facility and a wider portfolio of assays affording further targeting in particular of the Cosmetic, Personnel Care and Industrial Chemical markets.

Strategic Report


Both types of Loan Notes issued also contain an embedded derivative due to conversion or nominal conversion rights being linked to the Company’s share price via a notional issue price of 6 pence.

With the share price being around 20% higher than the notional issue price on average, prior to the year end, this results in a broadly proportionate increase in the value of the debt instruments and the recording of an exceptional finance charge in the year of £1.6 million the impact of which reduces EPS by 0.71 pence. This is the major factor why we have recorded a loss after taxation for the year of £0.8 million and a loss per share of 0.36 pence. Embedded derivatives linked to the Company’s share price movements are likely to increase the volatility of reported earnings as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below.

A summary of major movements in the principal categories of assets and liabilities is set out below:

Financial position – summarised2013

£m2012

£mmovement

£m


Goodwill and other intangibles 3.1 3.4 (0.3)

Current net assets excluding cash & debt 1.0 1.2 (0.2)

Deferred taxation & contingent consideration 0.6 0.2 0.4


Cash 7.1 0.9 6.2

Debt (9.3) (1.4) (7.9)

Shareholders’ funds 6.3 7.0 (0.7)

The overall decrease in shareholders’ funds relates to the recorded loss after taxation. Of the total debt balance of £9.3 million due at 31 December 2013, £8.4 million relating to Loan Notes issued by the Company does not fall due until September 2018.

Principal risks and uncertainties

The Company maintains risk registers at each operational site which are reviewed by the Board at six-monthly intervals. The key risks and uncertainties facing the Group are Business Evolution, Competition, Product Obsolescence, Regulatory and Financial.

Business evolution


Competition



Governance

Strategic Report continued

Product obsolescence


Regulatory

The industry in which the Group operates is strictly regulated. Regulatory changes may increase or decrease revenues and/or expenditures. Management aims to mitigate such risks by keeping aware of potential regulatory changes and anticipates regulatory guidance toward independent and more thorough verification to work in the Group’s favour.

Financial risk

Financial risks include future interest rates, liquidity, credit and foreign currency risk. Apart from using short-term and period deposits, interest-rate risks are limited to the fixed element of Loan Notes, finance lease or hire purchase agreements that the Group has used, and historically base-rate risk on bank loans.


The Company has embedded derivatives attached to its issued Loan Notes linked to the Company’s share price movements and these are likely to increase the volatility of reported earnings as any additional increase in the Company’s share price will result in additional finance charges being recorded. Conversely a decrease in share price will reduce these charges with a zero cumulative charge being recorded if the share price falls to 6 pence or below. Whilst these fluctuations currently have no impact on the Group’s liquidity, they may on ultimate redemption.


Mark C. Warburton

Company Secretary

25 March 2014


Directors’ Report

The Directors of Cyprotex PLC present their report to the shareholders, together with the audited financial statements, for the year ended 31 December 2013.

Results and Dividends

The loss for the year, after taxation, was £796,948, (2012: profit £202,502; 2011: profit £877,335) and an equivalent amount has been transferred to reserves.

The Directors do not propose the payment of a dividend. A financial review of the results is included on pages 20 to 29.


Cyprotex PLC is a holding company. Its primary trading subsidiaries are Cyprotex Discovery Limited, based in Macclesfield UK, and Cyprotex US, LLC, based in Watertown (near Boston), Massachusetts, USA. The principal activities of the Group are that of providing in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity and Pharmacokinetics) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Business Review and Future Developments

Details of the Group’s performance during the year, a review of the business’s expected future developments, and the principal risks and uncertainties facing the Group are contained in the Chairman and Chief Executive Officer’s Report set out on pages 4 to 7 and the Financial Review set out on pages 20 to 29.

Accounting Standards and IFRS

For Group financial statements the Company reports under International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. The Parent Company accounts continue to be reported under United Kingdom generally accepted accounting practice (‘UK GAAP’).

Financial Instruments

The Group’s financial risk management, objectives, and policies are discussed in the treasury policies and financial risk sections of the Financial Review on pages 20 to 29 and further detailed disclosure are given in note 29.

Going Concern



(registered number 4311107)


Governance


Directors

The Directors of the Company who served throughout the year, except as noted, were as follows:

Executive

Dr A. Baxter (Chief Executive Officer) Mr J.K. Dootson (Chief Financial Officer)

Non- Executive

Mr I.R. Johnson (Chairman, appointed 26 September 2013) Mr R.S. Harris Mr C. Mills (appointed 24 August 2013) Mr C. Clothier (resigned 26 September 2013)

All Directors are subject to re-election and election at intervals of no more than three years.

Mr Harris and Mr Dootson were re-elected on 17 July 2012. Dr Baxter was re-elected at last year’s Annual General Meeting on 16 July 2013. Mr I.R. Johnson and Mr C. Mills will seek election at this year’s Annual General Meeting.

Further details of the Directors, their service agreements, remuneration and fees are set out on pages 41 to 44.

All Directors benefited from qualifying third party indemnity provisions in place during the financial year and these remain in force at the date of this report.

Directors and their interests

The Directors at 31 December 2013 and their interests in the share capital of the Company (all beneficially held) are as follows:

Share Capital


Percentage holding

Number of ordinary

sharesPercentage

holding

Number of ordinary

shares



Mr R.S. Harris 0.72% 1,605,142 0.67% 1,507,142

Dr A.D. Baxter 0.48% 1,067,685 0.48% 1,067,685

Mr J.K. Dootson 0.26% 589,285 0.26% 589,285

The Directors at 31 December 2013 and their interests in the convertible Loan Notes of the Company (all beneficially held) are as follows:



Percentage holding

Nominal Value of


Percentage holding

Nominal Value of




Mr R.S. Harris 0.36% 14,264 – –

Dr A.D. Baxter 0.32% 12,748 – –

Mr J.K. Dootson 0.31% 12,289 – –


Value Creation Plan (VCP)

The Group adopted a Value Creation Plan (VCP) on 7 October 2009, details of which are given in note 28. The plan ceased during the previous year with no awards being made under the VCP.

The Board

The Board currently comprises two Executive Directors, and three Non-Executive Directors including the Chairman. The members have a clear division of duties. The Board meets regularly throughout the year to direct and control the strategy and operating performance of the Group. The following committees deal with specific aspects of the Group’s affairs:

Audit Committee – comprises two Non-Executive Directors, Mr R.S Harris and Mr C. Mills, with Mr C. Mills, as Chairman. The Auditor attends the meetings and reports as appropriate. The Committee reviews the Group’s accounting policies, financial reporting, internal control, and risk management processes. It also considers the appointment and fees of the Auditor, and ensures that auditor objectivity and independence have not been compromised. The Committee meets at least twice during the year.

Remuneration Committee – comprises two Non-Executive Directors, Mr R.S. Harris and Mr C. Mills, with Mr R.S. Harris as Chairman. It recommends to the Board the policy for Executive remuneration and it determines, on behalf of the Board, the terms and conditions of service of the Executive Directors. The Report on Directors’ Remuneration is set out on pages 41 to 44.

Internal Control

The Board is responsible for establishing and maintaining the Group’s system of internal control, which is designed to meet the particular needs of the Group and the risks to which it is exposed. Such a system is designed to manage these risks, to provide reasonable but not absolute assurance against material misstatement or loss, and to maintain proper accounting records to ensure the integrity of financial information used within the business and for external publication.

The Board has reviewed the effectiveness of its system of internal control as it operated during the period. The Board has considered whether the Group’s internal control processes would be significantly enhanced by an Internal Audit Function and has taken the view that at the Group’s current stage of development, this is not required. The Board will review this matter each year. The key procedures that the Board has established include the following:

• Clearly defined authorisation limits and procedures.

• Budgets are reviewed and approved by the Board, and regularly monitored against monthly performance and forecasts.

• The Group’s financial and operating performance is closely monitored at regular Board meetings with formal Board reports from each Executive Director covering their areas of business responsibility.

• The Board conducts ongoing reviews of the internal control systems and business processes to ensure that they remain appropriate to the needs of the Group.


Governance

Relations with Shareholders

The Board recognises the importance of continual communications with shareholders and maintains a programme of institutional dialogue, including presentations following the Company’s announcements of its final full year figures and of the half-year results.

There is also an opportunity, at the Company’s Annual General Meeting, for individual shareholders to raise general business matters with the Board. Notice of the Company’s Annual General Meeting is circulated to all shareholders at least twenty-one working days before such meeting. The annual report is to be published on the Company’s website, www.cyprotex.com, which also includes press releases and other announcements during the year.

Policy in Respect of Supplier Payments

The Company and its principal subsidiary undertakings agree terms and conditions for transactions with suppliers, and pay suppliers within the agreed terms, provided that suppliers comply with those terms and conditions. At 31 December 2013, the Group had an average of 35 days purchases (2012: 32 days; 2011: 30 days) outstanding in trade payables. The Company had an average of nil days (2012: nil days; 2011: nil days) purchases outstanding in trade payables.

Research and Development

Research and development activities are essential for Cyprotex’s growth and expansion. As well as enabling Cyprotex to offer new products and services to its customers, it allows Cyprotex to increase its scientific credibility in the field – ensuring that we are not just recognised as a service provider but as a leader in ADME-Tox research. During 2013, Cyprotex focused on the introduction of several new technologies as well as improvements to, and expansion of, existing technologies.

In February 2013, Cyprotex was first to market with a novel high throughput stem cell derived cardiomyocyte service (eCiphrCardio) which utilises microelectrode array. The service allows electrophysiological effects to be observed on beating cardiac cells (cardiomyocytes) in culture. Later in the year in July, we introduced a neuronal service (eCiphrNeuro) using the same microelectrode array technology. Potential applications of the eCiphr services include screening for cardiotoxicity/neurotoxicity, or development of potential new cardiac- or CNS-acting drugs.

We continue to develop our key technologies such as Cloe® PK and CellCiphr® Premier, improving the ability of these tools to predict in vivo pharmacokinetics and drug-induced toxicity. In addition, Cyprotex have secured a facility at Biohub at Alderley Park in the UK for expanding its range of drug transporter services. This is in direct response to new guidelines on drug interactions released by the regulatory authorities.

Charitable and Political Contributions

Charitable contributions amounted to £nil (2012: £nil; 2011: £350), all made to local charities. The Group made no political contributions (2012: £nil; 2011: £nil).



Employee Involvement

The Group recognises and seeks to encourage the involvement of its employees, with the aim being the recruitment, motivation, and retention of quality employees throughout the Group. An unapproved share option scheme is in place, operated within the Enterprise Management Incentive Scheme where applicable. The Group’s employment policies, including the commitment to equal opportunity, are designed to attract, retain, and motivate employees regardless of sex, race, religion, or disability. The Group is committed to ensuring and communicating the requirements for a safe and healthy working environment for all employees, consistent with health and safety legislation and, wherever practicable, giving full and fair consideration to applications for employment from disabled persons. The Group is committed to ensuring equal opportunities for all current and potential members of staff. It is committed to the promotion of standards of personal conduct based on respect for and the dignity of individuals. It is the Company’s policy to provide a working environment free from discrimination. All employees in the Group are expected to support and contribute to the maintenance of this policy.

Quarterly meetings are scheduled to inform all employees of the key performance issues arising in the Group, all employees attend covering both sites, and the meeting includes an open forum for discussion by the employees with senior executives.

Employee Share Schemes

Employee involvement in financial performance is encouraged in the UK through participation in the Company’s share option schemes. At 31 December 2013, 12 employees, three ex Non-Executive Directors, and one overseas consultant to the Company held options over 2,920,655 ordinary shares under the unapproved share option scheme (2012: 13,3,1 & 3,573,739 respectively; 2011: 13,3,1 & 3,573,739 respectively). Further information on share options is shown in note 26.


The Annual General Meeting of the Company is scheduled to be held at 10:00am on Thursday 24 July at the offices of N+1 Singer Advisory LLP, One Bartholomew Lane, London EC2N 2AX. The notice of the Annual General Meeting will be forwarded to shareholders as a separate document.


Governance


Major interests in shares

At 1 March 2013 the following persons held interests in excess of 3% of the ordinary share capital of the Company:

Percentage holding

Number of ordinary

shares

Trident Private Equity Fund III LP 18.28% 41,000,000

Oryx International Growth Fund Limited 10.73% 22,515,000

G.L.A. Dow 8.81% 19,792,115

R. J. Koch 7.48% 16,748,868

Henderson Global Investors 6.95% 15,600,000

Hargreaves Hale Limited 5.33% 11,964,634

R. Sneller 5.13% 11,500,000

D.E Leahy 4.64% 10,401,600

R. Long 3.57% 8,000,000

There were 224,340,569 ordinary shares in issue at 1 March 2014, no ordinary shares being issued since 31 December 2013.

No other person has notified an interest in the ordinary shares of the Company required to be disclosed to the Company in accordance with the Disclosure and Transparency Rules, DTR 5.

Directors’ Statement as to Disclosure of Information to the Auditors

So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow Directors and the Group’s auditor, each Director has taken all the steps that he is obliged to take as a Director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information.

Auditors

A resolution to reappoint Ernst & Young LLP as auditors and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Post balance sheet event.



Mark C. Warburton

Company Secretary

25 March 2014


Directors’ Remuneration Report

Remuneration Committee

The Remuneration Committee currently comprises two Non-Executive Directors, Mr R.S. Harris, as Chairman, and Mr C Mills. The Committee provides advice and recommendations to the Board regarding the framework for executive remuneration and the individual remuneration package for each Executive Director.

Remuneration Policy

The remuneration policy for Executive Directors is to provide competitive remuneration packages to attract, retain, and motivate high-quality people in competition with comparable companies. The main components of the remuneration of Executive Directors comprise:

Service contracts – the Executive Directors have service contracts with a notice period of between three and six months to be given by either the Director or the Company. The service contract of all Executive Directors provides that in the event of a change of control in the ownership of the Company the notice period increases twofold. The Remuneration Committee considers the circumstances of individual cases of early termination and determines compensation payments accordingly. Non-Executive Directors do not have service contracts but do have agreements that are terminable upon a three-month notice period by either themselves or by the Company. These agreements provide for the attendance at Board meetings, an undertaking to advise the Company with respect to the management and conduct of business, and the attendance at meetings of the Audit and Remuneration Committees of the Board as required. The Executive Directors determine the remuneration of the Non-Executive Directors without reference to the Remuneration Committee.

Basic salary and benefits – basic salaries of Executive Directors are determined annually after a review of the performance of each individual. Benefits in kind principally comprise private healthcare, death in-service, and disability in-service cover.

Bonuses – the Executive Directors are eligible for bonus payments at the discretion of the Remuneration Committee and such discretion will be exercised based upon the performance of the Group up to 50% of their standard remuneration. A bonus of £59,486 was awarded to Dr A Baxter and £38,741 to Mr J.K. Dootson. In the year ended 31 December 2012, a bonus of £20,000 was awarded to Dr A. Baxter and £7,000 to Mr J.K. Dootson. No bonuses were awarded in the year ended 31 December 2011.

Share options – the Company has an unapproved share option scheme whereby options to acquire ordinary shares may be granted at the discretion of the Board, with the approval of the Remuneration Committee, to Directors and employees of the Company. Further details of the awards to Directors are set out in note 26 and 27. There have been no gains on exercise of share options by Directors in the current or previous two years.

Value Creation Plan (VCP) – the Company had a value creation plan whereby nil-cost options may vest dependent upon the growth in share price of the Company. Participants to this plan are key management including the Executive Directors. Further details of the plan are given in note 28 to the accounts. The costs of awards to Directors are set out below in this report. The VCP ceased in the previous year and no awards have been made under the VCP whilst it was in operation.

Pensions – during the year, Mr J.K. Dootson and Dr A. Baxter have been beneficiaries of a defined contribution personal pension scheme; the Company’s contributions are up to 20% of total pensionable earnings. It is the intention of the Remuneration Committee to review the remuneration packages of the Executive Directors during the forthcoming financial year and to make recommendations to the Board of Directors for the introduction of an appropriate bonus incentive scheme, linked to personal and Group targets for both Executive Directors and staff.


Governance


Directors’ Remuneration

2013 NoteSalary/fee

£Bonus

£Benefits

£


of office£

2013 total

£

2013 pension

£

Executive Directors

A.D. Baxter 169,538 59,486 2,357 – 231,381 16,954

J.K. Dootson 97,915 38,741 3,691 – 140,347 23,144

Sub total 267,453 98,227 6,048 – 371,728 40,098


I.R. Johnson c 7,846 – – – 7,846 –

R.S. Harris 35,004 – – – 35,004 –

C. Mills b, e 6,617 – – – 6,617 –

C. Clothier a, d 9,000 – – – 9,000 –

Sub total 58,467 – – – 58,467 –

Total 325,920 98,227 6,048 – 430,195 40,098

a part year only, resigned 26 September 2013

b part year only, appointed 24 August 2013, ongoing salary of £15,000 per annum

c part year only, appointed 26 September 2013, ongoing salary of £30,000 per annum

d paid direct to principal employer IPGL Limited

e paid direct to principal employer Harwood Capital, LLP

During the year two Directors (2012: three Directors; 2011: four Directors) participated in defined contribution pension schemes.

The highest paid Director in 2013, 2012 and 2011 was Dr A.D. Baxter.

2012 NoteSalary/fee

£Bonus

£Benefits

£


of office £

2012total

£

2012 pension

£

Executive Directors

A.D. Baxter 164,167 20,000 2,299 – 186,466 16,417

K. Tsaioun a 84,478 – 19,648 63,532 167,658 10,248

J.K. Dootson c 96,006 – 2,773 – 98,779 26,201

Sub total 344,651 20,000 24,720 63,532 452,903 52,866

Non–Executive Directors

R.S. Harris 35,000 – – – 35,000 –

C. Clothier b 12,000 – – – 12,000 –

Sub total 47,000 – – – 47,000 –

Total 391,651 20,000 24,720 63,532 499,903 52,866

a part year only, resigned 31 August 2012


c pension payments include bonus element of £7,000


2011 NoteSalary/fee

£Bonus

£Benefits

£


of office£

2011 total

£

2011 pension

£

Executive Directors

A.D. Baxter 155,000 – 442 – 155,442 15,500

K. Tsaioun 125,480 – 4,071 – 129,551 12,548

J.K. Dootson 92,470 – 3,111 – 95,581 18,494

D.C. Bates a, c, d 63,361 – – 42,900 106,261 6,336

Sub total 436,311 – 7,624 42,900 486,835 52,878


R.S. Harris 35,000 – – – 35,000 –

C. Clothier b 12,000 – – – 12,000 –

Sub total 47,000 – – – 47,000 –

Total 483,311 – 7,624 42,900 533,835 52,878

a part year only


c Doug Bates entered a compromise agreement with the Group on resignation which provided for a payment of £7,150 per month for a duration of six months

d Doug Bates also has a consultancy agreement with the Group to provide marketing consultancy services. The agreement provides for twelve months of services from date of resignation. At £nil consideration for the first six months and thereafter the agreed monthly rate is £2,860 per month for the remaining six months.

Share Options

No director held any share options at 31 December 2013, 31 December 2012 or 31 December 2011. Consequently no gains or losses have been realised in the year.

A total of 450,000 share options at an option price of 11 pence are held by three former Non-Executive Directors of the Company.


Governance

Value Creation Plan

Details of the charge to the income statement in the year are set out below:

2013 £

2012 £

2011 £

Executive Directors

A.D. Baxter – 27,348 64,395

J.K. Dootson – 10,028 23,611

– 37,376 88,006

The charge in the above table represents the IFRS 2 charge recorded in the income statement for the Directors in the respective year. This is a non-cash item which reflects part of the movement in the share-based payment reserve. The plan ceased during the previous year with no awards being made.


2013pence

2012pence

2011pence

At 31 December 7.63 3.75 4.00

High in year 7.75 6.50 5.38

Low in year 3.38 3.38 2.88


Mark C. Warburton

Company Secretary

25 March 2014



The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable United Kingdom laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, and as required by the AIM Rules, the Directors have elected to prepare Group financial statements in accordance with those International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under that law, the Directors have elected to prepare Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the Group and Company financial statements unless they are satisfied that they give a true and fair view of the state of affairs, and of the profit or loss of the Group and Company for that period. The Directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those Group financial statements the Directors are required to:

• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors, and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;

• make judgements and estimates that are reasonable and prudent;

• state that the Group has complied with IFRSs as adopted by the European Union; and

in preparing the Company financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent; and

• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

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

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

Directors’ Responsibilities Statement


Cyprotex PLC I Financial Statements46

Financial Statements

We have audited the Group financial statements of Cyprotex PLC for the year ended 31 December 2013 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes 1 to 36. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities Statement set out on page 45, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the Group financial statements:

• give a true and fair view of the state of the group’s affairs as at 31 December 2013 and of its loss for the year then ended;

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

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

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting recordings have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

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

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

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

Other matter

We have reported separately on the Parent Company financial statements of Cyprotex PLC for the year ended 31 December 2013.

Alastair John Richard Nuttall (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Manchester

25 March 2014

1. The maintenance and integrity of the Cyprotex PLC web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the consolidated financial statements since they were initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of consolidated financial statements may differ from legislation in other jurisdictions.

Report of the Independent Auditor to the Members of Cyprotex PLC

Cyprotex PLC I Financial Statements 47

Consolidated Income Statementyear to 31 December 2013

Consolidated Statement of Comprehensive Incomeyear to 31 December 2013

Continuing operations Note2013

£2012

£2011

£

Revenue 5 9,768,027 8,327,274 7,911,672

Cost of sales (1,953,071) (1,508,826) (1,327,968)

Gross profit 7,814,956 6,818,448 6,583,704

Administrative costs (7,201,810) (6,492,379) (5,912,523)

Operating profit 6 613,146 326,069 671,181

Finance income 9 12,107 7,218 4,111

Finance cost 10 (1,782,299) (84,072) (86,802)

(Loss)/profit before tax (1,157,046) 249,215 588,490

Income tax 11 360,098 (46,713) 288,845

(Loss)/profit for the year (796,948) 202,502 877,335

Attributable to the owners of the parent (796,948) 202,502 877,335

(Loss)/earnings per share

Basic (loss)/earnings per share 12 (0.36)p 0.09p 0.39p

Diluted (loss)/earnings per share 12 (0.36)p 0.09p 0.39p

2013 £

2012 £

2011 £

Continuing operations

(Loss)/profit for the year (796,948) 202,502 877,335

Other comprehensive (loss)/income – Items that may be reclassified subsequently to profit or loss:

Exchange differences on retranslation of overseas operations (18,338) (124,202) 82,149

Total comprehensive (loss)/ income for the year (815,286) 78,300 959,484

Attributable to the owners of the parent (815,286) 78,300 959,484



Consolidated Statement of Financial Positionat 31 December 2013

Notes2013

£2012

£2011

£

ASSETS

Non current assets

Property, plant and equipment 13 3,788,714 2,692,786 2,102,964

Intangible fixed assets 14 3,097,862 3,395,753 3,607,964

Deferred tax asset 11 855,005 540,900 643,922

7,741,581 6,629,439 6,354,850

Current assets

Inventories 15 425,638 367,967 349,780

Trade receivables 16 1,500,527 1,199,999 1,095,801

Other receivables 17 743,683 536,995 405,273

Cash and cash equivalents 7,094,608 858,539 1,127,680

9,764,456 2,963,500 2,978,534

Total assets 17,506,037 9,592,939 9,333,384

LIABILITIES

Current liabilities

Trade payables 18 515,083 289,114 331,974

Other payables 19 1,114,562 570,037 563,959

Income tax 1,364 – 7,800

Obligations under finance leases 20 315,696 228,765 81,532

Short-term borrowings – – 150,000

Current portion of long term borrowings – 72,360 67,100

Provisions 20 59,025 108,100 149,000

2,005,730 1,268,376 1,351,365

Non current liabilities

Long term borrowings – 538,493 614,400

Obligations under finance leases 20 638,235 567,916 108,727

Other borrowings 20 8,389,113 – –

Provisions 20 – 58,814 176,155

Deferred tax liabilities 11/20 158,759 202,606 265,076

9,186,107 1,367,829 1,164,358

Total liabilities 11,191,837 2,636,205 2,515,723

Net assets 6,314,200 6,956,734 6,817,661

EQUITY

Equity attributable to equity holders of the parent

Share capital 24/25 224,341 223,687 223,687

Share premium account 12,217,742 12,210,140 12,210,140

Other reserve 292,566 128,070 128,070

Share-based payment reserve 765,383 765,383 704,610

Profit and loss account (7,185,832) (6,370,546) (6,448,846)

Total equity 6,314,200 6,956,734 6,817,661

These accounts were approved by the Board of Directors and authorised for issue on 25 March 2014.

They were signed on its behalf by:

J.K. Dootson

Director & Chief Financial Officer Company number 4311107


Consolidated Statement of Changes in Equityyear to 31 December 2013

Share capital

£

Share premium account

£

Other reserve

£

Share-based payment

reserve £

Profit and loss account

£

Total equity

£

Balance at 1 January 2013 223,687 12,210,140 128,070 765,383 (6,370,546) 6,956,734

Loss for the year – – – – (796,948) (796,948)

Other comprehensive loss

Exchange differences on retranslation of overseas operations – – – – (18,338) (18,338)

Total comprehensive loss for the year – – – – (815,286) (815,286)

Equity element of convertible Loan Note – – 164,496 – – 164,496

Issue of share capital

– exercise of share options 654 7,602 – – – 8,256

Balance at 31 December 2013 224,341 12,217,742 292,566 765,383 (7,185,832) 6,314,200

£ £ £ £ £ £


Profit for the year – – – – 202,502 202,502

Other comprehensive income/(loss)

Exchange differences on retranslation of overseas operations – – – – (124,202) (124,202)

Total comprehensive income for the year – – – – 78,300 78,300

Share-based payments transactions – – – 60,773 – 60,773


£ £ £ £ £ £


Profit for the year – – – – 877,335 877,335

Other comprehensive income

Exchange differences on retranslation of overseas operations – – – – 82,149 82,149

Total comprehensive income for the year – – – – 959,484 959,484

Share-based payments transactions – – – 143,100 – 143,100


The other reserve arose on the acquisition of Cyprotex Discovery Limited by the Company in January 2002, which was accounted for as a merger. Additions in the year of £164,496 relate to the equity component of Convertible Loan Notes issued in the year ended 31 December 2013.



Consolidated Statement of Cash Flowsyear to 31 December 2013

Cash flows from operating activities Note2013

£2012

£2011

£

(Loss)/profit after taxation (796,948) 202,502 877,335

Adjustments for:

Depreciation of property, plant and equipment 646,983 453,777 363,553

Amortisation of intangible assets 153,742 152,114 140,199

Impairment of intangible assets 135,801 – –

Share-based payment charge – 60,773 143,100

Gain on disposals of property, plant and equipment (10,997) (24,226) –

Finance income (12,107) (7,218) (4,111)

Finance cost 1,782,299 84,072 86,802

Taxation recognised in the income statement (360,098) 46,713 (288,845)

Increase in trade and other receivables (508,891) (256,361) (441,494)

Increase in inventories (58,457) (20,414) (58,819)

Increase in trade and other payables 629,369 17,910 263,327

Movement on provisions (60,990) (102,532) –

Cash generated from operations 1,539,706 607,110 1,081,047

Taxation paid (6,527) (4,246) –

Net cash from operating activities 1,533,179 602,864 1,081,047

Cash flows from investing activities

Purchase of property, plant and equipment 34 (1,169,165) (291,090) (228,844)

Expenditure on intangibles – (93,034) (172,543)

Proceeds from disposal of property, plant and equipment 11,000 39,500 –

Interest received 12,107 7,218 4,111

Net cash used in investing activities (1,146,058) (337,406) (397,276)

Cash flows from financing activities

Interest paid (86,580) (84,072) (70,019)

Proceeds from issue of share capital 8,256 – –

Proceeds from long-term borrowings – – 200,000

Proceeds from Loan Notes 35 7,000,000 – –

Loan note issue costs 35 (122,000) – –

Repayment of long-term borrowings (610,853) (70,647) (54,900)

Payment of finance lease liabilities (288,705) (178,282) (105,047)

Payment of contingent consideration (50,259) (44,156) (156,060)

Payment of short-term borrowings – (150,000) (408,695)

Net cash generated/(used in) financing activities 5,849,859 (527,157) (594,721)

Net increase/(decrease) in cash and cash equivalents 6,236,980 (261,699) 89,050

Exchange differences on cash and cash equivalents (911) (7,442) 1,742

Cash and cash equivalents at beginning of year 858,539 1,127,680 1,036,888

Cash and cash equivalents at end of year 7,094,608 858,539 1,127,680


Notes to the Consolidated Financial Statementsyear to 31 December 2013

1. Nature of operations and general information

Cyprotex PLC (‘Cyprotex’) and subsidiaries’ (together ‘the Group’) principal activity is the provision of in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity, and Pharmacokinetics) information to a number of different industries including the Pharmaceutical, Biotechnology, Cosmetic, Personal Care, Agrochemical, Chemical Industries and Academia.

Cyprotex’s vision is to provide, in partnership with our customers in drug discovery and development, the highest quality, fastest turnaround, and most cost-effective ADMET and pharmacokinetic data to those customers.

Cyprotex PLC is the Group’s ultimate parent company. It is incorporated and domiciled in England and Wales. The address of Cyprotex PLC’s registered office is 100 Barbirolli Square, Manchester M2 3AB. The addresses of its principal places of business are 15 Beech Lane, Macclesfield, Cheshire, United Kingdom, SK10 2DR and 313 Pleasant Street, Watertown, Massachusetts MA 02472 USA. It trades through its wholly owned subsidiaries; Cyprotex Discovery Limited based at Macclesfield in the UK, and Cyprotex US, LLC (formerly known as Apredica, LLC) in Watertown in the USA. Cyprotex PLC’s shares are listed on the Alternative Investment Market of the London Stock Exchange.

The consolidated financial statements are presented in Pounds Sterling (£), which is also the functional currency of the parent.

2. Basis of preparation

The consolidated financial statements have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU), including International Accounting Standards (IAS) and interpretations issued by the International Financial Reporting Committee (IFRIC) and applied in accordance with the Companies Act 2006. Practice is continuing to evolve on the application and interpretation of IFRSs. Further standards may be issued by the International Accounting Standards Board (IASB), and standards currently in issue and endorsed by the EU may be subject to interpretations issued by IFRIC.

3. Going concern



4. Summary of significant accounting policies

Basis of consolidation

The Group financial statements consolidate those of the Company and its subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. All intra group transactions, balances, income and expenses are eliminated on consolidation.

Property, plant, and equipment

Property (including property subject to lease terms in excess of 800 years), plant, and equipment are stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction or commissioning.



Notes to the Consolidated Financial Statements continuedyear to 31 December 2013

4. Summary of significant accounting policies continued

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition-date fair value. Acquisition costs are expensed through the income statement and included in administrative expenses.

When a Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic circumstances, and pertinent conditions as at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in the income statement or in other comprehensive income.

Goodwill is initially measured at cost, being the excess of the acquisition-date fair value of the consideration transferred. Assets acquired and liabilities assumed in transactions separate to the business combinations in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual, legal, or separable criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition-date fair value can be measured reliably.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is from the acquisition date, allocated to each of the Group’s cash generating units (or groups of cash generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which goodwill is monitored for internal management purposes and not be larger than an operating segment before aggregation.

Intangible assets

Intangible assets acquired separately or as part of a business combination are measured at cost or valuation on initial recognition. Intangible assets are carried at this cost or valuation less any accumulated amortisation and impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised. Expenditure is reflected in the income statement as incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over their estimated economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year end. Changes in an intangible’s expected useful life are treated as a change in accounting estimate.

Intangible assets with indefinite useful lives are tested for impairment annually, either individually or at the cash-generating-unit level and are not amortised. The useful life of an intangible’s life is reviewed annually to determine whether indefinite life assessment continues to be applicable. If not, the change of useful life is made on a prospective basis.

Trade names, customer relationships, technology and know-how

Intangible assets which can be identified and separately classified as either trade names, customer relationships, or technology and know-how, when acquired as part of a business combination, are measured initially at fair value.

Amortisation is calculated to write down the fair value of intangibles by equal annual instalments over the estimated useful economic lives as follows:

Trade names Over 10 years Customer relationships Over 5 years Technology and know-how Over 10 years


Depreciation

Depreciation is calculated to write down the cost, less any estimated residual value, of all property, plant, and equipment by equal annual instalments over the estimated useful economic lives as follows:

Long leasehold land and buildings Over 50 years Office equipment Over 10 years Computer equipment Over 3 to 5 years Laboratory equipment Over 5 to 7 years

Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Material residual value estimates are updated at least annually.

Impairment testing of property, plant, and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level.

Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the assets or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.

Disposal of assets

The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If no objective evidence exists of impairment on an individual or collective basis then a financial asset will be carried at amortised cost. However, if objective evidence does exist that an impairment has occurred, then the financial asset would be carried at this revised impaired value and the difference would be recognised as an expense in the income statement. An impaired value is calculated as the present value of future cash flows discounted at the original effective interest rate.





Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

Revenue is reduced for any rebates and other similar allowances.

Revenue on the outright sale of services and software, where no supplier obligations remain, is recognised on delivery to the customer.

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of the transaction is deemed to be able to be estimated reliably when all the following conditions are satisfied:

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits associated with the transaction will flow to the entity;

• the stage of completion of the transaction at the balance sheet date can be measured reliably and is estimated by reference to the level of work performed; and

• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Where a contract for services involves delivery of several different elements and is not fully delivered or performed by the year end, revenue is recognised based on the proportion of the fair value of the elements delivered to the fair value of the overall contract.

Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rates applicable.

Inventories

Inventories are stated at the lower of cost and net realisable value on a first-in first-out basis, after making allowance for obsolete and slow-moving items. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion.

Research and development

Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred are capitalised during the development phase when all the following conditions are satisfied:

• completion of the intangible asset is technically feasible so that it will be available for use or sale;

• the Group intends to complete the intangible asset and use or sell it;

• the Group has the ability to use or sell the intangible asset;

• the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

• there are adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and

• the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting these criteria for capitalisation are expensed as incurred.


Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised evenly over the period of expected future benefit. During the period of development, the asset is tested for impairment annually. Careful judgement by the Directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each year end date. In addition, all internal activities related to the research and development of new software products are continuously monitored by the Directors.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value with maturities of three months or less from acquisition.

Leased assets

In accordance with IAS 17, the economic ownership of an asset held under finance lease is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments is charged to the income statement in constant proportion to the capital balance outstanding over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease.

Pensions

The Group operates a defined contribution scheme. Pension costs charged against the income statement are the contributions payable to the scheme in respect of the accounting period.

Foreign currencies

In preparing the financial statements of the individual companies transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the year-end date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. Exchange differences on non-monetary items are recognised in the statement of comprehensive income to the extent that they relate to a gain or loss on that non-monetary item taken to the statement of comprehensive income, otherwise such gains and losses are recognised in the income statement.

For the purpose of presenting consolidated financial statements the assets and liabilities in the financial statements of foreign subsidiaries and related goodwill are translated at the rate of exchange ruling at the year end date. Income and expenses are translated at the actual rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to equity. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the income statement as part of the gain or loss on disposal.

The Group has taken advantage of the exemption in IFRS 1 and has deemed cumulative translation differences for all foreign operations to be nil at the date of transition to IFRS. The gain or loss on disposal of these operations excludes translation differences that arose before the date of transition to IFRS and includes later translation differences.





Taxation and deferred tax

Current tax is the tax currently payable or receivable based on taxable profit or loss for the period. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the year-end date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited to other comprehensive income or directly to equity.

Government and other grants

Grants in respect of capital expenditure are credited to a deferred income account and are released to the income statement by equal annual instalments over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to the income statement in the same period as the related expenditure.

Share-based payments

In accordance with IFRS 2, the fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group’s estimate of when share options will eventually vest. In the case of share options granted, fair value is measured by a Black-Scholes or Monte Carlo pricing model. In determining fair value, market vesting conditions and non-vesting conditions (but not any non-market vesting conditions) are taken into account.

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the financial statements in accordance with IFRS 1.

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to the share-based payment reserve.

If there are performance or service conditions (‘vesting conditions’), the expense is allocated over the vesting period based on the best available estimate of the achievement or otherwise of non-market vesting conditions and of the number of equity instruments that ultimately vest. However, awards subject to a market condition or non-vesting conditions are treated as vesting, irrespective of whether or not the market condition or non-vesting condition is satisfied, provided that all the other performance and service conditions are met. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.

Where a new award is designated as replacing a cancelled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the modified award, both measured on the date of modification. No reduction is recognised if the difference is negative.

Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.


Financial assets

Financial assets are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired.

All financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as at fair value through profit or loss are initially recognised at fair value plus transaction costs.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement.

Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows using the original effective interest rate.

A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. An assessment for impairment is undertaken on each financial asset at least at each year end date.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities categorised as at fair value through profit or loss are remeasured at each reporting date at fair value, with changes in fair value being recognised in the income statement. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Financial liabilities are categorised as at fair value through profit or loss where they are classified as held-for-trading or designated as at fair value through profit or loss on initial recognition.

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

Compound instruments

Compound instruments are recognised as liabilities measured at their fair values at the balance sheet date. Upon recognition the liability component is measured using a prevailing market interest rate for bonds with no conversion rights and the difference between the proceeds of the bond issue and the fair value of the liability is assigned to equity.

Derivative financial instruments

Derivative financial instruments are recognised initially and subsequently at their fair values at the balance sheet date. The gains or loss on re-measurement to fair value is recognised immediately in the income statement. Derivatives embedded in non-derivative host contracts are recognised separately as derivative financial instruments when their risks and characteristics are not closely related to those of the host contract and the host contract is not stated at its fair value with changes in its fair value recognised in the income statement.





Fair value measurement

The Group applies IFRS 13 as its single source of guidance for all fair value measurements and the additional disclosures which have been provided where required in the individual notes relating to the assets and liabilities (see Note 29). Attention is placed on the appropriateness and categorisation of the allocation within the fair value hierarchy level applicable for the related instruments held at fair value. The Group defines its fair value financial instruments as:

• Level 1 when there are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be assessed by the Group at the measurement date

• Level 2 when inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly

• Level 3 when there are unobservable inputs for the asset or liability

The Group recognises any factors which impacts on the timing of transfers between levels of the fair value hierarchy and the respective date any transfers occur.

Provisions

A provision is recognised when the Group has a legal or constructive obligation as a result of a past event; it is probable that the Group will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

Where applicable, expected future cash flows are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, any increase in provision due to unwinding a discount is recognised as a finance cost.

Equity

Equity comprises the following:

• ‘Share Capital’ represents the nominal value of equity shares.

• ‘Share Premium’ represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue.

• ‘Other Reserve’ represents the balance arising on merger when Cyprotex Discovery Limited was acquired by the Company on 4 January 2002, as previously reported under UK GAAP and the equity element recognised on the issue of Convertible Loan Notes.

• ‘Share-based payment reserve’ represents equity-settled share-based employee remuneration until such share options are exercised.

• ‘Profit and loss account’ represents retained profits and losses.

Critical accounting and judgements and key sources of estimation uncertainty

Estimates and accounting judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The preparation of financial statements under IFRS requires management to make assumptions and estimates about future events. The resulting accounting estimates will, by definition, differ from actual results. The assumptions and estimates that have a significant risk of causing a material adjustment within the next financial year are:

Share-option charges

Expected life of share options, volatility of shares, risk-free yield rate to maturity, likelihood of vesting conditions being met, and expected dividend yield impact on the calculation of fair value used in the valuation of share options at grant date.

Intangible asset amortisation periods and review of impairment indicators

Significant management judgement is required to determine the amount of estimated useful lives of acquired intangibles and assessment of any year end impairment indicators.


Recognition of revenue and profit on contracts to provide services

Revenue and profit are recognised by reference to the estimated stage of completion of the contract.

Research and development

Careful judgement is applied when deciding whether the recognition requirements, set out in full above, for development costs have been met. Details of development costs capitalised are given in note 14.

Deferred tax

Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future planning strategies.

Contingent consideration

Significant management judgement is required in estimating the amount of deferred contingent consideration payable to acelerate, Inc in respect of the assets including technology acquired following the acquisition of Cyprotex US, LLC (formerly known as Apredica, LLC) on 6 August 2010. Those judgements include the forecasting of future sales revenues derived from the use of that technology through to August 2014 and discount rates applied which are based on the risk adjusted weighted average cost of capital applicable to the Group.

Accounting for Loan Notes

Significant management judgement is applied in assessing the fair value of the Redeemable and Convertible Loan Notes at each reporting date. The fair value recorded in the accounts is dependent upon the share price of the Company. A Tsiveriotis and Fernandes model is used and inputs to that model include an assessment of share price movement or volatility, credit spread, the risk profile of the Group and forecast anticipated decisions by Note holders on each of the conversion dates and/or at maturity date.

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except for the new and amended standards and interpretations issued during the year. The following amendments to existing standards and interpretations were effective for the year, but either they were not applicable to or did not have a material impact on the Group:

Effective dates

IAS 19 Employee Benefits (Revised) 1 January 2013

IFRS 7 Financial Instruments: Disclosures – Offsetting-Financial Assets and Financial Liabilities (Amendments) 1 January 2013

IFRS 1 Government Loans – Amendments to IFRS 1 1 January 2013

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013

Annual Improvements to IFRSs 2009–2011 Cycle 1 January 2013

The following amendments to existing standards and interpretations, effective from 1 January 2013, which have had an impact on the Group’s financial statements, are outlined below:

IAS 1 Presentation of Items of Other Comprehensive Income – Amendment to IAS 1

The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI).

Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) now have to be presented separately from items that will never be reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of land and buildings).

The amendments affect presentation only and have no impact on the Group’s financial position or performance.





IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 defines fair value as an exit price. IFRS 13 also requires additional disclosures which have been provided where required in the individual notes relating to the assets and liabilities. The fair value hierarchy is provided in note 29.

New standards and interpretations not applied

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below and have not been adopted by the Group. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.

Effective dates

IFRS 10 Consolidated Financial Statements 1 January 2014

IFRS 11 Joint Arrangements 1 January 2014

IFRS 12 Disclosure of Interests in Other Entities 1 January 2014

IAS 27 Separate Financial Statements 1 January 2014

IAS 28 Investments in Associates and Joint Ventures 1 January 2014

IAS 32 Financial Instruments: Presentation – Offsetting-Financial Assets and Financial Liabilities (Amendments) 1 January 2014

IAS 36 Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets (Amendments) 1 January 2014

IAS 39 Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting (Amendments) 1 January 2014

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 1 January 2014

The Directors do not expect the adoption of these standards and interpretations to have a material impact on the consolidated or company financial statements in the period of initial application.

5. Revenue and segmental analysis

Revenue represents the amounts derived from the provision of goods and services which fall within the Group’s ordinary activities and is stated net of value added tax and trade discounts.

The Group has a single operating and reportable segment, that of providing in vitro and in silico ADMET and PK (Absorption, Distribution, Metabolism, Excretion, Toxicity, and Pharmacokinetics) information principally to the pharmaceutical and biotechnology industries. The revenue and operating profit or loss for the year are derived from the Group’s single operating and reportable segment. This segment has been determined by reference to the information that the Chief Operating Decision Maker receives about the Group. Details on these services are given on pages 14 to 18.

The segment result is profit before taxation. Revenue relates fully to the sale of services.


The Group gives a geographic analysis of revenue by destination. Key markets for the Group are identified as North America, Mainland Europe, and the United Kingdom.

2013 £

2012 £

2011 £

United Kingdom 1,788,722 1,896,918 1,732,705

Rest of Europe 3,836,119 2,819,774 2,528,202

North America 3,976,532 3,321,816 3,484,408

Rest of the World 166,654 288,766 166,357

9,768,027 8,327,274 7,911,672

No customer (2012: one customer, 2011: one customer) accounts for greater than 10% of annual revenue.

Annual revenues from customers in excess of 10% of Group revenue are as follows:

2013 £

2012 £

2011 £

Customer ranked first by revenue when greater than 10% of total n/a 944,000 1,031,000

Non-current assets by geographic region for the year ended 31 December 2013 are as follows:

Property, plant and

equipment £

Goodwill £

Other intangibles

£

Deferred taxation

£Total

£

United Kingdom 2,971,385 – – 300,374 3,271,759

North America 817,329 2,499,807 598,055 554,631 4,469,822

At 31 December 2013 3,788,714 2,499,807 598,055 855,005 7,741,581

Property, plant and

equipment £

Goodwill £

Other intangibles

£

Deferred taxation

£Total

£

United Kingdom 2,255,315 – – 454,600 2,709,915

North America 437,471 2,515,144 880,609 86,300 3,919,524

At 31 December 2012 2,692,786 2,515,144 880,609 540,900 6,629,439

Property, plant and

equipment £

Goodwill £

Other intangibles

£

Deferred taxation

£Total

£

United Kingdom 1,599,594 – – 524,700 2,124,294

North America 503,370 2,628,003 979,961 119,222 4,230,556

At 31 December 2011 2,102,964 2,628,003 979,961 643,922 6,354,850




6. Operating profit

Operating profit is stated after charging/(crediting):

2013£

2012£

2011£

Auditor’s remuneration

– audit of Parent and Group financial statements 18,600 16,000 13,000

– audit of subsidiaries 24,400 24,000 23,000

– taxation compliance services 8,000 8,000 8,000

– other services 5,000 5,000 6,000

Depreciation of owned assets 359,693 273,698 256,851

Depreciation of assets held under finance lease and hire purchase contracts 287,290 180,079 106,702

Amortisation of intangibles – acquired 122,389 131,169 137,350

Amortisation of intangibles – internally generated 31,353 20,975 2,849

Impairment of intangibles – trade names 135,801 – –

Research and development – including staff costs 330,900 442,733 580,510

Loss/(profit) on foreign currency translation 14,236 47,356 (3,513)

Grant income (55,100) (58,139) (90,559)

Release of contingent consideration provision (see note 20) (60,990) (102,532) –

Share-based payment charge (see notes 27 and 28) – 60,773 143,100

Gain on disposal of property, plant and equipment (10,997) (24,226) –

Auditor’s remuneration above relates to work performed by Ernst & Young LLP.

The Group has received grants from both the UK and EU government agencies to assist with research and development programmes. Currently the Group receives grants solely from an EU government agency. Claims are made as work progresses on a quarterly or annual basis and income is recognised on the basis of work performed to date.

7. Staff costs

2013 £

2012 £

2011 £

Wages and salaries 3,815,994 3,518,851 3,410,007

Social security costs 359,528 343,512 339,262

Other pension costs 450,215 389,918 375,094

4,625,737 4,252,281 4,124,363

The average monthly number of employees during the year was made up as follows:

2013 Number

2012 Number

2011 Number

Operations technical 15 15 14

Development technical 54 46 44

Administration 7 5 5

Selling, Marketing and Distribution 7 7 8

83 73 71


8. Director’s remuneration

Details of Directors’ remuneration are given in the Directors’ Remuneration Report on pages 41 to 44.

9. Finance income

Finance income comprises:

2013 £

2012 £

2011 £

Income from deposits 12,107 7,218 4,111

All interest income relates to financial assets not at fair value through profit and loss.

10. Finance cost

Finance cost comprises interest payable, as follows:

2013£

2012£

2011£

Interest element of finance leases and hire purchase contracts 53,473 36,626 16,933

Bank loans 14,763 18,501 16,805

Loans from Directors – 1,533 9,436

Interest component of contingent consideration 18,344 23,924 43,478

PIK loan interest 103,400 – –

Loan note derivative valuation 1,592,319 – –

Other interest and other loan interest – 3,488 150

1,782,299 84,072 86,802




11. Income tax

a) Tax on (loss)/profit on ordinary activities

The tax (credit)/charge is made up as follows:

Current tax2013

£2012

£2011

£

Corporation tax at 20.0% (2012: 20.0%; 2011: 20.25%) 1,364 – 3,554

Overseas tax – – 2,500

Adjustment in respect of prior year – overseas tax 2,063 – –

Adjustment in respect of prior year 4,465 (3,554) 1,746

Total current taxation 7,892 (3,554) 7,800

Deferred tax

Origination and reversal of temporary differences (77,902) (52,755) (50,217)

Benefit of tax losses recognised (296,024) 103,022 (246,428)

Movement in prior year deferred tax liability 5,936 – –

Total deferred taxation (367,990) 50,267 (296,645)

Total tax (credit)/charge for the period in the income statement (360,098) 46,713 (288,845)

b) Factors affecting current tax (credit)/charge

2013 £

2012 £

2011 £

(Loss)/profit on ordinary activities before taxation (1,157,046) 249,215 588,490

(Loss)/profit on ordinary activities before taxation multiplied by the Standard rate of corporation tax in the UK of 23.25% (2012: 24.5%; 2011: 26.5%) (269,013) 61,058 155,950

Effects of:

Expenses not deductible for tax purpose 17,160 141,261 3,280

Research & development tax relief (67,807) (72,083) (70,960)

Non-taxable income (17,686) (51,607) (89,961)

Movement in unprovided deferred tax asset 174,604 19,225 (225,785)

Change in rate of deferred tax 24,296 (46,055) (32,693)

UK corporation tax small company relief (222) – –

Rate difference overseas tax (227,958) (1,532) (30,422)

Adjustment to charge of overseas tax in respect of prior periods 2,063 – –

Adjustment to charge in respect of prior periods 4,465 (3,554) 1,746

Current tax (credit)/charge for the period in the income statement (360,098) 46,713 (288,845)

The tax rate used for the 2013 reconciliation above is at the average corporate tax rate 23.25% (2012: 24.5%; 2011: 26.5%) payable by corporate entities in the United Kingdom on taxable profits under law in that jurisdiction.

(c) Factors that may affect current tax and future tax charge

A deferred tax asset can only be recognised for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profits of the Group will be available, against which the unused tax losses and unused tax credits can be utilised.

The Group has total tax losses of £6,103,696 (2012: £4,444,973; 2011: £4,855,964) comprising UK tax losses of £4,186,816 (2012: £4,444,973; 2011: £4,855,964) and US tax losses of approximately £1,916,880 (2012: £nil; 2011: £nil) that are available for offset against future profits arising from the same trade. A deferred tax asset has been recognised in respect of £3,264,480 (2012: £1,976,522; 2011: £2,098,800) of these losses. No deferred tax asset has been recognised in respect of £2,839,216 (2012: £2,468,451: 2011 £2,757,164) of these losses.


In addition to the unrecognised tax deferred tax asset of £604,632 (2012: £567,804; 2011: £689 291) relating to losses, the Group also has unrecognised tax assets relating to other temporary differences of £1,036,244 (2012: £770,213; 2011: £730,213) and in respect of depreciation in advance of capital allowances of £70,782 (2012: £90,764; 2011: £109,153).

The UK corporation tax rate reduced from 24% to 23% with effect from 1 April 2013. A further reduction in the corporation tax rate from 23% to 21% was substantially enacted on 2 July 2013 and will be effective from 1 April 2014.

A further 1% reduction in the corporation tax rate from 21% to 20% was also substantially enacted on 2 July 2013 and will be effective from 1 April 2015.

(d) Deferred taxation

A deferred tax asset, comprising UK and US components totalling £855,005 (2012: £540,900; 2011: £643,922) has been recognised which represents the amount expected to be realised over the next two years, the Group’s normal forecasting period. Amounts outside this period are not recognised at the balance sheet date. As the Group has now been profitable (excluding the movement on the fair value of the derivative embedded in the issued Loan Notes, which is not deductible or taxable for UK tax purposes in the current period) for six consecutive accounting periods it is considered appropriate to recognise a deferred tax asset within the consolidated statement of financial position.

Deferred tax comprises the following amounts:

2013 £

2012 £

2011 £

Temporary differences arising on the acquisition of a subsidiary, primarily relating to intangibles assets (126,175) (202,606) (265,076)

Other temporary differences (25,774) – –

Temporary differences arising in US subsidiary (6,810) – –

Tax losses and deductibles 855,005 540,900 643,922

696,246 338,294 378,846

The unprovided deferred tax asset comprises the following amounts:

2013 £

2012 £

2011 £

Capital allowances 70,782 90,764 109,153

Other temporary differences 30,041 10,799 4,410

Tax losses and deductibles 1,276,448 1,327,159 1,415,784

Fair value of the derivative embedded in issued Loan Notes 334,387 – –

1,711,658 1,428,722 1,529,347

The principal amounts are calculated at 21% and 20% (2012: 23%; 2011: 25%) for the UK and 40 % (2012: 32%; 2011: 32.5%) for the US, using the liability method.

The UK corporation tax rate reduced from 24% to 23% with effect from 1 April 2013. A further reduction in the corporation tax rate from 23% to 21% was substantially enacted on 2 July 2013 and will be effective from 1 April 2014. A further 1% reduction in the corporation tax rate from 21% to 20% was also substantially enacted on 2 July 2013 and will be effective from 1 April 2015. Accordingly, this rate has been applied in the measurement of the deferred tax balances.




12. (Loss)/profit per ordinary share

Basic (loss)/profit per ordinary share is calculated based on the (loss)/profit for the year attributable to ordinary shareholders divided by the weighted average number of ordinary shares issued during the year.

For the years ended 31 December 2012 and 31 December 2011, diluted profit per share is calculated based upon the profit for the year attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year as adjusted for the dilutive effect of outstanding share options whose options price is lower than the average market price during the year.

For the year ended 31 December 2013 the reported loss per share and diluted loss per share are identical as the inclusion in the calculation of outstanding options would be anti-dilutive.

unit 2013 2012 2011

Basic

Attributable (loss)/profit £ (796,948) 202,502 877,335

Average number of ordinary shares in issue used for basic earnings per share Number 224,127,736 223,687,485 223,687,485

Basic (loss)/earnings per share pence (0.36)p 0.09p 0.39p

Diluted

Attributable (loss)/profit £ (796,948) 202,502 877,335

Dilutive effect of options Number – 757,968 448,286

Average number of ordinary share in issue used for diluted earnings per share Number 224,127,736 224,445,453 224,135,771

Diluted (loss)/earnings per share pence (0.36)p 0.09p 0.39p


13. Property, plant and equipment

Long leasehold and buildings

£

Office equipment

£

Computer equipment

£

Laboratory equipment

£Total

£

Carrying amount

at 1 January 2013 943,001 35,247 130,948 1,583,590 2,692,786

Additions 4,400 20,204 141,611 1,596,424 1,762,639

Disposals – – – (3) (3)

Exchange – – (2,409) (17,316) (19,725)

Depreciation (21,902) (6,299) (62,683) (556,099) (646,983)

at 31 December 2013 925,499 49,152 207,467 2,606,596 3,788,714

at 1 January 2012 949,813 14,790 151,673 986,688 2,102,964

Additions 14,865 25,168 37,837 1,001,218 1,079,088

Disposals – – – (15,274) (15,274)

Exchange – – (3,614) (16,601) (20,215)

Depreciation (21,677) (4,711) (54,948) (372,441) (453,777)

at 31 December 2012 943,001 35,247 130,948 1,583,590 2,692,786

at 1 January 2011 971,375 19,543 85,940 1,071,155 2,148,013

Additions – 272 110,280 202,058 312,610

Exchange – – 2,285 3,609 5,894

Depreciation (21,562) (5,025) (46,832) (290,134) (363,553)

at 31 December 2011 949,813 14,790 151,673 986,688 2,102,964

Long leasehold and buildings

£

Office equipment

£

Computer equipment

£

Laboratory equipment

£Total

£

at 31 December 2013

Cost/deemed cost 1,097,400 106,843 767,110 5,170,329 7,141,682

Accumulated depreciation (171,901) (57,691) (559,643) (2,563,733) (3,352,968)

Net book value 925,499 49,152 207,467 2,606,596 3,788,714

at 31 December 2012

Cost/deemed cost 1,093,000 86,639 628,808 3,944,628 5,753,075


Net book value 943,001 35,247 130,948 1,583,590 2,692,786

at 31 December 2011

Cost/deemed cost 1,078,135 61,471 595,410 3,272,431 5,007,447


Net book value 949,813 14,790 151,673 986,688 2,102,964

Included in Laboratory equipment above were amounts held under finance lease and hire purchase contracts. The net book value of such assets was £1,320,723 (2012: £947,766; 2011: £260,115).

Amounts due under finance lease and hire purchase contracts are secured on the assets to which they relate. No other assets of the Company are subject to any charge or security.




14. Intangible assets

Goodwill£

Trade names

£

Customer relationships

£

Technology & know-how

£

Technology & know-how

(internally generated)

£Total

£

Cost or valuation

At 1 January 2011 2,562,302 188,125 318,125 470,625 – 3,539,177

Additions – – – – 172,543 172,543

Exchange 65,701 4,824 8,157 12,067 5,530 96,279

At 31 December 2011 2,628,003 192,949 326,282 482,692 178,073 3,807,999

Additions – – – – 93,034 93,034

Exchange (112,859) (8,286) (14,012) (20,729) (10,501) (166,387)

At 31 December 2012 2,515,144 184,663 312,270 461,963 260,606 3,734,646

Exchange (15,337) (1,126) (1,904) (2,817) (1,589) (22,773)

At 31 December 2013 2,499,807 183,537 310,366 459,146 259,017 3,711,873

Depreciation and impairment

At 1 January 2011 – 7,839 26,510 19,610 – 53,959

Amortisation during the year – 18,696 63,230 46,770 11,503 140,199

Exchange – 800 2,706 2,002 369 5,877

At 31 December 2011 – 27,335 92,446 68,382 11,872 200,035


Exchange – (1,759) (5,946) (4,398) (1,153) (13,256)

At 31 December 2012 – 44,627 150,930 111,642 31,694 338,893


Exchange – (6,477) (3,688) (2,728) (1,532) (14,425)

Impairment – 135,801 – – – 135,801

At 31 December 2013 – 183,537 212,083 156,876 61,515 614,011

Net book value

At 31 December 2013 2,499,807 – 98,283 302,270 197,502 3,097,862

At 31 December 2012 2,515,144 140,036 161,340 350,321 228,912 3,395,753

At 31 December 2011 2,628,003 165,614 233,836 414,310 166,201 3,607,964

Trade names

During the year the Board decided to rebrand its US operations. The Apredica trade name which was acquired in August 2010 was superseded and the US now trades as Cyprotex US, LLC. Accordingly the carrying amount associated with the Apredica trade name has been subject to full impairment in the year to 31 December 2013 and the remaining balance of £135,801 written off.

Technology and know-how

Additions in the years ended 31 December 2012 and 31 December 2011 relate to development work carried out on CellCiphr® technologies.


Goodwill

Goodwill is subject to a yearly impairment test. Goodwill and other intangible assets relate to the acquisition of Cyprotex US, LLC (formerly known as Apredica, LLC) in August 2010 and Cyprotex US, LLC is defined as the cash – generating unit for impairment testing purposes.

The Group performed its annual impairment test as at 31 December 2013. As a listed entity on the AIM market of the London Stock Exchange, at the highest level, the Group considers the relationship between its market capitalisation and book value.

Where goodwill has been separately indentified to a particular set of assets and liabilities, as in the case with Cyprotex US, LLC, a value-in-use calculation has been determined using detailed cash flow projections based upon those forecast to be generated by the Cyprotex US, LLC unit over the next five years. Beyond the five years a terminal growth rate is used with reference to previous growth achieved in the ADME-tox market by the Group taking into consideration the forecast growth in the market or markets in which Cyprotex US, LLC currently operates.

Within the value-in-use calculation a pre tax discount rate of 12% (2012: 12%) has been applied and a terminal rate of 1% (2012: 3%).

Key assumptions used in the calculation of value-in-use are:

• Gross margins

• Discount rates

• Market share

• Terminal growth rate

Gross margins: Assumed to be consistent with that achieved by the Group in 2013 at 80%.

Discount rates: Reflects management’s estimate of return required on investments.

Market share: Current expectation is that the ADME-tox market will grow at least 10% per annum and that Cyprotex US, LLC will substantially match this. Cyprotex US, LLC is a much younger company than its sister company Cyprotex Discovery Limited being formed in 2006 (compared with 1999) and it operates in North America, the largest global market for ADME-tox services. In the last five years Cyprotex Discovery Limited has achieved on average over 7.5% compound annual growth in revenues.

Terminal growth rate: Management estimates are set at 1%, which is somewhat lower than current market growth expectations based on published industry research.

Using the above assumptions the calculations performed by the Board indicate that there is an excess in the value-in-use of Cyprotex US, LLC when compared to the carrying value of goodwill at 31 December 2013 and accordingly no impairment has been recognised in the carrying value of goodwill at 31 December 2013.

Sensitivity to changes in assumptions

Sensitivity analyses have been calculated on all key assumptions to assess the level of headroom.

In order to assess at what level the value-in-use calculation gives the same value at 31 December 2013 as the carrying value of goodwill, all other assumptions remaining the same, key assumptions would have to be changed as follows:

• Gross margins – would have to fall by 6% from 80% to 79.5%.

• Discount rates – would have to increase by 50% from 12% to 18%.

• Market share – growth in market share would have to be 46% less than currently forecast.

• Growth including terminal growth rate – would have to fall by over 45% from that forecast.




15. Inventories

2013 £

2012 £

2011 £

Raw materials and consumables 425,638 367,967 349,780

Inventory expensed in the year amounted to £1,587,083 (2012: £1,316,691; 2011: £990,889).

The difference between the replacement cost and the book value of inventory is not material.

16. Trade receivables

2013 £

2012 £

2011 £

Trade receivables 1,500,527 1,199,999 1,095,801

The average credit period taken on trade receivables excluding deferred income is 48 days (2012: 44 days, 2011: 44 days). Trade receivables do not carry interest. Standard terms on trade receivables range from 30 to 75 days from date of invoicing.

Total£

Neither past due nor

impaired£

Past due but not impaired

< 30 days

£

30–60 days

£

60–90 days

£

90–120 days

£

>120 days

£

At 31 December 2013 1,500,527 1,180,961 272,433 23,507 23,626 – –

At 31 December 2012 1,199,999 1,059,154 82,820 58,025 – – –

At 31 December 2011 1,095,801 934,255 161,546 – – – –

Amounts past due and impaired at 31 December 2013 were £nil (2012: £nil, 2011: £nil).

17. Other receivables

2013 £

2012 £

2011 £

Other receivables including VAT 121,938 92,296 37,318

Prepayments and accrued income 621,745 444,699 367,955

743,683 536,995 405,273

18. Trade payables

2013 £

2012 £

2011 £

Trade payables 515,083 289,114 331,974

The average credit period taken for trade payables is 35 days (2012: 32 days, 2011: 30 days). No interest is charged on trade payables. The Directors consider the carrying amount of trade payables approximate to their fair value.

Standard terms on trade payables are 30 days from date of invoicing.


19. Other payables

2013 £

2012 £

2011 £

Other taxes and social security costs 112,038 71,003 71,823

Other payables 217,902 82,352 21,254

Accruals and deferred income 784,622 416,682 470,882

1,114,562 570,037 563,959

The Directors consider the carrying amount of other payables approximate to their fair value and are short term in nature.

20. Non current liabilities

2013 £

2012 £

2011 £

Bank loans – 538,493 614,400

Obligations under finance leases and hire purchase contracts 638,235 567,916 108,727

Convertible Loan Notes (see note 35) 3,823,195 – –

Redeemable Loan Notes (see note 35) 2,973,599 – –

Embedded Loan Note derivatives (see note 35) 1,592,319 – –

Provisions – 58,814 176,155

Deferred taxation (see note 11) 158,759 202,606 265,076

9,186,107 1,367,829 1,164,358

The Group uses finance lease and hire purchase contracts to acquire plant and machinery with an option to purchase at the end of the term. Future minimum lease payments under finance leases and hire purchase contracts are as follows:

Future minimum lease payments2013

£2012

£2011

£

Not later than one year 358,270 267,970 99,240

After one year but no more than five years 683,364 614,795 124,190

1,041,634 882,765 223,430

Less finance charges allocated to future periods (87,703) (86,084) (33,171)

Present value of minimum lease payments 953,931 796,681 190,259

The present value of minimum lease payments is analysed as follows:

2013 £

2012 £

2011 £


After one year but no more than five years 638,235 567,916 108,727

953,931 796,681 190,259




20. Non current liabilities continued

Provisions comprise the following amounts in respect of contingent consideration:

Contingent consideration2013

£2012

£2011

£

At 1 January 166,914 325,155 474,100

Interest element 18,344 23,924 43,478

Utilised (69,134) (69,370) (199,507)

Released (60,990) (102,532) –

Exchange 3,891 (10,263) 7,084

At 31 December 59,025 166,914 325,155

At 31 December

Current 59,025 108,100 149,000

Non current – 58,814 176,155

59,025 166,914 325,155

On 4 August 2010 prior to the acquisition of Cyprotex US, LLC (formerly known as Apredica, LLC) by Cyprotex PLC, Cyprotex US, LLC acquired certain assets and the trade of Cellumen, Inc. under an asset purchase agreement. Under the terms of that agreement Cyprotex US, LLC agreed to pay a contingent payment based on future sales revenues using the CellCiphr® technology acquired for a period up to four years at a rate of between 10% and 20%. These potential payments have been classified as contingent consideration and the above provision represents an estimate of potential payments that may fall due under that agreement.

Movement on the deferred tax liability during the period is as follows:

Deferred taxation2013

£2012

£2011

£

At 1 January 202,606 265,076 308,980

Transfer to income statement (see note 11) (46,191) (52,755) (50,217)

Exchange 2,344 (9,715) 6,313

At 31 December 158,759 202,606 265,076


21. Maturity profiles


£

Redeemable Loan Notes

£

Embedded derivatives

£

Finance leases

and hire purchase contracts

£Total

£

At 31 December 2013

Within one year or on demand – – – 315,696 315,696

In one to two years – – – 239,957 239,957

In two to five years 3,823,195 2,973,599 1,592,319 398,278 8,787,391

3,823,195 2,973,599 1,592,319 953,931 9,343,044

Bank loans

£

Finance leases


£Total

£

At 31 December 2012

Within one year or on demand 72,360 228,765 301,125

In one to two years 74,520 232,247 306,767

In two to five years 162,323 335,669 497,992

Over five years 301,650 – 301,650

610,853 796,681 1,407,534

Short-term borrowings

£

Bank loans

£

Finance leases


£Total

£

At 31 December 2011

Within one year or on demand 150,000 67,100 81,532 298,632

In one to two years – 69,600 49,743 119,343

In two to five years – 193,100 58,984 252,084

Over five years – 351,700 – 351,700

150,000 681,500 190,259 1,021,759

A bank loan of £704,000 was advanced by Bank of Scotland on 17 January 2005 to assist with the purchase of the Group’s UK operating premises in Macclesfield. The loan is repayable in equal monthly instalments over 20 years. The bank loan carries an interest rate of 1.75% above base rate. On 17 May 2011 the Group entered into a 5-year term loan with Bank of Scotland for £200,000 repayable in equal monthly instalments from the date the loan commenced with final repayment in May 2016. This term loan has a fixed rate interest of 5.42%. Both loans from Bank of Scotland were repaid in full in the year ended 31 December 2013.

Amounts due under finance lease and hire purchase contracts are secured on the assets to which they relate.

Further information on the Loan Notes issued by the Company can be found in note 35.




22. Gross payments due


£

Redeemable Loan Notes

£

Embedded derivatives

£

Finance leases


£

Trade and other payables

£Total

£

At 31 December 2013

Within six months – – – 184,105 1,629,645 1,813,750

Six to twelve months – – – 174,165 – 174,165

In one to five years 5,105,792 3,829,345 1,842,872 683,364 – 11,461,373

5,105,792 3,829,345 1,842,872 1,041,634 1,629,645 13,449,288

Bank loans

£

Finance leases


£


£Total

£

At 31 December 2012

Within six months 45,018 133,985 859,151 1,038,154

Six to twelve months 45,018 133,985 – 179,003

In one to five years 287,679 614,795 – 902,474

Over five years 313,565 – – 313,565

691,280 882,765 859,151 2,433,196


£

Bank loans

£

Finance leases


£


£Total

£

At 31 December 2011

Within six months – 45,018 67,423 895,933 1,008,374

Six to twelve months 159,024 45,018 31,817 – 235,859

In one to five years – 333,447 124,190 – 457,637

Over five years – 357,833 – – 357,833

159,024 781,316 223,430 895,933 2,059,703

The above contractual maturities reflect the gross undiscounted cash flows, which therefore may differ from the carrying values of the related liabilities at the balance sheet date.


23. Operating lease commitments

Annual commitments under non-cancellable operating leases are as follows:

2013 £

2012 £

2011 £


After one year but no more than five years – 126,438 126,389

After five years – – –

156,360 250,959 252,437

The majority of non-cancellable operating leases relates to the rental of the Company’s US premises in Watertown, Boston, Massachusetts, USA; which is subject to a two year renewal with the next renewal due on 31 December 2014. Additionally the Company rents office and laboratories at the BioHub, Alderley Park, Cheshire, UK on a short term lease.

Expensed in the year2013

£2012

£2011

£

Operating lease charges 131,121 125,326 62,699

24. Called up share capital

2013Number

2012Number

2011Number

Authorised

Ordinary shares of 0.1 pence each 300,000,000 300,000,000 300,000,000

Authorised £ £ £

Ordinary shares of 0.1 pence each 300,000 300,000 300,000

2013Number

2012Number

2011Number

Allotted, called up and fully paid


Allotted, called up and fully paid £ £ £


The Company has only one class of shares.




25. Share issues

Ordinary shares

Number

Ordinary shares

£

Cash yielded

£

Increase in equity

£

Year to 31 December 2013

At 1 January 2013 223,687,485 223,687 – –

Issues of shares– exercise of employee options 653,084 654 8,256 8,256

At 31 December 2013 224,340,569 224,341 8,256 8,256


At 1 January 2012 223,687,485 223,687 – –

At 31 December 2012 223,687,485 223,687 – –


At 1 January 2011 223,687,485 223,687 – -

At 31 December 2011 223,687,485 223,687 – –

There were no shares issued by the Company in the year ended 31 December 2012 or 31 December 2011. The weighted average share price at the date of issue or exercise in the year ended 31 December 2013 was 1.26 pence.

Shares issued during the three years ended 31 December 2013 in satisfaction of share options previously granted under Cyprotex PLC’s employee share option scheme are detailed below:

Ordinary Shares issued

NumberOption price

pence

Employees exercising

optionsNumber

Share capital

£

Share premium

£

Year ended 31 December 2013

– exercise of employee options 625,000 1.13p nine 625 6,438

– exercise of employee options 28,084 4.25p one 29 1,164

No employee share options were exercised in the year ended 31 December 2012 or 31 December 2011.


26. Share options

Share options issued and those vested at 31 December 2013 are as follows:

Issue Note

At 1 January 2013

NumberExercised

Number

31 December 2013

Number Date granted

Exercise price

PenceEarliest date

of exerciseDate of expiry

450,000 (450,000) – 13-05-03 1.13 13-05-05 31-05-13

175,000 (175,000) – 15-05-03 1.13 21-08-04 21-04-13

i a, b, c 1,012,038 (28,084) 983,954 04-06-04 4.25 04-06-06 30-06-14

ii b 450,000 – 450,000 8&9-09-04 11.0 8&9-09-06 7&8-09-14

iii a, b, c 1,236,701 – 1,236,701 25-05-06 4.25 25-05-08 25-05-16

iv a 250,000 – 250,000 01-08-06 8.25 01-08-08 01-08-16

3,573,739 (653,084) 2,920,655

Total VestedNot

vested

At 31 December 2013 2,920,655 2,920,655 –

At 31 December 2012 3,573,739 3,573,739 –

Vesting dates vary and are dependent upon date of issues, full details are given below.

Notes

a) Exercisable as follows:

– 50% on second anniversary – 2.085% each subsequent month for 22 months – remainder one month later

b) ‘EMI’ – Enterprise Management Incentives

c) Share price rebased on 7 October 2009 at nil cost to the income statement.

Share price information is set out below:

2013 pence

2012 pence

2011 pence

At 31 December 7.63 3.75 4.00

High in year 7.75 6.50 5.38

Low in year 3.38 3.38 2.88

i) 983,954 options now remain of 3,925,622 which were granted to a number of employees of the Company on 4 June 2004. Each of the options may be exercised as follows: 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 11p per share. The options are conditional on the option holder remaining an employee of the Company at the relevant date(s) of the exercise of the options. On 7 October 2009, these options were surrendered and substituted for a revised entitlement at a rate of 56.17% at a price of 4.25p.

ii) Options totalling 450,000 were granted to now former Non-Executive Directors on 8 and 9 September 2004. Each of the options may be exercised on or after the second anniversary of the date of grant at 11.0p per share. The options have no other conditions of exercise attached to them.

iii) 1,236,701 options remain of 2,050,000 which were granted to a number of employees of the Company on 25 May 2006. Each of the options may be exercised as follows: 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 8.25p per share. The options are conditional on the option holder remaining an employee of the Company at the relevant date(s) of the exercise of the options. On 7 October 2009, these options were surrendered and substituted for a revised entitlement at a rate of 72.75% at a price of 4.25p.

iv) Options totalling 250,000 were granted to a US-based consultant of the Company on 1 August 2006. Each of the options may be exercised 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 8.25p.




27. Share-based payments – share options

The Group has a share option scheme for all UK employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the date of grant. Vesting periods vary with each grant and details are given in note 26 and in the tables below. If the option remains unexercised after a period of ten years from the date of grant the option expires. Generally, options to employees are forfeited if an employee leaves the Group before the options vest, the only exception being 450,000 options awarded to former Non-Executive Directors.

All awards are equity settled.

Details of the share options outstanding during the year are as follows:

Number of share options2013

Number2012

Number2011

Number

Outstanding at beginning of the year 3,573,739 3,573,739 3,573,739

Granted – – –

Forfeited – – –

Exercised (653,084) – –

Expired – – –

Outstanding at the end of the year 2,920,655 3,573,739 3,573,739

Exercisable at year end 2,920,655 3,573,739 3,573,739

All at weighted average exercise price2013

pence2012

pence2011

pence

Outstanding at beginning of the year 4.83 4.83 4.83

Granted – – –


Exercised 1.26 – –

At date of exercise – – –

Expired – – –

Outstanding at the end of the year 5.63 4.83 4.83

Exercisable at year end 5.63 4.83 4.83

years years years

Weighted average contractual life of remaining vested option 1.53 2.08 3.08

Historically, Cyprotex’s share price has been volatile. Accordingly Black-Scholes inputs are taken from an appropriate basket of peer group companies and are set out below:

Inputs into Black-Scholes model 2013 2012 2011

Weighted average share price 6.97 pence 6.97 pence 6.97 pence

Weighted average exercise price 4.24 pence 4.24 pence 4.24 pence

Expected volatility 59% 59% 59%

Expected life 4 years 4 years 4 years

Risk-free rate 5.25% 5.25% 5.25%

Expected dividends nil nil nil

Charge recognised relating to equity settled share-based payments £nil £nil £nil


28. Share-based payments – Value Creation Plan (‘VCP’)

The Group adopted a Value Creation Plan (‘VCP’) on 7 October 2009. The purpose is to allow participants a certain percentage of value created in excess of an annual hurdle rate, as calculated at the end of a four-year performance period. Participants to this scheme are key management of the Group including Executive Directors. The award is by way of nil-cost share options and is calculated at 15% of any excess value over a compound 25% per annum growth rate in the market value of the Company on a cumulative basis.

Criteria

Initial share price on 3 June 2008 3.32 pence

Share price at date of grant on 7 October 2009 4.375 pence

Annual growth rate – hurdle 25%

Projected payout in excess of annual growth rate 15%

Measurement date 3 June 2012

Target share price 8.105 pence

The initial share price was the price on the day Dr A.D. Baxter joined as CEO of the Company which was on 3 June 2008.

The share price would have to exceed the above target amounts before any award would become payable on that date. In order to calculate the fair value of potential awards a Monte Carlo simulation model was used. The principal inputs to this valuation model were as follows:

Inputs into valuation model 2013 2012 2011

Opening share price 4.35 pence 4.35 pence 4.35 pence

Exercise price nil pence nil pence nil pence



Risk-free rate 2.35% 2.35% 2.35%


Charge recognised relating to equity settled share-based payments £nil £60,773 £143,100

The Value Creation Plan ended in the year to 31 December 2012 with no awards being made to participants under the Plan.




29. Financial instruments

This note should be read in conjunction with the financial review set out on pages 20 to 29.

Functional currency

The functional currency of the parent and UK trading subsidiary is pounds sterling (£).

Capital risk management

The Group aim to manage capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through optimisation of debt and equity. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents, and equity attributable to equity holders of the parent.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 4 to the financial statements.

Treasury policies and financial risk

Surplus funds are intended to support the Group’s short-term working capital requirements. These funds are invested through the use of short-term and period deposits, with a policy of maximising fixed interest returns as well as providing the flexibility required for funding ongoing operations.

It is not Group policy to routinely use financial derivatives to manage exposure and other financial assets and liabilities. Financial risks are considered to be future interest rates, liquidity, credit and foreign currency risk. The Board will review its existing policies in the coming period. Short-term, foreign currency risk may potentially impact the Group given that currently over 70% (2012: over 55 %; 2011: over 50%) of revenues are based in Euros, US dollars, or Swiss francs.

Categories of financial instruments

2013 £

2012 £

2011 £

Financial assets

Loans and receivables

Trade receivables 1,500,527 1,199,999 1,095,801

Other receivables 121,938 92,296 37,318

Cash and cash equivalents 7,094,608 858,539 1,127,680

8,717,073 2,150,834 2,260,799


Short-term deposits, included within cash and cash equivalents, are placed with banks for a period of up to three months.

2013 £

2012 £

2011 £


Other financial liabilities – held at amortised cost

Long-term borrowings – 538,493 614,400

Short-term borrowings – – 150,000

Other borrowings 6,796,794 – –

Obligations under finance leases 953,931 796,681 190,259

Trade payables 515,083 289,114 331,974

Other payables 1,114,562 570,037 563,953

Current portion of long-term borrowings – 72,360 67,100

Other financial liabilities – held at fair value though profit and loss

Embedded derivatives 1,592,319 – –

10,972,689 2,266,685 1,917,686

There is no material difference between the numbers above and their respective fair values.

Fair value measurements at the end of the reporting period using:

Year ended 31 December 2013Total

£

Quoted in active markets for

identical assets (level 1)

£

Significant other observable

inputs (level 2)

£

Significant unobservable

inputs (level 3)

£


Other borrowings 6,796,794 – – 6,796,794

Embedded derivatives 1,592,319 – – 1,592,319

8,389,113 – – 8,389,113

The significant unobservable inputs use the fair value measurement of the Groups debt instruments are the applied credit spread, the share price volatility and the risk free rates used in the fair valuation approach. Significant changes in any of these inputs in isolation would result in either an increase or decrease to the overall fair value of the instruments. For example, a 5% increase on the credit spread applied at the balance sheet date would result in a decrease in the fair value of the liability of approximately £0.3 million.

Further information on Loan Notes issued by the Company can be found in note 35.




29. Financial instruments continued

The interest-rate risk profile of financial assets, which comprise cash and cash equivalents, is set out below:

Floating rate financial

assets£

Financial assets on which no

interest is earned

£Total

£


US dollar 6,741 922,722 929,463

Euro – 78,192 78,192

Swiss franc – 4,682 4,682

Sterling 6,076,538 5,733 6,082,271

6,083,279 1,011,329 7,094,608


US dollar 6,772 248,782 255,554

Euro – 21,525 21,525

Swiss franc – 1,579 1,579

Sterling 467,920 111,961 579,881

474,692 383,847 858,539


US dollar 5,607 116,753 122,360

Euro – 38,695 38,695

Swiss franc – 142 142

Sterling 751,700 214,783 966,483

757,307 370,373 1,127,680

Interest earned

Year ended 31 December2013

%2012

%2011

%

Interest earned maximum

US dollar 0.05% 0.10% 0.10%

Euro n/a n/a n/a

Swiss franc n/a n/a n/a

Sterling 0.50% 0.65% 0.64%

Interest earned minimum

US dollar 0.05% 0.05% 0.05%

Euro n/a n/a n/a

Swiss franc n/a n/a n/a

Sterling 0.50% 0.40% 0.54%


Interest rate risk management

Apart from using short-term and period deposits, interest-rate risks are limited to the fixed element of finance lease and hire purchase agreements that the Group has entered into, and fixed coupon rates on Loan Note instruments issued. Typically, the Group has arranged lease finance and hire purchase for fixed periods ranging from three to five years, to enable the purchase of assets where it is considered to be an effective use of funds. The Group does not utilise any instruments including swaps to limit interest rate risk.

Interest rate sensitivity analysis

The following table illustrates the sensitivity of the net results for the year and equity to a reasonably possible change in interest rates of +1.5% and -0.5% with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based upon the Group financial instruments (both assets and liabilities) held at the year-end date. All other variables are assumed to be constant.

Increase in interest rate of 1.5%2013

£2012

£2011

£

Net result for the year increase/(decrease) 90,000 (6,100) 7,500

Equity increase/(decrease) 90,000 (6,100) 7,500

Decrease in interest rate of 0.5%2013

£2012

£2011

£

Net result for the year (decrease)/increase (31,000) 2,000 (2,500)

Equity (decrease)/increase (31,000) 2,000 (2,500)

Interest rate risk profile of financial liabilities

The interest rate risk profile of financial liabilities is as follows:

Fixed rate financial liabilities

£

Floating rate financial liabilities

£Total

£


Other borrowings – Loan Notes 8,389,113 – 8,389,113

Obligations under finance leases 953,931 – 953,931

9,343,044 – 9,343,044


Bank loans 142,453 468,400 610,853


939,134 468,400 1,407,534


Bank loans 179,800 501,700 681,500

Short term borrowing 150,000 – 150,000


520,059 501,700 1,021,759





Interest rate risk profile of financial liabilities continued

Bank loans

On 17 January 2005, Cyprotex entered into a 20 year, fully drawn, mortgage facility of £704,000 with Bank of Scotland to substantially fund the acquisition of a long-leasehold interest in its UK operational premises. Interest payable on this bank loan is charged at 1.75% over the bank’s base rate. On 17 May 2011 the Group entered into a 5-year term loan with Bank of Scotland for £200,000, repayable in equal monthly instalments from the date the loan commenced with final repayment in May 2016. This term loan has a fixed rate interest of 5.42%.Both loans with Bank of Scotland were repaid in full in the year ended 31 December 2013.

Finance lease and hire purchase agreements

The Group has eight (UK seven, US one) finance lease or hire purchase agreements extant at 31 December 2013 (2012: six (UK five, US one), 2011: five, (UK one, US four)). Term lengths are three to five years and interest rates are fixed upon signing. Interest rates vary, and in the UK currently range from 3.6% to 5.3%. In the US there is now one remaining lease acquired as part of the Cyprotex US, LLC (formerly known as Apredica, LLC) acquisition attracting interest at a rate of 12.6%.


Comprised amounts due to Directors under loan agreements and in 2010 also included contingent consideration payable by Cyprotex US, LLC (formerly known as Apredica, LLC).

Other borrowings – Loan Notes

Details of Loan Notes issued in the year are given in note 35. The amount issued in the year totalled £7,000,000 and issue costs were £122,000. Each Loan Note carries interest at a rate of 5% per annum settled annually on each anniversary by the issue of PIK notes. The Loan Notes issued are due for repayment on 30 September 2018 and are valued at fair value at the balance sheet date.

The weighted average interest rate of fixed-rate financial liabilities is set out below:

Weighted average interest rate

%

Weighted average period for which

rate is fixed Years


Sterling 5.0 4.7

US Dollar 12.6 1.6


Sterling 5.1 3.1

US Dollar 12.6 2.6


Sterling 5.1 2.8

US Dollar 13.6 2.4

Fixed-rate financial liabilities consist of finance lease obligations, and other borrowings.


Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The principal credit risk arises from the Group’s trade receivables.

Unit 2013 2012 2011

Total trade receivables £ 1,500,527 1,199,999 1,095,801

Number of receivables in excess of 5% of total number four three one

Percentage of receivables in excess of 5% of total % 45% 32% 13%

In order to manage credit risk, the Directors set limits for customers based on a combination of payment history, third-party credit references, and independent rating agency. The Group’s exposure and credit rating of its counterparties are continuously monitored. Credit exposure is controlled by counterparty limits that are reviewed bi-annually.

Ongoing credit evaluation is performed on the financial condition of accounts receivable.

The Group carries no credit insurance and therefore the maximum exposure to credit risk is the carrying value of the trade receivables, see also note 16.

Liquidity risk management


There are no covenants attached to both the unsecured Redeemable and Convertible Loan Notes issued in the year.

Borrowing facilities

As at 31 December 2013, the Group had no overdraft facility (2012: £nil; 2011: £nil).

Details of Loan Notes issued in the year are given in note 35. The amount issued in the year totalled £7,000,000 and issue costs were £122,000. Each Loan Note carries interest at a rate of 5% per annum settled annually on each anniversary by the issue of PIK notes. The Loan Notes issued are due for repayment on 30 September 2018 and are valued at fair value as follows:

Loan Notes 2013

£2012

£2011

£

Loan Notes – Convertible 4,795,188 – –

Loan Notes – Redeemable 3,593,925 – –

8,389,113 – –

Finance lease and hire purchase arrangements

The Group has eight (UK seven, US one) finance lease or hire purchase agreements extant at 31 December 2013 (2012: six (UK five, US one); 2011: five (UK one, US four)). Term lengths are three to five years and interest rates are fixed upon signing. Interest rates vary, and in the UK currently range from 3.6% to 5.3%. In the US there is now one remaining lease acquired as part of the Cyprotex US, LLC (formerly known as Apredica, LLC) acquisition attracting interest at a rate of 12.6%.





Foreign currency risk management

In anticipation of any further expansion of North American and European sales, which are mainly denominated in US dollars and Euros, the associated currency risk (whilst partly offset by overseas expenditure) is regularly reviewed by the Board. To limit this exposure the Group has sales price agreements with major customers that do not exceed one year and are not coterminous. Additionally, individual ADMET service contracts known internally as ‘Rounds’ are short in time frame and as part of our minimum service standards are usually completed within ten working days of a compound arriving on site. Control over debtor management within the Group is strong. Surplus currency is sold closely following receipt.

Translation of and realisation of currency assets and liabilities will give rise to net currency gains and losses, which are recognised in the income statement. Net monetary assets and liabilities of the Group, denominated in currencies other than Sterling were as follows:

Net monetary assets and liabilities denominated in foreign currencies2013

£2012

£2011

£

US dollar 1,444,549 676,619 151,297

Euro 697,092 293,793 213,422

Swiss franc 6,018 1,579 142

2,147,659 971,991 364,861

Effects of weakening exchange rates

The Group trades in Sterling, US dollars, Euros, and Swiss francs.

If Sterling were to weaken by 10% against the Euro, US dollar, and Swiss franc, the effects on profit/(loss) after taxation and shareholders’ equity would be as follows:

US Dollar £

Euro £

Swiss franc £

Effects of weakening exchange rates – 2013

Profit after taxation – increase 145,000 70,000 500

Shareholders’ Equity – increase 460,000 70,000 500







Conversely a 10% strengthening in Sterling against the Euro, US dollar, and Swiss franc would have an equal and opposite effect.

Currency risk profile

The functional currency of the Group is Sterling. The majority of its costs are incurred in that currency.

At 31 December 2013, the Group had the following foreign currency assets and liabilities denominated in Euros, US dollars, and Swiss francs:

Foreign currency denominated assets and liabilities2013

£2012

£2011

£

Cash and cash equivalents 1,012,337 278,658 161,197

Trade receivables 1,208,283 773,529 306,828

Trade payables 72,961 80,196 103,164


30. Related party transactions

Amounts expensed /(credited) through income statement, which were contracted on an arm’s length basis, were as follows:

2013 £

2012 £

2011 £

Non-Executive Directors fees for the services of Mr C. Mills paid to Harwood Capital LLP (fund manager connected to largest shareholder who have a combined shareholding of 29.01%) 6,617 – –

Contribution to legal fees of Harwood Capital LLP associated with Loan Note issue 12,500 – –

Non-Executive Directors fees for the services of Mr C. Clothier paid to IPGL Limited (former shareholder) 9,000 12,000 12,000

PIK interest charge (gross) on Redeemable Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (100% Loan Note holding) 44,627 – –

PIK interest charge (gross) on Convertible Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (89.9% Loan Note holding) 52,792 – –

Proportion of finance charge related to the embedded derivatives on Loan Notes issued to Trident Private Equity Fund III LP managed by Harwood Capital LLP 1,529,573 – –

Promissory note interest on Directors’ loans payable to Dr K. Tsaioun (Former director and shareholder) – – 4,718

Promissory note interest on Directors’ loans payable to Mr D.C. Bates (Former director and former shareholder) – 1,533 4,718

Interest payments on finance lease obligations to a leasing company in which Mr D.C. Bates has a substantial interest – – 1,048

Consultancy payment to Mr D.C. Bates – 38,656 –

Interest payments on loans due to relatives of Dr K. Tsaioun – – 150

Amounts owed to related parties at 31 December 2013 comprised:

2013 £

2012 £

2011 £

Loan due to Dr K. Tsaioun – – 75,000

Loan due to Mr D.C. Bates – – 75,000

Sub total – – 150,000

Non-Executive Directors fees for the services of Mr C Clothier paid to IPGL Limited – 1,000 –

Non-Executive Directors fees for the services of Mr C. Mills paid to Harwood Capital LLP 3,780 – –

PIK interest charge (net) on Redeemable Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (100% Loan Note holding) 42,234 – –

PIK interest charge (net) on Convertible Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (89.9% Loan Note holding) 35,702 – –


Promissory note interest on Directors’ loans payable to Dr K. Tsaioun – – 8,392

Promissory note interest on Directors’ loans payable to Mr D.C. Bates – – 8,392

Other loans due to relatives of Dr K. Tsaioun – – 140

Total 1,611,289 1,000 166,924

Simultaneously on the acquisition of Cyprotex US, LLC, two Directors each made loans of £225,000 to the Group. Repayment terms on these loans were as follows; £300,000 was due on 31 March 2011 (and was paid on that date) and the remaining £150,000 was paid by 30 September 2012. Interest was payable on these loans at a rate of 4%.

Director’s fees due and payable for the services of Mr C. Clothier are paid direct to his principal employer IPGL Limited.

Director’s fees due and payable for the services of Mr C. Mills are paid direct to his principal employer Harwood Capital LLP.

Further information on the issue of Loan Notes by the Company can be found in note 35.

Details of group companies are set out in note 40.




31. Key management compensation

The remuneration of the officers of the Company, including Directors, and the officers of the Company’s subsidiary undertakings, who are considered to be key management personnel of the Group, are as follows:

2013 £

2012 £

2011 £

Short-term employee benefits 634,992 650,708 729,589

Termination benefits – 63,532 42,900

Retirements benefits 79,894 89,580 66,908

714,886 803,820 839,397

Share-based payment – 60,773 143,100

714,886 864,593 982,497

32. Pension commitments

The Group’s principal UK trading subsidiary, Cyprotex Discovery Limited, operates a defined contribution scheme, The Cyprotex Group Stakeholder Pension Scheme, for its UK Directors and employees. The assets of the scheme are held separately from those of the Group in an independently administered scheme. The unpaid contributions at 31 December 2013 were £48,103 (2012: £21,690; 2011: £22,437).

In the US the Group contributes to a defined retirement plan at Cyprotex US LLC, matching employee contributions up to 3% of salary. Unpaid contributions at 31 December 2013 were £18,327 (2012: £21,561; 2011: £19,201).

33. Capital commitments

2013 £

2012 £

2011 £

Capital commitments outstanding (property, plant and equipment) 278,000 388,200 nil

34. Finance lease and hire purchase arrangements

The Group entered into two separate finance lease or hire purchase agreements, over three to five year terms, in the year ended 31 December 2013 (2012: four; 2011: one) to assist with the upgrade of the UK analytical platform and robotic handling equipment. The cost of this equipment and amount of funding received are as follows:

2013 £

2012 £

2011 £

Cost of equipment 494,879 875,554 119,666

Funding received from lenders (445,391) (787,998) (83,766)

Unfunded element 49,488 87,556 35,900

These additions to property, plant and equipment can be reconciled to the amounts disclosed in the statement of cash flows and the statement of financial position as follows:

2013 £

2012 £

2011 £

Unfunded element (above) 49,488 87,556 35,900

Other property, plant and equipment additions sourced from own funds 1,119,677 203,534 192,944

Purchase of property, plant and equipment as per the statement of cash flows 1,169,165 291,090 228,844

Movement in unpaid additions at period end 148,083 – –

Funding received from lenders 445,391 787,998 83,766

Total property, plant and equipment additions (note 13) 1,762,639 1,079,088 312,610


35. Other borrowings – Loan Notes

The Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes (“Redeemables”) and £4 million of unsecured Convertible Loan Notes (“Convertibles”) in September 2013. By way of an Open Offer the Company issued £4 million nominal value of Convertible Loan Notes at par. Additionally it also, by way of subscription, issued £3 million nominal value of Redeemable Loan Notes at par. Details of these fundraising where sent to all shareholders by way of a circular. Both instruments pay interest in the form of ‘payment in kind’ (‘PIK’) notes at the rate of 5% per annum on a compound basis, payable on each anniversary of issue for a period of five years. Convertible Loan Notes were offered and issued such that each shareholder would be entitled to 0.01783003 of nominal value £1.00 Convertible Loan Notes. Convertible Loan Notes are convertible at 6 pence per share. Redeemable Loan Notes were issued subject to a notional conversion price of 6 pence per ordinary share. Issue costs associated with this fundraising amounted to £122,000. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The fair values attributed to the Loan Notes at 31 December 2013 are as follows:

2013 £

2012 £

2011 £

Loan Notes – Convertible 3,823,195 – –

Loan Notes – Redeemable 2,973,599 – –

Embedded derivative 1,592,319 – –

8,389,113 – –

The Convertible Loan Notes and associated PIK notes can be converted at the election of the holders of Convertible Loan Notes into ordinary shares of the Company on 30 September 2014 and/or on each anniversary of that date. Subject to conversion rights being exercised by the Noteholder, Loan Notes are repayable by the Company on the earlier of:

• the Offer Date where there is a change in control of the Company or a scheme of arrangement put in place.

• the Maturity Date (30 September 2018). The Maturity Date in respect of the Convertible Loan Notes and Redeemable Loan Notes may also be extended by up to two years at the option of a 50% majority of the holders of Convertible Loan Notes and Redeemable Loan Notes respectively.

The amount to be paid by the Company in respect of the redemption of the Loan Notes will be the greater of:

i) the nominal amount of the Loan Notes and the PIK Notes: and

ii) where a change in control of the Company or a scheme of arrangement is put in place, the amount calculated by applying the Offer Price per ordinary share applicable to the Offer to the number of Ordinary Shares represented by the Notes on the assumption that the nominal value of the Loan Notes then in issue (including any PIK notes issued or to be issued on or immediately prior to the Offer Date) had been converted in to Ordinary Shares at the Conversion Price (6 pence) or Notional Conversion Price (6 pence), as the case may be, on the Offer Date: and

iii) where the Loan Notes are redeemed on the Maturity Date the amount calculated by applying the average mid-market closing price of the Ordinary Shares in the 30 Business days prior to the Maturity Date to the number of Ordinary shares represented by the Loan Notes on the assumption that the nominal value of the Loan Notes then in issue (including any PIK notes issued or to be issued on or immediately prior to the Maturity Date) had been converted into Ordinary shares at the Conversion Price (6 pence) or Notional Conversion price (6 pence) on the Maturity date (30 September 2018).

The Convertible Loan Notes and Redeemable Loan Notes are subject to a multiplier based upon the increase in share price from the Conversion or Nominal Conversion price of 6 pence. In both cases any increase in the average mid-market closing price of Cyprotex shares from a nominal base of 6 pence in the 30 prior market dealing days leads to a broadly proportionate increase in the amount of potential Loan Note related debt repayable on maturity. This increase in debt, relating to share price movements of the Company, is accounted for under International Financial Reporting Standards (“IFRS”) as an additional finance cost in the income statement.




35. Other borrowings – Loan notes continued

The Convertible Loan Notes have three separate economic components as follows:

• a liability component being a discounted fixed rate debt;

• an equity component due to the holders right to convert into Ordinary shares; and

• an embedded derivative due to conversion rights being linked to the Company’s share price.

Each of these components is measured to fair value at the issue date.

This results in recognition of £164,496 (net of associated issue costs) as an equity component and the initial recognition of the debt component.

Subsequent fair value measurement to the balance sheet date of the liability component gives rise to a finance charge. In addition the embedded derivative value associated with the Convertible Loan Note is also calculated at the balance sheet date resulting in an additional finance charge and liability being recorded within the fair value of the Convertible Loan Note.

The Redeemable Loan Notes have two separate economic components as follows:

• a liability component being a discounted fixed rate debt; and

• an embedded derivative due to conversion rights being linked to the Company’s share price via a notional issue price.

Each of these components is measured to fair value at the issue date and a gain of £122,734 is deferred in respect of differences in market and coupon rates at date of issue.

Subsequent fair value measurement to the balance sheet date of the liability component gives rise to a finance charge. In addition the embedded derivative value associated with the Redeemable Loan Note is also calculated at the balance sheet date resulting in an additional finance charge and liability being recorded within the fair value of the Redeemable Loan Note.

For the year ended 31 December 2013 this additional charge for both the Redeemable and Convertible Loan Notes totalled £1,592,319.

A summary of the components of the finance costs associated with the issue of Redeemable and Convertible Loan Notes is as follows:

2013 £

2012 £

2011 £

PIK note interest measured at fair value 103,400 – –

Loan Note valuation of embedded derivatives at period end 1,592,319 – –

1,695,719 – –

In the case of the embedded derivatives in calculating their values, principal assumptions used were a share price volatility of 38%, a credit spread of 20% and a risk free rate of 2%.

36. Post balance sheet event


A fair value assessment of the acquired assets and liabilities has not yet been completed at the date of the approval of the Annual Report and Accounts and so a full disclosure of the valuation of the acquired assets and liabilities has not been made. Further details regarding the acquisition and the strategy behind the purchase are made within the Financial Review.


We have audited the Parent Company financial statements of Cyprotex PLC for the year ended 31 December 2013 which comprise the Parent Company Balance sheet and the related notes 37 to 51. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities Statement set out on page 45, the directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the Parent Company financial statements:

• give a true and fair view of the state of the Parent Company’s affairs as at 31 December 2013;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

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

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the Parent Company financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

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

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

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

Other matter

We have reported separately on the group financial statements of Cyprotex PLC for the year ended 31 December 2013.

Alastair John Richard Nuttall

(Senior statutory auditor)

for and on behalf of Ernst &Young LLP, Statutory Auditor Manchester

25 March 2014

1. The maintenance and integrity of the Cyprotex PLC web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the consolidated financial statements since they were initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of consolidated financial statements may differ from legislation in other jurisdictions.

Report of the Independent Auditor to the members of Cyprotex PLC



Parent Company Balance Sheetat 31 December 2013

Notes2013

£2012

£2011

£

Fixed assets

Investments 40 2,677,392 2,677,392 2,677,392

2,677,392 2,677,392 2,677,392

Current assets

Debtors 41 11,234,556 4,220,292 3,528,236

Cash at bank and in hand 676,065 3,373 3,374

Total current assets 11,910,621 4,223,665 3,531,610

Current liabilities

Creditors due in less than one year 42 76,879 8,577 187,784

Current assets less current liabilities 11,833,742 4,215,088 3,343,826

Total assets less current liabilities 14,511,134 6,892,480 6,021,218

Creditors due after one year 43 8,389,113 – –

Net assets 6,122,021 6,892,480 6,021,218

Capital and reserves

Called up share capital 44,45 224,341 223,687 223,687

Share premium account 46 12,217,742 12,210,140 12,210,140

Other reserve 46 929,879 765,383 704,610

Profit and loss account 46 (7,249,941) (6,306,730) (7,117,219)

Shareholders’ funds 46 6,122,021 6,892,480 6,021,218

These accounts were approved by the Board of Directors and authorised for issue on 25 March 2014.

They were signed on its behalf by:

J.K. Dootson

Director & Chief Financial Officer

Company number 4311107


37. Accounting policies

Basis of preparation

The Parent Company accounts of Cyprotex PLC have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. These Company only accounts have been prepared under UK GAAP.

No profit and loss account has been presented as permitted by section 408 of the Companies Act 2006. The loss after taxation of the Company was £943,211 (2012: profit £810,489; 2011: profit £470,171).

Investments

Investments are included at cost less provision for impairment. The cost of investments includes the cost to the Company in respect of Parent Company share options awarded to employees of subsidiaries.

Foreign currencies

The Company‘s functional currency and presentation currency is pounds sterling. Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the profit and loss account, except when hedge accounting is applied. These are taken directly to reserves until the hedged transaction affects profit or loss, at which time they are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Taxation

Current tax, including UK corporation tax, is provided at amounts expected to be recovered (or paid) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but nor reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the following exceptions:

• 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.

• Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantially enacted at the balance sheet date.

Financial instruments

The Company has taken advantage of the exemption in paragraph 2D of FRS 29 Financial Instruments: Disclosures and has not disclosed information required by that standard, as the Group‘s consolidated financial statements, in which the Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures. Financial instruments comprise cash and amounts owed by Group undertakings are valued at historic amounts less any provision for impairment and Loan Notes valued at fair value.

Financial assets

Financial assets are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired.

All financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as at fair value through profit or loss are initially recognised at fair value plus transaction costs.

Notes to the Parent Company Accounts



37. Accounting policies continued

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the profit and loss account.

Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows using the original effective interest rate.

A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Company retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Company transfers substantially all the risks and rewards of ownership of the asset, or if the Company neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. An assessment for impairment is undertaken on each financial asset at least at each year end date.


Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Company becomes a party to the contractual provisions of the instrument.

Financial liabilities categorised as at fair value through profit or loss are remeasured at each reporting date at fair value, with changes in fair value being recognised in the profit and loss account. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the profit and loss account. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the profit and loss account on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Financial liabilities are categorised as at fair value through profit or loss where they are classified as held-for-trading or designated as at fair value through profit or loss on initial recognition.

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.

Share-based payments

In accordance with FRS20, the fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Company’s estimate of when share options will eventually vest. In the case of share options granted, fair value is measured by a Black-Scholes or Monte Carlo pricing model. In determining fair value, market vesting conditions and non-vesting conditions (but not any non-market vesting conditions) are taken into account.

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the financial statements in accordance with FRS 20.

All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to the share-based payment or other reserve.

If there are performance or service conditions (‘vesting conditions’), the expense is allocated over the vesting period based on the best available estimate of the achievement or otherwise of non-market vesting conditions and of the number of equity instruments that ultimately vest. However, awards subject to a market condition or non-vesting conditions are treated as vesting, irrespective of whether or not the market condition or non-vesting condition is satisfied, provided that all the other performance and service conditions are met. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.

Notes to the Parent Company Accounts continued


Where a new award is designated as replacing a cancelled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the modified award, both measured on the date of modification. No reduction is recognised if the difference is negative.

Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

38. Staff costs

2013 £

2012 £

2011 £

Wages and salaries 58,466 47,000 47,000

Social security costs 715 2,992 3,767

59,181 49,992 50,767

The average number of employees during the year was two (2012: two; 2011: two).

Staff costs comprised amounts paid solely for the services of the Non-Executive Directors of the Group. No pension contributions have been made in either the current or previous two financial years.

Disclosure on Directors emoluments is given in the Remuneration Report on pages 41 to 44.

39. Operating (loss)/profit

Operating (loss)/profit is stated after charging:

2013 £

2012 £

2011 £

Share-based payment charge (see notes 27 and 28) – 60,773 143,100

Embedded derivative finance cost (see note 35) 1,592,319 – –

40. Investments

Cost2013

£2012

£2011

£

At 1 January 3,471,630 3,410,857 3,267,757

Additions – 60,773 143,100

At 31 December 3,471,630 3,471,630 3,410,857

Provision for impairment

At 1 January 794,238 733,465 590,365

Provision in the year – 60,773 143,100

At 31 December 794,238 794,238 733,465

Carrying value of investments

At 31 December 2,677,392 2,677,392 2,677,392




40. Investments continued

The following companies are wholly owned subsidiaries of Cyprotex PLC:

Country of Registration Holding

Proportion held by Company

Nature of business

Subsidiary undertaking

Cyprotex Discovery Limited England and Wales Ordinary shares 100% Provision of in vitro and in silico ADMET information

Cyprotex US, LLC (formerly known as Apredica, LLC)

USA Common stock 100% Provision of in vitro and in silico ADMET information

Cyprotex Research Limited England and Wales Ordinary shares 100% Dormant

Cyprotex North America, Inc USA Ordinary shares 100% Non-trading

Additions in the year include £nil (2012: £60,773; 2011: £143,100) related to potential nil-cost share options in the parent granted to Directors and employees of subsidiary undertakings (see also note 28).

Full provision has been made against the investments in Cyprotex Discovery Limited and Cyprotex North America, Inc.

41. Debtors

2013 £

2012 £

2011 £

Amount owed by Group undertakings 11,234,556 4,220,292 3,528,236

11,234,556 4,220,292 3,528,236

42. Creditors due within one year

2013 £

2012 £

2011 £

Loans from Directors – – 150,000

Accruals 76,879 8,577 37,784

76,879 8,577 187,784

Simultaneously on the acquisition of Cyprotex US, LLC (formerly known as Apredica, LLC), two Directors made loans to the Company. Repayment of these loans is as follows; £300,000 was due and was paid on 31 March 2011 and the remaining £150,000 was paid by 30 September 2012. Interest was payable on these loans at a rate of 4%.


43. Creditors due after one year

2013 £

2012 £

2011 £

Convertible Loan Notes 3,823,195 – –

Redeemable Loan Notes 2,973,599 – –

Embedded derivatives 1,592,319 – –

8,389,113 – –

The Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes (“Redeemables”) and £4 million of unsecured Convertible Loan Notes (“Convertibles”) in September 2013. By way of an Open Offer the Company issued £4 million nominal value of Convertible Loan Notes at par. Additionally it also, by way of subscription, issued £3 million nominal value of Redeemable Loan Notes at par. Details of this fundraising were sent to all shareholders by way of a circular. Both instruments pay interest in the form of ‘payment in kind’ (‘PIK’) notes at the rate of 5% per annum on a compound basis, payable on each anniversary of issue for a period of five years. Convertible Loan Notes were offered and issued such that each shareholder would be entitled to 0.01783003 of nominal value £1.00 Convertible Loan Notes. Convertible Loan Notes are convertible at 6 pence per share. Redeemable Loan Notes were issued subject to a notional conversion price of 6 pence per ordinary share. Issue costs associated with this fundraising amounted to £122,000. Net proceeds from the issue of Loan Notes amounted to £6,878,000.

The Convertible Loan Notes and associated PIK notes can be converted into ordinary shares of the Company on each anniversary date of issue for five years until the final anniversary date of issue on 30 September 2018. Subject to conversion rights being exercised by the Noteholder, Loan Notes are repayable by the Company on the earlier of:

• the Maturity Date (30 September 2018), in which event the amount to be paid by the Company in respect of the redemption of the redeemable Loan Notes will be the greater of:

i) the nominal amount of the Loan Notes and the PIK Notes: and

ii) the amount calculated by applying the average mid-market closing price of the Ordinary Shares in the 30 Business days prior to the Maturity Date to the number of shares represented by the Loan Notes on the assumption that the nominal value of the Loan Notes then in issue (including any PIK notes issued or to be issued on or immediately prior to the maturity date) had been converted into Ordinary shares at the notional Conversion price (6 pence) on the Maturity date (30 September 2018).

• the offer date where there is a change in control of the Company or a scheme of arrangement put in place.

Each of the Loan Notes is subject to a multiplier based upon the increase in share price from the conversion or nominal conversion price of 6 pence. In both cases any increase in the average mid-market closing price of Cyprotex shares from a nominal base of 6 pence in the 30 market dealing days leads to a broadly proportionate increase in the amount of potential Loan Note related debt repayable on maturity. This increase in debt, relating to share price movements of the Company, is accounted for under United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) as an additional finance cost in the profit and loss account.

The Convertible Loan Notes have three separate economic components as follows:

• liability component being a discounted fixed rate debt;

• an equity component due to the holders right to convert into shares; and

• an embedded derivative due to conversion rights being linked to the Company’s share price.


This results in recognition of £164,496 (net of associated issue costs) as an equity component and the initial recognition of the debt component.




43. Creditors due after one year continued

Subsequent measurement to the balance sheet date of the liability component gives rise to a finance charge. In addition the embedded derivative value associated with the Convertible Loan Note is also calculated at the balance sheet date resulting in an additional finance charge and liability being recorded.

The Redeemable Loan Notes have two separate economic components as follows:

• liability component being a discounted fixed rate debt; and

• an embedded derivative due to conversion rights being linked to the Company’s share price via a notional issue price.


Subsequent measurement to the balance sheet date of the liability component gives rise to a finance charge. In addition the embedded derivative value associated with the Redeemable Loan Note is also calculated at the balance sheet date resulting in an additional finance charge and liability being recorded.

For the year ended 31 December 2013 this additional charge for both the Redeemable and Convertible Loan Notes totalled £1,592,319.

In the case of the embedded derivatives in calculating their values, principal assumptions used were a share price volatility of 38%, a credit spread of 20% and a risk free rate of 2%.

44. Called up share capital

2013 Number

2012 Number

2011 Number

Authorised


Authorised £ £ £


2013 Number

2012 Number

2011 Number

Allotted, called up and fully paid


Allotted, called up and fully paid £ £ £


The Company has only one class of shares.


45. Share issues

Share issues in the three years ended 31 December 2013 may be summarised as follows:

Ordinary shares Number

Ordinary shares £


At 1 January 2013 223,687,485 223,687

Issues of shares

– employee options exercised 653,084 654

At 31 December 2013 224,340,569 224,341


At 1 January 2012 and 31 December 2012 223,687,485 223,687


At 1 January 2011 and 31 December 2011 223,687,485 223,687

46. Reconciliation of Shareholders’ funds and movements on reserves

Share capital

£

Share premium

£

Other reserve

£

Profit & loss account

£Total

£

At 1 January 2013 223,687 12,210,140 765,383 (6,306,730) 6,892,480

Equity element of Loan Note issue – – 164,496 – 164,496

Issue of share capital 654 7,602 – – 8,256

Loss for the year – – – (943,211) (943,211)

At 31 December 2013 224,341 12,217,742 929,879 (7,249,941) 6,122,021

At 1 January 2012 223,687 12,210,140 704,610 (7,117,219) 6,021,218

Share-based payment – – 60,773 – 60,773

Profit for the year – – – 810,489 810,489

At 31 December 2012 223,687 12,210,140 765,383 (6,306,730) 6,892,480

At 1 January 2011 223,687 12,210,140 561,510 (7,587,390) 5,407,947

Share-based payment – – 143,100 – 143,100

Profit for the year – – – 470,171 470,171

At 31 December 2011 223,687 12,210,140 704,610 (7,117,219) 6,021,218

The other reserve arose on the acquisition of Cyprotex Discovery Limited by the Company in January 2002, which was accounted for as a merger. Additions in the year of £164,496 relate to the equity component of Convertible Loan Notes issued in the year ended 31 December 2013 (2012: share-based payment £60,773, 2011: shared-based payment £143,100).

47. Auditor’s remuneration

The Company paid £18,600 (2012: £16,000; 2011: £13,000) to its auditors in respect of the audit of the financial statements of the Company.

Fees paid to Ernst & Young LLP and its associates for non-audit services to the Company itself are not disclosed in the individual accounts of Cyprotex PLC because group financial statements are prepared which are required to disclose such fees on a consolidated basis.




48. Related party transactions

The Company has taken advantage of the exemption in FRS 8 (amended 2009) Related Party Disclosures not to disclose related party transactions with wholly owned subsidiaries. Related party transactions by the Group are disclosed in note 30.

Amounts expensed through the Company’s profit and loss account, which were contracted on an arm’s length basis, were as follows:

2013 £

2012 £

2011 £

Non-Executive Directors fees for the services of Mr C. Mills paid to Harwood Capital LLP (fund manager connected to largest shareholder who have a combined shareholding of 29.01%) 6,617 – –

Contribution to legal fees of Harwood Capital LLP associated with Loan Note issue 12,500 – –

Non-Executive Directors fees for the services of Mr C. Clothier paid to IPGL Limited (former shareholder) 9,000 12,000 12,000

PIK interest charge (gross) on Redeemable Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (100% Loan Note holding) 44,627 – –

PIK interest charge (gross) on Convertible Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (89.9% Loan Note holding) 52,792 – –


Promissory note interest on Directors’ loans payable to Dr K. Tsaioun (Former director and former shareholder) – – 4,718

Promissory note interest on Directors’ loans payable to Mr D.C. Bates (Former director and former shareholder) – 1,533 4,718

Amounts owed to related parties at 31 December 2013 comprised:

2013 £

2012 £

2011 £

Loan due to Dr K. Tsaioun – – 75,000

Loan due to Mr D.C. Bates – – 75,000

Sub total – – 150,000

Non-Executive Directors fees for the services of Mr C. Clothier paid to IPGL Limited – 1,000 –

Non-Executive Directors fees for the services of Mr C. Mills paid to Harwood Capital LLP 3,780 – –

PIK interest charge (net) on Redeemable Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (100% Loan Note holding) 42,234 – –

PIK interest charge (net) on Convertible Loan Notes issued at fair value held by Trident Private Equity Fund III LP managed by Harwood Capital LLP (89.9% Loan Note holding) 35,702 – –


Promissory note interest on Directors’ loans payable to Dr K. Tsaioun – – 8,392

Promissory note interest on Directors’ loans payable to Mr D.C. Bates – – 8,392

Total 1,611,289 1,000 166,784

Simultaneously on the acquisition of Apredica LLC, two Directors each made loans of £225,000 to the Group. Repayment terms on these loans were as follows; £300,000 was due on 31 March 2011 (and was paid on that date) and the remaining £150,000 was paid by 30 September 2012. Interest was payable on these loans at a rate of 4%.

Director’s fees due and payable for the services of Mr C. Clothier are paid direct to his principal employer IPGL Limited.

Director’s fees due and payable for the services of Mr C. Mills are paid direct to his principal employer Harwood Capital LLP.

Further information on the issue of Loan Notes by the Company can be found in note 35.


49. Share options

Share options issued and those vested at 31 December 2013 are as follows:

Issue Note

At 1 January 2013

NumberExercised

Number

31 December 2013

NumberDate

granted

Exercise price

PenceEarliest date

of exerciseDate of expiry

450,000 (450,000) – 13-05-03 1.13 13-05-05 31-05-13

175,000 (175,000) – 15-05-03 1.13 21-08-04 21-04-13

i a, b, c 1,012,038 (28,084) 983,954 04-06-04 4.25 04-06-06 30-06-14

ii b 450,000 – 450,000 8&9-09-04 11.0 8&9-09-06 7&8-09-14

iii a, b, c 1,236,701 – 1,236,701 25-05-06 4.25 25-05-08 25-05-16

iv a 250,000 – 250,000 01-08-06 8.25 01-08-08 01-08-16

3,573,739 (653,084) 2,920,655

Total VestedNot

vested

At 31 December 2013 2,920,655 2,920,655 –

At 31 December 2012 3,573,739 3,573,739 –

Vesting dates vary and are dependent upon date of issues, full details are given below.

Notes

a) Exercisable as follows:

– 50% on second anniversary

– 2.085% each subsequent month for 22 months

– remainder one month later

b) ‘EMI’ – Enterprise Management Incentives

c) Share price rebased on 7 October 2009 at nil cost to the income statement.

Share price information is set out below:2013

pence2012

pence2011

pence

At 31 December 7.63 3.75 4.00

High in year 7.75 6.50 5.38

Low in year 3.38 3.38 2.88

i) 983,954 options now remain of 3,925,622 which were granted to a number of employees of the Company on 4 June 2004. Each of the options may be exercised as follows: 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 11p per share. The options are conditional on the option holder remaining an employee of the Company at the relevant date(s) of the exercise of the options. On 7 October 2009, these options were surrendered and substituted for a revised entitlement at a rate of 56.17% at a price of 4.25p.

ii) Options totalling 450,000 were granted to now former Non-Executive Directors on 8 and 9 September 2004. Each of the options may be exercised on or after the second anniversary of the date of grant at 11.0p per share. The options have no other conditions of exercise attached to them.

iii) 1,236,701 options remain of 2,050,000 which were granted to a number of employees of the Company on 25 May 2006. Each of the options may be exercised as follows: 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 8.25p per share. The options are conditional on the option holder remaining an employee of the Company at the relevant date(s) of the exercise of the options. On 7 October 2009, these options were surrendered and substituted for a revised entitlement at a rate of 72.75% at a price of 4.25p.

iv) Options totalling 250,000 were granted to a US-based consultant of the Company on 1 August 2006. Each of the options may be exercised 50% on or after the second anniversary of the date of grant; 2.085% each month thereafter for 22 months; and a final tranche for the balance at 8.25p.




50. Share-based payments – share options

The Group has a share option scheme for all UK employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the date of grant. Vesting periods vary with each grant and details are given in note 26 and in the tables below. If the option remains unexercised after a period of ten years from the date of grant the option expires. Generally, options to employees are forfeited if an employee leaves the Group before the options vest, the only exception being 450,000 options awarded to former Non-Executive Directors.

All awards are equity settled.

Details of the share options outstanding during the year are as follows:

Number of share options2013

Number2012

Number2011

Number

Outstanding at beginning of the year 3,573,739 3,573,739 3,573,739

Granted – – –


Exercised (653,084) – –

Expired – – –

Outstanding at the end of the year 2,920,655 3,573,739 3,573,739

Exercisable at year end 2,920,655 3,573,739 3,573,739

All at weighted average exercise price2013

pence2012

pence2011

pence

Outstanding at beginning of the year 4.83 4.83 4.83

Granted – – –


Exercised 1.26 – –

At date of exercise – – –

Expired – – –

Outstanding at the end of the year 5.63 4.83 4.83

Exercisable at year end 5.63 4.83 4.83

years years years

Weighted average contractual life of remaining vested option 1.53 2.08 3.08

Historically, Cyprotex’s share price has been volatile. Accordingly Black-Scholes inputs are taken from an appropriate basket of peer group companies and are set out below:

Inputs into Black-Scholes model 2013 2012 2011

Weighted average share price 6.97 pence 6.97 pence 6.97 pence

Weighted average exercise price 4.24 pence 4.24 pence 4.24 pence



Risk-free rate 5.25% 5.25% 5.25%


Charge recognised relating to equity settled share-based payments £nil £nil £nil


51. Share-based payments – Value Creation Plan (‘VCP’)

The Group adopted a Value Creation Plan (‘VCP’) on 7 October 2009. The purpose is to allow participants a certain percentage of value created in excess of an annual hurdle rate, as calculated at the end of a four-year performance period. Participants to this scheme are key management of the Group including Executive Directors. The award is by way of nil-cost share options and is calculated at 15% of any excess value over a compound 25% per annum growth rate in the market value of the Company on a cumulative basis.

Criteria

Initial share price on 3 June 2008 3.32 pence

Share price at date of grant on 7 October 2009 4.375 pence

Annual growth rate – hurdle 25%

Projected payout in excess of annual growth rate 15%

Measurement date 3 June 2012

Target share price 8.105 pence

The initial share price was the price on the day Dr A.D. Baxter joined as CEO of the Company which was on 3 June 2008.

The share price would have to exceed the above target amounts before any award would become payable on that date. In order to calculate the fair value of potential awards a Monte Carlo simulation model was used. The principal inputs to this valuation model were as follows:

2013 2012 2011

Inputs into valuation model

Opening share price 4.35 pence 4.35 pence 4.35 pence

Exercise price nil pence nil pence nil pence



Risk-free rate 2.35% 2.35% 2.35%


Charge recognised relating to equity settled share-based payments £nil £60,773 £143,100

The Value Creation Plan ended in the year to 31 December 2012 with no awards being made to participants under the Plan.

104

Company Information

Cyprotex PLC I Company Information

Notice of AGM

Shareholder Information

Notice is hereby given that the Annual General Meeting of Cyprotex PLC (the ‘Company’) is scheduled to be held at 10:00am on Thursday, 24 July at the offices of N+1 Singer Advisory LLP, One Bartholomew Lane, London EC2N 2AX. Full details of resolutions are set out in a separate document which accompanies this Annual Report & Accounts.

Financial Information

The trading results of the Group are normally published at the following times:

• Interim results for the six months to 30 June in August

• Final results for the year to 31 December in March


The Annual General Meeting is scheduled to be held at 10:00am on Thursday, 24 July at the offices of N+1 Singer Advisory LLP, One Bartholomew Lane, London EC2N 2AX.


The Company’s share price is available from the website of the London Stock Exchange under CRX.

Company Website – www.cyprotex.com

The Company’s website provides information on products, activities and financial information. It includes the latest financial information, press releases, and any other information relevant to the Company.

Shareholder Enquiries

Any queries regarding individual shareholdings, transfers, etc. should be directed to Capita Registrars.

Shareholders wishing to consolidate two or more individual certificates may do so by writing to Capita Registrars at the address given below, enclosing the certificates to be consolidated.

Where shareholders are receiving duplicate sets of accounts or mailings, as a result of inconsistencies in name or address details, they should advise the registrars so that this can be corrected.

Other enquiries regarding the Group should be directed to the Company Secretary.

Capita Share Dealing Facility for Existing Shareholders

Capita takes care of the share register for Cyprotex PLC. If you want to sell your shares in the Company or purchase more, Capita provides this service. This low-cost dealing service is available both online and by telephone via www.capitadeal.com or tel: 0871 664 0364 (calls cost 10p per minute plus network charges. Lines are open, 8.30am – 5.30pm, Monday to Friday).

Contents

View us online: www.cyprotex.com

Cyprotex founded as a division of

Medeval

Cyprotex listed on AIM market of the London

Stock Exchange

The Story so Far

Launch of Cloe® PK “virtual human”

predictive software

Launch of high throughput ADME

screening platform at our UK facility

Apr 1999

Feb 2002

Jun 2003

Jul 2003

Jan-Dec 2008

Cyprotex announce first year of profitability

Business OverviewHighlights 1

Business Model 2

ReviewChairman and Chief Executive Officer’s Report 4

Market Overview 8

Our Strategy 12

Operational Review: ADME-Tox 14

Financial Review 20

GovernanceBoard of Directors 30

Strategic Report 32

Directors’ Report 35

Directors’ Remuneration Report 41

Directors’ Responsibilities Statement 45

Financial StatementsReport of the Independent Auditor 46

Consolidated Financial Statements 47

Notes to the Consolidated Financial Statements 51

Report of the Independent Auditor (Company) 91

Parent Company Balance Sheet 92

Notes to the Parent Company Accounts 93

Company InformationNotice of AGM 104

Shareholder Information 104

Directors and Advisors 105

Directors

Anthony Baxter (Chief Executive Officer) John Dootson (Chief Financial Officer) Ian Johnson (Non-Executive Director and Chairman) Christopher Mills (Non-Executive Director) Steve Harris (Non-Executive Director)

Secretary

Mark C. Warburton

Auditor

Ernst & Young LLP 100 Barbirolli Square Manchester M2 3EY

Registrars

Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA

Company Number

4311107

Nominated Advisors

N+1 Singer One Bartholomew Lane London EC2N 2AX

Registered Office

100 Barbirolli Square Manchester M2 3AB

Directors and Advisors

www.accruefulton.com

Designed and produced by

Cyprotex PLC I Company Information 105

Enhance Develop Grow

Annual Report & Accounts 2013

Annual R

eport & A

ccounts 2013

United Kingdom (Headquarters)

15 Beech Lane,Macclesfield,CheshireSK10 2DRUnited Kingdom

United States

313 Pleasant St.,Watertown,MassachusettsMA 02472USA

enhance develop grow - cyprotex annual...enhance develop grow annual report & accounts 2013...

Documents